A PROJECT REPORT ON

A STUDY ON FINANCIAL PERFORMANCE: A COMPARATIVE

ANALYSIS OF PRIVATE SECTOR BANKS & PUBLIC SECTOR
BANKS.

SUBMITTED BY

Ms. EKTA RAMCHANDRA CHOPDEKAR

BAF Semester VI

Project Submitted To “University Of Mumbai”

In Partial Fulfilment for the
Award of Graduation Degree in B.Com (Accounting & Finance)

UNDER THE GUIDANCE OF

DR. MAMTA RANE

GURUKUL COLLEGE OF COMMERCE

AFFILIATED TO UNIVERSITY OF MUMBAI
ISO Certified: 21001/14001/50001
GHATKOPAR (E), MUMBAI- 400077
2022-23

Page 1 of 73
 DECLARATION

I, Ms. EKTA RAMCHANDRA CHOPDEKAR student of B.Com

(Accounting & Finance) Semester VI (April 2023) of GURUKUL
COLLEGE OF COMMERCE, MUMBAI-400077 to hereby declare
that I have completed the project work titled “A Study on Financial
Performance : A Comparative Analysis of Private Sector Banks &
Public Sector Banks ” as a part of academic fulfilment.

THE INFORMATION CONTENT IN THIS PROJECT WORK IS TRUE AND

ORIGINAL TO THE BEST OF MY KNOWLEDGE AND BELIEF.

SIGNATURE OF
Ms. Ekta Chopdekar

Page 2 of 73
 ACKNOWLEGEMENT

Firstly, I wish to express my sincere and heartfelt thanks to my Project Guide DR.
MAMTA RANE, for her distinctive guidance and encouragement throughout the
project work.

I also take this opportunity to express my deep sense of gratitude to our Principal,
DR. NANDITA ROY, B.Com (Accounting & Finance) Co-ordinator Dr. Kripa
Thakkar and our college Librarian for their continuous support to complete this
project.

Lastly, I wish to express my heartfelt gratitude to my beloved parents And to all my

friends for their encouragement and support in Completing this project work.

Above all I thank Lord Almighty for abundant mercies and infinite Grace which
showed upon me to complete the project work.

SIGNATURE OF
Ms. Ekta Chopdekar

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 CERTIFICATE

This is to certify that Ms. Ekta Ramchandra Chopdekar the

student of GURUKUL COLLEGE OF COMMERCE
Studying in B.Com (Accounting & Finance) Semester VI, ROLL
NO. 5 has successfully completed the project entitled “A Study
on Financial Performance : A Comparative Analysis of Private
Sector Banks & Public Sector Banks” as a part of assignment
under my supervision during the academic year 2022-2023

PRINCIPAL EXTERNAL
GUIDE
DR. NANDITA ROY

COORDINATOR INTERNAL
GUIDE DR. MAMTA RANE
DR. KRIPA THAKKAR (BAF)

Page 4 of 73
 CONTENT OF TABLE

CHAPTER CHAPTER NAME PAGE NO.

NO.

1 INTRODUCTION

2 REVIEW OF LITERATURE

3 RESEARCH METHODOLOGY

4 DATA ANALYSIS

5 FINDINGS & SUGGESTION

6 CONCLUSION

BIBLOGRAPHY

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 LIST OF TABLES

TABLE TITLE PAGE

NO. NO.
1.1 Banks Under Study 10
1.2 Financial Ratios 13
4.1 Operating Cash Flow Ratio 53
4.2 Current Ratio 54
4.3 Quick Ratio 55
4.4 Debt- Equity Ratio 56
4.5 Price Earnings Ratio 57
4.6 Fixed Asset Turnover 58
4.7 Operating Profit Ratio 59
4.8 Return on Capital Employed 60
4.9 Net Profit Ratio 61
4.10 Earnings Per Share 62
4.11 CAMEL Model 63

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 LIST OF FIGURES

FIGURE TITLE PAGE

NO. NO.
1.1 Banking System 9
1.2 Financial Performance 12
1.3 Roles Played by Public Sector 23
1.4 Roles Played by Private Sector 28
1.5 Advantages of Public Sector Banks 32
1.6 Disadvantages of Public Sector Banks 34
1.7 Advantages of Private Sector Banks 36
1.8 Disadvantages of Private Sector Banks 38
4.1 Operating Cash Flow 53
4.2 Current Ratio 54
4.3 Quick Ratio 55
4.4 Debt- Equity Ratio 56
4.5 Price Earnings Ratio 57
4.6 Fixed Asset Turnover 58
4.7 Operating Profit Ratio 59
4.8 Return on Capital Employed 60
4.9 Net Profit Ratio 61
4.10 Earnings Per Share 62

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CHAPTER 1
INTRODUCTION

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1.1. Banking Industry: An Overview.
An efficient banking system is a basic requirement for the economic development of
any economy. The banking system plays a very important role in the economy of a
country. It stands as a backbone to a nation’s economy as it helps society with its
credit needs. Banks diversify the deposits of the customers efficiently into various
productive channels. The banking system is a huge network of branches, serving
various kinds of financial and support services to the general public. Indian GDP is
growing at a rate of 8% every year. The powerful banking industry has a great effect
on such economic growth of the country.

1.2. Structure of Indian Banking Industry.

All banks which are included in the second schedule of the Reserve Bank of India
Act, 1934 are scheduled banks. These banks comprise scheduled commercial banks
and scheduled co-operative banks. Scheduled commercial banks in India are
categorized into five different groups according to their ownership and/or nature of
operation.

Banking System

Scheduled Banks Non-Scheduled Banks

Scheduled Commercial Scheduled Co-Operative

Banks Banks

Public Sector Private Sector Foreign Bank Regional

Banks Banks Rural Bank

Nationalized State Bank of India Old Private New Private

Banks & its Associates Sector Bank Sector Bank

Figure 1.1 Banking System

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1.3. Major players in the banking industry.
In order to analyse the financial performance in the banking industry, the six banks
are taken into consideration:

SL. NO BANKING COMPANY SECTOR

1. HDFC Bank

2. ICICI Bank Private

3. AXIS Bank

4. State Bank of India

5. Punjab National Bank Public

6. Bank of Maharashtra

Table 1.1 Banks under study

HDFC Bank

It is an Indian banking and financial services company headquartered in Mumbai,

Maharashtra. It was established in 1994. As of September 2019, the company
employs 111,208 people. HDFC Bank is the largest asset lender in the private sector
in India. As of February 2016, it is India's largest bank in terms of market
capitalisation. In 2019, it was the 60th most precious global brand in the BrandZ Top
100.

ICICI Bank

It is headquartered in Mumbai in Maharashtra and its registered office in Vadodara,

Gujarat, it is Indian multinational banking and financial services company.
Established in 1994. In terms of market capitalisation, ICICI is the second-largest
bank since 2018. The Centre is a global leader in investment banking, life, non-life
insurance & risk capital, as well as asset management, with a wide range of bank
products and financial services for business and retail customers.

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Axis Bank

The fifth largest bank in India offers a wide range of financial products. In Mumbai,
Maharashtra, the bank has its headquarters. Established in 1993. As of March 2019 it
contains 4 050 stores, 11 801 ATMs and 4 917 cash recyclers and 9 international
offices. The bank employs more than 55,000 employees and had € 1.31 trillion
(USD18 trillion) market capitalization (as of 31 March 2018). It provides financial
services for small and medium-sized companies, small and medium-sized enterprises
and retail companies.

State Bank of India

SBI is an Indian multinational, public sector banking and financial services statutory
body. The company's headquarters in Mumbai, Maharashtra and is a government-run
corporation. Established as SBI in 1955. It is 236th in the Fortune Global 500 ranking
of the largest corporations in the world in 2019. In addition to a share of one quarter
of the total loan and deposit market, this bank has a 23% asset market share in India.

Punjab National Bank

PNB is a banking and financial service bank owned by Government of India. Its
headquartered in New Delhi, India. The bank was founded in the year 1894. As of
June 2019, the bank has over 115 million customers, 7,036 branches and 8,906
ATMs.

Bank of Maharashtra.

BoM is one of India's major public sector bank. 87.74% of the shares are held by the
government of India. The bank is headquartered in Maharashtra. Established in 1935.
As of 5 April 2016, the company had 15 million national customers and 1,897
branches. It had the largest branch network in any Maharashtra state public sector
bank.

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1.4. Financial Performance.

Financial performance is an example of how a business can make the best use of its
assets and produce profits. The concept is used to assess the overall financial
performance of a business for a certain period of time as well. The financial
performance analysis identifies the financial strengths and weaknesses of the
company by related balance sheet items to the profit and loss account.

1.5. Types of Financial Performance Analysis.

Financial performance analysis can be classified into different categories on the basis
of material used and modes are as follows:

Financial
Analysis

Material Modus
Used Opernadi

External Internal Horizontal Vertical

Analysis Analysis Analysis Analysis

Figure 1.2 Financial Performance

The financial statements are compared and evaluated in order to assess the financial
performance of the six Indian banking institutions. Managers use financial statement
to communicate the financial condition of their organization to external parties by
primary means of communication.

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One of the main purposes of this analysis is to compare their financial performance
with financial ratios as well as to analysis using the CAMEL model.

The Financial Ratio analysis is a static method which studies the relationship between
the various items in the financial statements and helps in evaluating the company’s
operating and financial performance such as liquidity, leverage, efficiency and
profitability. The financial ratios that are taken into the study are mentioned below.

SL. NO FINANCIAL RATIOS

1. Operating Cash-flow Ratio
2. Current Ratio
3. Quick Ratio
4. Debt Equity Ratio
5. Return on Capital Employed
6. Fixed Asset Turnover Ratio
7. Operating Profit Margin Ratio
8. Net Profit Ratio
9. P/E Ratio
10. EPS
Table 1.2 Financial Ratios

Operating Cash-flow Ratio

It measures how well the current liabilities can be covered by the cash flows
generated from the company’s operations. In simple, the ratio can identify a
company’s liquidity.

Operating CF Ratio =Cash Flow from Operations/Current Liabilities

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Current ratio

It is the most commonly used to perform the short – term financial analysis. It is also
known as the working capital ratio. It is the most frequently used ratio, as it
determines the ability of an enterprise to pay all its short - term liabilities by
liquidizing the resources of current assets. It is considered as an indicator of a firm’s
ability to meet its short – term liabilities.

Current ratio = Current Assets / Current Liabilities

Quick ratio

This ratio is also known as acid test ratio or liquid ratio. This ratio is the most rigorous
test of liquidity of the company than current ratio as it shows the ability of a business
to meet its immediate financial commitments.

Quick ratio = Quick Assets / Quick Liabilities

Quick Assets = Current assets – Inventory – Prepaid expenses
Quick Liabilities = Current Liabilities – Bank Overdraft

Inventory is least liquid element. To obtain the liquidity measure of the assets which
are easy to sell, we separate them from current ratio.

Debt - Equity Ratio

It measures the relationship between long-term debt and equity. Capital Structure with
less debt and more equity is considered to be more favourable as it reduces the
chances of bankruptcy. This ratio measures the degree of indebtedness of an
enterprise and gives idea to the long - term lenders regarding the extent of security of
the debt.

Debt - Equity Ratio = Total Liabilities / Shareholder’s fund

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Return on Capital Employed

This is one of the most important tests of profitability of a business. This ratio
measures the success of a business in generating profit from the capital invested. This
ratio is important when comparing the performance of companies in capital intensive
sectors, because ROCE considers debt and other liabilities as well.

ROCE = Operating Profit / Capital employed

Fixed Asset Turnover Ratio

This ratio measures the efficiency of a company with which the firm is utilizing the
investment in fixed assets such as plant and machinery, land and building, etc. in
order to generate Net Sales Revenue. The higher fixed asset turnover ratio indicates
the more efficient utilization of fixed assets in generating sales revenue. The low ratio
signifies the excessive investment in fixed assets.

Fixed Asset Turnover Ratio = Net Sales / Fixed Assets

Operating Profit Ratio

With the help of this ratio, a company can determine how much profit it makes after
paying for various variable costs such as raw materials, wages and so on. The
efficiency of the company is expressed through this ratio as to how it has controlled
the costs and expenses associated with the business operations. This ratio is expressed
as a percentage of sales.

Operating Profit Margin Ratio = (Operating Profit / Net Sales) *100

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Net Profit Ratio

The Net Profit ratio helps in evaluating the profitability of the business from its
primary operations. This is calculated by deducting all the non-operating revenues and
expenses. It is also expressed as a percentage of sales.

Net Profit Ratio = (Net Profit / Net Sales) * 100

Earnings Per Share

EPS is a market value ratio which measures the profitability of a business on a per
share basis within the market. This ratio evaluates the progress of shareholder’s
investments.

EPS = Net Profit / No. of Shares

P/E Ratio

It is also known as Price Multiple or the Earnings Multiple. This is a ratio used for
valuing a company that shows a relation between its current share price and its per-
share earnings (EPS).

P/E Ratio=Market value per share/Earnings per share

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1.6. Differentiate between Public Sector & Private Sector Banks.

Meaning

• PUBLIC SECTOR: Public Sector are those banks which is held by the
Government Authorities.

• PRIVATE SECTOR: Private Sector are those banks which is held by the
private corporations and individuals.

Number of Banks

• PUBLIC SECTOR: In present there are 12 public sector banks in India. For
example: State Bank of India, Bank of Baroda etc.

• PRIVATE SECTOR: In present there are 22 public sector banks in India. For
example: HDFC Bank, Indusland Bank etc.

Capacity

• PUBLIC SECTOR: Minimum number of persons is 7 and there is no limit in

these sector banks.

• PRIVATE SECTOR: Minimum number of persons is 2 and there is no limit in

these sector banks

Interest Rate

• PUBLIC SECTOR: Interest rate in public sector banks is usually high as

compared to private sector banks. State Bank of India is one of the largest
public sector banks in the country with starting interest rate of 5.75%

• PRIVATE SECTOR: Interest rate in private sector banks is comparatively

lower to public sector banks.

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Registration

• PUBLIC SECTOR: Public sector banks are registered under Companies Act,
1956. These banks are formed by passing acts in the parliament.

• PRIVATE SECTOR: Private sector banks are registered under Companies

Act, 1956.RBI issues rules, regulations, directions and guidelines.

Ownership

• PUBLIC SECTOR: Public sector banks are owned and controlled by the
Government authorities. It is a bank in which Government holds a major
portion of the shares.

• PRIVATE SECTOR: Private sector banks are owned and controlled by the
private corporations and individuals. It is a bank in which private firms and
individuals hold major portion of the shares.

Organizational Structure

• PUBLIC SECTOR: In Public sector banks more than 50% of the shareholder’s
stake lies with the central government or state government. It refers to all the
organizations which are accountable to central or state government.

• PRIVATE SECTOR: In Private sector banks majority of the shareholder’s

stake is held by private corporations and individuals.

Raising Capital

• PUBLIC SECTOR: Public sector banks are struggling to raise capital funds
compared to private sector banks. The reason behind this is drop of Capital
Adequacy Ratio. They are also struggling due to government shareholding.

• PRIVATE SECTOR: Private sector banks are having better capital funds
compared to public sector banks which will generate capital.

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Capital Adequacy Ratio

• PUBLIC SECTOR: The growth of Capital Adequacy ratio is low as compared

to private sector banks. The capital adequacy ratio of State Bank of India is
13.6%

• PRIVATE SECTOR: The growth of Capital Adequacy ratio is relatively

higher in private sector banks. The capital adequacy ratio of HDFC bank is
19.1%

Foreign Direct Investment

• PUBLIC SECTOR: 20% of Foreign Direct Investment is allowed in the public

sector banks.

• PRIVATE SECTOR: More than 70% of Foreign Direct Investment is allowed

in private sector banks.

Opportunities

• PUBLIC SECTOR: Public sector banks offer less opportunities as compared

to private sector banks.

• PRIVATE SECTOR: More job opportunities compared to public sector banks.

Different and end number of positions are available in all private sector banks.

Services

• PUBLIC SECTOR: Public Sector Banks needs to improve on their services.

They should explore more in mobile payment options. Also, they should
upgrade their technology by using biometrics and eye scanning to increase
their security.

• PRIVATE SECTOR: Private Sector Banks provides better services as

compared to public sector. Private banks are trying their level best to build

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 trust. With every single day their technology is also getting advance and they
also tighten their security system.

Customer satisfaction

• PUBLIC SECTOR: Most of the people prefers public sector banks because
they are trustworthy and also have high customer base. Customer satisfaction
is a very important element.

• PRIVATE SECTOR: Private sector banks has given more priority to inbuilt
technology rather than satisfaction of the customers. But last 2 years they had
been improving and gaining trust from the customers by giving advisory
services.

Invention

• PUBLIC SECTOR: Public sector banks are lagging behind in the process of
invention. But as of today, they are improving in digital technology and
development of mobile banking system.

• PRIVATE SECTOR: As mentioned above Private sector banks are increasing

their technology by inventing new features in digital platform. Customers have
started expecting and are more engage in mobile banking as well as net
banking.

Promotion

• PUBLIC SECTOR: Promotion in public sector banks is based on seniority. On

the basis of work experience and years they have given to bank promotion is
given. Transfers are also one way of getting promoted. Most of the
Government banks transfers employees once they are promoted.

• PRIVATE SECTOR: Promotion in private sector banks is on the basis of

merit and employee’s performance. If the employee’s performance is absolute

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 and outstanding then promotion is given. If the work is done well then one can
expect rise in salary too.

Pension

• PUBLIC SECTOR: Pension is included in public sector banks. After

retirement public sector employees get comprehensive pension benefit. But
still around 2 lakhs employees who are under the provident fund do not enjoy
pension benefits. Some employees often get late pension due to which they
have suffer the inconvenience.

• PRIVATE SECTOR: Pension is not included in private sector banks. This is a

major disadvantage in this sector.

Job Security

• PUBLIC SECTOR: Public sector banks provides 100% job security. Working
in public sector banks is the most secure and safe job. In public sector banks
the matter of job security is always higher and they even offer additional
benefits and incentives which highly motivates the employees.

• PRIVATE SECTOR: In private sector banks job security is based on their

performance. They provide a highly competitive environment which makes
the chances of their job security. Highly competitive world risks the security
of the job.

Environment

• PUBLIC SECTOR: There is no competitive environment in public sector

banks. Public sector banks provide conducive environment through managing
accounting and taxes. Public sector banks play an important role in banking
system. There is also discipline maintained in this type of banks.

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 • PRIVATE SECTOR: They provide a highly competitive environment which
makes the chances of their job security. Highly competitive world risks the
security of the job. Seniors also notices and analyses the social and
environmental performance of the employees.

Working Hours

• PUBLIC SECTOR: Working hours is fixed and accurate in public sector

banks. There are no changes in timings in office in public sector banks. And if
the work is pending the employees can continue their rest of the work in next
day. The timings of government Banks are usually 9 am to 5 pm.

• PRIVATE SECTOR: Working hours is not fixed and accurate in the case of
private sector banks. There are always high chances of changes in timings of
office in this type of banks. If the work is pending then worker can continue
with their work after their working hours. Working hours are typically longer
than usual. This may affect the health of an individual.

Rewards & Incentives

• PUBLIC SECTOR: Public sector banks usually does not offer number of
rewards and incentives based on their merit and performance. Mostly
incentives or rewards are in the form of transfers which leads to promotion.

• PRIVATE SECTOR: Private sector banks usually offer number of rewards

and incentives based on their performance and merit. This motivates and
encourages a lot of employees to work which leads to a healthy environment.

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1.7. Roles Played by Public Sector in Indian Economy
There are nine critical roles that is played by the public sector banks in the Indian
economy and they are as below.

Generation of Income

Capital Formation

Employment

Infrastructure

Strong Industrial Base

Export Promotion & Import Substitution

Contribution to Central Exchequer

Checking Concentration of Income & Wealth

Removal of Regional Disparities

Figure 1.3 Roles Played by Public Sector

Generation of Income

Public sector in India has been playing a positive part in producing pay within the
economy. The share of public sector in net household item (NDP) at current costs has
expanded from 7.5 per cent in 1950-51 to 21.7 per cent in 2003-04. Once more the
share of public sector undertakings as it were (barring public administration and

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defence) in NDP was moreover expanded from 3.5 per cent in 1950-51 to 11.12 per
cent in 2005-06.

Capital Formation

Public sector has been playing an imperative part within the gross domestic capital
formation of the nation. The share of public sector in gross domestic capital formation
has expanded from 3.5 per cent amid the first Plan to 9.2 per cent amid the Eighth
Plan.

The comparative shares of public sector within the gross capital formation of the
nation too recorded a alter from 33.67 per cent during the first Plan to 50 per cent
amid the, 6th Plan and after that declined to 21.9 per cent in 2005- 06.

But the Public sector isn't playing a critical part in regard of mobilization of reserve
funds. The share of public sector in gross domestic savings expanded from 1.7 per
cent of GNP amid 1951-56 to as it were 3.6 per cent amid 1980-85. Amid 1980s, the
share of public sector in gross domestic savings declined from 16.2 per cent in 1980-
81 to 7.7 per cent in 1988-89.

In this association Narottam Shah watched, “The failure of the public sector
contributes as it were 21 per cent of the nation’s savings; that moreover in portion,
through heavy tax assessment and semi-fictitious benefits of the Reserve Bank. The
remaining 79 per cent of the nation’s reserve funds came from the private sector.”
Once more the share of public sector in gross domestic savings expanded from 4.78
per cent in 1990-91 to 6.61 per cent in 2005-06.

Employment

Public sector is playing an vital part in creating employment within the nation. They
are of two categories and they are as follows:

• Public sector employment in government administration, defence and other

government services.

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 • Employment in public sector economic ventures of both Centre, State and
Local bodies. In 1971, the public sector offered business openings to around
11 million people but in 2003 their number rose to 18.6 million appearing
almost 69 per cent increment amid this period.
Once more in 2003, the public sector offered employment opportunities to
18.6 million people which was 69 per cent of the entire work produced within
the nation as compared to 71 per cent business created in Page 38 of 89 1991.
Be that as it may, there's significant decay within the yearly development rate
of employment within the public sector from 1.53 per cent amid 1983-1994 to
0.80 per cent amid 1994- 2004.
Moreover, around 69.0 per cent of the whole employments are produced
within the public sector. Additionally, at the end of March 2004, almost 51.7
per cent of the entire work (i.e. approximately 96 lakh) produced in public
sector is from Government organization, community, social and individual
administrations and the remaining 48.3 per cent (i.e., about 89.7 lakh) of the
work in public sector is created by economic ventures run by the Centre, State
and Local Governments.
The maximum number of employments is determined from transport, storage
and communications (28.1 lakh). The public sector manufacturing is another
industry which created employment to the extent of 11.1 lakh people.

Infrastructure

Without the advancement of infrastructural facilities, economic development is

incomprehensible. Public sector speculation on infrastructure division like power,
transportation, communication, fundamental and heavy industries, irrigation,
education and specialized training etc. has cleared the way for rural and industrial
improvement of the nation driving to the overall advancement of the economy as a
whole. Private sector speculations are too depending on these infrastructural facilities
created by the public sector of the nation.

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Strong Industrial Base

Another vital part of the public sector is that it has effectively build the solid
industrial base within the nation. The industrial base of the economy is presently
impressively fortified with the advancement of public sector areas like: iron and steel,
coal, heavy designing, heavy electrical machinery, petroleum and natural gas,
fertilizers, chemicals, drugs etc.

The advancement of private sector industries is additionally exclusively depending on

these industries. In Page 39 of 89 this way by creating a strong industrial base, the
public sector has developed a appropriate base for rapid industrialization within the
nation.

Additionally, public sector has moreover been ruling in basic areas such as petroleum
items, coal, copper, lead, hydro and steam turbines etc.

Export Promotion & Import Substitution

Public sector enterprises have been contributing a part for the advancement of India’s
exports. The foreign trade gaining of the public endeavours rose from Rs. 35 Crore in
1965-66 to Rs. 5,831 Crore in 1984-85 and after that to Rs. 34,893 Crore in 2003- 04.
In this way, the trade performance of the public sector undertakings in India is very
satisfactory. The public sector enterprises which played an vital part in this regard
include—Hindustan Steel Limited, Hindustan.

Machine Tools (HMT) Constrained, Bharat Electronics Ltd., State Trading

Corporation (STC) and Metals and Minerals Trading Corporation. Some public sector
undertakings have appeared creditable records in accomplishing consequence
substitution and in this manner spared valuable foreign trade of the nation. In this
respect specify may be made of Bharat Heavy Electricals Limited (BHEL), Bharat
Electronics Ltd., Indian Oil Corporations, Oil and Natural Gas Commission (ONGC).
Hindustan Antibiotics Ltd. (HAL) etc. which have cleared a effective way to import
substitution in the country.

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Contribution to Central Exchequer

The public sector undertakings are contributing a great sum of resources to the central
exchequer routinely within the frame of dividend, excise duty, custom obligation,
corporate charges etc. Amid the 6th Arrange, the contribution of public enterprises to
the central exchequer was to the tune of Rs. 27,570 Crore.

Again this contribution has expanded from Rs. 7,610 Crore in 1980-81 to Rs. 18,264
Crore in 1989-90 and after that to Rs. 85,445 Crore in 2003-04. Out of this add up to
contribution, the sum of profit contributed as it were 2 to 3 per cent of it.

Checking Concentration of Income & Wealth

Expansion of public sector undertakings in India has been effectively checking the
concentration of economic power into the hands of a number of and hence are
changing the issue of disparities of salary and-wealth of the economy.

The public sector can diminish this issue of disparities through redirection of benefits
for the welfare of the poor people, undertaking measures for work welfare
additionally by creating commodities for mass utilization.

Removal of Regional Disparities

From the very beginning industrial advancement in India was exceptionally much
skewed towards certain enormous port cities like Mumbai, Kolkata and Chennai.

In arrange to remove territorial incongruities, the public sector attempted to scatter

different units towards the backward states like Bihar, Orissa, and Madhya Pradesh.
In this way, considering all these previous angles it can be watched that in-spite of
appearing destitute execution, the public sector is playing dominant part in all-round
advancement of the economy of the nation.

Page 27 of 73
1.8. Roles Played by Private Sector in Indian Economy

There are seven critical roles that is played by the private sector banks in the Indian
economy and they are as below:

Industrial Development

Agriculture

Trading

Infrastructure

Services Sector

Role in Indian Economy

Small Scale & Cottage Industry

Figure 1.4: Roles Played by Private Sector

Industrial Development

During the pre-independence period, the non-public sector i.e. the private sector has
performed an accountable position in Indian financial system in which its installation
and elevated cotton and jute textiles, sugar, paper, safe to eat oil, tea etc. After
independence, the countrywide authorities gave enough pressure on industrialization.

The personal region additionally made a critical try and make investments on
industries generating huge variety of intermediate merchandise which consists of
gadget tools, chemicals, paints, plastic, ferrous and non-ferrous metals, automobiles,

Page 28 of 73
electronics and electric items etc. In this way, the personal area has evolved the
customer items industry, generating each durables and non-durables and have become
self through withinside the manufacturing of various styles of patron items.

Agriculture

In India agriculture and different allied sports like animal husbandry, dairying,
chicken etc are gambling a dominant position because it contributes almost 30 in step
with cent of GDP and it supplied employment to almost 67 according to cent of the
full running populace of the country. Such a huge zone is absolutely owned and
controlled through the non-public region.

Thus, personal region is pretty dominant in appreciate of agriculture and different

allied sports. In India, agriculture isn’t always carried out on industrial foundation
instead it’s miles controlled through the families as tons of those sports are withinside
the arms of small and marginal farmers. In India, the brand new agricultural approach
followed via way of means of the personal region below the energetic assist of the
Government.

Trading

Both the wholesale and retail change in India are withinside the palms of personal
quarter. In a massive country like India, having a large length of population, the
complete buying and selling sports are controlled through the personal region in a first
class feasible manner. But in the case of any critical commodities, the personal
businessman have their herbal tendencies in resorting to hoarding and black
advertising of such commodities main to exploitation of the consumers.

In order to manipulate such unlawful sports, the Government has delivered numerous
manipulate and regulatory measure withinside the shape of controls on price, motions
of product and on garage etc. Moreover, the government has been shopping meals
grains through its optimum enterprise. Food Corporation of India (F.C.I) and has
delivered a large community of the general public distribution system to take part

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withinside the buying and selling of crucial commodities for the hobby of the
consumer.

Infrastructure

Private Sector is likewise supplying and lively help to the infrastructural region of the
country. Although, the main region of the infrastructural quarter lies within the palms
of public region. however nevertheless the personal region is collaborating in the one
region which stays open for it. Private sector has been gambling dominant position in
appreciate of street shopping, water shipping etc from the very beginning.

But after creation of New Industrial Policy, 1991 the government has opened a few
regions like electricity generation, air shipping etc for the participation of the personal
region. Accordingly, within the post 1991 period, the personal quarter has been
actively taking part in the once new region like constructing highways and bridges on
Build, Operate and Transfer (BOT) basis etc.

Services Sector

The service sector of the country is definitely below the manipulation of the private
sector. The complete network and private offerings, which contributed almost 11%
according to cent of GDP in 1994-95, is completely controlled through the private
sector. The whole expert offerings, repairing offerings, amusement offerings etc are
completely rented through the personal area during the country.

Role in Indian Economy

The private sector playing an essential function in Indian Economic System. The
significance of this quarter in the financial system of the country maybe visualized
from the reality that it contributes to the foremost part of the countrywide earnings
and employment. As in line with the modern to be had records for the year 1998-99,
the private sector contributed approximately 76.7% of the internet domestic product
and the remaining 23% was contributed by the public sector. The position of private

Page 30 of 73
sector is pretty dominant in agriculture and allied activities, small scale industry, retail
exchange etc.

Again as in keeping with 1991 census, the proportion of populace operating in the
authorities area, consisting of public organizations and authority’s management turn
into the most effective almost 7% and the remaining 93% working populace are
engaged in the private sector. Thus, even after creating a massive quantity of the
investments within the public quarter and finishing extra than 50 years of planning,
Indian Financial System remains widely primarily based on the private sector.

Small Scale & Cottage Industry

In India small scale and cottage industries are playing a critical position in the
commercial improvement of the country. The complete small scale and cottage
enterprises is owned and controlled by the way of the private sector. As those
industries are in general labour in depth in nature, hence they are able to make use of
the nearby employment opportunities suitably.

Page 31 of 73
1.9. Advantages of Public Sector Banks

High interest rates in deposits

Charge on interest loan is low

Full job security for employees

Pension after retirement

Large & best customer services

Services to the rural population

Financial services included

Figure 1.5 Advantages of Public Sector Banks

• The first and major benefit of public sector is they may have full job security
and safety and those maintaining cash in constant deposit and in saving
account do now no longer need to fear approximately the protection in their
budget as possibilities of default through public sector banks is subsequent to
nil as authorities has a tendency to bail out those banks in case they may be in
monetary pressure and therefore as some distance as character is involved his
or her cash might be secure even though financial institution has economic
problem.

• Another advantage of public sector banks is that there are much less hidden
costs and additionally decrease restriction of quantity to be held as minimal

Page 32 of 73
 deposit as far saving account is concerned, so as an instance in case of private
sector banks minimal stability to be maintained is everywhere among 5000 to
2000 rupees while in case of public quarter banks it’s miles a thousand rupees
and Page 46 of 89 in case of pupil account and no frill debts is 0.

• As far as personnel are concerned public sector banks are more beneficial
because they provide full job security and are extra useful due to activity
protection and as soon as a person receives into public area, financial
institution that particular person no longer want to fear approximately
retrenchment that’s the case with personal zone banks. Although at better
stages of management, public sector banks pay better remuneration to its
personnel However at lower levels exploitation is greater in case of private
sector banks as compared to public sector banks.

Page 33 of 73
1.10. Disadvantages of Public Sector Banks

Less customized services to customers

Takes time in making financial services

Big corruption scandals

Spends lots of money on financial operation

Big bureaucratic system in administration

level

High defaulter rate from the customer

Figure 1.6 Disadvantages of Public Sector Banks

• The biggest disadvantage of public sector banks is that in terms of technology

they lag far behind as compared to the private sector banks. So in case you are
certainly one among folks who do his or her majority of work online then
public sector banks isn’t always his or her cup of tea. Although public sector
banks are attempting their great with the aid of using upgrading their
generation nevertheless public sector banks preserve an part over them.

• Another disadvantage of public sector banks is that in case you pass in public
sector banks expecting that you will get all the data at one seat that’s the case
with private sector banks then you may be disillusioned due to the fact in

Page 34 of 73
 public sector banks one person preserve doing identical things for years
ensuring in she or he dropping contact with different areas of banking.

• Due to government authorities proportion in public sector banks there’s a lot

of presidency intervention and because of it those banks need to give loans
now no longer on the idea of benefit of project. However because of political
strain ensuing in the mortgage turning into NPA a good way to bring about
loss in a bank. Another area of misery because of government authorities is
establishing numerous no frills account because of authorities looking for
political mileage, additionally commencing branches in far-flung areas
because of government authorities monetary illusion inclusion software
impacts the profitability of the banks.

Page 35 of 73
1.11. Advantages of Private Sector Banks

Advance in technology & working more

efficiently

Includes foreign investment

Strictly monitor loans & frauds

Competitive environment

Obedient towards work & responsibility

Lower risk concept

Reduction in burden of government

Figure 1.7 Advantages of Private Sector Banks

• The private banking enterprise affords an expert banker or stockbroker with an

possibility to paintings extra intently with customers to decide funding desires
and retirements wishes than if she laboured at a public financial institution.
This is due to the fact a personal financial institution would not do the
majority of its commercial enterprise starting checking and financial saving
account. Private bank concerns itself with making an investment and
developing wealth.

• The primary attention of private sector bank is believed that they charged a
higher interest rate as Page 50 of 89 compared to the public sector banks. The
main consideration while taking loan is the interest rate. But in the case of

Page 36 of 73
 policy price through the Reserve Bank of India it is believed that general
public quarter as faster to respond and decreased their base rates.

• Technology has come to play in each public and private sector bank. Almost
each and every financial institution gives centre of net banking, use of ATM
and make contact with banking services. If one has to head through those
factors, there isn’t always a lot distinction in what is obtainable through a
public region financial institution as opposed to public area financial
institution. However, that is one aspect that brings out the benefits of private
sector banks as compared to public sector banks because the former is
continually eager to undertake new generation and modern merchandise in
comparison to public sector banks.

Page 37 of 73
1.12. Disadvantage of Private Sector Banks

Adverse effect on poor & middle class

people

Issues within the organization

Lack on customer base

Lack of motive in generating profit

Less no. of branches in rural areas

Figure 1.8 Disadvantages of Private Sector Banks

• Customer service is a critical element particularly for the youthful generation.

The youth commonly have no longer time or staying power to get a question
solved or a guidance to be carried out, so they prefer private sector banks. But
for the senior citizens it is very difficult for them to cope up with private
sector banks. They constantly opt for public or government sector banks.

• The private banks now no longer want to setup their branches in rural regions.
The banking sectors stay restrained to urban wherein enough deposits are
available. A big part of population may be disadvantage of banking sector.
The control of private sector banks presents the credit score in unique regions
and people. As a result there’s unbalanced increase within the country,
particularly on the rural areas which no longer exist.

Page 38 of 73
• The management of the private sector banks also offer jobs to their friends and
relatives. Due to this the deserving employees are ignored and cannot even get
the chance. The main goal of private sector banks is to earn maximize profit.
For those proprietor’s institution are made which input into settlement of
income excessive profit. The financial institution can increase the price of
service charges. Such institutions won’t take care of the customer’s welfare.

Page 39 of 73
 CHAPTER 2
REVIEW OF LITERATURE

Page 40 of 73
Elicana M & Mr. Ignatius G (2019).
The study shows how the internal auditors plays a significant role in the financial
performance of the banks in Nairobi Securities Exchange (NSE). The study runs on
two theories; Agency Theory and Market Power Theory. This research was
undertaken through the Descriptive survey research design. The research established
that limited or minimal internal auditors’ independence negatively influenced
financial performance of listed banks at the NSE. In particular, the study established
that the existence of an internal audit budget as a measure of improving internal
auditors’ independence influenced the financial performance of commercial banks
listed in NSE.

Peterson K (2019).
This study examines the influence of financial development on nonperforming loans.
The results reveal that two financial development proxies, foreign bank presence and
financial intermediation, are positively associated with non-performing loans. Among
the determinants of non-performing loans, bank efficiency, loan loss coverage ratio,
competition and banking system stability are inversely associated with NPLs while
NPLs are positively associated with banking crises and bank concentration. In the
regional analysis, NPLs are negatively associated with regulatory capital and bank
liquidity, implying that banking sectors with greater regulatory capital and liquidity
has lesser NPLs.

Shivani Guru & D. K. Mahalik (2019).

This paper tries to use the combination of AHP, TOPSIS, and Grey Relational
Analysis to calculate the financial efficiency of different public sector banks Page 59
of 89 in India. AHP is used to determine the weight criteria and Grey Relational
Analysis and TOPSIS were used to rank the bank’s performances. The validity of the
research was tested using descriptive statistics and correlation matrix. From the result
obtained, the author suggests various insights for the improvement of specific areas in
the public sector banks of India.

Page 41 of 73
Dudhe Chetan Suresh & Tarnoczi Tibor (2019)
This study evaluates the financial performance of selected ten banks in India. Out of
10 banks, there are 3 foreign banks, 3 banks are nationalized and 4 private Indian
banks. This is undertaken by measuring the performance using the DEA method. This
study was conducted for the years ranging 2010-2016. There were two more analysis:
constant return to scale (CRS) and variable returns to scale (VRS) conducted in
support of the primary analysis. variable return scale model showed that the selected
public sector banks performed better and efficient.

Ritesh Patel (2018).

The paper analyses the comparison of before and after merger position of long-term
profitability with respect to selected Indian banks for a period of 2003-04 to 2013-14.
There were various variables considered for the study. The financial ratios are being
compared and analysed. The merger has impacted negatively on return on equity,
return on assets, net profit ratio, yield on advance and yield on investment. However,
variables such as the earnings per Share, profit per employee and business per
employee have increased after the merger. The yield has fallen for all banks due to
underutilization of assets, equity, investment and advances. The study also compares
the banks with the banking industry. Human resources has been used in an efficient
way which in-turn brings up the business per employee and profit per employee.

S. Sirisha & P. Malyadri (2018).

This paper evaluates the financial performance of various Indian banks. It also
measures the performance competitiveness between banks on the Indian banking
sector. The study considers various variables like balance sheet operations, efficiency,
profitability, capital adequacy, asset quality, sectoral deployment of bank credit,
technological development, customer services and financial inclusion for a period of
six years from 2011-2016. The results prove that the Indian banking industry moved
downwards during the year 2016 because of poor profitability and inefficiency in
managing the assets.

Page 42 of 73
C. Mangala Gowri & Venkataramanaiah Malepati (2017).

This study evaluates financial performance of selected private and public sector banks
through management efficiency ratios. Sample banks from all over India are
considered for the research and analysed using the management efficiency ratios such
as gross profit to total assets; net profit to total assets; interest Page 61 of 89 income
to total assets; net interest income to total assets; other income to total assets; interest
expended to total assets; and operating expenses to total assets.

Padmasai Arora & Hitesh Arora (2016).

This paper undertakes the first ever comprehensive assessment of the performance of
Local Area Banks (LABs) trail back to their origin, role and performance during the
ten-year period from 2003-04 to 2012-13. The financial performance of LAB,
Scheduled Commercial Banks (SCB) and Regional Rural Banks (RRB) are analysed
using ratio analysis. Data envelopment analysis (DEA) is conducted to analyse the
changes in productivity and efficiency experienced by the commercial banks during
the period of study. The results show that LABs are more profitable and less efficient
comparatively to the SCBs and RRBs. All the three types of banks experienced a
downfall in their productivity growth.

Ch. Balaji & Dr. G. Praveen Kumar (2016).

The objective of the study is to analyse and compare the overall financial performance
of selected public and private sector banks in India. The study is based on data from
different sources for the period of five years ranging from 2011-2012 to 2015- 2016.
The banks considered for the study are selected based on highest market capitalization
generated by banks during the year 2015-2016. The data has gone through t-test and
mean evaluations to derive results. The analysis shows that the private sector has
better growth and other positive variables. Thisin-turn proves that the public sector
banks need to develop in various fields.

Page 43 of 73
Nidhi Varshney, Chanchal Chawla (2016).
The study is performed to compare the financial performance of two leading public
sector banks of India i.e. State Bank of India and Punjab National Bank. The banks’
performance is measured using common financial ratios. The study was conducted for
five years ranging from 2007-08 to 2011-12. The ratios were analysed with a
particular focus on the bank’s liquidity, profitability, management capacity, capital
structure and share performance as reliable indicators of a bank’s performance.

Kishore Meghani, Kishore Meghani & Hari Krishna Karri, Hari

Krishna Karri & Bharti Meghani Mishra, Bharti Meghani Mishra
(2015).

This study analysis the financial performance of Bank of Baroda and Punjab National
Bank in India based on their financial characteristics. This study tries to measure the
financial performance of public sector banks. CAMEL model and t-test are adopted to
extract the results of this study. The parameters considered are capital adequacy, asset
quality, management efficiency, earning quality, liquidity and Sensitivity.

Mishra Aswini Kumar, G. Sri Harsha, Shivi Anand and Neil Rajesh
Dhruva (2012).
This paper analyses the financial soundness of twelve private and public sector banks
for a period of eleven years ranging from 2000-2011. The CAMEL model is been
adopted to measure the financial soundness of the selected banks. The analysis proved
that the private sector is well sound in terms of financial stability. The public sector
banks displayed low financial soundness in comparison.

Page 44 of 73
 CHAPTER 3
RESEARCH METHODOLOGY

Page 45 of 73
3.1. Introduction
Banking is one of the country's leading and rising industries providing services in
India and abroad. Indian banking promises tremendous potential for growth due to
large and increasing middleclass population, favourable demographic, speedy
economic growth, higher disposable incomes and growing middle class aspirations.
Many researchers have been studying.

3.2. Statement of the Problem.

The purpose of this research study is to identify the financial performance of selected
private and public sector banks. The study also attempts to evaluate the revenue of
these banks, based on which suggestions and recommendations can be given to
increase the profits and reduce the cost of its daily functioning.

3.3. Objectives
• To study the financial performance of selected private and public sector banks.
• To compare the financial performance of selected private and public sector
banks.
• To give suggestive measures to improve the financial analysis.

3.4. Hypothesis
• There is no significant difference in the financial position and performance of
private sector and public sector banks in India.
• There is significant difference in the financial position and performance of
private sector and public sector banks in India.

3.5. Methodology
This research project aims to compare the financial performance of the selected
private sector and public sector banks of the Indian banking industry using financial
ratios and CAMEL model. The top three private and public sector banks have been
selected based on the highest revenue.

Page 46 of 73
3.6. Scope of the Study.
This research project concerns the field of finance, where the analysis has been
carried forward on the comparative study of selected private and public sector banks
of the Indian banking industry for the period of 5 years between FY2015-2019.
Revenue, profits, expenditure, and other such factors are considered for the analysis
of this research project.

3.7. Limitations

• Secondary data has been collected for this project.

• The project is conducted for the time period of 5 years.

• Only six banks are considered in this project.

Page 47 of 73
CHAPTER 4
DATA ANALYSIS

Page 48 of 73
4.1. Analysis
Financial ratios are been analysed in this research project. By doing so, we can
ascertain the financial performance of six banking companies which includes three
private sector banks and three public sector banks. CAMEL model also has been used
to assess the financial strength of the selected banks.

4.2. Financial Ratios

Financial ratios are those ratios through which relationships are determined from
company’s financial information. These ratios are used for comparison purposes to
evaluate the financial performances of a company or business. The purpose of
comparing the figures of one firm’s financial statements with another firm is to check
its performance and health.

Page 49 of 73
Operating Cash Flow Ratio.
Operating CF Ratio =Cash Flow from Operations/Current Liabilities

2019 2018 2017 2016 2015 Mean Combined

Mean
HDFC -4.92 2.62 2.95 -0.49 -2.92 -0.55
ICICI 4.49 1.72 5.84 3.55 -0.85 2.95 0.63
AXIS 5.12 -7.44 6.27 -3.38 -3.10 -0.51
SBI 1.00 -2.64 0.44 0.53 1.46 0.16
PNB -4.29 0.14 1.84 2.80 1.00 0.30 0.02
BoM -6.82 -1.18 4.93 1.90 -0.79 -0.39
Table 4.1 Operating Cash Flow Ratio

Operating Cash Flow Ratio

8

2
Values

0
2019 2018 2017 2016 2015
-2

-4

-6

-8

HDFC ICICI AXIS SBI PNB BoM

Figure 4.1 Operating Cash Flow

INTERPRETATION: From the above table and figure it has been proved that the
mean of Operating Cash Flow Ratio of ICICI is the highest in the private sector when
compared to others, with a mean value of 2.95. In the public sector PNB stands the
highest with the mean value of 0.30. The combined mean of the Private sector stands
better comparatively which is 0.63. This states that the Private sector banks have
efficient cash generated from its operating activities to meet its current liabilities.

Page 50 of 73
Current Ratio

Current Ratio=Current assets/Current liabilities

2019 2018 2017 2016 2015 Mean Combined

Mean
HDFC 17.2374 17.8772 11.3870 14.7478 12.9576 14.8414
ICICI 19.7825 22.1315 17.5931 15.9160 14.3388 17.9524 17.9420
AXIS 18.8065 20.3266 17.8330 26.4706 21.7244 21.0322
SBI 18.3705 14.0828 12.2205 11.1227 11.3073 13.4208
PNB 38.6877 25.7936 32.9249 30.9895 26.0682 30.8928 23.1238
BoM 12.8880 33.2913 25.0575 31.1295 22.9232 25.0579
Table 4.2 Current Ratio

Current Ratio
40

35

30

25
Values

20

15

10

0
2019 2018 2017 2016 2015

HDFC ICICI AXIS SBI PNB BoM

Figure 4.2 Current Ratio

INTERPRETATION: The above table and figure indicates that the mean of Current
Ratio of AXIS is the highest in the private sector when compared to others, with a
mean value of 21.0322. In the public sector PNB stands the highest with the value
30.8928. The combined mean of the Public sector stands high comparatively which is
23.1238. This states that the Public sector banks have sufficient current assets to meet
its operating needs or short-term obligations and that this sector is in a better liquidity
position.
Page 51 of 73
Quick Ratio

It is an indicator of a company’s short-term liquidity position. It measures a

company’s ability to meet its short-term liabilities with its most liquid assets.

2019 2018 2017 2016 2015 Mean Combined

Mean
HDFC 17.2374 17.8772 11.3870 14.7478 12.9576 14.8414
ICICI 19.7825 22.1315 17.5931 15.9160 14.3388 17.9524 16.6089
AXIS 19.2259 20.8271 18.2021 26.9101 0.0000 17.0331
SBI 18.3705 14.0828 12.2205 11.1227 11.3073 13.4208
PNB 38.6877 25.7936 32.9249 30.9895 26.0682 30.8928 23.1238
BoM 12.8881 33.2913 25.0576 31.1297 22.9233 25.0580
Table 4.3 Quick Ratio

Quick Ratio
40

35

30

25
Values

20

15

10

0
2019 2018 2017 2016 2015

HDFC ICICI AXIS SBI PNB BoM

Figure 4.3 Quick Ratio

INTERPRETATION: The above table and figure indicates that ICICI has the highest
mean of 17.9524 in the private sector and PNB has the highest mean in the public
sector. The combined mean shows that the public sector has a better mean value of
23.1238. On the other hand, the Public sector has a mean of 23.1238 which indicates
that the Private sector does not have sufficient current assets to cover its immediate
liabilities.

Page 52 of 73
Debt-Equity Ratio

2019 2018 2017 2016 2015 Mean Combined

Mean
HDFC 8.3411 10.0093 9.6559 9.7533 9.5228 9.4565
ICICI 8.8998 8.3606 7.7217 8.0313 8.0335 8.2094 8.8291
AXIS 12.0979 11.0482 10.9382 10.0228 0.0000 8.8214
SBI 16.6622 15.7659 14.3716 15.6581 15.9460 15.6808
PNB 19.2433 20.3663 18.8357 18.4821 15.0651 18.3985 18.1861
BoM 28.6675 15.7210 21.5900 18.3174 18.1000 20.4792
Table 4.4 Debt-Equity Ratio

Debt/ Equity Ratio

30

25

20
Values

15

10

0
2019 2018 2017 2016 2015

HDFC ICICI AXIS SBI PNB BoM

Figure 4.4 Debt-Equity Ratio

INTERPRETATION: The above table and figure proves that HDFC has the highest
mean of 9.4565 in the private sector and Bank of Maharashtra has the highest mean in
the public sector. This ratio states that the company may not be in a position to satisfy
its debt obligations as it may not be in a position to generate enough cash. From this
table, we see that HDFC has been aggressive in financing its growth with debt
whereas ICICI, with the lowest mean of -9.4890 in private sector and SBI with the
lowest mean in the public sector indicates that it has a strong equity position. Here,
the combined mean shows that the Private sector with mean of 8.8291 has a better
equity position.

Page 53 of 73
Price Earnings Ratio

2019 2018 2017 2016 2015 Mean Combined

Mean
HDFC 16.436 15.743 16.489 12.400 13.276 14.869
ICICI 103.288 34.158 18.660 13.875 12.325 36.461 28.003
AXIS 41.468 57.712 36.710 13.037 14.469 32.679
SBI 23.618 19.594 18.247 15.840 13.684 18.197
PNB 0 0 27.531 0 7.009 4.822 9.983
BoM 0 0 0 33.243 7.478 6.931
Table 4.5 Price Earnings Ratio

P/E Ratio
120

100

80
Values

60

40

20

0
2019 2018 2017 2016 2015

HDFC ICICI AXIS SBI PNB BoM

Figure 4.5 Price Earnings Ratio

INTERPRETATION: The above table and figure proves that ICICI has the highest
Price Earnings Ratio mean value of 36.461 in the private sector and SBI has the
highest mean of 18.197 in the public sector. The values of 0 is showed as they had no
earnings. On the other hand, Private sector has a better mean value of 28.003
comparatively. This clearly shows that the Private sector banks is expected to higher
earnings growth in the future.

Page 54 of 73
Fixed Asset Turnover

2019 2018 2017 2016 2015 Mean Combined

Mean
HDFC 25.918 22.185 19.887 18.630 31.053 23.535
ICICI 7.994 6.955 6.938 6.961 10.389 7.847 14.646
AXIS 13.622 11.527 11.888 11.634 14.111 12.556
SBI 6.196 5.514 4.090 15.785 16.336 9.584
PNB 8.213 7.559 7.536 9.080 13.041 9.086 8.729
BoM 6.111 7.316 7.605 7.704 8.844 7.516
Table 4.6 Fixed Asset Turnover

Fixed Asset Turnover

35

30

25

20
Values

15

10

0
2019 2018 2017 2016 2015

HDFC ICICI AXIS SBI PNB BoM

Figure 4.6 Fixed Asset Turnover

INTERPRETATION: The table and figure indicate that HDFC has the highest Fixed
Asset Turnover Ratio mean value of 23.535 in the private sector and SBI has the
highest mean of 9.584 in the public sector. On the other hand, the Private sector has a
better mean value of 14.646 comparatively. This clearly shows that the operating
performance of the Private sector is good when compared to the Public sector, as it
has used its fixed assets efficiently to generate profit.

Page 55 of 73
Operating Profit Ratio

2019 2018 2017 2016 2015 Mean Combined

Mean
HDFC 0.914 0.907 0.893 0.897 0.897 0.902
ICICI 0.944 1.031 1.088 1.050 1.014 1.025 0.964
AXIS 0.951 0.934 0.989 0.982 0.976 0.966
SBI 0.864 0.930 0.937 0.915 0.898 0.909
PNB 0.919 0.904 0.991 0.935 0.901 0.930 0.906
BoM 0.858 0.892 0.888 0.883 0.880 0.880
Table 4.7 Operating Profit Ratio

Operating Profit Ratio

1.2

0.8
Values

0.6

0.4

0.2

0
2019 2018 2017 2016 2015

HDFC ICICI AXIS SBI PNB BoM

Figure 4.7 Operating Profit Ratio

INTERPRETATION: The above table and figure proves that ICICI has the highest
mean value of 1.025 in the private sector and PNB with a mean of 0.930 in the public
sector, which indicates that ICICI and PNB are in a better position when compared to
the other banks as a good operating profit margin is required for a bank to pay off its
fixed costs such as debt and interest. We see that ICICI and PNB has a less financial
risk when compared to the other banks. The combined mean shows a better value for
the Private sector with 0.964, which in-turn means that the private sector has a better
operating profit margin.

Page 56 of 73
Return on Capital Employed

2019 2018 2017 2016 2015 Mean Combined

Mean
HDFC 7.976 7.484 8.249 8.498 8.273 8.096
ICICI 6.708 6.897 8.340 8.504 8.542 7.798 7.830
AXIS 7.115 6.693 8.022 8.129 8.022 7.596
SBI 6.149 6.523 6.778 7.359 7.724 6.907
PNB 6.296 5.972 6.769 6.983 7.332 6.670 6.903
BoM 6.270 6.614 7.095 7.526 8.159 7.133
Table 4.8 Return on Capital Employed

ROCE
9
8
7
6
Values

5
4
3
2
1
0
2019 2018 2017 2016 2015

HDFC ICICI AXIS SBI PNB BoM

Figure 4.8 Return on Capital Employed

INTERPRETATION: The above table and figure HDFC has the highest mean value
of 8.096 in the private sector and Bank of Maharashtra with the highest mean of 7.133
in the public sector with regard to the return on capital employed. This indicates that
HDFC and Bank of Maharashtra is efficient to generate profits out of the investment
made by shareholders and creditors in the business. With the help of this ratio, we
also observe that the Private sector with a combined mean of 7.830 is performing
financially well as the returns generated from the capital employed in the business
stands higher when compared to Public sector.

Page 57 of 73
Net Profit Ratio

2019 2018 2017 2016 2015 Mean Combined

Mean
HDFC 21.297 21.793 20.993 20.418 21.077 21.116
ICICI 5.305 12.330 18.098 18.442 22.764 15.388 16.046
AXIS 8.505 0.602 8.260 20.064 20.739 11.634
SBI 0.355 -2.969 5.973 6.068 8.597 3.605
PNB -19.442 -25.591 2.802 -8.381 6.610 -8.800 -5.830
BoM -44.093 -10.325 -11.379 0.771 3.558 -12.293
Table 4.9 Net Profit Ratio

Net Profit Ratio

30

20

10

0
Values

2019 2018 2017 2016 2015

-10

-20

-30

-40

-50

HDFC ICICI AXIS SBI PNB BoM

Figure 4.9 Net Profit Ratio

INTERPRETATION: The above table and figure we observe that HDFC has the
highest mean value of 21.116 in the private sector and SBI has the highest mean value
of 3.605 in the public sector with regard to Net Profit Ratio. This indicates that HDFC
and SBI has effectively controlled its costs to provide its service at a price
significantly higher than its costs. From this we can also see that the Private sector
with a combined mean of 16.046 has an efficient management and it has lowered its
expenses, when compared to the Public sector.

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Earnings Per Share

2019 2018 2017 2016 2015 Mean Combined

Mean
HDFC 77.40 7.38 56.78 48.64 40.76 58.19
ICICI 5.22 10.54 16.83 6.73 19.28 13.72 31.29
AXIS 18.19 10.74 15.36 34.51 31.01 21.97
SBI 23.62 19.59 18.25 15.84 13.68 18.20
PNB -21.67 -44.49 6.23 -20.24 16.51 -12.73 -0.07
BoM -17.38 -4.41 -11.75 0.86 4.24 -5.69
Table 4.10 Earnings Per Share

EPS
80

60

40

20
Values

0
2019 2018 2017 2016 2015
-20

-40

-60

HDFC ICICI AXIS SBI PNB BoM

Figure 4.10 Earnings Per Share

INTERPRETATION: From the above table and figure it is proved that HDFC has the
highest EPS mean value of 58.19 when compared to its competitors in the private
sector and SBI stands the highest in the public sector with a mean value of 18.20.
HDFC and SBI is capable of generating significant dividend for its investors as its
stock is highly worth as investors are willing to contribute for higher profits. The
lowest EPS value is the PNB which stands at -12.73, which indicates that its stocks
have been undervalued. On the other hand, we can also see that the Private sector is
having a better mean value of 31.29.

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4.3. CAMEL Model

The CAMEL model and its parameters are shown and discussed below on the basis of
secondary data to measure the financial performance of the selected banks. This
model is carried on using the SPSS software.

Parameters of CAMEL Ratio for Measuring CAMEL

Parameters
C Capital Adequacy Capital Adequacy Ratio

Debt Equity Ratio

A Asset Quality Asset Turnover Ratio

Loan Ratio

Net NPA to Net Advance Ratio

M Management Efficiency Credit Deposit Ratio

Net Profit per Employee

E Earning Ability Net Profit Ratio

Dividend per Share

Earnings per Share

Return on Net worth

Return on Assets

Interest Spread Ratio

L Liquidity Current Ratio

Liquid Assets to Total Assets Ratio

Liquid Assets to Total Deposit Ratio

Table 4.11 CAMEL Model

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Capital Adequacy
This is an indicator to show whether the bank has adequate capital to bare the
unexpected losses. It helps in maintaining the confidence of the depositor and
prevents the bank from bankruptcy. It shows the overall financial condition of the
bank and the efficiency of the management to meet the required additional capital.

• Capital Adequacy Ratio (CAR)

This ratio measures the ability of the bank regarding absorption of losses arising
from the risk weighted assets. It is a measurement of Tire-1 and Tire-II capital to
the aggregate of risk weighted assets.

CAR = (Tire 1 Capital + Tire 2 Capital) / Risk Weighted Assets.

• Debt-Equity Ratio

This ratio is performed in order to measure the bank’s financial leverage. It is the
proportion of total external liabilities to its net worth. This ratio indicates the
bank’s portion which is finance through either debt or equity. Higher ratio
signifies less protection for creditors and depositors of the bank.

DE Ratio=Debt/Net worth

Asset Quality

The bank provides credit at a lower rate to the highly rated companies compare to
lower rated doubtful companies. It determines the nature of debtors of bank. This ratio
helps the bank to decide the financial risk and potential losses attached with their
various assets. The following ratios are considered in this study to assess the asset
quality of the selected banks.

• Asset Turnover Ratio

It determines the efficiency of the bank in asset utilization.

ATR=Sales/Total Assets

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 • Loan Ratio

The ratio measures the financial position of banks and its ability to meet
outstanding loans.

Loan Ratio=Amount of Loans/Total Assets

• Net NPA to Net Advance Ratio

The ratio measures the proportion of bad loans of the bank out of total advances
given. Higher ratio signifies the bank’s inability to recover the loan and that leads
to huge capital losses. So, lower ratio is expected to be positive for bank.

Net NPA to Net Advance Ratio=Total NPA/Total Advances

Management Efficiency

The growth and survival of bank is ensured by the management efficiency. This
parameter analyses the efficiency of the management in generating business and
maximizing profits. The following ratios are considered in the present study to assess
the management efficiency of the selected banks.

• Credit Deposit Ratio

It indicates the ability of the bank to convert its deposits into high earning
advances.

Credit Deposit Ratio=Total Advances/Total Customer Deposits

• Net Profit per Employee

It reveals the productivity and efficiency of human resources of bank.

Net Profit per Employee=Net Profit/Total Number of Employees

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Earning Ability

It reflects the profitability of a bank. It also explains the sustainability and growth of
earning in future. Higher earnings indicate the healthy performance of a bank.
Generation of adequate earnings is the key to exits in long run for a bank. The
following ratios are considered in order to assess of earning ability of the selected
banks.

• Net Profit Ratio

It shows the operational efficiency of a business. Increasing ratio indicates better

performance and decreasing ratio shows inefficiency in management and
excessive operational expenses.

Net Profit Ratio=Net Profit/Total Income

• Dividend per Share

It indicates the dividend earned by each shareholder in hand. Higher the ratio
higher is the operational efficiency of the business.

Dividend per Share=Dividend in Equity Share/No. of Equity Shares

• Earnings per Share

It indicates return earned by each shareholder. This ratio measures the market
worth of the shares of the bank. Higher ratio shows better prospects of the bank.

Earnings per Share=Earnings available to Equity Share Holders/No. of Equity

Shares

• Return on Net worth

This ratio shows the relation between net profit and capital employed of the
business. It determines operational efficiency and overall profitability of the
business.

Return on Net Worth= Net profit/Net worth

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 • Return on Asset

It is a general measure of managerial performance to assess the conversion of

assets into earnings.

Return on Asset= Net profit/Total assets

• Interest Spread Ratio

Spread is the difference between the interest incomes and interest expended.
Higher ratio indicates better earning ability of the business. It is determined as a
percentage of total assets.

Liquidity

The liquidity measures the bank’s ability to meet the short-term financial obligations.
Adequate liquidity position can be achieved when the business can obtain sufficient
liquid fund either by converting its assets into cash or increasing liability. Higher ratio
indicates that the business is wealthier. The following ratios are considered to assess
the liquidity of the selected banks.

• Current Ratio

It measures the sufficiency of current assets to pay off the current liabilities. It
helps the bank to determine its working capital requirement.

Current Ratio= Current assets/Current liabilities.

• Liquid Assets to Total Assets Ratio

It measures overall liquidity position of a business.

Liquid Assets to Total Assets Ratio= Liquid assets/Total assets.

• Liquid Assets to Total Deposit Ratio

It indicates the ability of the bank to meet its deposit obligations with available
liquid funds. Higher ratio signifies better ability of the bank.

Liquid Assets to Total Deposit Ratio= Liquid assets/Total deposit.

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 CHAPTER 5
FINDINGS, SUGGESTION & CONCLUSION

Page 65 of 73
 FINDINGS & SUGGESTION

5.1. FINDINGS

The findings of the above performed analysis are mentioned below:

5.1.1 Financial Ratio

i. It is found that ICICI in the private sector and PNB from the public sector are
found having better mean values. The combined mean value of the private
sector stands high comparatively. This states that the private sector banks have
efficient cash generated from their operating activities to meet its current
liabilities.

ii. It is observed that AXIS from the private sector and PNB from the public
sector is found having the highest mean values. The combined mean shows a
better value for the public sector. This indicates that the public sector has
sufficient current assets to meet its operating needs or short - term obligations
and that the banks in this sector are in a better liquidity position.

iii. The quick ratio is found to be highest for ICICI in the private sector and PNB
in the public sector. It is also found that the combined mean of the public
sector stands better than the private sector which indicates that the public
sector has sufficient current assets to cover its immediate liabilities.

iv. It is found that ICICI from the private sector and SBI from the public sector is
found having a better equity position. The combined mean shows that the
private sector has much ability to repay its debts or obligations and it has a
stronger equity position comparatively.

v. The P/E ratio shows that the ICICI and SBI stands good with the highest mean
comparing to other banks. It is also found that the combined mean shows high
on the private sector which clearly states that the private sector banks are
expected to higher earnings growth in the future.

vi. In terms of fixed asset turnover, HDFC from the private sector and SBI from
the public sector stands better than the other banks in their respective sector. It
is also found that the combined mean Page 83 of 89 shows that the private
Page 66 of 73
 sector is better than the public sector which indicates that the operating
performance of the private sector banks are good when compared to public
sector banks as its fixed assets are efficiently used to generate profits.
vii. The operating profit stands high for ICICI from the private sector and PNB
from the public sector. The combined mean is found to be good for the private
sector which means that it is in a better position and has a less financial risk
when compared to the public sector.
viii. Return on capital employed is the best in HDFC of the private sector and Bank
of Maharashtra of the public sector. The combined mean shows that the
private sector is performing financially well and is able to generate profits out
of the investment made by shareholders and creditors in the business.
ix. In terms of net profit ratio, HDFC of the private sector and SBI of the public
sector shows the highest mean values. On the other hand, it is found that the
combined mean shows that the private sector has an efficient management and
it has lowered its expenses, when compared to the public sector.
x. In terms of net profit ratio, HDFC of the private sector and SBI of the public
sector shows the highest mean values. On the other hand, it is found that the
combined mean shows that the private sector has an efficient management and
it has lowered its expenses, when compared to the public sector.

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5.2. SUGGESTION

➢ The banking industry needs to adopt the latest technology and make it
available for the customers to make it more hustle free.

➢ The private sector should maintain better liquidity position in order to meet its
immediate liabilities.

➢ The private sector banks give a better interest rate as their expenses and other
cash outflows have been efficiently managed. This is rarely seen in a public
sector banks. If such a good interest rates can be provided by a public bank,
there might be a increase in the customer base.

➢ The banking industry can adopt data science which can be used to predict the
needs of customers and provide them with tailor made products that suit their
needs.

➢ As the technology increases, the threat to security also increases. Therefore,

the adoption on blockchain technology is highly mandatory. There can be a
real-time data updates across banks and it can also eliminate the chances of
hacking.

➢ USEReady provides services only for the US clients, they can expand their
business to the Indian markets to gain more customers.

➢ The number of products is less compared to the competitors. This can diverge
the customer base and create less loyal customers. They have create more
products in order to sustain in the market by creating more customers.

Page 68 of 73
 CONCLUSION

The Indian banking system consists of 27 public sector banks, 21 private sector banks,
49 foreign banks, 56 regional rural banks, 1,562 urban cooperative banks and 94,384
rural cooperative banks, in addition to cooperative credit institutions. As of Q1 FY19,
total credit extended by commercial banks went upto Rs. 86,976 billion ($ 1,297
billion) and deposits grew to Rs. 115,070 billion ($ 1,716 billion).

Indian banks are highly focusing on adopting integrated approach to risk

management. Banks have already started adopting the international banking
supervision accord of Basel II norms, and majority of the banks already meet their
capital requirements of Basel III norms. Reserve Bank of India (RBI) has decided to
set up Public Credit Registry (PCR) an extensive database of credit information which
is accessible to all stakeholders. The Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2017 Bill has been passed and is expected to uplift the banking sector.
Credit off-take has been surging ahead over the past decade, backed by strong
economic growth, rising disposable incomes, increasing consumerism & easier access
to credit. During FY07-18, credit off-take grew at a CAGR of 11%. As of Q1 FY19,
total credit extended surged to Rs. 86,976 billion ($ 1,297 billion.

Demand has grown for both corporate & retail loan, the services are also in high
demand like the real estate, consumer durables & agriculture allied sectors have led
the growth in credit. Total banking sector assets (including public and private sector
banks) have increased at a CAGR of 6% to $ 2.2 trillion during FY13–18. FY13-18
saw growth in assets of banks across sectors.

Public sector banks account for over 68.3% of interest income in the sector in FY18.
They lead the sector in interest income growth with a CAGR of 6.6% over FY09-18.
Overall, the interest income for the sector (including public and private sector banks)
has grown at 6.9% CAGR during FY09-18. Total lending has increased at a CAGR of
10.9% during FY07-18 and total deposits has increased at a CAGR of 11.6%, during
FY07-18 & are further tend to better growth, backed by demand for housing and
personal finance. India’s retail credit market is the fourth largest in the emerging
countries. It increased to $ 281 billion on December 2017 (FY18) from $ 181 billion

Page 69 of 73
on December 2014. The digital payments system in India has evolved the most among
25 countries, including UK, China and Japan, with the IMPS being the only system at
level 5 in the Faster Payments Innovation Index (FPII). India stepped up to 28th
position on the government's adoption of e-payments ranking in 2018. Digital
influence in the Indian banking sector has been growing faster due to the rising digital
footprint. India’s digital lending stood at $ 75 billion in FY18. The future is all about
technology, and the first and fastest to adopt it will become market leaders and can
sustain the high competition.

From the above analysis, the Financial ratios is showing best in 8 ratios for the private
sector and the CAMEL model is found to be best in 10 tests out of 16 for the private
sector. So, it is established that the Private Sector banks has better financial
performance and efficiency compared to the Public Sector banks of India.

Favourable demographics and rising income levels. India ranks among the top six
economies with a GDP of $ 2,597 in 2017 and economy is forecasted to grow at 7.3%
in 2018. Growth in the working population and increasing disposable incomes will
raise demand for banking & related services. Housing & personal finance are
expected to remain key demand drivers. Rural banking is expected to have a growth
in the future. Rising fee incomes improving the revenue mix of banks. High income
from net interest along with reducing NPA levels, ensures healthy business
fundamentals.

India’s banking sector has strengthened and stabilised because of a good policy
support in the form of private sector participation & liquidity infusion. Healthy
regulatory oversight & credible Monetary Policy by the Reserve Bank of India (RBI).
As of August 2018, total number of ATMs in India increased to 213,004 and is further
expected to increase to 407,000 ATMs in 2021. With entry of foreign banks,
competition in the Indian banking sector has intensified and this in turn brings high
competition. Banks are increasingly looking at consolidation to derive greater benefits
such as enhanced synergy, cost take-outs from economies of scale, organizational
efficiency & diversification of risks.

Finance is the life blood of every bank and businesses. Without effective financial
management a bank cannot survive in this competitive banking world. A Prudent

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financial manager has to do periodic review & analysis of the bank. Both Public and
Private banks Financial performance is acceptable condition. But QoQ the banks want
to increase the performance. The Overall position of the Private bank is good, But
comparatively Public banks performance is not up to level, So Public sector bank
want increase the efficiency and capability of the bank Operations, Because most of
common people trust the Public banks. As a view point of investor, Many of
Depositors preferring the Public bank, But most of investors are not preferring the
Public bank because inefficient use of Shareholders funds and resources. And they are
providing low return on equity, Earning per share when compare to Private banks.
Public sector banks want to increase the management capability to increase the
profits, ROE, EPS, ROI and to increase the efficiency of banks. Both Private and
Public Sector bank Employees want to work effectively for their bank to improve
their bank positions.

Page 71 of 73
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