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Chapter 1.......................................................................................................................................... 1
1.Abstract ......................................................................................................................................... 1
Chapter 2.......................................................................................................................................... 4
Literature Review ............................................................................................................................. 4
Chapter 3.......................................................................................................................................... 7
Research design and methodology .................................................................................................. 7
3.1 Objective ................................................................................................................................ 7
3.2 Data collection method.......................................................................................................... 7
3.3 Variables................................................................................................................................. 7
3.4 Period of study ....................................................................................................................... 8
3.5 Scope of Study ....................................................................................................................... 8
Chapter 4.......................................................................................................................................... 9
Data Analysis .................................................................................................................................... 9
4.1 Part 1- Comparison of all three sector banks ........................................................................ 9
Table 1 Net profit margin (PM) .............................................................................................. 9
Table 2 Assets utilization (AU) ............................................................................................ 10
Table 3. Equity Multiplier (EM) ............................................................................................. 11
Table 4. Return on Assets..................................................................................................... 12
Table 5. Return on Equity ..................................................................................................... 13
Table 6 ROE and its Components .......................................................................................... 14
4.2 Part 2 Comparison of domestic banks with foreign banks ................................................. 15
Table 7. Profit Margin ........................................................................................................... 16
Table 8 Assets Utilization ....................................................................................................... 17
Table 9. Equity Multiplier ...................................................................................................... 18
Table 11. Return on Equity .................................................................................................... 20
Table 12 ROE and its Components ......................................................................................... 21
Chapter 5........................................................................................................................................ 22
Findings and conclusion ................................................................................................................. 22
5.1 Conclusion ............................................................................................................................ 22
5.2 REFERENCES ......................................................................................................................... 23
5.3 Annexure .............................................................................................................................. 24
Annexure 1 ................................................................................................................................. 24
Chapter 1
1.1 Abstract
The study titled “Ownership structure of banks and profitability”. Was carried out
considering private owned banks (PROD), publicly owned domestic banks (PUODs) and
foreign owned banks (FOBs). The key profitability ratios such as net profit margin (PM),
assets utilization (AU), return on assets (ROA), and return on equity (ROE) are considered
to compare the banks under 3 different sectors. To study to compare overall profitability
of different ownership banks data was collected from secondary data (annual report). Data
was collected for a period of 10 years between 2010 to 2019. The analysis was carried out
in two stage firstly considering key ratios all the three sector banks are compared and then
domestic banks (both private and public owned) performance compared with foreign
banks. It is found that private and foreign banks have better profitability considering profit
margin and return on assets. To improve profitability they should minimize the expenses.
Better control over expenses, more efficient use of assets, and judicious use of financial
leverage could be the primary reasons for the superior performance of banks.
Now a days, we are having a fairly well developed banking system with different classes
of banks – public sector banks, foreign banks, private sector banks. Arunava
Bhattacharyya et al. (1997) analyses Indian banks can be classified into three ownership
groups: publicly-owned, privately-owned, and foreign-owned. Although the three groups
of banks operate in the same markets, each group faces a different set of regulations, and
these regulations have evolved through time. Indian banking is particularly interesting
because of different and changing regulatory environment and the diversity of bank
ownership: State bank of India (SBI) group, nationalized banks (NBs), privately owned
domestic as well as foreign banks.3 The public sector banks (SBI and NBs) acquired a
place of prominence in the financial intermediation process over the years. They made
significant strides in expanding geographical coverage, mobilizing savings and providing
funds for investments in agriculture/small-scale industry.
Anjana Bhattacharyya et al. (1997) study analyzes the productivity growth of Indian public
sector banks in the post-nationalization period. Keeping pace with the changing philosophy
of economic planning, the commercial banking sector has traveled a long way along a
varied path of growth, starting from a high degree of government control to gradual
deregulation.
Government of India set up the Narasimham committee to review the functioning of entire
financial services industry in the country. Based on the recommendations of the committee
(submitted in November 1991), the RBI initiated major reform/liberalization measures that
sought to improve bank efficiency through entry deregulation, branch deli censing and
deregulation of interest rates and to allow the public sector banks to raise up their equity in
the capital market. The reform also sought to improve banking profitability through gradual
reduction of the cash reserve ratio, the statutory liquidity ratio and relaxation of several
quantitative restrictions on the composition of selected portfolios.
In India the banks and banking have been divided in different groups. Each group has their
own benefits and limitations in their operations. They have their own dedicated target
market. Some are concentrated their work in rural sector while others in both rural as well
as urban. Most of them are only catering in cities and major towns.
Literature Review
The researcher and economists have recognized that the measurement of profitability in
banking is necessary to improve of banks. A large number of studies have been conducted
in the field of financial performance of banks. A brief review of some of these studies has
been presented.
Sulagna Das at al. (2014) Conducted a study to find out if there are any significance
difference in the mean variation of the concerned banks. And it also focus on the reason
behind the NPA and its impact on banking operation, in this research they used analysis
of variance (Anova) one way has been used, and they found out that there is no
significant deference between the means of NPA of the banks at five percent level of
significance this concluded banks irrespective of their operations have similar NPAs in
the recent years.
Ali Ataullah et al. (2004), evaluated the technical efficiency of commercial banks in
India and Pakistan and found that the overall technical efficiency of the banking
industry of both countries improved gradually over the years, by examining the
relationship between bank size and technical efficiency.
Dominic Wilson et al. (2003), evaluate the growth generated by the large developing
countries, particularly the BRICs (Brazil, Russia, India, and China), and they suggest
that if things go right, the BRICs could become a source of new global spending in the
not too distant future.
Rasoul et al. (2008), examining the effect of the ownership on the efficiency, efficiency
change, technological progress and productivity growth of the Indian growth industry
over the period 1998 to 2003, they evaluate the performance of Indian banks in there
sample by a non-parametric frontier technique, the result indicate that foreign banks
are significantly more efficient when compared to other banks, i.e. the privately-owned
and publicly owned banks and also indicate that a large number of Indian banks operate
bellow their optimal scale.
K. R. Shanmugam et. Al. (2004), estimated the efficiency of financial institutions such
as banks have relied accounting measures such as costs, outputs and profit due to
unavailability of engineering information on technology of FIs, they utilizes the
stochastic frontier production function model for panel data to measure technical
efficiency, the result indicate that the efficiency of raising interest margin is time while
the efficiencies of raising other outputs-non-interest income, investments and credits
are time varying.
Ashish Saha et al. (200), analyzed based on empirical analysis, suggest that Data
Envelopment Analysis (DEA) approach to measuring the relative the relative efficiency
of banks in Indian context, they conclude that Public sector banks primarily because
they account for about 85% of the Indian commercial banking business.
Sarkar et al. (1998), conducted a study to make another contribution to the ownership-
performance issue from the perspective of a developing economy, for evaluating a bank
performance they used two profitability measures are Return on asset (ROA) and
Operating profit ratio (OPR), and they highlighted the importance of creating
appropriate institutions prior to pursuing privatization in developing countries.
The present study aim to relook at the profitability of banks considering new set of
data. The recent data from 2010 to 2019 was taken to this study.
3.1 Objective
The Study titled “Ownership Structure of Banks and Profitability” is carried out
considering the objectives’.
The data has been collected from secondary sources to know the relationship among profit
margin (PM), assets utilization (AU), ROA and ROE can be summarized.
3.3 Variables
Net profit margin (NPA) = Net Income/Total Operating Income
In the banking literature, profit margin defined as net income available to common
stockholders divided by its total operating income it reflects the percentage of each rupee
of operating income remaining after all costs and expenses are paid. Return on Assets
Data Analysis
The data was analyzed with the help profitability ratios of profit margin, asset utilization
(AU), equity multiplier (EM), return on assets (ROA), and return on equity (ROE). The
comparison carried out at two level. The date has taken in this study average of all banks
of that sector, collected data was mentioned in annexure.
Profit margin
100%
80%
60%
40%
20%
0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-20%
-40%
The result of Table 1 and its figure shows that the Profit margin of foreign banks is high
and the sharp improvement in the private sector banks from 2016 to 2017. The performance
of public owned banks is found declining and also fluctuating over the observed period
Assets utilization
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
With respect to the Assets Utilization, Private and public banks are more Asset utilization
than the foreign banks in India. Foreign banks are clearly lagging behind the private and
public banks.
Equity multiplier
25.000
20.000
15.000
10.000
5.000
0.000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-5.000
Table 3 and its figure indicate that public sector banks have a higher level of financial
leverage than the private and foreign banks up to the citrine period debt level has actually
decreases from 2015. But the private banks maintain same consistency in financial
leverage.
ROA
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-1.00%
-2.00%
-3.00%
Table 4 and its figure indicates that the foreign banks operating in india are more profitable
as measured by ROA than the public sector and private sector banks. The reason they have
been able to achieve better ROA is that they have been control expenses better, which result
in higher net profit margin.
ROE
25.00
20.00
15.00
10.00
5.00
0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-5.00
The above table reveal that the return on equity for the private banks is consistently
maintain throughout the period. While at the same time there seems to be a continuous
dropdown for the public banks.
Foreign Banks
When evaluate the data over the entire ten-year period, we find that private banks are the
best ROE performers, public banks than the foreign banks. Except for this matric, foreign
banks are better than the public banks on all other matric over the ten year period.
Figure 7
NPA
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-5.0%
-10.0%
The implication of this study for the public sector banks are that, while the public sector
banks have improved their net profit margin, they need to continue to control cost and take
immediate step to improve their asset utilization In the era of socialism , profit were not a
priority for Indian public sector banks.
Figure 8
Assets utilization
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
AU Foreign AU Domestic
. The Asset utilization of foreign banks has declined, while that of domestic banks has
shown some improvement.
Figure 10
Equity multiplier
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
domestic foreign
The Equity multiplier of the foreign banks have gone high, while the domestic banks are
goes to down. It shows that capital structure of domestic banks are lesser than foreign
banks.
Figure 10
ROA
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-0.50%
The above table indicates that domestic banks are more profitable as measured by ROA
than the foreign operating banks in India.
Figure 11
Chart Title
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Foreign Domestic
Table 11 and its figure shows that Return on Equity of domestic banks are more than the
foreign banks while at the same time there seems to be a drop for both foreign and public
banks.
JSS CENTRE FOR MANAGEMENT STUDIES, MYSURU
P a g e 20 | 38
Table 12 ROE and its Components
Figure 12
Domestic Bank
Foreign Banks
The result from second stage of analysis are consistent with the earlier findings. The result
indicate that foreign banks improved their profit margin from 2010 to 2017 after that comes
down while the domestic banks showed only marginal improvement during the period The
financial leverage at the foreign banks is higher than that domestic banks after 2014. This
enabled the domestic banks to show decline in the ROE. When we examine the data entire
ten year period, we find that foreign banks have a higher Return on Equity (ROE) than the
domestic banks.
5.1 Conclusion
The result indicate that the foreign banks have had a more profit margin as per this analysis
so that domestic banks should improve their profitability, private banks are catching up
fast with the foreign banks. Public banks need to take note of this fact. When we see the
ROE of public and private banks are less than the private banks this indicates expenses are
getting out of control. When they control expenses it boost to the profit margin.
Many banks in India are going to marge because the focus of banking sector reforms in
India has been public sector banks these banks are in trouble for this reason the Reserve
Bank of India to make healthy public sector bank like SBI acquire weak banks. This will
not be good news. If they increase their capacity and earn than they should use debt finance
optimally and utilize their assets efficiently (high asset utilization).
Ali Ataullah, T. C. (2004). Financial libralization and bank efficiency: a comparative analysis of
India and Pakisthan. Applied economics. doi:10.1080/000368404200068638
Allen N. Berger, L. J. (1997). Inside the black box: What explains differences in the efficiencies
of financial institutions? Journal of Banking & Finance 21 (1997) 895-947.
Anjana Bhattacharyya, A. B. (1994). Changes in Economic Regime and Productivity Grouth: A
Study of Indian Public Sector Banks. Journa of Comparative Economics 25, 196-219
(1997).
Arunava Bhattacharyya, C. L. (1997). Impact of liberalization on the productive efficiency of
Indian commercial banks. European Journal of Operational Research 98 (1997) 332-
345.
Asish Saha, T. S. (1999). Rating of Indian Commercial banks: A DEA approach. European
Journal of Operation Research 124 (2000).
Das, K. R. (2006). Efficiency of Indian commercial banks during the reform period. Applied
Financial Economics.
Dominic Wilson, R. P. (2003). Dreaming with BRICs: The Path to 2050. GS Global Economics
Website, paper No: 99.
George Clark, R. C. (2003). Foreign Banks Entry: Experiance, Implications for Developing
Econopmices, and Agenda for Further Research. The World Bank Research Observer,
vol. 18.
Rasoul Rezvanian, N. R. (2008). Efficiency change, technological progress and productivity
growth of private, public and foreign banks in India: evidence from the post-liberalization
era. Applied Financial Economics, 18:9, 701-713.
Sathye, M. (2003). Efficiency of bankls in a developing economy: The case of India. European
Journal of Operational Research 148 .
Singh, A. K. (2015, may). An Analysis of profitability position of private bank in India.
International Journal of Scientific and Research Publications, Volume 5(Issue 5).
sulgana das, A. d. (2014, Nov). A Study on NPA of Public Sector Banks in India. Journal of
Business and Management (IOSR-JBM), 16(11), 75-83.
Avg 0.174 0.137 0.104 0.091 0.05 0.04 -0.04 0.271 -0.18 -0.21
Alahabad
Bank 0.147 0.129 0.12 0.068 0.063 0.031 0.039 6.298 -0.29 -0.49
Andra Bank 0.749 0.153 0.119 0.1 0.03 0.039 0.031 0.01 -0.19 -0.15
Bank of
Baroda 0.183 0.194 0.169 0.127 0.117 0.079 -0.12 0.033 -0.06 0.009
Bank of
Maharastra 0.093 0.059 0.06 0.079 0.032 0.036 0.008 -0.11 -0.1 -0.44
Bank of India 0.097 0.114 0.094 0.086 0.039 0.039 -0.15 -0.04 -0.16 -0.14
Canara Bank 0.175 0.161 0.175 0.084 0.062 0.062 -0.06 0.027 -0.1 -0.1
Central Bank
of India 0.175 0.082 0.028 0.046 -0.05 0.023 -0.05 -0.1 -0.21 -0.25
Corporation
Bank 0.155 0.167 0.117 0.094 0.032 0.029 -0.03 0.029 -0.23 -0.41
IDBI Bank 0.068 0.089 0.087 0.075 0.042 0.031 -0.13 -0.19 -0.36 -0.68
Indian Bank 0.214 0.197 0.155 0.187 0.027 -0.02 0.061 0.109 0.096 0.018
Indian Oversis
Bank 0.069 0.089 0.077 0.036 0.036 -0.02 -0.12 -0.17 -0.35 -0.36
Jammu and
Kashmir Bank
Ltd 0.168 0.166 0.166 0.172 0.175 0.072 0.06 -0.24 0.031 0.06
Oriental bank
of Commerce 0.111 0.124 0.072 0.075 0.06 0.025 0.008 -0.06 -0.34 0.003
Punjab
National Bank 0.182 0.164 0.134 0.113 0.077 0.066 0.018 -0.08 -0.26 -0.19
Punjab and
Sind Bank 0.091 0.059 0.091 0.059 0.038 0.014 0.038 0.025 -0.09 -0.06
UCO Bank 0.106 0.08 0.076 0.037 0.083 0.059 -0.15 -0.11 -0.32 -0.3
Annexure 2
Annexure 3
Andra Bank 25.96 23.24 19.25 16.19 5.07 6.79 5.3 1.67 0 0
Bank of Baroda 21.86 24.3 21.72 15.68 13.8 9.21 -13.65 3.44 -5.81 0.92
Bank of
19.67 11.26 11.19 16.8 6.4 7.06 1.38 0 0 0
Maharastra
Bank of India 14.16 17.3 15 12.95 11.16 6.32 0 0 0 0
Canara Bank 26.76 26.42 17.02 13.21 10.38 10.69 0 3.92 0 1.05
Central Bank of
25.61 19.46 4.97 8.33 0 4.18 0 0 0 0
India
Corporation Bank 21.93 21.89 19.54 16.08 5.72 5.68 0 4.84 0 0
Indian Bank 24.98 22.97 19.89 15.7 10.31 8.25 5.41 10.06 8.31 2
Indian Oversis
11.5 14.78 11.08 4.91 4.51 0 0 0 0 0
Bank
Jammu and
18.19 18.96 21.22 23.56 22.34 8.6 6.64 -28.47 3.83 8.04
Kashmir Bank Ltd
Oriental bank of
16.48 17.15 10.72 11.46 9.16 5.99 1.16 -8.29 0 0.33
Commerce
Punjab National
26.59 24.45 21.05 16.48 10.17 8.48 -10.87 3.59 -32.44 0
Bank
Punjab and Sind
29.65 21.46 14.02 9.18 7.36 2.76 6.8 3.89 -14.03 -10.75
Bank
State Bank of India 14.8 12.62 15.72 15.43 10.03 10.62 7.3 6.97 0 0.42
Syndicate Bank 16.57 17.64 17.88 22.78 16.73 13.22 -13.92 2.98 0 0
Union Bank of
26.16 20.89 14.76 14.98 10.35 10.08 6.99 2.65 0 0
India
United Bank of
11.69 14.4 14.45 7.53 -29.12 5.62 -5.31 3.59 0 0
India
Annexure 5
HDFC bank PM 18% 20% 19% 19% 21% 21% 20% 21% 22% 21%
ICICI bank PM 16% 20% 19% 21% 22% 23% 18% 18% 12%
Indusind bank PM 13% 16% 15% 15% 17% 19% 19% 20% 21% 15%
kotak
mahindra
bank PM 29% 26% 22% 20% 21% 23% 17% 22% 24% 24%
-
IDFC PM 13% 12% 10% 16%
yes bank PM 20% 18% 15% 16% 16% 17% 19% 20% 21% 6%
Annexure 6
ratnakar bank AU 7% 7% 7% 7% 8% 7% 8%
south india
bank AU 8% 7% 9% 9% 9% 9% 9% 8% 7%
tamilnad
marcantile
bank AU 8% 9% 9% 10% 1% 10% 5% 4% 4%
axis bank AU 6% 6% 8% 8% 8% 8% 8% 7% 7% 7%
development
credit bank AU 7% 7% 8% 8% 9% 9% 9% 9% 8% 8%
HDFC bank AU 7% 7% 8% 9% 8% 8% 8% 8% 8% 8%
ICICI bank AU 7% 6% 7% 7% 7% 8% 7% 7% 6%
yes bank AU 7% 7% 1% 8% 9% 8% 8% 8% 6% 8%
Annexure 8
Return on Equity
YEAR 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
catholic cyrian
0 5 5 5 5 0 0 0 0 0
bank
city union bank 21 23 25 22 19 17 15 15 15 15
Dhanlakshmi bank 5 4 0 0 0 0 0 1 0 1
jammu and
18 19 21 24 22 9 7 -28 4 8
kashmir bank
karnataka bank 10 10 10 13 11 14 12 11 7 9
ratnakar bank 6 2 6 7 5 10 11 12 12 12
tamilnad
17 20 21 24 14 16 15 10 7 7
marcantile bank
axis bank 19 19 20 19 17 18 17 7 0 7
ICICI bank 8 10 11 13 14 15 12 11 7 3
Indusind bank 19 19 19 18 18 19 17 15 16 13
kotak mahindra
13 14 15 16 14 14 11 13 13 12
bank
IDFC 0 7 7 6 0
Bandan bank 0 14 29 19 19
yes bank 20 21 23 25 25 21 20 19 18 7
Average 13 14 15 15 14 11 12 10 9 8
Annexure 9
PM of foreign banks
Year 2010 2011 2012 2013 2014 2015 2016 2017 2018
Avg 0.37 0.43 0.37 0.37 0.35 0.34 0.24 0.41 0.47
HSBC Bank $(M) 0.36 0.44 0.41 0.50 0.42 1.03 0.27 0.93 1.19
- - -
Deutsche Bank 0.15 0.25 0.01 0.03 0.07 0.26 0.05 0.03 0.01
- -
Standerd chartered bank 0.33 0.30 0.28 0.24 0.16 0.15 0.01 0.48 0.34
DBS bank ($)M 0.43 0.68 0.53 0.49 0.47 0.47 0.45 0.42 0.41
ANZ group 0.17 0.15 0.19 0.22 0.25 0.25 0.19 0.22
Bank of nova scotia 0.36 0.40 0.41 0.39 0.40 0.38 0.36 0.38
Doha bank 0.78 0.79 0.78 0.72 0.70 0.67 0.51 0.49 0.40
Avg 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.02 0.03
HSBC Bank $(M) 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.00
Deutsche Bank 0.02 0.02 0.02 0.02 0.01 0.02 0.02 0.02 0.02
Standerd chartered bank 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.10
DBS bank ($)M 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.03
ANZ group 0.05 0.05 0.05 0.04 0.04 0.03 0.03 0.03
Bank of nova scotia 0.02 0.02 0.02 0.02 0.02 0.02 0.04 0.04
Doha bank 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02
Annexure 11
ROA of Foreign Banks
bank
DBS bank
17.59 7.34 15.11 10.36 0.06 0 0.2 0.27 0
($)M
ANZ group 0.15 0.5 4.38 4.7 3.79 2.86 4.33 1.1
Bank of nova
20.7 16.6 17.96 17.45 16.05 8.92 6.88 0 3.29
scotia
Doha bank 0.48 2.97 0 0 4.81
Average 12.46 10.28 12.46 13.27 6.178 5.786 4.867 3.272 3.68 7.19