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LOVELY PROFESSIONAL UNIVERSITY
DEPARTMENT OF MANAGEMENT

“A Comparative analysis of Profitability and Productivity in Indian
Banks with special reference to Public, Private & Foreign Banks.”

Submitted to Lovely Professional University
In partial fulfillment of the requirements for the award of degree of
MASTER OF BUSINESS ADMINISTRATION

Submitted by: Supervisor:
Vinay Kumar Mrs. Ashima Thaper
2020070272 Lecturer (Lovely School of Business)

PHAGWARA

1

(2009)



TO WHOMSOEVER IT MAY CONCERN

This is to certify that the project report titled, "A Comparative analysis of Profitability
and Productivity in Indian Banks with special reference to Public, Private &
Foreign Banks” carried out by Mr. Vinay Kumar, S/o Sh. Harjinder Singh has been
accomplished under my guidance & supervision as a duly registered MBA student of the
Lovely Professional University, Phagwara. This project is being submitted by him/her in
the partial fulfillment of the requirements for the award of the Master of Business
Administration from Lovely Professional University.

His dissertation represents his original work and is worthy of consideration for the award
of the degree of Master of Business Administration.

Mrs. Ashima Thaper

(Name & Signature of the Faculty Advisor)

Title: “A Comparative analysis of Profitability and Productivity in Indian Banks
with special reference to Public, Private & Foreign Banks.”

Date: ______________________________

2

Date:



DECLARATION

I, "Vinay Kumar”, hereby declare that the work presented herein is genuine work done
originally by me and has not been published or submitted elsewhere for the requirement
of a degree programme. Any literature, data or works done by others and cited within this
dissertation has been given due acknowledgement and listed in the reference section.

Vinay Kumar

(Student's name & Signature)

2020070272

(Registration No.)

Date: __________________

3



Suggestive Cha

S.No Chapter Page No.

1 1.1 Introduction to Subject

• Productivity 2

• Aspects of productivity 2-4

5
• Profitability

5-8
• How banks uses the profitability analysis

9-13
1.2 Objective, Need, Scope & Methodology

2. 2.1 Introduction to Indian Banking 15-16

16-19
2.2 History
20
2.3 Banking system in India
21-26
2.4 Banks in India
26-28
2.5 The status of the banks in India as on December 2008

4

3 Survey of Literature 30-33

4 Analysis of the profitability and productivity of Public sector 35-71
banks vis-à-vis with Private sector banks and Foreign banks

5 Findings, Conclusion, Limitations & Recommendations 73-81

6 Bibliography

7 Appendix

5

Executive summary:

The new millennium has brought along challenges and opportunities in the various fields
of economic activities including banking. The entry of various private sector and foreign
banks exposed the inefficiencies in the public sector banks. . Indian banking, which was
operating in a highly comfortable environment till the beginning of the 1990s, has been
pushed into the choppy water of intense competition. The modern banking activity is
marked by itineraries into un-chartered horizons mingled with risks and heavy
competition. Immediately after nationalization, the Public Sector Banks spread their
branches to remote areas at a rapid pace Their main objective was to act on behalf of the
government to fulfill economic obligations towards the common man. They acted over
enthusiastically in penetrating into far-flung and remote corners of the country. The
social responsibility that was entrusted upon the Public sector Banks digresses them from
the profit motive. On the other hand private and foreign banks did not make such moves.
Instead, they pursued profit making as the objective for their operations.

In 1992 the RBI launched banking sector reforms, as per the recommendations made by
the Narasimhan Committee on financial reforms to create a more profitable, efficient and
sound banking system. The reforms opened the banking sector for private players.
Domestic private sector banks are divided into two categories old banks which existed
with the public sector banks before the entry deregulation and the new banks that came
into existence after the reforms of 1992. The old banks are smaller in size and are
regional. In contrast the new private sector banks are much larger in size, operate
primarily in metros and are technologically superior. Interestingly, unlike many
developing countries, where the government owned financial institutions own major
equity of the private banks, the equity share holders of the old private sector banks were
mainly non government bodies. However, most of the new private sector banks, in India
are promoted by the government owned financial Institutions. These banks, too, are in the

6

process of reducing promoter’s stake by raising funds through the capital market
represents the banking system in India.

The emergence of New Private Sector Banks in 1995 exposed the inefficiencies of the
public sector banks. New Private Sector Banks have set a blistering pace of growth,
easily beating the growth rate of Public Sector Banks. The business share for Private
Sector Banks is very small but their share in the total net profit of the banking system is
disproportionately high. Just like in any other business, profit in banking acts as a
stimulant factor for management to expand and improve their services. Though Profit
maximization is secondary for Public Sector Banks, adequate profit is necessary for their
survival and healthy operations because even socio-economic obligations, like branch
expansion in rural areas and priority sector advances cannot be fulfilled without adequate
profit.

Objectives of the study

1. To compare the profitability and productivity of the public sector banks vis-à-vis
with the private sector banks and foreign banks for the past 5 years i.e. from
2003-2004 to 2007-2008.

2. To study the market performance of the various sector banks i.e. Public, Private &
Foreign Banks.

3. To analyze the impact of recent slowdown on the various sector Banks in India.

4. To study the recent developments in the Indian banking sector.

Need of the study:

banks exposed the inefficiencies in the public sector banks. This paper focuses on the
achievement and performance of Public Sector Banks vis-à-vis Private Sector Banks and
Foreign Banks. The parameters selected for evaluation of performance of various

7

categories of banks are profitability and productivity. The time period for the
performance analysis has been chosen as 2003-04 to 2007-08.This paper compares
various categories of banks on their productivity and profitability and also measures the
impact of the recent slowdown on the Indian banking sector.

Methodology used:

A five years period (2003-2004 to 2007-2008) has been selected for evaluating the
performance. The logic of selection of this period is to find out the impact of
government’s decontrolled and liberalized policies on public sector banks as compared to
other categories of banks like private sector banks and foreign banks.

The other reason is that the new private sector banks, which are having major share in
asset holding, started their business commercially from the year 1996 onwards; to
segregate the overall result of the new private sector banks it is more appropriate to select
this period. The study uses Ratio analysis to compare profitability and business per
employees and profit per employees to compare the productivity of different categories of
banks. Ratio analysis is a powerful tool of financial analysis. In financial analysis ratios
are generally used as benchmarks for evaluating a firm’s position or performance. The
absolute values may not provide us meaningful values until and unless they are related to
some other relevant information. Ratios represent the relationship between two or more
variables. Ratios help to summarize large data to draw qualitative judgments about the
firm’s performance.

Ratio used for the measuring the profitability:

• Net Profit Ratios: Net Profit/Total Income*100

• Return On Net Worth: Net Profit/Net Worth*100

• Capital adequacy ratio: Capital/Risk*100

• Net profit, total income.

Formula used for measuring the productivity:

8

• Business Per Employees: Business/Number Of Employees

• Profit Per Employees: Profit/ Number Of Employees

Scope of the study:
The scope of the study is limited to the Indian Banking Sector only. For the purpose of
this study only those banks which are operating in India are taken into consideration.
Study period is limited between the time frame of 2004-2008.

Limitation of the study:

• Time constraint is one of the limiting factors to conduct this study properly.

• Non availability of the data on productivity of the banks as well as the capital
adequacy ratio data for the period 2004 and 2005.

• Finding of the study is made on the basis of the analysis of the banks taken for the
study and it can vary from person to person.

• The samples of the banks are taken on the convenience basis so as to meet the
objectives of the study.

9

Chapter-1
1.1: Introduction to the subject
Productivity

Aspects of productivity

Profitability

How banks uses the profitability
analysis

1.2: Objective, Need, Scope &

Methodology

10

1.1:Introduction to the subject:
1.1.1:Productivity

Definition

The amount of output per unit of input (labor, equipment, and capital). There are many
different ways of measuring productivity. For example, in a factory productivity might be
measured based on the number of hours it takes to produce a good, while in the service
sector productivity might be measured based on the revenue generated by an employee
divided by his/her salary.

The formula of total productivity is normally written as follows:

Total productivity = Output quantity / Input quantity

According to this formula, changes in input and output have to be measured inclusive of
both quantitative and qualitative changes. In practice, quantitative and qualitative changes
take place when relative quantities and relative prices of different input and output factors
alter. In order to accentuate qualitative changes in output and input, the formula of total
productivity shall be written as follows:

Total productivity = Output quality and quantity / Input quality and quantity

1.1.2: Aspects of productivity:

Productivity studies

11

Productivity studies analyze technical processes and engineering relationships such as
how much of an output can be produced in a specified period of time. It is related to the
concept of efficiency. While productivity is the amount of output produced relative to the
amount of resources (time and money) that go into the production, efficiency is the value
of output relative to the cost of inputs used. Productivity improves when the quantity of
output increases relative to the quantity of input. Efficiency improves, when the cost of
inputs used is reduced relative the value of output. A change in the price of inputs might
lead a firm to change the mix of inputs used, in order to reduce the cost of inputs used,
and improve efficiency, without actually increasing the quantity of output relative the
quantity of inputs. A change in technology, however, might allow a firm to increase
output with a given quantity of inputs; such an increase in productivity would be more
technically efficient, but might not reflect any change in allocative efficiency.

Increases in productivity

Companies can increase productivity in a variety of ways. The most obvious methods
involve automation and computerization which minimize the tasks that must be
performed by employees. Recently, less obvious techniques are being employed that
involve ergonomic design and worker comfort. A comfortable employee, the theory
maintains, can produce more than a counterpart who struggles through the day. In fact,
some studies claim that measures such as raising workplace temperature can have a
drastic effect on office productivity. Experiments done by the Japanese Shiseido
corporation also suggested that productivity could be increased by means of perfuming or
deodorizing the air conditioning system of workplaces. Increases in productivity also can
influence society more broadly, by improving living standards, and creating income.
They are central to the process generating economic growth and capital accumulation. A
new theory suggests that the increased contribution that productivity has on economic
growth is largely due to the relatively high price of technology and its exportation via
trade, as well as domestic use due to high demand, rather than attributing it to micro
economic efficiency theories which tend to downsize economic growth and reduce labor
productivity for the most part. Many economists see the economic expansion of the later
1990s in the United States as being allowed by the massive increase in worker

12

productivity that occurred during that period. The growth in aggregate supply allowed
increases in aggregate demand and decreases in unemployment at the same time that
inflation remained stable. Others emphasize drastic changes in patterns of social behavior
resulting from new communication technologies and changed male-female relationships.

Labor productivity

Labour productivity is generally speaking held to be the same as the "average product of
labor" (average output per worker or per worker-hour, an output which could be
measured in physical terms or in price terms). It is not the same as the marginal product
of labor, which refers to the increase in output that results from a corresponding increase
in labor input. The qualitative aspects of labor productivity such as creativity, innovation,
teamwork, improved quality of work and the effects on other areas in a company are
more difficult to measure.

Productivity paradox

Despite the proliferation of computers, there have not been any observable increases in
productivity as a result. One hypothesis to explain this is that computers are productive,
yet their productive gains are realized only after a lag period, during which
complementary capital investments must be developed to allow for the use of computers
to their full potential. Another hypothesis states that computers are simply not very
productivity enhancing because they require time, a scarce complementary human input.
This theory holds that although computers perform a variety of tasks, these tasks are not
done in any particularly new or efficient manner, but rather they are only done faster. It
has also been argued that computer automation just facilitates ever more complex
bureaucracies and regulation, and therefore produces a net reduction in real productivity.
Another explanation is that knowledge work productivity and IT productivity are linked,
and that without improving knowledge work productivity, IT productivity does not have
a governing mechanism

13

1.1.3: Profitability:

Ability of a firm to generate net income on a consistent basis. It is often measured by
price to earnings ratio.

1.1.4: How banks uses the profitability analysis:

Banks have come a long way towards Customer Relationship Management in the past
five years. In the 1980’s most banks had not yet created a consolidated Marketing
Customer Information File (MCIF). Their credit card accounts were kept on one
computer, checking accounts on another, and home mortgages on a third. By 1990, most
banks had figured out how to group all customer accounts together on an MCIF, even if
they were maintained separately.

The next step was determining the profitability of each customer. This is not easy.
Modern profitability software adds up the revenues from each account, and subtracts the
bank’s costs on a monthly basis. The costs include the cost of the funds, provision for
losses, overhead, deposit insurance, and customer’s usage of bank services. Profitability
software is still in its infancy. It offers a real challenge for software providers to deliver
an outstanding product. It will be particularly useful for advanced data applications.

Once the software has determined the profitability of each account each month, each
customer’s total profitability has to be computed by adding together the profits or losses
from each of his accounts. When banks first do this calculation, it often comes as quite a
shock. Some, like the Fleet Bank, have found that as many as half of their total customers
are unprofitable. Many will never be profitable. Their marketing staffs are busy working
to acquire and retain people who destroy value for the bank!

14

With knowledge of profitability, banks begin to classify their customers into profitability
segments so that they can understand and modify customer and employee behavior. Here
is the way one bank classified its customers in a recent month:

(Chart 1.1)

The top two segments, representing 16% of the bank’s customers, were responsible for
105% of the bank’s total profit. The bottom 28% represented a loss of 22% of the profit.
This picture is typical of many banks.

What are banks doing about this situation? In the first place, few banks have reached the
this stage yet, and most of those have not developed any conscious strategies to deal with
the problem. Those that have developed a plan, however, have come up with some
innovative ideas.

Most are working very hard to retain the customers in the top two groups. These are
designated as Gold customers. Banks try to extend special services to them. Gold
customers call in on special toll free lines. Branch managers are furnished with the names
of their top customers, and are instructed to meet and greet them when they visit a
branch. They are assigned personal bankers, who call and introduce themselves.

15

The customer access screens used by bank personnel include a profitability code, so
employees can know whether they are dealing with a 5, 4, 3, 2, or 1. When the loans for
the 1s come up for renewal, they are renewed at a higher rate, to try to nudge them into
profitability, or possibly to get them to take their business elsewhere. The software does
something else which is quite sophisticated. The software determines which bank
products should be suggested to the customer during customer contacts on the phone or in
person. These products are selected by formulas that determine what bank products the
customer currently uses, and what his current balances would indicate that he might be
eligible for and want to use next. The software also suggests the appropriate rates for
loans or CDs based both on the current market, and the customer’s profitability level. The
bank software is often tied to the customer service call director, which routes Gold
customer calls to special Gold Service teams, and provides only minimal service for
unprofitable customers.

Customers who visit branch offices cost the bank considerable money. It is much more
economical for customers to use an ATM, mail, or PC banking. For this reason, some
banks have tried to discourage branch visits by charging a fee. Profitability analysis
shows that such policies may be a serious mistake. As the above chart indicates, branches
are visited most by two groups: the most profitable and the least profitable. Policies that
turn away unprofitable customers may also turn off Gold customers.

Beyond Profitability

Profitability only measures the past. Lifetime value projects this into the future, and looks
at what each customer can do for the bank in the coming years. Fleet Bank, for example,
determines customer profitability and lifetime value each month, and also computes
potential lifetime value if the customer can be talked into purchasing the most likely next
products. In this way, Fleet manages its customer relationships in a highly professional
manner. We will be covering lifetime value in a future article.

What are marketer’s roles in this revolution in banking customer management? Database
marketing analysts should:

Have profitability computation software available

16

Assist banks in creating marketing customer profitability customer segments

Help to create “Next best product” software

Have the results of this program appear on customer contact screens throughout the bank

Assist banks in moving their customers towards profitability, using these new techniques.

17

1.2.1: Need of the study:

banks exposed the inefficiencies in the public sector banks. This paper focuses on the
achievement and performance of Public Sector Banks vis-à-vis Private Sector Banks and
Foreign Banks. The parameters selected for evaluation of performance of various
categories of banks are profitability and productivity. The time period for the
performance analysis has been chosen as 2003-04 to 2007-08.This paper compares
various categories of banks on their productivity and profitability and also measures the
impact of the recent slowdown on the Indian banking sector.

1.2.2: Objectives of the study

5. To compare the profitability and productivity of the public sector banks vis-à-vis
with the private sector banks and foreign banks for the past 5 years i.e. from
2003-2004 to 2007-2008.

6. To study the market performance of the various sector banks i.e. Public, Private &
Foreign Banks.

7. To analyze the impact of recent slowdown on the various sector Banks in India.

8. To study the recent developments in the Indian banking sector.

18

1.2.3: Scope of the study:
The scope of the study is limited to the Indian Banking Sector only. For the purpose of
this study only those banks which are operating in India are taken into consideration.
Study period is limited between the time frame of 2004-2008.

1.2.4: Research Methodology:

Research methodology is a way to systematically solve the research problem. The
research methodology includes the various methods and techniques for conducting a
research. “Marketing Research is the systematic design, collection analysis and reporting
of data and finding relevant solution to a specific marketing situation or problem.” D.
Slesinger and M. Stephenson in the encyclopedia of social sciences define Research as
“the manipulation of things, concept or symbols for the purpose of generalizing to
extend, correct or verify knowledge, whether that knowledge aid n construction of theory
and practice of an art.

Research is thus an original contribution to the existing stock of knowledge making for
its advancement. The purpose of research is to discover the answers to the questions
through the application of scientific procedures.

1.2.4.1 Defining the Research Problem and Objectives: It is said, “A problem well
defined is half solved”. The first step in research methodology is to define the problem
and deciding the research objective. The objective of this study is to know about the
“Investors Perception towards Credit Rating”

1.2.4.2 Research Design: Research Design is a blueprint or framework for conducting
the research project. It specifies the details of the procedures necessary for obtaining the

19

information needed to structure and solve marketing research problem. The research
design of the study is diagnostic research.

1.2.4.3 Sampling design: sampling can be defined as the section of some part of an
aggregate or totality on the basis of which judgment or an inference about aggregate or
totality is made. The steps involved in sampling design are as follows:

1.2.4.3(1) Universe: Universe refers to the total of the units in field of inquiry. This study
is restricted to Indian Banking Sector only.

1.2.4.3(2) Sampling unit: Sampling frame is the representation of the elements of the
target population. Sampling unit of this study is the Public, Private and foreign sector
banks in India.

1.2.4.3(3) Sampling size: sampling size is the total no. of units which we covered in the
study.

The sample used for the study is as follows:

1. 10 public sector banks,

2. 08 Private sector banks consisting of old private sector and new private sector banks.

3. 10 Foreign Banks in India.

PUBLIC SECTOR FOREIGN BANKS PRIVATE BANKS
BANKS
ABN Amro Bank
Andhra Bank N.V. ICICI BANK

Bank of Baroda Bank of America NA AXIS BANK

Canara Bank Barclays Bank PLC YES BANK

Indian Overseas Bank Citibank N.A. LAKSHMI VILAS BANK

Oriental Bank of HSBC KARUR VYSYA BANK

20

Commerce

DEVELOPMENT CREDIT
Punjab National Bank Deutsche Bank AG BANK

JPMorgan Chase
State Bank of India Bank KOTAK MAHINDRA BANK

UCO Bank Societe Generale CITY UNION BANK

United Bank of India BNP Paribas

The Bank of Nova
Vijaya Bank Scotia

(Table 1.4)

1.2.4.3(4) Sampling Techniques: Sampling Technique used in this study is Convenient
Sampling.

Convenient sampling: it is that type of sampling where the researcher selects the sample
according to his or her convenience.

1.2.4.4 Data Collection and Analysis: Data can be collected in two ways

1.2.4.4 (a) Primary data: Primary data are those, which are collected a fresh and for the
first time and thus happen to be original in character. It is the backbone of any study.

1.2.4.4 (b) Secondary data: Secondary data are those which have already been collected
by someone else and which have already been passed through the statistical process. In
this case one is not confronted with the problems that are usually associated with the
collection of original data. Secondary data either is published data or unpublished data.

1.2.4.5 Source of data: The study is based on secondary data collected from the various
volumes of banking statistics published by Reserve Bank of India and Indian Banking
Association (IBA). The variables studied are interest paid; interest earned, total deposits
and advances, non operating income and expenses.

1.2.4.6 Data Analysis Tools: A five years period (2003-2004 to 2007-2008) has been
selected for evaluating the performance. The logic of selection of this period is to find out

21

the impact of government’s decontrolled and liberalized policies on public sector banks
as compared to other categories of banks like private sector banks and foreign banks.

The other reason is that the new private sector banks, which are having major share in
asset holding, started their business commercially from the year 1996 onwards; to
segregate the overall result of the new private sector banks it is more appropriate to select
this period. The study uses Ratio analysis to compare profitability and business per
employees and profit per employees to compare the productivity of different categories of
banks. Ratio analysis is a powerful tool of financial analysis. In financial analysis ratios
are generally used as benchmarks for evaluating a firm’s position or performance. The
absolute values may not provide us meaningful values until and unless they are related to
some other relevant information. Ratios represent the relationship between two or more
variables. Ratios help to summarize large data to draw qualitative judgments about the
firm’s performance.

Ratio used for the measuring the profitability:

Net Profit Ratios: Net Profit/Total Income*100

Return On Net Worth: Net Profit/Net Worth*100

Capital adequacy ratio: Capital/Risk*100

net profit, total income.

Formula used for measuring the productivity:

Business per Employees: Business/Number of Employees

Profit Per Employees: Profit/ Number Of Employees

22

Chapter-2
Introduction to Indian Banking

History

Banking system in India

Banks in India

The status of the banks in India
as on December 2008

23

2.1: Introduction:

banks exposed the inefficiencies in the public sector banks. . Indian banking, which was
operating in a highly comfortable environment till the beginning of the 1990s, has been
pushed into the choppy water of intense competition. The modern banking activity is
marked by itineraries into un-chartered horizons mingled with risks and heavy
competition. Immediately after nationalization, the Public Sector Banks spread their
branches to remote areas at a rapid pace Their main objective was to act on behalf of the
government to fulfill economic obligations towards the common man. They acted over
enthusiastically in penetrating into far-flung and remote corners of the country. The
social responsibility that was entrusted upon the Public sector Banks digresses them from
the profit motive. On the other hand private and foreign banks did not make such moves.
Instead, they pursued profit making as the objective for their operations.

In 1992 the RBI launched banking sector reforms, as per the recommendations made by
the Narasimhan Committee on financial reforms to create a more profitable, efficient and
sound banking system. The reforms opened the banking sector for private players.
Domestic private sector banks are divided into two categories old banks which existed
with the public sector banks before the entry deregulation and the new banks that came
into existence after the reforms of 1992. The old banks are smaller in size and are

24

regional. In contrast the new private sector banks are much larger in size, operate
primarily in metros and are technologically superior. Interestingly, unlike many
developing countries, where the government owned financial institutions own major
equity of the private banks, the equity share holders of the old private sector banks were
mainly non government bodies. However, most of the new private sector banks, in India
are promoted by the government owned financial Institutions. These banks, too, are in the
process of reducing promoter’s stake by raising funds through the capital market
represents the banking system in India.

The emergence of New Private Sector Banks in 1995 exposed the inefficiencies of the
public sector banks. New Private Sector Banks have set a blistering pace of growth,
easily beating the growth rate of Public Sector Banks. The business share for Private
Sector Banks is very small but their share in the total net profit of the banking system is
disproportionately high. Just like in any other business, profit in banking acts as a
stimulant factor for management to expand and improve their services. Though Profit
maximization is secondary for Public Sector Banks, adequate profit is necessary for their
survival and healthy operations because even socio-economic obligations, like branch
expansion in rural areas and priority sector advances cannot be fulfilled without adequate
profit.

2.2: History of Banking in India

Without a sound and effective banking system in India it cannot have a healthy economy.
The banking system of India should not only be hassle free but it should be able to meet
new challenges posed by the technology and any other external and internal factors.

For the past three decades India's banking system has several outstanding achievements
to its credit. The most striking is its extensive reach. It is no longer confined to only
metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even
to the remote corners of the country. This is one of the main reasons of India's growth
process.

The government's regular policy for Indian bank since 1969 has paid rich dividends with

25

the nationalization of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank counters for getting a
draft or for withdrawing his own money. Today, he has a choice. Gone are days when the
most efficient bank transferred money from one branch to other in two days. Now it is
simple as instant messaging or dial a pizza. Money have become the order of the day.

The first bank in India, though conservative, was established in 1786. From 1786 till
today, the journey of Indian Banking System can be segregated into three distinct phases.
They are as mentioned below:

• Early phase from 1786 to 1969 of Indian Banks

• Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms.

• New phase of Indian Banking System with the advent of Indian Financial &
Banking Sector Reforms after 1991.

To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and
Phase III.

Phase I

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan
and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency
Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab
National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and
1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank,

26

and Bank of Mysore were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic
failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To
streamline the functioning and activities of commercial banks, the Government of India
came up with The Banking Companies Act, 1949 which was later changed to Banking
Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of
India was vested with extensive powers for the supervision of banking in India as the
Central Banking Authority.

During those day’s public has lesser confidence in the banks. As an aftermath deposit
mobilization was slow. Abreast of it the savings bank facility provided by the Postal
department was comparatively safer. Moreover, funds were largely given to traders.

Phase II

Government took major steps in this Indian Banking Sector Reform after independence.
In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a
large scale specially in rural and semi-urban areas. It formed State Bank of India to act as
the principal agent of RBI and to handle banking transactions of the Union and State
Governments all over the country.

Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th
July, 1969, major process of nationalization was carried out. It was the effort of the then
Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country
were nationalised.

Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980
with seven more banks. This step brought 80% of the banking segment in India under
Government ownership.

27

The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:

• 1949: Enactment of Banking Regulation Act.

• 1955: Nationalisation of State Bank of India.

• 1959: Nationalisation of SBI subsidiaries.

• 1961: Insurance cover extended to deposits.

• 1969: Nationalisation of 14 major banks.

• 1971: Creation of credit guarantee corporation.

• 1975: Creation of regional rural banks.

• 1980: Nationalisation of seven banks with deposits over 200 crore.

After the nationalisation of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.

Banking in the sunshine of Government ownership gave the public implicit faith and
immense confidence about the sustainability of these institutions.

Phase III

This phase has introduced many more products and facilities in the banking sector in its
reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was
set up by his name which worked for the liberalisation of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being put
to give a satisfactory service to customers. Phone banking and net banking is introduced.
The entire system became more convenient and swift. Time is given more importance

28

than money.

The financial system of India has shown a great deal of resilience. It is sheltered from any
crisis triggered by any external macroeconomics shock as other East Asian Countries
suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high,
the capital account is not yet fully convertible, and banks and their customers have
limited foreign exchange exposure.

2.3: The banking system in India

Almost 80% of the businesses are still controlled by Public Sector Banks (PSBs). PSBs
are still dominating the commercial banking system. Shares of the leading PSBs are
already listed on the stock exchanges.

The RBI has given licenses to new private sector banks as part of the liberalisation
process. The RBI has also been granting licensees to industrial houses. Many banks are
successfully running in the retail and consumer segments but are yet to deliver services to
industrial finance, retail trade, small business and agricultural finance.

The PSBs will play an important role in the industry due to its number of branches and
foreign banks facing the constraint of limited number of branches. Hence, in order to
achieve an efficient banking system, the onus is on the Government to encourage the
PSBs to be run on professional lines.

Banks in India

In India the banks are being segregated in different groups. Each group has their own
benefits and limitations in operating in India. Each has their own dedicated target market.
Few of them only work in rural sector while others in both rural as well as urban. Many
even are only catering in cities. Some are of Indian origin and some are foreign players.

29

All these details and many more is discussed over here. The banks and its relation with
the customers, their mode of operation, the names of banks under different groups and
other such useful information's are talked about.

One more section has been taken note of is the upcoming foreign banks in India. The RBI
has shown certain interest to involve more of foreign banks than the existing one
recently. This step has paved a way for few more foreign banks to start business in India.

Major Banks in India

• ABN-AMRO Bank • Indian Bank

• Abu Dhabi Commercial • Indian Overseas Bank
Bank
• IndusInd Bank
• American Express Bank
• ING Vysya Bank
• Andhra Bank
• Jammu & Kashmir Bank
• Allahabad Bank
• JPMorgan Chase Bank
• Axis Bank (Earlier UTI
• Karnataka Bank
Bank)
• Karur Vysya Bank
• Bank of Baroda
• Laxmi Vilas Bank
• Bank of India
• Oriental Bank of
• Bank of Maharastra
Commerce
• Bank of Punjab
• Punjab National Bank
• Bank of Rajasthan
• Punjab & Sind Bank

30

• Bank of Ceylon • Scotia Bank

• BNP Paribas Bank • South Indian Bank

• Canara Bank • Standard Chartered Bank

• Catholic Syrian Bank • State Bank of India (SBI)

• Central Bank of India • State Bank of Bikaner &
Jaipur
• Centurion Bank
• State Bank of Hyderabad
• China Trust Commercial
Bank • State Bank of Indore

• Citi Bank • State Bank of Mysore

• City Union Bank • State Bank of Saurastra

• Corporation Bank • State Bank of Travancore

• Dena Bank • Syndicate Bank

• Deutsche Bank • Taib Bank

• Development Credit Bank • UCO Bank

• Dhanalakshmi Bank • Union Bank of India

• Federal Bank • United Bank of India

• HDFC Bank • United Western Bank

• HSBC • Vijaya Bank

• ICICI Bank

• IDBI Bank

(Table 1.i)

31

Banking in India

Central bank Reserve Bank of India

Allahabad Bank · Andhra Bank · Bank of Baroda · Bank of India ·
Bank of Maharashtra · Canara Bank · Central Bank of India ·
Corporation Bank · Dena Bank · Indian Bank · Indian Overseas
Nationalized banks
Bank · Oriental Bank of Commerce · Punjab & Sind Bank ·
Punjab National Bank · Syndicate Bank · Union Bank of India ·
United Bank of India · UCO Bank · Vijaya Bank · IDBI Bank

State Bank of India · State Bank of Bikaner & Jaipur · State Bank
of Hyderabad · State Bank of Indore · State Bank of Mysore ·
State Bank Group
State Bank of Patiala · State Bank of Saurashtra · State Bank of
Travancore

Private banks Axis Bank · Bank of Rajasthan · Bharat Overseas Bank · Catholic

32

Syrian Bank · Centurion Bank of Punjab · City Union Bank ·
Development Credit Bank · Dhanalakshmi Bank · Federal Bank ·
Ganesh Bank of Kurundwad · HDFC Bank · ICICI Bank ·
IndusInd Bank · ING Vysya Bank · Jammu & Kashmir Bank ·
Karnataka Bank Limited · Karur Vysya Bank · Kotak Mahindra
Bank · Lakshmi Vilas Bank · Nainital Bank · Ratnakar Bank · SBI
Commercial and International Bank · South Indian Bank · Tamil
Nadu Mercantile Bank · Amazing Mercantile Bank · YES Bank

ABN AMRO · Barclays Bank · Citibank India · HSBC · Standard
Foreign banks
Chartered · Deutsche Bank · Royal Bank of Scotland

South Malabar Gramin Bank · North Malabar Gramin Bank ·
Regional Rural banks
Pragathi Gramin Bank · Shreyas Gramin Bank

Real Time Gross Settlement(RTGS) · National Electronic Fund
Financial Services Transfer (NEFT) · Structured Financial Messaging System
(SFMS) · CashTree · Cashnet · Automated Teller Machine (ATM)

(Table 1.2)

33

Fact Files of Banks in India

The first, the oldest, the largest, the biggest, get all such types of information's about
Banking in India in this section.

The first bank in India to be given an ISO Certification Canara Bank

The first bank in Northern India to get ISO 9002 certification for Punjab and Sind
their selected branches Bank

Punjab National
The first Indian bank to have been started solely with Indian capital
Bank

The first among the private sector banks in Kerala to become a
South Indian Bank
scheduled bank in 1946 under the RBI Act

India's oldest, largest and most successful commercial bank,
offering the widest possible range of domestic, international and
State Bank of India
NRI products and services, through its vast network in India and
overseas

India's second largest private sector bank and is now the largest The Federal Bank
scheduled commercial bank in India Limited

Bank which started as private shareholders banks, mostly Europeans Imperial Bank of
shareholders India

The first Indian bank to open a branch outside India in London in Bank of India,
1946 and the first to open a branch in continental Europe at Paris in founded in 1906 in
1974 Mumbai

The oldest Public Sector Bank in India having branches all over Allahabad Bank

35

India and serving the customers for the last 132 years

The first Indian commercial bank which was wholly owned and Central Bank of
managed by Indians India

(Table 1.3)

Bank of India was founded in 1906 in Mumbai. It became the first Indian bank to open a
branch outside India in London in 1946 and the first to open a branch in continental
Europe at Paris in 1974.

2.4: Status of the Indian Banking Sector as On December 2008:

ASSETS: Rs.42, 76,328cr (in 2008)

Foreign Banks,
8.53%

Private Sector Public Sector Bank
Bank, 21.29% Private Sector Bank
Public Sector Foreign Banks
Bank, 70.17%

(Chart 1.3)

36

ADVANCES: Rs.24, 47,944 cr (in 2008)

Foreign Banks,
6.61%

Private Sector Public Sector Bank
Bank, 20.46% Private Sector Bank
Foreign Banks
Public Sector Bank,
72.93%

(Chart 1.4)

NET PROFITS: Rs 42,506 cr (in 2008)

Foreign Banks,
15.53%
Public Sector Bank
Private Sector Private Sector Bank
Bank, 22.03% Public Sector Bank,
Foreign Banks
62.44%

(Chart 1.5)

37

Chapter-3

Literature Review

38

Literature Review

Perhaps because profitability was not the objective of Indian banks, there have not been
many attempts to compare the profitability amongst the various categories of banks.
Verma and Verma attempted to determine the determinants of profitability of SBI
group, other nationalized and foreign banks in India.

The study by Parsons, Gotlieb, and Denny (1993), is one of the studies that deal with
the impact of IT in banking productivity per se. They conclude from their estimation of
data from five Canadian banks using transom production function that, while there is a
17-23 percent increase in productivity with the use of computers, the returns are very
modest compared to the levels of IT investments.

The other study to examine the effect of IT investment on both productivity and
profitability in the US retail banking sector is conducted by Prasad and Harker (1997).
They conclude that additional investment in IT capital may have no real benefits and may
be more of strategic necessity to stay within the competition. However, the results
indicate that there are substantially high returns to increase in investment in IT labor.

A study by Das(1998), compares performance of Public Sector Banks for 3 years in the
post reform period, 1992, 95, 98. He notes that while there is a welcome increase in
emphasis on non-interest income, Banks have tended to show risk averse behavior by
opting for relatively risk free investments over risky loans.

Shanmugam and Das(1999) reported that, in general, State bank group and private-
foreign group banks have performed better than their counterparts during 1992-1999.

Sarkar & Das (1999), compared performance of Public Sector Banks, Private Banks,
and Foreign Banks for the year- 1994-95 on their profitability, productivity & financial
management. They found that Public Sector Banks compare poorly with the other two
categories of banks.

39

Another study by Ram Mohan (2000) covers a recent period, 1996-97 to 1999-2000. He
found that over these years the profitability of the Public sector Banks did improve in
comparison to the Private and Foreign Banks, but they have lagged behind in their ability
to attract deposits at favorable interest rates and have been slow in technology up
gradation and improving staffing and employment practices, which may have negative
implications on their longer–term profitability.

Researchers have earlier opined that the major reason for declining bank profitability are
increasing pre-emption for CRR, SLR, rigorously structured interest rate, the burden of
social banking and enormous increase in the establishment cost. Recently, there has been
an increased amount of stress on soundness of the Balance Sheet as well as on the
profitability. It is recognized that Public Sector Banks must have a strong balance sheet
and should be profitable. It also implies that bank interest and other earnings should be
sufficient to cover its financial & administrative expenses. Stronger balance sheet also
means that the banks have sufficient surplus for provisions of bad debts, tax liabilities &
depreciation of financial assets, to pay dividends and to augment reserves. A bank’s
strong balance sheet also implies that it has sufficient capital & reserve to protect its
depositors and other creditors from the risks it bears on its assets. The major reasons
identified for the declining levels of profitability of Public Sector Banks are
mismanagement, liquidity, credit polices, increased lending to priority & preferred sector,
mounting agricultural over dues & incidences of sickness of industrial units, rise in
operation cost, lack of efforts in manpower planning according to Bist, Mishra &
Balwal (2000).

Ganeshan (2001), reveals by an empirical establishment of profit function that interest
cost, interest income, deposits per branch, credit to total assets, proportion of priority
sector advances & interest income loss are significant determinants of the profits &
profitability of Indian public sector banks. Sarkar found that the foreign banks were
more profitable and efficient than Indian banks and amongst the Indian Banks private
banks were superior to the public sector banks. They also conclude that the non-traded
private sector banks are not significantly different from the public sector banks with

40

respect to profitability and efficiency, a result consistent with the property right
hypothesis.

Kaveri (2001) considered nine efficiency parameters; capital adequacy ratio, Net NPA as
percentage of Net advances, Net profit to total assets, Gross profit to working funds, net
interest income to total assets, interest expended to total assets, intermediation cost to
total assets and provisions and contingencies to total assets. It concludes no bank can be
weak or potential weak all of a sudden. There is a gradual deterioration in the position of
default and profitability.

Sathye (2002) studied the impact of privatization on banks performance and efficiency
for the period 1998-2002 and found that partially privatized banks have performed better
than fully public sector banks and they are catching up with the banks in the private
sector.

Another important study undertaken by offsite monitoring and surveillance division of
department of Banking Supervision (2002) used financial indicators to derive indirect
linkages by assuming computerization as one of the factor in the improvement in
efficiency. They concluded that higher performance levels have been achieved without
corresponding increase in the number of employees. Also, it has been possible for Public
Sector Banks and Old Private Banks to improve their productivity and efficiency over a
period of five years.

Sayuri, Shrai (2002) assessed the impact of reforms by examining the changes in
performance of banking sector. It found that the performance of public sector banks
improved in the second half of the 1990’s.

B. Janki (2002) analyzed the effect of technology on labour productivity; he concluded
efficiency can be enhanced by using technology to develop new products and motivation
of work force. To conclude efficiency is a function of input efficiency and output
efficiency. Both input and output efficiency are function of many factors that are
locatives and technical in nature.

41

The other study conducted by Launardi, Becker and Macada (2003), found
competition, products and services, and customers, the main strategic variables affecting
the IT and there is no difference of opinion between IT executives and other functional
executives, regarding their perception of the impact of IT on strategic variables.

According to the Business Standard banking annual Survey 2003, Indian Banks
showed a 52.3% growth in the net profit in the year 2002-2003. Public sector banks
outperformed the other category of banks bagging six of the top 10 slots. Only one
foreign Bank could make it to the top. The remaining three slots were occupied by the
private banks.

Choudhari and Tripathy (2004) applied DEA to measure the relative performance of
public sector banks and conclude that the Corporation Bank is the efficient in all
indicators i.e. profitability, financial management, growth, productivity, and liquidity,
while Oriental Bank of Commerce is next mostefficient

Sharad Kumar and M. Sreeramulu, 2007 the study compares the employee
productivity and employee cost ratios between the traditional banks and modern banks
from 1997 to 2008. The study concludes that the performance of the modern banks
(foreign and new private sector banks) was much superior to the traditional banks (public
sector and old private sector banks). However, the gap between the performance of
modern and traditional banks on all the five variables has shown a decreasing trend,
which has significantly reduced during the period of 12 years under study, on account of
the measures taken by the traditional banks during the period.

R.K. Mittal and Sanjay Dhin 2007 studies show the impact of computerization on
productivity and profitability of Indian banks. This study founds that IT initiative were
found to be more efficient in productivity and profitability parameters than public sector
banks.

Deepak Tandon 2008, research on Performance variances & efficiency parameters of the
Indian Public Sector Banks shows that the public sector banks (PSBs) continue to be a

42

dominant part of the banking system. As on March 31, 2008, the PSBs accounted for 69.9
per cent of the aggregate assets and 72.7 per cent of the aggregate advances of the
Scheduled commercial banking system. This paper empirically defines and an attempt
has been made by the authors to analyze technical efficiency of Public Sector Banks
operating in India.

Chapter-4
Analysis of the profitability and
productivity of Public sector
banks vis-à-vis with Private
sector banks and Foreign banks

43

Data Analysis & Interpretation:

OBJECTIVE 1: To compare the profitability and productivity of the public
sector banks vis-à-vis with the private sector banks and foreign banks for the past 5
years i.e. from 2003-2004 to 2007-2008.

Productivity of Indian banks:

Business per employee Profit per employee
PUBLIC SECTOR BANKS
(Rs. In Lakhs) (Rs. In Lakhs)

2006- 2007-
2005-06 2006-07 2007-08 2005-06 07 08

Andhra Bank 427 536 627 3.69 4.14 4.30

Bank of Baroda 396 555 710 2.13 2.73 3.94

Canara Bank 442 549 609 3.02 3.24 3.65

Indian Overseas Bank 355 467 583 3.22 4.04 4.82

Oriental Bank of Commerce 570 743 924 5.37 5.61 5.84

Punjab National Bank 331 407 505 2.48 2.68 3.66

State Bank of India 299 357 456 2.17 2.37 3.73

UCO Bank 387 464 580 0.82 1.30 1.76

United Bank of India 254 350 463 1.18 1.59 1.99

Vijaya Bank 369 455 613 1.16 3.04 3.32

(Table 2.1)

44

Interpretation:

By analyzing the data of the public sector banks for the past 3 years i.e. from 2006 to
2008 on the productivity of public sector banks, I found that during this period the public
sector bank shows a gradual increase in their business per employees as well as the profit
per employees. During the year 2008 the public sector bank are rated as the best banking
sector in India.

FOREIGN BANKS
(Rs. in Lakhs) (Rs. in Lakhs)

2006- 2007-
2005-06 2006-07 2007-08 2005-06 07 08

1,011.8 1,070.2
ABN Amro Bank N.V. 905.82 8 6 8.15 11.36 7.66

1,924.8 1,920.8 2,483.5
Bank of America NA 1 9 4 51.82 69.09 102.08

Barclays Bank PLC 148.51 280.54 942.33 271.00 36.28 0.50

1,607.9 1,360.4 1,763.7
Citibank N.A. 2 8 8 21.71 17.33 37.73

1,012.3
HSBC 975.65 979.68 4 12.07 14.32 16.69

1,016.8 1,143.5 1,616.7
Deutsche Bank AG 3 3 4 18.57 20.98 27.54

1,252.0 1,121.8 1,438.9
JPMorgan Chase Bank 9 8 5 88.94 82.15 153.77

1,467.2 1,316.0 1,459.1
Societe Generale 0 0 0 20.80 19.20 33.90

BNP Paribas 1,206.0 1,353.0 1,950.0 6.29 19.00 36.00

45

5 0 0

2,040.2 2,311.1 3,082.8
The Bank of Nova Scotia 5 2 8 16.50 39.10 49.89

(Table 2.2)

Interpretation:

By analyzing the data of the foreign banks for the past 3 years i.e. from 2006 to 2008 on
the productivity of public sector banks, I found that during this period most of the foreign
banks which are taken for the study shows an increasing trend except ABN Amro Bank
and Barclays Bank for the year ending 2008 in case of profit per employees.

In case of the business per employees all the foreign banks shows that business per
employees is increasing y-o-y basis.

PRIVATE BANKS
(Rs. in Lakhs) (Rs. in Lakhs)

2005- 2006- 2007- 2005- 2006- 2007-
06 07 08 06 07 08

ICICI BANK 1017 1027 1008 8.7 9 10

AXIS BANK 1020 1024 1174 8.69 7.59 8.39

YES BANK 373.69 400.54 518.85 2.78 2.83 2.93

LAKSHMI VILAS BANK 371 430 462.07 2.69 2.88 3.05

KARUR VYSYA BANK 390 489 604 4.30 4.87 5.82

DEVELOPMENT CREDIT
BANK 432 451 542 3.92 4.76 5.31

KOTAK MAHINDRA BANK 634 648 755 6.43 7.79 13.82

CITY UNION BANK 413 497 587 3.97 4.46 5.98

(Table 2.3)

46

Interpretation:

By analyzing the data of the private sector banks for the past 3 years i.e. from 2006 to

Private Sector March2008 March2007 March2006
bank
ICICI BANK 13.97 11.69 13.35

AXIS BANK 13.75 11.57 11.08

YES BANK 13.60 13.60 16.40

LAKSHMI
12.73 12.43 10.79
VILAS BANK

KARUR VYSYA
12.58 14.51 14.79
BANK

DEVELOPMENT
13.38 11.34 9.66
CREDIT BANK

KOTAK
MAHINDRA 18.65 13.46 11.27
BANK

CITY UNION
12.48 12.58 12.33
BANK

2008 on the productivity of public sector banks, I found that during this period the private
sector bank shows a gradual increase in their profit per employees.

In case of the business per employees all banks excepts ICICI bank reported decrease in
the year 2008. The main reason for this was the world wide financial turmoil as well as
the rumors about the ICICI Bank in the market regarding their investment in the Lehman
Brothers.

ANALYSIS OF THE PROFITABILTY OF THE INDIAN BANKS:
CAPITAL ADEQUACY RATIOS: (Figures in %age)

47

(Table 3.1)

Interpretation:

By analyzing the data of the private sector banks for the past 3 years i.e. from 2006 to
2008 on the capital adequacy ratios, I found that during this period most of the private
sector banks have maintained their CAR above 12 % mark.

As in the year 2008 RBI has prescribed that the Public sector banks have to maintain
minimum 12% CAR in order to cope with the world over financial turmoil and its impact
on the Indian economy.

48

Public Sector March2008 March2007 March2006
bank
Andhra Bank 11.61 11.33 14.00

Bank of
12.91 11.80 13.65
Baroda

Canara Bank 13.25 13.50 11.22

Indian
11.96 13.27 13.04
Overseas Bank

Oriental Bank
12.12 12.51 11.04
of Commerce

Punjab
12.96 12.29 11.95
National Bank

State Bank of
12.64 12.34 11.88
India

UCO Bank 10.09 11.56 11.12

United Bank
11.88 12.02 13.12
of India

Vijaya Bank 11.22 11.21 11.94

(Table 3.2)

Interpretation:

49

March2008 March2007 March2006
Foreign bank
ABN Amro
12.92 11.34 10.44
Bank N.V.

Bank of
12.14 13.33 23.40
America NA

Barclays Bank
21.11 13.68 22.92
PLC

Citibank N.A. 12.00 11.06 11.33

HSBC 10.59 11.06 10.61

Deutsche Bank
13.58 10.62 12.74
AG

JP Morgan
17.72 16.14 11.76
Chase Bank

Societe
26.62 31.82 37.40
Generale

BNP Paribas 11.79 10.76 11.61

The Bank of
20.15 23.26 13.17
Nova Scotia

2008 on the capital adequacy ratios, I found that during this period most of the public
sector banks have maintained their CAR above 10 % mark. As in the year 2008 RBI has
prescribed that the Public sector banks have to maintain minimum 12% CAR in order to
cope with the world over financial turmoil and its impact on the Indian economy.

During the year 2008 RBI infuses the extra stimulus package to the public sector banks to
improve their CAR to 12% mark, so as the can meets the financial requirements of the
Indian economy during the recessionary period.

50

(Table 3.3)

Interpretation:

the capital adequacy ratios, I found that during this period most of the foreign banks have
maintained their CAR above 10 % mark. There are some of the foreign banks who has
maintained their CAR at very high level e.g. Societe Generale, the bank of Nova Scotia
etc.

In order to cope with the financial meltdown it is advisable to every banks to maintain at
least 10% to 12% CAR.

51

NET PROFIT RATIOS: (Figures in %age)

PUBLIC March2008 March2007 March2006 March2005 March2004
SECTOR
BANKS

Andhra Bank 11.84 14.53 15.83 18.18 15.96

Bank of
10.38 10.22 10.76 9.77 12.13
Baroda

Canara Bank 9.61 11.60 13.82 12.81 14.73

Indian
Overseas 13.94 16.18 16.44 14.27 11.40
Bank

Oriental Bank
11.38 15.35 12.54 19.44 17.03
of Commerce

Punjab
12.68 12.53 14.50 13.84 11.45
National Bank

State Bank of
11.67 10.12 11.21 11.56 9.79
India

UCO Bank 5.75 5.68 4.29 8.97 11.69

United Bank
8.07 8.81 7.96 4.90 0.91
of India

Vijaya Bank 8.65 11.12 5.23 17.87 16.75

(Table 4.1)

Interpretation:

2008 on the net profit ratios (NPR), I found that during this period net profit ratios of the
most of the public sector banks decrease in the year 2007-2008.

The main reason for this decrease in the NPR is the financial turmoil in world over
economy as well as the slowdown in the Indian economy.

52

Private Banks March2008 March2007 March2006 March2005 March2004

ICICI BANK 10.51 10.81 14.12 16.32 13.67

AXIS BANK 12.22 12.01 13.47 14.33 13.14

YES BANK 12.01 12.06 19.08 -7.80

LAKSHMI
4.37 3.76 6.02 1.21 11.03
VILAS BANK

KARUR VYSYA
16.12 16.47 17.67 16.28 22.12
BANK

DEVELOPMENT
5.29 1.75 -23.95 -46.62 3.93
CREDIT BANK

KOTAK
MAHINDRA 10.37 8.84 12.97 15.35 20.57
BANK

CITY UNION
14.96 15.98 15.25 14.42 16.76
BANK

(Table 4.2)

Interpretation:

2008 on the net profit ratios (NPR), I found that during this period net profit ratios of the
most of the newly established private sector banks shows an increase in NPR, while the
major private sector banks reports slight decrease in their NPR in the year 2007-2008. As
per the study Kotak Mahindra Bank reported the highest NPR during 2008.

The main reason for this decrease in the NPR is the financial turmoil in world over
economy as well as the slowdown in the Indian economy.

53

March2008 March2007 March2006 March 05 March 04
Foreign bank
ABN Amro
Bank N.V. 7.62253165 12.6471978 11.1584246 6.386141 8.228854

Bank of
America NA 35.4226627 29.4985518 35.1931551 39.99008 43.31145

Barclays
Bank PLC 0.51622543 25.6715997 15.6866841 14.05015 8.133511

Citibank N.A. 21.4534649 15.7082318 21.4503972 20.35234 17.7084

HSBC 16.80268 17.91448 24.13343 18.604 17.66209

Deutsche
Bank AG 15.68463 13.42587 10.97491 12.39389 8.799836

JPMorgan
Chase Bank 30.00638 23.66957 22.53605 32.7424 39.14053

Societe
Generale 15.29787 10.61005 13.08971 13.77465 13.54177

BNP Paribas 18.33869 14.45356 18.72151 60.46247 29.50082

The Bank of
Nova Scotia 21.6356528 22.3752913 20.699172 18.71046 19.73448

(Table 4.3)

Interpretation:

the net profit ratios (NPR), I found that during this period net profit ratios of the most of
the foreign banks shows an increase in NPR, excepts ABN Amro Bank, Barclays Bank
and the Bank of Nova Scotia.

54

Return on Net worth: (Figures in %age)

SECTOR
BANKS

Andhra Bank 17.71 17.04 16.77 28.31 31.90

Bank of
12.99 11.86 10.54 12.02 18.84
Baroda

Canara Bank 18.86 17.51 19.13 18.51 26.07

Indian
Overseas 25.35 26.04 25.64 26.76 26.56
Bank

Oriental Bank
14.55 14.76 10.77 22.86 25.63
of Commerce

Punjab
19.00 15.18 15.86 17.96 23.63
National Bank

State Bank of
13.72 14.50 15.94 17.88 18.19
India

UCO Bank 16.58 14.29 9.89 19.54 29.12

United Bank 11.98 11.06 11.18 6.06 0.97
of India

Vijaya Bank 17.15 17.89 7.83 24.77 32.18

(Table 5.1)

Interpretation:

2008 on the return on net worth (RONW), I found that during this period most of the
public sector banks show an increase in RONW, except IOB, OBC, SBI & Vijaya Bank.
The main reason for the falls in their RONW is that they are employing their funds either
for the branch expansion or diversifying their business.

55

Banks March2008 March2007 March2006 March2005 March2004

ICICI BANK 8.94 12.79 11.43 15.97 20.43

AXIS BANK 12.21 19.42 16.88 13.89 24.49

YES BANK 15.16 11.98 9.66 -1.73

LAKSHMI
6.04 4.43 7.72 1.45 18.11
VILAS BANK

KARUR VYSYA
17.50 15.05 15.52 13.84 22.61
BANK

DEVELOPMENT
6.04 2.23 -51.92 -82.06 6.56
CREDIT BANK

KOTAK
MAHINDRA 8.17 8.50 13.67 11.21 12.98
BANK

CITY UNION
17.94 19.63 19.70 19.24 28.11
BANK

(Table 5.2)

Interpretation:

2008 on the return on net worth (RONW), I found that during this period most of the
leading private sector banks results a decrease in their RONW in the year 2008. The
reason for this can be financial meltdown in the world over economy.

While the newly established private sector banks reported an increase in their RONW.
The reason can be that they are meeting the needs of local people by way of providing
loans and other benefits to SMEs and serving to rural areas.

56

March2008 March2007 March2006 March 05 March 04
Foreign bank
ABN Amro
12.93 21.63 16.47
Bank N.V. 14.25 13.25

Bank of
14.61 11.69 9.63
America NA 8.75 7.23

Barclays Bank
0.20 6.57 11.75
PLC 8.25 5.23

Citibank N.A. 23.74 17.31 19.19 12.13 9.85

HSBC 28.18 31.35 27.45 25.23 24.25

Deutsche
12.39 13.42 9.90
Bank AG 7.25 6.25

JPMorgan
15.19 12.16 17.99
Chase Bank 18.29 15.26

Societe
11.19 6.44 5.14
Generale 6.29 9.58

BNP Paribas 13.62 10.24 4.38 8.53 5.24

The Bank of
15.39 16.69 11.30
Nova Scotia 14.25 12.34

(Table 5.3)

Interpretation:

the return on net worth (RONW), I found that during this period there is a mixed
response on the decrease & increase in RONW for the year 2007-2008. The banks which
results an decrease in the year 2007 in RONW shows an increase in the year 2008 and
vice versa. The main reason for the increase in the RONW can be that Govt. is now
providing the bailed out packages to save their financial structure. While the other foreign
banks still waiting for the package.

57

SECTOR
BANK

Andhra Bank 4,567.63 3,453.62 2,885.75 2,669.88 2,778.12

Bank of
3,916.75 3,332.32 13,133.81 9,548.59 7,293.92
Baroda

Canara Bank 18,306.70 15,524.19 11,571.85 9,099.08 8,299.02

Indian
Overseas 8,358.75 6,082.13 4,693.54 4,494.53 4,455.73
Bank

Oriental Bank
7,312.89 5,292.95 4,371.72 3,873.84 3,978.68
of Commerce

Punjab
15,925.65 12,104.24 9,791.12 9,712.63 9,617.34
National Bank

State Bank of
56,732.87 43,860.57 37,869.52 36,470.27 37,005.81
India

UCO Bank 6,872.76 5,337.03 4,401.31 3,723.33 3,616.73

United Bank
3,816.37 2,855.89 2,419.99 2,387.59 2,059.52
of India

Vijaya Bank 3,982.08 2,813.97 2,287.27 2,008.28 2,347.31

Total Income:(Rs. In Crores)

(Table 6.1)

Interpretation:

By analyzing the total income data of the public Sector Banks, I found that all the public
sector banks show an increase in their total income y-o-y. The main reason of the
increase in the total income is that they are opening new branches to expand their
business in the rural and urban areas, in order to meet the requirement of the general
public.

58

Banks March2008 March2007 March2006 March2005 March2004

ICICI BANK 39,467.92 28,457.13 17,517.83 11,838.10 10540.20

AXIS BANK 8,750.68 5,461.60 3,594.46 2,299.23 2,115.52

YES BANK 1,590.84 736.75 283.81 47.39

LAKSHMI
561.51 454.27 352.82 267.17 365.48
VILAS BANK

KARUR VYSYA
1,276.81 958.28 758.13 630.56 718.77
BANK

DEVELOPMENT
680.57 406.31 343.61 328.16 430.41
CREDIT BANK

KOTAK
MAHINDRA 2,834.38 1,597.99 911.43 552.87 382.58
BANK

CITY UNION 624.07 411.16 351.07 300.32 328.03
BANK

(Table 6.2)

Interpretation:

By analyzing the total income data of the private Sector Banks, I found that all the private
sector banks show an increase in their total income y-o-y. The main reason of the
increase in their total income is that they are opening new branches to expand their
business in the rural and urban areas, in order to meet the requirement of the general
public.

59

Foreign bank March2008 March2007 March2006 March 05 March 04

ABN Amro 2415.23 1523.42
3682.11 3046.92 2825.13
Bank N.V.

Bank of 423.23 312.25
861.68 662.88 583.21
America NA

Barclays Bank 249.25 187.25
1191.34 354.75 287.25
PLC

Citibank N.A. 8410.11 5729.48 4123.56 3214.52 2514.23

HSBC 7095.89 4720.26 3125.25 2829.23 2125.23

Deutsche 1325.25 1025.36
2461.71 1625.37 1423.52
Bank AG

JPMorgan 312.5 215.25
830.19 451.17 418.13
Chase Bank

Societe 125.23 105.23
263.37 208.67 185.26
Generale

BNP Paribas 712.81 440.03 289.56 123.25 153.25

The Bank of 289.25 178.52
468.07 338.99 315.23
Nova Scotia

(Table 6.3)

Interpretation:

By analyzing the total income data of the foreign Banks, I found that all the foreign banks
show an increase in their total income y-o-y. The main reason of the increase in their total
income is that they are opening new branches to expand their business in the urban areas,
in order to meet to expand their operation.

60

SECTOR
BANK

Andhra Bank 575.57 537.90 485.50 520.10 463.50

Bank of
204.27 175.55 1,435.52 1,026.46 826.96
Baroda

Canara Bank 1752.52 1,565.01 1,420.81 1,343.22 1,109.50

Indian
Overseas 1,202.34 1,008.43 783.34 651.36 512.76
Bank

Oriental Bank
353.22 580.81 537.32 726.07 686.07
of Commerce

Punjab
2,048.76 1,540.08 1,439.31 1,410.12 1,108.69
National Bank

State Bank of
6,729.12 4,541.31 4,406.67 4,304.52 3,681.00
India

UCO Bank 412.16 316.10 196.65 345.65 435.42

United Bank
318.95 267.28 -73.87 119.04 19.14
of India

Vijaya Bank 361.28 331.34 126.88 380.57 411.31

NET PROFIT:(Rs. In crores)

(Table 7.1)

Interpretation:

By analyzing the net profit data of the public Sector Banks, I found that all the public
sector banks show an increase in their net profit y-o-y. The main reason of the increase in
the total income is that they are opening new branches to expand their business in the
rural and urban areas, in order to meet the requirement of the general public.

61

Private Banks March2008 March2007 March2006 March2005 March2004

ICICI BANK 4,157.73 3,110.22 2,540.07 2,005.20 1758.12

AXIS BANK 1,071.03 627.23 485.08 334.58 278.31

YES BANK 200.02 94.37 55.32 -3.76

LAKSHMI
25.27 17.58 22.47 3.34 41.05
VILAS BANK

KARUR VYSYA
208.33 160.01 135.35 105.34 161.05
BANK

DEVELOPMENT
33.49 7.37 -85.26 -162.91 -0.38
CREDIT BANK

KOTAK
MAHINDRA 293.93 141.37 118.23 84.89 78.73
BANK

CITY UNION
101.73 71.81 56.37 46.32 57.04
BANK

(Table 7.2)

Interpretation:

By analyzing the net profit data of the private Sector Banks, I found that all the private
sector banks show an increase in their net profit y-o-y. The main reason of the increase in
their total income is that they are opening new branches to expand their business in the
rural and urban areas, in order to meet the requirement of the general public.

62

Foreign bank March2008 March2007 March2006 March 05 March 04

ABN Amro 154.24 125.36
280.67 385.35 315.24
Bank N.V.

Bank of 169.25 135.24
305.23 195.54 205.25
America NA

Barclays Bank 35.02 15.23
6.15 91.07 45.06
PLC

Citibank N.A. 1804.26 900.00 884.52 654.23 445.23

HSBC 1192.30 845.61 754.23 526.35 375.36

Deutsche 164.25 90.23
386.11 218.22 156.23
Bank AG

JPMorgan 102.32 84.25
249.11 106.79 94.23
Chase Bank

Societe 17.25 14.25
40.29 22.14 24.25
Generale

BNP Paribas 130.72 63.60 54.21 74.52 45.21

The Bank of 54.12 35.23
101.27 75.85 65.25
Nova Scotia

(Table 7.3)

Interpretation:

By analyzing the net profit data of the foreign Banks, I found that all the foreign banks
show an increase in their net profit y-o-y. The main reason of the increase in their total
income is that they are opening new branches to expand their business in the urban areas,
in order to meet to expand their operation.

63

OBJECTIVE 2: To study the market performance of the various sector
banks i.e. Public, Private & Foreign Banks.

ICICI Bank

Market performance of Private Sector
AXIS Bank
Banks
Market Prices
of the shares

1500 Yes Bank

1000 Lakshmi
Vilas
500 Bank
Karur
0 Vysya
Bank
Developm
1( 8)
3( 8)
3( 9)

1( 7)
3( 7)
1( 6)
3( 6)
1( 5)
3( 5)
1( 4)

)
ent Credit

04
Q 00
Q 00
Q 00

Q 00
Q 00
Q 00
Q 00

Q 00
Q 00
Q 00
Bank

20
Kotak
2
2
2

2
2
2
2

2
2
2
1(

Mahindra
Q

Bank
Quaters City Union
Bank

(Chart 2.1)

64

Market Performance of Public Sector
Banks
Market prices
Andhra Bank
2500 Bank of Baroda
2000 Canara Bank
1500 IOB
1000 OBC
500 PNB
0 ) SBI

)

)

)

)
)

)
6

5
9

8

7

6

4
Q 00

Q 00

0

0

0

0

0
UCO Bank
0

0

0

0

0
(2

(2

(2

(2

(2

(2

(2
1

2

3

4

1

2

3
United Bank of
Q

Q

Q

Q

Q
India
Vijaya Bank
Quaters

(Chart 2.2)

Market Perform ance of Foreign
Banks Bank of America
Market Prices

Barclays Bank

160 BNP Paribas
140
120 CITI Bank
100
80 Deutsche Bank
60 AG
40 JP Morgan
20 Chase Bank
0 The Bank of
)

)

)

)
)

)

)
7

6

4
9

8

6

5

Nova Scotia
0

0
0

0

0

0

0

HSBC
0

0

0

0

0

0

0
(2

(2

(2

(2
(2

(2

(2
1

3

4

1

3
2

2

ABN Amro Bank
Q

Q

Q

Q

Q

Q

Q

Societe
Quaters Generale

(Chart 2.3)

65

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