Description
Comparative Study on the Performance of Selected Public Sector Bank and Private Sector Bank, Banks are key financial intermediaries or institutions that serve as "middle man" in the transfer of fund from servers to those who invest in real assets as house, equipment and factories.
Journal of Business Management & Social Sciences Research (JBM&SSR) ISSN No: 2319?5614
Volume 2, No.7, July 2013
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www.borjournals.com Blue Ocean Research Journals 46
A Comparative Study on the Performance of Selected Public
Sector and Private Sector Banks in India
Cheenu Goel, Assistant Professor,Management Department,PCTE,Ludhiana
Chitwan Bhutani Rekhi, Assistant Professor,Management Department,PCTE,Ludhiana
ABSTRACT
Efficiency and profitability of the banking sector in India has assumed primal importance due to intense
competition, greater customer demands and changing banking reforms. Since competition cannot be observed
directly, various indirect measures in the form of simple indicators or complex models have been devised and
used both in theory and in practice. This study attempts to measure the relative performance of Indian banks. For
this study, we have used public sector banks and private sector banks. We know that in the service sector, it is
difficult to quantify the output because it is intangible. Hence different proxy indicators are used for measuring
productivity of banking sector. Segmentation of the banking sector in India was done on bank assets size. Overall,
the analysis supports the conclusion that new banks are more efficient that old ones. The public sector banks are not
as profitable as other sectors are. It means that efficiency and profitability are interrelated. The key to increase
performance depends upon ROA, ROE and NIM.
Key Words: Efficiency, Profitability, Segmentation, Performance, Indicators
Introduction
Banks are key financial intermediaries or institutions
that serve as “middle man” in the transfer of fund from
servers to those who invest in real assets as house,
equipment and factories. In performing this function
financial intermediaries improve the well being of both
saver and investor. By improving economic efficiency
they raise living standard of the society. The banking
sector is considered to be an important source of
financing for most businesses. They play a very
important role in the effort to attain stable prices, high
level of employment and sound economic growth. They
make funds available to meet the needs of individuals,
businesses and the government. In doing this, they
facilitate the flow of goods and services and the
activities of governments.
The commercial Banking system provides a large
portion of the medium of exchange of a given country,
and is the primary instrument through which Monitory
policy is conducted, through their deposit mobilization
and lending operations. Commercial banks make the
productive utilization of ideal funds, thus assists the
society to produce wealth. Commercial Banks are the
institutions specifically designed to further the capital
formation process through the attraction of deposits and
extension of credit.
Measure of Banks’ Performance
Although net income gives us an idea of how well a
bank is doing, it suffers from one major drawback. It
does not adjust for the bank's size, thus making it hard
to compare how well one bank is doing relative to
another. A basic measure of bank profitability that
corrects for the size of the bank is the return on assets
(ROA). Secondly, because the owners of a bank must
know whether their bank is being managed well, ROA
serves as a good method to identify it.
ROA = Net profit after taxes / assets
The return on assets provide information on how
efficiently a bank is being run because it indicates how
much profits are generated by each dollar of assets.
However, what the bank's owners (equity holders) care
about most is how much the bank is earning on their
equity investment. This information is provided by the
other basic measure of bank profitability, the return on
equity (ROE).
ROE = Net profit after taxes / equity capital
There is a direct relationship between return on assets
(which measures how efficiently the bank is run) and
the return on equity (which measures how well the
owners are doing on their investment).
Another commonly used measure of bank performance
is called the net interest margin (NIM). NIM is the
difference between interest income and interest
expenses as a percentage of total assets.
NIM = (Interest income - Interest expenses) / Assets
One of the bank's primary intermediation functions is to
issue liabilities and use the proceeds to purchase
income earnings assets. If a bank manager has done a
good job of asset and liability management such that
Journal of Business Management & Social Sciences Research (JBM&SSR) ISSN No: 2319?5614
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the bank earns substantial income on its assets and have
low costs on its liability, profits will be high. How well
a bank manages its asset and liabilities is affected by
the spread between the interest earned on the bank's
assets and the interest cost on its liabilities. This spread
is exactly what net interest margin measures. If the
bank is able to raise funds with liabilities that have low
interest costs and is able to acquire assets with high
interest income, the net interest margin will be high and
the bank is likely to be highly profitable. If the interest
cost of its liabilities rises relatively to the interest
earned on its assets, the net interest margin will fall, and
bank profitability will suffer.
Indian Banking Industry
Indian Banking Industry originated in the first decade
of 18th century as The General Bank of India came
into existence in the year 1786. And then later Bank of
Hindustan was started. A couple of decades later in the
year 1850 the foreign banks like Credit Lyonnais
started their operations in Calcutta. Calcutta was the
most active trading port at that time which was during
the British Empire, due to these reasons the banking
activity took roots there and prospered. In the year
1865, the first fully Indian owned bank was established
in Allahabad.
The Indian Banking Industry in 1960 became an
important tool to facilitate the financial development of
the Indian economy. Simultaneously it emerged as a
large employer and debate prevailed that ensured about
the possibility of nationalization of the banking
industry. The then Prime Minister of India, Indira
Gandhi expressed the intention of the GOI in the annual
conference of the All India Congress Meeting. This was
received with positive enthusiasm by the whole nation.
Later the GOI was issued an ordinance and nationalized
the 14 largest commercial banks with effect from the
midnight of July 19, 1969. In 1980 for the second time
nationalisation of 6 more commercial banks was done.
The nationalization was done to give the government
more control of credit delivery. With this the GOI
controlled around 91% of the banking business of India.
The next stage for the Indian Banking Industry was to
setup with the proposed relaxation in the norms for
Foreign Direct Investment, where voting rights were
given to all the Foreign Investors in banks which could
exceed the present cap of 10%, at present it has gone up
to 49% with some restrictions. Indian Banking Industry
was completely shocked with the new policy. Till this
time the Bankers used to the follow the 4-6-4 method
(Borrow at 4%; Lend at 6%; Go home at 4) of
functioning. This new wave ushered in a modern
outlook and tech-savvy methods of working for
traditional banks which led to the retail boom in India.
People not only just demanded more from their banks
but also received more. Today Banking in India is
generally fair and mature in terms of supply, product
range and reach though in rural India still remains a
challenge for the private sector and foreign banks.
Banking in terms of quality of assets and capital
adequacy, banks in India are considered to have clean,
strong and transparent balance sheets relative to other
banks in comparable other economies.
Review of Literature
Jha and Sarangi (2011) analyzed the performance of
seven public sector and private sector banks for the year
2009-10. They used three sets of ratios, operating
performance ratios, financial ratios, and efficiency
ratios. In all eleven ratios were used. They found that
Axis Bank took the first position, followed ICICI Bank,
BOI, PNB, SBI, IDBI, and HDFC, in that order.
Dangwal and Kapoor (2010) evaluated the financial
performance of nationalized banks in India and
assessed the growth index value of various parameters
through overall profitability indices. The data for 19
nationalized banks, for the post-reform period from
2002-03 to 2006-07, was used to calculate the index of
spread ratios, burden ratios, and profitability ratios.
They found that while four banks had excellent
performance, five achieved good performance, four
attained fair performance, and six had poor
performance.
Sharma (2010) assessed the bank failure resolution
mechanism to analyze the powers given by the
countries to their regulators to carry out resolution of
failed banks among 148 countries during 2003. She
used 12 variables for correlation and regression
analysis. Her study revealed that the countries which
had faced systemic crisis were more prone to providing
liquidation powers to their regulators. These countries
had a tendency to protect their regulators through
immunity, rather than any legal action. Systemic crisis
did not significantly influenced the regulators’ powers
for the restructuring of the banks.
Pat (2009) made an assessment of the RBI’s Report on
“Trend and Progress of Banking’ in India, 2007-08,
which reported a relatively-healthy position of the
Indian banking system. He noted that the various
groups of banks reported improvements in net profits,
return on assets and return on equity. Two basic
indicators of sound banking system, namely, capital to
risk weighted assets and quality of assets, also revealed
considerable improvements over the years.
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Singla HK (2008), in his paper,’ financial performance
of banks in India,’ in ICFAI Journal of Bank
Management No 7, has examined that how financial
management plays a crucial role in the growth of
banking. It is concerned with examining the
profitability position of the selected sixteen banks of
banker index for a period of six years (2001-06). The
study reveals that the profitability position was
reasonable during the period of study when compared
with the previous years. Strong capital position and
balance sheet place, Banks in better position to deal
with and absorb the economic constant over a period of
time.
Makesh (2008) evaluated the financial management
practices of Federal Bank and Dhanlakshmi Bank,
along with the SBI, for the financial year 2006-2007.
He revealed that all the three banks maintained capital
in excess of the stipulated norms of the RBI. Federal
Bank had the lowest NPA Ratio to net advances and
had the maximum return on equity. Dhanalakshmi Bank
maintained a very high liquidity. But Federal Bank
performed well in cost management, as compared to the
SBI and Dhanalakshmi Bank.
Joshi Vijaya (2007) observed that on the eve of banking
reforms Indian Banking Sector was financially
unsound, unprofitable and inefficient. They made a
critical examination of the changes that have taken
place in the banking sector after reforms. Further, what
remains to be done with respect ofpre-emption of bank
resources, directed credit, deregulation of interest rates,
etc. in the field of banking sector were also elaborately
discussed.
SamwelKakukuLopoyetum (2005) in his article
elaborated that the profitability performance of the
UCBs can be improved by strengthening the magnitude
of burden ratio. The spread ratio can be increased by
increasing the interest receipts faster than the interest
payments. The burden ratio can be lowered by
decreasing the manpower expenses, other expenses and
increasing other incomes
Qamar (2003) identified the differences in terms of
endowment factor, risk factor, revenue diversification,
profitability, and efficiency that might have existed
among 100 scheduled commercial banks, divided into
three groups for the year 2000-2001. His study revealed
that the public sector banks were better endowed in
terms of their assets base, share capital and
shareholders equity than other banks, whereas foreign
banks and old private sector banks operated at a very
high capitalization ratio.
De (2003) The panel regression techniques were used to
examine the effect of ownership on bank performance
in the context of Indian commercial banks. He noted
that in case of public sector banks, old private sector
banks and new private sector banks, the ownership had
no effect on the return on assets. However, public
sector banks had a higher ratio of net interest margin
and operating cost. He also found that new private
sector banks were showing a higher return on assets
when the SBI and its associates were dropped from the
sample.
Muniappan (2002) studied paradigm shift in banks from
a regulator point of view in Indian Banking : Paradigm
Shift, IBA Bulletin, No 24 -3. He concluded the
positive effect of banking sector reforms on the
performance ofbanks. He suggested many effective
measures to strengthen the Indian banking system. The
reduction of NPAs, more provisions for standards of the
banks, IT, sound capital bare are the positive measures
for a paradigm shift. A regulatory change is required in
the Indian banking system
Need of the Study
Significance of performance evaluation in an
organization, for sustainable growth and development,
has been recognized since long. This calls for a system
that first measures and evaluates the performance, and
then brings out the strengths and weaknesses of the
organization for the purpose of further improvement.
Efficient performance evaluation system encompasses
all aspects of an organization. With the advances in
computational tools, performance evaluation systems
have evolved over a period of time from single-aspect
systems to more comprehensive systems covering all
aspects of an organization. Moreover, almost every
industry, that envisages importance of evaluation, can
adopt many methods to evaluate the performance. It
prove to be better for performance measurement,
evaluation and strategic planning for future growth and
development of the Indian banks in the light of
changing requirements of this sector so to analyze the
comparative profitability performance of banks for the
financial periods 2009-2012. By examining the
relationship among banks equity, assets and deposit size
to profitability such as ROE, ROA and NIM. The banks
will be ranked based on their profitability performance
and growth percentage. This will help the banking
industry f or t he i mpr ovement or change i n
t hei r busi ness model .
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Objectives of the Study
1. To compare the profit earning of the selected
public sector banks and private sector banks from
the year 2009 to 2012
2. To investigate the factors affecting the profit
earning of the selected banks during the period.
Research Methodology
Research Design: This present study is conducted by
following a Descriptive Design.
Sample Unit: Any single bank operating in India
Sample Size: For the in-depth analysis of the
profitability, three major public sector and three private
sector banks are selected on the basis of their
Total Assets from the year 2009 to 2012.
Public sector Banks Total Assets(rscrores)
STATE BANK OF
INDIA
1123582.64
PUNJAB NATIONAL
BANK
409962.68
BANK OF BARODA 367036.77
Private sector Banks Total Assets( Rscrores)
ICICI BANK 392855.58
HDFC BANK 262227.57
AXIS BANK 259105.63
Sampling Technique: Judgmental sampling.
Data Collection: Data was collected through Reserve
Bank of India monthly bulletins, annual reports,
moneyrediff, moneycontrol , banks websites etc. Three
private sector and three public sector banks were
selected on the basis of their total assets.
Data Analysis: Suitable statistical techniques are used
for data analysis like ratios and coefficient correlation.
Data Analysis and Interpretation
RATIOS
1) Demand Deposit Ratio
The sum of money that is given to a bank but can be
withdrawn as per the requirement of the depositor.
Amounts that are lying in the savings and current
accounts are known as demand deposits because they
can be used at any point of time.
Demand Deposit Ratio = Demand Deposit / Total
Deposit.
Table 1
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 14.92 8.97 7.51 9.91 19.92 21.15
2010 15.24 9.51 7.85 15.34 22.24 22.77
2011 14.04 8.58 7.57 15.42 22.27 19.51
2012 9.43 7.5 7.52 13.69 18.41 18.06
Mean 13.41 8.64 7.61 13.59 20.71 20.37
SD 2.70 0.85 0.16 2.57 1.88 2.03
CV 20.15 9.84 2.10 18.98 9.11 9.99
As shown in table the ratio of demand deposit is more
in HDFC bank (20.71) followed by another private
sector bank AXIS ( 20.37) . Demand deposit is more in
private sector banks than in public banks it may be
because no interest is paid on these accounts except in
special cases where a large dormant balance is kept
which could otherwise be transferred to the savings
deposits.
2) Saving Deposit Ratio
Accounts that pay interest and can be withdrawn on
upon demand Offered by banks, credit unions, and
Savings and Loans.
Saving Deposit Ratio = Saving Deposit / Total
Deposit.
Table 2
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 26.71 29.87 22.08 18.79 24.45 22
2010 32.01 31.34 21.8 26.34 29.79 23.96
2011 35.36 29.88 21.1 29.64 30.42 51.59
2012 35.37 27.83 19.38 29.76 29.99 23.47
MEAN 32.36 29.73 21.09 26.13 28.66 30.25
SD 4.08 1.44 1.21 5.14 2.82 14.24
CV 12.62 4.85 5.74 19.68 9.84 47.09
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As shown in table the ratio of savings deposit to total
deposit is maximum in case of SBI (32.36) followed by
Axis bank it is an account at a bank in which the
customer deposits money for any non-immediate use.
For example, one may utilize a savings deposit to
save funds for an expensive purchase, such as a house
or a car. Because most customers keep money in a
savings deposit for a longer period than a checking
account, a savings deposit pays a slightly higher interest
rate.
3) Net Interest Margin
A measure of the return on a
Company's investments relative to its interest expenses.
The net interest margin helps a company determine
whether or not it has made wise investment decisions.
A negative net interest margin indicates that interest
expenses exceed investment returns and that the
company therefore has a net negative return. A positive
net interest margin indicates the opposite.
Net Interest Margin = (Interest Received - Interest Paid)
/ total Assets
Table 3
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 2.3 2.8 2.4 2.2 4.2 2.6
2010 2.4 3 2.2 2.1 3.9 2.9
2011 2.9 3.2 2.6 2.1 4.1 2.8
2012 3.3 3 2.4 2.3 3.9 2.9
MEAN 2.72 3 2.4 2.17 4.02 2.8
SD 0.46 0.16 0.16 0.09 0.15 0.14
CV 17.04 5.44 6.80 4.40 3.72 5.05
As shown in table NIM of HDFC is more than others
i.e. 4.02 which shows that interest earned by HDFC
bank is much more than expended and other banks are
earning less interest. Interest earned by bank is there
foremost income which is more in case of HDFC and
other banks following are almost at same level and
chart shows that there is very less variation in case of
HDFC bank and more variation in SBI bank.
4) Credit Deposit Ratio
The proportion of loans generated by banks from
the deposits received.
Credit Deposit Ratio= Credit / Deposit
Table 4
As per table ICICI bank is issuing maximum credit as
per the deposits generated by them 99.37 and other
banks are almost at same level and variation in least in
case of BOB and maximum in case of HDFC.
5) Debt Equity Ratio
The debt-to-equity ratio (debt/equity ratio, D/E) is a
financial ratio indicating the relative proportion of
entity's equity and debt used to finance an entity's
assets. If the ratio is increasing, the company is being
financed by creditors rather than from its own financial
sources which may be a dangerous trend.A
debt-to-equity ratio is calculated by taking the total
liabilities and dividing it by the shareholders' equity:
Debt-to-equity ratio = Debt / Equity
Table 5
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 15.4 14.1 15.5 15.4 10.1 12.9
2010 14.9 14.7 16.5 14.9 8 9.9
2011 16.7 15.5 15.2 16.7 8.7 11.3
2012 14.8 14.6 14.6 14.8 9 11.2
MEAN 15.45 14.72 15.45 15.45 8.95 11.32
SD 0.87 0.57 0.79 0.87 0.87 1.22
CV 5.65 3.93 5.13 5.65 9.76 10.84
As shown in table debt equity is ratio is maximum in
case of three banks i.e. SBI , BOB and ICICI and
variation is least in case of PNB and maximum in case
of AXIS
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 26.71 29.87 22.08 18.79 24.45 22
2010 32.01 31.34 21.8 26.34 29.79 23.96
2011 35.36 29.88 21.1 29.64 30.42 51.59
2012 35.37 27.83 19.38 29.76 29.99 23.47
MEAN 32.36 29.73 21.09 26.13 28.66 30.25
SD 4.08 1.44 1.21 5.14 2.82 14.24
CV 12.62 4.85 5.74 19.68 9.84 47.09
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6) Return on Assets
Return on assets is the ratio of annual net income to
average total assets of a business during a financial
year. It measures efficiency of the business in using its
assets to generate net income.
ROA= Net income / Total assets
Table 6
YEAR SBI PNB
BO
B
ICIC
I
HDFC
AXI
S
2009 0.8 1.3 1 0.7 1.2 1.2
2010 0.8 1.3 1.1 1 1.3 1.4
2011 0.6 1.2 1.2 1.1 1.4 1.4
2012 0.8 1.1 1.1 1.3 1.5 1.5
MEA
N
0.75 1.22 1.1 1.02 1.35 1.37
SD 0.1 0.09 0.08 0.25 0.12 0.12
CV
13.3
3
7.81 7.42 24.39 9.56 9.15
As shown in table ROA is highest in case of AXIS
followed by HDFC and PNB 1.37 , 1.35 and 1.22
respectively and variation is more in case of ICICI and
least in case of BOB. This return is related with overall
profitability.
7) Return on Equity
One of the most important profitability metrics is return
on equity (or ROE for short). Return on equity reveals
how much profit a company earned in comparison to
the total amount of shareholder equity found on the
balance sheet. ROE= Net Income/ Shareholders Fund
Table 7
YEAR SBI PNB BOB ICICI HDFC AXIS
009 15.1 20.5 17.9 7.6 14.9 17.8
2010 14.1 21.2 20.2 9.1 13.9 15.5
2011 12.8 20.2 20.3 11 15.6 17.7
2012 14.4 17.2 18.4 12.5 17.4 18.6
MEAN 14.1 19.77 19.2 10.05 15.45 17.4
SD 0.96 1.76 1.23 2.14 1.47 1.32
CV 6.82 8.93 6.40 21.34 9.54 7.63
As shown in table ROE is maximum in case of PNB
19.77 followed by 19.2 of BOB and BOB has least
variation in this and ICICI is having more variation.
8) Capital Adequacy Ratio
Capital adequacy ratio is the ratio which determines the
bank's capacity to meet the time liabilities and other
risks such as credit risk, operational risk etc.
CAR is similar to leverage; in the most basic
formulation, it is comparable to the inverse of debt-to-
equity leverage formulations (although CAR uses
equity over assets instead of debt-to-equity; since assets
are by definition equal to debt plus equity, a
transformation is required). Unlike traditional leverage,
however, CAR recognizes that assets can have different
levels of risk.
Table 8
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 14.3 14.3 14.1 15.5 15.7 13.7
2010 13.4 14.8 14.4 19.4 17.4 15.8
2011 12 13 14.5 19.5 16.2 12.7
2012 13.9 13.1 14.7 19.6 16.5 13.7
MEAN 13.4 13.8 14.42 18.5 16.45 13.97
SD 1.00 0.89 0.25 2.00 0.71 1.30
CV 7.48 6.45 1.73 10.81 4.34 9.33
In this case ICICI has the capacity to meet the time
liabilities and other risks such as credit risk, operational
risk etc. at 18.5 followed by HDFC at 16.45 and
variation is more in case of ICICI and least in BOB.
(9) Operating Margin Ratio
Operating margin ratio or return on sales ratio is the
ratio of operating income of a business to its revenue. It
is profitability ratio showing operating income as a
percentage of revenue.
Operating margin = Operating Profit/ Total Revenue
Table 9
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 19.5 21.8 18.2 14.13 19.87 22.13
2010 16.96 24.63 20.27 16.95 24.36 25.58
2011 16.97 21.85 22.49 22.8 30.58 27.43
2012 16.29 19.09 19.3 21.99 27.19 24.13
MEAN 17.43 21.84 20.06 18.96 25.5 24.81
SD 1.41 2.26 1.82 4.13 4.53 2.24
CV 8.12 10.35 9.09 21.80 17.77 9.04
As shown in table operating margin of HDFC is
maximum 25.5 followed by AXIS 24.81 operating
margin is directly concerned with profitability. SBI is
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least variable and ICICI is more variable which states
that SBI bank’s profitability doesn’t change much.
10) Net Profit Margin Ratio
Net profit margin is the percentage
of revenue remaining after all operating expenses,
interest, taxes and preferred stock dividends (but
not common stock dividends) have been deducted from
a company's total revenue.
Net Profit Margin = Net Profit/Total Revenue
As per table AXIS bank enjoys more net profit than
other banks at 15.53 and followed by BOB at 15.16 and
variation is also least in case of AXIS bank and much
higher variation in ICICI.
Table 10
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 12.03 13.76 12.86 9.74 11.35 13.31
2010 10.54 15.64 15.37 12.17 14.76 16.1
2011 8.55 14.56 17.18 15.91 16.09 17.2
2012 9.73 12.09 15.23 16.14 15.93 15.51
MEAN 10.21 14.01 15.16 13.49 14.53 15.53
SD 1.46 1.49 1.77 3.09 2.20 1.63
CV 14.31 10.67 11.68 22.92 15.15 10.54
Correlation Co-Efficient Matrix
1) Correlation Co-efficient Matrix :SBI Bank
DD SD TD NIM CDR ROA ROE CAR NP
DD 1
SD -.582 1
TD -.096 -.753 1
NIM -.908 .838 -.291 1
CDR -.766 .966* -.563 .929 1
ROA -.156 -.489 .725 -.251 -.299 1
ROE -.065 -.733 .949 -.358 -.539 .900 1
CAR -.186 -.632 .925 -.243 -.420 .930 .991** 1
NP .356 -.939 .861 -.711 -.830 .758 .908 .846 1
*Correlation is significant at .05 level (2-tailed)
**Correlation is significant at .01 level (2-tailed)
The table shows that credit deposit ratio and saving
deposits have a high degree of positive association
(.966) , capital adequacy ratio and return on equity
have very high positive association (.991) and return
on equity , capital adequacy ratio , time deposit are
positively associated with net profit and net interest
income and credit deposit ratio are negatively
associated with net profit which is significant at 5
percent level.
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2) Correlation Co-efficient Matrix
NB Bank
This table shows that saving deposit is highly
positively associated with net profit at .976 and
highly negatively associated with net profit at -.958
further net profit is also positively correlated with
demand deposit, return on equity and return on assets
which is significant 5 percent level. It also shows that
return on equity and saving deposit , return on assets
and demand deposit, saving deposit and demand
deposit are associated with each other at positive 5
percent significance level. Time deposit and return on
equity are negatively associated at 5 percent whereas
time deposit and demand deposit , time deposit and
saving deposit are highly negatively associated at 1
percent significance level.
3) Correlation Co-efficient Matrix: BOB Bank
DD SD TD NIM CDR ROA ROE CAR NP
DD 1
SD .385 1
TD -.489 -.993** 1
NIM -.712 -.236 .309 1
CDR -.938 -.507 .595 .878 1
ROA .153 -.330 .290 .500 .200 1
ROE .672 .179 -.256 .033 -.389 .796 1
CAR -.010 -.890 .842 .163 .248 .653 .282 1
NP .227 -.346 .295 .417 .125 .995** .821 .687 1
*Correlation is significant at .05 level (2-tailed)
**Correlation is significant at .01 level (2-tailed)
This table shows shows net profit and return on assets
are highly positively associated .995 and time deposit
and saving deposit are negatively associated -.993 at
1 percent significance level. Net profit association
with other variables is almost same.
DD SD TD NIM CDR ROA ROE CAR NP
DD 1
SD .979* 1
TD -.992** -.997** 1
NIM -.187 .003 .068 1
CDR -.759 -.617 .672 .781 1
ROA .958* .881 -.913 -.426 -.896 1
ROE .974 .961* -.970* -.069 -.673 .931 1
CAR .828 .750 -.784 -.596 -.905 .860 .688 1
NP .915 .976* -.958* .218 -.433 .768 .923 .603 1
*Correlation is significant at .05 level (2-tailed)
**Correlation is significant at .01 level (2-tailed)
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4) Correlation Co-efficient Matrix : ICICI Bank
DD SD TD NIM CDR ROA ROE CAR NP
DD 1
SD .858 1
TD -.936 -.984* 1
NIM -.470 -.006 .166 1
CDR -.563 -.063 .238 .848 1
ROA .681 .944 -.884 .313 .165 1
ROE .562 .906 -.817 .398 .352 .973* 1
CAR .940 .962* -.986* -.139 -.300 .886 .787 1
NP .676 .950* -.887 .175 .227 .932 .966* .829 1
*Correlation is significant at .05 level (2-tailed)
**Correlation is significant at .01 level (2-tailed)
This table shows that savings deposit and net profit
are positively associated at .950 , net profit is
positively associated with return on equity at .966 ,
net profit and return on asset are positively
associated , capital adequacy ratio and saving deposit
, capital adequacy and term deposit , return on equity
and return on asset are highly negatively associated at
-.962 , -.986 , -.973. Term deposit and demand
deposit are negatively associated at -.936 . These
values are significant at .05 level.
5) Correlation Co-efficient Matrix :HDFC Bank
DD SD TD NIM CDR ROA ROE CAR NP
DD 1
SD .297 1
TD -.711 -.882 1
NIM .088 -.719 .486 1
CDR -.173 .887 -.567 -.742 1
ROA -.308 .790 -.430 -.602 .975* 1
ROE -.741 .274 .163 -.203 .665 .805 1
CAR .381 .638 -.658 -.856 .426 .217 -.316 1
NP .167 .979* -.803 -.649 .938 .883 .447 .484 1
*Correlation is significant at .05 level (2-tailed)
**Correlation is significant at .01 level (2-tailed)
This table shows that saving deposit and net profit are
highly positively associated at .979 and net profit is
positively associated with credit deposit ratio at .938 .
Return on assets and capital adequacy ratio are highly
positively associated at .975 these relations are
significant at .05 level.
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6) Correlation Co-efficient Matrix : AXIS Bank
DD SD TD NIM CDR ROA ROE CAR NP
DD 1
SD ?.278 1
TD ?.901 .506 1
NIM ?.170 .057 ?.182 1
CDR ?.613 .313 .325 .871 1
ROA ?.503 .181 .169 .937 .985* 1
ROE ?.896 .122 .917 ?.266 .201 .080 1
CAR .740 ?.620 ?.958* .379 ?.116 .056 ?.825 1
NP ?.175 .722 .108 .718 .748 .715 ?.229 ?.074 1
*Correlation is significant at .05 level (2-tailed)
**Correlation is significant at .01 level (2-tailed)
This table shows that capital adequacy ratio and term
deposit are highly negatively associated at -.958 and
return on assets are highly positively associated with
capital adequacy ratio at .985. this table also shows
return on asset and net interest margin , return on
equity and term deposit are positively associated .
Term deposit and demand deposit , return on equity
and demand deposit are negatively associated at
significance level .05 level.
Conclusion and Findings
The foregoing analysis for SBI has revealed that the
overall profitability is not that high because they
there NIM is less and need to gear up the NIM i.e.
spread . the deposits are being utilised in good
manner as they are giving credit on it and there CDR
and profitability is well associated. Debt equity ratio
is also very high. To increase the profitability their
capital adequacy ratio should also be looked into.
For PNB return on equity is very high as compared to
other banks and they have good association with
deposits but there conversion of deposits into credits
is very less and more need to work on it. NIM is also
very less and need increase the interest income as
compared to interest expended.
For BOB bank it doesn’t have good association with
deposits so there CDR is also very less and NIM is
also so they need to gear up the interest income by
granting more loans or reducing interest so that more
volume can be created. NP in this case is directly
associate with ROA.
For ICICI bank it has good association with CAR and
deposits in banks are very high and NIM is less
which needs to be increased which will impact the
profitability. TD and SD are highly associated and
conversion rate for deposit into credit is also good but
there is lot of variation in TD.
For HDFC it has very high CDR which is great sign
for increase in profitability and in this case NIM and
deposits are high which has drastically impacted the
NP.
For AXIS ROA is quite high as compared to other
banks and is –ve associated with CAR. Profitability is
+ve associated with NIM and CDR.
REFERENCES
[1] Dangwal, R.C., and ReetuKapoor (2010),
“Financial Performance of Nationalised Banks “,
NICE Journal of Business, Vol. 5, No. 2, pp. 67-
79
[2] De, Bikram (2003), “Ownership Effects on Bank
Performance: A Panel Study of Indian Banks”,
Paper presented at the Fifth Annual Conference
on Money and Finance in the Indian Economy,
Indira Gandhi Institute of Development
Research, Mumbai, Janurary 30-February 1
Journal of Business Management & Social Sciences Research (JBM&SSR) ISSN No: 2319?5614
Volume 2, No.7, July 2013
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[3] ICFAI Journal of Bank Management No7vol 3
jan 2008
[4] Jha, D.K., and D.S. Sarangi (2011),
“Performance of New Generation Banks in
India: A Comparative Study”, International
Journal of Research in Commerce and
Management, Vol. 2, No. 1, pp. 85-89
[5] Makesh, K.G. (2008), “Financial Performance
Analysis of Commercial Banks: A Comparision
of Federal Bank, Dhanlakshmi Bank, and SBI”,
Professional Banker, Vol. 8, No. 9, pp. 34-44
[6] Muniappan (2002) studied paradigm shift in
banks from a regulator point of view in Indian
Banking : Paradigm Shift, IBA Bulletin, No 24 -
3.Singh (2003) analyzed profitability
management of banks under the deregulated
environment, ‘Cooperative Perspective Vol.37,
No.4, March 2003, pp. 61-81.
[7] Pat, K.A. (2009), “Why Indian Banks are healthy
in this Global Crisis?” Economic and Poltical
Weekly, Vol. 44, No. 17, pp. 21-22
[8] Qamar, Furqan (2003), “Profitability and
Resource Use Efficiency in Scheduled
Commercial Banks in India: A Comparative
Analysis of Foreign, New Private-sector, Old
Private-sector, and Public-sector”, Synthesis,
Vol. 1, No. 1, pp. 1-16
[9] SamwelKakuko Lopoyetum2, “A Study of
Business Performance with Special Reference to
Profitability and Viability Dimension–
Uthamapalyam Urban Cooperative Bank, Theni
District,” Cooperative Perspective, Vol.37, No.4,
March 2005, pp. 61-81.
[10] Singla HK (2008), in his paper,’ financial
performance of banks in India,’
[11] Sharma, Meera (2010), “A Cross-country Study
of Bank Failure Resolution”, Prajnan: Journal of
Social and Management Sciences, Vol. 29, No.
1, pp. 7-27
[12] http://shodhganga.inflibnet.ac.in/bitstream/10603
/3712/10/10_chapter%203.pdf
[13] http://www.businessadonline.com/index.php?opt
ion=com_content&view=article&id=1236erfor
mance-measurement-of-Banks--NPA-analysis-
&-credentials-of-Parameters&catid=146
[14] http://www.researchandmarkets.com/reports/402
0/indian_banking_industry
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industries/banking.htmlhttp://www.ethiopianrevi
ew.com/2007/Final%20Paper%20Dhansukodi.ht
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[16] http://www.scribd.com/doc/39173858/Synopsis-
on-Comparative-Study-on-ICICI-and-SBI
[17] http://www.moneycontrol.com/
[18] http://www.moneyrediff.com/
[19] http://www.equitymaster.com/
[20] http://www.kotaksecurities.com/
[21] http://www.gktoday.in/brief-history-of-banking-
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[22] http://en.wikipedia.org/wiki/Indian_Bank
http://www.bankingawareness.com/banking-
gk/banking-history-in-india-post-independence-
banking-history/
doc_106581694.pdf
Comparative Study on the Performance of Selected Public Sector Bank and Private Sector Bank, Banks are key financial intermediaries or institutions that serve as "middle man" in the transfer of fund from servers to those who invest in real assets as house, equipment and factories.
Journal of Business Management & Social Sciences Research (JBM&SSR) ISSN No: 2319?5614
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A Comparative Study on the Performance of Selected Public
Sector and Private Sector Banks in India
Cheenu Goel, Assistant Professor,Management Department,PCTE,Ludhiana
Chitwan Bhutani Rekhi, Assistant Professor,Management Department,PCTE,Ludhiana
ABSTRACT
Efficiency and profitability of the banking sector in India has assumed primal importance due to intense
competition, greater customer demands and changing banking reforms. Since competition cannot be observed
directly, various indirect measures in the form of simple indicators or complex models have been devised and
used both in theory and in practice. This study attempts to measure the relative performance of Indian banks. For
this study, we have used public sector banks and private sector banks. We know that in the service sector, it is
difficult to quantify the output because it is intangible. Hence different proxy indicators are used for measuring
productivity of banking sector. Segmentation of the banking sector in India was done on bank assets size. Overall,
the analysis supports the conclusion that new banks are more efficient that old ones. The public sector banks are not
as profitable as other sectors are. It means that efficiency and profitability are interrelated. The key to increase
performance depends upon ROA, ROE and NIM.
Key Words: Efficiency, Profitability, Segmentation, Performance, Indicators
Introduction
Banks are key financial intermediaries or institutions
that serve as “middle man” in the transfer of fund from
servers to those who invest in real assets as house,
equipment and factories. In performing this function
financial intermediaries improve the well being of both
saver and investor. By improving economic efficiency
they raise living standard of the society. The banking
sector is considered to be an important source of
financing for most businesses. They play a very
important role in the effort to attain stable prices, high
level of employment and sound economic growth. They
make funds available to meet the needs of individuals,
businesses and the government. In doing this, they
facilitate the flow of goods and services and the
activities of governments.
The commercial Banking system provides a large
portion of the medium of exchange of a given country,
and is the primary instrument through which Monitory
policy is conducted, through their deposit mobilization
and lending operations. Commercial banks make the
productive utilization of ideal funds, thus assists the
society to produce wealth. Commercial Banks are the
institutions specifically designed to further the capital
formation process through the attraction of deposits and
extension of credit.
Measure of Banks’ Performance
Although net income gives us an idea of how well a
bank is doing, it suffers from one major drawback. It
does not adjust for the bank's size, thus making it hard
to compare how well one bank is doing relative to
another. A basic measure of bank profitability that
corrects for the size of the bank is the return on assets
(ROA). Secondly, because the owners of a bank must
know whether their bank is being managed well, ROA
serves as a good method to identify it.
ROA = Net profit after taxes / assets
The return on assets provide information on how
efficiently a bank is being run because it indicates how
much profits are generated by each dollar of assets.
However, what the bank's owners (equity holders) care
about most is how much the bank is earning on their
equity investment. This information is provided by the
other basic measure of bank profitability, the return on
equity (ROE).
ROE = Net profit after taxes / equity capital
There is a direct relationship between return on assets
(which measures how efficiently the bank is run) and
the return on equity (which measures how well the
owners are doing on their investment).
Another commonly used measure of bank performance
is called the net interest margin (NIM). NIM is the
difference between interest income and interest
expenses as a percentage of total assets.
NIM = (Interest income - Interest expenses) / Assets
One of the bank's primary intermediation functions is to
issue liabilities and use the proceeds to purchase
income earnings assets. If a bank manager has done a
good job of asset and liability management such that
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the bank earns substantial income on its assets and have
low costs on its liability, profits will be high. How well
a bank manages its asset and liabilities is affected by
the spread between the interest earned on the bank's
assets and the interest cost on its liabilities. This spread
is exactly what net interest margin measures. If the
bank is able to raise funds with liabilities that have low
interest costs and is able to acquire assets with high
interest income, the net interest margin will be high and
the bank is likely to be highly profitable. If the interest
cost of its liabilities rises relatively to the interest
earned on its assets, the net interest margin will fall, and
bank profitability will suffer.
Indian Banking Industry
Indian Banking Industry originated in the first decade
of 18th century as The General Bank of India came
into existence in the year 1786. And then later Bank of
Hindustan was started. A couple of decades later in the
year 1850 the foreign banks like Credit Lyonnais
started their operations in Calcutta. Calcutta was the
most active trading port at that time which was during
the British Empire, due to these reasons the banking
activity took roots there and prospered. In the year
1865, the first fully Indian owned bank was established
in Allahabad.
The Indian Banking Industry in 1960 became an
important tool to facilitate the financial development of
the Indian economy. Simultaneously it emerged as a
large employer and debate prevailed that ensured about
the possibility of nationalization of the banking
industry. The then Prime Minister of India, Indira
Gandhi expressed the intention of the GOI in the annual
conference of the All India Congress Meeting. This was
received with positive enthusiasm by the whole nation.
Later the GOI was issued an ordinance and nationalized
the 14 largest commercial banks with effect from the
midnight of July 19, 1969. In 1980 for the second time
nationalisation of 6 more commercial banks was done.
The nationalization was done to give the government
more control of credit delivery. With this the GOI
controlled around 91% of the banking business of India.
The next stage for the Indian Banking Industry was to
setup with the proposed relaxation in the norms for
Foreign Direct Investment, where voting rights were
given to all the Foreign Investors in banks which could
exceed the present cap of 10%, at present it has gone up
to 49% with some restrictions. Indian Banking Industry
was completely shocked with the new policy. Till this
time the Bankers used to the follow the 4-6-4 method
(Borrow at 4%; Lend at 6%; Go home at 4) of
functioning. This new wave ushered in a modern
outlook and tech-savvy methods of working for
traditional banks which led to the retail boom in India.
People not only just demanded more from their banks
but also received more. Today Banking in India is
generally fair and mature in terms of supply, product
range and reach though in rural India still remains a
challenge for the private sector and foreign banks.
Banking in terms of quality of assets and capital
adequacy, banks in India are considered to have clean,
strong and transparent balance sheets relative to other
banks in comparable other economies.
Review of Literature
Jha and Sarangi (2011) analyzed the performance of
seven public sector and private sector banks for the year
2009-10. They used three sets of ratios, operating
performance ratios, financial ratios, and efficiency
ratios. In all eleven ratios were used. They found that
Axis Bank took the first position, followed ICICI Bank,
BOI, PNB, SBI, IDBI, and HDFC, in that order.
Dangwal and Kapoor (2010) evaluated the financial
performance of nationalized banks in India and
assessed the growth index value of various parameters
through overall profitability indices. The data for 19
nationalized banks, for the post-reform period from
2002-03 to 2006-07, was used to calculate the index of
spread ratios, burden ratios, and profitability ratios.
They found that while four banks had excellent
performance, five achieved good performance, four
attained fair performance, and six had poor
performance.
Sharma (2010) assessed the bank failure resolution
mechanism to analyze the powers given by the
countries to their regulators to carry out resolution of
failed banks among 148 countries during 2003. She
used 12 variables for correlation and regression
analysis. Her study revealed that the countries which
had faced systemic crisis were more prone to providing
liquidation powers to their regulators. These countries
had a tendency to protect their regulators through
immunity, rather than any legal action. Systemic crisis
did not significantly influenced the regulators’ powers
for the restructuring of the banks.
Pat (2009) made an assessment of the RBI’s Report on
“Trend and Progress of Banking’ in India, 2007-08,
which reported a relatively-healthy position of the
Indian banking system. He noted that the various
groups of banks reported improvements in net profits,
return on assets and return on equity. Two basic
indicators of sound banking system, namely, capital to
risk weighted assets and quality of assets, also revealed
considerable improvements over the years.
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Singla HK (2008), in his paper,’ financial performance
of banks in India,’ in ICFAI Journal of Bank
Management No 7, has examined that how financial
management plays a crucial role in the growth of
banking. It is concerned with examining the
profitability position of the selected sixteen banks of
banker index for a period of six years (2001-06). The
study reveals that the profitability position was
reasonable during the period of study when compared
with the previous years. Strong capital position and
balance sheet place, Banks in better position to deal
with and absorb the economic constant over a period of
time.
Makesh (2008) evaluated the financial management
practices of Federal Bank and Dhanlakshmi Bank,
along with the SBI, for the financial year 2006-2007.
He revealed that all the three banks maintained capital
in excess of the stipulated norms of the RBI. Federal
Bank had the lowest NPA Ratio to net advances and
had the maximum return on equity. Dhanalakshmi Bank
maintained a very high liquidity. But Federal Bank
performed well in cost management, as compared to the
SBI and Dhanalakshmi Bank.
Joshi Vijaya (2007) observed that on the eve of banking
reforms Indian Banking Sector was financially
unsound, unprofitable and inefficient. They made a
critical examination of the changes that have taken
place in the banking sector after reforms. Further, what
remains to be done with respect ofpre-emption of bank
resources, directed credit, deregulation of interest rates,
etc. in the field of banking sector were also elaborately
discussed.
SamwelKakukuLopoyetum (2005) in his article
elaborated that the profitability performance of the
UCBs can be improved by strengthening the magnitude
of burden ratio. The spread ratio can be increased by
increasing the interest receipts faster than the interest
payments. The burden ratio can be lowered by
decreasing the manpower expenses, other expenses and
increasing other incomes
Qamar (2003) identified the differences in terms of
endowment factor, risk factor, revenue diversification,
profitability, and efficiency that might have existed
among 100 scheduled commercial banks, divided into
three groups for the year 2000-2001. His study revealed
that the public sector banks were better endowed in
terms of their assets base, share capital and
shareholders equity than other banks, whereas foreign
banks and old private sector banks operated at a very
high capitalization ratio.
De (2003) The panel regression techniques were used to
examine the effect of ownership on bank performance
in the context of Indian commercial banks. He noted
that in case of public sector banks, old private sector
banks and new private sector banks, the ownership had
no effect on the return on assets. However, public
sector banks had a higher ratio of net interest margin
and operating cost. He also found that new private
sector banks were showing a higher return on assets
when the SBI and its associates were dropped from the
sample.
Muniappan (2002) studied paradigm shift in banks from
a regulator point of view in Indian Banking : Paradigm
Shift, IBA Bulletin, No 24 -3. He concluded the
positive effect of banking sector reforms on the
performance ofbanks. He suggested many effective
measures to strengthen the Indian banking system. The
reduction of NPAs, more provisions for standards of the
banks, IT, sound capital bare are the positive measures
for a paradigm shift. A regulatory change is required in
the Indian banking system
Need of the Study
Significance of performance evaluation in an
organization, for sustainable growth and development,
has been recognized since long. This calls for a system
that first measures and evaluates the performance, and
then brings out the strengths and weaknesses of the
organization for the purpose of further improvement.
Efficient performance evaluation system encompasses
all aspects of an organization. With the advances in
computational tools, performance evaluation systems
have evolved over a period of time from single-aspect
systems to more comprehensive systems covering all
aspects of an organization. Moreover, almost every
industry, that envisages importance of evaluation, can
adopt many methods to evaluate the performance. It
prove to be better for performance measurement,
evaluation and strategic planning for future growth and
development of the Indian banks in the light of
changing requirements of this sector so to analyze the
comparative profitability performance of banks for the
financial periods 2009-2012. By examining the
relationship among banks equity, assets and deposit size
to profitability such as ROE, ROA and NIM. The banks
will be ranked based on their profitability performance
and growth percentage. This will help the banking
industry f or t he i mpr ovement or change i n
t hei r busi ness model .
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Objectives of the Study
1. To compare the profit earning of the selected
public sector banks and private sector banks from
the year 2009 to 2012
2. To investigate the factors affecting the profit
earning of the selected banks during the period.
Research Methodology
Research Design: This present study is conducted by
following a Descriptive Design.
Sample Unit: Any single bank operating in India
Sample Size: For the in-depth analysis of the
profitability, three major public sector and three private
sector banks are selected on the basis of their
Total Assets from the year 2009 to 2012.
Public sector Banks Total Assets(rscrores)
STATE BANK OF
INDIA
1123582.64
PUNJAB NATIONAL
BANK
409962.68
BANK OF BARODA 367036.77
Private sector Banks Total Assets( Rscrores)
ICICI BANK 392855.58
HDFC BANK 262227.57
AXIS BANK 259105.63
Sampling Technique: Judgmental sampling.
Data Collection: Data was collected through Reserve
Bank of India monthly bulletins, annual reports,
moneyrediff, moneycontrol , banks websites etc. Three
private sector and three public sector banks were
selected on the basis of their total assets.
Data Analysis: Suitable statistical techniques are used
for data analysis like ratios and coefficient correlation.
Data Analysis and Interpretation
RATIOS
1) Demand Deposit Ratio
The sum of money that is given to a bank but can be
withdrawn as per the requirement of the depositor.
Amounts that are lying in the savings and current
accounts are known as demand deposits because they
can be used at any point of time.
Demand Deposit Ratio = Demand Deposit / Total
Deposit.
Table 1
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 14.92 8.97 7.51 9.91 19.92 21.15
2010 15.24 9.51 7.85 15.34 22.24 22.77
2011 14.04 8.58 7.57 15.42 22.27 19.51
2012 9.43 7.5 7.52 13.69 18.41 18.06
Mean 13.41 8.64 7.61 13.59 20.71 20.37
SD 2.70 0.85 0.16 2.57 1.88 2.03
CV 20.15 9.84 2.10 18.98 9.11 9.99
As shown in table the ratio of demand deposit is more
in HDFC bank (20.71) followed by another private
sector bank AXIS ( 20.37) . Demand deposit is more in
private sector banks than in public banks it may be
because no interest is paid on these accounts except in
special cases where a large dormant balance is kept
which could otherwise be transferred to the savings
deposits.
2) Saving Deposit Ratio
Accounts that pay interest and can be withdrawn on
upon demand Offered by banks, credit unions, and
Savings and Loans.
Saving Deposit Ratio = Saving Deposit / Total
Deposit.
Table 2
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 26.71 29.87 22.08 18.79 24.45 22
2010 32.01 31.34 21.8 26.34 29.79 23.96
2011 35.36 29.88 21.1 29.64 30.42 51.59
2012 35.37 27.83 19.38 29.76 29.99 23.47
MEAN 32.36 29.73 21.09 26.13 28.66 30.25
SD 4.08 1.44 1.21 5.14 2.82 14.24
CV 12.62 4.85 5.74 19.68 9.84 47.09
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As shown in table the ratio of savings deposit to total
deposit is maximum in case of SBI (32.36) followed by
Axis bank it is an account at a bank in which the
customer deposits money for any non-immediate use.
For example, one may utilize a savings deposit to
save funds for an expensive purchase, such as a house
or a car. Because most customers keep money in a
savings deposit for a longer period than a checking
account, a savings deposit pays a slightly higher interest
rate.
3) Net Interest Margin
A measure of the return on a
Company's investments relative to its interest expenses.
The net interest margin helps a company determine
whether or not it has made wise investment decisions.
A negative net interest margin indicates that interest
expenses exceed investment returns and that the
company therefore has a net negative return. A positive
net interest margin indicates the opposite.
Net Interest Margin = (Interest Received - Interest Paid)
/ total Assets
Table 3
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 2.3 2.8 2.4 2.2 4.2 2.6
2010 2.4 3 2.2 2.1 3.9 2.9
2011 2.9 3.2 2.6 2.1 4.1 2.8
2012 3.3 3 2.4 2.3 3.9 2.9
MEAN 2.72 3 2.4 2.17 4.02 2.8
SD 0.46 0.16 0.16 0.09 0.15 0.14
CV 17.04 5.44 6.80 4.40 3.72 5.05
As shown in table NIM of HDFC is more than others
i.e. 4.02 which shows that interest earned by HDFC
bank is much more than expended and other banks are
earning less interest. Interest earned by bank is there
foremost income which is more in case of HDFC and
other banks following are almost at same level and
chart shows that there is very less variation in case of
HDFC bank and more variation in SBI bank.
4) Credit Deposit Ratio
The proportion of loans generated by banks from
the deposits received.
Credit Deposit Ratio= Credit / Deposit
Table 4
As per table ICICI bank is issuing maximum credit as
per the deposits generated by them 99.37 and other
banks are almost at same level and variation in least in
case of BOB and maximum in case of HDFC.
5) Debt Equity Ratio
The debt-to-equity ratio (debt/equity ratio, D/E) is a
financial ratio indicating the relative proportion of
entity's equity and debt used to finance an entity's
assets. If the ratio is increasing, the company is being
financed by creditors rather than from its own financial
sources which may be a dangerous trend.A
debt-to-equity ratio is calculated by taking the total
liabilities and dividing it by the shareholders' equity:
Debt-to-equity ratio = Debt / Equity
Table 5
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 15.4 14.1 15.5 15.4 10.1 12.9
2010 14.9 14.7 16.5 14.9 8 9.9
2011 16.7 15.5 15.2 16.7 8.7 11.3
2012 14.8 14.6 14.6 14.8 9 11.2
MEAN 15.45 14.72 15.45 15.45 8.95 11.32
SD 0.87 0.57 0.79 0.87 0.87 1.22
CV 5.65 3.93 5.13 5.65 9.76 10.84
As shown in table debt equity is ratio is maximum in
case of three banks i.e. SBI , BOB and ICICI and
variation is least in case of PNB and maximum in case
of AXIS
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 26.71 29.87 22.08 18.79 24.45 22
2010 32.01 31.34 21.8 26.34 29.79 23.96
2011 35.36 29.88 21.1 29.64 30.42 51.59
2012 35.37 27.83 19.38 29.76 29.99 23.47
MEAN 32.36 29.73 21.09 26.13 28.66 30.25
SD 4.08 1.44 1.21 5.14 2.82 14.24
CV 12.62 4.85 5.74 19.68 9.84 47.09
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6) Return on Assets
Return on assets is the ratio of annual net income to
average total assets of a business during a financial
year. It measures efficiency of the business in using its
assets to generate net income.
ROA= Net income / Total assets
Table 6
YEAR SBI PNB
BO
B
ICIC
I
HDFC
AXI
S
2009 0.8 1.3 1 0.7 1.2 1.2
2010 0.8 1.3 1.1 1 1.3 1.4
2011 0.6 1.2 1.2 1.1 1.4 1.4
2012 0.8 1.1 1.1 1.3 1.5 1.5
MEA
N
0.75 1.22 1.1 1.02 1.35 1.37
SD 0.1 0.09 0.08 0.25 0.12 0.12
CV
13.3
3
7.81 7.42 24.39 9.56 9.15
As shown in table ROA is highest in case of AXIS
followed by HDFC and PNB 1.37 , 1.35 and 1.22
respectively and variation is more in case of ICICI and
least in case of BOB. This return is related with overall
profitability.
7) Return on Equity
One of the most important profitability metrics is return
on equity (or ROE for short). Return on equity reveals
how much profit a company earned in comparison to
the total amount of shareholder equity found on the
balance sheet. ROE= Net Income/ Shareholders Fund
Table 7
YEAR SBI PNB BOB ICICI HDFC AXIS
009 15.1 20.5 17.9 7.6 14.9 17.8
2010 14.1 21.2 20.2 9.1 13.9 15.5
2011 12.8 20.2 20.3 11 15.6 17.7
2012 14.4 17.2 18.4 12.5 17.4 18.6
MEAN 14.1 19.77 19.2 10.05 15.45 17.4
SD 0.96 1.76 1.23 2.14 1.47 1.32
CV 6.82 8.93 6.40 21.34 9.54 7.63
As shown in table ROE is maximum in case of PNB
19.77 followed by 19.2 of BOB and BOB has least
variation in this and ICICI is having more variation.
8) Capital Adequacy Ratio
Capital adequacy ratio is the ratio which determines the
bank's capacity to meet the time liabilities and other
risks such as credit risk, operational risk etc.
CAR is similar to leverage; in the most basic
formulation, it is comparable to the inverse of debt-to-
equity leverage formulations (although CAR uses
equity over assets instead of debt-to-equity; since assets
are by definition equal to debt plus equity, a
transformation is required). Unlike traditional leverage,
however, CAR recognizes that assets can have different
levels of risk.
Table 8
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 14.3 14.3 14.1 15.5 15.7 13.7
2010 13.4 14.8 14.4 19.4 17.4 15.8
2011 12 13 14.5 19.5 16.2 12.7
2012 13.9 13.1 14.7 19.6 16.5 13.7
MEAN 13.4 13.8 14.42 18.5 16.45 13.97
SD 1.00 0.89 0.25 2.00 0.71 1.30
CV 7.48 6.45 1.73 10.81 4.34 9.33
In this case ICICI has the capacity to meet the time
liabilities and other risks such as credit risk, operational
risk etc. at 18.5 followed by HDFC at 16.45 and
variation is more in case of ICICI and least in BOB.
(9) Operating Margin Ratio
Operating margin ratio or return on sales ratio is the
ratio of operating income of a business to its revenue. It
is profitability ratio showing operating income as a
percentage of revenue.
Operating margin = Operating Profit/ Total Revenue
Table 9
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 19.5 21.8 18.2 14.13 19.87 22.13
2010 16.96 24.63 20.27 16.95 24.36 25.58
2011 16.97 21.85 22.49 22.8 30.58 27.43
2012 16.29 19.09 19.3 21.99 27.19 24.13
MEAN 17.43 21.84 20.06 18.96 25.5 24.81
SD 1.41 2.26 1.82 4.13 4.53 2.24
CV 8.12 10.35 9.09 21.80 17.77 9.04
As shown in table operating margin of HDFC is
maximum 25.5 followed by AXIS 24.81 operating
margin is directly concerned with profitability. SBI is
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least variable and ICICI is more variable which states
that SBI bank’s profitability doesn’t change much.
10) Net Profit Margin Ratio
Net profit margin is the percentage
of revenue remaining after all operating expenses,
interest, taxes and preferred stock dividends (but
not common stock dividends) have been deducted from
a company's total revenue.
Net Profit Margin = Net Profit/Total Revenue
As per table AXIS bank enjoys more net profit than
other banks at 15.53 and followed by BOB at 15.16 and
variation is also least in case of AXIS bank and much
higher variation in ICICI.
Table 10
YEAR SBI PNB BOB ICICI HDFC AXIS
2009 12.03 13.76 12.86 9.74 11.35 13.31
2010 10.54 15.64 15.37 12.17 14.76 16.1
2011 8.55 14.56 17.18 15.91 16.09 17.2
2012 9.73 12.09 15.23 16.14 15.93 15.51
MEAN 10.21 14.01 15.16 13.49 14.53 15.53
SD 1.46 1.49 1.77 3.09 2.20 1.63
CV 14.31 10.67 11.68 22.92 15.15 10.54
Correlation Co-Efficient Matrix
1) Correlation Co-efficient Matrix :SBI Bank
DD SD TD NIM CDR ROA ROE CAR NP
DD 1
SD -.582 1
TD -.096 -.753 1
NIM -.908 .838 -.291 1
CDR -.766 .966* -.563 .929 1
ROA -.156 -.489 .725 -.251 -.299 1
ROE -.065 -.733 .949 -.358 -.539 .900 1
CAR -.186 -.632 .925 -.243 -.420 .930 .991** 1
NP .356 -.939 .861 -.711 -.830 .758 .908 .846 1
*Correlation is significant at .05 level (2-tailed)
**Correlation is significant at .01 level (2-tailed)
The table shows that credit deposit ratio and saving
deposits have a high degree of positive association
(.966) , capital adequacy ratio and return on equity
have very high positive association (.991) and return
on equity , capital adequacy ratio , time deposit are
positively associated with net profit and net interest
income and credit deposit ratio are negatively
associated with net profit which is significant at 5
percent level.
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2) Correlation Co-efficient Matrix
NB Bank This table shows that saving deposit is highly
positively associated with net profit at .976 and
highly negatively associated with net profit at -.958
further net profit is also positively correlated with
demand deposit, return on equity and return on assets
which is significant 5 percent level. It also shows that
return on equity and saving deposit , return on assets
and demand deposit, saving deposit and demand
deposit are associated with each other at positive 5
percent significance level. Time deposit and return on
equity are negatively associated at 5 percent whereas
time deposit and demand deposit , time deposit and
saving deposit are highly negatively associated at 1
percent significance level.
3) Correlation Co-efficient Matrix: BOB Bank
DD SD TD NIM CDR ROA ROE CAR NP
DD 1
SD .385 1
TD -.489 -.993** 1
NIM -.712 -.236 .309 1
CDR -.938 -.507 .595 .878 1
ROA .153 -.330 .290 .500 .200 1
ROE .672 .179 -.256 .033 -.389 .796 1
CAR -.010 -.890 .842 .163 .248 .653 .282 1
NP .227 -.346 .295 .417 .125 .995** .821 .687 1
*Correlation is significant at .05 level (2-tailed)
**Correlation is significant at .01 level (2-tailed)
This table shows shows net profit and return on assets
are highly positively associated .995 and time deposit
and saving deposit are negatively associated -.993 at
1 percent significance level. Net profit association
with other variables is almost same.
DD SD TD NIM CDR ROA ROE CAR NP
DD 1
SD .979* 1
TD -.992** -.997** 1
NIM -.187 .003 .068 1
CDR -.759 -.617 .672 .781 1
ROA .958* .881 -.913 -.426 -.896 1
ROE .974 .961* -.970* -.069 -.673 .931 1
CAR .828 .750 -.784 -.596 -.905 .860 .688 1
NP .915 .976* -.958* .218 -.433 .768 .923 .603 1
*Correlation is significant at .05 level (2-tailed)
**Correlation is significant at .01 level (2-tailed)
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4) Correlation Co-efficient Matrix : ICICI Bank
DD SD TD NIM CDR ROA ROE CAR NP
DD 1
SD .858 1
TD -.936 -.984* 1
NIM -.470 -.006 .166 1
CDR -.563 -.063 .238 .848 1
ROA .681 .944 -.884 .313 .165 1
ROE .562 .906 -.817 .398 .352 .973* 1
CAR .940 .962* -.986* -.139 -.300 .886 .787 1
NP .676 .950* -.887 .175 .227 .932 .966* .829 1
*Correlation is significant at .05 level (2-tailed)
**Correlation is significant at .01 level (2-tailed)
This table shows that savings deposit and net profit
are positively associated at .950 , net profit is
positively associated with return on equity at .966 ,
net profit and return on asset are positively
associated , capital adequacy ratio and saving deposit
, capital adequacy and term deposit , return on equity
and return on asset are highly negatively associated at
-.962 , -.986 , -.973. Term deposit and demand
deposit are negatively associated at -.936 . These
values are significant at .05 level.
5) Correlation Co-efficient Matrix :HDFC Bank
DD SD TD NIM CDR ROA ROE CAR NP
DD 1
SD .297 1
TD -.711 -.882 1
NIM .088 -.719 .486 1
CDR -.173 .887 -.567 -.742 1
ROA -.308 .790 -.430 -.602 .975* 1
ROE -.741 .274 .163 -.203 .665 .805 1
CAR .381 .638 -.658 -.856 .426 .217 -.316 1
NP .167 .979* -.803 -.649 .938 .883 .447 .484 1
*Correlation is significant at .05 level (2-tailed)
**Correlation is significant at .01 level (2-tailed)
This table shows that saving deposit and net profit are
highly positively associated at .979 and net profit is
positively associated with credit deposit ratio at .938 .
Return on assets and capital adequacy ratio are highly
positively associated at .975 these relations are
significant at .05 level.
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6) Correlation Co-efficient Matrix : AXIS Bank
DD SD TD NIM CDR ROA ROE CAR NP
DD 1
SD ?.278 1
TD ?.901 .506 1
NIM ?.170 .057 ?.182 1
CDR ?.613 .313 .325 .871 1
ROA ?.503 .181 .169 .937 .985* 1
ROE ?.896 .122 .917 ?.266 .201 .080 1
CAR .740 ?.620 ?.958* .379 ?.116 .056 ?.825 1
NP ?.175 .722 .108 .718 .748 .715 ?.229 ?.074 1
*Correlation is significant at .05 level (2-tailed)
**Correlation is significant at .01 level (2-tailed)
This table shows that capital adequacy ratio and term
deposit are highly negatively associated at -.958 and
return on assets are highly positively associated with
capital adequacy ratio at .985. this table also shows
return on asset and net interest margin , return on
equity and term deposit are positively associated .
Term deposit and demand deposit , return on equity
and demand deposit are negatively associated at
significance level .05 level.
Conclusion and Findings
The foregoing analysis for SBI has revealed that the
overall profitability is not that high because they
there NIM is less and need to gear up the NIM i.e.
spread . the deposits are being utilised in good
manner as they are giving credit on it and there CDR
and profitability is well associated. Debt equity ratio
is also very high. To increase the profitability their
capital adequacy ratio should also be looked into.
For PNB return on equity is very high as compared to
other banks and they have good association with
deposits but there conversion of deposits into credits
is very less and more need to work on it. NIM is also
very less and need increase the interest income as
compared to interest expended.
For BOB bank it doesn’t have good association with
deposits so there CDR is also very less and NIM is
also so they need to gear up the interest income by
granting more loans or reducing interest so that more
volume can be created. NP in this case is directly
associate with ROA.
For ICICI bank it has good association with CAR and
deposits in banks are very high and NIM is less
which needs to be increased which will impact the
profitability. TD and SD are highly associated and
conversion rate for deposit into credit is also good but
there is lot of variation in TD.
For HDFC it has very high CDR which is great sign
for increase in profitability and in this case NIM and
deposits are high which has drastically impacted the
NP.
For AXIS ROA is quite high as compared to other
banks and is –ve associated with CAR. Profitability is
+ve associated with NIM and CDR.
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Volume 2, No.7, July 2013
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