Description
Banks play an important role in the economic development of every nation. They have control over a large part of the supply of money in circulation. A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities. Banks are a fundamental component of the financial system, and are also active players in financial markets.
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FINANCIAL PERFORMANCE OF SELECTED PUBLIC
SECTOR BANKS IN INDIA
DR.M.DHANABHAKYAM*; M.KAVITHA**
*Assistant Professor, Department of Commerce,
Bharathiar University, Coimbatore - 641046.
**Ph.D Scholar, Department of Commerce,
Bharathiar University, Coimbatore - 641046.
ABSTRACT
Banks play an important role in the economic development of every nation. They have control
over a large part of the supply of money in circulation. A bank is a financial intermediary that
accepts deposits and channels those deposits into lending activities. Banks are a fundamental
component of the financial system, and are also active players in financial markets. Financial
performance refers to the achievement of the bank in terms of profitability. The profitability of a
bank denotes the efficiency with which a bank deploys its total resources to optimize its net
profits and thus serve as an index to the degree of asset utilization and managerial effectiveness.
In this article an attempt is made to see the financial performance of the selected public sector
banks with the different norms. They are grouped as follows, ratio analysis, correlation and
regression. For this study six Public Sector Banks are selected. The Indian banking system faces
several difficult challenges. The selected public sector banks have performed well on the sources
of growth rate and financial efficiency during the study period. The old private sector banks and
new private sector banks play a vital role in marketing of new type of deposits and advances
schemes.
______________________________________________________________________________
KEYWORDS: Bank, Economic Development, Financial performance, Public Sector,
Profitability.
______________________________________________________________________________
INTRODUCTION
A good bank is not only the financial heart of the community, but also one with an obligation of
helping in every possible manner to improve the economic conditions of the common people. A
bank is a financial intermediary that accepts deposits and channels those deposits into lending
activities. Banks are a fundamental component of the financial system, and are also active
players in financial markets. The essential role of a bank is to connect those who have capital
(such as investors or depositors), with those who seek capital (such as individuals wanting a
loan, or businesses wanting to grow). Banks play an important role in the economic development
of every nation. They have control over a large part of the supply of money in circulation.
Through their influence over the volume of bank money, they can influence in nature and
character of production in any country. Economic development is a dynamic and continuous
process. Banks are the main stay of economic progress of a country, because the economic
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development highly depends upon the extent of mobilization of resources and investment and on
the operational efficiency of the various segments (i.e. Trade, Industrial Development, and
Agriculture) of the economy. Thus, in the modern economy, banks have become a part and
parcel of all economic activities in India.
OBJECTIVES OF THE STUDY
The major objective of the study is to analyze the financial performance of the selected
public sector banks. The following are the specific objectives of the study.
1) To enlighten on the establishment of public sector banks.
2) To analyze the financial position of selected public sector banks.
3) To offer suggestions for improving the performance of the banks.
METHODOLOGY
To accomplish the objectives of the study, secondary data were used. It has been
collected from bank records, published and unpublished financial reports, journals, magazines
and websites. The study is chronological and covers a period from 2001 to 2010. Financial
performance of the selected public sector banks were analyzed for the period of ten years with
the help of the following tools and techniques, Ratio Analysis, Correlation, Regression.
PUBLIC SECTOR BANKS
The term public sector banks are used commonly in India. This refers to banks that have
their shares listed in the stock exchanges NSE and BSE and also the government of India holds
majority stake in these banks. They can also be termed as government owned banks. Following
Public Sector Banks are selected for the study. Bank of India, Indian bank, Indian overseas bank,
Canara bank, Union bank of India and State bank of India.
ANALYSIS AND INTERPRETATION
RATIO ANALYSIS
In this section, some important ratios are used to analyze the financial performance of
selected public sector banks.
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TABLE: 1 - RATIO OF ADVANCES TO ASSETS
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 45.00 43.28 41.18 41.90 37.51 41.77
2002 54.01 41.84 41.45 43.23 35.99 44.91
2003 54.88 45.92 41.30 42.78 34.69 48.19
2004 55.64 49.32 38.93 42.39 36.65 49.97
2005 54.04 47.86 39.99 42.89 38.73 50.46
2006 58.97 54.78 45.92 49.60 44.01 55.38
2007 58.05 59.80 47.20 58.55 52.98 59.89
2008 59.97 59.35 51.75 57.21 59.54 60.76
2009 63.45 59.40 56.50 59.32 57.76 59.92
2010 63.37 62.93 61.18 61.85 56.25 59.97
The above table shows that the ratio of advances to assets, the ratio ranges from 45.00per
cent to 63.37per cent of Bank of India, 43.28per cent to 62.93per cent of Canara Bank, 41.18per
cent to 61.18per cent of Indian Bank, 41.90per cent to 61.85per cent of Indian Overseas Bank,
37.51per cent to 56.25per cent of State Bank of India and 41.77per cent to 59.97per cent of
Union Bank of India. There is an increasing trend in the ratio of advances to assets. It is
concluded that, the banks aggressiveness in lending which ultimately results in better
profitability.
TABLE: 2 - RATIO OF CAPITAL TO DEPOSITS
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 1.34 1.20 13.10 1.37 0.27 1.09
2002 1.24 0.98 11.54 1.62 0.22 0.97
2003 0.82 0.90 15.82 1.40 0.19 0.85
2004 0.76 0.80 17.38 1.21 0.18 1.03
2005 0.69 0.47 15.02 1.31 0.17 0.91
2006 0.62 0.42 13.14 1.23 0.14 0.74
2007 0.52 0.35 1.82 1.08 0.14 0.68
2008 0.41 0.29 0.91 0.79 0.12 0.59
2009 0.35 0.27 0.70 0.65 0.12 0.49
2010 0.28 0.22 0.59 0.54 0.09 0.36
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This ratio enables the banks’ ability to meet the contingencies of repayment of deposits.
The ratio ranges from 1.34per cent to 0.28per cent of Bank of India, 1.20per cent to 0.22per cent
of Canara Bank, 13.10per cent to 0.59per cent of Indian Bank, 1.37per cent to 0.54per cent of
Indian Overseas Bank, 0.27per cent to 0.09per cent of State Bank of India and 1.09per cent to
0.36per cent of Union Bank of India. It is concluded that, there is an increasing trend in the
capital of the selected public sector banks. This ratio enables the banks’ ability to meet the
contingencies of repayment of deposits.
TABLE: 3 - RATIO OF CAPITAL TO WORKING FUND
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 1.28 1.15 13.61 1.33 0.25 1.05
2002 1.18 0.94 12.10 1.57 0.21 0.93
2003 0.78 0.86 15.61 1.35 0.18 0.82
2004 0.72 0.76 16.57 1.17 0.17 0.98
2005 0.65 0.45 14.33 1.25 0.16 0.87
2006 0.59 0.40 12.47 1.17 0.13 0.71
2007 0.49 0.33 1.73 1.02 0.13 0.65
2008 0.39 0.27 0.85 0.75 0.11 0.56
2009 0.33 0.25 0.65 0.61 0.11 0.46
2010 0.26 0.21 0.55 0.51 0.08 0.35
Table 3 shows the ratio of capital to deposits. The ratio ranges from 1.28per cent to
0.26per cent of Bank of India, 1.15per cent to 0.21per cent of Canara Bank, 13.61per cent to
0.55per cent of Indian Bank, 1.33per cent to 0.51per cent of Indian Overseas Bank, 0.25per cent
to 0.08per cent of State Bank of India and 1.05per cent to 0.35per cent of Union Bank of India.
This ratio shows the efficiency of owned fund to working fund. It is concluded that, overall
efficiency of the selected public sector banks are good.
TABLE: 4 - RATIO OF DEMAND DEPOSITS TO TOTAL DEPOSITS
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 12.76 14.80 9.22 10.72 18.38 15.52
2002 11.41 13.28 7.60 9.92 16.61 17.39
2003 12.05 11.16 7.36 8.36 15.64 16.72
2004 8.30 10.87 8.10 9.91 15.12 11.25
2005 8.22 10.02 7.69 10.09 15.78 9.90
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2006 7.74 9.24 8.21 11.33 15.42 8.10
2007 7.89 8.79 7.85 11.28 17.89 8.07
2008 7.81 8.74 7.71 9.91 18.83 10.12
2009 8.31 8.60 7.76 10.67 18.26 11.40
2010 6.63 7.68 7.29 8.12 14.92 9.49
From the above table, the ratio of demand deposits to total deposits of the selected public
sector banks is clearly shown. There was quite fluctuating in a sliding manner by ranging from
12.76per cent to 6.63per cent of Bank of India, 14.80per cent to 7.68per cent of Canara Bank,
9.22per cent to 7.29per cent of Indian Bank, 10.72per cent to 8.12per cent of Indian Overseas
Bank, 18.38per cent to 14.92per cent of State Bank of India, 15.52per cent to 9.49per cent of
Union Bank of India. It is concluded that, the ratio was at highest during the beginning of the
study period, which thereafter had declined considerably. Hence, this declaration in the ratio
indicates a better liquidity enjoyed by the bank.
TABLE: 5 - CREDIT DEPOSIT RATIO
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 52.85 49.05 42.92 47.59 49.84 46.98
2002 62.26 47.12 43.49 47.77 46.78 50.18
2003 64.16 51.74 45.38 47.67 44.65 53.74
2004 66.15 56.14 46.65 47.54 46.52 57.02
2005 64.58 55.17 46.40 48.92 49.57 58.20
2006 71.06 62.35 52.80 56.97 55.14 64.86
2007 69.38 68.00 55.10 68.78 68.84 72.04
2008 70.85 69.18 61.71 68.46 77.46 73.24
2009 8.98 69.60 65.26 71.66 77.55 71.59
2010 75.33 73.96 70.91 74.80 73.11 69.60
The above table shows the ratio of credit deposit of selected public sector banks. The credit
deposit ratio plays an important role in determining the profitability of the banks. The ratio
ranges from 52.85per cent to 75.33per cent of Bank of India, 49.05per cent to 73.96per cent of
Canara Bank, 42.92per cent to 70.91per cent of Indian Bank, 47.59per cent to 74.80per cent of
Indian Overseas Bank, 49.84per cent to 73.11per cent of State Bank of India, 46.98per cent to
69.60per cent of Union Bank of India. It is concluded that, the selected public sector banks
maintains the highest credit deposit ratio, therefore the profitability of the banks is good.
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TABLE: 6- RETURN ON AVERAGE NET WORTH RATIO
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 7.03 9.43 0 5.49 18.2 5.9
2002 9.69 10.36 0 13.78 12.53 8.65
2003 18.27 23.59 0 22.29 16.95 15.88
2004 26.65 26.74 23.27 32.1 19.15 23.65
2005 26.71 28.47 27.1 28.96 19.67 25.19
2006 8.03 19.53 21.42 27.98 19.43 21.46
2007 14.85 20.29 21.95 27.23 17.04 16.52
2008 20.65 16.25 24 28.14 15.41 17.34
2009 24.38 15.01 22.41 27.15 16.75 22.13
2010 24.97 18.25 20.26 22.07 17.05 21.46
From the above table shows the ratio of return on average net worth of the selected public
sector banks. During the study period Bank of India, Canara Bank, Indian Bank, Indian Overseas
Bank and Union Bank of India return on average net worth ratio was increased that is from
7.03per cent to 24.97per cent, 9.43per cent to 18.25per cent, 0 to 20.26per cent, 5.49per cent to
22.07per cent and 5.9per cent to 21.46per cent respectively and in case of State Bank of India
ratio of return on average net worth ratio was decreased that is from 18.2per cent to 17.05per
cent. It is concluded that, higher the ratio ensures increased return to the equity shareholders. The
return on net worth during the study period is good in case of all the banks except State Bank of
India.
TABLE: 7 - RATIO OF LIQUID ASSETS TO WORKING FUND
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 51.08 54.63 57.75 59.60 66.52 55.77
2002 45.51 56.06 57.10 20.66 71.63 52.43
2003 46.00 53.02 57.06 56.75 73.51 49.08
2004 46.35 50.13 64.08 58.17 69.43 49.70
2005 47.73 52.28 62.16 58.55 67.65 49.45
2006 42.98 45.41 55.86 51.35 60.45 45.20
2007 43.77 40.22 55.31 42.29 50.80 41.32
2008 42.11 40.93 51.07 45.38 43.08 40.49
2009 37.47 41.69 43.70 43.58 43.82 40.12
2010 36.91 37.80 37.77 39.73 47.54 40.47
The above table indicates the ratio of liquid assets to working fund. The ratio shows
decreasing trend. Ratio has been inferred irregular variations that is from 51.08per cent to
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36.91per cent of Bank of India, 54.63per cent to 37.80per cent of Canara Bank, 57.75per cent to
37.77per cent of Indian Bank, 59.60per cent to 39.73per cent of Indian Overseas Bank, 66.52per
cent to 47.54per cent of State Bank of India, 55.77per cent to 40.47per cent to Union Bank of
India. It is concluded that, the fluctuation in ratio has showed adverse effect to the bank. So the
selected public sector bank has to take care of liquid assets to maintain steady position.
CORRELATION ANALYSIS
In this part of analysis, correlation between the independent variables namely, credit
deposit ratio, total investment to total deposits, interest income to working fund, spread to
working fund, non- interest income to working fund and non-interest expenses to working fund
as well as, the correlation between the dependent variable, “Net Profit to Working Fund”.
TABLE: 8 - CORRELATION ANALYSIS OF BANK OF INDIA
C.R T.I TO
T.D
I.I TO
W.F
S TO
W.F
N.I.I TO
W.F
N.I.E TO
W.F
N.P TO
W.F
C.R 1
T.I TO
T.D
-.620 1
I.I TO
W.F
-.702* .305 1
S TO W.F -.171 .535 .442 1
N.I.I TO
W.F
-.337 .661* .323 .684* 1
N.I.E TO
W.F
-.671* .901** .479 .674* .683* 1
N.P TO
W.F
.557 -.334 -.280 .194 .408 -.322 1
It can be seen from the table 8, that the highest positive correlation is between spread to
working fund to non interest income to working fund (.684) at 5per cent level of significance,
however the highest negative correlation records between credit deposit ratio to non- interest
expenses to working fund (-.671) at 5per cent level of significance. However, there is a moderate
level of correlation between dependent variable and independent variables. The dependent
variable net profit to working fund is seem to have high positive correlation with credit deposit
ratio (.557) and high negative correlation with interest income to working fund (-.280).
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TABLE: 9- CORRELATION ANALYSIS OF CANARA BANK
C.R T.I TO
T.D
I.I TO
W.F
S TO
W.F
N.I.I TO
W.F
N.I.E TO
W.F
N.P TO
W.F
C.R 1
T.I TO T.D -.741* 1
I.I TO W.F -.682* .497 1
S TO W.F -.620 .621 .356 1
N.I.I TO
W.F
-.666** .766** .410 .286 1
N.I.E TO
W.F
-.886** .893** .553 .758* .747* 1
N.P TO
W.F
.324 .117 -.234 -.036 .399 -.026 1
It can be seen from the table 9, that the highest positive correlation is between spread to
working fund to non- interest expenses to working fund (.758) at 5per cent level of significance,
however the highest negative correlation records between credit deposit ratio to non interest
income to working fund (-.666) at 5per cent level of significance. However, there is a moderate
level of correlation between dependent variable and independent variables. The dependent
variable net profit to working fund is seem to have high positive correlation with non interest
income to working fund (.399) and high negative correlation with non interest expenses to
working fund (-.026).
TABLE: 10- CORRELATION ANALYSIS OF INDIAN BANK
C.R T.I TO
T.D
I.I TO
W.F
S TO
W.F
N.I.I TO
W.F
N.I.E TO
W.F
N.P TO
W.F
C.R 1
T.I TO
T.D
-.784** 1
I.I TO W.F -.593 .095 1
S TO W.F .587 -.060 -.836** 1
N.I.I TO
W.F
-.441 .638* .053 -.082 1
N.I.E TO
W.F
-.599 .224 .417 -.379 .153 1
N.P TO
W.F
.709* -.152 -.879** .844** .098 -.638* 1
It can be seen from the table 10, that the highest positive correlation is between credit
deposit ratio to net profit to working fund (.709) at 5per cent level of significance, however the
negative correlation records between non- interest expenses to working fund and net profit to
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working fund (-.638) at 5per cent level of significance. However, there is a moderate level of
correlation between dependent variable and independent variables. The dependent variable net
profit to working fund is seem to have high positive correlation with credit deposit ratio (.709) at
5per cent level of significance and high negative correlation with total investments to total
deposits (-.152).
TABLE: 11 -CORRELATION ANALYSIS OF INDIAN OVERSEAS BANK
C.R T.I TO
T.D
I.I TO
W.F
S TO
W.F
N.I.I TO
W.F
N.I.E TO
W.F
N.P TO
W.F
C.R 1
T.I TO T.D -
.915**
1
I.I TO W.F -.584 .311 1
S TO W.F .068 .163 -.777** 1
N.I.I TO
W.F
-.055 .317 -.323 .371 1
N.I.E TO
W.F
-.747* .796** .060 .493 .445 1
N.P TO
W.F
.691* -.367 -.909** .608 .441 -.233 1
It can be seen from the table11, that the positive correlation is between credit deposit
ratio to net profit to working fund (.691) at 5per cent level of significance, however the negative
correlation records between credit deposit ratio to non-interest expenses to working fund (-.747)
at 5per cent level of significance. However, there is a moderate level of correlation between
dependent variable and independent variables. The dependent variable net profit to working fund
is seem to have high positive correlation with spread to working fund (.608) and high negative
correlation with non interest expenses to working fund (-.233).
TABLE: 12- CORRELATION ANALYSIS OF STATE BANK OF INDIA
C.R T.I TO
T.D
I.I TO
W.F
S TO
W.F
N.I.I TO
W.F
N.I.E TO
W.F
N.P TO
W.F
C.R 1
T.I TO T.D -.916** 1
I.I TO W.F -.797** .535 1
S TO W.F -.166 .247 .124 1
N.I.I TO
W.F
-.212 .492 -.169 .316 1
N.I.E TO
W.F
-.516 .626 .328 .742* .658* 1
N.P TO
W.F
.395 -.105 -.645* -.096 .678* -.057 1
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It can be seen from the table 12, that the positive correlation is between spread to
working fund to non-interest expenses to working fund (.742) at 5per cent level of significance,
however the negative correlation records between interest income to working fund to net profit to
working fund (-.645) at 5per cent level of significance. However, there is a moderate level of
correlation between dependent variable and independent variables. The dependent variable net
profit to working fund is seem to have high positive correlation with credit deposit ratio (.395)
and high negative correlation with spread to working fund (-.096).
TABLE: 13- CORRELATION ANALYSIS OF UNION BANK OF INDIA
C.R T.I TO
T.D
I.I TO
W.F
S TO
W.F
N.I.I TO
W.F
N.I.E TO
W.F
N.P TO
W.F
C.R 1
T.I TO
T.D
-.647* 1
I.I TO
W.F
-.869** .364 1
S TO W.F -.505 .765** .315 1
N.I.I TO
W.F
-.197 .710* .017 .286 1
N.I.E TO
W.F
-.846** .864** .631 .812** .346 1
N.P TO
W.F
.614 .024 -.679* -.238 .595 -.383 1
From the table 13, that the positive correlation is between total investments to total
deposits to non interest income to working fund (.710) at 5per cent level of significance,
however the highest negative correlation records between credit deposit ratio to total investments
to total deposits (-.647) at 5per cent level of significance. However, there is a moderate level of
correlation between dependent variable and independent variables. The dependent variable net
profit to working fund is seem to have high positive correlation with credit deposit ratio (.614)
and high negative correlation with spread to working fund (-.238).
REGRESSION ANALYSIS
In this part of analysis, regression between the independent variables namely, credit
deposit ratio, total investment to total deposits, interest income to working fund, spread to
working fund, non- interest income to working fund and non-interest expenses to working fund
as well as, the regression between the dependent variable, “Net Profit to Working Fund”.
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TABLE: 14 - REGRESSION ANALYSIS OF BANK OF INDIA
REGRESSION COEFFICIENT (B) STANDARD ERROR T SIG.
Constant 1.731 .832 2.081 NS
C.D -.001 .002 -.467 NS
T.I TO T.D -.059 .021 -2.767 NS
I.I TO W.F -.134 .042 -3.199 NS
S TO W.F .775 .321 2.413 NS
N.I.I TO W.F 1.046 .118 8.884 *
N.I.E TO W.F -.256 .096 -2.657 NS
R R SQUARE
Adjusted R Square Std. Error of the Estimate
.991 .982 .946 .09721
The non-interest income to working fund ratio has a significant effect on net profit to
working fund at 5% level. Except this variable all other variables do not have significant effect
on the dependent variable. From the regression coefficient given above it is observed that the
credit deposit, total investment to total deposits, interest income to working fund and non-interest
expenses to working fund have negative effect on net profit to working fund and all other
variables have positive effect on net profit to working fund. Overall multiple correlation shows a
high correlation (0.982) between the dependent variable and set of independent variables taken
together.
TABLE: 15 - REGRESSION ANALYSIS OF CANARA BANK
REGRESSION
COEFFICIENT (B)
STANDARD
ERROR
T SIG.
Constant -2.008 2.380 -.844 NS
C.D .029 .014 2.015 NS
T.I TO T.D .000 .017 -.022 NS
I.I TO W.F -.092 .086 -1.075 NS
S TO W.F .622 .290 2.147 NS
N.I.I TO W.F 1.070 .136 7.880 *
N.I.E TO W.F -.236 .157 -1.509 NS
R R SQUARE
Adjusted R Square Std. Error of the Estimate
.989 .977 .932 .08401
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The non-interest income to working fund ratio has a significant effect on net profit to
working fund at 5% level. Except this variable all other variables do not have significant effect
on the dependent variable. From the regression coefficient given above it is observed that interest
income to working fund and non-interest expenses to working fund have negative effect on net
profit to working fund and all other variables have positive effect on net profit to working fund.
Overall multiple correlation shows a high correlation (0.977) between the dependent variable and
set of independent variables taken together.
TABLE: 16- REGRESSION ANALYSIS OF INDIAN BANK
REGRESSION
COEFFICIENT (B)
STANDARD
ERROR
T SIG.
Constant -2.964 10.595 -.280 NS
C.D .076 .104 .729 NS
T.I TO T.D .032 .103 .308 NS
I.I TO W.F -.490 .288 -1.699 NS
S TO W.F .439 .692 .634 NS
N.I.I TO W.F 1.123 .613 1.832 NS
N.I.E TO W.F -.129 .174 -.744 NS
R R SQUARE
Adjusted R Square Std. Error of the Estimate
.987 .974 .922 .37405
All variables found in the table do not have significant effect on the dependent variable.
From the regression coefficient given above it is observed that the interest income to working
fund, and non-interest expenses to working fund have negative effect on net profit to working
fund and all other variables have positive effect on net profit to working fund. Overall multiple
correlation shows a high correlation (0.974) between the dependent variable and set of
independent variables taken together.
TABLE: 17- REGRESSION ANALYSIS OF INDIAN OVERSEAS BANK
REGRESSION
COEFFICIENT(B)
STANDARD
ERROR
T SIG.
Constant -2.947 3.337 -.883 NS
C.D .039 .021 1.893 NS
T.I TO T.D .052 .024 2.134 NS
I.I TO W.F -.117 .174 -.672 NS
S TO W.F .383 .272 1.410 NS
N.I.I TO W.F .360 .240 1.501 NS
N.I.E TO W.F -.177 .141 -1.255 NS
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R R SQUARE
Adjusted R Square Std. Error of the Estimate
.992 .984 .953 .09911
All variables found in the table do not have significant effect on the dependent variable.
From the regression coefficient given above it is observed that the interest income to working
fund, and non-interest expenses to working fund have negative effect on net profit to working
fund and all other variables have positive effect on net profit to working fund. Overall multiple
correlation shows a high correlation (0.984) between the dependent variable and set of
independent variables taken together.
TABLE: 18 - REGRESSION ANALYSIS OF STATE BANK OF INDIA
REGRESSION
COEFFICIENT (B)
STANDARD
ERROR
T SIG.
Constant -.646 .639 -1.010 NS
C.D .007 .004 1.640 NS
T.I TO T.D .004 .005 .829 NS
I.I TO W.F .038 .026 1.444 NS
S TO W.F .158 .046 3.416 NS
N.I.I TO W.F 1.077 .080 13.408 **
N.I.E TO W.F -.247 .030 -8.361 *
R R SQUARE
Adjusted R Square Std. Error of the Estimate
.997 .994 .981 .02547
The non-interest income to working fund ratio has a significant effect on net profit to
working fund at 1% level and non-interest expenses to working fund ratio has a significant effect
on net profit to working fund at 5% level. Except this variable all other variables do not have
significant effect on the dependent variable. From the regression coefficient given above it is
observed that non-interest expenses to working fund have negative effect on net profit to
working fund and all other variables have positive effect on net profit to working fund. Overall
multiple correlation shows a high correlation (0.994) between the dependent variable and set of
independent variables taken together.
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TABLE: 19 - REGRESSION ANALYSIS OF UNION BANK OF INDIA
REGRESSION
COEFFICIENT (B)
STANDARD
ERROR
T SIG.
Constant -.514 2.604 -.197 NS
C.D .028 .019 1.446 NS
T.I TO T.D -.020 .056 -.349 NS
I.I TO W.F -.065 .124 -.522 NS
S TO W.F -.414 .505 -.820 NS
N.I.I TO W.F .929 .399 2.330 NS
N.I.E TO W.F .229 .275 .831 NS
R R SQUARE
Adjusted R Square Std. Error of the Estimate
.969 .939 .817 .15011
All variables found in the table do not have significant effect on the dependent variable.
From the regression coefficient given above it is observed that the total investment to total
deposits, interest income to working fund and spread to working fund have negative effect on
net profit to working fund and all other variables have positive effect on net profit to working
fund. Overall multiple correlation shows a high correlation (0.939) between the dependent
variable and set of independent variables taken together.
SUGGESTIONS
Since the banking sector reforms have been set in motion, the profitability became the
buzzword, and the prime mover of the financial strength and performance of banks. Unlike in the
past, all banking operations gradually came to be measured in terms of their ability to generate
possibilities of social banking for their meaningful survival and growth. Therefore, there should
be a shift in the banks objective from bank growth. The following important steps are taken by
the sample banks for overall real growth.
Introducing Modern Marketing Strategies
Improving Credit-Deposit Proportion
Generating Non-Interest Income
Introducing Innovative Branch Administration
Monitoring the Controlling Mechanism on Important Ratios
Prudential Disclosure of Financial Information
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CONCLUSION
The financial performance of the selected six public sector banks is analyzed using
different parameters. The selected public sector banks that are Bank of India, Canara Bank,
Indian Overseas Bank, Indian Bank, State Bank of India and Union Bank of India are in a
position to follow the rules of the Government for the social and economic development of the
country. The selected public sector banks have performed well on the sources of growth rate
and financial efficiency during the study period. The old private sector banks and new private
sector banks play a vital role in marketing of new type of deposits and advances schemes.
However, these banks, by earning atleast a nominal profit, have to serve the economy through
extension of advances and safeguard the interest of their investors by providing the expected
return on their investment in banks. These forces the public sector banks not only to increase
their earnings but also to create surplus out of their banking activities. The Indian banking
system faces several difficult challenges. Therefore, the banks have to re-orient their strategies
in the light of their own strengths and the kind of market in which they are likely to operate on.
In the perspective of this domestic and international development, the banking sector has to
chart out a perfect path for the development in its own.
BIBLIOGRAPHY
? Ahmed, Khan Masood, (1992): Banking in India, Anmol publications, New Delhi.
? Bilgrami.S.A.R (1982): Growth of Public Sector Banks – A Regional Growth Analysis,
Deep and Deep publication, New Delhi.
? Chakrabarthy.K.C (1990): Banking in 1990, Himalaya Publishing House, Bombay.
? Dep, Kalpada (1998): “Indian Banking since Independence”. Ashish Publishing House,
New Delhi.
? Gupta.S.P (2000): Statistical Methods, Sultan Chand & Sons, New Delhi.
? Kothari.C.R (1991): “Investment Banking an\d Customer Service”, Vol. II, Arihant
publishers, Jaipur.
doc_854214816.pdf
Banks play an important role in the economic development of every nation. They have control over a large part of the supply of money in circulation. A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities. Banks are a fundamental component of the financial system, and are also active players in financial markets.
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FINANCIAL PERFORMANCE OF SELECTED PUBLIC
SECTOR BANKS IN INDIA
DR.M.DHANABHAKYAM*; M.KAVITHA**
*Assistant Professor, Department of Commerce,
Bharathiar University, Coimbatore - 641046.
**Ph.D Scholar, Department of Commerce,
Bharathiar University, Coimbatore - 641046.
ABSTRACT
Banks play an important role in the economic development of every nation. They have control
over a large part of the supply of money in circulation. A bank is a financial intermediary that
accepts deposits and channels those deposits into lending activities. Banks are a fundamental
component of the financial system, and are also active players in financial markets. Financial
performance refers to the achievement of the bank in terms of profitability. The profitability of a
bank denotes the efficiency with which a bank deploys its total resources to optimize its net
profits and thus serve as an index to the degree of asset utilization and managerial effectiveness.
In this article an attempt is made to see the financial performance of the selected public sector
banks with the different norms. They are grouped as follows, ratio analysis, correlation and
regression. For this study six Public Sector Banks are selected. The Indian banking system faces
several difficult challenges. The selected public sector banks have performed well on the sources
of growth rate and financial efficiency during the study period. The old private sector banks and
new private sector banks play a vital role in marketing of new type of deposits and advances
schemes.
______________________________________________________________________________
KEYWORDS: Bank, Economic Development, Financial performance, Public Sector,
Profitability.
______________________________________________________________________________
INTRODUCTION
A good bank is not only the financial heart of the community, but also one with an obligation of
helping in every possible manner to improve the economic conditions of the common people. A
bank is a financial intermediary that accepts deposits and channels those deposits into lending
activities. Banks are a fundamental component of the financial system, and are also active
players in financial markets. The essential role of a bank is to connect those who have capital
(such as investors or depositors), with those who seek capital (such as individuals wanting a
loan, or businesses wanting to grow). Banks play an important role in the economic development
of every nation. They have control over a large part of the supply of money in circulation.
Through their influence over the volume of bank money, they can influence in nature and
character of production in any country. Economic development is a dynamic and continuous
process. Banks are the main stay of economic progress of a country, because the economic
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development highly depends upon the extent of mobilization of resources and investment and on
the operational efficiency of the various segments (i.e. Trade, Industrial Development, and
Agriculture) of the economy. Thus, in the modern economy, banks have become a part and
parcel of all economic activities in India.
OBJECTIVES OF THE STUDY
The major objective of the study is to analyze the financial performance of the selected
public sector banks. The following are the specific objectives of the study.
1) To enlighten on the establishment of public sector banks.
2) To analyze the financial position of selected public sector banks.
3) To offer suggestions for improving the performance of the banks.
METHODOLOGY
To accomplish the objectives of the study, secondary data were used. It has been
collected from bank records, published and unpublished financial reports, journals, magazines
and websites. The study is chronological and covers a period from 2001 to 2010. Financial
performance of the selected public sector banks were analyzed for the period of ten years with
the help of the following tools and techniques, Ratio Analysis, Correlation, Regression.
PUBLIC SECTOR BANKS
The term public sector banks are used commonly in India. This refers to banks that have
their shares listed in the stock exchanges NSE and BSE and also the government of India holds
majority stake in these banks. They can also be termed as government owned banks. Following
Public Sector Banks are selected for the study. Bank of India, Indian bank, Indian overseas bank,
Canara bank, Union bank of India and State bank of India.
ANALYSIS AND INTERPRETATION
RATIO ANALYSIS
In this section, some important ratios are used to analyze the financial performance of
selected public sector banks.
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TABLE: 1 - RATIO OF ADVANCES TO ASSETS
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 45.00 43.28 41.18 41.90 37.51 41.77
2002 54.01 41.84 41.45 43.23 35.99 44.91
2003 54.88 45.92 41.30 42.78 34.69 48.19
2004 55.64 49.32 38.93 42.39 36.65 49.97
2005 54.04 47.86 39.99 42.89 38.73 50.46
2006 58.97 54.78 45.92 49.60 44.01 55.38
2007 58.05 59.80 47.20 58.55 52.98 59.89
2008 59.97 59.35 51.75 57.21 59.54 60.76
2009 63.45 59.40 56.50 59.32 57.76 59.92
2010 63.37 62.93 61.18 61.85 56.25 59.97
The above table shows that the ratio of advances to assets, the ratio ranges from 45.00per
cent to 63.37per cent of Bank of India, 43.28per cent to 62.93per cent of Canara Bank, 41.18per
cent to 61.18per cent of Indian Bank, 41.90per cent to 61.85per cent of Indian Overseas Bank,
37.51per cent to 56.25per cent of State Bank of India and 41.77per cent to 59.97per cent of
Union Bank of India. There is an increasing trend in the ratio of advances to assets. It is
concluded that, the banks aggressiveness in lending which ultimately results in better
profitability.
TABLE: 2 - RATIO OF CAPITAL TO DEPOSITS
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 1.34 1.20 13.10 1.37 0.27 1.09
2002 1.24 0.98 11.54 1.62 0.22 0.97
2003 0.82 0.90 15.82 1.40 0.19 0.85
2004 0.76 0.80 17.38 1.21 0.18 1.03
2005 0.69 0.47 15.02 1.31 0.17 0.91
2006 0.62 0.42 13.14 1.23 0.14 0.74
2007 0.52 0.35 1.82 1.08 0.14 0.68
2008 0.41 0.29 0.91 0.79 0.12 0.59
2009 0.35 0.27 0.70 0.65 0.12 0.49
2010 0.28 0.22 0.59 0.54 0.09 0.36
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This ratio enables the banks’ ability to meet the contingencies of repayment of deposits.
The ratio ranges from 1.34per cent to 0.28per cent of Bank of India, 1.20per cent to 0.22per cent
of Canara Bank, 13.10per cent to 0.59per cent of Indian Bank, 1.37per cent to 0.54per cent of
Indian Overseas Bank, 0.27per cent to 0.09per cent of State Bank of India and 1.09per cent to
0.36per cent of Union Bank of India. It is concluded that, there is an increasing trend in the
capital of the selected public sector banks. This ratio enables the banks’ ability to meet the
contingencies of repayment of deposits.
TABLE: 3 - RATIO OF CAPITAL TO WORKING FUND
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 1.28 1.15 13.61 1.33 0.25 1.05
2002 1.18 0.94 12.10 1.57 0.21 0.93
2003 0.78 0.86 15.61 1.35 0.18 0.82
2004 0.72 0.76 16.57 1.17 0.17 0.98
2005 0.65 0.45 14.33 1.25 0.16 0.87
2006 0.59 0.40 12.47 1.17 0.13 0.71
2007 0.49 0.33 1.73 1.02 0.13 0.65
2008 0.39 0.27 0.85 0.75 0.11 0.56
2009 0.33 0.25 0.65 0.61 0.11 0.46
2010 0.26 0.21 0.55 0.51 0.08 0.35
Table 3 shows the ratio of capital to deposits. The ratio ranges from 1.28per cent to
0.26per cent of Bank of India, 1.15per cent to 0.21per cent of Canara Bank, 13.61per cent to
0.55per cent of Indian Bank, 1.33per cent to 0.51per cent of Indian Overseas Bank, 0.25per cent
to 0.08per cent of State Bank of India and 1.05per cent to 0.35per cent of Union Bank of India.
This ratio shows the efficiency of owned fund to working fund. It is concluded that, overall
efficiency of the selected public sector banks are good.
TABLE: 4 - RATIO OF DEMAND DEPOSITS TO TOTAL DEPOSITS
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 12.76 14.80 9.22 10.72 18.38 15.52
2002 11.41 13.28 7.60 9.92 16.61 17.39
2003 12.05 11.16 7.36 8.36 15.64 16.72
2004 8.30 10.87 8.10 9.91 15.12 11.25
2005 8.22 10.02 7.69 10.09 15.78 9.90
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2006 7.74 9.24 8.21 11.33 15.42 8.10
2007 7.89 8.79 7.85 11.28 17.89 8.07
2008 7.81 8.74 7.71 9.91 18.83 10.12
2009 8.31 8.60 7.76 10.67 18.26 11.40
2010 6.63 7.68 7.29 8.12 14.92 9.49
From the above table, the ratio of demand deposits to total deposits of the selected public
sector banks is clearly shown. There was quite fluctuating in a sliding manner by ranging from
12.76per cent to 6.63per cent of Bank of India, 14.80per cent to 7.68per cent of Canara Bank,
9.22per cent to 7.29per cent of Indian Bank, 10.72per cent to 8.12per cent of Indian Overseas
Bank, 18.38per cent to 14.92per cent of State Bank of India, 15.52per cent to 9.49per cent of
Union Bank of India. It is concluded that, the ratio was at highest during the beginning of the
study period, which thereafter had declined considerably. Hence, this declaration in the ratio
indicates a better liquidity enjoyed by the bank.
TABLE: 5 - CREDIT DEPOSIT RATIO
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 52.85 49.05 42.92 47.59 49.84 46.98
2002 62.26 47.12 43.49 47.77 46.78 50.18
2003 64.16 51.74 45.38 47.67 44.65 53.74
2004 66.15 56.14 46.65 47.54 46.52 57.02
2005 64.58 55.17 46.40 48.92 49.57 58.20
2006 71.06 62.35 52.80 56.97 55.14 64.86
2007 69.38 68.00 55.10 68.78 68.84 72.04
2008 70.85 69.18 61.71 68.46 77.46 73.24
2009 8.98 69.60 65.26 71.66 77.55 71.59
2010 75.33 73.96 70.91 74.80 73.11 69.60
The above table shows the ratio of credit deposit of selected public sector banks. The credit
deposit ratio plays an important role in determining the profitability of the banks. The ratio
ranges from 52.85per cent to 75.33per cent of Bank of India, 49.05per cent to 73.96per cent of
Canara Bank, 42.92per cent to 70.91per cent of Indian Bank, 47.59per cent to 74.80per cent of
Indian Overseas Bank, 49.84per cent to 73.11per cent of State Bank of India, 46.98per cent to
69.60per cent of Union Bank of India. It is concluded that, the selected public sector banks
maintains the highest credit deposit ratio, therefore the profitability of the banks is good.
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TABLE: 6- RETURN ON AVERAGE NET WORTH RATIO
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 7.03 9.43 0 5.49 18.2 5.9
2002 9.69 10.36 0 13.78 12.53 8.65
2003 18.27 23.59 0 22.29 16.95 15.88
2004 26.65 26.74 23.27 32.1 19.15 23.65
2005 26.71 28.47 27.1 28.96 19.67 25.19
2006 8.03 19.53 21.42 27.98 19.43 21.46
2007 14.85 20.29 21.95 27.23 17.04 16.52
2008 20.65 16.25 24 28.14 15.41 17.34
2009 24.38 15.01 22.41 27.15 16.75 22.13
2010 24.97 18.25 20.26 22.07 17.05 21.46
From the above table shows the ratio of return on average net worth of the selected public
sector banks. During the study period Bank of India, Canara Bank, Indian Bank, Indian Overseas
Bank and Union Bank of India return on average net worth ratio was increased that is from
7.03per cent to 24.97per cent, 9.43per cent to 18.25per cent, 0 to 20.26per cent, 5.49per cent to
22.07per cent and 5.9per cent to 21.46per cent respectively and in case of State Bank of India
ratio of return on average net worth ratio was decreased that is from 18.2per cent to 17.05per
cent. It is concluded that, higher the ratio ensures increased return to the equity shareholders. The
return on net worth during the study period is good in case of all the banks except State Bank of
India.
TABLE: 7 - RATIO OF LIQUID ASSETS TO WORKING FUND
YEA
R
BANK
OF
INDIA
CANAR
A BANK
INDIAN
BANK
INDIAN
OVERSEAS
BANK
STATE
BANK OF
INDIA
UNION
BANK OF
INDIA
2001 51.08 54.63 57.75 59.60 66.52 55.77
2002 45.51 56.06 57.10 20.66 71.63 52.43
2003 46.00 53.02 57.06 56.75 73.51 49.08
2004 46.35 50.13 64.08 58.17 69.43 49.70
2005 47.73 52.28 62.16 58.55 67.65 49.45
2006 42.98 45.41 55.86 51.35 60.45 45.20
2007 43.77 40.22 55.31 42.29 50.80 41.32
2008 42.11 40.93 51.07 45.38 43.08 40.49
2009 37.47 41.69 43.70 43.58 43.82 40.12
2010 36.91 37.80 37.77 39.73 47.54 40.47
The above table indicates the ratio of liquid assets to working fund. The ratio shows
decreasing trend. Ratio has been inferred irregular variations that is from 51.08per cent to
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36.91per cent of Bank of India, 54.63per cent to 37.80per cent of Canara Bank, 57.75per cent to
37.77per cent of Indian Bank, 59.60per cent to 39.73per cent of Indian Overseas Bank, 66.52per
cent to 47.54per cent of State Bank of India, 55.77per cent to 40.47per cent to Union Bank of
India. It is concluded that, the fluctuation in ratio has showed adverse effect to the bank. So the
selected public sector bank has to take care of liquid assets to maintain steady position.
CORRELATION ANALYSIS
In this part of analysis, correlation between the independent variables namely, credit
deposit ratio, total investment to total deposits, interest income to working fund, spread to
working fund, non- interest income to working fund and non-interest expenses to working fund
as well as, the correlation between the dependent variable, “Net Profit to Working Fund”.
TABLE: 8 - CORRELATION ANALYSIS OF BANK OF INDIA
C.R T.I TO
T.D
I.I TO
W.F
S TO
W.F
N.I.I TO
W.F
N.I.E TO
W.F
N.P TO
W.F
C.R 1
T.I TO
T.D
-.620 1
I.I TO
W.F
-.702* .305 1
S TO W.F -.171 .535 .442 1
N.I.I TO
W.F
-.337 .661* .323 .684* 1
N.I.E TO
W.F
-.671* .901** .479 .674* .683* 1
N.P TO
W.F
.557 -.334 -.280 .194 .408 -.322 1
It can be seen from the table 8, that the highest positive correlation is between spread to
working fund to non interest income to working fund (.684) at 5per cent level of significance,
however the highest negative correlation records between credit deposit ratio to non- interest
expenses to working fund (-.671) at 5per cent level of significance. However, there is a moderate
level of correlation between dependent variable and independent variables. The dependent
variable net profit to working fund is seem to have high positive correlation with credit deposit
ratio (.557) and high negative correlation with interest income to working fund (-.280).
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TABLE: 9- CORRELATION ANALYSIS OF CANARA BANK
C.R T.I TO
T.D
I.I TO
W.F
S TO
W.F
N.I.I TO
W.F
N.I.E TO
W.F
N.P TO
W.F
C.R 1
T.I TO T.D -.741* 1
I.I TO W.F -.682* .497 1
S TO W.F -.620 .621 .356 1
N.I.I TO
W.F
-.666** .766** .410 .286 1
N.I.E TO
W.F
-.886** .893** .553 .758* .747* 1
N.P TO
W.F
.324 .117 -.234 -.036 .399 -.026 1
It can be seen from the table 9, that the highest positive correlation is between spread to
working fund to non- interest expenses to working fund (.758) at 5per cent level of significance,
however the highest negative correlation records between credit deposit ratio to non interest
income to working fund (-.666) at 5per cent level of significance. However, there is a moderate
level of correlation between dependent variable and independent variables. The dependent
variable net profit to working fund is seem to have high positive correlation with non interest
income to working fund (.399) and high negative correlation with non interest expenses to
working fund (-.026).
TABLE: 10- CORRELATION ANALYSIS OF INDIAN BANK
C.R T.I TO
T.D
I.I TO
W.F
S TO
W.F
N.I.I TO
W.F
N.I.E TO
W.F
N.P TO
W.F
C.R 1
T.I TO
T.D
-.784** 1
I.I TO W.F -.593 .095 1
S TO W.F .587 -.060 -.836** 1
N.I.I TO
W.F
-.441 .638* .053 -.082 1
N.I.E TO
W.F
-.599 .224 .417 -.379 .153 1
N.P TO
W.F
.709* -.152 -.879** .844** .098 -.638* 1
It can be seen from the table 10, that the highest positive correlation is between credit
deposit ratio to net profit to working fund (.709) at 5per cent level of significance, however the
negative correlation records between non- interest expenses to working fund and net profit to
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working fund (-.638) at 5per cent level of significance. However, there is a moderate level of
correlation between dependent variable and independent variables. The dependent variable net
profit to working fund is seem to have high positive correlation with credit deposit ratio (.709) at
5per cent level of significance and high negative correlation with total investments to total
deposits (-.152).
TABLE: 11 -CORRELATION ANALYSIS OF INDIAN OVERSEAS BANK
C.R T.I TO
T.D
I.I TO
W.F
S TO
W.F
N.I.I TO
W.F
N.I.E TO
W.F
N.P TO
W.F
C.R 1
T.I TO T.D -
.915**
1
I.I TO W.F -.584 .311 1
S TO W.F .068 .163 -.777** 1
N.I.I TO
W.F
-.055 .317 -.323 .371 1
N.I.E TO
W.F
-.747* .796** .060 .493 .445 1
N.P TO
W.F
.691* -.367 -.909** .608 .441 -.233 1
It can be seen from the table11, that the positive correlation is between credit deposit
ratio to net profit to working fund (.691) at 5per cent level of significance, however the negative
correlation records between credit deposit ratio to non-interest expenses to working fund (-.747)
at 5per cent level of significance. However, there is a moderate level of correlation between
dependent variable and independent variables. The dependent variable net profit to working fund
is seem to have high positive correlation with spread to working fund (.608) and high negative
correlation with non interest expenses to working fund (-.233).
TABLE: 12- CORRELATION ANALYSIS OF STATE BANK OF INDIA
C.R T.I TO
T.D
I.I TO
W.F
S TO
W.F
N.I.I TO
W.F
N.I.E TO
W.F
N.P TO
W.F
C.R 1
T.I TO T.D -.916** 1
I.I TO W.F -.797** .535 1
S TO W.F -.166 .247 .124 1
N.I.I TO
W.F
-.212 .492 -.169 .316 1
N.I.E TO
W.F
-.516 .626 .328 .742* .658* 1
N.P TO
W.F
.395 -.105 -.645* -.096 .678* -.057 1
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It can be seen from the table 12, that the positive correlation is between spread to
working fund to non-interest expenses to working fund (.742) at 5per cent level of significance,
however the negative correlation records between interest income to working fund to net profit to
working fund (-.645) at 5per cent level of significance. However, there is a moderate level of
correlation between dependent variable and independent variables. The dependent variable net
profit to working fund is seem to have high positive correlation with credit deposit ratio (.395)
and high negative correlation with spread to working fund (-.096).
TABLE: 13- CORRELATION ANALYSIS OF UNION BANK OF INDIA
C.R T.I TO
T.D
I.I TO
W.F
S TO
W.F
N.I.I TO
W.F
N.I.E TO
W.F
N.P TO
W.F
C.R 1
T.I TO
T.D
-.647* 1
I.I TO
W.F
-.869** .364 1
S TO W.F -.505 .765** .315 1
N.I.I TO
W.F
-.197 .710* .017 .286 1
N.I.E TO
W.F
-.846** .864** .631 .812** .346 1
N.P TO
W.F
.614 .024 -.679* -.238 .595 -.383 1
From the table 13, that the positive correlation is between total investments to total
deposits to non interest income to working fund (.710) at 5per cent level of significance,
however the highest negative correlation records between credit deposit ratio to total investments
to total deposits (-.647) at 5per cent level of significance. However, there is a moderate level of
correlation between dependent variable and independent variables. The dependent variable net
profit to working fund is seem to have high positive correlation with credit deposit ratio (.614)
and high negative correlation with spread to working fund (-.238).
REGRESSION ANALYSIS
In this part of analysis, regression between the independent variables namely, credit
deposit ratio, total investment to total deposits, interest income to working fund, spread to
working fund, non- interest income to working fund and non-interest expenses to working fund
as well as, the regression between the dependent variable, “Net Profit to Working Fund”.
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TABLE: 14 - REGRESSION ANALYSIS OF BANK OF INDIA
REGRESSION COEFFICIENT (B) STANDARD ERROR T SIG.
Constant 1.731 .832 2.081 NS
C.D -.001 .002 -.467 NS
T.I TO T.D -.059 .021 -2.767 NS
I.I TO W.F -.134 .042 -3.199 NS
S TO W.F .775 .321 2.413 NS
N.I.I TO W.F 1.046 .118 8.884 *
N.I.E TO W.F -.256 .096 -2.657 NS
R R SQUARE
Adjusted R Square Std. Error of the Estimate
.991 .982 .946 .09721
The non-interest income to working fund ratio has a significant effect on net profit to
working fund at 5% level. Except this variable all other variables do not have significant effect
on the dependent variable. From the regression coefficient given above it is observed that the
credit deposit, total investment to total deposits, interest income to working fund and non-interest
expenses to working fund have negative effect on net profit to working fund and all other
variables have positive effect on net profit to working fund. Overall multiple correlation shows a
high correlation (0.982) between the dependent variable and set of independent variables taken
together.
TABLE: 15 - REGRESSION ANALYSIS OF CANARA BANK
REGRESSION
COEFFICIENT (B)
STANDARD
ERROR
T SIG.
Constant -2.008 2.380 -.844 NS
C.D .029 .014 2.015 NS
T.I TO T.D .000 .017 -.022 NS
I.I TO W.F -.092 .086 -1.075 NS
S TO W.F .622 .290 2.147 NS
N.I.I TO W.F 1.070 .136 7.880 *
N.I.E TO W.F -.236 .157 -1.509 NS
R R SQUARE
Adjusted R Square Std. Error of the Estimate
.989 .977 .932 .08401
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The non-interest income to working fund ratio has a significant effect on net profit to
working fund at 5% level. Except this variable all other variables do not have significant effect
on the dependent variable. From the regression coefficient given above it is observed that interest
income to working fund and non-interest expenses to working fund have negative effect on net
profit to working fund and all other variables have positive effect on net profit to working fund.
Overall multiple correlation shows a high correlation (0.977) between the dependent variable and
set of independent variables taken together.
TABLE: 16- REGRESSION ANALYSIS OF INDIAN BANK
REGRESSION
COEFFICIENT (B)
STANDARD
ERROR
T SIG.
Constant -2.964 10.595 -.280 NS
C.D .076 .104 .729 NS
T.I TO T.D .032 .103 .308 NS
I.I TO W.F -.490 .288 -1.699 NS
S TO W.F .439 .692 .634 NS
N.I.I TO W.F 1.123 .613 1.832 NS
N.I.E TO W.F -.129 .174 -.744 NS
R R SQUARE
Adjusted R Square Std. Error of the Estimate
.987 .974 .922 .37405
All variables found in the table do not have significant effect on the dependent variable.
From the regression coefficient given above it is observed that the interest income to working
fund, and non-interest expenses to working fund have negative effect on net profit to working
fund and all other variables have positive effect on net profit to working fund. Overall multiple
correlation shows a high correlation (0.974) between the dependent variable and set of
independent variables taken together.
TABLE: 17- REGRESSION ANALYSIS OF INDIAN OVERSEAS BANK
REGRESSION
COEFFICIENT(B)
STANDARD
ERROR
T SIG.
Constant -2.947 3.337 -.883 NS
C.D .039 .021 1.893 NS
T.I TO T.D .052 .024 2.134 NS
I.I TO W.F -.117 .174 -.672 NS
S TO W.F .383 .272 1.410 NS
N.I.I TO W.F .360 .240 1.501 NS
N.I.E TO W.F -.177 .141 -1.255 NS
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R R SQUARE
Adjusted R Square Std. Error of the Estimate
.992 .984 .953 .09911
All variables found in the table do not have significant effect on the dependent variable.
From the regression coefficient given above it is observed that the interest income to working
fund, and non-interest expenses to working fund have negative effect on net profit to working
fund and all other variables have positive effect on net profit to working fund. Overall multiple
correlation shows a high correlation (0.984) between the dependent variable and set of
independent variables taken together.
TABLE: 18 - REGRESSION ANALYSIS OF STATE BANK OF INDIA
REGRESSION
COEFFICIENT (B)
STANDARD
ERROR
T SIG.
Constant -.646 .639 -1.010 NS
C.D .007 .004 1.640 NS
T.I TO T.D .004 .005 .829 NS
I.I TO W.F .038 .026 1.444 NS
S TO W.F .158 .046 3.416 NS
N.I.I TO W.F 1.077 .080 13.408 **
N.I.E TO W.F -.247 .030 -8.361 *
R R SQUARE
Adjusted R Square Std. Error of the Estimate
.997 .994 .981 .02547
The non-interest income to working fund ratio has a significant effect on net profit to
working fund at 1% level and non-interest expenses to working fund ratio has a significant effect
on net profit to working fund at 5% level. Except this variable all other variables do not have
significant effect on the dependent variable. From the regression coefficient given above it is
observed that non-interest expenses to working fund have negative effect on net profit to
working fund and all other variables have positive effect on net profit to working fund. Overall
multiple correlation shows a high correlation (0.994) between the dependent variable and set of
independent variables taken together.
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TABLE: 19 - REGRESSION ANALYSIS OF UNION BANK OF INDIA
REGRESSION
COEFFICIENT (B)
STANDARD
ERROR
T SIG.
Constant -.514 2.604 -.197 NS
C.D .028 .019 1.446 NS
T.I TO T.D -.020 .056 -.349 NS
I.I TO W.F -.065 .124 -.522 NS
S TO W.F -.414 .505 -.820 NS
N.I.I TO W.F .929 .399 2.330 NS
N.I.E TO W.F .229 .275 .831 NS
R R SQUARE
Adjusted R Square Std. Error of the Estimate
.969 .939 .817 .15011
All variables found in the table do not have significant effect on the dependent variable.
From the regression coefficient given above it is observed that the total investment to total
deposits, interest income to working fund and spread to working fund have negative effect on
net profit to working fund and all other variables have positive effect on net profit to working
fund. Overall multiple correlation shows a high correlation (0.939) between the dependent
variable and set of independent variables taken together.
SUGGESTIONS
Since the banking sector reforms have been set in motion, the profitability became the
buzzword, and the prime mover of the financial strength and performance of banks. Unlike in the
past, all banking operations gradually came to be measured in terms of their ability to generate
possibilities of social banking for their meaningful survival and growth. Therefore, there should
be a shift in the banks objective from bank growth. The following important steps are taken by
the sample banks for overall real growth.
Introducing Modern Marketing Strategies
Improving Credit-Deposit Proportion
Generating Non-Interest Income
Introducing Innovative Branch Administration
Monitoring the Controlling Mechanism on Important Ratios
Prudential Disclosure of Financial Information
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CONCLUSION
The financial performance of the selected six public sector banks is analyzed using
different parameters. The selected public sector banks that are Bank of India, Canara Bank,
Indian Overseas Bank, Indian Bank, State Bank of India and Union Bank of India are in a
position to follow the rules of the Government for the social and economic development of the
country. The selected public sector banks have performed well on the sources of growth rate
and financial efficiency during the study period. The old private sector banks and new private
sector banks play a vital role in marketing of new type of deposits and advances schemes.
However, these banks, by earning atleast a nominal profit, have to serve the economy through
extension of advances and safeguard the interest of their investors by providing the expected
return on their investment in banks. These forces the public sector banks not only to increase
their earnings but also to create surplus out of their banking activities. The Indian banking
system faces several difficult challenges. Therefore, the banks have to re-orient their strategies
in the light of their own strengths and the kind of market in which they are likely to operate on.
In the perspective of this domestic and international development, the banking sector has to
chart out a perfect path for the development in its own.
BIBLIOGRAPHY
? Ahmed, Khan Masood, (1992): Banking in India, Anmol publications, New Delhi.
? Bilgrami.S.A.R (1982): Growth of Public Sector Banks – A Regional Growth Analysis,
Deep and Deep publication, New Delhi.
? Chakrabarthy.K.C (1990): Banking in 1990, Himalaya Publishing House, Bombay.
? Dep, Kalpada (1998): “Indian Banking since Independence”. Ashish Publishing House,
New Delhi.
? Gupta.S.P (2000): Statistical Methods, Sultan Chand & Sons, New Delhi.
? Kothari.C.R (1991): “Investment Banking an\d Customer Service”, Vol. II, Arihant
publishers, Jaipur.
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