ii

DECLARATION

Title of Dissertation ―Measuring operational efficiency and profitability of Nationalised

Banks in India‖.

I declare

(a)That the work presented for assessment in this dissertation Report is my own, that it

has not previously been presented for another assessment and that my debts (for words,

data, arguments and ideas) have been appropriately acknowledged.

(b)That the work conforms to the guidelines for presentation and style set out in the

relevant documentation.

Date : 12-02-2013 Arpit Jain

A0101911195

MBA – GEN(Class of 2013)

iii

CERTIFICATE

I Prof. S.K Malhotra hereby certify that Arpit Jain student of Masters of Business

Administration at Amity Business School, Amity University Uttar Pradesh has completed

the dissertation Report on ―Measuring Operational Efficiency of Nationalised Banks in India‖,

under my guidance.

Prof. S.K.Malhotra

Department of Finance

iv

ACKNOWLEDGEMENT

I am glad to present a report on my Dissertation project titled ‗Measuring operational efficiency and

profitability of nationalised banks in India‘. I have put in my sincere efforts for the project.

However it would not have been accomplished without the support and help of my faculty guide

and teachers.

I would like to express my gratitude and special thanks to Prof. S.K Malhotra , Faculty mentor for

helping me and giving proper time and attention.

v

TABLE OF CONTENT

CHAPTER 1: INTRODUCTION .............................................................................. 1

1.1 Purpose of the Study ................................................................................................. 1

1.3 Theoretical Framework ............................................................................................ 2

1.4 Summary .................................................................................................... 6

CHAPTER 2: LITERATURE REVIEW .................................................................. 7

CHAPTER 3: RESEARCH METHODS AND PROCEDURES .......................... 12

3.1 Research Objectives ................................................................................................12

3.2 Research Questions .................................................................................................12

3.3 Hypothesis ................................................................................................................12

3.4 Data Collection ........................................................................................................12

3.5 Research Design .......................................................................................................13

3.6 Limitations ...............................................................................................................13

CHAPTER 4: DATA ANALYSIS AND FINDINGS ............................................. 14

4.1 Review of Methodology ...........................................................................................14

4.2 Results of Research Questions ................................................................................14

4.2.1 Business Performance ................................................................................... 14

4.2.2 Efficiency ........................................................................................................ 21

4.2.3 Profit Earning Capacity ............................................................................... 29

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS ......................... 36

5.1 Summary of Findings ..............................................................................................36

5.2 Suggestions ...............................................................................................................37

5.3 Conclusion ................................................................................................................38

REFRENCE ............................................................................................................... 39

APPENDIX A. LIST OF THE NATIONALISED BANKS IN INDIA ..............................41

APPENDIX B. LIST OF ABREVIATIONS .........................................................................42

vi

LIST OF TABLES

Table 4. 1 Business Performance of Nationalised .....................................................................15

Table 4. 2 Correlation Matrix between Business Performance Variables .................................17

Table 4. 3 ANNOVA .................................................................................................................18

Table 4. 4 Regression Analysis .................................................................................................19

Table 4. 5 Efficiency of Nationalised Banks(rupees in million) ...............................................22

Table 4. 6 Correlation matrix between efficiency variables ......................................................23

Table 4. 7 ANOVA ...................................................................................................................24

Table 4. 8 Regression analysis ..................................................................................................25

Table 4. 9 ANNOVA .................................................................................................................27

Table 4. 10 REGRESSION ANALYSIS ...................................................................................27

Table 4. 11 Profit earning capacity of Nationized banks ..........................................................29

Table 4. 12 Correlation Matrix ..................................................................................................31

Table 4. 13 ANNOVA ...............................................................................................................32

Table 4. 14 Regression Analysis .................................................................................................33

vii

LIST OF FIGURES

Figure 1. 1 Banking Structure Of India ..................................................................................... 5

Figure 1. 2 working of Banking Industry .................................................................................. 5

Figure 4. 1 Business Performance .............................................................................................16

Figure 4. 2 Business Performance (A) ......................................................................................17

Figure 4. 3 Efficiency ................................................................................................................23

Figure 4. 4 Profitability .............................................................................................................31

viii

Measuring operational efficiency and profitability of Nationalised Banks in

India

Arpit Jain

Introduction and Statement of Problem: Nationalised banks dominate the banking

system in India. In the post-Independence period, all the nationalised banks are

fanning new branches throughout the country. The Government of India embarked on

a comprehensive banking reforms plan in 1992 to establish a more diversified, profitable,

efficient and resilient banking. A detailed analysis about macro and micro level studies on

banking, it have been concluded that many studies have not found any significant

difference between the efficiency indicators of nationalised banks and other banks in the

post reforms period. The most recent studies also concluded that in the Indian banking

sector, ownership has no definite relationship with efficiency. The researcher identified

this area as research gap and hence, this study is conducted.

Research Design: The current study is explorative. 20 nationalized banks were

considered as samples. The study is based on secondary data collected from banking

statistics published by Reserve Bank of India and Indian Banking Association.

Business performance, efficiency, profit earning capacity and profitability were

considered for the study. The study period was

2007-08 to 2010-11. Statistical and econometric tools such as mean, compound growth

rate, correlation, multiple regression, t-test and ANOVA.

1

CHAPTER 1: INTRODUCTION

1.1 Purpose of the Study

The shape of the Indian Banking Industry has changed due to the World Trade

Organization, increasing international risk triggered by Basel III norms (laid

down by Basel committee under the supervision of Bank for International

Settlements (BIS)), Free Trade Agreements (FTAs) and the Reserve bank of

India guidelines. It needs every banker to design innovative banking products

and uses information technology to reduce their cost of operation. New concepts

like personal banking, retail banking, bankassurance, internet banking, phone

banking, mobile banking, and rural banking have emerged. In this situation, the

banks have to track their performance to improve their profitability by paying

attention to the key influencing factors for its timely correction and for future

growth.

With increased competition in the banking Industry, the Net Interest Margin

(NIM) of banks have come down over the last one decade. Hence, it is necessary

to improve their operational efficiency while meeting the customer requirements.

Product innovations and process re- engineering will be the order of the day.

All banks therefore to go for rejuvenating their costing and pricing to

segregate profitable and non-profitable business. Banking industry is fragmented

in its structure and has restrictions on capital availability and deployment, lack of

institutional support infrastructure, restrictive labour laws, weak corporate

governance and ineffective regulations. Besides this, increase in the number of

foreign players‘ poses threat to both public and private sector Banks. Therefore,

it is appropriate to know the answer for the following research questions:

1. Whether efficiency expands with business performance?

2. Whether efficiency raises profit earning capacity?

3. Whether efficiency increases profitability?

2

1.2 Context and Significance of Study

From the early 1970s through the late 1980s, the role of market forces in Indian banking

system was almost missing and excess regulation in terms of high liquidity requirements

and state interventions in allocating credit and determining the prices of financial

products has resulted in serious financial repression. The main consequence of this

financial repression was an ascent in the volume of bad loans due to ineffective credit

evolution system and poorer risk assessment policies. This led to a gradual decline in the

profitability and efficiency of Indian banks, especially of public sector banks (PSBs). In

fact, in 1990s Indian banking system was on the verge of a crisis and lacking viability

even in its basis function of financial intermediation. Realizing the presence of the

signs of financial repression and to get an escape from any potential crisis in the

banking sector, the Government of India embarked on a comprehensive banking

reforms plan in 1992 to establish a more diversified, profitable, efficient and resilient

banking.

A detailed analysis about macro and micro level studies on banking, it have been

concluded that many studies have not found any significant difference between the

efficiency indicators of nationalised banks in the post reforms period. The most recent

study by Reserve Bank of India also concluded that in the Indian banking sector, ownership

has no definite relationship with efficiency. The researcher identified this area as

research gap and hence, this study has been made here to evaluate the performance of

PSBs from the post-reforms period. The first section illustrates the functions of a bank

along with its classification. The second section empirically validates our hypothesis

framed with a comprehensive data analysis.

1.3 Theoretical Framework

Banking industry is the backbone for growth of any economy. In India, Banking

was originated in the last decades of 18th

century. The Reserve Bank of India is

the central/apex Bank which regulates the functioning of all banks operating

within the country. Reserve Bank of India Act was passed in 1934 without major

government ownership. Banking Regulations Act was passed in 1949. This

3

regulation brought RBI under the control of the government. Also RBI has the

power to supervise & control the banks.

Before pre-liberalization, the Indian Banking was different. The Government of

India initiated measures to play an active role in the economic life of the nation,

and the Industrial Policy Resolution adopted by the government in 1948

envisaged a mixed economy. This resulted in the greater involvement of the state

in different segments of the economy including banking and finance.

The process of liberalization and reform of the financial sector has brought

significant changes in the banking sector. The objectives of the changes were to

make the system more competitive, profitable and efficient. The economic and

financial sector reform has transformed the operating environment for banks and

financial institutions in the country. The achievement is the improvement of the

commercial banks in their capital adequacy ratios, profitability, asset quality and

risk management. Also, deregulation has opened up new opportunities for the

banks to increase revenues by diversifying into investment banking, insurance,

credit cards, securitization and depository services.

Since 1992–1993, there were changes in the structure of the Indian banking

system. The commercial banks saw an increase in the degree of competition in the

intermediation process from term lending institutions, non-banking intermediaries

(like mutual funds and leasing companies), chit funds and the capital market.

Besides, new banking services like ATM machines and Internet banking have

emerged due to the advancement of computers.

Globalization of operations and development of new technology has led to the

increase in resource productivity, increasing level of profits, credits and

profitability and decrease in NPAs. The increasing competition is squeezing

profitability and forcing the banks to work efficiently on shrinking spreads.

Various strategies are adopted by the large banking institutions to eliminate

redundancies and increase efficiency. In smaller institutions, efficiency gains are

4

achieved by controlling costs and generating more diverse and higher levels of

non-interest revenues.

The overall development has benefitted the enhancement in the efficiency of the

banking industry. An efficiency rise means all round prosperity and better

utilization of factors of production. Waste reduction and efficient utilization of

resources result in higher profitability of the industrial units.

An efficient management of banking operations that aims at ensuring growth in

profits and efficiency requires up-to-date knowledge of all those factors on which

the banks efficiency depends.

Higher banking efficiency means better intermediation services of banks, which

implies a better match between depositors and investors with all its positive

effects on economic indicators. So, measuring and analyzing the operational

efficiency of banks in India so to ascertain how efficiently they perform their

basic functions in the economy as financial intermediaries has been an important

area of inquiry among various stakeholders.

Since banking products and services are intangible in nature, measuring the

efficiency and competitiveness of banks was not an easy task. Many researchers

have attempted to measure the productivity of banking industry using outputs,

costs, efficiency and performance. The most traditional method to measure the

efficiency in the banking sector is the ratio analysis of different financial

parameters, like return on assets or return on investments, net profit per employee

etc.

New concepts like personal banking, retail banking, banc assurance,

internet banking, phone banking, mobile banking, and rural banking have

emerged. So, the banks have to track their performance to improve their

profitability. This can be done by paying attention to the key factors

influencing for its timely correction and for future growth.

5

Figure 1. 1 Banking Structure Of India

Figure 1. 2 working of Banking Industry

6

1.4 Summary

The current study is explorative. 20 nationalized banks were considered as

samples. The study is based on secondary data collected from banking statistics

published by Reserve Bank of India and Indian Banking Association.

Business performance, efficiency, profit earning capacity and profitability

were considered for the study. The study period was 2007-08 to 2011-12.

Statistical and econometric tools such as mean, compound growth rate,

correlation, multiple regression, t-test and ANOVA.

Nationalised banks dominate the banking system in India. In the post-

Independence period, all the nationalised banks are fanning new branches

throughout the country. The Government of India embarked on a

comprehensive banking reforms plan in 1992 to establish a more diversified,

profitable, efficient and resilient banking. A detailed analysis about macro and

micro level studies on banking, it have been concluded that many studies have

not found any significant difference between the efficiency indicators of

nationalised banks and other banks in the post reforms period. The most recent

study by Reserve Bank of India also concluded that in the Indian banking

sector, ownership has no definite relationship with efficiency. The researcher

identified this area as research gap and hence, this study is conducted.

7

CHAPTER 2: LITERATURE REVIEW

(Bhattacharyya, 1997) measured the technical efficiency of 70 commercial banks

operating in India for the period 1986-91 using Data Envelopment Analysis

(DEA). They used a two-stage approach: in the first stage, they calculated the

radial technical efficiency scores using DEA. In the second stage, they used

stochastic frontier analysis to attribute variation in efficiency scores to three

sources—temporal, ownership, and noise component. They considered advances,

investment, and deposits as outputs while interest expense and operating expense

were taken as the inputs. They found that the public sector banks had much higher

efficiency as compared to the private and foreign banks.

(Das, 2005) examined the output-oriented technical efficiency, cost efficiency,

revenue maximizing efficiency, and profit efficiency of Indian (public, private and

foreign) banks for the period 1997-2003. They considered four inputs for their

study—borrowed funds (deposits and other borrowings), number of employees,

fixed assets, and equity. They included in their study only those banks which had

at least three branches during the entire study period. Their results indicated that

the Indian banks are still not much differentiated in terms of input or output oriented

technical efficiency or cost efficiency. However, they differ sharply in respect of

revenue and profit efficiencies.

( Kalluru Siva Reddy and Bhat Sham K, 2008) examined the profitability

determinants in Indian commercial banks by employing fixed and random effects

models for an unbalanced panel data of 87 commercial banks for the period 1992-

2006. Two alternative measures of bank profitability such as Returns on Assets

(ROA) and Returns on Capital (ROC) are used. The empirical results reveal that the

profitability of banks was affected not only by banks‘ own characteristics but also by

industry structural variables and macroeconomic variables. Bank ownership and

political parties in power also play a vital role in determining bank profitability in

India. However, the determinants of bank profitability vary significantly across the

banks groups.

8

(Lopoyetum, 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.

(Nath, 2005) studied the efficiency of 68 commercial banks operating in India for

the period 1996-99 using the output oriented Charnes et al. (1978) DEA

m o d e l . The parameters considered as outputs of the banking industry are: (1)

deposits; (2) net profits; (3) advances given by the banks; (4) non-interest income;

and (5) interest spread which is the difference between the interest earned by the

bank and the interest paid by it. The five input parameters taken are: (1) net worth

of the banks; (2) borrowings of the banks; (3) operating expenses which are the

non-interest related expenses such as sum of establishment expenses; rent, taxes,

and electricity; printing and stationery; advertising; depreciation; director‘s fees;

auditor‘s fees; law charges; post, telegram and telephone expenses; repair and

maintenance; insurance and miscellaneous other expenses, (4) number of

employees in the country; and (5) number of bank branches in the country

The results of the study indicate that the private commercial banks have the highest

efficiency figures and the least variation, whereas the foreign- owned banks

exhibit the least average e f f i c i enc y figure and maximum variation. The public

sector commercial banks come in between

(Ramachandran. A and Kavitha. N, 2009), has examined some aspects of factors

influencing total earning, total expenditure and the profitability of the Indian

Scheduled Commercial Banks. The step-wise multiple regression analysis of the

profitability undertaken discloses the relationship among the earning factors and

expenses factors on the profitability of the Banks through which the management can

easily assess the SWOT of the Banks which will ultimately boost the profitability of

the Banks.

9

(Ravisankar, 2000) examined the efficiency of the Indian public sector banks in

two phases during the period 1992-95. In the first phase, certain key ratios such

as deposit to establishment expenses and advances to establishment expenses, and

deposits to staff and advances to staff were co n s i d e r e d . The b a n k s were

p l o t t e d in a two dimensional graph to identify the better performing banks.

Their study considered four input v a r i a b l e s —interest expend i tu re ,

establishment expenditure, non- establishment expenditure a n d s ix o u t p u t

variables: deposits, advances , investments, non-interest income, interest

spread, and total income. Their results indicated that the performance of the

public sector banks (with the exception of a few) had improved over the years of

study.

(Ray, 2004)compared the performances of 58 public, private sector, and foreign

banks using a revenue maximization efficiency approach for the period 1992-

2000. Loans, i n v e s t m e n t s , and o t h e r i n c o m e s w e r e taken as b a n k

o u t p u t s .

Their study considered deposits and operating costs as inputs. They argued that

during the period, Indian banks did not have much freedom in trimming costs,

especially the cost of labour. Under the circumstances, revenue maximization best

describes the objective that banks have been focusing during the period. The results

of their study relating to revenue maximization efficiency, technical efficiency, and

allocate ef f iciency reveal:

Public sector banks are significantly better placed than private sector banks on

revenue maximization efficiency but there is no difference between public sector

banks and foreign banks

Public sector banks are significantly better than private banks in respect of

technical efficiency but not in respect of allocate efficiency

(Swammy, 2001) Studied the comparative performance of different bank groups

since 1995-96 to 1999-2000. An attempt was made by researcher to identify factors

which could have led to changes in the position of individual banks in terms of their

share in the overall banking industry. He concluded that in many respects

10

nationalized public sectors banks are much better than private banks, even they are

better than foreign banks.

(Saha and Ravisankar, 2000), examined the efficiency of the Indian public sector

banks in two phases during the period 1992-95. In the first phase, certain key ratios

such as deposit to establishment expenses and advances to establishment expenses,

and deposits to staff and advances to staff were considered. The banks were plotted in

a two dimensional graph to identify the better performing banks. Their study

considered four input variables—interest expenditure, establishment expenditure,

non-establishment expenditure and six output variables: deposits, advances,

investments, non-interest income, interest spread, and total income. Their results

indicated that the performance of the public sector banks (with the exception of a few)

had improved over the years of study.

(Shobhana V K and Shanti G, 2008), assesses the operational efficiency of Foreign

Banks operating in India using the data for the period 1996-97 to 2004-05. In the

paper they have used ANOVA (Analysis of Variance) to find that there is no

significant relationship between operational efficiency and variables such as size of

assets, branch network and stall strength.

(Sarkar, 2005) used the stochastic cost frontier analysis to examine the efficiency of

the Indian banking system using panel data for the period 1986-2000. They

used a trans log specification of the cost frontier to estimate the efficiency of the

individual banks. The dataset related to 27 public sector banks and 23 private

sector banks. Their results indicated that Indian banks, on average, do exhibit the

presence of cost inefficiency in their operations. However, there is a tendency for

inefficiencies to

decline over time. Further, they found that deregulation in the Indian banking

sector resulted in an increase in the cost inefficiency of the Indian banks and a

decline in the rate of inefficiency reduction.

(Sinha, 2006)estimated the efficiency of Indian commercial banks using the data

envelopment and free disposal hull approaches respectively. They have taken net

interest income, non-interest income, and loan as the output indicators. Number of

11

bank branches and borrowed capital were taken as two inputs. The results were

for 1996-97,

1998-99, 2000-01, and 2002-03 respectively. The results suggest an improvement

in the performance if net interest income or non-interest income is taken as the

output indicator but a decline in the performance if loan is taken as the output

indicator

(Sergio, 1996) in a study of non-performing loans in Italy found evidence that, an

increase in the riskiness of loan assets is rooted in a bank‘s lending policy

adducing to relatively unselective and inadequate assessment of sectorial

prospects. Interestingly, this study refuted that business cycle could be a primary

reason for banks‘ NPLs. The study emphasised that increase in bad debts as a

consequence of recession alone is not empirically demonstrated. It was viewed

that the bank-firm relationship will thus; prove effective not so much because it

overcomes informational asymmetry but because it recoups certain canons of

appraisal.

12

CHAPTER 3: RESEARCH METHODS AND PROCEDURES

3.1 Research Objectives

To evaluate the business performance in relation to profit earning capacity,

efficiency and profitability of nationalized banks.

To evaluate inter-relationship between selected variables among

nationalised banks.

3.2 Research Questions

Whether efficiency expands with business performance?

Is there any possibility of finding the factor influencing the profitability?

Whether efficiency raises profit earning capacity?

Is there any possibility of improving the profitability?

Is there any avenue to identify the efficient bankers?

3.3 Hypothesis

H01: There is no significant relationship between total business carried

out by nationalised banks and the deposits, investments, advances,

number of offices and number of employees.

H02: There is no significant relationship between Total business per

employee of the nationalized banks and the efficiency factors.

H03: There is no significant relationship between Total business per branch

of the nationalized banks and the efficiency factors

H04: There is no significant relationship between Profit earning capacity

of the nationalised banks and other operational expenses met and other

incomes.

3.4 Data Collection

Data is collected from various bulletins published by the Reserve Bank of India and

the data available on the websites of various banks.

13

3.5 Research Design

The current study is explorative in nature. 19 nationalized banks were considered

as samples. The study is based on secondary data collected from banking

statistics published by Reserve Bank of India and Indian Banking Association.

The study period was

2007-08 to 2010-11. The following statistical tools had been applied between

the financial parameters of sample Nationalised Banks. They are:

Mean

Standard deviation

Coefficient of variation

Coefficient of correlation

Multiple linear regression

These formulas are applied in Microsoft Excel and SPSS software.

3.6 Limitations

The study is mainly based on the secondary data only and the number of the

employees per bank may differ due their transfer or retirement which could affect

the productivity and profit earning capacity of individual banks.

14

CHAPTER 4: DATA ANALYSIS AND FINDINGS

4.1 Review of Methodology

The research is majorly based on secondary data gathered from various journals

and bulletins published by various government bodies and banks. Excel and

SPSS were used to analyse the data and make interpretations. Statistical tools

such as coefficient of variation, correlation coefficient and multiple linear

regressions are used.

4.2 Results of Research Questions

The focus of all banks in India has shifted their approach to 'cost', determined

by revenue minus profit. This means that all the resources should be used

efficiently to better the efficiency and ensure a win-win situation. To survive in

the long run, it is essential to focus on cost saving. Previously, banks focused on

the 'revenue' model which is equal to cost plus profit. After the banking

reforms, banks shifted their approach to the 'profit' model, which meant that

banks aimed at higher profit maximization.

4.2.1 Business Performance

The current section of the study analyses the business performances of

the nationalised banks in relation to expansion of branches, recruitment of

employees, deposits, advances, investments and total business carried out by the

nationalized banks in India during the period 2007-08 to 2011-12.

15

Table 4. 1 Business Performance of Nationalised

(Rupees in million)

Year No. of offices no of employees deposits advances investments total business

2006-07 39255 466400 16799930 12036784 5360181 28836714

2007-08 40956 462926 21057056 15197619 6550419 36254675

2008-09 43452 473041 25839338 18430819 8281248 44270157

2010-11 46288 471727 31265862 23102793 9503797 54368655

2011-12 50013 491132 35969893 27263212 10867544 63233105

MEAN 43992.8 473045.2 26186415.8 19206245 8112637.8 45392661.2

S.D 4285.79394 10902.14308 7682026.27 6086242 2211888.758 13763285.35

C.V 0.097420349 0.023046726 0.293359211 0.316889 0.272647296 0.303205077

C.V (%) 9.742034925 2.304672593 29.33592107 31.68887 27.26472958 30.32050774

CAGR (%) 4.963326255 1.038743787 16.44647189 17.76421 15.18353168 17.00374093

(source: RBI journal)

The above table shows the business performance of nationalised banks in

India during the period 2007-12. The number of branches of all nationalised

banks grew from 39255 in 2007-08 to 50013 in 2011-12. It registered an

annual growth of 4.96 per cent, with an average of 43992 branches

functioning every year.

The number of employees of all nationalised banks increased from 466400 in

2006-07 to 4730452 in 2011-12. It registered a n n u a l growth of 1.03 per cent,

with an average of 473045 employees working every year. The deposits of all

nationalised banks grew from 16799930 million in 2007-08 to 35969893 million

in 2011-12. It registered an annual growth of 16.44 per cent, with an average of

26186415.8 million deposits every year. The advances of all nationalised banks

grew from 12036784 million in 2007-08 to 27263212 million in 2011-12. It

registered an annual growth of 17.76 per cent, with an average of 19206245

million advances every year. The investments of all nationalised banks grew

from 5360181 million in 2007-08 to 10867544 million in 2011-12. It

registered an annual growth of 15.18 per cent, with an average of 8112637.8

million investments every year. The total business of all nationalised banks grew

16

2006-07 2007-08 2008-09 2010-11 2011-12

deposits 16799930 21057056 25839338 31265862 35969893

advances 12036784 15197619 18430819 23102793 27263212

investments 5360181 6550419 8281248 9503797 10867544

total business 28836714 36254675 44270157 54368655 63233105

0

10000000

20000000

30000000

40000000

50000000

60000000

70000000

RU

PEE

S IN

MIL

LIO

N

BUSINESS PERFORMANCE

from 28836714 million in 2007-08 to 63233105 million in 2011-12. It registered

an annual growth of 17.00 per cent, with an average of 45392661.2 million

businesses every year.

The co-efficient of variation of branch expansion and employees

recruitment are relatively low. The group which has less coefficient of

variation is said to be more stable. The coefficient of variation of other

variables such as deposits, advances, investments and total business are high.

A high coefficient of variation indicates less consistency or less homogeneity.

At a glance it is evidenced that the growth rate of deposits,

advances and total business is more than the growth of branch expansion and

employee recruitment. It shows that the business performance of nationalised

banks is improved during the study period.

Figure 4. 1 Business Performance

17

Figure 4. 2 Business Performance (A)

Table 4. 2 Correlation Matrix between Business Performance Variables

No. of offices

no of employees deposits advances investments

total business

No. of offices 1

no of employees 0.89929848 1

Deposits 0.993153386 0.849360458 1

Advances 0.99684313 0.862048089 0.998533048 1

investments 0.988207133 0.851070105 0.997679589 0.993199201 1

total business 0.995144551 0.855278511 0.999713309 0.999543223 0.996059491 1

The above table explains the correlation between the business

performances variables. It is found that branch expansion, employee recruitment,

d e p o s i t s , advances, investments and business performance are positively

correlated to other variables.

0

100000

200000

300000

400000

500000

600000

2006-07 2007-08 2008-09 2010-11 2011-12

UN

ITS

YEAR

BUSINESS PERFORMANCE(A)

18

Regression analysis: The multiple regression models had been framed

business performance parameter considered dependent variable and the other

related variables were considered as independent. The linear regression model is

shown in equation:

BP = β0+ β1NO+ β2NE+ β3 DP+β4IN+β5 AD + εi

Where

Xi1 = Number of Branches

Xi2 = Number of Employees

Xi3 = Deposits

Xi4 = Investments

Xi5 = Advances

Εi = Error term

The underlying assumptions of linearity, normality, constant

variation and independence of error terms must be satisfied in order to get a

more valid model. The TB treated as dependent variable and NO, NE, DP, IN

and AD are independent variables and the following hypothesis is being tested.

H01: There is no significant relationship between total business carried

out by nationalised banks and the deposits, investments, advances, number of

offices and number of employees.

Table 4. 3 ANNOVA

Model Summary

Model R R Square

Adjusted R

Square

Std. Error of the

Estimate

1 1.000a 1.000 1.000 9741.951

a. Predictors: (Constant), investments, No. Of employees, advances

19

ANOVAb

Model

Sum of

Squares df Mean Square F Sig.

1 Regression 7.577E14 3 2.526E14 2661282.960 .000a

Residual 94905603.970 1 94905603.97

0

Total 7.577E14 4

a. Predictors: (Constant), investments, No. Of employees, advances

b. Dependent Variable: total business

Table 4. 4 Regression Analysis

Coefficientsa

Model

Unstandardized

Coefficients

Standardi

zed

Coefficient

s

t Sig.

95.0% Confidence

Interval for B

B

Std.

Error Beta

Lower

Bound

Upper

Bound

1 (Constant) 11493357

.873

395239.9

42

29.079 .022 6471358.2

44

16515357

.502

No. Of

employees

-25.379 .885 -.020 -

28.681

.022 -36.623 -14.136

Advances 1.767 .007 .782 247.26

5

.003 1.677 1.858

Investments 1.474 .019 .237 77.637 .008 1.233 1.715

a. Dependent Variable: total business

20

Excluded Variablesb

Model Beta In t Sig.

Partial

Correlation

Collinearity

Statistics

Tolerance

1 No. of offices .823a . . 1.000 1.849E-7

deposits .558a . . 1.000 4.021E-7

a. Predictors in the Model: (Constant), investments, No. Of employees, advances

b. Dependent Variable: total business

The above regression leads to following results:

No. of offices and deposits were excluded by SPSS and are not considered significant enough.

I. Standard error of estimate:

The value of SE is 9741.95 and mean of y is 45392661.2

On comparing standard error of estimate with mean of y we see that is

standard error of estimate is small enough and thus we conclude that the fit is

good enough for forecasting.

II. Significance check at 95% confidence level

Following p values are obtained:

No. of employees: .022 < .05

Advances: .003 < .05

Investments: .008< .05

As the p values obtained for above variables are less that .05 therefore we conclude

that we have enough evidence to reject H0 and thus there is existence of linear

relationship.

21

III. R2

(Coefficient of determination)

It tells about the strength of the relationship and is used to estimate the goodness of fit

of the estimated regression model.

R2

for this model is 100% which means that 100% of the variability in total business

of the banks is explained by no. of employees, advances and investments . Such a

high level of R2 shows that estimated regression model is a good fit.

IV. F test

It tells about the validity of the model.

The p-value for the f test is .000

.00 < .05

Thus we infer that we do have sufficient evidence to prove that the estimated

regression model is valid.

4.2.2 Efficiency

Efficiency is defined as the ratio of output to input. The indicators commonly used for

assessing the efficiency of banks are business per employee/ branch, advances per

employee/ branch, number of accounts per employee / branch etc.

a. Employee Performance: Employee performance is considered the most relevant

factor in banking sector. Employee performance is measured in relation to total

business per employee, advances, deposits and profit per employee of the nationalized

banks.

b. Branch Performance: Branch performance is considered the most relevant

factor in banking sector. It is measured in relation to total business per employee,

advances, deposits and profit per employee of the nationalized banks.

22

Table 4. 5 Efficiency of Nationalised Banks(rupees in million)

YEAR BPE DPE APE PPE BPB DPB APB PPB

2007-08 61.83 36.02 25.81 0.38 734.6 427.97 306.63 4.48

2008-09 78.32 45.49 32.83 0.49 885.21 514.14 371.07 5.49

2009-10 93.59 54.62 38.96 0.57 1018.83 594.66 424.17 6.17

2010-11 115.25 66.28 48.97 0.7 1174.57 675.46 499.11 7.14

2011-12 128.75 73.24 55.51 0.7 1264.33 719.21 545.12 6.83

MEAN 95.548 55.13 40.416 0.568 1015.508 586.288 429.22 6.022

S.D 27.05588 15.08871 11.97917 0.138094 213.9574 118.2792 95.85491 1.070687

C.V 0.283165 0.273693 0.296397 0.243124 0.21069 0.201743 0.223323 0.177796

C.V(%) 28.31653 27.36932 29.63968 24.31235 21.069 20.17426 22.33235 17.77959

CAGR(%) 15.80028 15.25 16.55117 12.99595 11.471 10.94008 12.19551 8.79991

(source: RBI journal)

The above table shows the efficiency performance of nationalised banks

during the period 2007-12. The business per employee of all nationalised banks grew

from 61.83 million in 2007-08 to 128.75 million in 2011-12. It registered an annual

growth of 15.8 per cent, with an average of 95.54 million. The deposits per employees

of all nationalised banks increased from 36.02 million in 2007-08 to 73.24 million in

2011-12. It registered an annual growth of 15.25 per cent, with an average of 55.13

million. The advances per employee of all nationalised banks grew from 25.81

million in 2007-08 to 55.51 million in 2011-12. It registered an annual growth of

16.55 per cent, with an average of 40.41 million. The profit per employee of all

nationalised banks grew from .38 million in 2007-08 to .7 million in 2011-12. It

registered an annual growth of 12.99 per cent, with an average of . 5 million. The

business per branch of all nationalised banks grew from 734.6 million in 2007-08

to 1264.33 million in 2011-12. It registered an annual growth of 11.47 per cent,

with an average of 1015.50 million. The advances per employee of all nationalised

banks grew from 306.3 million in 2007-08 to 545.12 million in 2011-12. It

registered an annual growth of 12.19 per cent, with an average of 429.22 million. The

profit per employee of all nationalised banks grew from 4.48 million in 2007-08 to

5.16 million in 2011-12. It registered an annual growth of 8.799 per cent, with an

average of 6.02 million. The deposit per branch of all nationalised banks grew

from 427.97 million in 2007-08 to 719.21 million in 2011-12. It registered an

annual growth of 10.94 per cent, with an average of 586.2 million.

The co-efficient of variation of all variables are relatively high. The group

which has high Coefficient of Variation is said to be more volatile or less homogeneity.

23

At a glance it is evidenced that the growth rate of business, deposits,

advances and profit per employee and branch are high. It shows that the efficiency

performance of employees and branches are improved during the period.

Figure 4. 3 Efficiency

Table 4. 6 Correlation matrix between efficiency variables

EMPLOYEES BPE DPE APE PPE BPB DPB APB PPB OFFICES

EMPLOYEES 1

BPE 0.824627088 1

DPE 0.81671348 0.999657 1

APE 0.833768986 0.999446 0.998231 1

PPE 0.70607418 0.981073 0.984552 0.975706 1

BPB 0.801243835 0.997838 0.999139 0.995196 0.988461 1

DPB 0.788812621 0.994866 0.997122 0.991014 0.99066 0.999331 1

APB 0.815105457 0.999664 0.999784 0.998522 0.983924 0.998981 0.996662 1

PPB 0.616178818 0.946918 0.953546 0.937593 0.990696 0.962376 0.968974 0.952461 1

OFFICES 0.89929848 0.987937 0.984686 0.991069 0.939492 0.978164 0.971324 0.9848 0.886495 1

0

200

400

600

800

1000

1200

1400

2007-08 2008-09 2009-10 2010-11 2011-12

RU

PEE

S IN

MIL

LIO

N

YEAR

EFFICIENCY

BPE

DPE

APE

PPE

BPB

DPB

APB

PPB

24

The above table explains the correlation between the efficiency performances

variables. It is found that business, deposits, advances and profit per employee and

branch are positively correlated to other variables. It shows that all the efficiency

parameter variables are inter-related to each other.

Regression Analysis : The linear regression model is shown in equation:

E= β0+ β1 BPE + β2 DPE + β3 APE +β4 APE +εi

Where

Xi1 = Business per employee

Xi2 = Deposits per employee

Profit per employee Xi3 = Advances per employee

Ei = Error term

PPE treated as dependent variable and BPE, DPE, APE are independent variables

and the following hypothesis is being tested.

H02: There is no significant relationship between profit per employee and other

efficiency variables.

Table 4. 7 ANOVA

Model Summary

Model R R Square

Adjusted R

Square

Std. Error of the

Estimate

1 .992a .984 .967 .02508

a. Predictors: (Constant), advances per employee, deposit per

employee

25

ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression .075 2 .038 59.643 .016a

Residual .001 2 .001

Total .076 4

a. Predictors: (Constant), advances per employee, deposit per employee

b. Dependent Variable: profit per employee

Table 4. 8 Regression analysis

Coefficientsa

Model

Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

95.0% Confidence Interval

for B

B Std. Error Beta Lower Bound Upper Bound

1 (Constant) -.004 .075 -.060 .957 -.325 .316

deposit per employee .027 .014 2.983 1.953 .190 -.033 .087

advances per

employee

-.023 .018 -2.002 -1.311 .320 -.099 .053

a. Dependent Variable: profit per employee

Excluded Variablesb

Model Beta In t Sig.

Partial

Correlation

Collinearity

Statistics

Tolerance

1 business per employee -979.804a -1.225 .436 -.775 1.031E-8

a. Predictors in the Model: (Constant), advances per employee, deposit per employee

b. Dependent Variable: profit per employee

26

The above regression leads to following results:

Business per employee was excluded by SPSS and are not considered significant enough.

I. Standard error of estimate:

The value of SE is .02508 and mean of y is .568

On comparing standard error of estimate with mean of y we see that is

standard error of estimate is not small enough and thus we conclude that the fit

is not good enough for forecasting.

II. Significance check at 95% confidence level

Following p values are obtained:

Deposit per employee: .190 > .05

Advances per employee: .320>.05

As the p values obtained for above variables are greater than .05 therefore we

conclude that we do not have enough evidence to reject H0 and thus there is no

existence of linear relationship

Regression Analysis : The linear regression model is shown in equation:

E= β0+ β1 DPB + β2 APB + β3 BPB +εi

Xi1 = Deposits per branch

Xi2 = Advances per branch

Xi3 = Total business per branch

Εi = Error term

PPB treated as dependent variable and BPB, DPB, APB are independent variables

and the following hypothesis is being tested.

27

H03: There is no significant relationship between profit per branch and other

efficiency variables.

Table 4. 9 ANNOVA

Model Summary

Model R R Square

Adjusted R

Square

Std. Error of the

Estimate

1 .983a .966 .933 .27776

a. Predictors: (Constant), advances per branch, deposit per branch

ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression 4.436 2 2.218 28.746 .034a

Residual .154 2 .077

Total 4.590 4

a. Predictors: (Constant), advances per branch, deposit per branch

b. Dependent Variable: profit per branch

Table 4. 10 REGRESSION ANALYSIS

Coefficientsa

Model

Unstandardized

Coefficients

Standardize

d

Coefficients

t Sig.

95.0% Confidence Interval

for B

B Std. Error Beta

Lower

Bound

Upper

Bound

1 (Constant) -.111 1.052 -.105 .926 -4.639 4.417

deposit per branch .027 .014 2.952 1.860 .204 -.035 .089

advances per

branch

-.022 .018 -1.990 -1.253 .337 -.099 .054

28

Coefficientsa

Model

Unstandardized

Coefficients

Standardize

d

Coefficients

t Sig.

95.0% Confidence Interval

for B

B Std. Error Beta

Lower

Bound

Upper

Bound

1 (Constant) -.111 1.052 -.105 .926 -4.639 4.417

deposit per branch .027 .014 2.952 1.860 .204 -.035 .089

advances per

branch

-.022 .018 -1.990 -1.253 .337 -.099 .054

a. Dependent Variable: profit per branch

Excluded Variablesb

Model Beta In t Sig.

Partial

Correlation

Collinearity

Statistics

Tolerance

1 business per branch .a . . . .000

a. Predictors in the Model: (Constant), advances per branch, deposit per branch

b. Dependent Variable: profit per branch

The above regression leads to following results:

Business per branch was excluded by SPSS and is not considered significant enough.

I. Standard error of estimate:

The value of SE is .27775 and mean of y 6.022

On comparing standard error of estimate with mean of y we see that is

standard error of estimate is not small enough and thus we conclude that the fit

is not good enough for forecasting.

29

II. Significance check at 95% confidence level

Following p values are obtained:

Deposit per branch : .204 < .05

Advances per branch : .337 < .05

As the p values obtained for above variables are greater that .05 therefore we

conclude that we do not have enough evidence to reject H0 and thus there is existence

of linear relationship

4.2.3 Profit Earning Capacity

Banks are commercial organisations and like any such organisation all of their

activities should be directed towards earning profit. Essentially, banks must

give a fair return on capital after providing adequately for business risks. This

has warranted banks to earn profit.

Table 4. 11 Profit earning capacity of Nationized banks

YEAR II OI IE OE TI TE NP

2007-08 1426469 209794 1010933 296700 1636262 1307633 328629

2008-09 1838924 263936 1316762 354160 2102860 1670922 431938

2009-10 2080289 304996 1457115 407922 2385285 1865037 520248

2010-11 2563064 287249 1641351 538193 2850314 2179544 670770

2011-12 3412524 324674 2396879 574750 3737197 2971628 765569

MEAN 2264254 278129.8 1564608 434345 2542384 1998953 543430.8

S.D 762306.3 44279.12 519158.7 118924.3 800205.8 628921.9 176542.2

C.V 0.33667 0.159203 0.331814 0.273801 0.314746 0.314626 0.324866

C.V(%) 33.667 15.92031 33.18139 27.38014 31.47463 31.46257 32.4866

CAGR(%) 19.05912 9.126667 18.84605 14.13853 17.96105 17.84244 18.42835

(source: RBI journal)

The above table shows the Profit Earning Capacity of nationalised banks

during the period 2004-11. The interest income of all nationalised banks grew

from 1426469 million in 2007-08 to 3412524 million in 2011-12. It registered an

annual growth of 33.67 per cent, with an average of 2264254 million. The other

30

income of nationalised banks increased from 209794 million in 2007-08 to

3 2 4 6 7 4 million in 2011-12. It registered an annual growth of 15.92 per cent,

with an average of 278129.8 million. The interest expenditure of all nationalised

banks grew from 1010933 million in 2007-08 to 2396879 million in 2011-12. It

registered an annual growth of 18.84 per cent, with an average of 1564608 million.

The operating expenses of all nationalised banks grew from 296700 million in

2007-08 to 574750 million in 2011-12. It registered an annual growth of 14.13 per

cent, with an average of 434345 million. The total income of all nationalised banks

grew from 1636262 million in 2007-08 to 3737197 million in 2011-12. It registered

an annual growth of 17.48 per cent, with an average of 2542384 million. The

total expenditure of all nationalised banks increased from 1307633 million in 2003-

04 to 2971628 million in 2011-12. It registered an annual growth of 17.84 per cent,

with an average of 1998953 million. The net profit of all nationalised banks grew

from 328629 million in 2007-08 to 765569 million in 2011-12. It registered an

annual growth of 18.42 per cent, with an average of 35502.63million.

The co-efficient of variation of all variables are relatively high. The group

which has high Coefficient of Variation is said to be more volatile or less

homogeneity.

To sum up the growth rate of interest income and other income is less

than the proportionate growth of interest expenses and operating expenses. It

creates pressure on profit earnings of nationalised banks.

31

Figure 4. 4 Profitability

Table 4. 12 Correlation Matrix

II OI IE OE TI TE NP

II 1

OI 0.848156 1

IE 0.990287 0.847218 1

OE 0.955628 0.822105 0.906005 1

TI 0.99957 0.863321 0.990265 0.955859 1

TE 0.998157 0.85481 0.996792 0.936975 0.998183 1

NP 0.974832 0.867927 0.937518 0.994661 0.976689 0.961979 1

The above table explains the correlation between the profit earning capacity variables. It is

found that interest income, other income, interest expenses, other expenses are positively

correlated to net profit as well as with other variables also. It shows that all the profit

earning capacity parameter variables are inter-related to each other

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

2007-08 2008-09 2009-10 2010-11 2011-12

RU

PEE

S IN

MIL

LIO

N

YEAR

PROFITABILITY

II

OI

IE

OE

TI

TE

NP

32

Regression Analysis: The linear regression model is shown in equation:

PEC = β0+ β1INI+ β2OI+ β3IE+β4OE+β5TI+β6TE+ εi

Where:

Xi1 = Interest income

Xi2 = other income

Xi3 = Interest expenditure

Xi4 = Operating expenses

Xi5 = Total income

Xi6 = Total expense

εi = Error term

NP as dependent variable and INI, OI Other income, IE, OE, TI and

TE are independent variables and the following hypothesis is being tested.

H04: There is no significant relationship between Total business per branch of the

nationalized banks and the efficiency factors.

Table 4. 13 ANNOVA

Model Summary

Model R R Square

Adjusted R

Square

Std. Error of the

Estimate

1 1.000a 1.000 1.000 1197.075

a. Predictors: (Constant), TOTAL EXPENSE, OTHER INCOME,

OTHER ESPENSE

ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression 1.247E11 3 4.156E10 28999.325 .004a

Residual 1432988.754 1 1432988.754

Total 1.247E11 4

33

ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression 1.247E11 3 4.156E10 28999.325 .004a

Residual 1432988.754 1 1432988.754

Total 1.247E11 4

a. Predictors: (Constant), TOTAL EXPENSE, OTHER INCOME, OTHER ESPENSE

b. Dependent Variable: NET PROFIT

It has been revealed from the above econometric analysis that F ratio 28999.325 is

statistically significant at 5 per cent level of significance. R 2

value depicts 99 per

cent variations between the profit earning capacity variables tested for the nationalised bank

Table 4. 14 Regression Analysis

Coefficientsa

Model

Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

95.0% Confidence Interval

for B

B Std. Error Beta Lower Bound Upper Bound

1 (Constant) -

154779.301

4611.785

-33.562 .019 -213377.590 -96181.012

OTHER INCOME .442 .026 .111 16.846 .038 .109 .775

OTHER

ESPENSE

1.106 .015 .745 76.266 .008 .922 1.290

TOTAL

EXPENSE

.047 .003 .169 15.773 .040 .009 .086

a. Dependent Variable: NET PROFIT

Excluded Variablesb

Model Beta In t Sig.

Partial

Correlation

Collinearity

Statistics

Tolerance

1 INTEREST INCOME 4.316a . . 1.000 6.171E-7

INTEREST EXPENSE .a . . . .000

TOTAL INCOME 4.533a . . 1.000 5.595E-7

34

Excluded Variablesb

Model Beta In t Sig.

Partial

Correlation

Collinearity

Statistics

Tolerance

1 INTEREST INCOME 4.316a . . 1.000 6.171E-7

INTEREST EXPENSE .a . . . .000

TOTAL INCOME 4.533a . . 1.000 5.595E-7

a. Predictors in the Model: (Constant), TOTAL EXPENSE, OTHER INCOME, OTHER ESPENSE

b. Dependent Variable: NET PROFIT

The above regression leads to following results:

Interest income, interest expense, total income was excluded by SPSS and are not considered

significant enough.

III. Standard error of estimate:

The value of SE is 1197.05 and mean of y is 543430.8

On comparing standard error of estimate with mean of y we see that is

standard error of estimate is small enough and thus we conclude that the fit is

good enough for forecasting.

IV. Significance check at 95% confidence level

Following p values are obtained:

Other income : .038 < .05

Other expense : .008 < .05

Total expense : .040< .05

As the p values obtained for above variables are less that .05 therefore we conclude

that we have enough evidence to reject H0 and thus there is existence of linear

relationship

V. R2

(Coefficient of determination)

35

It tells about the strength of the relationship and is used to estimate the goodness of fit

of the estimated regression model.

R2

for this model is 100% which means that 100% of the variability in total business

of the banks is explained by no. of employees, advances and investments . Such a

high level of R2 shows that estimated regression model is a good fit.

VI. F test

It tells about the validity of the model.

The p-value for the f test is .004

.004 < .05

Thus we infer that we do have sufficient evidence to prove that the estimated

regression model is valid.

36

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS

5.1 Summary of Findings

The overall objective of the study is to evaluate the efficiency and profitability

of the 20 nationalised banks in India. The data collected is subdued into suitable

tabulator form for analysis. Quantitative techniques like mean, co-efficient

variation and compound growth rate are applied. Having identified the factors

which are likely to influence the efficiency and profitability, the significance of

the factors so identified have been statistically tested. In order to maintain

sequence and continuity conclusion are presented in chronological order.

a. Business performance: Right from the second phase of economic

liberalisation the Public Sector Banks in India aimed at reduction of

manpower and improving their operation feasibility. The Branch expansion

growth was considered significant. Deposit mobilization, granting advances

and business expansion of PSBs are gathered momentum with a view to

compete with global players. The difference between growth rate of deposit

mobilization and advance granted is more. It has been concluded that

deposits and number of employees did not directly influenced the business

performance.

b. Efficiency: With the presence of international banks in India, nationalised

banks are in verge to improve their standards. Adoption of technological

innovations resulted fostering of the efficiency of employees and branch

performances. Even though efficiency of banks improved over the period

of study, Indian PSBs are far behind to the performance of global banks. The

coefficient of variation of all the factors is high and there is no linear

relationship present among these variables.

37

c. Profit Earning Capacity: RBI as an apex body which controls and

fixes interest rate. Interest income of all Nationalised banks constantly

increased throughout the period due to increase in granting loans and

advances. Similarly the interest expenses too. Non-interest income was

highly volatile, but the operating expenses steadily increased throughout the

period. In general the proportionate growth rate of total income (17.84 %) was

almost equal to the growth rate of total expenditure (17.96%), which is not a

very good sign as the growth rate of total income should be higher. It been

concluded that net profit earning of the nationalised banks was directly

influenced by operational factors and except in the case of other income and

operating expenses.

5.2 Suggestions

In view of the foregoing issues, it may be meaningful to suggest the

following strategies for the nationalized banks for enhancing operational efficiency

and profitability.

a. Business expansion through setup branches paves way bringing out large

geographical area customer coverage by the banks. Thereby exploring the

unexplored segment of clients is possible

b. Even though efficiency of banks improved over the period of study, Indian banks

are far behind to the performance of global banks. Banks have to take steps to

improve the efficiency by adopting new technologies

c. Added thrust is required for enhancing the non-interest income. This can

significantly improve profitability. Non-interest income can be improved through

undertaking more of fee based activities, besides the traditional fund based

activities like providing credit. In this regard, it may be pointed out that higher

investments in technology would help to improve the non-interest income of

banks.

38

5.3 Conclusion

Banking industry in India was all poised for a major leap in year 2004. Banking

sector witnessed some major positive changes. Going by the performance for the

year 2008-09, Indian nationalised banks have not just survived the crisis but

appear to have emerged even stronger from the recession and even gone ahead and

posted reasonable profits. The profitability of the nationalized banks is expected to

remain under pressure due to increased cost of borrowing, declining interest

spreads, and lower fee income due to slowdown in retail lending. Profit levels

are also likely to be impacted by mark-to-mark provisions on investment

portfolios and considerably lower profit on sale of investments, as compared with

previous years. Moreover the efficiency factors such as business, deposit and

advances per employee improved over the period of study from 2007to 2012.

39

REFRENCE

Bhattacharyya. (1997). ―The Impact of Liberalisation on the Productive

Efficiency of Indian Commercial Banks‖, European Journal of Operational

Research, Vol. 98, pp. 332-345.

Das. (2005). Liberalisation, Ownership and Efficiency in Indian Banking—A

Nonparametric Analysis‖, Economic and Political Weekly, March 19.

Kalluru Siva Reddy and Bhat Sham K (2008), ―An Empirical Analysis of

Profitability Determinants in Indian Commercial Banks During Post Reform Period‖,

The Icfai University Journal of Industrial 38 Economics, Vol. V, No. 4, pp. 38-56

Nath. (2005). ―Efficiency Benchmarking of Indian Commercial Banks in the

Deregulated Financial Environment‖, in Ranjan Ghosh and Chiranjib Neogi

(Eds.), Theory and Application of Productivity and Efficiency—

Econometric and DEA Approach, Macmillan.

Ravisankar, S. a. (2000). ―Rating of Indian Commercial Banks: A DEA

Approach‖, European Journal of Operational Research, Vol. 124, No. 1, pp.

187-203.

Ray, R. a. (2004). ―Liberalisation, Ownership and Efficiency in Indian

Banking—A Nonparametric Analysis‖, Economic and Political Weekly,

March 19.

Ramachandran. A and Kavitha . N, (2009), ―Profitability of the Indian Scheduled

Commercial Banks: A Case Analysis‖, The IUP Journal of Bank Management, Vol.

VIII, No.s 3 & 4, pp. 129-139

Sarkar, K. a. (2005). ―Deregulation, Ownership, and Efficiency Change in

Indian Banking: An Application of Stochastic Frontier Analysis‖, in Ranjan

Ghosh and Chiranjib Neogi (Eds.), Theory and Application of Productivity

and Efficiency— Econometric and DEA Approach, Macmillan.

40

Sinha. (2006). ―Intermediation Cost Efficiency: A Tale of Two Bank Groups‖, The

Icfai Journal of Bank Management, February, Hyderabad

Saha A and Ravisankar T S (2000), ―Rating of Indian Commercial Banks: A DEA

Approach‖, European Journal of Operational Research, Vol. 124, No. 1, pp. 187-

203

Shobhana V K and Shanti G (2008), ―Operational Efficiency of Foreign Banks

Operating in India: A Non-Parametric Model‖, The IUP Journal of Bank

Management, Volume 7 (1), pp. 41-49

41

APPENDIX A. LIST OF THE NATIONALISED BANKS IN INDIA

1. Andhra Bank

2. Allahabad Bank

3. Bank of Baroda

4. Bank of India

5. Bank of Maharashtra

6. Canara Bank

7. Central Bank of India

8. Corporation Bank

9. Dena Bank

10. Indian Overseas Bank

11. Indian Bank

12. Oriental Bank of Commerce

13. Punjab National Bank

14. Punjab and Sind Bank

15. Syndicate Bank

16. Union Bank of India

17. United Bank of India

18. UCO Bank

19. Vijaya Bank

20. Idbi Bank

42

APPENDIX B. LIST OF ABREVIATIONS

1. BPE : BUSINESS PER EMPLOYEE

2. DPE : DEPOSIT PER EMPLOYEE

3. APE : ADVANCES PER EMPLOYEE

4. PPE : PROFIT PER EMPLOYEE

5. BPB : BUSINESS PER BRANCH

6. DPB : DEPOSIT PER BRANCH

7. APB : ADVANCES PER BRANCH

8. PPB : PROFIT PER BRANCH

9. II : INTEREST INCOME

10. OI : OTHER INCOME

11. IE : INTEREST EXPENSE

12. OE : OTHER EXPENSE

13. TI : TOTAL INCOME

14. TE : TOTAL EXPENSE

15. NP : NET PROFIT

16. C.V: COEFICIENT OF VARIATION

17. S.D: STANDARD DEVIATION

18. ANNOVA: ANALYSIS OF VARIANCE

19. CAGR: COMPUND ANNUAL GROWTH RATE