2.1 introduction 2.2 review of literature...
TRANSCRIPT
2.1 INTRODUCTION
2.2 REVIEW OF LITERATURE
REFERENCES
40
22..11 IINNTTRROODDUUCCTTIIOONN
A review of literature is not a summary or an abstract of articles. It is an
analysis and synthesis of the source materials, written in a specific style,
which flows from broad to narrow, and takes into account both the
theoretical and empirical issues. A thoughtful and insightful discussion of
related literature builds a logical framework for the research and locates it
within a tradition of inquiry and a context of related studies.
The literature review serves four broad functions. First, it demonstrates
the underlying assumptions behind the general research questions. If
possible, if should display the research paradigm that undergrids the
study and describe the assumptions and values the researcher brings to
the research enterprise. Second, it demonstrated that the researcher is
knowledgeable about related research and the scholarly traditions that
surround and support the study. Third, it shows that the researcher has
identified some gaps in previous research and that the proposed study
will fill a demonstrated need. Finally, the review refined and redefined the
research questions by embedding them in larger traditions of inquiry.
Thus the literature review is described as a conversation between the
researcher and the related literature based on past studies.
Reviewing the literature is worth the effort: it will give you a fascinating,
in-depth insight into the research topic and, even better, a great literature
review will vastly improve the chances of getting a great mark.
Literature reviews are written to...
To sharpen and deepen the theoretical framework of the research.
To familiarize the researcher with the latest developments in the area of
research.
Identify gaps in current knowledge and as well as weaknesses in
previous studies.
41
To study the definitions used in previous works as well as the
characteristics of the populations investigated, with the aim of
adopting for the new research.
Show that researcher have a good knowledge of the research area, and
is aware of key themes, topics and debates.
Identify and discover connections and contradictions between different
research results by comparing various investigations.
Identify ideas and resources that can be used in the research.
To study advantages and disadvantages of the research methods used
by others, in order to adopt or improve on them in one‟s own research.
Identify the areas for future research.
Show that the researcher can make judgements and think critically
about published research.
To produce a rationale or justification for one‟s own study.
Experts and researchers all over the world studied the changes taking
place in various countries, economies, etc. Legal reforms, economic
reforms, technological changes, etc. were experienced in recent decades.
After nationalization, the operating environment in banking industry is
getting more and more complex. Emphasis on mass banking, priority
sector lending, etc. has brought in great pressures on profitability. The
position has been further compounded by loan melas and loan waivers
based primarily on political considerations. Under such circumstances, it
becomes necessary to keep a continuous watch on the profitability of this
vital sector of economy.
Profit is the main reason for the continued existence of every commercial
organization and profitability depicts the relationship of the absolute
amount of profit with various other factors.
Profitability of banking industry rests on two major segments, viz., Income
and Expenditure.
42
22..22 RREEVVIIEEWW OOFF LLIITTEERRAATTUURREE
In the past, some attempts have already been made at individual as well
as at the official level and various aspects of commercial banking
profitability and productivity have been conducted and are being
reviewed hereunder:
Study No. 1
Title of the Research Study
“A Study of Profitability and Efficiency of Private Sector Banks”
Author of the Study
Swaty K. Thumar
Submission Details
M. Phil. Dissertation, Saurashtra University, March - 2009, pp.50-58 +
129-132.
Objectives of the Study
The following were the main objectives of the study:
1. To study the profitability of private sector banks.
2. To study the efficiency of private sector banks.
3. To examine the profitability and efficiency of private sector banks.
4. To study the trend of profitability of private sector banks.
5. To suggest ways and means to improve profitability and efficiency
without addition of financial sources.
6. To make suggestions for improving profitability and efficiency.
Data Collection of the Study
The study was based on secondary data and the data required was
collected annual reports of the selected banks, Indian Bank Association
Bulletin, RBI publication, journals, newspapers and websites.
Period of the Study
The study covered a period of five years from 2003-2004 to 2007-2008.
43
Sample of the Study
The researcher has selected five new private sector banks under the
study: ICICI Bank Ltd., HDFC Bank Ltd., Axis Bank Ltd., Kotak
Mahindra Bank Ltd., and IndusInd Bank Ltd.
Chapter Plan of the Study
The chapter plan of the study is mentioned hereunder:
1. Overview of Banking Industry in India.
2. Research Methodology.
3. Analysis of Profitability and Efficiency of Private Sector Banks.
4. Summary, Findings and Suggestions.
Tools and Techniques used for Analysis
1. Ratio Analysis.
2. Analysis of Variance (ANOVA).
3. Du-Pont Chart.
Findings of the Study
The findings of the study are shown below:
1. It was found that there was no significant difference between Net
Profit to Total Assets of the banks under study.
2. The study after analyzing the Profit after Tax to Average Total
Assets ratio found that the banking efficiency in utilization of assets
was generating revenue.
3. Analysis of Profits before Tax Net of prior period and extra ordinary
to Total Income Net of prior period and extra ordinary of the banks
under study showed fluctuating trend and reflected a significant
difference when hypothetically tested.
4. Further it was found that there was no significant difference
between Profits after Tax to Average Net Worth of the banks.
5. Total Income to Average Total Assets ratio indicated mix trend
during the study period and there was significant difference when
hypothetically tested.
44
6. The ratio of Interest Income to Working Funds showed mixed trend
and it was maximum at 8.58% in 2007-08 and minimum at 7.31% in
2004-05.
7. The Operating Profit to Working Funds ratio indicated no
significant difference when tested hypothetically.
8. It was found that there was a significant difference between Gross
NPA to Gross Advances when hypothetically tested.
9. Net NPA to Net Advances ratio indicated efficiency of banks under
study rejecting the null hypothesis.
Suggestions of the Study
The following are the suggestions summarised by the study:
1. IndusInd Bank should take steps to improve profit for higher
profitability as it was having low ratio of Profits before Tax Net of
prior period and extra ordinary to Total Income Net of prior period
and extra ordinary and Operating Profit to Working Funds.
2. All banks should provide services like issue of draft, issue of
guarantees, phone banking to increase fund based income.
3. Higher operating cost is a major obstacle affecting the profitability
of private sector banks. Financial viability of private sector banks
can be enhanced by keeping a control on operating cost through
higher labour productivity, updated technology, low cost funds and
restricting branches.
4. Assets quality reflects the soundness of financial institutions.
Private sector banks should disburse their funds in quality assets to
reduce NPA level and banks should pay adequate attention to
quality of lending.
Review of Study
The research work was an attempt to study and analyse the
profitability and efficiency measurement of private sector banks. In this
study five new private sector banks were selected for a period of five
years from 2004 to 2008. The study revealed that private sector banks
45
are lagging on the major thrust areas such as asset qualities, business
per employees‟, capital adequacy requirements and profitability. The
study made suggestions to implement restructuring plan, reduce
unnecessary expenses and provide quality products and services at
reasonable prices.
Study No. 2
Title of the Research Study
“Financial Appraisal of Banking Industry – A comparative Insight of
ICICI Bank and State Bank of India”
Author of the Study
Dr. Sandip Goel
Publication Details
Management Accounting and Business Finance, Volume 1, No.1,
January - 2009, pp.11-23.
Objectives of the Study
The study specifically aims at the following:
1. To appraise the profitability of the units in detail.
2. To analyse the liquidity trend.
3. To appraise the operating efficiency.
4. To have an in-depth view of the financial soundness.
5. To find out the value creation.
6. To find out the shortcomings, if any and suggest required remedial
measures thereof.
Data Collection of the Study
The study was based on secondary data and the data required was
collected annual reports of the selected banks, reference books,
journals, and websites.
Period of the Study
The study covered a period from 2006-2007 to 2007-2008.
46
Sample of the Study
The researcher has selected two banks - ICICI Bank Ltd. and State Bank
of India for the study.
Tools and Techniques used for Analysis
1. Trend Analysis.
2. Ratio Analysis.
Findings of the Study
Though both ICICI bank and SBI have been performing well, but one
aspect where ICICI bank lagged in its performance as compared to its
peers in the industry was the ability to raise funds at a lower cost and
even though the interest income earned as a percentage of the total
income was the same as the industry however the interest expended
was 12% points higher and thus the net profit as percentage to total
income it was little less than its industry peers. Net profit margin has
taken a dip for ICICI bank during the said period because of higher
cost of funds along with higher growth in interest earned than that in
net profit. SBI, on the other hand, showed a 48.17% growth in its net
profit compared to 31.4% growth in interest earned.
Regarding current account and saving account (CASA), there has been
an increase in the CASA ratio of ICICI bank because during the past
year there was an increased focus on the Retail Banking model. SBI
Retail Banking has been its core focus and thus it has always
maintained such a high CASA ratio. On cash front, an interesting point
to be noted in the banking industry was that though most of the banks
have high profits many banks have a negative cash inflow due to
operating activities. The major reason being that when advances are
more than the deposits the banks would generally have a negative cash
flow from operating activities. Thus a positive cash flow from
operating activities generally indicated declining credit/deposit ratio.
47
Suggestions of the Study
The study made the following suggestions:
1. The regulatory systems of Indian banks should be more
strengthened to ensure stability, soundness and efficiency of the
financial sector.
2. There should be a „Lessening Quality of the Loan Portfolio‟.
Although there was a general deterioration in the quality of the loan
portfolio of the banks, the extent of the deterioration varied
substantially among individual banks. Overall, these indicators call
for an eye to watch.
3. There should be an adequate level of short-term and long-term
financing for the development of financial structure and policies to
encourage financial sector.
4. The mobilization of financial savings should be in a way which is
consistent with the stability of the financial system. Stability here
refers to the ability of the financial system to withstand
disturbances, including those that may arise internally.
5. Reporting and accounting standards and practices should be more
streamlined, particularly in private sector banks. An improvement
of accounting and disclosure practice would enhance transparency
in financial markets.
Review of Study
The study analysed the financial strength of the banking sector on a
comparative basis of ICICI bank and State Bank of India for a period of
2007 and 2008. The outcome of the study was that both ICICI and SBI
performed well, but ICICI bank lagged in its performance to its peer
SBI in the ability to raise funds at a lower cost. The study made
suggestions to strengthened regulatory systems of Indian banks, lessen
quality of the loan portfolio, adequate level of short-term and long-
term financing, financial savings to be mobilized consistently and
reporting, accounting standards and practices should be streamlined.
48
Study No. 3
Title of the Research Study
“Diversification in Banking Sector in India Determinants of Financial
Performance”
Author of the Study
Sangeeta Arora and Shubpreet Kaur
Publication Details
Indian Journal of Commerce, Volume – 61, No. 3, July-September, 2008,
pp.13-21.
Objectives of the Study
The following were the main objectives of the study:
1. To study the determinants of diversification in banking sector.
2. To analyse the financial performance of diversified banks.
Data Collection of the Study
The main data source for the study came from the published
documents of IBA, databse of prowess and the reports on trend and
progress of banking in India.
Period of the Study
The study covered a span period of six years from 2000 to 2005.
Sample of the Study
The samples encompassed under the study are the nationalised banks,
State Bank of India group, new generation private sector banks and
foreign banks in India.
Tools and Techniques used for Analysis
1. Ratio Analysis.
2. Pearson Correlation.
Findings, Suggestions and Conclusion of the Study
The study analysed the financial performance of diversified banks over
the study period and studied various internal and external factors like
49
economies of scale and scope, competition, risk reduction, etc. which
always are forcing banks to diversify. Over the study period the non-
interest income showed an increased correlation with net interest
income over the last decade. A continuous decline in interest margin
after 2001 indicated that a low level of interest margin pushed the
banks to generate income from alternative sources of revenues other
than interest income.
As far as dependence is concerned, public sector banks in India still
rely heavily on interest income while foreign and private banks are
focusing on generating income from nontraditional source of income
which require low or minimum capital base such as income from fee
based services, foreign exchange transaction, security trading, etc. No
doubt, interest income is a major source of income in the operations of
Indian banks. However, the phenomenon of non interest income is
acquiring added significance in a deregulated and dynamic market.
Banks will have to concentrate more on providing better, faster and
more efficient customer service to permit banks to charge higher rates
for better and faster service. As retail income continues to grow, there
is immense opportunity for banks to raise fee-based income.
Review of Study
This research study was an attempt made to study the determinants of
diversification of banks in India and to analyse the financial performance
of banks over the period of 2000 to 2005. The study covered nationalized
banks, SBI and associates, new private sector banks and foreign banks.
Profitability ratios were found out to examine the financial performance of
banks. It was found out that though the interest income is still a major
source of income in the operations of banks in India, but the phenomenon
of non-interest income is acquiring added significance in the wake of
declined interest margins and increased disintermediation in commercial
banking. The study suggested that banks should concentrate more on
50
providing better, faster and more efficient customer service to permit
banks to charge higher rates for better and faster service.
Study No. 4
Title of the Research Study
“A Study of Profitability Performance of Public Sector Banks in India”
Author of the Study
Dr. M. Selvakumar and P. G. Kathiravan
Publication Details
Indian Journal of Finance, Volume – III, No. 9, September, 2009,
pp.3-13.
Objectives of the Study
The following were the objectives of the study:
1. To study the income and expenditure pattern of Public Sector
Commercial Banks (PSCBs) in India.
2. To analyse the profitability performance of PSCBs in India.
3. To analyse the Non-Performing Assets of PSCBs in India.
4. To compare the growth of income, expenditure and profit of PSCBs
with Scheduled Commercial Banks (SCBs) in India.
5. To offer suitable suggestions based on the findings of the study.
Data Collection of the Study
The study based on secondary data was collected from RBI annual
reports, journals, reports on trend and progress of Banking in India,
government publications, books and websites.
Period of the Study
The study covered a period of ten years from 1996-1997 to 2005-2006.
Sample of the Study
All public sector commercial banks (PSCBs) comprising of State Bank
of India, its seven subsidiaries and nineteen other nationalised banks.
51
Tools and Techniques used for Analysis
1. Growth Rate.
2. Compound Growth Rate.
3. Co-efficient of Correlation.
4. Ratio Analysis.
5. Median Test.
6. Mann – Whitney „U‟ Test (MWU – Test)
Findings of the Study
The findings of the study are summarized below:
1. Interest income showed a fluctuating trend. The growth rate of
interest income of PSCBs in India was varying between 2.20% and
33.85%. The compound growth rate of interest income of PSCBs was
12.95%.
2. The growth of total income of PSCBs in India was varying between
7.10% and 28.79%. The compound growth rate of total income of
PSCBs in India was 13.95%.
3. The growth rate of total expenditure of PSCBs in India was varying
between 4.19% and 30.72%. The compound growth rate of total
expenditure of PSCBs in India was 13.01%.
4. The growth rate of net profit of PSCBs fluctuated during the period
under study. The highest growth rate 59.48% was registered in 1998.
The compound growth rate of net profit was 11.04% for the study
period.
5. The ratio of net profit to total assets varied between 0.34% and
1.12% during the study period.
6. The difference between the interest received and the interest paid is
spread. The interest spread showed an increasing trend in all the
years of the study period. The growth rate of spread was 7.69% in
1998 and 14.47% in 2006.
7. There was a high positive correlation between the profitability and
interest earned; profitability and interest paid; profitability and
52
operating expenses; and profitability and other income of PSCBs in
India.
8. According to the Median Test, there was no significant difference
between the profitability of PSCBs in India and SCBs in India.
9. There was no significant difference between the growth rates, total
income, total expenditure and net profit of PSCBs in India and SCBs
in India.
Suggestions of the Study
The following were the suggestions offered by the study:
1. Prompt measures should be taken to collect the overdues from the
borrowers that will help the banks to earn profit in future.
2. For improving operational efficiency, new technology should be
introduced. Computerization and automation will help in reducing
unproductive and costly operations.
3. The banks should take necessary steps to increase the non-interest
income, which only constitutes less than 20% of the total income, by
way of collection of cheque and bills, giving guarantees, locker
facilities, acting as agent providing merchant banking services etc.
4. The banks should conduct awareness programmes among the rural
poor about the repayment of loans and saving habits.
5. With regards to deposits, the current deposits carry zero rate of
interest. Therefore, the banks have to concentrate on mobilizing
current deposits.
6. To maintain a steady growth rate of deposits, it is recommended
that the banks should come forward to offer some subsidiary
services like marketing assistance, technological assistance,
insurance facilities, export facilities and so on.
7. The banks should take efforts to reduce the operating expenses by
means of improving the efficiency of the non-viable branches by
utilizing some expert services like professional management,
private management and the like.
53
8. New attractive and innovative schemes should be introduced
according to the requirements of difference types of clients.
9. PSCBs should prepare a model scheme for granting loans. This
scheme should include each and every aspect, which the bank is
normally expected to look into while processing loan applications.
Review of Study
The study concentrated on analyzing the profitability of public sector
commercial banks in India for a period from 1997 to 2006. The positive
correlation between profitability and interest earned, interest paid,
operating expenses and other income was the major outcome of the
study. The study offered suggestions to collect overdues from the
borrowers, to introduce new technology, to conduct awareness
programmes among the rural poor the repay the loans, to concentrate
on mobilizing current deposits, to take efforts to reduce the operating
expenses and to introduce attractive and innovative schemes for the
requirements of different clients.
Study No. 5
Title of the Research Study
“Profitability Performance of New Private Sector Banks – An Empirical
Study”
Author of the Study
Dr. N. Bharathi
Publication Details
Indian Journal of Finance, Volume – IV, No. 3, March, 2010, pp.16-24.
Objectives of the Study
The following were the specific objectives of the study:
1. To assess the nature of profitability of the new private sector banks.
2. To analyse the consistency of the profitability of the new private
sector banks.
54
3. To offer suggestions for the improvement of efficiency of the new
private sector banks.
Data Collection of the Study
The data were collected from the official directory and the database of
Centre for Monitoring Indian Economy (CMIE) namely PROWESS. The
published annual reports of the selected banks taken from their
websites, magazines and journals on finance have also been used as
sources of data.
Period of the Study
The study covered a period of ten years from 1998 to 2007.
Sample of the Study
The universe as a whole of new private sector banks consisting of nine
banks was selected as a sample size of the study namely, Bank of
Punjab (BOP), Centurion Bank, Development Credit Bank (DCB),
Housing Development Financial Corporation (HDFC), Industrial
Credit Investment Corporation of India (ICICI), IndusInd Bank, Kotak
Mahindra Bank (KMB), AXIS Bank and Yes Bank.
Tools and Techniques used for Analysis
1. Mean.
2. Standard Deviation.
3. Co-efficient of Variation.
4. Correlation.
5. Multiple Regression.
Suggestions of the Study
The following suggestions were covered under the study:
1. The interest income and interest expenses in relation to working
fund were more than average in case of limited number of banks, so
the new private sector banks may concentrate their attention on
improving their interest income.
55
2. The operating expenses of majority banks were more than average.
So the banks may take steps to reduce these expenses by increasing
the activities or otherwise.
Review of Study
The study was conducted to know whether the selected new private
sector banks are adept in retaining market shares and profit margins
amidst their reliability and overall performance for a period from 1998
to 2007. The outcome of the study was that overall banks performed
well but operating expenses of majority of the banks was more than
average. The banks were suggested that they should concentrate on
improving interest income and reducing operating expenses.
Study No. 6
Title of the Research Study
“Indian Banking: Emerging Issues and Enhancing Competitive
Efficiency”
Author of the Study
R. K. Uppal
Publication Details
The IUP Journal of Business Strategy, Volume – VII, No. 1 & 2,
March-June, 2010, pp.71-82.
Objectives of the Study
The study was aimed to achieve the following objectives:
1. To compare the performance of public, private and foreign sector
banks.
2. To suggest measures to enhance comparative competitive efficiency
in public sector banks.
Data Collection of the Study
Data required for the study was obtained from Performance
Highlights, various issues, IBA Publications.
56
Period of the Study
The study period was from 1997 to 2008.
Sample of the Study
The three banks were selected – one each from the respective bank
groups, as listed hereunder:
1. State Bank of India from public sector banks (PSBs)
2. ICICI Bank from new private sector banks
3. Standard Chartered Bank from foreign banks
Tools and Techniques used for Analysis
1. Ratio Analysis.
2. Mean.
3. Standard Deviation.
4. Co-efficient of Variation.
Suggestions of the Study
The new private sector banks and foreign banks were found to be more
efficient. These banks were having more productivity than public
sector banks. The profitability of State Bank of India was the least. To
improve the efficiency and profitability of public sector banks, the
study suggested the following measures:
1. Public sector banks should design efficient plans to earn more
income from different sources.
2. They should adopt more and more new technologies and
innovations to increase their efficiency and productivity.
3. Services and products should be provided to the customers
according to their needs and expectations.
4. In competitive environment, information technology plays an
important role in every industry. Banks also should be fully
computerized and should be in a position to provide services to
their customers through the Internet and other e-channels.
5. Training should be imparted to the existing employees and
wherever possible appoint new trained staff.
57
6. Updated information regarding the services offered should be
provided to their employees.
7. Banks should create and foster relationships with their customers.
8. Banks should pay some attention to non-interest income and
provide services such as ATM facility, locker facility and credit
cards.
9. Banks should introduce new schemes and allow concessions to their
customers on loans and on their bank accounts.
10. PSBs should launch unique deposit schemes.
11. PSBs should concentrate on increasing their business.
12. PSBs should increase their earnings through new resources.
13. PSBs should increase their profitability by using e-channels.
14. PSBs should concentrate on their efficiency.
15. PSBs should focus on improving their productivity.
Conclusion of the Study
The study revealed that comparative efficiency of new private sector
and foreign banks was much better as compared to PSBs. In some
aspects, the new private sector banks performed better than the foreign
banks. Productivity of foreign banks was the highest, although they
have the highest costs, whereas the new private sector banks followed
these banks with excellent growth and recorded the highest
profitability with lower operating costs and the maximum provisions
for contingencies.
Although PSBs have the lowest levels of costs, there was greater
decrease in their interest income and expenditure mainly due to
deregulation that created competition in the market and these banks
have to change the interest rates to sustain in the market. The decline in
interest income and expenditure further resulted in decrease in their
spread and brought down their profitability as compared to the new
private sector banks and foreign banks.
58
To gain a sound position and compete in the global market, the PSBs
have to change their ways of working and dealing with customers and
hence need to adopt competitive strategies along with the latest
technology and change their mindset.
Review of Study
The study focused on the comparative performance of selected banks
namely SBI from public sector banks, ICICI bank from new private
sector banks and Standard Chartered bank from foreign banks
covering a period from 1997-98 to 2007-08. The study concluded that
profitability and productivity were much higher in case of new private
sector banks and foreign banks as compared to public sector banks. The
study suggested public sector banks to change their ways of working
and dealing with customers, to adopt competitive strategies alongwith
the latest technology and change their mindset to make them much
competitive as the new private sector banks and foreign banks.
Study No. 7
Title of the Research Study
“Earning Quality of Scheduled Commercial Banks in India: Bank-wise
and Sector-wise Analysis”
Author of the Study
B. S. Bodla and Richa Verma
Publication Details
Prajnan, Journal of Social and Management Sciences, Volume –
XXXVII, No. 4, January-March, 2009, pp.257-281.
Objectives of the Study
The objective of the study was to focus on Earning Quality of CAMEL
Model of rating banking institutions so as to catch the comparative
performance of various banks in terms of their Earning quality.
59
Data Collection of the Study
The data was collected from the website of RBI and prowess database
of CMIE required for the study.
Period of the Study
The period under study was taken from 1991-92 to 2005-06, i.e. of
fifteen years. The study period was further divided into three sub-
periods: 1992-1995, 1996-2000 and 2001-2006.
Sample of the Study
The sample selected was scheduled commercial banks of India.
Tools and Techniques used for Analysis
1. CAMEL Model – basically Ratio-Based model.
2. Mean or Average.
3. t - Test.
Findings, Suggestions and Conclusion of the Study
1. In regard to operating profits to average working funds, the analysis
brought out that, operating earnings of all scheduled commercial
banks has improved after liberalization because of increase in fee-
based income and curtailment of operating expenses on the part of
the banks. The difference in mean size of operating earning is found
significant in the period 1996-00 and 2001-06 in public sector banks
only. The average operating profits to average working funds was
worked out 3.07% in foreign banks, 2.32% in priavte banks and
2.22% in public sector banks.
2. Spread, an important measure of a bank‟s core income, indicated
declining trend in case of public sector banks, private sector banks
and foreign banks during the study period. The sector-wise analysis
indicated that the position of foreign banks was better in
comparison to both, public sector and private sector banks insofar
as the average spread to total assets ratio is concerned. It was found
3.69%, 2.82% and 2.73% in case of foreign, public sector and private
60
sector banks respectively during 1992-2006. The lower cost of
deposits was the major contributor of higher spreads in foreign
banks. The analysis revealed that the State Bank Group has
performed better than the other nationalised banks. The increase in
spread was sharper in foreign banks and private banks in
comparison with public sector banks. The spread was continuously
rising but the change in spread was marginal after 2001-02. The
spread of the banks was under pressure mainly due to declining
interest rate scenario upto 2004-05. However, the spread in India
was observed well above the international standards.
3. The net profit to average assets ratio was appreciated in public
sector banks but declined in private sector banks and foreign banks
in second and third sub-period. The profitability of public sector
banks went up considerable during last six years. In contrast, the
number of loss making banks has increased sharply in case of
private sector and foreign banks. The average of net profit to
average assets ratio for the period 1992-2006, was found 0.49%,
-6.17% and -9.59% in case of public sector, private sector and foreign
banks respectively. Hence, the public sector banks were performing
better than the private as well as foreign banks in terms of return on
assets. The net profits of the banks continuously rose due to
continuous rise in trading income since 2001-02, but a decline in
trading income was observed in 2005-06. According to the net profit
to average assets ratio, Kotak Mahindra Bank was at the top with
the mean of 5.10%.
4. The interest income to total income ratio indicated the ability of a
bank in generating income from its lending operations which
declined significantly in each sector for the period of study. Inter-
sector comparison indicated that this ratio was the highest in case of
public sector banks (86.24%) followed by private sector (83.75%) and
foreign banks (78.15%). Also, the proportion of interest income in
61
case of domestic private banks was higher than that of foreign
banks. The interest income from last few years under study rose due
to increase in volume of credits. Non-interest income to total income
ratio, which measures the income from operations other than
lending increased in each sector during each sub-period. The overall
average of this ratio during 1992-2006, in foreign banks was far
ahead to both private and public sector banks during 1992-2006.
Review of Study
The study focused on earning quality of Indian banks as per CAMEL
Model to catch up the comparative performance of all selected
scheduled commercial banks for a period from 1991-92 to 2005-06. The
study concluded that the banks operating in India have shown
appreciable improvement in their fee-based income. Except net profit
to average assets ratio, the banks that ranked on the top on the basis of
their earning quality are of the foreign origin. At the end the study
suggested that profitability of scheduled commercial banks should
continuously grow by increasing fee-based income and curtailment of
operating expense.
Study No. 8
Title of the Research Study
“Management of Profitability in Commercial Banking Sectors in India
in Post-Liberalisation Period”
Author of the Study
Sukhdev Singh
Internet Access Details
http://www.docstoc.com/docs/70849451/Financial-Analysis-of-
Banks-in-India.
62
Objectives of the Study
The objective of the paper was to study the significance of variations in
performance of profitability among different sectors and segments of
banking industry in India.
Data Collection of the Study
The study was based on the secondary data collected and compiled
from various sources namely, IBA Bulletins, Bank Quest (A quarterly
journal of Indian Institute of Bankers), Credit Information Review (A
monthly report from RBI), Business Dailies (The Economic Times, The
Financial Express and The Business Lines etc.,) and website of the RBI.
Period of the Study
The study period was pertaining from the year 1993-94 to 2003-04.
Sample of the Study
The study undertook all public sector banks, private sector banks and
foreign banks operating in India.
Tools and Techniques used for Analysis
1. Ratio Analysis.
2. Compound Growth Rate.
3. Arithmetic Mean.
4. Standard Deviation.
5. Coefficient of Variation.
6. Coefficient of Determination.
Findings, Suggestions and Conclusion of the Study
1. The nationalised banks, State Bank group and old private sector
banks were not earning a satisfactory rate of return on assets. The
mean return on assets below the benchmark of more than 1%
suggested scope for improvement either by improving profits or
reducing the size of assets or both or by outsourcing operations.
2. As regards to return on own funds, the most consistent return on
won funds was earned by foreign banks followed by State Bank
63
group. The maximum growth rate of 51.95% was recorded by
nationalized banks and all other sectors and segments were having
negative growth rate. Even the growth rate of nationalized banks
was insignificant as computed t –value was less than table value.
3. The decline in rate of return on own funds among the sectors and
segments of private sector and foreign banks calls for emergent
attention of the managements. The declined rate of return on own
funds among old private sector banks, new private sector banks and
foreign banks signaled out that these banks should reduce the
deployment of own funds by introducing degree of leverage.
4. The new private banks and foreign banks should give their due
attention to return on own funds as the level was far below the
target of benchmark i.e. more than 18%. Either these banks should
follow the strategies of reducing the amount of own funds or
improve disposable profits or simultaneously work on both
strategies.
Review of Study
This research study was conducted to examine the significance of
variations in performance of profitability of banking industry in India
covering all public sector banks, private sector banks and foreign banks
for a period from 1994 to 2004. The selected banks were lagging in one
or other aspects of the profitability performance, and so the banks were
suggested to improve their profits, reduce size of assets and reduce the
deployment of own funds by introducing degree of leverage.
Study No. 9
Title of the Research Study
“Profitability Performance of Public Sector Banks in India”
Author of the Study
Jyoti Saluja and Dr. Rajinder Kaur
64
Publication Details
Indian Journal of Finance, Volume 4, No. 4, April – 2010, pp.17-25.
Objectives of the Study
The study was aimed to achieve the following objectives:
1. To analyse the profitability of public sector banks in India.
2. To identify the factors responsible for good or poor profitability
performance.
Data Collection of the Study
The data for the study was taken mainly from „Statistical Tables
Relating to Banks in India‟ published by RBI.
Period of the Study
The reference period of the study of the data was taken from the year
1997-98 to 2006-07.
Sample of the Study
The study was conducted with reference to all public sector banks (SBI
and its associates and nationalized banks) of India.
Tools and Techniques used for Analysis
1. Ratio Analysis.
2. Arithmetic Mean.
3. Standard Deviation.
4. Coefficient of Variation.
Findings, Suggestions and Conclusion of the Study
The study revealed that three banks namely State Bank of Maharashtra,
Oriental Bank of Commerce and Punjab and Sind Bank achieved
excellent performance with regard to index to interest earned to total
assets ratio. A noteworthy point was that all the banks except State
Bank of Patiala, which achieved excellent performance level with
respect to the index of spread to total assets, have obtained fair
performance level in respect of the index of burden to total assets.
65
State Bank of Patiala achieved excellent performance level in five out of
total seven indexes namely, interest paid to total assets, spread to total
assets, non-interest expenditure to total assets, burden to total assets
and non-interest to total assets indices. State Bank of Bikaner and
Jaipur has achieved excellent performance level in respect of four
indexes.
As far as the index of interest paid to total assets is concerned State
Bank of Bikaner and Jaipur, State Bank of Patiala, Bank of Baroda,
Corporation Bank, Punjab National Bank and Syndicate bank obtained
the excellent performance level. As far as the index of non-interest
expenditure to total assets is concerned, State Bank of Hyderabad, State
Bank of Patiala, State Bank of Travancore, Canara Bank, Corporation
Bank, Oriental Bank of Commerce and United Bank of India achieved
excellent performance level; State Bank of India, State Bank of
Saurashtra, Bank of Baroda, Bank of India and Union Bank of India
achieved good performance level; State bank of India, Allahabad Bank,
Bank of Maharashtra, Dena Bank, Indian Bank, Punjab National Bank,
Uco Bank and Vijaya bank held fair performance level; and State Bank
of Bikaner and Jaipur, State Bank of Maharashtra, Central Bank of
India, Punjab and Sind Bank and Syndicate Bank held poor
performance level.
Banks can reduce their non interest expenditure by adopting effective
budgeting techniques and by implementing various cost reduction
programmes. Regarding the index of net profits to total assets, State
Bank of Bikaner and Jaipur, State Bank of Patiala, Allahabad Bank,
Corporation Bank, Oriental Bank of Commerce and Punjab National
Bank got excellent performance level but Dena Bank, Indian bank,
Punjab and Sind Bank and Union Bank of India got poor performance
level.
66
Review of Study
The study was conducted to analyze the profitability of selected public
sector banks in India for which analysis of the data were taken from
1997-98 to 2006-07. The study examined the factors responsible for
good or poor profitability performance of public sector banks operating
in India and suggested measures to reduce their non-interest
expenditure by adopting effective budgeting techniques and by
implementing various cost reduction programmes.
Study No. 10
Title of the Research Study
“NPA Management: A Study of New Private Sector Banks in India”
Author of the Study
Dr. Ashok Khurana and Dr. Mandeep Singh
Publication Details
Indian Journal of Finance, Volume 4, No. 9, September – 2010, pp.3-13.
Objectives of the Study
The main objectives of the study were:
1. To study the magnitude and trends of non-performing assets in the
new private sector banks.
2. To assess the health of various categories of loan assets i.e., sub-
standard assets, doubtful assets and loss assets.
3. To examine the asset quality of new private sector banks.
4. To analyse the sector wise non-performing assets of the new private
sector banks.
5. To evaluate the capital to risk weighted assets ratio of the new
private sector banks.
Data Collection of the Study
The relevant secondary data was collected from Report on Trend and
Progress of Banking in India, Economic Surveys of India, Global
67
Financial Stability Reports and websites of the selected private sector
banks operating in India.
Period of the Study
The study was conducted for the period from 2003-04 to 2007-08.
Sample of the Study
The study was confined to all new private sector banks of India, viz.,
Axis Bank Ltd., Centurion Bank of Punjab Ltd., Development Credit
Bank Ltd., HDFC Bank Ltd., ICICI Bank Ltd., IndusInd Bank Ltd.,
Kotak Mahindra Bank Ltd. and Yes Bank.
Tools and Techniques used for Analysis
1. Ratio Analysis.
2. Arithmetic Mean.
3. Standard Deviation.
4. Correlation.
5. Coefficient of Determination.
6. Regression.
7. Analysis of Variance (ANOVA).
8. Post-hoc Tukey HSD Test.
Suggestions and Conclusion of the Study
Indian banking industry is largely dominated by public sector banks
with almost two third share of total advances to the economy. Private
sector banks have shown their pressure and have successfully
expanded their business over the study period of five years in the
Indian economy.
The study conducted on the management of NPAs by new private
sector banks found that there was significant improvement in the asset
quality as reflected by decline in the diverse NPA ratios as well as asset
wise classification of NPAs of these banks. Asset quality of banks
registered a noteworthy improvement with top most reduction in the
NPAs level in non-priority sector.
68
The study observed that seven out of eight new private sector banks
have significantly reduced the Net NPAs to Net advances ratio and fall
in the category of less than 2% class. The new private sector banks have
managed to sustain a CRAR above the regulatory framework of Basel II
requirements, and were effectively capitalized to meet any credit
related stress. It was found that banks have been efficiently managing
its assets over the period of study however, rise in the NPA ratios over
last two years of study period showed that there was a scope for
further improvement in the recovery mechanism.
Review of Study
The study was confined to examine the state of non-performing assets
in the new private sector banks during the period from 2003-04 to
2007-08. The study found that though there was significant
improvement in the asset quality and registered noteworthy
improvement with top most reduction in the NPAs level in non-
priority sector; banks need further improvement in the recovery
mechanism.
Study No. 11
Title of the Research Study
“Income Analysis of Indian Commercial Banks to make informed
decision: An empirical investigation”
Author of the Study
Subroto Chowdhary and Soma Panja Chowdhary
Publication Details
Journal of Management (Bi-annual Journal of the Asian School of
Business Management, Bhuvaneshwar), Volume III, No. 1 & 2, 2010,
pp.25-46.
69
Objectives of the Study
The following specific objectives were addressed during the course of
the study:
1. To analyse the growth of interest income as a source of revenue for
the Indian banking sector.
2. To analyse the growth of non-interest as a source of revenue for the
Indian banking sector.
3. To find out the correlation between the non-interest income and the
total income of the banking sector.
4. To tank the selected banks on the criteria of interest income, non-
interest income, total income and net profit.
5. To overall rank the selected banks after taking into consideration of
all the four criteria of interest income, non-interest income, total
income and net profit.
Data Collection of the Study
For data collection Capital Line software was used.
Period of the Study
The data of ten years from 2000 to 2009 was taken into account for
empirical analysis.
Sample of the Study
The study covered twelve banks from the Nifty list, namely, Axis Bank
Ltd., Bank of Baroda, Bank of India, Canara Bank, HDFC Bank Ltd.,
IDBI Bank, ICICI Bank Ltd., Kotak Mahindra Bank Ltd., Oriental Bank
of Commerce, Punjab National Bank, State Bank of India and Union
Bank of India.
Tools and Techniques used for Analysis
1. Financial Methods – Ratio Analysis.
2. Statistical Methods - Correlation.
70
Findings of the Study
1. HDFC bank exhibited highest correlation value (0.996686) whereas
the value of 0.640764 exhibited by IDBI bank was the lowest for the
correlation between the interest income and total income.
2. HDFC bank exhibited highest correlation value (0.999841) whereas
the value of 0.892432 exhibited by IDBI bank was lowest for
correlation between non-interest income and total income.
3. It was observed that State Bank of India was the top bank amongst
the selected banks in terms of interest income and non-interest
income with an overall score of 49.35897. Kotak Mahindra Bank was
ranked last with an overall score of 42.30769.
Conclusion of the Study
The main conclusion of the study was more multifaceted. All the banks
have showed higher dependency on fee based income in order to increase
their bottom line. Whether the increase in fee based income reduces risk
was an empirical question. Diversification alone cannot help to reduce
risk, the answer to which varied from case to case. The detailed analysis of
interest income and non-interest income suggested a different picture. Size
of operation gave clear advantage to big banks to top the charts in ranking
thus motivating for formulating other techniques of measurement.
Review of Study
The research study income aspects of the significance of the banks
operating in India for a period from 2000 to 2009 and found that the
selected banks performance was more multifaceted showing higher
dependency on fee based income; and thus suggested to reduce risk by
diversifying the banking operations and formulating other techniques of
measurement.
71
REFERENCES
1. Arora, Sangeeta and Kaur, Shubpreet, “Diversification in Banking Sector in
India Determinants of Financial Performance”, Indian Journal of Commerce,
Vol.61, No. 3, July-September, 2008, pp.13-21.
2. Bharathi, N., “Profitability Performance of New Private Sector Banks – An
Empirical Study”, Indian Journal of Finance, Vol. IV, No. 3, March, 2010,
pp. 16-24.
3. Bodla, B. S. and Verma, Richa, “Earning Quality of Scheduled Commercial
Banks in India: Bank-wise and Sector-wise Analysis”, Prajnan, Journal of
Social and Management Sciences, Vol. XXXVII, No. 4, January-March,
2009, pp. 257-281.
4. Chowdhary, Subroto and Chowdhary, Soma Panja, “Income Analysis of
Indian Commercial Banks to make informed decision: An empirical
investigation”, Journal of Management (Bi-annual Journal of the Asian
School of Business Management, Bhuvaneshwar), Vol. III, No. 1 and 2,
2010, pp. 25-46.
5. Goel, Sandip, “Financial Appraisal of Banking Industry – A comparative
Insight of ICICI Bank and State Bank of India”, Management Accounting
and Business Finance, Vol. 1, No. 1, January, 2009, pp. 11-23.
6. Khurana, Ashok and Singh, Mandeep, “NPA Management: A Study of
New Private Sector Banks in India”, Indian Journal of Finance, Vol. 4,
No. 9, September, 2010, pp. 3-13.
7. Saluja, Jyoti and Kaur, Rajinder, “Profitability Performance of Public Sector
Banks in India”, Indian Journal of Finance, Vol. 4, No. 4, April, 2010,
pp. 17-25.
8. Selvakumar M. and Kathiravan, P. G., “A Study of Profitability
Performance of Public Sector Banks in India”, Indian Journal of Finance,
Vol. III, No. 3, September, 2009, pp. 3-13.
9. Singh, Sukhdev, “Management of Profitability in Commercial Banking
Sectors in India in Post-Liberalisation Period”, Internet Access Details:
http://www.docstoc.com/docs/70849451/Financial-Analysis-of-Banks-
in-India.
72
10. Thumar, Swaty K., “A Study of Profitability and Efficiency of Private Sector
Banks”, M. Phil. Dissertation, Saurashtra University, March, 2009,
pp. 50-58 + 129-132.
11. Uppal, R. K., “Indian Banking: Emerging Issues and Enhancing Competitive
Efficiency”, The IUP Journal of Business Strategy, Vol. VII, No. 1 and 2,
March-June, 2010, pp. 71-82.
12. www.info2india.com.
13. www.the-neutron.com.
14. www.bookpump.com/dps/pdf-b/9423510b.pdf.