1

A STUDY OF INDIAN BANKING SECTORPERFORMANCE ANALYSIS SINCE LIBERALIZATION

THESIS
SUBMITTED FOR THE AWARD OF THE DEGREE OF DOCTOR OF PHILOSOPHY IN MANAGEMENT
BY Ms. ADITI AHOOJA Registration No: 2K08-NITK-Ph.D.1178Hu

UNDER THE SUPERVISION OF Dr. RAJENDERA KUMAR (PROFESSOR) Dr. (Mrs.) KIRAN MOR (ASSISTANT PROFESSOR)

DEPARTMENT OF HUMANITIES AND SOCIAL SCIENCES NATIONAL INSTITUTE OF TECHNOLOGY KURUKSHETRA, HARYANA 2011

NATIONAL INSTITUTE KURUKSHETRA

OF

TECHNOLOGY,

DEEMED UNIVERSITY, KURUKSHETRA, HARYANA, INDIA

CERTIFICATE
This is to certify that the thesis entitled, A STUDY OF INDIAN BANKING SECTOR- PERFORMANCE ANALYSIS SINCE LIBERALIZATION, being submitted by Ms. Aditi Ahooja to the National Institute of Technology, Kurukshetra, Deemed University, Kurukshetra for the award of the degree of Doctor of Philosophy is a record of bonafide research work carried out by her. The matter presented in this thesis has not been submitted for the award of any other degree of this or any other institute . (Ms. Aditi Ahooja) Candidate This is to certify that the above statement made by the candidate is correct to the best of out knowledge. Dated: Dr. RAJENDERA KUMAR (PROFESSOR) Dr. (Mrs.) KIRAN MOR (ASSISTANT PROFESSOR)

Department of Humanities and Social Sciences NIT, Kurukshetra, Haryana, India

ACKNOWLEDGEMENT

deem it my proud privilege to have undertaken this investigation

under the inspiring guidance and expert supervisions of my supervisors, Dr Rajendra Kumar (Professor) and Dr. (Mrs.) Kiran Mor (Assistant Professor) Department of Humanities & Social Sciences, National Institute of Technology (NIT), Kurukshetra. They have supported me throughout my thesis with their patience and knowledge. Their ability to probe beneath text is a true gift and their insights have strengthened this study significantly. I will always be thankful for their wisdom, awareness and deep concern for me. I am warmly indebted for their valuable advice and friendly help. Their extensive discussions around my work and interesting explorations in operations have been very obliging for this study. Its been honor to work with them. I am appreciative to Mr. Virender Mor for his kind support, insights and prayers which have sustained me during these past few years.

My Husband Atins encouragement and support have upheld me, during the process of completing this project and particularly in those many days which I have spent more time with my computer than with him.

I would like to thank my family. The constant inspiration and guidance kept me focused and motivated. I am grateful to my Dad for giving me the life I ever dreamt. I cant express my gratitude for my Mom in

words, whose unconditional love has been my greatest strength. I also express my gratitude for my in-laws for their constant support. Their encouragement was significant during the term of study. The invariable love and support of my sister Preeti and brother Akhil is earnestly accredited.

Finally, my greatest regards to the Almighty for bestowing upon me the courage to face the complexities of life and complete this project successfully.

CONTENTS

Page No.

CHAPTER 1: INTRODUCTION 1.1An overall view 1.2 Objectives 1.3 Hypothesis 1.4 Research Methodology 1.5 Importance 1.6 Limitations CHAPTER 2: REVIEW OF LITERATURE CHAPTER 3: PERFORMANCE OF PRIVATE SECTOR AND PUBLIC SECTOR BANKS 3.1 Introduction 3.2 Performance of Private Sector Banks 3.3 Performance of Public Sector banks 3.4 Summary CHAPTER 4: COMPARATIVE ANALYSIS OF PRIVATE AND PUBLIC SECTOR BANKS 4.1 Introduction 4.2 Comparison on the Basis of Profitability 4.3 Comparison on the Basis of Returns or Turnover 4.4 Comparison on the Basis of Asset turnover Ratio 4.5 Comparison on the Basis of Liquidity 4.6 Comparison on the Basis of Capital Adequacy 4.7 Summary CHAPTER 5: CONCLUSION & SUGGESTIONS 5.1 Introduction 5.2 Findings 5.3 Suggestions

BIBLIOGRAPHY

LIST OF TABLES

Serial No. Table-3.1 Table-3.2 Table-3.3

Table Multiple Regression Analysis of Axis Bank, Multiple Regression Analysis of Bank of Rajasthan Multiple Regression Analysis of Bharat Overseas Bank Ltd Multiple Regression Analysis of Dhanalakshmi Bank Ltd., Multiple Regression Analysis of HDFC Bank Ltd Multiple Regression Analysis of ICICI Bank Ltd Multiple Regression Analysis of Kotak Mahindra Bank Multiple Regression Analysis of Jammu & Kashmir Multiple Regression Analysis of South Indian Bank Ltd Multiple Regression Analysis of Yes Bank Multiple Regression Analysis of Bank of Baroda Multiple Regression Analysis of Bank of India Multiple Regression Analysis of Bank of Maharashtra Multiple Regression Analysis of Central bank of India Multiple Regression Analysis of UCO Bank Multiple Regression Analysis of United Bank of India Multiple Regression Analysis of Vijaya Bank Multiple Regression Analysis of Punjab National Bank Multiple Regression Analysis of Punjab & Sind Bank Multiple Regression Analysis of State Bank of India

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Table-3.4 Table-3.5 Table-3.6 Table-3.7 Table-3.8 Table-3.9 Table-3.10 Table-3.11 Table-3.12 Table-3.13 Table-3.14 Table-3.15 Table-3.16 Table-3.17 Table- 3.18 Table-3.19 Table-3.20

Table-4.1-4.2 Comparison on the Basis of Profitability

Table-4.3-4.4 Comparison on the Basis of Returns or Turnover Table-4.5-4.6 Comparison on the Basis of Asset turnover Ratio Table-4.7-4.8 Comparison on the Basis of Liquidity Table-4.94.10 Comparison on the Basis of Capital Adequacy

LIST OF CHARTS

Serial no. Chart- 4.1 Chart- 4.2 Chart- 4.3 Chart- 4.4 Chart- 4.5 Chart-4.6 Chart-4.7 Chart-4.8 Chart-4.9

Charts PBDITA/Total Incomes PBDITA/Total Incomes PBDPTA/Total Income PBDPTA/Total Income PBT/Total Income PBT/Total Income PAT/Total Income PAT/Total Income (Private Sector Banks) (Public Sector Banks) (Private Sector Banks) (Public Sector Banks) (Private Sector Banks) (Public Sector Banks) (Private Sector Banks) (Public Sector Banks)

Page no.

PBDITA Net of P&E/Total Income (Private Sector Banks) PBDITA Net of P&E/Total Income (Public Sector Banks) PBDPTA Net of P&E/Total Income (Private Sector Banks)

Chart-4.10

Chart-4.11

Chart-4.12

PBDPTA Net of P&E/Total Income ( Public Sector Banks) PBT Net of P& E/Total Income (Private Sector Banks) PBT Net of P& E/Total Income ( Public Sector Banks) PAT Net of P&E/ Total Income Net of P&E ( Private Sector Banks)

Chart-4.13

Chart- 4.14

Chart-4.15

Chart-4.16

PAT Net of P&E/ Total Income Net of P&E (Public Sector Banks) PBPT Net of P&E /Average Net worth ( Private Sector Banks) PBPT Net of P&E /Average Net worth (Public Sector Banks) PAT Net of P&E/ Average Net worth ( Private Sector Banks) PAT Net of P&E/ Average Net worth (Public Sector Banks) PAT/ Average Net worth (Private Sector Banks) PAT/ Average Net worth (Public Sector Banks)

Chart-4.17

Chart-4.18

Chart-4.19

Chart-4.20

Chart-4.21 Chart-4.22

Chart-4.23

Cash Profit/ Average Net worth (Private Sector Banks)

Chart-4.24

Cash Profit/ Average Net worth (Public Sector Banks) PBPT Net of P& E/ Average Capital Employed (Private Sector Banks) PBPT Net of P& E/ Average Capital Employed (Public Sector Banks) PBPT/ Average Capital Employed (Private Sector Banks) PBPT/ Average Capital Employed (Public Sector Banks)

Chart-4.25

Chart-4.26 Chart-4.27

Chart-4.28

Chart-4.29

PAT Net of P&E/ Average Capital Employed (Private Sector Banks) PAT Net of P&E/ Average Capital Employed (Public Sector Banks) PAT/ Average Capital Employed (Private Sector Banks)

Chart-4.30

Chart-4.31

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Chart-4.32

PAT/ Average Capital Employed (Public Sector Banks) PBPT Net of P&E/ Average Total Assets (Private Sector Banks) PBPT Net of P&E/ Average Total Assets ( Public Sector Banks) PBPT/ Average Total Assets (Private Sector Banks)

Chart-4.33

Chart-4.34

Chart-4.35

Chart-4.36 Chart-4.37

PBPT/ Average Total Assets ( Public Sector Banks) PAT Net of P&E/ Average Total Assets (Private Sector Banks) PAT Net of P&E/ Average Total Assets ( Public Sector Banks) PAT/ Average Total Assets (Private Sector Banks)

Chart-4.38

Chart-4.39

Chart-4.40

PAT/ Average Total Assets (Public Sector Banks)

Chart-4.41 Chart-4.42

Quick Ratio (Private Sector Banks) Quick Ratio (Public Sector Banks)

Chart-4.43 Chart-4.44

Current Ratio (Private Sector Banks) Current Ratio (Public Sector Banks)

Chart-4.45

Debt to Equity Ratio (Private Sector Banks)

Chart-4.46

Debt to Equity Ratio (Public Sector Banks)

Chart-4.47

Total Income/ Average Total Assets (Private Sector Banks) Total Income/ Average Total Assets (Public Sector Banks)

Chart-4.48

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Chart-4.49

Total Income/ Compensation to Employees (Private Sector Banks) Total Income/ Compensation to Employees (Public Sector Banks) Capital Adequacy Ratio (Private Sector Banks) Capital Adequacy Ratio (Public Sector Banks)

Chart-4.50

Chart-4.51 Chart-4.52

Chart-4.53

Tier-I (Private Sector Banks)

Chart-4.54

Tier-I (Public Sector Banks)

Chart-4.55

Tier-II (Private Sector Banks)

Chart-4.56

Tier-II (Public Sector Banks)

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CHAPTER: 1

1.1

INTRODUCTION

The Stalwart of Indian Financial community nodded their heads sagaciously when Prime Minister Mr.Manmohan Singh said in his speech If there is one aspect in which we can confidently assert that India is ahead of China it is the robustness and soundness of banking system. Indian banks have been rated higher than Chinese banks by the international rating agency Standards & Poors. Infact economic development is a continuous process. The success of economic development depends essentially on the extent of mobilization of resources and investment and on the operational efficiency and economic discipline displayed by the various segments of the economy. Banks play a positive role in the economic development of a country as they not only accept and deploy large funds in a fiduciary capacity but also leverage such funds through credit creation. A commercial bank is a financial intermediary which accepts deposits of money from the public and lends them with a view to make profits. A post office may accept deposits but it cannot be called a bank because it does not perform the other essential function of a bank, i.e. lending money. The banking system forms the core of the financial sector of an economy. The role of commercial banks is particularly important in underdeveloped countries. Through mobilization of resources and their better allocation, commercial banks play an important role in the development process of underdeveloped countries. A commercial bank accepts deposits which are of various types like current, savings, securing and fixed deposits. It grants credit in various forms such as loans and advances, discounting of bills and investment in open market securities. It renders investment services such as underwriters and bankers for its issue of securities to the public. Further, by offering attractive saving schemes and ensuring safety of deposits, commercial banks encourages willingness to save among the people. By reaching out to people in rural areas, they help convert idle savings into effective ones. Commercial banks improve the allocation of resources by lending money to priority sectors of the economy. These banks provide a meeting ground for the savers and the

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investors. Savers may not invest either because of inadequate savings and lack of risktaking spirit. 1.1 An Overall view 1.1.1Classification of Commercial Banks in India Commercial banks in India can be classified in following ways:

SCHEDULED BANKS IN INDIA

SCHEDULED COMMERCIAL BANKS

SCHEDULED CO-OPERATIVE BANKS

Public Sector Banks

Scheduled Urban Co-operative Banks

Private Sector Banks

Scheduled State Co-operative Bank

Foreign Banks

Regional Rural Banks

a) Scheduled and Non-scheduled Banks: Scheduled bank is one which is included in the second schedule of the Reserve Bank of India Act, 1934. Certain conditions are to be satisfied to be eligible for this as, for example, a bank must be a corporation and not a partnership or a single-owner firm. Scheduled banks enjoy certain facilities like borrowings from the RBI. In return, they have to meet certain obligations of RBI like,

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maintaining a part of their cash reserves with the RBI. Non-scheduled banks are disappearing from the banking scene and hence they are not important. b) Indian and Foreign- Banks: Indian banks are those which are incorporated in India and have their head offices in India. Some big Indian banks have their branches in foreign countries. Foreign banks are incorporated in foreign countries with their head offices outside India. They are scheduled banks and generally specialize in the field of foreign exchange. c) Public Sector and Private Sector Banks: The Central Government entered the banking business with the nationalization of the Imperial Bank of India (now the State Bank of India) in 1955. In 1969, fourteen large banks were nationalized and again in 1980, six more banks were taken over by the Government. These nationalized banks are called public sector banks. The others are private sector banks. d) Regional Rural Banks: These were started in 1975 to cater to the needs of rural economy of India. They pay particular attention to the credit requirements of small farmers, artisans and agricultural workers. They operate mainly at the district level.

1.1.2 Pre-Independence History of Commercial Banks in India

The Bank of Bengal (1806), Bank of Madras (1843) and Bank of Bombay (1814) were the presidency banks which were initially confined to discounting of bills or other negotiable private securities, keeping cash accounts, receiving deposits, and issuing and circulating cash notes. There were no legally recognized commercial banks with special right within India other than the Presidency banks. With the passing of the Paper Currency Act, 1861, the right to issue currency notes by the Presidency banks was abolished and the same function was entrusted to the Government. In 1921, the three Presidency banks and their branches were merged to form the Imperial Bank of India, which acquired the role of a commercial bank, a bankers bank and a banker to the government. A banking crisis that occurred during 1913 revealed weaknesses of the banking system such as the maintenance of an undue proportion of cash and other liquid assets, the grant of large unsecured advances to the directors of banks and to the companies in which the directors were interested. The issue of failures of banks was investigated in detail by the Indian Central Banking Enquiry Committee (1929-31), the terms of reference of which included "the regulation of banking with a view to protecting the interest of the public".' The Report of the Indian Central Banking Enquiry Committee emphasized the need for enacting a special Bank Act, covering the, organization, management, audit and liquidation of banks. The authoritative recommendations of the Committee have been an important landmark in the history of banking reforms in India.

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When the Reserve Bank of India Act 1934 came into effect, an important function of the RBI was to hold the custody of the cash reserves of banks, granting them accommodation in a discretionary way and regulating their operations in accordance with the needs of the economy through instruments of credit control. With regard to the banking system of the Country, the primary role of the RBI was conceived as that of the lender-of-last-resort for the purpose of ensuring the liquidity of the short-term assets of banks. The first attempt at banking legislation in India was the passing of the Indian Companies (Amendment) Act, 1936, the new legislation, which embodied some of the recommendations of the Indian Central Banking Enquiry Committee. The special status of scheduled banks was recognized though certain provisions of the amended Act, such as building up of reserves, were made applicable only to non-scheduled banks.

1.1.3 Regulation and Supervision

During the initial phase of commercial banking developments in India, banks were regulated and governed by the East India Company's Government, the Royal Charter and the Government of India. The law relating to companies was enacted in a comprehensive form in the Companies Act, 1913, which was made applicable to banking companies as well. The decades of 1930s and 1940s had witnessed proliferation of banks, which were not regulated and supervised statutorily in a comprehensive manner. As a sequel, several banks failed. The supervisory powers conferred initially in 1940 vested with the RBI to inspect banking companies on a restricted scale in consultation with the Government of India. The purpose of these inspections was limited to satisfy the RBI regarding the eligibility for a license, opening of branches, amalgamation, and compliance of the directives issued by it. With the prior consent of banking companies concerned, the RBI undertook to inspect their books and accounts with a view to determining the real or exchangeable value of their paid-up capital and reserves for the purpose of considering their eligibility for inclusion in the Second Schedule to the Reserve Bank of India Act. Specific powers to inspect banking companies were granted to the RBI by the Banking Companies (Inspection) Ordinance, 1946. The Ordinance made the prior consent of a banking company unnecessary for its inspection and also widened the objective of the inspection. Further, in order to protect the interests of the depositors and develop the banking system on sound lines, the regulation and supervision of the banking system was entrusted to the RBI by enacting the Banking Regulation Act, 1949. The Banking

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Regulation Act has been modified continuously in response to financial developments and there have been 33 amendments to the original Act so far.

1.1.4 Post-Independence Developments in Commercial Banking

Pre-Nationalization Period:

The year 1969 was indeed a landmark in the history of commercial banking in India. In July of that year, the government nationalized 14 major commercial banks of the country. In April 1980, Government again nationalized 6 more commercial banks. In 1951, when the First Five Year Plan (1951-56) was launched, the development of rural India was accorded the highest priority. The All India Rural Credit Survey Committee recommended the creation of a State-partnered and State-sponsored banks by taking over the Imperial Bank of India and integrating with it, the former Stateowned or State-associated banks. Accordingly, an Act was passed in the Parliament in May 1955 and the State Bank of India was constituted on July 1, 1955. Later, the State Bank of India (Subsidiary Banks) Act was passed in 1959 enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries. During the pre-nationalization period, the industrial sector claimed the lion's share in bank credit. Within the industry, the large-scale sector cornered the bulk of credit and the share of small-scale industries was marginal. There were many reasons for the dominance of large industrial companies in the banking sector. Firstly, many commercial banks were under the ownership/control of big industrial houses. Secondly, through common directors (called interlocking of directorship); many commercial banks were connected with industrial and business houses, facilitating the flow of credit to large industries. Thirdly, the established industrial houses could obtain industrial licenses easily and on that basis, appropriate long- term bank credit. A disturbing feature of the pre-nationalization banking policy was the negligible share of agricultural sector in bank credit. This share hovered around 2 per cent of total commercial bank credit. The privately-owned commercial banks were neither interested nor geared to meet the risky and small credit requirements of the farmers. Similarly, the share of other non-industrial sectors in bank credit was also low. . Since the commercial banks were under the control of big industrialists, the lendable funds of the banks were sometimes used to finance socially undesirable activities like hoarding of essential commodities.

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1.1.5 Post-Nationalization Period

As already noted, leading commercial banks of the country were nationalized in 1969 with the following objectives in view. 1. To break the ownership and control of banks by a few business families. 2. To prevent concentration of wealth and economic power. 3. To mobilize savings of the masses from every nook and corner of the country. 4. To pay greater attention to the credit needs of the priority sectors like agriculture and small industries. The post-nationalization period witnessed a remarkable expansion in the banking and financial system. The biggest achievement of nationalization was the reallocation of sectoral credit in favor of agriculture, small industries and exports which formed the core of the priority sector. Nationalization of commercial banks was a mixed blessing. After nationalization there was a shift of emphasis from industry to agriculture. The country witnessed rapid expansion in bank branches, even in rural areas. Branch expansion programme led to mobilization of savings from all parts of the country. Nationalized banks were able to pay attention to the credit needs of weaker sections, artisans and selfemployed. However, bank nationalization created its own problems like excessive bureaucratization, red-tapism and disruptive tactics of trade unions of bank employees.

1.1.6 Banking Sector Reforms since 1991

Until the early 1990s, the banking sector suffered from lack of competition, low capital base, Low productivity and high intermediation cost. Commenting on the performance of the nationalized banks, the Reserve Bank of India observed, "After the nationalization of large banks in 1969 and 1980, the Government-owned banks have dominated the banking sector. The role of technology was minimal and the quality of service was not given adequate importance. Banks also did not follow proper risk management systems and the prudential standards were weak. All these resulted in poor asset quality and low profitability." The key objective of reforms in the banking sector in India has been to enhance the stability and efficiency of banks. To achieve this objective, various reform measures were initiated that could be categorized broadly into three main groups: (a) enabling measures, (b) strengthening measures and (c) institutional measures.

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Enabling measures were designed to create an environment where banks could respond optimally to market signals on the basis of commercial considerations. Salient among these included reduction in statutory pre-emptions so as to release greater funds for commercial lending, interest rate deregulation to enable price discovery, granting of operational autonomy to banks and liberalization of the entry norms for financial intermediaries. The strengthening measures aimed at reducing the vulnerability of banks in the face of fluctuations in the economic environment. These included, inter alia, capital adequacy, income recognition, asset classification and provisioning norms, exposure norms, improved levels of transparency, and disclosure standards. Institutional framework conducive to development of banks needs to be developed. Salient among these include reforms in the legal framework pertaining to banks and creation of new institutions. It was in this backdrop, that wide-ranging banking sector reforms in India were introduced as an integral part of the economic reforms initiated in the early 1990s. Reforms in the commercial banking sector had two distinct phases. The first phase of reforms implemented subsequent to the release of the Report of the Committee on Financial System (Chairman: M. Narasimham), 1992 (or Narasimham Committee) focused mainly on enabling and strengthening measures. The Committee was guided by the fundamental assumption that the resources of the banks come from the general public and held by the banks in trust. These resources have to be deployed for maximum benefit of their owners, i.e. the depositors. This assumption automatically implies that even the Government has no business to endanger the solvency, health and efficiency of the nationalized banks. According to the Committee, the poor financial shape and low efficiency of public sector banks was due to: (a) extensive degree of central direction of their operations, particularly in terms of investment, credit allocation and branch expansion and (b) excessive political interference, resulting into failure of commercial banks to operate on the basis of their commercial judgment and in the framework of internal economy. Despite opposition from trade unions and some political parties, the Government accepted all the major recommendations of the Committee some of which have already been implemented. Further, the second phase of reforms, implemented subsequent to the recommendations of the Committee on Banking Sector Reforms (Chairman: M. Narasimham), 1998 (or Narasimham Committee II) placed greater emphasis on structural measures and improvement in standards of disclosure and levels of transparency in order to align the Indian standards with international best practices. Banking sector reforms since 1991 have included, among others, the following: 1. Granting operational autonomy to banks. 2. Liberalization of entry norms for banks. 3. Reduction in statutory pre-emptions so as to release greater funds for commercial lending. 4. Deregulation of interest rates. 5. Relaxation in investment norms for

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banks. 6. Easing of restrictions in respect of banks' foreign currency investments. 7. Withdrawal of reserve requirements on inter-bank borrowings. Thus, financial repression has eased substantially with the deregulation of interest rates and substantial removal of credit allocation.

1.1.7 Regulation and Supervision of Commercial Banks

The health of the financial sector is a matter of public policy concern in view of its critical contribution to economic performance. Financial regulation and supervision assumes importance in ensuring that the financial system operates along sound lines. There has been a long tradition of regulating financial systems by central banks in several countries. The regulation and supervision of banks are key elements of a financial safety net as banks are often found at the centre of financial crises. The primary justification for financial regulation by authorities is to prevent systemic risk, avoid financial crises and protect depositors' interest and reduce asymmetry of information between depositors and banks. As the costs of financial crises were perceived to be very high, the authorities realised that they should be avoided at all costs. As a result, banks came to be regulated everywhere. Besides, financial regulation attempts to enhance the efficiency of the financial system and to achieve a broad range of social objectives. Going by the experience in several countries, effective regulation is in the interests of all concerned, though it cannot be based on a one size-fits-all approach. However, it is important to bear in mind that while financial institutions do benefit from an appropriate regulatory regime, there is not much evidence that the existence of a regulatory jurisdiction makes institutions stronger and less prone to shocks. There is neither a unique theoretical model, nor just one practical approach to the regulation and supervision of a financial system. The existence of different types of regulatory models of the financial system makes the ideal choice a difficult exercise. The RBI, under the Banking Regulation Act, 1949 is required to satisfy itself, by inspecting the accounts books and methods of operation of the banking company, before granting a license. This provision helps to ensure that the banking company is in a position to pay its depositors in full as their claims accrue and that its affairs are not conducted to the detriment of its creditors. The regulatory and supervisory approaches were modified as and when deemed necessary. The focus of the RBI's role as a regulator and supervisor has shifted gradually from micro regulation of banks' day to day activities to macro supervision with a view to ensuring that the regulations are adhered to in an environment where banks' management are given freedom to take all commercial decisions based on their own judgment.

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The nationalization of 14 major commercial banks on July 19, 1969 was a turning point in the Indian banking system. The focus of regulation was reoriented to meet the objectives of the nationalization of banks. In the context of the wider role assigned to banks following the nationalization, a re-orientation of the system of bank inspections was called for. The objectives as per the re-orientation of bank inspections were the evaluation of the overall performance of each bank in different aspects. The massive expansion of the banking system had resulted in certain stresses and strains. With wider geographical coverage, lines of supervision and control weakened, the RBI appointed a Working Group on inspection of banks in December 1981 to review the system of inspection of commercial banks in the public and the private sectors and to suggest improvements/modifications. Following the recommendation of the Working Group, the Annual Appraisal of inspection of public sector banks was dispensed with, with effect from January 1985; a system of Annual Financial Review was introduced to be conducted subsequent to the annual audit of the banks. Issues such as review of internal control systems at bank branches of boards of nationalized bank and increasing the capital systems at bank in the context of growing international exposure Indian banks were given importance. A review of existing system of inspection of banks was attempted.

1.1.8 Post-Liberalization (1991 onwards)

The decade of the 1990s was a watershed in the history of the Indian financial system in general and the banking system in particular. Notwithstanding the remarkable progress made by the Indian banking system in achieving social goals during the 1980s, it experienced certain problems that led to decline in efficiency and productivity and erosion of profitability. Factors such as directed investment and directed credit programmes affected the operational efficiency of the banking system. The quality of loan portfolio also deteriorated. The functional efficiency was affected due to overstaffing, inadequate progress in inducting technology and weaknesses in internal organizational structure of the banks. These factors necessitated urgent reforms in the financial system. Accordingly, a Committee on the Financial System (Chairman: M. Narasimham) was constituted in 1991 to look into various issues related to banking with a view to initiating wide ranging financial sector reforms. Following the Report of the Narasimham Committee, the RBI adopted a comprehensive approach on the reforms of the financial sector. The Department of Supervision (DoS), now called Department of Banking Supervision (DBS) was set up within the RBI in 1993 to strengthen the institutional framework. A high powered Board for Financial Supervision (BFS), comprising the Governor of RBI as Chairman, one of the Deputy Governors as Vice-Chairman and

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four Directors of the Central Board of the RBI as members was constituted in November 1994. Measures such as deregulation of interest rates, reduction of statutory pre-emption such as CRR and SLR, and provision of operational autonomy to the banks were taken to straighten the banks. Further, various prudential measures that conformed to the global best practices were also implemented. One of the major objectives of banking sector reforms has been to enhance efficiency and productivity through enhanced competition. Following the Narasirnham Committee's recommendations, guidelines to facilitate entry of the private sector banks was issued in 1993 to foster greater competition with a view to achieve higher productivity and efficiency of the banking system. Working Group to Review the System of On-site Supervision over Banks (Chairman: S. Padmanabhan), 1995 Over the years, the regulatory and supervisory polices in India have transformed significantly - in tandem with the global developments and the changing pace of the Indian financial system. Apart from on-site inspections, the RBI has adopted three other supervisory approaches, viz. offsite monitoring, internal control system in banks and use of external auditors. A review of the RBI's inspection system was undertaken by this Working Group. The Group, while reemphasizing the primacy of on-site inspections, recommended switching over to a system of ongoing supervision. It recommended a strategy of periodical full-scope on-site examinations supplemented by an in-house off-site monitoring system and linked exercises in between two statutory examinations. The Working Group recommended orienting supervision for enforcement of correction of deviations. It was decided that the periodic and full scope statutory examinations should concentrate on following core areas of assessment.

1. Financial condition and performance. 2. Management and operating condition. 3. Compliance. Summary assessment 'in line', with the internationally adopted capital adequacy, asset quality, management, earnings, liquidity and system, (CAMELS) rating 'model with systems and controls added to it for Indian banks and for foreign banks on CACS model (capital adequacy, asset quality, compliance, systems and controls). Subsequently, examination of liquidity was added to make the model as CALCS. The periodic statutory examinations were to be supplemented by four types of regular and cyclical on-site assessments, viz. targeted appraisals, targeted appraisals at control sites-commissioned audits and monitoring visits.

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The Off-site Monitoring and Surveillance (OSMOS) system was operationalised in 1995 as a part of crisis management framework for early warning system and as a trigger for on-site inspections of vulnerable institutions. The banks were required to increase the level of utilization of the INFINET for regulatory-cum-supervisory reporting. To identify areas requiring urgent supervisory action and initiate timely action, the time limit has been reduced for submitting returns across all categories of banks since June 2005. In order to strengthen the banking system, it was considered necessary to introduce capital adequacy norms to ensure uniform standards of capital structure and progress towards Basel Committee norms (Basel I). The adoption of Basel Core Principles for Effective Banking Supervision requires adherence to the principles, of consolidated accounting and supervision of the affairs of a bank's subsidiaries. The Basel II framework has been designed to provide operations to banking system for determining the capital requirements for credit risk, market risk and operational risk and enable banks/supervisors to select approaches that are most appropriate for their operations and financial markets. Under Basel II, banks' capital requirements will be more closely aligned with the underlying risks in banks' balance sheets. With a view to ensuring migration to Basel II in a non-disruptive manner, given the complexities involved, a consultative approach is envisaged. Indian banks are preparing to adopt the Basel II norms from March 2007, as directed by the RBI.

1.1.9 Modernization of Banking Regulation and Supervision:

The RBI has been focusing and encouraging market discipline and ensuring good governance with an emphasis on fit and proper management and diversified ownership in more recent times. Banks are encouraged to diversify and offer more varieties of products and services in addition to the conventional products. Computerization of banking has received high importance in recent years due to technological advancement that are taking place in the financial systems world over. The direction towards 100 per cent computerization has resulted in renewed vigor in the banks towards fulfillment of this requirement, which could provide better customer service, internal control and effective management. The financial sector technology vision document released by the RBI in May 2005 elucidates its thrust areas by providing generic information on various standards and approaches, audit and requisite focus on business continuity plans. Considering the complexities of banking business and emerging product innovations with complex risk profiles, the RBI initiated measures to implement Risk Based Supervision (RBS) approach to the supervision. The RBS process has been recently revisited by revising the risk profiling templates and introducing a new rating

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framework. This revision is likely to make the RBS process more risk-sensitive, objective and user friendly, In November 2004, the RBI revised the guidelines on 'Know Your Customer' (KYC) principles in line with the recommendations made by the Financial Action Task Force (FATF) on standards for Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT). Financial sector reforms, introduced in the early 1990s in a gradual and sequenced manner, were directed at the removal of various deficiencies from which the system was suffering. The basic objectives of reforms were to make the system more stable and efficient so that it could contribute in accelerating the growth process. In response to reforms, the Indian banking sector has undergone radical transformation during the 1990s. Reforms have altered the organizational structure, ownership pattern and domain of operations of institutions and infused competition in the financial sector. The competition has forced the institutions to reposition themselves in order to survive and grow. The extensive progress in technology has enabled markets to graduate from outdated systems to modern market design, thus, bringing about a significant reduction in the speed of execution trades and transaction costs. With the increasing integration of various segments of financial markets, the distinctions between banks and other financial intermediaries are also getting increasingly blurred. Another important aspect of reforms in the financial sector has been the increased participation of financial institutions, especially banks, in the capital market. These factors have led to increased inter-linkages across financial institutions and markets. While increased inter-linkages are expected to lead to increased efficiency in the resource allocation process and the effectiveness of monetary policy, they also increase the risk of contagion from one segment to another with implications for overall financial stability. This would call for appropriate policy responses during times of crisis. Increased inter-linkages also raise the issue of appropriate supervisory framework. Banking sector reforms in India are grounded in the belief that competitive efficiency in the real sectors of the economy will not realize its full potential unless the banking sector was reformed as well. Thus, the principal objective of banking sector reforms was to improve the allocation efficiency of resources and accelerate the growth process of the real sector by removing structural deficiencies affecting the performance of banks. In India, while the banking system continues to play a predominant role, it is significant to note that, as a result of various reform measures, the relative significance of financial markets has increased. This augurs well for the overall stability of the financial system. The East Asian crisis has also underlined the need for a balanced financial system wherein financial markets also play an important role in

24

providing necessary liquidity, especially during times of crisis. Banking system also requires liquidity in times of stress, which only deep and liquid financial markets can provide. The main thrust of this study is to examine the performance of banking sector in liberalization era and comparing the performances of private sector and public sector banks in India.

1.2 Objectives

The main objectives of the study are as follows: To examine the performance of Indian banking sector in liberalization era. To make the comparison of the performances of public sector and private sector banks in India since liberalization era.

1.3 Hypothesis

Within the framework of the above objectives, the following hypotheses are verified during the course of analyses: The performance of the banks in terms of various parameters such as capital adequacy, profitability, assets quality, returns and liquidity have not improved since liberalization.

There is no significant difference in the performance of public sector and private sector banks since liberalization.

1.4 RESEARCH METHODOLOGY

1.4.1 Data Collection: This study is based on secondary data. The required data for this study were collected from the various sources like Reports on Currency and Finance (annual reports), Monthly RBI bulletins, published by RBI, Govt. of India, Reports published by National Institute of Bank Management, Annual reports of various banks,

publications and notifications of RBI, Reports published by Indian Bank Association

25

(IBA), Reports of Credit Rating Agencies like S&P, CRISIL, ICRA, Reports of various consulting firms like Arthur Anderson, Price Warehouse, etc.

The time series data were collected from 1991-1992 to 2008-2009. The performance analyses for this study were based on 20 banks. The study covers both Public Sector and Private sector Banks in India since liberalization. The banks were selected on the basis of categorization of Paid up Capital after liberalization.

CRITERIA PAID UP CAPITAL > Rs. 500 CRORE

SIZE LARGE

PAID UP CAPITAL Rs.100 CRORE- Rs. 500 MEDIUM CRORE PAID UP CAPITAL < 100 CRORE SMALL

The performances of following 20 banks have been analyzed: Private sector Banks are: Axis Bank, South Indian Bank Ltd., Bharat Overseas Bank Ltd., Dhanalakshmi Bank Ltd., HDFC Bank Ltd., ICICI Bank Ltd, Jammu & Kashmir Bank Ltd., Yes Bank, Bank of Rajasthan, and Kotak Mahindra Bank. Public Sector Banks are: Bank of Baroda, Bank of India, Central Bank of India, Punjab & Sind Bank, State Bank of India, UCO Bank, United Bank of India, Vijaya Bank, Bank of Maharashtra and Punjab National bank.

1.4.2 Analytical Tools Used: The analytical methods used for this study are the financial ratios calculated which are further computed for individual banks and comparative analysis of the private sector banks and public sector banks. For computing individual banks performance multiple regression analysis has been used. The Durbin Watson test is applied to overcome the concern of autocorrelation. For comparative analysis independent t-test is performed. The details of the various statistical tools are described as follows:

26

1.4.2.1 Ratio Analysis This section deals mainly with the analytical tools employed for the analysis of collected data. Different ratios like capital adequacy ratio, liquidity ratio, profitability ratio, asset utilization ratio, return ratios.

1) Capital Adequacy Ratio

This ratio is calculated on the following basis: Total capital (Tier-I Capital & Tier-II Capital) Market Risk+ credit risk+ operation Risk a) TIER-I: Ordinary capital + Retained Earning + Share Premium - Intangible Assets

b) TIER-II: Undisclosed reserves + General bad debt provision+ Revaluation reserves + Subordinate debt+ Redeemable preference shares

c) TIER-II (Subordinate Debt): Subordinate debt with maturity of atleast 2 years.

2)

Profitability Ratio

This ratio is calculated on the following basis:

On the Basis of Total Income

Profit after tax + Depreciation+ Interest + Direct Tax + Amortization Total Income

PBDITA Total Income

Profit after tax+ Total Provision+ Provision for direct taxes + Amortization+ Depreciation Total Income

27

PBDPTA Total Income

Profit Before tax Total Income

PBT Total Income

Profit After Tax Total Income

PAT Total Income

On the basis of Total Income Net of P&E

Profit after tax + Depreciation+ Interest + Tax + Amortization- prior period income and extraordinary income Total Income- prior period income and extraordinary income

PBDITA Net of P&E Total Income Net of P&E Profit after tax+ Total Provision+ Provision for direct taxes+ Amortization+ Depreciation- prior period income and extraordinary income

Total Income- prior period income and extraordinary income

PBDPTA net of P&E Total Income Net of P&E

28

a)

Profit before Tax- prior period income and extraordinary income Total Income- prior period income and extraordinary income

PBT Net of P&E Total income Net of P&E

h)

Profit After Tax - prior period income and extraordinary income Total Income - prior period income and extraordinary income

PAT Net of P&E Total income Net of P&E

3)

Return Ratios

This ratio is calculated on the following basis: On the basis of Net worth

a)

Profit after tax + Total provisions+ Taxes- prior period income and extraordinary income Average Net worth

PBPT Net of P&E Avg. Net worth

b)

Profit after tax net of Price and Earning Average Net worth

29

PAT Net of P&E Avg. Net worth

c)

Profit after Tax Average Net worth

PAT Avg. Net worth

d)

Cash Profit Average Net worth Cash profit Avg. Net worth

On the basis of Total Assets

Profit after tax + Total Provisions + Taxes- prior period income and extraordinary income Average Capital Employed

PBPT Net of P&E Avg Capital Employed

a)

Profit after tax + Total Provision + Direct Taxes Average capital employed

30

PBPT Avg Capital Employed

b)

Profit after tax - prior period income and extraordinary income Average Capital Employed

PAT Net of P&E Avg Capital Employed

c)

Profit after tax Average Capital Employed

PAT Avg Capital Employed

Profit after tax+ Provisions + Direct Taxes- prior period income and extraordinary income Average total assets

PBPT Net of P&E Avg Total Assets

f)

Profit after tax + total Provision + directs taxes Average total assets

PBPT Avg Total Assets

31

g)

Profit after tax - prior period income and extraordinary income Average total assets

PAT Net of P&E Avg Total Assets

b)

Profit after tax Average total assets

PAT Avg Total Assets

4)

Asset Utilisation ratios This ratio is calculated on the following basis:

a)

Total Income Avg. total assets

b)

Total Income Compensation to employees

5)

Liquidity Ratio This ratio is calculated on the following basis:

a)

Current assets Current liabilities

b) c)

Debt to equity ratio Liquid Assets Current Liabilities (Quick ratio)

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1.4.2.2 Performance of Private sector and Public Sector Banks The multiple regression analysis is calculated by using SPSS software and statistically can be defined in following manner: profitability is considered as dependent variable and the various independent variables are returns, assets, liquidity and capital adequacy. (1)

Y' = A+ B1X1 + B2 X2 + B3 X3
Where, Y= Relationship between a dependent or criterion variable of interest X= Independent variables or potential predictor variables A= Constant B= Corresponding Value

(2)

SE for beta (two predictors

)=

1 - R2 2 (N - k - 1)(1 - r 12 )

The SE - Unstandardized regression coefficient, Bj, can be obtained by multiplying the SE for the beta by the ratio of the SD for Y divided by the SD for the Xj variable: (3) SE = SD SD
Y X
j

( SE

).

The t-test of statistical significance of Bj is

(4)

(observed Bj)

t=
(SE for Bj) Bj= Slope of the sample regression line,

33

SE= Standard error of the slope. df=N-k-1, which is N-3 when there are two predictors. With more than two predictor variables (k > 2), the standard error for beta coefficients can be found with the formula:

SE j =

(5) Where,

2 1 - RY . 2 (N - k - 1)(1 - R (j) )

R2Y = Multiple correlation k = Predictor variables, and

R2 (j) = Multiple correlation predicting variable Xj using all of the remaining (k-1) predictor variables. The term R2 (j) is an index of the redundancy of variable Xj with the other predictors, and is a measure of multicollinearity. Tolerance, as calculated by SPSS and other programs, is equal to (1 - R2 (j)). In order to remove the problem of autocorrelation in the analyses Durbin Watson test was applied.

The test statistic is D=

D= Durbin Watson Value et = Residual associated with the observations t= Time 1.4.2.3 Comparative analysis of Private sector and Public Sector Banks

The formula for the independent t-test is

34

Where, is the mean for private sector banks, is the mean for public sector banks, is the sum of squares private sector banks, is the sum of squares public sector banks, n1 is the number of private sector banks, and n2 is the number of public sector banks

And

The degrees of freedom for the independent t-test are:

1.5 Importance It is evident from the study that the nationalization of 14 major commercial banks in 1969 was a turning point in the Indian banking system. The focus of regulation was reoriented to meet the objectives of the nationalization of banks. Notwithstanding the remarkable progress made by the Indian banking system in achieving social goals during the 1980s, it experienced certain problems that led to

35

decline in efficiency and productivity and erosion of profitability. In India, while the banking system continues to play a predominant role, it is significant to note that, as a result of various reform measures, the relative significance of financial markets has increased radical transformation, this assures well for the overall stability of the financial system. Banking in the glare of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. The massive expansion of the banking system had resulted in certain stresses and strains. With wider geographical coverage, lines of supervision and control weakened. Further, the decade of the 1990s was a turning point in the history of the Indian financial system in general and the banking system in particular. In response to reforms, the Indian banking sector has undergone extreme changes since 1990s. The phase of liberalization bought certain reforms that altered the organizational structure, ownership pattern and domain of operations of institutions and infused competition in the financial sector. The competition has forced the institutions to reposition themselves in order to survive and grow. Aim of this study is to analyse the performance of banking sector since liberalization. Many private sector banks entered Indian domain which further helped in channelising the saving of the investors effectively. Along with individual banks performance analysis a comparative analysis of public sector and private sector banks will facilitate in judging the performance of banking sector in India. The study is conducted by using financial ratio as a tool to analyze the individual performance of the banks undertaken for the study as well as to study the comparative analysis of the public sector and private sector banks. The ratios are helpful in deciding the efficiency of banks not only of past trend but as well helps in predicting the likely performance in future. The analysis of individual banks will further be of assistance to the management of the banks for planning financial strategies for attaining financial performance and

exploring further opportunities.

1.6 Limitations

All the economic / scientific studies are faced with various limitations and the study is no exception to the phenomenon. The various limitations of the study are:

36

1. At various stages the basic objective of the study suffered due to inadequacy of time series data from related agencies. There has also been problem of sufficient homogeneous data from different sources, for example, the time series used for variables like profitability, liquidity, capital adequacy, assets and return. The averages are used at certain occasions; therefore, the estimated regression coefficients may deviate from the true ones. 2. Above all since it is a Ph.D. project, the research did face some problems of resources like time and money.

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CHAPTER: 2

REVIEW OF LITERATURE

The concerned literature with the research work is presented below to highlight the work done on the subject in India and abroad which proved useful to delineate the various issues and methodologies adopted Ahluwalia, Montek S (01) (2002) conducted a study on Economic Reforms in India since 1991: Has Gradualism worked? This study deals with the impact of gradualist economic reforms in India on the policy environment from 1991 to 2001. India was a latecomer to economic reforms, embarking on the process of earnest only in 1991, in the wake of an exceptionally serve balance of payment crisis. India's economic performance in the post-reform period has many positive features. Opinions on the causes of India's growth deceleration vary. Fiscal profligacy was seen to have caused India's balance of payments crisis in 1991, and a reduction in the fiscal deficit was therefore an urgent priority at the start of the reforms. The trends cast serious doubts on India's ability to achieve higher rates of growth in future. The central government's effort must be directed primarily toward improving revenues, because performance in this area has deteriorated significantly in the post-reform period. There is also no room to reduce central government subsidies, which are known to be highly distortionary and poorly targeted, and to introduce rational user charges for services such as passenger traffic on the railways, the postal system and university education. Reforms in industrial and trade policy were a central focus of much of India's reform effort in the early stage.

Arun,T.G,Turner,J. D(02)(2002) studied Financial Sector Reforms in Developing Countries: The Indian Experience This study is based on the premise that the success/failure of financial sector reforms depends heavily on country specific factors and makes an attempt to examine these factors in the Indian context. The financial sector reforms analyzed in this paper include the deregulation of interest rates, increasing competition and foreign ownership, and the introduction of financial supervision. It is argued that an economic rationale for a gradualist approach to financial reform is that it is stability enhancing. Furthermore, it is suggested that Indias complex political economy has resulted in a gradual approach to reform, and this approach has been successful along the dimension of banking stability. Banerjee Abhijit & Duflo Esther (03)(2004) conducted a study on what do banks (not) do?)The main objective of this study was to analyze the NPA status in

38

banking industry. In this study the author analyzed that NPAs are indeed a serious problem for banks in India and it is easy to see why a bank might hesitate to lend if the loan has a high risk of going bad. NPAs is not what the banks do but what they do not do. A lot of the NPAs probably come about because bankers systematically fail to pull the plug when it is still possible to get out with their capital intact. Further they analyzed reducing public control of the banks is probably one way to get to this, though there is no guarantee that this would change things a the firms are starved of credit, even though there is nothing to stop them to borrow some more from a private lender. This might mean that the private banks have inherited the culture of the public banks, in which case-changing control will not help. In many ways the banking system in India, including the regulatory apparatus, remains a product of the planning years. It seems to be a system that was conceived for a world where people were expected to do what they were told, and things happened to as they were meant to. The real challenge, whether public control remains or not, is to create a banking system for a world where investors take risk and sometimes fail, where bankers need to take initiative and use their judgment. We need incentives for bankers that reward success but make allowances for bad luck, and which at the same time guard against the temptation to be irresponsible or corrupt. Bhatt O P (04) (2007) conducted study on Banking in India n this study the banking industry journey from post independence to date has been discussed. Banking in India initially was the system of money lending in which rates varied not according to the nature of transaction but in relation to the particular caste to which the borrowers belong. Innumerable private joint stock banks under both European and Indian control also emerged during 19th century mainly to cater to the credit needs of the vast hinterland of the subcontinent. The 19th century also witnessed the arrival of several exchange banks in India for financing the subcontinents burgeoning foreign trade, which three presidency banks and imperial banks were rigorously excluded from engaging in. the concept of banking underwent a sea change with the advent of the state bank. A distinct shift in focus was evident from security oriented to need based lending, from urban to rural banking from activities that contributed essentially to the banks commercial objectives to also those that largely served a social purpose. Further banking underwent a major structural change after the nationalization of banks. A phenomenal expansion of the branch networked occurred particularly in the hitherto under banked rural areas. The reserve bank geared its branches licensing policy to the objectives of ensuring an expansion of offices both in unbanked centers and in under banked states as well as in urban and metropolitan centers. While the opening up of Indian financial markets has provided enormous opportunities to banks to tap new areas of business, it has also posed an enormous challenge for the smaller banks to compete with the new entrants in terms of fund based technology and new products. Thanks to the booming global economy, expanding technology and changing mindset, banking is now set to be transformed. Age-old processes and systems are about to be discarded as fresh rules are being framed.

39

Barman R. B. and Samanta G. P (05) Banking Services Price Index: An Exploratory Analysis for India In this study it is discussed that major part of earnings and profits of a bank comes from the services rendered through financial intermediation, which generally are not charged explicitly. Banks accept funds from the depositors and produce loans and advances out of mobilized deposits. In the process of intermediation, transactions take place between depositors and banks and between borrowers and banks. Banks often provide many ostensibly free services, which indicates that bank revenue understates the value of the financial services sold Banks render services to the customers by maintaining customers accounts. A host of financial services (e.g. safe keeping of money, cheque facility, etc.) are also linked to the deposits accounts. In return for these services, customers may be charged a nominal amount, which is substantially smaller than the expenses incurred. Banks cover this cost indirectly. Banks pay lower rates of interest than would otherwise be the case to those who lend them money and charge higher rates of interest to those who borrow from them. As a consequence, banks provide loans and advances with the returns higher than the rate paid to the depositors. The resulting net receipts of interest are used to defray their expanses and provide an operating surplus. This scheme of interest rates avoids the need to charge customers individually for services provided and leads to the pattern of interest rates observed in practice. For these features of financial intermediation services (i.e. provided in a bundle and also charged implicitly), it is very difficult to measure them properly by any direct approach. The researchers, therefore, proposed some indirect ways of measuring them. An important implication of empirical results is that among the alternative proxies of reference rate, the weighted average rate appears to be the best in a sense that it leads to substantially less volatile price index. Besides, the strikingly high degree of stability (over time) and almost no sensitivity of price deflator to reference rate also make a case for using implicit price deflator for FISIM while analyzing price trend, at least until one gets satisfactory estimates of price index. We hope that future research in this area will address these vital issues. Bhadury Proff Subrato (06)(2007) conducted study on Commercial banking in India new challenges and opportunities after liberalization This study reveals that in the financial sector, liberalization and technological breakthrough has initiated a restructuring in our banking sector, which is exactly opposite to our structuring norm. Looked at from the administrative angle our banking sector four tier network head office, zonal office, regional office, and branch office. However, computerization, LAN, interconnectivity, email and IT revolution have brought the regional and branch offices closer and many banks started restructuring even going back to 3 tier structures thus making them cost effective and technologically upgraded. Considered globalization and competition, this repositioning was extremely necessary. In the new era, the banking practices are just like any other

40

service provider and their activities are getting redefined almost every day. To sustain in this context that too with profitability, commercial banks will have to look at 3 major directional changes: redefine their strategy strictly under risk-return framework, implement business process re-engineering and revamp their organizational structure and network in line with global standards. Board John Sutcliffe, Ziemba Charles, William T.(07)(2003) conducted study on Applying Operations ResearchTechniques to Financial Markets In this study OR techniques are applied to non portfolio problems in financial markets, such as the equity, debt, and foreign exchange markets and the corresponding derivatives markets. Finance problems are an excellent application area for OR researchers. OR techniques are used to value financial instruments, identify market imperfections, design securities, regulate markets, evaluate and control risks, model strategic problems, and understand the functioning of financial markets. Mathematical programming is probably the most widely applied OR technique, but Monte Carlo simulation methods are of increasing importance. With the improvements in the realtime availability of data and the power of computers, the role of OR techniques in financial markets can only increase. Brown Craig O. and Dinc I. Serdar (08) (2005 ) conducted study on The Politics of Bank Failures: Evidence from Emerging Markets This paper studies large private banks in 21 major emerging markets in the 1990s. It first demonstrates that bank failures are very common in these countries: about 25 percent of these banks failed during the seven-year sample period. The study also shows that political concerns play a significant role in delaying government interventions to failing banks. Failing banks are much less likely to be taken over by the government or to lose their licenses before elections than after. This result is robust to controlling for macroeconomic and bank-specific factors, a new party in power, early elections, outstanding loans from the IMF, as well as country-specific, time-independent factors. This finding implies that much of the within-country clustering in emerging market bank failures is directly due to political concerns. Batra Mr. Sumant & Dass Kesar (09)(2003) conducted study on Maximising value of Non Performing Assets This study indicates that NPA has affected the profitability, liquidity and competitive functioning of Public and Private Sector Banks and finally the psychology of the bankers in respect of their disposition towards credit delivery and credit expansion. The ultimate impact of the actions put forward by both the RBI and Government of India, however, will be reflective of the degree of effective. Enforcement by the regulators themselves. Indian banks have to remain focused in their efforts to recover their spiraling bad loans, or non-performing assets, to sustain the positive trend of improving asset quality. The lack of research and academic activity in the banking sector is also felt and attended to at institutional

41

level. The areas felt to be looked into, inter alia, are: i) Should bankers take substantial exposure to the stock market? ii) Should bankers be exposed to equity financing? iii) Degree and extent to which Indian banking system should often quote the RBI norm which it regards as a universal application. iv) Advances against shares are considered well secured and safe, and the risk factor has to be tackled by higher margin and effective follow up. But do they pass the test of purpose orientation, namely financing only for a productive purpose? v) What should be the guiding principles for RBI for the purpose of orientation and end use principle, when it comes to the question of extending equity finance to corporate? vi) What should be norms ceiling for Advances to Share Brokers and Market Makers, for meeting working capital needs and surprisingly, in the absence of account wise ceiling prescribed by RBI? Besides the above still, there are several other worries about the banking sector, mainly confusion over ownership and control. Sometime soon India will be forced to apply the norms of developed countries and many banks (including some of the biggest) will show very poor return ratios and dozens of banks will be bankrupt. When that happens the two popular reasons to defend bad banks will disappear. These are: one, to save face in the remote hope of that fortune will revive and two, some banks are too big to be allowed to fail, fearing social upheaval.

Chhikara Dr. Sudesh (10)(2007) conducted study on Causes and Impact of Non Performing Assets in Public Sector Banks : A state level Analysis This paper examines the reasons of NPAs in selected public sector banks in the state of Haryana. It also examines the impact of NPAs on profitability and other financial parameters. Lending is always accompanied by the credit risk arising out of the borrowers default in repaying the money. A banker should therefore manage his loan in a safe manner. This may include development comprehensive credit appraisal and monitoring system, introduction of credit audit system and also establishment of the system to tackle potential problem of recovering loans well in time. It is concluded that impact of NPAs on the performance of the banks is manifold. Profitability is the worst affected by NPAs followed by Credit deployment and investment policy, Achievement of capital adequacy ratio level and reduction in Productivity. Among the preventive measures to control NPAs Efficient credit appraisal, Effective credit monitoring, Monitoring of standard assets and imparting specialized training to bank officers reconsidered most critical. Securitization of assets and suit filling are rated as the important curative measure to control NPAs. Mahor handicaps in the recovery of the advances are cumbersome legal system, inadequacy and lack of proper training of staff. Total elimination of NPAs is not possible in banking business owing to externalities but their incidence can be minimized. It is always wise to follow proper policy appraisal, supervision and follow up of advances to avoid NPAs.

42

Chen Ping, Yang Hailiang ,Yin George (11) (2008) conducted study onMarkowitz's mean-variance asset-liability management with regime switching: A continuous-time model This paper analyzed an asset-liability management (ALM) problem under a continuous-time Markov regime-switching model. By adopting the techniques of Zhou, X.Y., Yin, G. Markowitz's meanvariance portfolio selection with regime switching: A continuous-time model. SIAM J., they investigated the feasibility, obtain the optimal strategy, delineate the efficient frontier, and establish the associated mutual fund theorem. Chipalkatti Niranjan , Rishi Meenakshi (12)(2007) conducted study on Do Indian banks understate their bad loans? In this study banking sector reforms in India and the adoption of capital adequacy norms based on the Basel Capital Accord prompt Indian banks to understate their bad loans are analyzed. This paper addresses this question by investigating whether Indian banks under provide for loan loss provisions and understate their gross nonperforming assets in order to boost earnings and capital adequacy ratios. The paper examines the behaviour of Indian banks in the context of tighter regulatory standards that became effective after 1999. The results show that "weak" Indian banks - defined by low profitability and low capital ratios camouflaged the magnitude of their gross nonperforming assets in the post-1999 period. Based on this the paper concludes that the true nature of India's bad loan problem may be more serious than alluded to in recent studies. Chakrabarti Rajesh and Chawla Gaurav(13)(2005) conducted study on Bank Efficiency in India since the Reforms: An Assessment In this study the authors have studied the performance and efficiency of commercial banks is key elements of the efficiency and efficacy of a countrys financial sector. Public sector banks are still not entirely free from the old bureaucratic mode of functioning and constrained by certain developmental lending objectives are often thought to be lagging behind in the race to efficiency. The authors have applied increasingly popular methodology of data Envelopment Analysis to evaluate the relative efficiency of Indian Banks during the 1990-2002 period. Further the study analyzed the banking sector on the basis of value or profitability, the foreign banks have been considered more efficient than all other bank groups followed by INDIAN private banks. From quantity perspectives or on the basis of volume of deposits and credit created with the input levels. However Indian private banks have been the best performers while the foreign banks are worst performers. Profitability is definitely a key measure of performance but its use as the sole measure is disputed by many and several alternatives measures of efficiency have been used. Another alternative measure of bank performance and efficiency is provided by the spread of the difference between the interest charged and interest paid by the banks as a proportion of total assets of the banks- the Net interest Margin (NIM). The analysis has abstracted from

43

risk management issues as well as an explicit consideration of government rules and directives that drive an edge between the functioning of public sector banks and private banks. Deolalkar G.H (14) The Indian Banking Sector On the road to progress In this study the author has discussed the role of RBI in the banking sector-whether commercial, cooperative or rural. Further he discussed the Non-Performing Asset problem in the Indian banking. About 70 percent of gross NPA are locked up in Hard-core doubtful and loss assets, accumulated over years. Most of these are backed by securities and therefore recoverable. NPAs in Indian Banks as a percentage of total assets are quite low. The NPA problem in India is exaggerated by deriving NPA figures based o percentage against risk assets instead of total earning assets. The Indian Banking system also makes the full provisions and not net of collaterals as practiced in other countries. One of the main causes of NPAs in the banking sector is the directed loans system under which commercial banks are required to supply a prescribed percentage of their credit (40 percent) to priority sector. Further in this study they discussed asset liability management. Interest rates have changed several times in the past few years causing maturity transformations in assets and liability and their frequent repricing. A clear and continuous statement of rate sensitive assets and rate sensitive liabilities has to form the basis of interest rate risk management. RBI is expected to issue guidelines that show that management driven assets liability management (ALM) initiatives in banks are absent. Traditionally many banks including foreign banks have used call money as regular funding source. RBI and government should improve bank balance sheets by removing contamination effect of NPAs in the form of government guaranteed loans i.e. by issuance of special government banks for converting such NPAs into government debt. Derviz Alexis and Podpiera Jiri (15) Predicting Bank CAMEL ad S&P ratings: The Caste of Czech Republic This study had the objective of identifying the determinants of commercial bank rating in the Czech Republic. They investigated changes in the external Standard and Poors (S&P) long term rating and the CAMELS rating used by the banking supervisory body of Czech National Bank. The sample of banks covers the large banks group, specifically the three biggest commercial banks of the country: Ceska Sporitelns, Komereni Banka and Ceskoslovenska Obchodni Banks. The time range considered in the case of the S&P rating was 1998-2001 in the monthly periodicity. For S&P ratings they constructed an ordered logit model that accounts for the fact that the observations are independent across the banks but not within each other. The partial likelihood estimation technique was applied to that model. The result shows that in relation to the S&P rating the exclusive information at the regulators disposal provides a certain predictive advantage over outside observers. This is not in the CAMELS

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rating case, since evidently an observer who is able to reproduce the construct of CAMELS for a given bank has very much the same information as the regulator. Demirg-Kunt Asli and Detragiache Enrica(16)(1998 )conducted study on The Determinants of Banking Crises: Evidence from Developed and Developing Countries The main goal of the study is to identify the features of the economic environment that tend to breed banking sector fragility and, ultimately, lead to systemic banking crises. Thus, rather than focusing on the behavior of high frequency time series around the time of the crisis, it aims to study the determinants of the probability of a banking crisis in a multivariate logit specification with annual data. Many countries in sample do not experience banking crises in the period under consideration, and therefore serve as controls. The explanatory variables capture many of the factors suggested by the theory and highlighted by case studies, including not only macroeconomic variables but also structural characteristics of the economy in general and of the financial sector in particular. This approach allowed identifying a number of interesting correlations. The findings reveal strong evidence that the emergence of banking crises is associated with a deteriorated macroeconomic environment. Particularly, low GDP growth, high real interest rates, and high inflation significantly increase the likelihood of systemic problems in the sample. Adverse terms of trade shocks also tend to increase the likelihood of banking sector problems, but here the evidence is weaker. The size of the fiscal deficit and the rate of depreciation of the exchange rate, on the other hand, do not seem to have an independent effect. Adverse macroeconomic shocks, however, are not the sole factors behind systemic banking sector problems. Structural characteristics of the banking sector and of the economic environment in general also play a role. Another result, which is quite robust to the specification of the regression, is that the presence of an explicit deposit insurance scheme makes bank unsoundness more likely. Das, Abhima, Ghosh, Saibal(17)(2006) conducted study on Financial Deregulation and Efficiency: An Empirical Analysis of Indian Banks during the Post Reform Period.This study investigates the performance of Indian commercial banking sector during the post reform period 19922002. Several efficiency estimates of individual banks are evaluated using nonparametric Data Envelopment Analysis (DEA). Three different approaches viz., intermediation approach, value-added approach and operating approach have been employed to differentiate how efficiency scores vary with changes in inputs and outputs. The analysis links the variation in calculated efficiencies to a set of variables, i.e., bank size, ownership, capital adequacy ratio, non-performing loans and management quality. The findings suggest that medium-sized public sector banks performed reasonably well and are more likely to operate at higher levels of technical efficiency. A close relationship is observed between efficiency and soundness as determined by bank's capital adequacy ratio. The empirical results also show that

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technically more efficient banks are those that have, on an average, less nonperforming loans. A multivariate analysis based on the logit model reinforces these findings. Dhar V Ganga and Reddy G Nares(18) (2007) conducted study on Mergers and acquisitions in the Banking Sector- an Empirical Analysis The prime objective of this study is to analyze the growth and performance of the sample banks during pre and post merger periods. Based on the study it was observed that the performance of the merged banks in respect to the growth of total assets, revenue, profits, investments and deposit witnessed a significant increase. ICICI bank has achieved the growth rate in all respects, excepts for deposits, among the sample banks. The study also highlights that SBI, BOB and UBI have greater consistency in their performance, reflecting lower risk faced by them. As against this Centurion Bank, HDFC bank and ICICI bank have faced greater inconsistency and higher risk, thus pointing out that the public sector merged banks have shown better performance, with greater consistency and lower risk as compared to private sector banks in India. Detemple Jrme , Rindisbache Marcel R(19)(2008) conducted study on Dynamic asset liability management with tolerance for limited shortfalls In this study a dynamic asset allocation problem in the presence of liabilities is considered. The fund manager has von Neumann-Morgenstern preferences with terminal utility function defined over the excess of liquid wealth over a minimum liability coverage tolerated and intermediate utility function defined over dividends, the excess of expenditures over liability cash flows. Preferences incorporate a parameter controlling the tolerance for a shortfall in the funding ratio at the terminal date. The optimal asset allocation rule is derived and its sensitivity with respect to the parameters of the model is analyzed. Frierson, Robert DeV (20)(2007) conducted study on Orders Issued under section 4 of the Bank holding Company Act The study finds out that National City Corp. has submitted an application to the U.S. Federal Reserve Board to acquire Harbor Federal Savings company and Appraisal Analysis Inc. and merge with Harbor Florida Bancshares company in Cleveland, Ohio. The Board has considered the comments and all the factors of the proposal after the filing and publication of notice of the proposal. The application was approved because the companies comply with the Bank Holding Company Act. Fotios Pasiourasa and Gaganisb Chrysovalantis(21) (2007)conducted study on Financial Characteristics of Banks Involved in Acquisitions: Evidence from Asia This study examines the financial characteristics of 52 targets and 47

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acquirers that were involved in acquisitions in the Asian commercial banking sector over the period 1998 to 2004 and a control sample of non-merged banks matched by country and year. Three logistic regression models are estimated to determine the factors that influence the probability of being involved in an acquisition either as a target or as an acquirer. The results indicate that more asset risky portfolios increase this probability. Higher liquidity also increases the probability of being acquired. The probability of being involved in an acquisition as acquirer also increases with size and cost efficiency. Finally, more profitable banks are more likely to be involved in acquisitions as acquirers rather than as targets. When we partition our sample in two sub-periods we find that only the higher loan loss provisions of targets and the higher size of acquirers remain robust over time. Fangging Wang (22) (2008) conducted study on Regulations Aside, Credit Crunch spells Danger for Asian Firms The study discusses the impact of credit crisis in 2008 on Asian firms. It cites the effect of the Lehman Brothers' bankruptcy on local securities firms in Korea. It mentions that the problem of delinquencies in U.S. subprime mortgages spread to other segments of the credit markets and inflicted severe mark-to-market losses on many financial institutions. A research report by Morgan Stanley revealed that Bank of East Asia and India's ICICI Bank and Axis Bank have faced the greatest exposure to the credit crisis Ghosal, Pallabi(23)(2008) conducted study on The Road Ahead for NBFCs becoming Banks after Basel II Norms: The Indian Scenario This study discusses the process of regulations regarding non-banking finance company in India. It mentions that finance companies need to establish themselves as banking institution before becoming a Basel II compliant. Finance companies that are not related to banking are operating under unorganized segments of the economy. However, the author mentions that finance companies have rich customer relations understanding. Compared banks, these financial institutions need to maintain a higher capital adequacy ratio than most banks. Ghosh, Saibal, Abhiman (24) (2006) conducted study on Financial Deregulation and Efficiency: An Empirical Analysis of Indian Banks during the Post Reform period The study investigates the performance of Indian commercial banking sector during the post reform period 19922002. Several efficiency estimates of individual banks are evaluated using nonparametric Data Envelopment Analysis (DEA). Three different approaches viz., intermediation approach, value-added approach and operating approach have been employed to differentiate how efficiency scores vary with changes in inputs and outputs. The analysis links the variation in calculated efficiencies to a set of variables, i.e., bank size, ownership, capital adequacy ratio, non-performing loans and management quality. The findings of the study suggest that medium-sized public sector banks performed reasonably

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well and are more likely to operate at higher levels of technical efficiency. A close relationship is observed between efficiency and soundness as determined by bank's capital adequacy ratio. The empirical results also show that technically more efficient banks are those that have, on an average, less non-performing loans. A multivariate analysis based on the Tobit model reinforces these findings. Gupta V , Jain P K(25)(2004) conducted study on Liability Management in Commercial Banks in India: A Comparative Study of Bank Groups in Liberalized-Era This study examines the liability structure of 68 commercial banks operating in India for eight consecutive years, 1992-2000. The special emphasis is on the influence of ownership structure and size in this regard. Time series and cross-section analysis of the liability structure of sample banks reveals that they use 17 units of debt for each unit of owned funds, which is consistent with limits set by regulation. After recapitalization, nationalized banks appear closer to foreign banks in terms of leverage; the leverage of private banks is closer to the State Bank group. Although net worth to total assets ratio is highest for small banks, relatively lower reserve to networth ratio for them suggests that their shareholders are more interested in regular dividend income. With the notable exception of the foreign banks, the share of deposits has increased for all bank groups in the process of the study. The relative importance of various types of deposits seems to depend on the nature and scale of operations of the sample banks. Borrowings constitute a miniscule portion of total sources of funds for the sample banks. Handa,Jagdish Shubha Rahman Khan(26)(2008) conducted study on Financial Development and Economic Growth: A Symbiotic Relationship This study evaluates the plausibility of financial development as a tool to boost economic growth, using time series data on a cross-section of thirteen countries at different stages of development. Using annual data from 1960 to 2002, it conducts stationarity tests on the variables, followed by co-integration analysis among the banking and non-banking financial variables and GDP. It also tests for the direction of Granger-causality. Finally the study concludes that for Bangladesh, Sri Lanka, Brazil, Malaysia, Thailand and Turkey, this causality runs from economic growth to financial development. Granger-causality is bi-directional for India, Argentina, Germany, Japan, the UK and the USA. There does not exist one-way Grangercausality from financial development to economic development for any of the countries examined Hwa Ng Kah , Rsch Christoph G , Zagst Rudi(27)(2008) conducted study on Asset Liability Management in Financial Planning The authors study several models that manage, in an integrated fashion, the asset and liability needs of an individual investor. The models are tested using the typical assets of household portfolios, including real estate in the case of both stochastic and deterministic liabilities. The majority of the investment models suggest that one should invest

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heavily in real estate, which conforms to the empirical research on the composition of household portfolios. The performance results indicate that the models perform better for stochastic liabilities due to the fact that assets and liabilities share common risk factors.

Hyde Dr.Anukool Manish(28)(2007) conducted study on A study of Learned Optimism in Nationalized Banks and Private Banks The objectives of this study are: to study and compare Learned Optimism of the employees of Nationalized and Private Banks, and to recommend the areas where learned optimism is found to be weak. The research approach is exploratory type. The Z-test was applied to test the significance at 5% level of significance of difference between the nationalized and private banks. The study analysed that in general optimism is used to denote the positive attitude that good things will happen independent of ones ability. It is antidote against apathy, hopelessness and pessimism. People who are optimistic explain their success and failure as result of what they do. Learned optimism can be included in this trade. Learned optimism provide high energy level and stress tolerance which helps people cope with the hectic pace and unrelenting demands of managerial jobs, the frequent role conflicts the pressure to make importance of decision without adequate information. From the study of private and nationalized banks it is analyzed and concluded that the level of learned optimism is higher in employees of private banks. The reason may be the change in working conditions and difference is their perception towards work. Janakiraman Usha(29)(2007) conducted study on Issues and Challenges in Management of Operational Risks The study brings a brief overview of the capital adequacy guidelines under Basel II since its origins in the 1988 Basel Accord. It introduces the concept of operational risk, reviews the quantitative framework for operational risk under Basel II and outlines the key challenges and the varying practices in the development of an operational risk framework. Basel II framework rests on three pillars: Pillar 1- Minimum Capital Requirement, Pillar 2Supervisory Review process, Pillar 3-Market Discipline. The severity of a credit loss event may be driven by the market value of the collateral. The loss is caused by default on the loan, in which case the loss is associated with credit risk rather than market risk. The Basel framework (2004) proposes a range of approaches- the basic indicators approach (BIA), the standardized Approach (TSA) and the advanced Measurement Approach (AMA)-for setting aside regulatory capital for operational risk, under Pillar-1 A the three approaches differ in their complexity and the banks are encouraged to move along the spectrum of approaches as they obtain more sophistication in their risk management practices. Notwithstanding the heightened interest in operational among the banking industry, particularly over the last decade, culminating in its incorporation in the capital adequacy framework under Basel II, the fact remains that operational risk is not totally well understood as a

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concept. The flexibility given to banks by regulators under Basel II for developing the measurement framework under the advanced approaches, has resulted in varying practices followed by banks in managing and measuring operational risk. Jham,ViIi I.,Khan, Kaleem Mohd (30)(2008) conducted study on Determinants of Performance in Retail Banking: Perspectives of Customer Satisfaction and Relationship Marketing This study explores the satisfaction variables within the banking industry. The key findings of an empirical research are based on the data collected from 555 customers. Systematic methodology, including design and validation of questionnaire, factor analysis and regression analysis were utilized to enhance reliability of the findings. The study reinforces that customer satisfaction is linked with performance of the banks. The authors demonstrate how adaptation of satisfaction variables can lead to better performance. Kalluru Siva Reddy (31)(2009) conducted study on Ownership structure, Performance and Risk in Indian Commercial Banks This study examines the effect of ownership on performance and risk of commercial banks in India during the period 1995-2007. The study using t-test, fixed effects and random effects model, examines whether there exists any significant difference in the performance and risk among the state owned banks, domestic private banks and foreign banks, controlling other factors. The result show significant differences in the performance ad risks and FBs seem to be more profitable and more risk taking than both DPB and SOBs. Bank capital and demand deposit are positively associated and loans are negatively associated with bank profitability, where as size of bank and growth rate of economy are negatively associated with bank. Kunjukunju Dr.Benson(32) Reforms In Banking Sector and Their Impact in Banking Services In this study it has been discussed that the strategies followed by the Indian Banks are still far from adequate and have not obtained the expected results. The systematic planning and introduction of customer oriented and customized products and services by the Indian Banks will help them to compete and succeed in the contemporary competitive banking environment. In a competitive business environment in order to retain and widen the customer base, the banks should initiate steps to better personal contacts with their customers. The banks must concentrate on enhancing quality of its personnel and try to develop it further. Lastavica, John.(33)(1983) conducted study on Three Rudiments for Asset/Liability Managers This study indicates that as bankers shift their portfolios of liabilities and assets in an environment of changing interest rates, they must understand 3 basic concepts - gap, maturity matrix, and implicit rate forecast. The funding gap is the difference between assets and liabilities that will mature up

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to a specific point in time. The key factors in gap analysis are the future course of interest rates and whether the gap is positive or negative. As interest rates are rising, a positive gap generally should be created. Assets are reprised higher at a faster rate than are liabilities. The maturity matrix is a special gap report by which one can compare the relative volume of assets and liabilities at various maturity levels and identify where gaps exist. Based on the forecast for interest rates and the slope of the yield curve, one can determine the most profitable maturities and refunding to be made on specific assets and liabilities Lafayett (34) (1997 conducted study on Banking on change. The study focuses on the banking reforms implemented by the government of India. Nationalization of major domestic banks; Factors that limited the viability of state-owned banks; Removal of the interest rate structure; Allocation of resources to re-capitalize some banks. INSET: Foreign banks in India Mahesh H.P. Meenakshi Rajeev(35) (2009) conducted study on Producing Financial Services: An Eficiency Analysis of Indian Commercial Banks The present study attempts to examine the changes in the productive efficiency of Indian commercial banks after the financial sector reforms initiated in 1992. Using stochastic frontier technique we estimate bank specific deposit, advance efficiencies for the period 1985-2004. Our results show that deregulation has significant impacts on all three types of efficiency measures. While deposit and investment efficiencies have improved, advance efficiency has declined marginally. Public sector banks as a group ranks first in all the three efficiency measures showing that, as opposed to the general perception, these banks are doing better than their private counterparts. Private Banks however have shown marked improvement during the post-liberalization period in terms of all three types of efficiency measures. Mohan Rakesh(36)(2005) conducted study on Reforms, Productivity and Efficiency in Banking: The Indian Experience The address has have traversed a modest terrain, focusing on the efficiency and productivity changes in the Indian Banking. Over the reform period, more and more banks have begun to get listed on the stock exchange, which in its wake has led to greater market discipline. Such diversification ownership has also led to a qualitative difference in their functioning, since this induction of private shareholding as well as attendant issues of shareholders value. The issue of mixed ownership as an institutional structure where government has controlling interest is a salient feature of bank governance in India. Such aspects of Bank governance in PSBs is important not only because PSBs dominate the banking industry but also because it is likely that they would continue to remain in banking business. The patterns of efficiency and technological change witnessed in Indian banking can be viewed as consistent with expectations in an industry undergoing rapid change in response to the forces of deregulation. In

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reaction to evolving market prospects, a few pioneering banks might adjust quickly to seize the emerging opportunities, while other responds cautiously. As deregulation gathers momentum, commercial banks would need to devise imaginative ways of augmenting their incomes and more importantly their feeincomes so as to raise efficiency and productivity levels. Nachane, D. M.Ghosh, Saibal (37)(2004) conducted study on Credit Rating and Bank Behaviour in India: Possible Implications of the New Basel Accord The paper examines the impact of credit rating on capital adequacy ratios of Indian stateowned banks using quarterly data for the period 1997 to 2002. To this end, a multinomial log it model with multi credit rating indicators as dependent variable is estimated. The variables that can impinge upon capital adequacy ratio have been used as explanatory variables. Two separate models one for long-term credit rating and another for short-term credit rating have been estimated. The paper concludes that, both for short-term as well as for long-term ratings, capital adequacy ratios are an important factor impinging on credit rating of Indian state-owned banks. Ozkan-Gunay,E.Nur,Tektas, Arzu(38)(2006) conducted study on Efficiency Analysis of the Turkish Banking Sector in Pre-Crisis and Crisis Period: A DEA Approach The study concludes that structural weaknesses and recent crises increased the fragility of the Turkish banking system. Consequently, 25% of the domestic commercial banks were taken by SDIF between 1997 and 2001. This study assesses the technical efficiency of nonpublic commercial banks between 1990 and 2001 following the DEA model The study reports a declining trend in the number of efficient banks and the mean efficiency of bank subgroups. It analyzes sensitivity to the output variables and depicts consistency between the model proposals and supervisory agent decisions. Thus the DEA model can be a tool to detect and improve the sources of inefficiency by bank management and supervisory agents Patil Dr. P.B. and Thakkar P.N.(39)(2007) conducted study on Impact of Disinvestment on Banking and Insurance Sectors This study finds out that banking sector has been progressing thanks to the growing economy and many stabilized micro- economic fundamentals. However profitability is the main priority for the private sector and hence, it does not concentrate on the socio economic development of the country. Today the paradigm of universal banking is fast catching up. Banks are striving to be universal service providers, both for the whole sale and the retail customers. Several Indian financial institutions are emulating international players like citigroup, Bank of America, HSBC etc. for becoming the universal banks. Adopting the new paradigm are newly started private sectors banks like HDFC, ICICI, UTI etc. currently they account 4.1% share of the domestic

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market but their impact is tremendous. These banks occupy a niche between state owned and foreign banks.

Pal Ved, Bishnoi N.K(40)(2009) conducted study on Productivity Analysis of commercial Banks in India This study explain the productivity growth of the Indian Banking Sector using panel data 63 commercial banks from 1996-2005. Data envelopment analysis to calculate and decompose the Mallmquest index of total factor productivity growth into technical change, change in technical efficiency and change in scale efficiency. It allows the identification of the sources of productivity growth which is crucial for policy formation. The study reveals that overall productivity growth is the result of technical progress accompanied by stagnating and negative growth rate in the other components of total factor productivity. Rao Dr. Nageshwar and Tiwari Dr. Shefali(41)(2009) conducted study on Efficiency indicators of commercial banks in liberalized environment in India This paper discusses about the globalization and capital market growth, combined with a shift of focus from interest income to more stable fee income, are placing banks lending and deposit businesses under increasing pressure. Banks are paying more attention to their cash trade and treasury businesses. Thus banks are concentrating more on micro and macro factors of efficiency. Falling interest rates, a pickup in demand for loans, chiefly in retail sector and good spreads in treasury transactions caused a substantial face lift to all players in the banking sector. All top rated banks have succeeded in reducing their NPAs by around 65 percent to 100 percent. The growth in business is also an impressive 24-41 percent. The study enables to identify efficiency factors affecting the banks individually as well as an industry. Prediction of future performance would be more accurate and hence reliable. Raju D.N.M.(42) (2009) conducted study on Evaluation of the performance of State Bank of India with special reference to Non Performing Assets (NPAs) The study reveals that magnitude of NPA has a direct impact on the banks profitability as legally they are not allowed to book income and on same time banks are forced to make provision on such assets as per RBI guidelines. The focus of the study is evaluating the financial and operating performance of State Bank of India in the light of changing conditions emerging out of the implementation of financial sector reforms. Another aspect covered in depth is the changing picture of nonperforming assets (NPAs) of the bank. The operations of SBI from the five regional offices of the SBI- Vijayawada zone and the consolidated position of the zone, segment wise for an eleven period, the studying brings out a number of suggestions

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for improving the performance of SBI; strengthening the recovery position of NPAs, prevention and reduction of NPAs. Rao,Nageshwar,Tiwari, Shefali(43)(2008) conducted study on Study of Factors Affecting Efficiency of Public Sector Banks. According to this study banking industry in India is all poised for a major leap in coming years. The year 2004 witnessed some major positive changes in this industry. Falling interest rates, a pickup in demand for loans, chiefly in retail sector and good spreads in treasury transactions caused a substantial face lift to all players in the banking sector. All top rated banks have succeeded in reducing their NPA's by around 65% to 100%. The growth in business is also an impressive 24-41%. But, one thing that is sending alarm signals is that stronger banks are becoming stronger and weaker ones are in the process of being wiped off. This calls for an in depth study of efficiency in the public sector banks, the factors responsible for success and failure of banks. The present study aims at finding answers to similar questions and reveals efficiency determinants amongst public sector banks in India. This study has evaluated the factors affecting the efficiency of public sector banks using twenty-three variables, employing product moment correlation. Roland Christian(44) conducted study on Banking sector Liberalization in India This study analyses that India has over the last decades experienced different degrees of repressive policies in the banking sector. This study focuses on the changing intensity of three policies that are commonly associated with financial repression, namely interest rate controls, statutory pre-emption and directed credit as well as the effects these policies had. The main findings are that the degree of financial repression has steadily increased between 1960 and 1980, and then declined somewhat before rising to a new peak at the end of the1980s. Since the start of the overall economic reforms in 1991, the level of financial repression has steadily declined. Despite the high degree of financial repression, no statistically significant negative effects on savings, capital formation and financial development could be established which is contrary to the predictions of the financial liberalization hypothesis. Ramasastri A.S. and Achamma Samuel (45)(2006) conducted study on Banking sector development in India, 1980-2005- what the annual account speaks? The objective of this research paper is to study the trends in important banking indicator for the 25 years period from 1980 to 2005, covering both pre and post reforms period. A comparative analysis of various bank groups with respect to different variables has also identified certain specific problem areas of the respective groups. In this research paper they analyzed that the public sector banks continued to play a very prominent role in both deposit mobilization and credit disbursal even after the implementation of reforms since 1991. They contribute about 75 per cent of the

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total deposits mobilized and total credit advanced by all scheduled commercial banks. The entry of domestic private sector banks has been altering this trend to some extent since the late nineties. There has been a significant change in the composition of deposits, with a clear shift in favour of term deposits, whereas demand deposits witnessed a decline. The share of savings bank deposits remained more or less constant. It is observed that more funds of short-term nature in the form of demand deposits are parked with the foreign banks group. This may be an indication that the business class is attracted towards better service offered by foreign banks. Across the bank groups, there has been a significant reduction in the non-performing assets (NPAs). The composition of NPAs of public sector banks interestingly reveals that NPAs connected to non-priority sector has increased, whereas, NPAs relating to priority sector advances exhibited a decline. This goes to explode the commonly held myth that the problem of NPAs is caused mainly due to the credit allocation made to priority sectors. The study has clearly brought out the positive effects of the reform measures on the banking industry in general. The pace of the reform process is sometimes a cause for concern and criticism. But, there seems to be a great wisdom in this gradualism. Rao Dr. Rishika(46)(2006) conducted study on Benchmarking Overall Performance (Camel Analysis before and after VRS) The objective of this work is to measure the performance of the banks before and after administration of VRS. For this purpose CAMEL analysis has been comprehensively used in following order for all the sample units. Parameters of each element of CAMEL model are first ascertained in a chronological order, classifying the data in two mutually exclusive category i.e. pre VRS and Post VRS period. Banking has to face various risk such as operating, market and financial risk and regulatory requirement provides cushion against them viz. Basel Accord etc. CAMEL rating technique is relatively a new development in benchmarking the banks performance. The findings of the study are that OBC scored first rank in pre and post VRS period as per CAMEL model. It secured first rank on the basis of asset quality, management efficiency and earning efficiency in the contrary it secured last in terms of liquidity position. BOB stood second due to excellent liquidity, good management, moderate earning efficiency and capital adequacy. However the interbank comparison on the basis of CAMEL model ranking revealed that the relative performance of Dena bank, UCO Bank and OBC remained same. It is important to note that rank of PNB among the sample banks improved slightly after VRS. Shyamala Gopinath(47)(2008 ) conducted study on Corporate Governance in the Indian Banking Industry The study makes a case for corporate governance as an internal mechanism in banks, and therefore influenced by cultural issues, to dovetail with the overriding compulsions of prudential regulation that sets the boundaries for systemic stability. The dynamic changes in the structure of global financial markets and the blurring of boundaries between different players banks, investment

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banks and hedge funds, pose new challenges for financial regulators. This is especially crucial in the context of structural mechanisms that are in place to run the new financial conglomerates. From a regulatory perspective, the key issue would be the presence of unregulated entities holding companies in the structure. As is evident from the recent sub-prime problems originating in the United States, all financial entities are interdependent and the collapse of any one, not necessarily a commercial bank, involves a systemic risk and may propel the financial regulator to save it. In the context of overriding compulsions of financial stability and the inherent limitations of any external regulation to anticipate all innovative, exotic derivative products and eliminate the propensity of excessive risk-taking by a bank financial entity, regulators worldwide, and in India, are placing more and more responsibility on bank boards. This has entailed, on the part of the board, a better quantitative understanding of the risks inherent in specific lines of activity and a clear assessment of possible impact on the financials. In the Indian context, the Reserve Bank of India (RBI) has put in place detailed regulations related to the composition of bank boards, the fit and proper criteria for appointment of directors, transparency and disclosure norms for derivative products, related-party transactions, risk-based internal audit and other crucial components of banks corporate governance architecture. Schiller John E (48)(2008) conducted study on Trustee Liability: A Litigator's Perspective The study objectives that the position of trustee brings with it a host of grounds for liability. This study provides the reader with a reality-based example of how a family attorney serving as trustee can find himself in trouble when, under his watch, the assets of the trust substantially diminish. This example is designed to provide the reader with a rudimentary understanding of the basic rules that govern the management of trust assets.

Sanjeev, Gunjan M.(49)(2006) conducted study on Data Envelopment Analysis (DEA) for Measuring Technical Efficiency of Banks According to this study the Indian banking sector has witnessed a series of reforms in the last fifteen years to improve their efficiency. The reforms focused on the deregulation of policies, prescription of prudential norms on capital adequacy, income recognition, asset classification and provisioning for impaired assets. They allowed the opening up of the private sector, including the entry of foreign banks in order to increase competition within the Indian banking system. The reforms also gave greater freedom to the banks to manage both the pricing and quality of resources. This study makes an attempt to evaluate the technical efficiency of the banks operating in India in the post-reform era. The study uses a non-parametric linear programmingbased technique. Data Envelopment Analysis (DEA) is used to determine the technical efficiency of the public, private and foreign banks operating in India. The study has also investigated the relationship between the efficiency and the

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percentage of non-performing assets (NPAs) of the commercial banks operating in India. The results show that the efficiency of the banks has improved over time and that the foreign banks have outperformed both private sector and public sector banks. Competition has increased sharply amongst the banks in the post-reform era. Therefore, it is evident that banks have responded positively to the reforms. It is concluded that the Indian banking sector is likely to witness greater thrust on reforms in coming years Seetharaman A., N.G ,Shreelee, Rajusudha (50 )(2008) conducted study on The Impact of the mergers of Malaysian banks This study was conducted with objectives to study the role and consequences of the banks mergers, secondly to investigate the challenges of bank merger success and its impact to the banking industry in Malaysia and thirdly, the post merger performance of the local banks and foreign banks. Mergers and consolidation exercises taking place in Malaysia are just the beginning of a strategic transformation to enhance and upgrade the quality of the domestic financial sector to world class status preparing them to embark on open competition in line with the World Trade Organization (WTO) agenda for services. The second pressure facing smaller domestic banks is the increasing scale of the three biggest banks which are leaving most of the smaller banks behind. It is obvious that the smaller banks missed the window of opportunity to capitalize on their position as new anchor banks after first wave of consolidation at the turn of the millennium. In general, this study is aimed to investigate the impact of the merger to the banking industry as well as the impact of the liberalization of the financial market in Malaysia. The recent liberalization of foreign bank entry is aiming at increasing competition and improving efficiency in the domestic banking sector. Nevertheless, foreign banks entry has had limited impact so far, which may be because of a period of adjustment for foreign banks a different business profile of foreign banks or the limited scope of liberalization. Restoring bank profitability involves cutting expenses through downsizing the labor force reducing branches and promoting lower cost deposits. Banking institutions were given the liberty to form their own merger groups and to elect their own leader to lead the merger process. Approval was granted for the formation of 10 banking groups, each with minimum shareholders equity of RM 2 billion and an asset base of RM 25 billion. Over a period of only two years, BNM forced the mergers 58 financial institutions comprising commercial banks, merchants banks and finance companies into 10 domestic anchor banks groups with 13 foreign banks.

Srivatsa H.S, Srinivasan R. (2009) conducted study on New Age Youth Banking Behavior an Explorative Study in the Indian Banking Sector This study finds out that the banking scenario in India has witnessed a rapid growth coupled with intense competition. This sector has witnessed rapid technological
(51)

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deployments, intense price wars almost leading to commoditization of the sector, product innovations, public sector losing their market share to private banks and ultimately an intense to win over the customers. The study deploys the use of psychographics to study the Indian retail banking customers. This study is a result of the research conducted by in the state of Karnataka in India and is empirical by nature.

Sanjeev, Gunjan M.(52)(2006) conducted study on Does Banks' Size Matter in India?This study has evaluated the efficiency of the public sector banks operating in India for a period of five years (1997-2001) using the Data Envelopment Analysis (DEA). Further, it is investigated if there exists any relationship between the efficiency and size of the banks. The results of the study suggest that no conclusive relationship can be established between the efficiency and size of the banks. Shrimal skully, Michael wickramanayake PERERA, , J. (53)(2007) conducted study on Cost Efficiency in South Asian Banking: The Impact of Bank Size, State Ownership and Stock Exchange Listings This study examines the cost efficiency performance of 111 commercial banks in Bangladesh, India, Pakistan and Sri Lanka over 19972004. The primary focus is to assess whether bank size, state ownership and stock exchange listing have significant effects on South Asian banks' efficiency performance. To this end, a translog-form composite-error cost efficiency model, which allows for exogenous environmental influences, is estimated. The results indicate that the overall efficiency of South Asian banks declined over 1997 2004. Larger banks and banks with widespread ownership through stock exchange listings were found to be relatively more cost efficient. In contrast, state-owned banks were less efficient. Sinha Ram Pratap (54) (2007) conducted study on Asset Quality Profile of Indian Commercial Banks: A Stochastic Frontier Approach The study presents the impact of factors like banks operating efficiency, capital adequacy ownership and bank size on the asset quality of the observed commercial banks in terms of a fixed effect panel data framework. The fixed effect analysis part of the study includes in addition to the 28 commercial banks included in the Stochastic Frontier Analysis, 2 more private sector commercial banks (the global trust bank and the IDBI bank).The period of analysis is 2000-01 to 2004-05. The present paper includes a comparative study of the asset quality profile of the Indian commercial banks for the reform period. During the reform period, the commercial banking sector has progressed a lot in respect of adoption of the global best practices in so far as credit risk management is concerned. From the technical efficiency scores relating to asset quality, it appears that the public sector commercial banks have out-competed their private sector counterparts. The econometric results show that operating profit ratio and capital adequacy are two important determinants of asset quality. However the

58

effect of size and ownership are found to be statistically insignificant. This is probably suggestive of the fact that the quality of bank management is the key variable in separating good banks from bad banks. Sharma Nachiket Mor Bhavna (55) (2003) conducted study on Rooting Out NonPerforming Assets The paper has attempted to provide a more comprehensive approach to management of NPAs in banks. It is argued that if the goal is to deal with NPAs (and more generally the health of the financial system) in a definitive manner and root them out, then it is necessary to first deal with the micro level issues at the level of each individual intermediary. And, unless these issues are dealt with prudently, even after the systemic issues are resolved, these problems may resurface even in economies where on the face of it many of these systemic issues apparently are not operative. So there is a case to build institutions that are intrinsically strong and healthy by rooting out those issues that on a continuous basis create perverse incentive structures. In this light the role of consistent (consistent in terms of shareholder and regulatory expectations and behavior) business model to guide the behavior of the bank each of the phases of a credit process have been discussed. It is argued that the current set of organizational competencies, the regulatory framework in which the banks operate the quality of disclosure and the incentive structure of the management and Boards produce an inconsistent framework, which leads to an unsustainable performance level for a Bank. In this light, the role of parsimonious but sufficient statistics such as the Economic Value of Equity (EVE) and EVE at Risk (EVER) has been emphasized. It is argued that if these measures are mandatory disclosed on a monthly basis, it will help in making these inconsistencies visible. Infact, EVE and EVER could also become effective methods by which the regulator could exercise a macro level control over the banks and could also drive the development of internal competencies at all levels as Boards, Managements and employees strive to understand the drivers of these two metrics. Saumitra and Shanmugam K.R. (56) (2005) conducted study on Indian Banking Sector- Is it on right Track? In this article the author has discussed that the banking sector performs reasonably well with respect to the goals set by the Narasimham Committee, particularly in the context of the poorly performing banks and showing some encouraging signs to meet the Basel II norms by 2006. However, one should not go over board to evaluate the success of the Indian banking sector, particularly from the perspective of a developing economy such as ours. Policymakers should be extra cautious in giving free a reign to the banking sector in pursuing "profit and risk" based strategies. Recent trends in non-synergy based consolidation, growing disinclination to lend money towards productive purposes and to the unprofitable sectors such as agriculture, self-help groups, infrastructure and to small and medium sized enterprises, its growing engagement in nonproductive treasury operations and conspicuous consumer lending will seriously impair the role of banks as public instruments of development. Therefore,

59

maintaining a balance between these two objectives will remain a challenge to the banking sector for some time to come. Sharma Dr Kapil(57)(2007) conducted study on An Empirical study of Asset Liability Management Approach By Indian Banks The objectives of the study are: to study the relationship between assets and liabilities of Indian banks in terms of nature and strength, to determine to component of assets explaining variance in liability and vice versa, to study the impact of ownership over asset liability management in banks. For this study a sample consisting of nationalized, private and foreign banks operating in Indian environment was taken. The study concluded with the findings that among all banks SBI & associates have the best correlation between assets and liabilities which indicate that they have best asset- liability maturity pattern. Other than foreign banks all other banks can be called liability managed banks. They all borrow money from market to meet there maturing liabilities. Fixed assets and net worth are highly correlated. All banks have proportionate net worth and investment in fixed assets. Private Banks are aggressive in profit generation. They use short-term funds for long term investments. They use risky strategy in case of liquidity problem or rising interest rate scenario. Nationalized banks are more concerned about their liquidity. Even surplus shortterm deposit they dont use it for long term. They use long term funds for long as well as medium & short-term loans. Singh Dharmendra and Kohli Garima(58) (2006) conducted the study on Evaluation of Private Sector Banks in India A SWOT Analysis The main objectives for undertaking this study are: benchmark the Indian listed banks for the future, assess the performance of Indian banks on the basis of CAMEL model, give rating to top five and bottom five banks on the basis of their performance, to know the status of technological advancement in private sector banks, to measure the growth of private sector banking in India. The period chosen for the study is May 2005.all private sector and public sector banks operating in India have been covered in this study. They analyzed in their study that the Indian Banking system still suffers from under penetration and any new bank entering the market is likely to make money. Only those banks will excel that focus on building strong brands, developing innovative new products and aim to provide higher standards of service quality by putting the customer at the center of everything they do. For that purpose, both old and new private sector banks will continue to strive, offer cost effective strategies, efficient services to their customers, strengthening service quality and cross selling of product and services. Another important feature of Indian banking is Mergers and Acquisition and this likely to continue for a few more years. Market forces are compelling these banks to conglomerate and consolidate their business operations to leverage their competitive abilities. Mergers in days to come will no longer will be issue of choice, but will be that of compulsion. The new generation

60

banks in India are different from the traditional players; these have set the trends in the usage of technology, better utilization of manpower, along with professional management adopting corporate governance principle. The success of these private sector banks made the large traditional banks follow suit by inducing technology to retain customers profitably. Another feature of the Indian banking sector is mergers and acquisition and this is likely to continue for few more years. Market force play important role in compelling these banks to conglomerate and consolidate their business operations to leverage their competitive abilities. Sayuri Shirai (59)(2001) conducted study on Assessment of Indias Banking Sector Reforms from the Perspective of the governance of the banking System This paper focuses on Indias banking sector which has been attracting and increasing attention since 1991 when a financial reform programme was launched. This paper assesses whether the reform programme has been successful so far in restructuring public sector banks and what elements of the programme have contributed. This paper tackles the following fundamental questions: In what way has the reform programme affected the behavior of public sector banks? To what extent foreign and new domestic banks contributed to the performance of the whole banking sector? Has Indias gradual approach to the privatization of banks has been successful? What policy implication can we derive from Indias experience? In his paper he analyzed that the current policy of restructuring the banking sector through encouraging the entry of new banks has so far produced some positive Results. However, the fact that competition has occurred only at the lower end suggests that bank regulators should conduct a more thorough restructuring of public-sector banks. Given that public-sector banks have scale advantages, the current approach of improving their performance without rationalizing them may not produce further benefits for Indias banking sector. As 10 years have passed since the reforms were initiated and public-sector banks have been exposed to the new regulatory environment. It may be time for the government to take a further step by promoting mergers and acquisitions and closing unviable banks. A further reduction of SLR and more encouragement for non-traditional activities (under the bank subsidiary form) may also make the banking sector more resilient to various adverse shocks. Toby, Adolphus J.(60)(2006)conducted study on Methodological Approach to the Study of X-Efficiencies and Scale Economies in Banking: Are Smaller Banks more Efficient than Larger Banks? This paper surveys the parametric and nonparametric approaches adopted in estimating x-efficiencies and scale economies in banking. Specifically, the traditional stochastic cost frontier and Data Envelopment Analysis (DEA) methodologies, including recent refinements incorporating the profit efficiency frontier and a profitability test are also extensively reviewed. Recent empirical studies covering the late 1990s and early 2000s, and countries other than the U.S. are also reviewed and compared with the findings of earlier

61

studies (1980s and early 1990s). The results are still mixed, suggesting more questions than answers. To a large extent the empirical evidence seems to support the view that smaller banks are more efficient than larger banks in most countries. The exceptional cases of cost efficiencies reaped by larger banks may be simply due to sheer size and market power. The pursuit of consolidation and deregulation of the banking system should therefore be implemented with caution, particularly in developing banking systems. Economic Political Weekly Research Foundation (61)(2007) conducted study on A Shift in Profile of Bank Lending This paper focuses on professed diversification taking place household have continued to use bank deposit as major preferred avenue for financial saving. In recent years asset liability profile of banks has moved towards longer maturities. Term deposits are increasing and lending is also of the longer duration variety. But this does not mean banks are filling the gap created by the exit of development finance institutions: the share of personal long term loans in total term lending has sharply risen and that of industry has fallen. While within lending to industry the share of term loans has increased, this is a statistical artifact, more the result of companies shifting to non bank source for working capital. Banks have begun to offer higher rates of interest for longer maturities and the government following pressures from banks has also extended fiscal concessions for long maturity deposit. More radical changes are occurring in the distribution of bank loans as between medium term and long term loans on the one hand and cash credit, overdrafts and various other forms of short duration loans on the other. It may appear that banks may have found an answer to the vacuum created by the absence of development finance institutions (DFI).

Summary Thus, various researchers have used different methods to analyse the performance of banking sector. The main features of above given studies are as follows: Numerous studies on banks to analyze the performance are based on the Data Envelopment Analysis (DEA) approach as quoted by Ozkan, Tektas, Arzu (2006) a tool to detect and improve the sources of inefficiency by bank management and supervisory agents, which shows that risk management issues as well as explicit consideration of government rules and directives drive an edge between the functioning of public sector banks and private sector banks. That efficiency and soundness has a close relationship to determine the banks capital adequacy ratio.

62

The analysis using this technique further revealed that there is no definite relationship between efficiency and size of banks. The studies also show that technically more efficient banks are those that have on average less non performing loans. The composition of NPAs reveal that NPAs connected to non-priority sector has increased, whereas, NPAs connected to priority sector advances exhibited a decline. Further the cost competence of banks determine that wide spread ownership through stock exchange testing were found to be more cost efficient and state authorized bank to be less cost efficient. This method of analysis is not free from discrepancies like results are sensitive to the selection of inputs and outputs. The most importantly results are potentially sensitive to the selection of inputs and outputs, so their relative importance needs to be analyzed prior to the calculation. However, there is no way to test their appropriateness. The number of efficient firms on the frontier tends to increase with the number of inputs and output variables. When there is no relationship between explanatory factors (within inputs and/or within outputs), DEA views each company as unique and fully efficient and efficient scores are very close to 1, which results in a loss of discriminatory power of the method. Another method most comprehensively used is the CAMEL Model. The acronym "CAMEL" refers to the five components of a bank's condition that are assessed: Capital adequacy, Asset quality, Management, Earnings, and Liquidity. A sixth component, a bank's Sensitivity to market risk was added in 1997; hence the acronym was changed to CAMELS. An overall rating of 1 is best while a rating of 5 implies a bank being laden with existing or potential problems. Learned optimism demonstrate significant role in the efficiency of the people. It provides high energy level and stress tolerance which help people cope with the hectic pace and unrelenting demand of the managerial jobs, frequent role conflicts the pressure to make important decision without adequate information. Further, the reforms in the banking sector has made environment more competitive in order to retain and widen customer base and enhance quality of its personnel for further development. Moreover the studies also show that fixed assets and net worth are highly correlated. The CAMELS approach suffers from indeterminacy, subjectivity and even inconsistency. As most bank analysts and examiners will acknowledge, there are instances when an examination of the accounting records cannot decide whether to give an average or below average score. The good and

63

bad indicators are easy to spot, but not so the in-betweens. This is a problem of indeterminacy, but when bank inspectors are forced to make a judgment, then it leads to the second problem of subjectivity and where human minds are at work, they come with differing levels of expectations and perspectives Finally, it was analyzed that in case of Indian Commercial banks, Data Envelopment Analysis (DEA) and CAMELS Model are practiced to assess the effectiveness of banking sector which is not secluded from various discrepancies. Therefore there was a need to analyze the comparative performance of banking sector, considering public sector and private sector banks in India. This study is an attempt to analyze the comparative performance of public sector and private sector banks in India. Thus, the present study is the departure of the earlier reviewed studies.

64

CHAPTER-3

PERFORMANCE OF PRIVATE SECTOR AND PUBLIC SECTOR BANKS

3.1 Introduction

The banking scenario in India has already gained the momentum, with the domestic and international banks gathering pace. All the banks in India have shifted their focus to cost determined by revenue minus profit. This means that all the resources should be used efficiently to improve the productivity 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 introduction of banking reforms, banks shifted their approach to the 'profit' model, which means that banks aimed at profit maximization, therefore, there is the need to discuss this issue in detail. Thus, this Chapter analyses the individual performance of private sector and public sector banks undertaken for the study. 3.2 Performance of Private Sector Banks The existence and success of banks depend on their ability to meet the various needs and wants of the customers. The new millennium has brought with it challenges as well as opportunities in various fields of economic activities including banking. Private Banks have played a major role in the development of the Indian banking Sector. Private sector Banks undertaken for the study are: Axis Bank, South Indian Bank Ltd., Bharat Overseas Bank Ltd., Dhanalakshmi Bank Ltd., HDFC Bank Ltd., ICICI Bank Ltd, Jammu & Kashmir Bank Ltd., Yes Bank, Bank of Rajasthan, Kotak Mahindra bank. To analyze the profitability of the bank multiple statistics is applied which helps to examine the relationship between various variables. The profitability of the bank is considered dependent on the returns liquidity, asset and capital adequacy of the banks. The profitability is analysed from year 1991-1992 to 2008-2009. The various independent variables taken are: returns, assets, liquidity and capital adequacy.

65

3.2.1 AXIS BANK Axis Bank- a private bank- began its operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd. Profitability: Table-3.1 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. It is also found that Non-performing assets have increased sharply. The Net NPAs and the Gross NPAs as proportions of Net and Gross Customer Assets were at 0.35% and 0.96% respectively as at the end of March09, as compared to 0.39% and 0.90% as at the end of December08, and 0.36% and 0.72% as at the end of March08. It may be due to writing-off of impaired assets aggressively, by the Bank in recent years. The provisions held together with accumulated write-offs, as a proportion of Gross NPAs and accumulated write-offs, amount to 85.31% at end March09. If the accumulated write-offs are excluded, then the provisions held as a proportion of Gross NPAs amount to 63.56% as at end March09. Further, the analyses shows that the value of coefficient of multiple determination ( ) is quite high. It is also revealed that about 95%-100% of variation in profitability

is explained by the combined effect of independent variables. It may be seen that the required coefficient of variables are significant at 1% level of significance. It is concluded that coefficient of determination is very high. The DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multi co linearity

66

Table-3.1 Multiple Regression Analysis of Axis Bank Dependent variables R 1.000 1.000 0.978 1.000 0.999 R Square 1.000 1.000 0.976 1.000 0.999 Adjusted R Square Std. Error of the Estimate -

PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income net of P&E PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E

DurbinWatson 2.719 2.774 2.700 2.502 2.799

1.000

1.000

2.762

0.957

0.946

2.737

1.000

1.000

2.638

3.2.2 BANK OF RAJASTHAN Bank of Rajasthan, with its stronghold in the state of Rajasthan, has a nationwide presence, serving its customers with a mission of together we prosper " engaging actively in Commercial Banking, Merchant Banking, Auxiliary services, Consumer Banking, Deposit & Money Placement services, Trust & Custodial services, International Banking, Priority Sector Banking, Depository. Bank of Rajasthan, a leading Private Sector Bank, having branches all over India with prominent presence in Rajasthan having specialized forex and Industrial finance branches.

67

Profitability: Table-3.2 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. During 1999, when most banks showed a drop in profits, Bank of Rajasthan (BoR) registered a turnaround with a meager net profit of Rs 3.99 crore. Non-performing assets (NPAs) of the bank are at 9.5 per cent of its advances valued at Rs 359 crore. Therefore low performance of the bank was largely due to management problems. Bank of Rajasthans Net Non-performing loans as a percentage of loans marginally rose to 0.73% in 2009 from 0.42% a year ago. The promoter groups holding in June stood at 30.54%. Under RBI norms, the promoters are required to pare their holding to 10% in a bank. RBI norms persist that the minimum net worth or equity and reserves of a bank should be Rs300 crore. The banks net worth is Rs643.47 crore.

Table-3.2 Multiple Regression Analysis of Bank of Rajasthan Dependent variables R PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E 1.000 .999 1.000 1.000 .947 R Square 1.000 .999 1.000 1.000 .946 Adjusted R Square Std. Error of the Estimate DurbinWatson 2.716 3.376 3.368 2.716 3.203

1.000

1.000

3.234

.986

.978

3.115

1.000

1.000

3.314

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Infact, RBI has not given any fresh branch license to the bank in the recent past. Bank of Rajasthan has also not appointed a chairman since August 2004 when RBI refused to renew the tenure of P.K. Tayal, its promoter, as non-executive chairman. The bad loans accompanied by management problems led to erosion of the bottom line. This was due to previous promoter group companies have defaulted on loans worth over Rs 50 crore and the bank has filed criminal cases against them. The analysis also shows that the value of coefficient of multiple determination ( ) is

quite high. The analysis revealed that about 94%-100% of variation in profitability is explained by the combined effect of independent variables. It may be seen from the table that the required coefficient of variables are significant at 1% level of significance. It is concluded that coefficient of determination is very high. It may be seen from tables that DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity. 3.2.3 BHARAT OVERSEAS BANK Bharat Overseas Bank, Chennai-based Indian private sector bank has a unique history. Established to take over from Indian Overseas Bank's Bangkok branch, in Thailand in 1973, it is the only private bank permitted by the Reserve Bank of India to have a branch outside the country. Bharat Overseas Bank has been promoted by seven banks, and is the only bank to represent India in Thailand, serving the Indian ethnic business community for over 25 years. Profitability:

It is seen from the Table-3.3 that the negative relationship between profitability and return, assets, liquidity, capital adequacy. The Net NPAs of Bharat Overseas Bank had risen to 4.38% during the year 2001-2002. In fact the poor performance of the steel and textile sectors was the reasons for the increase in NPAs during the year 2001-02.

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Table -3.3 Multiple Regression Analysis of Bharat Overseas Bank Ltd. Dependent variables R PBDITA/Total income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E .986 1.000 1.000 .999 1.000 R Square .987 1.000 1.000 .999 1.000 Adjusted R Std. Error of Square the Estimate DurbinWatson 3.003 2.936 2.831 3.356 2.925

.975

.965

3.101

PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E

.984

.975

2.897

1.000

1.000

3.394

Its return on assets has been significantly below 1 per cent when other banks have managed better. The reason for poor performance is due to rise in interest rates. The value of coefficient of multiple determination ( ) is quite high. The analysis

revealed that about97%-100% of variation in profitability is explained by the combined effect of independent variables (returns, assets, liquidity, and capital adequacy). It may be seen from the analyses that the required coefficient of variables is significant at 1% level of significance. It may also be seen that coefficient of determination is very high. Further, it is observed from the analyses that DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity.

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3.2.4 DHANALAKSHMI BANK It was incorporated at Thrissur, Kerala by a group of ambitious entrepreneurs. It became a Scheduled Commercial Bank in 1977, and in 2009, was awarded approval by the Reserve Bank of India for opening 181 branches and 1411 ATMs across the country. The bank has been focusing mostly on Southern states like Karnataka, Tamil Nadu, Andhra Pradesh and Kerala. In 2009, bank started a brand transformation initiative which will include changing the logo and related branding treatment across all its customer touch-points. Profitability: Table-3.4 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. Its small-sized non-performing loans totaled Rs 89 crore in the year 2007-2008 which has affected the returns to the bank negatively. This is basically due to increased exposure to commercial real estate (8.2% of total loans) and concentration of loans on regional SMEs, where delinquencies have been rising for the industry as a whole. Table-3.4 Multiple Regression Analysis of Dhanalakshmi Bank Dependent variables PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E R .999 .999 .999 .999 .999 1.000 R Square .999 .999 .998 .998 .999 .999 Adjusted R Square .980 .983 .965 .977 .984 .988 Std. Error of the Estimate 1.28875 .70364 1.24845 .70673 1.16490 .59659 DurbinWatson 3.087 3.087 3.087 3.087 3.087 3.087

.999 .999

.998 .999

.972 .984

1.14167 .59786

3.087 3.087

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Dhanalakshmi Bank Ltd, recently under the glare of the banking regulator, are restructuring their organizations to become more efficient, as it needs to improve its capital base to cater more services to the investors. Dhanalakshmi, too, has gone on a hiring spree. The bank has also introduced employees stock ownership plans, The analyses further reveal that value of coefficient of multiple determination ( ) is

quite high. It is also found that about 99% of variation in profitability is explained by the combined effect of independent variables. It may be seen from the analyses that the required coefficient of variables is significant at 1% level of significance. It may be seen that coefficient of determination is very high. It may also be seen from the analyses that DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity.

3.2.5 HDFC Bank The Housing Development Finance Corporation Ltd (HDFC Ltd) aims at furthering home ownership by providing long term finance to the household sector. It also provides housing finance consultancy services to various international agencies like The World Bank, Asian Development Bank, United States' Agency for International Development etc FII's hold more than 60 % of HDFC's equity, Indian Public holds less than 15 % and the rest is being held by banks and others. Profitability: Table-3.5 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. The reason for negative relationship is due to operating (non-interest) expenses increased due to higher infrastructure and staffing expenses in relation to the expansion in the branch network, and growth in the retail loan and credit card businesses. HDFC Bank Net Non Performing Assets (NPAs) stood at Rs 2.99 billion in 2008 and Banks ratio of gross NPAs to total customer assets was 1.29%, this was basically due to effects of global meltdown.

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Table-3.5 Multiple Regression Analysis of HDFC Bank Dependent variables R R PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E .995 .991 .972 1.02271 2.181 .970 .996 .998 .997 .970 Square .941 .992 .996 .995 .940 Adjusted R Square .822 .975 .987 .984 .821 Std. Error of the Estimate .73953 .98677 .80434 .71806 .73902 DurbinWatson 2.364 2.166 2.281 2.376 2.364

PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E .997 .993 .980 .76565 2.389 .998 .995 .985 .84374 2.290

Further, the value of coefficient of multiple determination (

) is quite high. The

analysis revealed that about 94%-99% of variation in profitability is explained by the combined effect of independent variables. It may be seen from the analyses that the required coefficient of variables is significant at 1% level of significance. It can be seen from the analyses that coefficient of determination is very high. Further it may be seen from the tables that DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity.

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3.2.6 ICICI BANK ICICI Bank was promoted by the erstwhile Industrial Credit Investment Corporation of India Limited (ICICI Ltd.) and the erstwhile Shipping Credit and Investment Corporation of India Limited (SCICI Ltd.) by an initial capital contribution in the proportion of 75:25 respectively. Pursuant to the merger of SCICI into ICICI, the bank became the wholly owned subsidiary of the latter. ICICI reduced its stake in the bank through a public offering of shares in 1998. Its American Depository Receipts (ADRs) were listed on the New York Stock Exchange (NYSE) in 1999-2000. On 3 May 2002, ICICI merged with ICICI Bank. Two more companies - ICICI Personal Financial Services and ICICI Capital Services (subsidiaries of ICICI) were brought under the merged entity. Profitability: Further, Table 3.6 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. The reason for the negative relationship is due to the global meltdown which affected the returns of the Bank. Gross NPAs rose from Rs51, 160.57 crore in the April-June quarter to Rs55, 743.37 crore in the December quarter, 2006. As a percentage of total advances, however, gross NPAs actually declined because the loan base had grown. Gross NPAs include doubtful loans against which banks have set aside money to cover the risk of default. Banks have been keeping a hawks eye on the quality of loan assets amid the downturn that has forced companies to hold back investments and consumers to spend less. However, the banks non-interest income showed a fall despite a strong growth in fee income from selling products such as mutual funds and insurance. The analyses also shows that the value of coefficient of multiple determination ( ) is

quite high. The analysis reveals that about 100% of variation in profitability is explained by the combined effect of independent variables. It may be seen from the analyses that the required coefficients of variables are significant at 1% level of significance.

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Table-3.6 Multiple Regression Analysis of ICICI Bank Dependent variables R R PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income net of P&E PAT Net of P&E/Total Income Net of P&E 1.000 1.000 .943 .999 1.000 Square 1.000 1.000 .976 .989 1.000 Adjusted R Square Std. Error of the Estimate DurbinWatson 3.225 3.395 3.372 3.384 3.094

1.000

1.000

3.407

.989

.978

3.395

1.000

1.000

3.369

It may be seen that coefficient of determination is very high. The DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity. 3.2.7 KOTAK MAHINDRA BANK Kotak Mahindra group is a financial organization established in 1985 in India. It was previously known as the Kotak Mahindra Finance Limited, a non-banking financial company. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship company was given the license to carry on banking business by the Reserve Bank of India (RBI). Kotak Mahindra Finance Ltd. is the first company in the Indian banking history to convert to a bank

75

Profitability: Table-3.7 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. Kotak Mahindra Bank has witnessed a rise of 92 percent of non- performing assets over last few years. The source for rise in NPAs has been due to the unsecured loan segment that comprises primarily of credit cards and personal loans. NPA as a percentage of total assets has gone up from 1.1 per cent in December 2007 to 2.7 per cent in December 2008. It was basically because of the NPAs from other banks that Kotak Mahindra has bought for asset reconstruction business. Table-3.7 Multiple Regression Analysis of Kotak Mahindra Bank
Dependent variables R .998 R Square .996 Adjusted R Square .974 Std. Error of the Estimate 2.72979 DurbinWatson 3.015

PBDITA/Total Income

PBDPTA/Total Income

.998

.996

.974

3.10809

3.120

PBT/Total Income

.996

.992

.953

3.06996

3.136

PAT/Total Income

.997

.994

.964

2.44457

3.127

PBDITA Net of P&E/Total Income Net of P&E

.994

.989

.933

3.11333

3.142

PBDPTA Net of P&E/Total Income Net of P&E

.998

.996

.975

3.01539

3.110

PBT Net of P&E/Total Income Net of P&E

.996

.993

.956

2.94390

3.132

PAT Net of P&E/Total Income Net of P&E

.997

.994

.966

2.35972

3.105

76

However, a sharp decline in the equity markets impacted the profitability of the brokerage, investment banking and the asset management businesses. The banks net profit in 2009 fell by 12 per cent to Rs 211 crore (Rs 240 crore). In the 2009, the consolidated net profit fell by 34 per cent to Rs 652 crore (Rs 991 crore). Further, it is seen that the value of coefficient of multiple determination ( ) is quite

high. The analysis revealed that about 99% of variation in profitability is explained by the combined effect of independent variables. It may be seen from the analyses that the required coefficients of variables are significant at 1% level of significance. It may be seen that coefficient of determination is very high. Further, it may be seen from the analyses that DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity.

3.2.8 JAMMU & KASHMIR BANK Jammu & Kashmir Bank Ltd. was incorporated, to extend banking facilities in the state. The bank has also diversified its operations to include depository services & insurance products. It is registered with NSDL & CDSL to provide depository services & also associated with M/s IL & FS Investsmart Ltd. to provide broking services. It has tied up with Met life to offer life insurance & with Bajaj Alliance General Insurance Co. Ltd. to offer general insurance. The bank also tied up with American Express Bank & Master Card International to penetrate into the card business with 'JK Bank Global Access Card'. Its ATM cum Debit card & J K Bank credit card, both have global accessibility. Profitability:

Table-3.8 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. The negative relation is due to the banks conservative approach for business. However, capital and reserves of the Bank have increased from Rs1.77 crore as on 31-03-1997 to Rs4.29 crore as on 31-03-1999 (capital was Rs478mn). This has happened largely due to the developing new products, improving customer services and augmenting capital base. The bank is the banker to the J&K

77

government and the Centre (for its business activities in the state). As a result, all Central and state funding for projects in J&K is routed through the bank; the governments also extend guarantees for these projects. This gives J&K Bank huge captive business, a large fund float and keeps its NPAs low. Out of gross NPA of around Rs2.43bn, 25-30% was in the priority sector. Remaining Rs1.25bn was distributed across other sectors in 2005. Further, the value of coefficient of multiple determination ( ) is quite high. The

analysis revealed that about 98%-100% of variation in profitability is explained by the combined effect of independent variables. It may be seen that the required coefficient of variables is significant at 1% level of significance. It may also be seen that coefficient of determination is very high. The DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity. Table -3.8 Multiple Regression Analysis of Jammu & Kashmir Bank Dependent variables PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E 1.000 1.000 1.000 .12305 3.294 R 1.000 .999 1.000 1.000 .999 R Square 1.000 .998 1.000 1.000 .986 Adjusted R Square .999 .997 1.000 1.000 .999 Std. Error of the Estimate .32484 .20988 .03067 .01500 .34721 DurbinWatson 3.294 3.294 3.294 3.294 3.294

.999

.999

.994

.30116

3.294

1.000

1.000

1.000

.12921

3.294

78

3.2.9 SOUTH INDIAN BANK LIMITED One of the earliest banks in South India, South Indian Bank came into being during the Swadeshi movement. The establishment of the bank was the fulfillment of the dreams of a group of enterprising men who joined together at Thrissur, a major town (now known as the Cultural Capital of Kerala), in the erstwhile State of Cochin to provide for the people a safe, efficient and service oriented repository of savings of the community on one hand and to free the business community from the clutches of greedy money lenders on the other by providing need based credit at reasonable rates of interest. Profitability: Table-3.9 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. South Indian Bank has felt the lack of a nationwide branch network. In spite of high deposit growth rates, lacks of lending opportunities have bogged down earnings. As at September 2005, bad loans accounted for more than 6 per cent of the advances of South Indian Bank, this ratio being among the highest in the banking industry. Table-3.9 Multiple Regression Analysis of South Indian Bank Dependent variables PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income Net of P&E PAT net of P&E/Total income net of P&E R .999 1.000 .979 1.000 1.000 R Square .975 1.000 .999 1.000 1.000 Adjusted R Square Std. Error of the Estimate DurbinWatson 2.591 3.063 3.234 3.263 3.080

.989

.965

2.991

1.000

1.000

3.226

.999

.999

2.959

79

Further, the analysis also reveals that bank has also found it difficult to generate reasonable returns on its deployments. The net interest margin has been below 3 per cent for most of the past five years. With interest rates also rising since May 2004, profitability has come under stress in the backdrop of poor margins and the pressure on the bad loans front. South Indian Bank has been overwhelmed by these challenges. For the first time in many years, it did not declare dividends for the year-ended March 2005. Further the level of NPAs has been constantly rising The analyses also shows that the value of coefficient of multiple determination ( ) is

quite high. The analysis revealed that about 96%-100% of variation in profitability is explained by the combined effect of independent variables. It may be seen that the required coefficient of variables are significant at 1% level of significance. It is also found that coefficient of determination is very high. Further, it may be seen from the analyses that DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity. 3.2.10 YES BANK Yes Bank is the only Greenfield license awarded by the RBI in the last 14 years, associated with the finest pedigree investors. Yes Bank has fructified into a full service commercial Bank that has steadily built Corporate and Institutional Banking, Financial Markets, Investment Banking, Corporate Finance, Business and Transaction Banking, Retail and Wealth Management business lines across the country, and is well equipped to offer a range of products and services to corporate and retail customers. Profitability: Table-3.10 shows the negative relationship between profitability return, assets, liquidity and capital adequacy. The negative relationship is due to effect on the liquidity because of the global meltdown in the economy during 2008. Further, the non-interest income during 2008-09 fiscal was slightly out of trend. The operating

expenses had not grown in line with the bottom-line growth, i.e. 45.7 per cent increase in operating expenses to Rs 129.5 crore from Rs 88.9 crore. The bank has made a loan loss provision of Rs 41.2 crore for December 2008.

80

Table-3.10 Multiple Regression Analysis of Yes Bank

Dependent variables PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E 1.000 R 1.000 .999 1.000 .976 1.000

R Square 1.000 .970 1.000 .986 1.000

Adjusted R Square -

Std. Error of the Estimate -

DurbinWatson 1.495 2.276 2.768 1.141 2.147

1.000

1.000

2.149

.999

.954

1.696

1.000

2.266

The value of coefficient of multiple determination (

) is quite high. Further, it is

also found that about 95%-100% of variation in profitability is explained by the combined effect of independent variables. It may be seen that the required coefficient of variables is significant at 1% level of significance. It is concluded that coefficient of determination is very high. Further, the DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity.

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3.3 Performance of Public Sector Banks The public sector banks hold a fine numeral of total assets of the banking industry. Since liberalization, the government has approved significant banking reforms. While some of these relate to nationalized banks like encouraging mergers, reducing government interference and increasing profitability and competitiveness; other reforms have opened up the banking and insurance sectors to private and foreign players. Public sector banks make up the largest category of banks in the Indian banking system. The Public Sector banks undertaken for the study are: Bank of Baroda, Bank of India, Central bank of India, Punjab & Sind Bank, State Bank of India, UCO Bank, United Bank of India, Vijaya Bank, Bank of Maharashtra. 3.3.1. Bank of Baroda

Bank of Baroda one of the oldest Banks established in Baroda in Gujarat was founded in 1908 in a small town - Baroda - by the great visionary the late Maharaja of Baroda - Sir Sayajirao Gaekwad-III. Bank has grown, over the years, to emerge as an Indian Financial Powerhouse, with a network of branches in India and also foreign countries. After raising Rs.300 crore through a bond issue in 1995, the bank tapped the capital market with an initial public offering of Rs.850 crore in 1996. Bank is having major shareholding of Government of India. Profitability: Table-3.11 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. The reason for the instability and negative correlation in the specifics of Bank of Baroda is the change in the policy reforms which lead to less returns in 1993, 1996, 2001, this affected the liquidity. Further, Bank of Barodas cost of deposits came down steadily from 7.73 per cent during the financial year 1997-98 to 6.96 per cent (on a fortnightly average basis) during the financial year 2000-2001, in line with the decline in interest rates in the economy.

82

Table-3.11 Multiple Regression Analysis of Bank of Baroda Dependent variables PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E 1.000 .999 .985 .40221 3.083 R .999 .999 .999 1.000 .999 R Square .998 .999 .999 .999 .998 Adjusted R Square .968 .973 .978 .988 .971 Std. Error of the Estimate .98514 .84595 .86518 .37808 .94971 DurbinWatson 3.083 3.083 3.083 3.083 3.083

.999

.998

.969

.87165

3.083

.999

.999

.975

.88637

3.083

NPAs have a significant impact on the banks profitability because of provisioning requirements as well as lost income. The banks NPA position can be attributed to its exposure to cyclical industries like iron and steel, textiles, chemicals and engineering that makes it susceptible to the downturn in these industries. Moreover, the bank has high NPAs in priority sector lending with gross NPAs of 21.88 per cent as of March 31, 2001. This is a cause for concern, given the significant proportion of lending to this sector (49 per cent as against the Reserve Bank of Indias (RBI) norm of 40 per cent). The value of coefficient of multiple determination ( ) is quite high. The analysis

revealed that about 99% of variation in profitability is explained by the combined effect of independent variables. It may be seen from the analyses that the required coefficients of variables are significant at 1% level of significance. It may be seen that coefficient of determination is very high. Further, the DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity.

83

3.3.2 Bank of India Bank of India was founded on September 7, 1906 by a group of eminent businessmen from Mumbai. In July 1969 Bank of India was nationalized along with 13 other banks. Presently, Bank of India has 2609 branches in India spread over all countries with 93 specialized branches. Bank of India was the first Indian Bank to open a branch outside the country, at London, in 1946, and also the first to open a branch in Europe, Paris in 1974. The Bank has sizable presence abroad, with a network of 23 branches (including three representative offices) at key banking and financial centers viz. London, New York, Paris, Tokyo, Hong-Kong, and Singapore. Profitability: Table-3.12 that the negative relationship between profitability and return, assets, liquidity, capital adequacy. The reason for the negative correlation among the various variables studied for Bank of India is due to change in the policy reforms in 1993, which lead to the effect on the assets and returns of the bank. During the year 19931994 the banks profitability was affected by the negative effect on the returns. This was basically due to the change in the policy reforms which lead to the effect on the returns and assets. The banks profitability was also affected by the excessive borrowings done by the bank and there was decline in the retained profits in the year 1999-2000. The value of coefficient of multiple determination ( ) is quite high. The analysis

revealed that about 99% of variation in profitability is explained by the combined effect of independent variables where as variables PAT/Total income and of P&E/Total income net of P&E shows the 100% effect. PAT net

84

Table-3.12 Multiple Regression Analysis of Bank of India

Dependent variables R 1.000 .999 .999 1.000 1.000 .999 R Squar e .999 .997 .999 1.000 .999 .998 Std. Error of the Estimate .80387 .94896 1.30665 .47565 .80056 .91463

PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E

Adjusted R Square .996 .984 .993 .999 .996 .986

DurbinWatson 3.250 2.110 1.985 1.902 3.231 2.114

.999

.999

.993

1.26155

1.983

1.000

1.000

.999

.44257

1.940

It may be seen from the analyses that the required coefficient of variables is significant at 1% level of significance. It may be seen that coefficient of determination is very high. The DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity. 3.3.3 Bank of Maharashtra Bank of Maharashtra is an Indian bank based in the city of Pune. The bank got nationalized by the Government of India in the year 1969. With a total number of 1421 branches located all over India as of April 2009. The Bank is a Government of India undertaking and carries on all types of banking business.

85

Profitability: Table-3.13 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. As stipulated by the Reserve Bank of India, banks were required to attain capital adequacy ratio of 8 per cent by 31 March 1996. Since quite a few public sector banks were not fulfilling this requirement, Government of India had to infuse fresh capital in all the public sector banks and Bank of Maharashtra was amongst them. The capital infusion was through issuance of bonds carrying fixed coupon rates initially at the rate of 7.75 per cent per annum which, in subsequent issues, was raised to 10 per cent.

Table -3.13 Multiple Regression Analysis of Bank of Maharashtra Dependent variables R R Adjusted Square R Square .998 1.000 1.000 1.000 .998 .972 .994 .996 1.000 .972 .995 Std. Error of the Estimate 2.63104 .79214 1.26690 .07455 2.60965 .75669 DurbinWatson 3.099 3.099 3.099 3.099 3.099 3.099

PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E

.999 1.000 1.000 1.000 .999

1.000 1.000

.999

.999

.996

1.30634

3.099

1.000 1.000

1.000

.12557

3.099

Moreover, Bank of Maharashtra incurred operating losses in 1992-93 which further were identified for specific restructuring efforts. In September 1994, RBI in consultation with the Government of India appointed consultants for the bank Shri W.S. Tambe, former ED, RBI, in consultation with NIBM. The consultants studied

86

the working of the bank and some of the major deficiencies in the banks as observed by them were as follows: a) Comparatively lower resource base and lower volume of business (fund and non-fund based) resulting in lower income generation. b) High proportion of NPAs and high rate of NPA generation. c) Increasing administrative expenses not commensurate with the level of business and income. d) Overstaffing e) Absence of strategic planning, MIS, risk management and internal controls f) Unremunerative operations of overseas branches and subsidiaries The value of coefficient of multiple determination ( ) is very high. The analysis

revealed that about 99%-100% of variation in profitability is explained by the combined effect of independent variables. It may be seen from the analyses that the required coefficients of variables are significant at 1% level of significance. It may be seen that coefficient of determination is very high. Further, it may be seen from the analyses that DW values in the study are not significant at 1% level of significance, meaning there by that it is rather reasonable to assume the absence of multicollinearity.

3.3.4 CENTRAL BANK OF INDIA Central Bank of India was the first Indian commercial bank that was wholly owned and managed by Indians. The Government of India nationalized the bank, along with 13 other major commercial banks of India, on 19th July 1969. The registered office of the Central Bank of India is in Mumbai. The bank entered a partnership with Kotak Mahindra Assets Management Company in December 2008, under which all the Kotak Mutual Fund products will be made available through Central Bank of India branches.

Profitability: Table-3.14 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. The reason for the negative relationship amongst the dependent and independent variable is due to the rise in NPAs of bank in the year 1996-1997, had net NPAs of between Rs 1,100 crore to Rs 1,700 crore. RBI in

87

consultation with the Government of India appointed consultants for the banks KPMG Peat Marwick. Central Bank of India came out of the red in 1996-97 with a net profit of Rs. 150.83 crore. The banks interest spread to working funds increased from 2.65 per cent in 1994-95 to 3.21 per cent in 1996-97. Table-3.14 Multiple Regression Analysis of Central Bank of India Dependent variables R 1.000 1.000 .999 1.000 1.000 .998 R Square 1.000 1.000 .975 1.000 1.000 .994 Adjusted R Square Std. Error of the Estimate -

PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E

DurbinWatson 2.795 2.753 2.789 2.781 2.809 2.721

1.000

1.000

2.788

1.000

1.000

2.768

The analyses revealed some of the major deficiencies in the bank as observed were as follows: a) Comparatively lower resource base and lower volume of business (fund and non-fund based) resulting in lower income generation. b) High proportion of NPAs and high rate of NPA generation. c) Increasing administrative expenses not commensurate with the level of business and income. d) Overstaffing e) Absence of strategic planning, MIS, risk management and internal controls f) Unremunerative operations of overseas branches and subsidiaries. The bank received a capital infusion of Rs 1,555 crore in 2008-09. Out of this, Rs 700 crore came from the government, which is the majority shareholder with an 80% stake. The rest of the fund came from selling government bonds of Rs 855 crore and increasing its capital adequacy ratio (CAR) to 13.12%, , which is higher than the benchmark of 12% for banks in India. Encouraged with this higher CAR, the bank is

88

now planning to push for its long-pending foray into the international markets, which earlier didnt find favor with RBI due to lower capital adequacy. The analyses shows that the value of coefficient of multiple determination ( ) is

quite high. The analysis revealed that about 100% of variation in profitability is explained by the combined effect of independent variables. It may be seen from the analyses that the required coefficients of variables are significant at 1% level of significance. It may be seen from the analysis that coefficient of determination is very high. Further, it may be seen from the analyses that DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity.

3.3.5 UCO BANK A commercial bank was founded as United Commercial Bank with headquarters in Kolkata. It was nationalized in 1969 and was renamed UCO Bank in 1985.UCO Bank has entered into agreements for distribution of products of Life Insurance Corporation of India, National Insurance Corporation, Reliance Mutual Fund and UTI Mutual Fund. It has also tied up with Western Union to offer in-bound money transfer facilities. Profitability: Table-3.15 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. The major reason for negative relationship is due to the fact stipulated by the Reserve Bank of India, banks were required to attain capital adequacy ratio of 8 per cent by 31 March 1996. Since quite a few public sector banks were not fulfilling this requirement. The capital infusion was through issuance of bonds carrying fixed coupon rates initially at the rate of 7.75 per cent per annum which, in subsequent issues, was raised to 10 per cent. Besides this, under the project sponsored by the World Bank for capital restructuring, the government availed of US$ 150 million as retroactive finance and provided these funds to six public sector banks by way of subordinated debt for their modernisation initiatives.

89

UCO bank was identified by RBI in consultation with government of India as bank having operating losses. The major deficiencies in the banks as observed by them were as follows: a) Comparatively lower resource base and lower volume of business (fund and non-fund based) resulting in lower income generation. b) High proportion of NPAs and high rate of NPA generation c) Increasing administrative expenses not commensurate with the level of business and income d) Overstaffing (estimated at around 20 per cent in UCO Bank) e) Absence of strategic planning, MIS, risk management and internal controls f) Unremunerative operations of overseas branches and subsidiaries. Table-3.15 Multiple Regression Analysis of UCO Bank

Dependent variables R PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E .999 1.000 .999 1.000 1.000 1.000

R Square .999 .998 1.000 1.000 .999

Adjusted R Square .995 .987 .999 .999 .995

Std. Error of the Estimate .87944 1.22271 .52959 .50018 .84397

DurbinWatson 3.275 2.818 2.779 2.795 3.241

.999

.989

1.13791

2.892

PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income et of P&E 1.000 1.000 .999 .41912 3.049 1.000 1.000 .999 .43646 2.994

90

Further, the study shows that the value of coefficient of multiple determination (

is quite high. The analysis revealed that about 99%-100% of variation in profitability is explained by the combined effect of independent variables. It may be seen from the analyses that the required coefficient of variables is significant at 1% level of significance. It may be seen that coefficient of determination is very high. Further, it may be seen from the analyses that DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity.

3.3.6 UNITED BANK OF INDIA United Bank of India, was incorporated with the amalgamation of four banks viz. Comilla Banking Corporation Ltd., Bengal Central Bank Ltd., Comilla Union Bank Ltd. and Hooghly Bank Ltd. It is one of the 14 banks that were Nationalized in 1969. The bank has participated in the developmental activities in the rural areas particularly in the tea industry of Eastern and Northeastern India. Profitability: It can be seen from the Table-3.16, the negative relationship between profitability and return, assets, liquidity, capital adequacy. United bank of India incurred operating losses in 1992-93 and was identified for specific restructuring efforts. The major deficiencies in the banks as observed are as follows: a) Comparatively lower resource base and lower volume of business (fund and non-fund based) resulting in lower income generation b) High proportion of NPAs and high rate of NPA generation c) Increasing administrative expenses not commensurate with the level of business and income d) Overstaffing (estimated at around 20 percent) e) Absence of strategic planning, MIS, risk management and internal controls f) Unremunerativeness operations of overseas branches and subsidiaries. The study also shows that the value of coefficient of multiple determination ( ) is

quite high. The analysis revealed that about 97%-100% of variation in profitability is explained by the combined effect of independent variables. It may be seen from the

91

tables presented that the required coefficient of variables are significant at 1% level of significance. Table-3.16 Multiple Regression Analysis United Bank of India
Dependent variables R PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E 1.000 1.000 2.951 .999 .978 3.245 .980 .974 3.051 1.000 1.000 3.123 1.000 .999 1.000 .986 R Square 1.000 .986 1.000 .999 Adjusted R Square Std. Error of the Estimate DurbinWatson 3.110 3.037 2.884 3.021

It is concluded that coefficient of determination is very high. It may also be seen from tables that DW values in the study are not significant at 1% level of significance, meaning that it is rather reasonable to assume the absence of multicollinearity.

3.3.7 VIJAYA BANK Late Shri A. B. Shetty and other enterprising farmers in Mangalore, Karnataka, founded Vijaya Bank. The bank became a scheduled bank in 1958.Promoters of the bank; the Government of India has equity holding of about 54 percent, as against the Indian public holding of about 20 percent and institutional investors leaving a stake of approximately 22%.

92

Profitability: Table-3.17 shows the negative relationship between profitability, returns, assets, liquidity and capital adequacy. NPAs are not an exception to Vijaya Bank alone, more particularly marked by recessionary pressures. The rise in the NPA level was on expected lines. The addition has been on account of very few large accounts, inspite the bank made all efforts to turn those around. Otherwise, NPA level in sectors like agriculture, education loans etc are quite reasonable and manageable.

Table- 3.17 Multiple Regression Analysis of Vijaya Bank

Dependent variables R PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E .989 .928 1.000 .999 .998 1.000

R Square .968 1.000 .989 .967 1.000

Adjusted R Square -

Std. Error of the Estimate -

DurbinWatson 2.918 3.088 2.713 2.473 2.930

.999

3.092

PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E 1.000 1.000 2.991 .957 .998 2.698

Further, the analysis shows that the value of coefficient of multiple determination ( ) is quite high. The analysis revealed that about 100% of variation in profitability

is explained by the combined effect of independent variables. It may be seen from the

93

analyses that the required coefficients of variables are significant at 1% level of significance. It may be seen that coefficient of determination is very high. The DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity.

3.3.8 PUNJAB NATIONAL BANK Punjab National Bank is headquartered at New Delhi. In 2003, Punjab National Bank acquired Nedungadi bank, an old private sector bank in Kerala. The bank owns a network of 4,569 offices. It provides access to 24,000 ATMs through ATM sharing agreements with other banks Profitability: Table-3.18 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. The reasons for the negative relationship is due to high amount of NPAs, which are due to a large quantum of PNBs loans were in the agriculture sector, as 67 per cent of the banks branches are in rural and semi-urban areas. Due to continuous drought, several of these loans had become bad accounts.

NPAs are a reflection of the performance of the banks. A larger level of NPA loans is an indicative of an ailing banking sector. Punjab National Bank (PNB) is in talks with Asset Reconstruction Company of India Ltd (Arcil) to shed some of its nonperforming assets (NPAs) through this route. The bank is looking to pare its NPAs to one per cent of advances by end March 2008 from the level of 1.33 per cent as on end-December 2007.

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Table -3.18 Multiple Regression Analysis of Punjab National Bank Dependent variables R R PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E 1.000 1.000 3.003 .638 1.000 1.000 1.000 1.000 Square .408 1.000 1.000 1.000 1.000 Adjusted R Square .362 Std. Error of the Estimate 3.94016 DurbinWatson 1.387 2.930 2.838 2.819 3.197

PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E 1.000 1.000 2.979 1.000 1.000 2.940

It can be seen from the analysis that the value of coefficient of multiple determination ( ) is quite high. However, PBDITA/Total income which shows coefficient of

multiple determinations is 40%. This was due to bad debts on agricultural loans. The analysis revealed that about 100% of variation in profitability is explained by the combined effect of remaining independent variables. It may be seen from the analyses that the required coefficients of variables are significant at 1% level of significance and the coefficient of determination is very high. Further, it may also be seen from analyses that DW values in the study are not significant at 1% level of significance, meaning that it is rather reasonable to assume the absence of multicollinearity.

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3.3.9 PUNJAB AND SIND BANK Punjab & Sind Bank was incepted with far-sighted vision of luminaries like Bhai Vir Singh, Sir Sunder Singh Majitha and Sardar Tarlochan Singh. They enjoyed the highest respect with the people of Punjab. Decades have gone by; even today Punjab & Sind Bank stands committed to honor the social commitments of the founding fathers. Punjab & Sind Bank has a wide spread network of more than 889branches. To analyze the profitability of the bank multiple statistics is applied which helps to examine the relationship between various variables. The profitability of the bank is considered dependent on the returns liquidity, asset and capital adequacy of the banks. The profitability is analyzed since from 1991-1992 to 2008-2009. The various independent variables taken are: returns, assets, liquidity and capital adequacy. Profitability: Table -3.19 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. The profitability of Punjab and Sind Bank was in the red 1995-1996, with a net loss of Rs 132 crore, it had been making profit for the last successive five years viz. Rs 20 crore in 1996-97, Rs 65 crore in 1997-98, Rs 56 crore in 1998-99, Rs 61 crore in 1999-2000 and Rs 13.25 crore as on March 31, 2001. This was despite the payout of terminal benefits to over 1,900 employees who sought VRS during 2000-2001. The analysis further revealed that the value of coefficient of multiple determination ( ) is very high. It also found out that about 94%-100% of variation in profitability

is explained by the combined effect of independent variables. The required coefficients of variables are significant at 1% level of significance. It may be seen that coefficient of determination is very high. Further, it may also be seen from the analyses that DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity.

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Table -3.19 Multiple Regression Analysis of Punjab & Sind Bank

Dependent variables R PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E 1.000 1.000 2.362 .999 .986 2.480 1.000 1.000 2.869 .999 .983 2.472 1.000 .999 1.000 .999 R Square 1.000 .947 1.000 .975 Adjusted R Square Std. Error of the Estimate DurbinWatson 2.647 2.852 2.527 2.408

3.3.10 STATE BANK OF INDIA SBI was constituted through an Act of Parliament on 8 May 1955, after the Reserve Bank of India acquired a controlling stake in the Imperial Bank of India, which then came to be known as State Bank of India. During the process of nationalization, the private ownership was retained, though on a minority basis. The State Bank of India (Subsidiary Banks) Act was passed in 1959, enabling State Bank of India to take over eight former State-associated banks as its subsidiaries. Profitability: Table-3.20 shows the negative relationship between profitability and return, assets, liquidity, capital adequacy. The reason for the negative relationship is due to the rise in NPAs during the 1998-99 and 2001-02. There has been almost an increasing trend in recoveries, except in 1998-99 and 2001-02. The recoveries during the four years

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beginning from 1996-97 were Rs 930 crore, Rs 1,113 crore, Rs 830 crore and Rs 1,154 crore, respectively . SBI was inspected during 1996-97 by the RBI almost after a gap of two years. As in March 1994, the bank had calculated its NPAs at Rs 11,596 crore while the RBI had estimated it at Rs 12,064.13 crore. In 1994, the RBI had also asked the bank to hike its provisioning by Rs 369.84 crore i.e. from Rs 4,837.69 crore to Rs 5,207.53 crore during the year. Another challenge which the bank is tackling is the headcounts. The bank plans to up its headcount by 13,000 this fiscal,. The bank has 2,05,000 employees and around 8,000 personnel retire every year.. India's largest lender, State Bank of India, has identified its key challenges to be meeting capital requirements, bringing the cost-toincome ratio under control, and absorbing new recruits. Meeting capital requirements is a challenge for the bank. SBI needs to raise additional capital for funding balance sheet growth, subsidiaries and acquisitions. Further, it can be seen from the analysis that the value of coefficient of multiple determination ( ) is quite high.

(Table -3.20) Multiple Regression Analysis of State Bank of India

Dependent variables R R PBDITA/Total Income PBDPTA/Total Income PBT/Total Income PAT/Total Income PBDITA Net of P&E/Total Income Net of P&E PBDPTA Net of P&E/Total Income Net of P&E PBT Net of P&E/Total Income Net of P&E PAT Net of P&E/Total Income Net of P&E 1.000 1.000 .997 .19114 2.663 1.000 .999 .993 .50107 2.729 .998 .996 .960 .84250 2.692 .999 .999 1.000 1.000 .998 Square .998 .997 1.000 1.000 .995 Adjusted R Square .979 .977 .997 1.000 .955 Std. Error of the Estimate .81374 .66524 .34086 .03947 1.19238 DurbinWatson 3.130 2.931 2.990 3.314 2.579

The analysis revealed that about 99%- 100% of variation in profitability is explained by the combined effect of independent variables. It may be seen from the analyses

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that the required coefficients of variables are significant at 1% level of significance. It may also be seen that coefficient of determination is very high. The DW values in the study are not significant at 1% level of significance, signifying that it is rather reasonable to assume the absence of multicollinearity.

3.4 Summary The present study covers the individual performance of private sector and public sector banks in India from 1991-1992 to 2008-2009. The study has considered various parameters like returns, assets, liquidity and capital adequacy which have affected the profitability of the banks. The various private sector banks undertaken for the study are Axis Bank, South Indian Bank Ltd., Bharat Overseas Bank Ltd., Dhanalakshmi Bank Ltd., HDFC Bank Ltd., ICICI Bank Ltd, Jammu & Kashmir Bank Ltd., Yes Bank, Bank of Rajasthan, Kotak Mahindra bank. Bank of Rajasthan has faced the problem of Non-Performing Assets (NPAs) basically due to the management problems. Bharat overseas Banks NPAs are high due to the fluctuations in the steel and textiles sectors. However, HDFC Banks NPAs are fairly fewer because of the conformist approach of the bank. Another bank with conservative approach is Jammu & Kashmir Bank. The bank is the banker to the government of J&K, and it helps to fund the central and state projects. This gives immense business to the bank and keeps the NPAs low. Further, Dhanalakshmi Banks cost of operation has increased due to the introduction of employee stock ownership plans or ESOPs. It was also recommended by RBI to the bank to improve its capital base for better operations. In addition, the turmoil in the global banking industry in year 2008 had a great impact on the business of all the private sector banks. The Public Sector banks undertaken for the study are Bank of Baroda, Bank of India, Central Bank of India, Punjab & Sind Bank, State Bank of India, UCO Bank, United Bank of India, Vijaya Bank, Bank of Maharashtra and Punjab National Bank. The analysis revealed that banks like Central Bank of India, UCO Bank, United Bank of India and Bank of Maharashtra have faced lack of capital. These banks also faced the problem of overstaffing and NPAs .However, State Bank of India and Vijaya bank are facing the

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problem of shortage of headcounts. Further, major public sector banks are not technology receptive which has been affecting the business of banks.

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CHAPTER-4 COMPARATIVE ANALYSIS OF PRIVATE SECTOR AND PUBLIC SECTOR BANKS

4.1 Introduction India's public sector enterprises, in general, tend to be unfavourably compared with their private sector counterparts. Apart from ideological and theoretical

considerations, it is such comparisons that provide much of the impetus for the current privatization drive in India. While public sector banks (PSBs) are not yet candidates for privatization- the objective at present is merely to lower the government's holdings to 33 per cent, there is a section that would favour a push towards privatization at PSBs as well, based on their perceived inefficiency relative to the private sector. At least in the popular debate, such perceptions rest on conventional financial indicators of performance. Therefore in this study, an attempt has been made to compare the performance of private sector and public sector banks. The comparative analysis of private sector and public sector banks is done on the basis of profitability, liquidity, returns, capital adequacy, and asset utilization. This chapter also covers the trend of ratios.

4.2 Comparison on the Basis of Profitability The profitability is a measure of efficiency and control. Profitability expresses that efficiency and effectiveness of business with which the business has been operated. It strengthens the long term solvency of the business of the bank. The various profitability ratios used in the comparison are: 1. PBDITA/Total Incomes 2. PBDPTA/Total Incomes 3. PBT/Total Income 4. PAT/Total Income 5. PBDITA Net of P&E/Total Income Net of P&E

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6. PBDPTA Net of P&E/Total Income Net of P&E 7. PBT Net of P&E/Total Income Net of P&E 8. PAT Net of P&E/Total Income Net of P&E

The independent samplest test analysis shown in Table- 4.1 indicates that mean, standard deviation for the private sector and public sector banks. The values of t shown in Table-4.1 in the case of PBDITA/Total incomes(0.380), PBDPTA/Total incomes(6.035), PBT/ Total Income (7.208), PAT/ Total Income(6.610), PBDPTA net of P&E/Total Income net of P&E( 6.932) shows that the significance level of 5% of confidence. However the variables PBDITA net of P&E/ Total income net of P&E(-.649), PBT net of P&E/Total Income Net of P&E (7.858) and PAT Net of P&E/ Total Income net of P&E (7.314 ) does not show the 5% of significance level. The reasons for not being on significant level for the variables PBDITA net of P&E/ Total income net of P&E, PBT net of P&E/Total Income Net of P&E and PAT Net of P&E/ Total Income net of P&E is due to the negative results in the period 1993-1997 in the public sector banks like UCO Bank, United Bank of India, Punjab and Sind Bank, Bank of India. This was basically due to change in the reforms introduced and increasing level of NPAs in these banks which has lead to the difference in the profitability of the public sector and private sector banks. The other factor which also affected the profitability was due to overstaffing in these banks. The other factor which played the important role in effecting the profitability is the global economic environment. Further, the other factor is the market fluctuations during the year 2008, giving a bad impact on the overall economy and affecting the profitability of the bank.

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Table -4.1 Comparison on the basis of Profitability

Profitability Ratios Banks PBDITA/Total incomes Private N 150 169 Mean 64.5978 63.8087

Std. Deviation 24.12717 11.41318 t .380 Sig. .000

Public PBDPTA/Total incomes Private

150

23.3960

12.07814

6.035

.555

Public PBT/Total income Private

169 150

16.0627 15.0947

9.59208 11.01096 7.208 .432

Public

169

4.2389

15.25215 6.610

PAT/Total income

Private

150

11.1813

9.02118

.152

Public

169

2.2719

14.14918 -.649 .000

PBDITA net of P&E/Total income net of P &E

Private

150

62.1027

28.14908

Public

169

63.6322

11.42256 6.932 .305

PBDPTA net of P&E/Total income net of P&E

Private

150

22.8158

9.03406

Public

169

15.5575

9.59217 7.858 .719

PBT net of P&E/Total income net of P&E

Private

150

16.4538

13.70264

Public

169

3.6647

15.18902 7.314 .479

PAT net of P&E/Total income net of P&E

Private

150

11.8797

10.24913

Public

169

1.6807

14.08544

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Chart- 4.1 shows the profitability ratio- PBDITA/Total Income of private sector banks from 1991-92 to 2008-09. The chart reveals Axis Banks fluctuating trend from 66.03%, March 1995 to 73.29%, March 2009. The fluctuations were due to the sharp increase in the percentage of Non Performing Assets (NPAs). Bank of Rajasthan has shown the slight increase from 8.02%, March 1993 to 13.59%, March 2009. This was due to the unstable top management which even further led to sharp increase in Non- Performing Assets. Bharat Overseas Bank Ltd. has revealed the slight improvement in this ratio from 60.49%, March 1994 to 63.75%, March 2009 due to the rise in interest rates. Dhanalakshmi Bank also indicates improvement in trend from 65.05%, March 1995 to 76.35%, March 2009. Further, HDFC bank reveals more stable trend in maintaining this ratio from 92.46%, March 1991 to 94.09%, March 2009. This stability is maintained because of its conservative approach in operations. It is seen from the chart-4.1 ICICI Banks fluctuating trend from 57.24%, March 1995 to 73.16%, March 2009. The variations were due to global meltdown. Jammu & Kashmir Bank Ltd. has indicated improvement from 57.37%, March 1993 to 81.33%, March 2009.It is due to increase in capital and reserves of the bank. Kotak Mahindra Bank has shown the negative trend therefore its ratio declined from 78.65%, March 1991 to 21.19%, March 2009. This is due to sharp rise in NPAs of the bank. South Indian Bank Ltd. has exposed optimistic trend from 69.55%, March 1995 to 79.14%, March 2009. It is due to high deposit growth rates. Yes Bank Ltd. has shown tremendous performance from 15.65%, March 2005 to 80.95%, March 2009. Chart-4.2 indicates public sector banks profitability ratio PBDITA/Total Income. Bank of Baroda has shown the fluctuating trend from 71.39%, March 1991 to 75.75%, March 2009. The fluctuations have been due to change in policy reforms which lead to less return in 1993, 1996 and 2001. Further, Bank of India indicates the positive performance from 73.41%, March 1991 to 77.75% March 2009, this was due to high deposits rate in the bank.

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Further, Bank of Maharashtra has shown improving trend with this ratio from 34.4%, March 1993 to 75.9%, March 2009, Central Bank of India has also shown the improving trend from 57.37%, March 1995 to 80.13%, March 2009. UCO Bank and United bank of India have indicated increased ratio from 70.17%, March 1992 to 78.26%, March 2009 and from -6.99%, March 1994 to 71.19%, March 2009 respectively. The improving trend is due capital inducement done by the government. Further, the chart also shows that SBI and Vijaya Bank have also shown the positive trend from 59. 34%, in March 1991 to 75.59%, March 2009 and from 62.91%,

March 1995 to 78.18%, March 2009 respectively. Chart- 4.3 indicates the profitability ratio PBDPTA/ Total Income of private sector. The Axis Bank reveals the moderate fluctuations in the trend from 30.81%, March 1995 to 28.86%, March 2009. It may be due to interest rate fluctuations. However, Bank of Rajasthan has maintained the negative trend in the year 1998 (-16.8) and 1999 (-15.02), basically due to increase in NPAs and shortage of funds. Bharat overseas Bank Ltd. has shown reasonable fluctuations from 21%, March 1994 to 19.61%, March 2009. Dhanalakshmi Bank has also shown a moderate drop trend from 20.33%, March 1995 to 19.91%, March 2009. This is due to restructuring procedures adopted by the bank. HDFC Bank has shown improvement in its trend from 16.45%, March 1991 to 29.89%, March 2009. ICICI Bank has made known the positive trend from the 16.09%, March 1995 to 25.94%, March 2009. The positive trend is due to rise in loan base, gross NPAs declined. Further, Kotak Mahindra Bank Ltd. has revealed the steep plunge in maintaining this ratio from 77.92%, March 1991 to 13.62%, 2009. The decline is due to rise in NPAs of the bank. South Indian Bank has shown considerable variations in maintenance of this ratio from 14.01%, March 1995 to 20.09%, March 2009 because of being affected by the global meltdown. Yes bank has revealed the fluctuating trend from 36.71%, March 2006 to 24.11%, March 2009. These fluctuations are due to economic recession in the country.

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Chart-4.4 shows the public sector banks profitability ratio PBDPTA/ Total Income. Bank of Baroda has shown the improving trend from 13.18%, March 1991 to 25.30%, March 2009. This is due to improvement in capital base. Bank of India has shown the positive trend from 8.61%, March 1991 to 28.49%, March 2009. The hopeful trend is due to capital inducement by government. Bank of Maharashtra has shown the positive trend from -11.08%, March 1993 to 19.57%, March 2009. The negative inclination is due to the high NPAs. Further, the Central Bank of India has shown fluctuating trend from 5.37%, March 1995 to 13.19%, March 2009. This has been due to capital inducement by government. Punjab & Sind Bank has shown the irregular drift from 10.48%, March 1995 to 19.61%, March 2009. The fluctuation has been due to shortage of funds. Punjab National Bank has shown the improving trend from 11.77%, March 1995 to 26.72%, March 2009. The improvement in this ratio is due to the increase in provisions.UCO Bank and United Bank of India have shown the negative trend in initial years. This was due to high NPAs and shortage of Capital. Vijaya Bank and SBI have shown the variation in the trend due to market fluctuations. Further, Chart-4.5 indicates the movements of private sector banks for PBT/Total Income. Axis Bank reveals the fluctuating trend from 19.11%, March 1995 to 20.17%, March 2009. The reason is the rise in NPAs. Bank of Rajasthan has shown the negative trend during the years 1998 and 1999. Dhanalakshmi Bank has shown improving trend except for the year March 2005. The negative value was due to the restructuring taking place in the organization. The HDFC Bank indicated improving trend from 14.74%, March 1991 to 29.3%, March 2009. Further, ICICI Bank reveals the trend from 6.79%, March 1995 to 12.8%, March 2009, which is due to increasing loan credits. Jammu & Kashmir Bank Ltd. has shown the improving trend from 1.95%, March 1993 to 19.26%, March 2009 due to increase in deposits from the state. Kotak Mahindra Bank Ltd. has shown fall in this ratio from 51.21%, March 1991 to 11.71%, March 2009 due to rise in the percentage of NPAs. South Indian Bank ltd. has revealed improving trend from 7.36%, March 1995 to 15.62%, March 2009. Yes Bank ltd. has improved from -11.52% from March 2005 to 18.8%, March 2009.

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Chart-4.6 reveals the trend of public sector banks for PBT/Total Income. Bank of Baroda has shown the fluctuations from 2.93%, March 1991 to 18.7%, March 2009. The slowdown during the period of 1993-1994 affected the Bank of Baroda. Bank of India ultimately shows the improvement from 0.95%, March 1991 to 21.47%, March 2009, the bank was disapprovingly affected during 1993 and 1994. Further, Bank of Maharashtra has shown increase from - 43.55%, March 1993 to 10.66%, March 2009. However, the bank has shown downfall during the year 1993-1996 due to shortage of capital and overstaffing. Central Bank of India has shown improving trend from -4.45%, March 1995 to 8.03%, March 2009. Even though, the fluctuations were due to the rising NPAs. UCO bank and United Bank of India have shown improving trend from -1.78%, March 1992 to 6.82%, March 2009 and -92.71%, March 1994 to 5.07%, March 2009 respectively. The negative effects are due to NPAs and shortage of funds. State Bank of India and Punjab National Bank have shown moderate fluctuations of ratios. Chart-4.7 shows the movements of private sector banks for PAT/Total Income. Axis Bank reveals the fluctuating trend from the year 7.38%, March 1995 to 13.14%, March 2009. The reason is the improvement in capital base. Bank of Rajasthan indicates the positive trend from 3.69%, March 1993 to 7.78%, March 2009. However, the bank has shown the negative trend during the year 1998 and 1999. Dhanalakshmi Bank has shown development from 7.25%, March 1995 to 11.73%, March 2009. The negative value was during the year 2005 due to the restructuring taking place in the organization. The HDFC Bank has exposed improving trend from 11.32%, March 1991 to 29.3%, March 2009. Further, ICICI Bank reveals the trend from 6.79%, March 1995 to 9.4%, March 2009, i.e. due to increasing advances. Jammu & Kashmir Bank Ltd. has shown the positive drift from 1.95%, March 1993 to 12.49%, March 2009. This was due to increase in project finances from the state. Kotak Mahindra Bank Ltd. has projected drop in this ratio from 46.23%, March 1991 to 7.59 %, March 2009. The decline is due to rise in the percentage of NPAs. South Indian Bank ltd. has shown improving trend from 7.36%, March 1995 to 9.87%, March 2009. Yes Bank Ltd. has shown drop from 18.91% from March 2005 to 12.26%, March 2009 due to global meltdown.

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Chart-4.8 shows the trend of public sector banks for PAT/Total Income. Bank of Baroda has shown the fluctuations from 2.95%, March 1991 to 12.46%, March 2009. The slowdown during the period of 1993-1994 has affected the Bank of Baroda. Bank of India gave positive indications as the trend moved from 0.95%, March 1991 to 15.5%, March 2009, however, the bank was negatively affected during 1993 and 1994. Further, Bank of Maharashtra has shown variation from -43.55%, March 1993 to 7.65%, March 2009, the bank has shown downfall during the year 1993-1996 due to rise in NPAs. Central Bank of India has projected on improving trend from -

4.45%, March 1995 to 4.96%, March 2009. The improvement in trend started due to inducement in capital. UCO bank and United Bank of India have shown improving trend from -1.78%, March 1992 to 5.96%, March 2009 and -92.71%, March 1994 to 3.8%, March 2009. These fluctuations were faced due to shortage of funds. State Bank of India and Punjab National bank have shown moderate trend of ratios. Punjab and Sind Bank has shown improving trend from 2.96%, March 1997 to 13.71%, March 2009. Further, Chart-4.9 shows the movements of private sector banks for PBDITA Net of P&E /Total Income Net of P&E. Axis Bank reveals the positive trend from the year 66.03%, March 1995 to 73.08%, March 2009. Bank of Rajasthan indicates the drift from 7.5%, March 1993 to 12.81%, March 2009. However, the bank has shown the negative trend during the year 1999 due to shortage of capital. Dhanalakshmi Bank has shown improving trend from 65.04%, March 1995 to 76.34%, March 2009. The HDFC Bank has also indicated improving trend from 92.46%, March 1991 to 81.44%, March 2009. Further, ICICI Bank reveals increase from 57.24%, March 1995 to 72.9%, March 2009, i.e. due to increasing advances. Jammu & Kashmir Bank Ltd. has shown the improving trend from 57.37%, March 1993 to 81.44 %, March 2009 due to increase in project finances from the state. Kotak Mahindra Bank Ltd. registered decline in ratio from 51.93%, March 1991 to 18.74%, March 2009. It may be due to rise in the percentage of NPAs. South Indian Bank ltd. and Yes Bank Ltd have shown improving trend from 69.54%, March 1995 to 80.15%, March 2009 and 15.69% from March 2005 to 80.94%, March 2009 respectively.

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Chart-4.10 shows the trend of public sector banks for PBDITA Net of P&E / Total Income Net of P&E. Bank of Baroda has projected an improving trend from 71.38%, March 1991 to 75.75%, March 2009. Bank of India has shown a rise from 73.41%, March 1991 to 77.75%, March 2009. The improving trend is due to inducement of funds by government. Further, Bank of Maharashtra has revealed variation from 34.39%, March 1993 to 75.85%, March 2009. The overstaffing problems were resolved by them which gave positive impact on this ratio. Central Bank of India and UCO bank have shown improving trend from 57.36%, March 1995 to 80.13%, March 2009 and 70.17%, March 1992 to 78.08%, March 2009 respectively. However, United Bank of India has shown negative ratio during 1994. The negative effects were due

to shortage of funds. State Bank of India and Punjab National bank have shown moderate trend of ratios. Punjab and Sind Bank has indicated optimistic trend from 63.62%, March 1995 to76.51%, March 2009. Further, Chart-4.11 indicates the movements of private sector banks for PBDPTA Net of P&E / Total Income Net of P&E. Axis Bank reveals the positive trend from the year 30.81%, March 1995 to 28.21%, March 2009. Bank of Rajasthan indicates increasing trend from 4.2%, March 1993 to 12.23%, March 2009. However, the bank has shown the negative trend during the year 1998 and 1999 due to shortage of capital. Dhanalakshmi Bank has shown a decline from 20.31%, March 1995 to 19.88%, March 2009. The HDFC Bank has shown an increase from16.45%, March 1991 to 29.8%, March 2009. Further, ICICI Bank reveals the improving trend from 16.09%, March 1995 to25.21%, March 2009. It may be due to increasing advances. Jammu & Kashmir Bank Ltd. has projected the decreasing trend from 26.15%, March 1993 to 24.78%, March 2009. The decline is due to fluctuations in the funds. Kotak Mahindra Bank Ltd. has also indicated decline in the ratio from 77.92 %, March 1991 to 13.05%, March 2009. This drop is due to rise in the percentage of NPAs. South Indian Bank ltd. has shown an improving trend from 13.99%, March 1995 to 21.07%, March 2009. Yes Bank ltd. has revealed a decline in trend from 36.72% from March 2005 to 24.06%, March 2009 due to global meltdown.

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Chart-4.12 shows the trend of public sector banks for PBDPTA Net of P&E / Total Income Net of P&E. Bank of Baroda has shown the positive trend from 13.16%, March 1991 to 25.29%, March 2009. Bank of India indicated a rise from 8.61%, March 1991 to 28.49%, March 2009. This uptrend is due to inducement of funds by government. Further, Bank of Maharashtra has revealed upward variation from -11.11%, March 1993 to 19.37%, March 2009. The funds inducement by government gave positive impact on this ratio. Central Bank of India has an increase from 5.36%, March 1995 to 13.19%, March 2009. UCO bank has indicated positive trend from 3.42%, March 1992 to 13.55%, March 2009. However, in case of United Bank of India the ratio declined during 1994. The negative effects were due to shortage of funds. State Bank of India and Punjab National bank have shown moderate trend of the ratio. Punjab and Sind Bank has shown positive trend from 11.75%, March 1995 to 27.08%, March 2009. Further, Chart-4.13 indicates the movements of private sector banks for PBT Net of P&E / Total Income Net of P&E. Axis Bank reveals slight positive trend from the year 19.11%, March 1995 to 19.43%, March 2009. Bank of Rajasthan indicates the improvement from 3.69%, March 1993 to 11.44%, March 2009. However, bank has shown the negative trend during the year 1998 and 1999 due to shortage of capital. Dhanalakshmi Bank has projected an improvement from 7.22%, March 1995 to 16.23%, March 2009. However, in the year 2005 it showed negative value due to rise in NPAs. The HDFC Bank has shown improving trend from14.74 %, March 1991 to 29.21%, March 2009. Further, ICICI Bank reveals the increasing drift from 16.09%, March 1995 to 25.21%, March 2009. The trend indicates rise due to increasing advances. Jammu & Kashmir Bank Ltd. has shown improvement from 1.95%, March 1993 to 18.91%, March 2009. This positive trend is due to increase in project finances from the state. Kotak Mahindra Bank Ltd. has plunged in this ratio from 51.21%, March 1991 to 11.3%, March 2009. The decline is due to rise in the percentage of NPAs. South Indian Bank ltd. has improved from 7.34% in March 1995 to 16.6% in March 2009. Yes Bank ltd. has shown diminishing trend from 28.87% from March 2005 to 18.74%, March 2009. The downtrend was due to global meltdown.

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Chart-4.14 shows the trend of public sector banks for PBT Net of P&E / Total Income Net of P&E. Bank of Baroda has shown the constructive trend from 2.93%, March 1991 to 18.69%, March 2009. Bank of India indicates improving development from 0.95%, March 1991 to 21.47%, March 2009, due to inducement of funds by government. Further, Bank of Maharashtra has shown variation from -43.59%, March 1993 to 10.44%, March 2009. The funds inducement by government only gave positive impact on this ratio. Central Bank of India and UCO Bank has shown increase from -4.46%, March 1995 to 8.03%, March 2009 and 3.42%, March 1992 to 13.55%, March 2009 respectively. However, United Bank of India has revealed negative ratio during 1994. The negative effects are due to shortage of funds and rise in NPAs. State Bank of India and Punjab National Bank have shown moderate trend of ratios. Punjab and Sind Bank has increased from 2.94%, March 1995 to 21.13 %, March 2009. Further, Chart-4.15 reveals the developments of private sector banks for PAT Net of P&E / Total Income Net of P&E. Axis Bank reveals the positive trend from the year 7.38%, March 1995 to 12.34%, March 2009. Bank of Rajasthan also indicates the positive trend from 3.69%, March 1993 to 7.79%, March 2009. However, the bank has shown the negative trend during the years 1998 and 1999 due to shortage of capital. Dhanalakshmi Bank has shown enhancement from 7.22%, March 1995 to 11.7%, March 2009. However, in March 2005 it showed negative value of -10.27% due to rise in NPAs. The HDFC Bank has improved from 11.32%, March 1991 to 20.71%, March 2009. Further, ICICI Bank reveals the development from 6.79%, March 1995 to 8.51%, March 2009, i.e. due to increase in advances. Jammu & Kashmir Bank Ltd. has projected the improving trend from 1.95%, March 1993 to 12.09%, March 2009. The improvement is due to increase in project finances from the state. Kotak Mahindra Bank Ltd. has shown decrease in this ratio from 46.23%, March 1991 to 6.98%, March 2009, due to rise in the percentage of its NPAs. South Indian Bank ltd. has registered an increase from 7.34%, March 1995 to 10.84%, March2009. Yes Bank Ltd. has shown negative variation in trend from 18.92% from March 2005 to 12.2%, March 2009. This variation has been due to global meltdown.

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Chart-4.16 shows the trend of public sector banks for PAT Net of P&E / Total Income Net of P&E. Bank of Baroda has registered an increase from 2.93%, March 1991 to 12.45%, March 2009. Bank of India indicates improving drift from 0.95%, March 1991 to 15.5%, March 2009. This is due to inducement of funds by government. Further, Bank of Maharashtra has shown variation from -43.59%, March 1993 to 7.42%, March 2009. The funds inducement by government only in this also gave positive impact on this ratio. Central Bank of India has shown an increase from -4.46%, March 1995 to 4.96%, March 2009. UCO bank has shown improving trend from -1.78%, March 1992 to 5.2%, March 2009. However, United Bank of India has projected a negative ratio during 1994. The negative effects are due to shortage of funds and rise in NPAs. State Bank of India and Punjab National bank have shown moderate trend of ratios. Punjab and Sind Bank has shown an improvement from 2.94%, March 1995 to 14.07%, March 2009. Thus the profitability analysis indicates that the profitability have increased consistently of private sector banks than public sector banks in the period of 19912009. Public Sector banks have majorly been short of capital and victim of high NPAs.

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4.3 Comparison on the Basis of Returns or Turnover Further analyzing the returns of the privates sector and public sector banks the various ratios used for comparison of the returns are as follows:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

PBPT Net of P&E/Avg. Networth PAT Net of P&E/Avg. Networth PAT/Avg. Networth Cash profit/Avg. Networth PBPT Net of P&E/Avg. Capital employed PBPT/Avg. Capital Employed PAT Net of P&E/Avg. Capital Employed PAT/Avg. Capital Employed PBPT Net of P&E/Avg. Total Assets PBPT/Avg. Total Assets PAT Net of P&E/Avg. Total Assets PAT/Avg. Total Assets

The independent samplet test analysis shown in Table- 4.2 indicates the mean, standard deviation for the private sector and public sector banks. Further, the value of t shows in case of PBPT Net of P&E/ average Networth (1.193), PBPT Net of P&E/ Average Capital employed (5.077), PBPT/ Average capital employed (1.115), PAT net of P&E/ Average capital employed (1.966), PAT/ Average capital employed (1.826) shows that the values are in 5% significant level. However, the variables like PBPT net of P&E/ Average total assets(5.138), PAT net of P&E/ Average net worth (3.097), PAT/ Average net worth (2.875), Cash profits/ Average net worth (3.391), PBPT / Average total assets(5.052), PAT net of P&E/ average total assets(6.224), PAT/ Average total Assets (6.033) does not show the 5% significance level.

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Table-4.2 Comparison on the Basis of Returns

Return Ratios PBPT Net of P&E/Avg Networth

Banks Private Public

N 150 169 150 169 150 169 150 169 150

Mean 32.6117 35.6422 14.7139 2.5409 15.3948 4.0926 19.1697 5.6913 79.5922

Std. Deviation

Sig.

18.46369 -1.193 25.80523 16.15247 45.65907 16.06420 45.69890 17.78413 45.70537 63.93211 -5.077 83.21815 14.99119 18.49674 10.41461 63.73902 10.43485 63.84122 3.96168 1.95873 3.95353 1.97939 2.11913 1.10014 2.11087 1.10673 6.033 6.224 5.052 5.138 1.826 1.966 -1.115

.170

PAT Net of P&E/Avg Networth

Private Public

3.097

.008

PAT/Avg Networth

Private Public

2.875

.007

Cash profit/Avg Networth

Private Public

3.391

.012

PBPT Net of P&E/Avg Capital employed

Private Public

.995

169 1.2218E2 150 169 150 169 150 169 149 169 149 169 149 169 150 169 19.1848 21.3034 7.5580 -2.7980 7.9107 -1.7228 8.9360 7.1667 8.9723 7.2312 1.4284 .2693 1.4552 .3343

PBPT/Avg Capital Employed

Private Public

.886

PAT Net of P&E/Avg Capital Employed

Private Public

.011

PAT/Avg Capital Employed

Private Public

.011

PBPT Net of P&E/Avg Total Assets

Private Public

.000

PBPT/Avg Total Assets

Private Public

.000

PAT Net of P&E/Avg Total Assets

Private Public

.005

PAT/Avg Total Assets

Private Public

.006

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The reason for the non significance level is due to banks like

UCO Bank, United

Bank of India who have shown the unconstructive returns during the period of 1990,s. After the year 2000 the banks have been constantly showing improvement but for the period of global meltdown which added to the fluctuations. Further, Chart-4.17 shows the movements of private sector banks for PBPT Net of P&E / Average Net worth. Axis Bank reveals the positive trend from the year 22.84%, March 1995 to 38.66%, March 2009. Bank of Rajasthan indicates the fluctuating negative trend from 45.15%, March 1993 to 19.54 %, March 2009, due to shortage of capital especially in 1998. Dhanalakshmi Bank has registered an improvement from 36.63%, March 1995 to 30.09%, March 2009. The improvement is due to increase in advances. The HDFC Bank has not shown an improving trend from 38.54%, March 1991 to 26.07%, March 2009, due to reduced returns of loans. Further, ICICI Bank reveals the trend of stability from 17.82%, March 1995 to 17.73%, March 2009. Jammu & Kashmir Bank Ltd. has registered a decreasing trend from 82.26%, March 1993 to 30.93%, March 2009. Kotak Mahindra Bank Ltd. has also shown drop in this ratio from 93.69 %, March 1991 to 18.07%, March 2009. The decline is due to rise in the percentage of NPAs. South Indian Bank ltd. has shown stables trend from 32.28%, March 1995 to 30.56%, March 2009. Yes Bank ltd. has revealed no significant variations.

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Chart-4.18 shows the trend of public sector banks for PBPT Net of P&E / Average Net worth. Bank of Baroda has indicated decreasing trend from 104.82%, March 1991 to 35.93%, March 2009. The decline is due to overstaffing and lack of strategic planning. Bank of India indicated decline from 55.28%, March 1991 to 45.31%, March 2009. The drop is due to lack of capital. Further, Bank of Maharashtra has shown negative variation from 52.78%, March 1993 to 36.48%, March 2009.The decline is due to rise in NPAs. Central Bank of India has shown declining trend from 42.62 %, March 1995 to 23.26%, March 2009. The negative drift is due to lack of capital. UCO bank has registered an increase from -64.49%, March 1992 to 30.55%, March 2009. It was due to fresh capital inducement by government. State Bank of India has also shown the decreasing trend 118.33%, March 1991 to 33.39%, March 2009. This variation has been due to transformation in the economic policies and global meltdown. Punjab National bank and Punjab and Sind Bank have shown moderate trend of ratios. United Bank of India has registered an improvement -26.49%, March 1995 to 23.6%, March 2009. The improvement is due to capital inducement by government. However, United Bank of India has indicated negative ratio during 1995 and 1996. The downbeat effects were due to shortage of funds and rise in NPAs. Vijaya Bank has shown moderate fluctuations from 34.62%, March 1995 to 32.05%, March 2009. Further, Chart-4.19 shows the movements of private sector banks for PAT Net of P&E / Average Networth. Axis Bank reveals the positive trend from 9.09%, March 1995 to 17.78%, March 2009. It may be due to improvement in the capital. Bank of Rajasthan registered 28.84%, March 1993 as against 11.88%, March 2009. The bank has shown the negative trend during the year 1998 and 1999, also due to shortage of capital. Bharat Overseas Bank Ltd. projects the decreasing trend from 23.13%, March 1995 to 2.53%, March 2009 due to lack of proper operations. Dhanalakshmi Bank has shown slight improvement from 14.02%, March 1995 to 19.19%, March 2009. The improvement has been due to increase in advances. The HDFC Bank has projected a fluctuating trend from 26.82%, March 1991 to 18.2%, March 2009. The reason for the decrease is due to global meltdown in economy. Further, ICICI Bank reveals the fluctuating negative trend from 12.52%, March 1995 to 6.92 %, March 2009. These variations are due to lack of returns. Jammu & Kashmir Bank Ltd. has registered an almost stable trend from 17.35%, March 1993 to 16.06 %, March 2009. The mild

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fluctuation is due to change in reforms and policy. Kotak Mahindra Bank Ltd. registered a plunge in this ratio from 79.87%, March 1991 to 6.73%, March 2009 due to rise in the percentage of NPAs but South Indian Bank ltd. showed improvement in trend from 6.41%, March 1995 to 16.3%, March 2009. Yes Bank ltd. has shown variation in trend from 14.09% from March 2005 to 20.52%, March 2009. Chart-4.20 shows the development of public sector banks for PAT Net of P&E / Average Networth. Bank of Baroda has registered a decrease from 24.15%, March 1991 to 18.63%, March 2009. The decline is due to lack of usage of internet banking. Bank of India indicates improvement from 9.46%, March 1991 to 24.9%, March 2009. However, Bank of India has shown the negative values in 1998 and 1999 due to lack of capital and high NPAs. Further, Bank of Maharashtra showed variation from 80.37%, March 1995 to 16.88%, March 2009. The reason for the upbeat trend is rise in profits, due to increase in advances. Central Bank of India projected an increase from -14.95%, March 1995 to 9.25%, March 2009. The positive development is due to inducement of capital. UCO bank has shown optimistic trend from -252.72%, March 1992 to 14.02%, March 2009. The positive impact started due to capital inducement by government. State Bank of India has also indicated the positive drift from 9.23%, March 1991 to 16.95%, March 2009. It is due to increase in operations. Punjab National Bank and Punjab and Sind Bank have revealed moderate trend of ratios. United Bank of India has shown fluctuating trend from 5.43%, March 1995 to 4.4%, March 2009. It is due to fluctuations in capital. Vijaya Bank has made known moderate fluctuations from 3.52%, March 1995 to 7.4%, in March 2009. Further, Chart-4.21 shows the developments of private sector banks for PAT / Average Networth. Axis Bank reveals the positive development from 9.12%, March 1995 to 19.12%, March 2009. The positive trend is due to improvement in the capital. Bank of Rajasthan indicates unenthusiastic trend from 28.44%, March 1993 to 11.86%, March 2009. Moreover, the bank has shown the negative trend during the years 1998 and 1999 also, due to shortage of capital. Bharat Overseas Bank Ltd. reveals the decrease from 23.13%, March 1995 to 2.76%, March 2009. The decline is due to lack of proper operations. Dhanalakshmi Bank has shown modest improvement from 14.26%, March 1995 to 19.25%, March 2009. The positive feature

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is attributed to increase in advances. The HDFC Bank indicates decline from 26.82%, March 1991 to 18.31%, March 2009. The reason for decrease is due to global meltdown in economy. Further, ICICI Bank reveals the trend of fluctuation from 12.52%, March 1995 to 7.77%, March 2009. It is due to lack of returns. Jammu & Kashmir Bank Ltd. indicates stability with 17.31%, March 1993 from 16.72, March 2009. The mild fluctuations are due to reforms and policy change. Kotak Mahindra Bank Ltd. has shown plunge in this ratio from 79.87 %, March 1991 to 7.36%, March 2009. It is due to rise in the percentage of NPAs. It can be seen from the chart South Indian Bank ltd. indicated increase from 6.43%, March 1995 to 14.85%, March 2009. The improvement is the result of increase in advances. Yes Bank ltd. has shown positive variation in trend from 14.09% from March 2005 to 20.65% in March 2009. Chart-4.22 shows the trend of public sector banks for PAT / Average Networth. Bank of Baroda has shown the fluctuating trend from 24.21%, March 1991 to 18.65%, March 2009. The decrease is due to lack of returns. Bank of India indicated the positive trend from 9.46 %, March 1991 to 24.97%, March 2009. However, the bank has revealed the negative values in 1993 and 1994 due to lack of capital and high NPAs. Further, Bank of Maharashtra has shown positive variation from -80.15%, March 1995 to 17.46%, March 2009 and the improvement is due to increase in advances. Central Bank of India indicated positive trend from -14.88%, March 1996 to 9.25%, March 2009. UCO bank has shown fluctuating trend from -252.72%, March 1992 to 16.02%, March 2009. The positive impact is due to inducement of fresh capital. United Bank of India has shown optimistic trend from -153.5%, March 1995 to 6.44%, March 2009. It is due to adoption of the methods of handling NPAs. However, the negative ratio during the year 1996 and 1997 was due to shortage of funds. State Bank of India has also projected the positive trend 9.22%, March 1991 to 17.05%, March 2009. It is due to change in the economic policy and global meltdown. Punjab National bank and Punjab and Sind Bank have shown moderate trend of ratios. Vijaya Bank felt the effect of global meltdown with fluctuations from 14.17%, March 1995 to 9.36%, March 2009.

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Further, Chart-4.23 shows the movements of private sector banks for Cash Profit/ Average Networth. Axis Bank reveals the positive trend from the year12.28%, March 1995 to 18.9%, March 2009 due to improvement in the capital. Bank of Rajasthan indicated negative trend from 30.83%, March 1993 to 10.83%, March 2009. It is due to shortage of capital and rise in NPAs. Bharat Overseas Bank Ltd. reveals the decreasing trend from 27.18% March 1995 to 11.17%, March 2009. The negative

drift is due to lack of proper operations. Dhanalakshmi Bank has shown improvement in trend from 16.53%, March 1995 to 21.65%, March 2009. The positive impact is due to increase in advances. The HDFC Bank has shown a decrease from 30.63%, March 1991 to 18.27%, March 2009. The decline is due to global meltdown in economy. Further, ICICI Bank reveals the trend of negative fluctuation from 16.4%, March 1995 to 9.62%, March 2009. The fluctuation is due to lack of returns. Jammu & Kashmir Bank Ltd. has revealed a stable trend from 18.78%, March 1993 to 18.06%, March 2009. It is due to reforms and policy change. Kotak Mahindra Bank Ltd. has shown considerable drop in this ratio from 113.35%, March 1991 to 7.36 %, March 2009. The decline is due to rise in the percentage of NPAs. South Indian Bank ltd. has projected its rise from 8.28%, March 1995 to 17.49%, March 2009. Yes Bank ltd. has shown positive variation in trend from 16.2% from March 2005 to 22.23% in March 2009. Chart-4.24 shows the trend of public sector banks for Cash Profit / Average Networth. Bank of Baroda has projected the decreasing trend from 28.52%, March 1991 to 20.56%, March 2009. The decline is due lack of capital. Bank of India registered an improvement from 11.2%, March 1991 to 25.55%, March 2009. However, Bank of India has shown the negative values in 1993 and 1994 due to lack of capital and high NPAs. Further, Bank of Maharashtra projected a positive variation from -70.46 %, March 1995 to 24.5%, March 2009. It is due to improvement in advances. Central Bank of India has shown improvement from -12.54%, March 1996 to 10.6%, March 2009. It is due to inducement of capital by government. UCO bank and United Bank of India have also shown optimistic trend from -249.91%, March 1992 to 19.82%, March 2009 and -153.5%, March 1995 to

6.54%, March 2009 respectively. It is due to capital inducement by government. However, negative effects observed during 1996-1997 are due to shortage of funds and rise in NPAs. State Bank of India has also shown the positive trend 13.79%,

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March 1991 to 16.4%, March 2009 due to change in the economic policy and global meltdown. Punjab National bank and Punjab and Sind Bank have shown moderate trend of ratios. Vijaya Bank has shown reasonable negative fluctuations from 16.48%, March 1995 to 8.73%, March 2009. Chart-4.25 shows the movements of private sector banks for PBPT Net of P&E/ Average Capital Employed. Axis Bank reveals a decline from the year 72.9%, March 1995 to 50.02%, March 2009, due to improvement in NPAs. Bank of Rajasthan registered a decrease in ratio from 187.67 %, March 1993 to 135.43%, March 2009. It is due to shortage of capital and rise in NPAs. Bharat Overseas Bank Ltd. also reveals the decreasing trend from 147.73%, March 1995 to 57.72%, March 2009. It may be due to lack of proper operations. Dhanalakshmi Bank has decreased fluctuations from 138.2%, March 1995 to 104.37%, March 2009. The reason is due to increase in advances. The HDFC Bank has shown moderate trend from 14.87%, March 1991 to 12.49%, March 2009. It is due to decrease is due to global meltdown. Further, ICICI Bank reveals the negative fluctuation from 57.78%, March 1995 to 23.15%, March 2009. The drift is due to lack of returns. Jammu & Kashmir Bank Ltd. indicates decrease from 213.01%, March 1993 to 82.67%, March 2009. It is due to reforms and policy change. Kotak Mahindra Bank Ltd. has shown drop in ratio from 30.86%, March 1991 to 24.71%, March 2009 due to rise in the percentage of NPAs. South Indian Bank ltd. has remained stable from 110.28%, March 1995 to 110.56%, March 2009. Yes Bank ltd. has shown positive variation in trend from 34.23% from March 2005 to 55.76%, March 2009.

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Chart-4.26 shows the trend of public sector banks for PBPT Net of P&E / Average Capital Employed. Bank of Baroda has revealed a negative trend from 191.19%, March 1991 to 62.05%, March 2009. The inclination is due lack of capital. Bank of India decreased from 129.04%, March 1991 to 67.66%, March 2009. It has shown the diminishing trend, due to lack of capital and high NPAs. Further, Bank of Maharashtra has shown a plunge from 843.7%, March 1995 to 90.34%, March 2009. The decline is due to rise in NPAs. Central Bank of India has shown a decline from 167.78%, March 1996 to 122.86%, March 2009. It may be due to lack of capital. UCO bank has registered positive trend from 82.89%, March 1992 to 96.64%, March 2009. The reason for upbeat trend is inducement of capital. United Bank of India has shown a prominent declining trend from 409.16% in March 1995 to 83.25% in March 2009. The negative effects are due to shortage of funds and rise in NPAs. State Bank of India has also revealed unenthusiastic trend 52.61%, March 1991 to 47.61%, March 2009. The decline is due to change in the economic policy and global meltdown. Punjab National bank and Punjab and Sind Bank have shown moderate trend of ratios. Vijaya Bank has shown reasonable fluctuations from 152.34%, March 1995 to 93.15%, March 2009 due to the effects of global meltdown and increase in NPAs. Further, Chart-4.27 shows the movements of private sector banks for PBPT / Average Capital Employed. Axis Bank reveals the positive trend from the year 15.85%, March 1995 to 17.56 %, March 2009. It is due to improvement in the capital. Bank of Rajasthan indicates declining trend from 34.03 %, March 1993 to 22.01%, March 2009. The decrease is due to shortage of capital and rise in NPAs. Bharat Overseas Bank Ltd. also reveals the decreasing trend from 43.21%, March 1995 to 11.67%, March 2009. It is due to lack of proper operations. Dhanalakshmi Bank has projected an improvement from 23.88%, March 1995 to 24.94%, March 2009. The positive

impact is due to increase in advances. The HDFC Bank has shown moderate trend from 3.85%, March 1991 to 2.94%, March 2009. However, the decrease is due to global meltdown. Further, ICICI Bank also reveals the negative fluctuating trend from 12.52%, March 1995 to 6.63%, March 2009 due to lack of returns. Jammu & Kashmir Bank Ltd. has shown a decline from 67.56%, March 1993 to 23.31% March 2009. The fluctuation is due to reforms and policy change. Kotak Mahindra Bank Ltd. has

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shown decrease in this ratio from 25.36%, March 1991 to 7.79%, March 2009. The decline due to rise in the percentage of NPAs. South Indian Bank ltd. has shown positive trend from 21%, March 1995 to 25.75%, March 2009. Yes Bank ltd. has revealed moderate variation in trend from 16.65% from March 2005 to 15.02%, March 2009 returns. Chart-4.28 shows the trend of public sector banks for PBPT / Average Capital Employed. Bank of Baroda has shown the improving trend from 40.55%, March 1991 to 18.68 %, March 2009. The decline is due lack of capital. Bank of India indicated optimistic rise from 19.47%, March 1991 to 22.65%, March 2009. It is due to capital inducement. Further, Bank of Maharashtra has shown positive variation from -87.26%, March 1995 to 18.84%, March 2009. The fluctuations have been due to rise in NPAs. Central Bank of India has shown declining variations from 21.66%, March 1996 to 18.27%, March 2009. It is due to lack of capital. UCO bank has shown positive drift from -11.79%, March 1992 to 14.47%, March 2009 as fresh capital was induced by government. United Bank of India has shown a decline from 33.1%, March 1995 to 16%, March 2009. The declining effects are due to shortage of funds and rise in NPAs. State Bank of India has also revealed the positive trend with 12.03%, March 1991 to 14.04%, March 2009. It is due to change in the economic policy and global meltdown. Punjab National bank and Punjab and Sind Bank have shown moderate trend of ratios. Vijaya Bank has registered a decline from 27.55%, March 1995 to 17.72%, March 2009 due to the effects of global meltdown and increase in NPAs. Further, Chart-4.29 shows the movements of private sector banks for PAT Net of P&E / Average Capital Employed. Axis Bank reveals a stable positive trend from the year 6.3%, March 1995 to 7.8 %, March 2009. It is due to the improvement in the capital. Bank of Rajasthan indicates decline in values from 21.41%, March 1993 to 13.38%, March 2009. This is due to shortage of capital and rise in NPAs. Bharat Overseas Bank Ltd. reveals the negative trend from 15.79%, March 1995 to 1.6%, March 2009. Dhanalakshmi Bank has shown improvement from 9.08%, March 1995 to 15.87%, March 2009. The positive impact is due to increase in advances. The HDFC Bank has shown moderate stable trend from 1.98%, March 1991 to 2.74%,

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March 2009. However, the fluctuations are due to global meltdown. Further, ICICI Bank reveals the fluctuating negative trend from 8.8%, March 1995 to 2.49%, March 2009 due to lack of returns. Jammu & Kashmir Bank Ltd. has shown the moderate decreasing trend from 14.25%, March 1993 to 11.86%, March 2009 due to reforms and policy change. Kotak Mahindra Bank Ltd. has shown decline in this ratio from 21.62%, March 1991 to 2.8%, March 2009 due to rise in the percentage of NPAs. South Indian Bank ltd. has indicated improving trend from 2.58%, March 1995 to 14.42%, March 2009. Yes Bank ltd. has shown almost stable trend from 9.3% from March 2005 to 8.26% in March 2009 returns. Chart-4.30 indicates the trend of public sector banks for PAT Net of P&E / Average Capital Employed. Bank of Baroda has shown the moderate trend from 9.34%, March 1991 to 9.68%, March 2009. Bank of India indicates improving trend 3.32%, March 1991 to 12.48%, March 2009. Further, Bank of Maharashtra has shown a positive variation from -765.31%, March 1995 to 8.58%, March 2009. The decline initially was due to rise in NPAs. Central Bank of India has projected positive trend from 7.59%, March 1996 to 7.27%, March 2009 which has been due to lack of capital. UCO Bank has revealed positive trend from -46.19%, March 1992 to 6.19%, March 2009. This is due to capital inducement by government. United Bank of India have shown declining ratio. The negative effects are due to shortage of funds and rise in NPAs. State Bank of India has also shown the positive drift from 0.94% in March 1991 to 7.1%, March 2009. It is due to change in the economic policy and global meltdown. Punjab National bank and Punjab and Sind Bank have shown negative trend of ratios. Vijaya Bank has shown moderate fluctuations from 11.22%, March 1995 to 3.86%, March 2009.

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Further, Chart-4.31 shows the movements of private sector banks for PAT / Average Capital Employed. Axis Bank reveals the positive trend from 6.32%, March 1995 to 83.9%, March 2009. It is due to improvement in the capital. Bank of Rajasthan indicates declining trend from 21.41%, March 1993 to 13.37%, March 2009.This is due to shortage of capital and rise in NPAs. Bharat Overseas Bank Ltd. reveals the decreasing trend from 15.79%, March 1995 to 1.75%, March 2009. Dhanalakshmi Bank has registered development from 9.24%, March 1995 to 15.92%, March 2009. It is due to increase in advances. The HDFC Bank has shown moderate trend from 1.98%, March 1991 to 2.76%, March 2009. Further, ICICI Bank reveals the trend of negative fluctuation from 8.8%, March 1995 to 2.78%, March 2009; due to lack of returns. Jammu & Kashmir Bank Ltd. has shown the moderate trend from 14.25%, March 1993 to 12.34%, March 2009. The fluctuating trends are due to reforms and policy change. Kotak Mahindra Bank Ltd. has shown plunge in this ratio from 21.62%, March 1991 to 3.07%, March 2009. The decline is due to rise in the percentage of NPAs. South Indian Bank ltd. revealed optimistic trend from 2.58% March 1995 to 13.14%, March 2009. Yes Bank ltd. has shown minor variations in returns from 9.3% from March 2005 to 8.31%, March 2009. Chart-4.32 indicates the trend of public sector banks for PAT / Average Capital Employed. Bank of Baroda has shown the moderate stable trend from 9.36%, March 1991 to 9.68%, March 2009. Bank of India registered rise from 3.37%, March 1991 to 12.48%, March 2009. Further, Bank of Maharashtra has shown increase from -765.31%, March 1995 to 8.87%, March 2009. The variations are due to rise in NPAs. Central Bank of India has indicated increase from -7.55%, March 1996 to 7.27%, March 2009, which was initially low due to lack of capital. UCO bank has shown improvement from -46.19%, March 1992 to 7.16%, March 2009. It is due to capital inducement by government. United Bank of India projected a declining ratio. The negative effects are due to shortage of funds and rise in NPAs. State Bank of India projected a rise from 0.94%, March 1991 to 7.15%, March 2009. This was due to change in the economic policy and global meltdown. Punjab National bank and Punjab and Sind Bank have shown moderate trend of ratios. Vijaya Bank registered decrease from 11.26%, March 1995 to 4.88%, March 2009 due to the effects of global meltdown and increase in NPAs.

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Further, Chart-4.33 shows the movements of private sector banks for PBPT Net of P&E / Average Capital Employed. Axis Bank reveals the negative trend from the year 14.51%, March 1995 to 8.41%, March 2009. However, the decline is due to economic fluctuations. Bank of Rajasthan also indicates declining trend from 8.21%, March 1993 to 7.22%, March 2009. It is due to shortage of capital and rise in NPAs. Bharat Overseas Bank Ltd. reveals the decreasing trend from 8.08%, March 1995 to 5.24%, March 2009. The downfall is due to lack of proper operations. Dhanalakshmi Bank has shown a decline from 10.38%, March 1995 to 7.78%, March 2009 due to rise in NPAs. The HDFC Bank has shown moderate decrease from 14.16%, March 1991 to 11.18%, March 2009. Further, ICICI Bank reveals a negative trend from 13.44%, March 1995 to 8.02%, March 2009. It may be due to lack of returns. Jammu & Kashmir Bank Ltd. has projected the moderate negative trend from 8.36%, March 1993 to 7.8%, March 2009.Kotak Mahindra Bank Ltd. has registered a drop in this ratio from 28.59%, March 1991 to 7.8%, March 2009 due to rise in the percentage of NPAs. South Indian Bank ltd. has shown diminishing trend from 10.32%, March 1995 to 8.22%, March 2009. Yes Bank ltd. only has shown optimistic trend from 7.49% from March 2005 to 10.23%, in March 2009 returns. Chart-4.34 shows the trend of public sector banks for PBPT Net of P&E / Average Total Assets. Bank of Baroda has shown the moderate decreasing trend from 10.26%, March 1991 to 7.01%, March 2009. Bank of India also indicated mild fluctuation from 10.09%, March 1991 to 8.06%, March 2009. The decline is due to shortage of capital. Further, Bank of Maharashtra has shown positive variation from 6.85%, March 1995 to 7.13%, March 2009. These fluctuations are due to provisions. Central Bank of India has shown approximately stable trend from 7.88%, March 1996 to 7.09%, March 2009. UCO bank has projected increase from 6.74%, March 1992 to 7.46%, March 2009 as fresh capital was induced by government. United Bank of India has shown moderate ratio. Punjab National bank and Punjab and Sind Bank have also shown moderate trend of this ratio. Vijaya Bank has shown modest positive fluctuations from 7.59%, March 1995 to 8.45%, March 2009. The drift is due to increase in advances.

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Further, Chart-4.35 shows the developments of private sector banks for PBPT / Average Total Assets. Axis Bank reveals the declining trend from the year 14.51%, March 1995 to 8.51%, March 2009. The decrease is due to lack of sufficient capital. Bank of Rajasthan indicates reasonable negative trend from 8.21%, March 1993 to 7.21%, March 2009. It is due rise in NPAs. Bharat Overseas Bank Ltd. also reveals the decreasing trend from 8.08%, March 1995 to 5.24%, March 2009. Dhanalakshmi Bank has shown decline from 10.38%, March 1995 to 7.78%, March 2009. It may be due to decrease in advances. The HDFC Bank has projected a moderate decrease from 14.16%, March 1991 to 11.18%, March 2009. However, the variation is due to global meltdown. Further, ICICI Bank reveals the trend of negative fluctuation from 13.44%, March 1995 to 8.12%, March 2009. It may be due to lack of returns. Jammu & Kashmir Bank Ltd. has registered approximately stable trend from 8.36%, March 1993 to 7.84%, March 2009. The inclination may be due to reforms and policy change. Kotak Mahindra Bank Ltd. has made known plunge in this ratio from 28.59%, March 1991 to 7.8%, March 2009. The decline is due to rise in the percentage of NPAs. South Indian Bank ltd. has indicated minor fluctuating trend from 10.32%, March 1995 to 8.31%, March 2009. Yes Bank ltd. has shown slight rise in trend from 7.49% from March 2005 to 10.24%, March 2009 returns. Chart-4.36 indicates the trend of public sector banks for PBPT / Average Total Assets. Bank of Baroda has shown the moderate decrease from 10.26%, March 1991 to 7.01%, March 2009.The variations is due to high percentage of NPAs. Bank of India indicated drop from 10.01%, March 1991 to 8.06%, March 2009. It may be due to increase in NPAs. Further, Bank of Maharashtra has shown a approximate increase from 6.85%, March 1995 to 7.15%, March 2009. The fluctuations are due to the provisions. Central Bank of India has revealed stable trend from 7.88% March 1996 to 7.09% March 2009. It may be due to minor fluctuations capital. UCO bank has revealed an improvement from 6.74 %, March 1992 to 7.54%, March 2009. The positive impact was due to as capital inducement by government. United Bank of India has shown moderate ratio. Punjab National bank and Punjab and Sind Bank have also shown moderate ratio. Vijaya Bank has shown reasonable positive fluctuations from 7.59%, March 1995 to 8.55%, March 2009. It may be due to increase in advances.

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Further, Chart-4.37 reveals the development of private sector banks for PAT Net of P&E /Average Total Assets. Axis Bank indicates the positive trend from the year 1.25%, March 1995 to 1.31%, March 2009. It may be due to improvement in the advances. Bank of Rajasthan trend indicates drop from 0.94 %, March 1993 to 0.71%, March 2009. This decline is due to shortage of capital and rise in NPAs. Bharat Overseas Bank Ltd. reveals the decreasing trend from 0.86%, March 1995 to 0.15%, March 2009. Dhanalakshmi Bank has shown improvement from 0.68%, March 1995 to 1.18%, March 2009. This is due to increase in advances. The HDFC Bank has shown moderate increase from 1.89%, March 1991 to 2.45%, March 2009. The variation is due to conservative approach of bank for its conduct in business. Further, ICICI Bank reveals the fluctuating negative trend from 2.05%, March 1995 to 0.86 %, March 2009. This may be due to lack of adequate returns. Jammu &

Kashmir Bank Ltd. indicated moderate increase from 0.59%, March 1993 to 1.12%, March 2009. This is due to reforms and policy change. Kotak Mahindra Bank Ltd. has shown plunge in this ratio from 20.02%, March 1991 to 0.88%, March 2009. It is due to rise in the percentage of NPAs. South Indian Bank ltd. has projected some improvement from 0.24%, March 1995 to 1.07%, March 2009. Yes Bank ltd. has shown negative variations in returns from 2.04% from March 2005 to 1.51%, March 2009. Chart-4.38 shows the trend of public sector banks for PAT Net of P&E / Average Total Assets. Bank of Baroda has shown the approximate increase from 0.05%, March 1991 to 1.09%, March 2009. Bank of India indicated improving trend 0.26%, March 1991 to 1.49%, March 2009. Further, Bank of Maharashtra has shown positive variation from -6.22%, March 1995 to 0.68%, March 2009. However, the initial low value was due to rise in NPAs. Central Bank of India has registered improvement from -0.36%, March 1996 to 0.42%, March 2009. The fluctuations are due to lack of capital. UCO bank has shown improving trend from -3.75%, March 1992 to 0.48%, March 2009. It may be due to inducement of fresh capital. United Bank of India has shown moderate ratio. Punjab National bank and Punjab and Sind Bank have also shown moderate trend of this ratio. Vijaya Bank has shown mild fluctuations from 0.56% in March 1995 to 0.35% in March 2009. The variations are due to rise in NPAs.

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Further, Chart-4.39 shows the drift of private sector banks for PAT / Average Total Assets. Axis Bank reveals the positive trend from the year 1.26%, March 1995 to 1.41%, March 2009. It is due to improvement in the returns. Bank of Rajasthan indicated moderate trend from 0.94%, March 1993 to 0.71%, March 2009. The variation is due to rise in NPAs. Bharat Overseas Bank Ltd. reveals the decreasing trend from 0.86%, March 1995 to 0.15%, March 2009. It may be due to lack of proper operations. Dhanalakshmi Bank has shown improvement from 0.68%, March 1995 to 1.19%, March 2009. The increase is due to increase in advances. The chart also shows HDFC Banks moderate trend from 1.89%, March 1991 to 2.47%, March 2009. It is due to conservative approach. Further, ICICI Bank reveals the fluctuating trend from 2.05%, March 1995 to 0.96%, March 2009. It is due to lack of returns. Jammu & Kashmir Bank Ltd. has projected a moderate trend from 0.63%, March 1993 to 1.16%, March 2009. It is due to reforms and policy change. Kotak Mahindra Bank Ltd. has shown drop in this ratio from 20.02%, March 1991 to 0.97%, March 2009. The plunge is due to rise in the percentage of NPAs. South Indian Bank ltd. has revealed mild improving trend from 0.24%, March 1995 to 0.98%, March 2009. Yes Bank Ltd. has shown variation in trend from 2.04% from March 2005 to 1.52%, March 2009 returns which is due to economic slowdown. Chart-4.40 shows the trend of public sector banks for PAT / Average Total Assets. Bank of Baroda has shown the moderate trend from 0.06%, March 1991 to 1.09%, March 2009. Bank of India indicated improvement from 0.26%, March 1991 to 1.49%, March 2009. Further, Bank of Maharashtra has also shown improvement from -6.22%, March 1995 to 0.7%, March 2009. The fluctuation is due to rise of NPAs. Central Bank of India has shown reasonable trend from -0.36%, March 1996 to 0.42%, March 2009. The variations are due to lack of capital. UCO bank has revealed improving trend from -3.75%, March 1992 to 0.55%, March 2009. United Bank of India has shown moderate ratio. Punjab National Bank and Punjab and Sind Bank have also shown moderate ratio. Vijaya Bank has shown reasonable fluctuations from 0.56%, March 1995 to 0.44%, March 2009. This is due to fluctuations in the market. Thus, the return ratios indicate the variation in private sector and public sector banks due to lack of capital, rise in NPAs, high advances and economic slowdown.

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4.4 Comparison on the Basis of Liquidity The liquidity means ability of the firm to pay its short term debts in time. They are calculated to measure the short term financial position or short term solvency of the firm. The liquidity is calculated and compared on the basis of following ratios:

1.Quick ratio 2. Current ratio 3. Debt to equity ratio

Table -4.3 Comparison on the Basis of Liquidity

Std. Liquidity Ratios Quick ratio Banks Private N 150 Mean 3.7281 Deviation 3.12269 1.821 Public 169 3.2210 1.72834 .000 t Sig.

Current ratio

Private

150

3.9595

3.13686 1.991 .000

Public

169

3.3946

1.82895

Private Debt to equity ratio Public

150

1.9626

2.57943

.913

.179

169

1.5589

2.34651

The independent samplet test analysis shown in Table 4.3 indicates the mean, standard deviation for private sector and public sector banks. Further, Quick Ratio (1.821) and current ratio (1.991) shows that the values are at less than 5% level of Significance. However Debt to equity ratio (.913) shows that the values are in 5% significance level. The reason for non significance level is due to effect on the liquidity because of the global meltdown in the economy during 2008. The reasons for tight liquidity conditions in the Indian market in recent times includes large selling by Foreign Institutional Investors (FIIs) and subsequent Reserve Bank of India (RBI) interventions in the foreign currency market, continuing growth in advances, and

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earlier increases in cash reserve ratio (CRR) to contain inflation. Moreover the public sector banks like UCO bank, central Bank of India; Bank of India has suffered the shortage of capital in past trend.

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Further, Chart-4.41 shows the movements of private sector banks for Quick Ratio. Axis Bank reveals the positive increasing trend from the year 1.05%, March 1995 to 4.41%, March 2009. It may be due to improvement in the capital. Bank of Rajasthan indicates the variations from 3.47% in March 1993 to 3.1%, March 2009. Bharat Overseas Bank Ltd. reveals the modest trend from 3.78%, March 1995 to 4.1%, March 2009. Dhanalakshmi Bank has shown improvement from 2.64%, March 1995 to 4.8%, March 2009. It is due to increase in current assets. The HDFC Bank has shown decline from 16.9%, March 1991 to 0.33%, March 2009. Further, ICICI Bank reveals the fluctuating trend from 15.29%, March 1995 to 2.54%, March 2009. It is due to variations in returns. Jammu & Kashmir Bank Ltd. has revealed the moderate rise from 3.4%, March 1993 to 7.1%, March 2009. The reason is due to low NPAs which helped to maintain liquidity. Kotak Mahindra Bank Ltd. has revealed drop in this ratio from 1.35%, March 1991 to 0.84%, March 2009. This is due to rise in the percentage of NPAs. South Indian Bank ltd. has shown diminishing trend from 7.23%, March 1995 to 2.85%, March 2009. Yes Bank Ltd. has shown some increase from 0.53% from March 2005 to 1.25%, March 2009. Chart-4.42 reveals the trend of public sector banks for Quick Ratio. Bank of Baroda has shown the moderate rising trend from 2.94%, March 1991 to 3.86%, March 2009. Bank of India indicated a minor rise from 3.14%, March 1991 to 4%, March 2009. It may be due to improvement in current assets. Further, Bank of Maharashtra has shown increase from 1.98%, March 1993 to 2.81%, March 2009. The increase is due to the inducement of capital by government. Central Bank of India has shown some decrease from 3.61% in March 1995 to 2.8% in March 2009. It is due to market fluctuations. UCO Bank has shown improvement from 3.22%, March 1992 to 6.09%, March 2009. It is due to capital inducement by government. United Bank of India has shown moderate ratio. Punjab National Bank and Punjab and Sind Bank have also shown moderate ratio. Vijaya Bank has registered increase from 5.94% in March 1994 to -7.78%, March 2009. It is due to effect of global slowdown in market.

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Further, Chart-4.43 shows the movements of private sector banks for Current Ratio. Axis Bank reveals the positive trend from the year 1.15%, March 1995 to 4.11%, March 2009. The positive impact is due to improvement in the capital. Bank of Rajasthan indicates moderate fluctuations from 3.54%, March 1993 to 3.14%, March 2009. The variations are due rise in NPAs. Bharat Overseas Bank Ltd. reveals the increasing trend from 3.96%, March 1995 to 4.32%, March 2009. It may be due to change in reforms and policy. Dhanalakshmi Bank has shown improvement from 2.89%, March 1995 to 4.95%, March 2009. It is due to increase in current assets. The HDFC Bank has shown decrease from 16.9%, March 1991 to 0.36%, March 2009. It is due to global meltdown. Further, ICICI Bank reveals the trend of decline from 15.29% in March 1995 to 2.89% in March 2009. It is due to lack of returns. Jammu & Kashmir Bank Ltd. has registered a moderate trend from 3.45%, March 1993 to 7.18%, March 2009. The low NPAs in bank helped to maintain liquidity. Kotak Mahindra Bank Ltd. has shown decrease in this ratio from 3.35%, March 1991 to 0.84%, March 2009. It is due to rise in the percentage of NPAs. South Indian Bank ltd. has shown declining trend from 7.23% March 1995 to 2.85%, March 2009. Yes Bank Ltd. has shown variation in trend from 0.53% from March 2005 to 1.42%, March 2009. The positive impact is due to improvement in current assets. Chart-4.44 indicates the trend of public sector banks for Current Ratio. Bank of Baroda has shown the moderate trend from 3.06%, March 1991 to 4%, March 2009. Bank of India indicated improving current ratio from 3.31%, March 1991 to 4.35%, March 2009. Further, Bank of Maharashtra has shown variation from 2.17%, March 1993 to 2.93%, March 2009. The disparity is due to the inducement of capital by government. Central Bank of India has shown minor decrease from 4.12%, March 1995 to 3.15%, March 2009. UCO bank has registered improving trend from 3.29%, March 1992 to 6.29%, March 2009. It is due to inducement of fresh capital by government. United Bank of India has revealed moderate ratio. Punjab National bank and Punjab and Sind Bank have also shown moderate ratio. Vijaya Bank has indicated decline from 5.99% in March 1994 to -8.26%, March 2009. It is due to effects of global slowdown in market.

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Further, Chart-4.45 shows the developments of private sector banks for Debt to Equity Ratio. Axis Bank reveals the positive trend from the year 0.75%, March 1995 to 1.52%, March 2009. It may be due to improvement in the capital. Bank of Rajasthan indicates stable ratio from 0.47%, March 1993 to 0.46%, March 2009. It is due to rise in NPAs. Bharat Overseas Bank Ltd. reveals the decreasing trend from 0.78%, March 1995 to 0.63%, March 2009. The effects are due to change in reforms and policy. Dhanalakshmi Bank has shown variations from 0.62%, March 1995 to 0.2%, March 2009. It is due to fluctuations in current assets. The HDFC Bank showed decrease from 12.1%, March 1991 to 6.38%, March 2009. However, the decrease is due to global meltdown. Further, ICICI Bank reveals the fluctuation trend from 1.35%, March 1995 to 1.86 %, March 2009. Jammu & Kashmir Bank Ltd. has shown the moderate trend from 0.26%, March 1993 to 0.38%, March 2009. It is due to low NPAs which helped to maintain liquidity. Kotak Mahindra Bank Ltd. has exposed drop in this ratio from 3.09%, March 1991 to 1.72%, March 2009. It is due to rise in the percentage of NPAs and shortage of liquidity. South Indian Bank ltd. has shown declining trend from 1.16%, March 1995 to 0.32%, March 2009. It is due to lack of capital. Yes Bank Ltd. has shown positive trend from 1.73% from March 2005 to 2.17% in March 2009. Chart-4.46 shows the trend of public sector banks for Debt to Equity Ratio. Bank of Baroda has shown the moderate decreasing trend from 3.51 % in March 1991 to 0.99 % in March 2009. It is due to increase in NPA, the liquidity was affected. Bank of India indicated 1.96% in March 1991 to 1.33% in March 2009. Further, Bank of Maharashtra has shown variation from 6.84% in March 1993 to 1.09% in March 2009. However, the deviation is due to the lack of capital. Central Bank of India has shown reasonable variation from 0.65%, March 1995 to 1.06%, March 2009. UCO bank has shown mild fluctuations from 1.88% in March 1992 to 1.47% in March 2009. It is due to fresh inducement of capital by government. United Bank of India has shown moderate ratio. Punjab National bank and Punjab and Sind Bank have also made known temperate trend of this ratio. Vijaya Bank has indicated moderate stable fluctuations from 0.81% in March 1994 to 0.81% in March 2009. Thus, the analysis indicates that the banks liquidity was effected due to the liquidity crunch in global market and inadequate capital maintenance. .

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4.5 Comparison on the Basis of Asset turnover Ratio Further the asset turnover ratio is compared on the basis of variables:

1.Total Income / Avg. total assets 2. Total Income / Compensation to employees

The independent samplet test analysis in Table-4.4 indicates the mean, standard deviation for private sector and public sector banks. The value of t shown in table reveals total income/ average total assets (3.321) and total income/ compensation to employees (9.258) does not show the significant level of 5% of confidence.

Table-4.4 Comparison on the Basis of Asset turnover

Asset Turnover Ratio Banks Total Income / Avg. total assets Private Public Total Income / Compensation to employees Private Public N 150 169 Mean .1147 .0991 Std. Deviation .05409 .02690 22.42342 1.45008 9.258 .000 t 3.321 .000 Sig

150 21.6350 169 5.6311

This is basically due to the reason of the VRS in many of the banks and compensation paid to the employees. Public Sector Banks like UCO Bank, United Bank of India and Central Bank of India had the problem of overstaffing of 20 percent. However it has been noticed that private sector banks showed better maintenance then public sector banks.

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Further, Chart-4.47 shows the movements of private sector banks for Total Income / Average total Assets. Axis Bank reveals the stable trend from the year 0.17%, March 1995 to 0.11%, March 2009. It is due to fluctuation in economic scenario. Bank of Rajasthan indicated fluctuations from 0.11%, March 1993 to 0.09%, March 2009. The reason for decline is shortage of capital and rise in NPAs. Bharat Overseas Bank Ltd. reveals the decreasing trend from 0.11%, March 1995 to 0.08%, March 2009. It may be due to change in reforms and policy. Dhanalakshmi Bank has shown fluctuations from 0.13%, March 1995 to 0.1%, March 2009. The decline is due to variations in total income. The HDFC Bank has shown moderate trend from 0.15%, March 1991 to 0.12%, March 2009. However, the decrease is due to effects of global meltdown. Further, ICICI Bank reveals the trend of fluctuation from 0.17%, March 1995 to 0.1%, March 2009. It is due to lack of returns. Jammu & Kashmir Bank Ltd. has shown the moderate trend from 0.1%, March 1993 to 0.09%, March 2009. The reason for moderate trend is low NPAs which helped to maintain liquidity. It may also be seen from chart that Kotak Mahindra Bank Ltd. has shown drop in this ratio from 0.41%, March 1991 to 0.13%, March 2009. It is due to rise in the percentage of NPAs and shortage of liquidity. South Indian Bank ltd. has shown diminishing trend from 0.14%, March 1995 to 0.1%, March 2009. The plunge is due to lack of adequate capital. Yes Bank Ltd. has shown no significant variation in returns since it operations from 2005. Chart-4.48 shows the development of public sector banks for Total Income/ Average Total Assets. Bank of Baroda has shown the moderate decline from 0.13%, March 1991 to 0.09%, March 2009 due to increase in NPA, the asset turnover was affected. Bank of India indicated 0.12%, March 1991 to 0.1%, March 2009, which has shown the reasonable trend. Further, Bank of Maharashtra has shown variation from 0.11% in March 1993 to 0.09% in March 2009. However, the fluctuation is due to the lack of capital. Central Bank of India has also shown reasonable trend from 0.12%, March 1995 to 0.09%, March 2009. It may be due to shortage of adequate funds. It may also be seen from chart that UCO bank has revealed improving trend from 0.09%, March 1992 to 0.99%, March 2009. It is the result of inducement of fresh capital by government. United Bank of India has revealed moderate ratio. The reason for the moderate ratio is due to VRS provided by the bank to its employees. Punjab National bank and Punjab and Sind Bank have also shown moderate trend of this ratio. Vijaya

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Bank has projected minor fluctuations from 0.11% in March 1994 to 0.1% in March 2009. It may be due to liquidity shortage. Further, Chart-4.49 shows the movements of private sector banks for Total Income / Compensation to Employees. Axis Bank reveals the decline from the year 31.93%, March 1995 to 13.85%, March 2009. It is due to more of expenses. Bank of Rajasthan indicates moderate rise from 5.27%, March 1993 to 7.25%, March 2009. It is due to liquidity fluctuations faced by the banks. Bharat Overseas Bank Ltd. reveals the decreasing trend from 7.51%, March 1995 to 7.21%, March 2009. The variations have been due to change in reforms and policy. Dhanalakshmi Bank has revealed improvement from 6.03%, March 1995 to 7.83%, March 2009. It is due to increase in current assets. It may be seen from the chart that the HDFC Bank has indicated significant increase from 64.4%, March 1991 to 78.87%, March 2009. Further, ICICI Bank reveals the decline from 15.75%, March 1995 to 0.27%, March 2009. However, it is due to lack of adequate returns. Jammu & Kashmir Bank Ltd. has registered an increase from 7.58%, March 1993 to 10.84%, March 2009. Kotak Mahindra Bank Ltd. has shown plunge in this ratio from 73.93%, March 1991 to 6.24%, March 2009. It is due to rise in the percentage of NPAs and shortage of liquidity. South Indian Bank ltd. has shown increasing trend from 5.61%, March 1995 to 9.49%, March 2009. It is due to increase in advances. Yes Bank Ltd. has shown increase from 2.26% from March 2005 to 11.37%, March 2009. Chart-4.50 shows the trend of public sector banks for Total Income/ Compensation to Employees, Bank of Baroda has shown the moderate trend from 7.47%, March 1991 to 7.56 %, March 2009. It may be due to fluctuations in returns. Bank of India indicated reasonable rise in trend 7.24 %, March 1991 to 10.01%, March 2009. Further, Bank of Maharashtra has shown increase from 3.83%, March 1993 to 8.32%, March 2009. The fluctuation is due to the inducement of capital by government. Central Bank of India has shown reasonable improvement from 3.96%, March 1995 to 9.06%, March 2009. UCO bank has also shown improvement from 5.26%, March 1992 to 8.15%, March 2009. It is due to capital inducement by government. United Bank of India has shown moderate ratio. Punjab National bank and Punjab and Sind Bank have also indicated moderate ratio. Vijaya Bank has projected a rise from 4.55%, March 1994 to 10.04%, March 2009. It is due to liquidity shortage.

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Thus the analyses indicates that the asset turnover ratio of banks have been affected by the returns the banks have earned and the VRS provided by the banks to its employees.

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4.6 Comparison on the Basis of Capital Adequacy A bank's capital ratio is the ratio of qualifying capital to risk adjusted (or weighted) assets. The RBI has set the minimum capital adequacy ratio at 9% for all banks. A ratio below the minimum indicates that the bank is not adequately capitalized to expand its operations. The ratio ensures that the bank do not expand their business without having adequate capital. Further the Capital Adequacy Ratio is calculated on the basis of variables: 1. Capital Adequacy Ratio 2. Tier-I 3. Tier II Table- 4.5 Comparison on the Basis of Capital Adequacy

Capital Adequacy Ratios Capital adequacy ratio (in per cent) Public 169 9.6793 6.44442 Banks Private 150 9.9571 6.49617 .383 .937 N Mean Std. Deviation t Sig.

Private 150 Tier-1 (in per cent) Tier-2 (in per cent) Public Public Private 150 2.1441 2.28456 -.417 .666 169 6.2851 5.46857 6.7116 5.63393 .685 .800

169

2.2514

2.30404

The independent samplet test analysis in Table- 4.5 indicates the mean, standard deviation for private sector and public sector. The value of t as shown in Table-4.5

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in case of Capital Adequacy ratio (.383) and tier-I (.685) are showing the 5% level of significance, however tier-II (.417) does not show the 5% level of significance. The reason for insignificance level is due to low maintenance of this ratio in the public sector banks. The low maintenance is due to short of liquidity with the public sector banks. The private sector showed better results of maintaining capital adequacy than the public sector banks.

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Further, Chart-4.51 shows the developments of private sector banks for Capital Adequacy Ratio, Axis Bank reveals a stable trend from the year 14.43%, March 1995 to 13.69%, March 2009. Bank of Rajasthan indicates increase from 8.74%, March 1993 to 12%, March 2009. It is due to fluctuations in capital. Bharat Overseas Bank Ltd. reveals the decreasing trend from 12.5%, March 1995 to 11.24%, March 2009. It is due to change in reforms and policy. Dhanalakshmi Bank has revealed improvement from 8.93%, March 1995 to 14.44%, March 2009. It is due to increase in current assets. The HDFC Bank has shown moderate trend in maintenance of this ratio till March 2009. Further, ICICI Bank reveals the fluctuating trend from 13.04%, March 1995 to 15.92%, March 2009. Jammu & Kashmir Bank Ltd. has shown the moderate trend from 15.88%, March 1993 to 14.48%, March 2009. It is due to NPAs and increase in finances from state projects. Kotak Mahindra Bank Ltd. has revealed maintenance in this ratio from 30.47%, March 1991 to 19.86%, March 2009. South Indian Bank ltd. has shown optimistic trend i.e. from 8.27%, March 1995 to 14.76%, March 2009. It is due to increase in advances. Yes Bank Ltd. has shown minor variation from 18.8% from March 2005 to 14.5% in March 2009. It may be due to economic fluctuations. Chart-4.52 indicates the trend of public sector banks for Capital Adequacy Ratio. Bank of Baroda has shown the minor increase from 11.2%, March 1991 to 12.88%, March 2009. Bank of India indicated reasonable fluctuations from 9.11%, March 1991 to 13.21%, March 2009. Further, Bank of Maharashtra has shown variation from 9.07%, March 1993 to 10.75%, March 2009. The variation is due to the enticement of capital by government. Central Bank of India has revealed an increase from 9.41%, March 1995 to 11.75%, March 2009. It is due to encouragement of capital. UCO bank has shown improving trend from 3.16%, March 1992 to 9.75%, March 2009. It is the result of inducement in capital. United Bank of India has revealed moderate ratio. Punjab National bank and Punjab and Sind Bank have also shown moderate ratios. Vijaya Bank has shown improvement from 10.3%, March 1994 to 13.08%, March 2009 due to maintenance of capital.

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Further, Chart-4.53 shows the trend of private sector banks for Tier-I. Axis Bank reveals a decline from 11.6%, March 1995 to 9.26%, March 2009. It is due to more of expenses and rise in interest rates. Bank of Rajasthan indicates decline from 8.74%, March 1993 to 6.45%, March 2009. It may be due to shortage of capital. Bharat Overseas Bank Ltd. reveals the decreasing trend from 11.78%, March 1995 to 8.41%, March 2009. It is due to change in reforms and policy. Dhanalakshmi Bank has shown a decrease from 8.59%, March 1995 to 6.45%, March 2009. It is due to fluctuations in debt. The HDFC Bank has shown moderate trend in maintenance of this ratio. Further, ICICI Bank reveals the fluctuating trend from 13.38%, March 1995 to 12.16%, March 2009. Jammu & Kashmir Bank Ltd. has shown the moderate trend from 15.51%, March 1993 to 13.8 %, March 2009. Kotak Mahindra Bank Ltd. has shown plunge in this ratio from 30.47%, March 1991 to 16.01%, March 2009. It is due to rise in the percentage of NPAs and shortage of liquidity. It can also be seen from chart South Indian Bank ltd. has indicated increasing trend from 8.4%, March 1995 to 13.22%, March 2009. It is due to increase in advances. Yes Bank Ltd. has shown decline from 18.64% from March 2005 to 8.3%, March 2009. This variation is due to market fluctuations. Chart-4.54 shows the developments of public sector banks for Tier-I. Bank of Baroda has shown minor decrease from 9.05%, March 1991 to 7.79%, March 2009. Bank of India indicated increase from 7.46%, March 1991 to 8.73%, March 2009. Further, Bank of Maharashtra has shown decrease from 7.89%, March 1993 to 5.45%, March 2009. It may be seen from the chart that Central Bank of India has revealed reasonable decreasing trend from 7.21%, March 1995 to 6.24%, March 2009. UCO bank has also shown decrease from 7.22%, March 1992 to 5.3%, March 2009 as fresh capital was induced by government. United Bank of India has shown moderate ratio. Punjab National bank and Punjab and Sind Bank have also shown moderate ratio. Vijaya Bank has revealed an increase from 5.7%, March 1994 to 7.71%, March 2009. It is due to maintenance of capital.

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Further, Chart-4.55 indicates the trends of private sector banks for Tier-II. Axis Bank reveals an increase from 3.16%, March 1995 to 4.43%, March 2009. Bank of Rajasthan also indicates an increase from 0.63%, March 1993 to 5.55%, March 2009. It is due to inducement of capital. Bharat Overseas Bank Ltd. reveals an increasing trend from 1.22%, March 1995 to 2.83%, March 2009. The fluctuation is due to change in reforms and policy. Dhanalakshmi Bank has revealed decrease from 2.16 %, March 1995 to 1.54%, March 2009. It can be seen from the char that HDFC Bank has shown moderate trend for maintenance. Further, ICICI Bank reveals a moderate trend of fluctuation from 3.74%, March 1995 to 3.76 %, March 2009. Jammu & Kashmir Bank Ltd. has revealed a decrease from 3.31%, March 1993 to 0.68%, March 2009. Kotak Mahindra Bank Ltd. has shown upbeat trend in this ratio from 0.27%, March 1991 to 3.85%, March 2009. South Indian Bank ltd. has shown reasonable trend from 2%, March 1995 to 1.54%, March 2009. It is due to fluctuations in advances. Yes Bank Ltd. has shown positive variation in trend from 0.17% from March 2005 to 6.2%, March 2009. It is due to maintenance of subordinated debts. Chart-4.56 shows the development of public sector banks for Tier-II. Bank of Baroda has shown the moderate variation from 4.25%, March 1991 to 5.09%, March 2009. Bank of India indicated increase from 1.65%, March 1991 to 4.48%, March 2009. Further, Bank of Maharashtra and UCO Bank have also shown increase from 1.87%, March 1993 to 5.3%, March 2009 and 2.41%, March 1992 to 4.45%, March 2009 respectively. The variation is due to enticement of capital by government. It may further be seen from the chart that Central Bank of India indicates reasonable trend from 4.67%, March 1995 to 5.51%, March 2009. United Bank of India has shown moderate ratio. Punjab National bank and Punjab and Sind Bank have also shown reasonable ratio. Vijaya Bank has shown minor increase from 4.3%, March 1994 to 5.37%, March 2009. Thus, the analysis shows that the private sector and public sector banks have maintained adequate capital adequacy ratio inspite of the fluctuations in the market.

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4.7 Summary The present scrutiny covers the comparative performance of private sector and public sector banks in India from 1991-1992 to 2008-2009. The study has considered various parameters like profitability, returns, assets, liquidity and capital adequacy for comparing the performances of private sector and public sector banks. The various variables of profitability ratio like PBDITA Net of P&E / Total Income Net of P&E, PBT Net of P&E/Total Income Net of P&E and PAT Net of P&E/ Total Income Net of P&E are not on significance level of 5%. Rests of the variables have shown the significant level of 5%. Profitability Ratio charts for banks like HDFC and SBI have shown the improving performance during the period undertaken for the study. However, Bank of Maharashtra, UCO Bank, United Bank of India and Bank of Rajasthan have revealed the negative trend during the years 1992-1997. The return ratios variables like PBPT Net of P&E/ Average Total Assets, PAT net of P&E/ Average net worth, PAT/ Average net worth, Cash profits/ Average Networth, PBPT / Average total assets, PAT net of P&E/ average total assets, PAT/ Average total Assets do not show the 5% significance level where as rest other variables have shown significance level. The charts of banks like Bank of Maharashtra, UCO Bank, Bank of India and Bank of Rajasthan have shown negative trend in the ratios, whereas SBI and ICICI have also shown the fluctuations in the returns achieved. The liquidity ratios like Quick Ratio and current ratio shows from the analysis that the values are at less than 5% level of significance. Charts show that Vijaya Banks current ratio and Quick Ratio have shown the negative trend during the year 20072008 and 2008-2009. The private sector banks have projected the encouraging trend in maintaining the liquidity ratio. The asset turnover ratio variables total income/ average total assets and total income / compensation to employees does not show the significant level of 5% of confidence. The charts show the positive movement of the private sector and public sector banks. The Capital Adequacy Ratio is showing the 5% level of significance, however tier-II does not show the 5% level of significance. The charts have however shown the positive drift of the ratios in public sector and private sector banks.

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In the era of growing competition, the policy changes and the operational environment in respect of the Indian banking industry, there has been an increased focus on profitability. Consequently, most of the banks in public sector have shown a significant improvement in their profit performance and private sector banks continue to earn higher profit rates. Public sector banks are facing problems such as overstaffing, confrontation to adopt new technology etc, because they do not have the type of flexibility that is possessed by Indian private sector banks; therefore, they are facing serious challenges from private sector banks and foreign banks. With the changing times, various policy measures were introduced to improve the performance of the banks but they did not succeed to the desired level every time. The Indian banking industry is going through turbulent times and is growing at fast pace. With the lowering of entry barriers and increasing product lines of banks and non-banks due to the financial sector reforms, banks are functioning increasingly under competitive pressures emanating from within the banking system and from the domestic & international markets.

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CHAPTER- 5 CONCLUSION & SUGGESTIONS

5.1 Introduction A retrospect of the proceedings clearly indicates that the Indian banking sector has come far from the days of nationalization. The Narasimham Committee (1991) laid the foundation for the reformation of the Indian banking sector. The Committee submitted two reports, in 1992 and 1998, which emphasized significant thrust on enhancing the efficiency and viability of the banking sector. As the international standards became prevalent, banks had to unlearn their traditional operational methods of directed credit, directed investments and fixed interest rates, all of which led to deterioration in the quality of loan portfolios, inadequacy of capital and the erosion of profitability. The recent international consensus on preserving the soundness of the banking system has veered around certain core themes. These are: effective risk management systems, adequate capital provision, sound practices of supervision and regulation, transparency of operation, conducive public policy intervention and maintenance of macroeconomic stability in the economy. Until recently, the lack of competitiveness vis--vis global standards, low technological level in operations, over staffing, high Non Performing Assets (NPAs) and low levels of motivation had shackled the performance of the banking industry. However, the banking sector reforms have provided the necessary platform for the Indian banks to operate on the basis of operational flexibility and functional autonomy, thereby enhancing efficiency, productivity and profitability. The reforms also brought about structural changes in the financial sector and succeeded in easing external constraints on its operations, i.e. reduction in CRR and SLR reserves, capital adequacy norms, restructuring and recapitulating banks and enhancing the competitive element in the market through the entry of new banks. India has a well-developed banking system. Indian entrepreneurs and visionaries found most of the banks in India in the pre-independence era to provide financial

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assistance to traders, agriculturists and budding Indian industrialists. Indian banks have played a significant role in the development of Indian economy by inculcating the habit of saving in Indians and by lending finance to Indian industry. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheet relative to other banks in comparable economies in its region. This chapter highlights the major findings of the study and the suggestions to the policy makers.

5.2 Findings

The profitability ratio analysis conducted in the study reveals that public sector banks like: Bank of Maharashtra, UCO Bank and Bank of India have shown the downbeat tendency during 1992-1997. State Bank of India has shown the positive trend in the performance of profitability ratios while on the other hand Bank of Rajasthan (private Sector bank) has shown the off-putting presentation in the year 1998-1999. Whereas, HDFC bank has shown the improvement in performance since liberalization. All the other banks undertaken for the study have shown the reasonable variable drifts.

The return ratios also showed the fluctuating trend for the public sector banks like: Bank of Maharashtra, UCO Bank, Bank of India and Punjab National Bank. State Bank of India have shown improving and positive trend in the returns achieved. Moreover, private banks like ICICI Bank and Bank of Rajasthan have shown irregular decline.

The study also reveals that the performance of asset ratios for private and public sector banks have shown expected optimistic movement. HDFC Bank has shown positive trend during the study period.

The comparison done on the basis for liquidity ratios shows that Vijaya Bank has shown negative trend in the year 2008-2009. All public sector banks have been showing the fluctuating performance in maintaining the liquidity. The private

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sector banks like Kotak Mahindra bank have been showing irregular inclination in maintaining adequate ratios of liquidity. Further, the capital adequacy ratios show the moderate level of ratio maintained by the private sector and public sector banks. It is also seen from the study that the private sector and public sector banks did not have escape from Non- Performing Assets (NPA). Non- performing assets have been the major reasons which have given the dent on the profitability of the banks. The cause of rise in NPAs has been basically due to liberal lending norms, cyclical changes in the industries like steel, iron, textiles, chemical and engineering. Another major cause for the rise in NPAs is due to excessive corporate borrowings, the returns got the hit due to global recession in the market. Public sector banks like, Central Bank of India, UCO Bank, United Bank of India and Bank of Maharashtra faced the problem of inadequate capital. As stipulated by the Reserve Bank of India, the banks were required to attain a capital adequacy ratio of 8 per cent by 31 March 1996. Since quite a few public sector banks were not fulfilling this requirement, Government of India had to infuse fresh capital in all the public sector banks. The capital infusion was through issuance of bonds carrying fixed coupon rates initially at the rate of 7.75 per cent per annum which, in subsequent issues, was raised to 10 per cent. Bank of Maharashtra incurred operating losses in 1992-93 which were then identified and attributed to specific non-productive restructuring measures. In case of Dhanalakshmi Bank (private sector bank) was also recommended to improve the capital base for better functioning. Further, the analyses show that most of the public sector banks are facing the problem of overstaffing up to 20 percent which is affecting the liquidity of the banks. However banks like State Bank of India and Vijaya bank are facing the problem of shortage of headcounts due to the number of retirements taking place every year in addition to the further expansion plans of the banks. It can also be seen from the analyses that the private sector banks are not confronting the problem of workforce. The analyses also reveal that majorly public sector banks are not technology responsive. There are many public sector banks branches that are yet to be

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computerized, which affects the business of the bank in comparison to their counterparts private sector banks. Banks need to effectively use technology to counter the challenge posed by the new private sector banks, especially in the retail business. Better customer service backed by superior technology and the lack of legacy systems has enabled the new private sector banks to gain market share from the public sector banks. This trend is likely to continue in future too and intensify further as and when foreign banks increase penetration through the subsidiary route. The banks ability to manage its transition to a technology-oriented and customerdriven organization will determine its future financial performance and market position. Their ability to improve the quality of their advances portfolio, reduce NPA levels and most importantly arrest fresh slippage of assets to NPAs would be a key rating sensitivity. Infact, the encouragement given for infrastructure development by Bank of Maharashtra cannot be overlooked. The Bank has encouraged infrastructure development consistently with accelerated deployment. As on 31.03.05, the advances to this sector were Rs. 501 crore and the same are now Rs. 3897 crore. The Bank has played a key role in social banking. It has established two rural development centers and two non government agencies. It has established 50,743 self help groups (SHGs) and has credit linked 23,108 SHGs

involving financial assistance of Rs. 132 crore. Further, it can be seen that unstable top management of Bank of Rajasthan has led to the downfall in profits and reserves of a bank. RBI has not given any fresh branch license to the bank in the recent past. Bank of Rajasthan has also not appointed its chairman since August 2004. Another fact revealed by the study is that there has been the lack of strategic planning by public sector banks and Management Information System (MIS) and also the skill levels required especially in sales and marketing, service operations, risk management and the overall performance of the organization. Moreover, the study also shows that the liquidity of the banks was majorly hit by the global meltdown in the world market.

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The analysis further reveals a conservative approach adopted by certain banks in their dealings. Banks like Jammu & Kashmir have not created many branches outside the Jammu - Kashmir region. The noticeable fact is the bank is generating profits consistently for the last many years.

RBI has warned ICICI Bank against the use of coercive methods to recover loans. As many incidents related to recovery of loans are creating unpleasantness whereas such type of incidents have not taken place in the recovery of loans for public sector banks.

The forgoing discussions and the results available revealed that private sector and public sector banks need to improve on the various aspects. It is imperative for the banks to improve upon their strengths for comparative advantages.

5.3 Suggestions The major suggestions and recommendations emerging out on the basis of above findings of the study are laid down as under: The public sector banks need to effectively use technology to counter the challenges posed by the new private sector banks, especially in the retail business. Better customer services backed by superior technology and the lack of legacy systems have enabled the new private sector banks to gain market share from the public sector banks. Banks should initiate efforts on adopting the new technologies in order to improve their customer service levels and provide new delivery platforms to them, especially in the metros and other urban centers. The success of these initiatives will have a bearing on their banks market position. The Centralised Banking Solution (CBS) on the Flexcube Platform should be offered by the banks in all of their branches, as it allows the clients to reap the benefits of Anywhere/Anytime banking, through multiple delivery channels. The private and public sector banks should take advantage of the buoyancy in economic growth and expand credit in all segments including priority sector and retail. The Bank should increase its share in infrastructure sector and can add new

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clientele in the areas of corporate finance and export finance. The credit flow to agriculture should also be improved in conformity with guidelines of Government and thrust on mobilisation of low cost deposits continued. Public sector Banks should also plan to generate corporate and project finance for their investments abroad. They should increase their focus on other diversified services, apart from banking services such as venture capital, merchant banking, etc. The banks need to adopt IT technology and develop quality products and services for increasing its reach and gaining competitive advantage The public sector banks like UCO Bank, United Bank of India, Central Bank of India facing comparatively high NPA problem can setup Asset reconstruction fund for taking over NPA accounts. The cost reduction can also be done by reducing the wage bills and downsizing through VRS by UCO bank, United Bank of India, central Bank of India and Bank of Maharashtra. Non-Productive expenses also need to be identified and reduced to bare minimum level. The banks should lay more emphasis on rural development and creating more opportunities for the rural unemployed through innovative credit schemes to fulfill their social obligations also. Adoption of financial inclusion by the banks will help them cater to the rural areas with innovative schemes. The delivery of financial services at affordable costs to vast sections of disadvantaged and low income groups. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. Most of the banks need to improve upon their ATMs facilities for better ease of access by customers. The banks need to smoothen out the ways to recover loans. Certain training session should be organized for the recovery agents. The terms and conditions of the loans can be put up in a strict manner so the chances of default are reduced. The top management of the banks should play an important role to stabilize their operations, else it leads to downfall of the banks as in case of Bank of Rajasthan. CMDs post can be split into that of a non-executive Chairman and a Managing Director, addressing the problem of inadequate senior management which will the

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reduce the gaps in succession resulting into improved customer service, housekeeping, rationalization of branches, redeployment of excess manpower in deficit areas, recruiting professionals in merchant banking, MIS and strategic planning. Mergers and acquisitions cannot be ruled out in todays era, which results into significant expansion of branches, ATMs network and strong technology infrastructure, superior range of products and high quality retail and wholesale banking services. HDFC Bank is an example of merger with Centurian Bank of Punjab, where in the acquisition has added 20% to the HDFC Banks assets base even though Centurian Bank of Punjab CASA per branch is 1/5th as compared to that of HDFC Bank (despite having considerable presence in CASA rich states). This also provides an opportunity to HDFC Bank to use Centurian Bank of Punjab branch network. The two banks enjoyed technological, cultural and compensation structure fit for the integration which has been progressing quite smoothly. Centurion Bank of Punjabs retail concentration complements HDFC Banks loan book. The loan book of both the banks complements each other without any integration issues. Keeping in view the demographic shifts resulting from the changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks. The market is seeing discontinuous growth driven by new products and services that includes opportunities in credit cards, consumer finance and wealth management from retail side and in fee- based income and investment banking on the wholesale banking side. This requires new skills in sales & marketing, credits and operations. In order to relieve the banks of the capital crunch, RBI has allowed raising the perpetual bonds and other hybrid capital securities to shore up their capital. If the new instruments find takers it will help public sector banks left with little headroom for raising equity. In the era of liberalization investment opportunity across all segments in the banking and financial services sector makes it a lucrative business segment. The public and private sector banks should plan to face challenges posed by foreign banks.

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Thus, it is hoped that the findings of this study will help the public and private sector banks to be more competitive and compatible in the new era of liberlisation.

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