2.1 introduction 2.2 review of literature...

2.1 INTRODUCTION

2.2 REVIEW OF LITERATURE

REFERENCES

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22..11 IINNTTRROODDUUCCTTIIOONN

A review of literature is not a summary or an abstract of articles. It is an

analysis and synthesis of the source materials, written in a specific style,

which flows from broad to narrow, and takes into account both the

theoretical and empirical issues. A thoughtful and insightful discussion of

related literature builds a logical framework for the research and locates it

within a tradition of inquiry and a context of related studies.

The literature review serves four broad functions. First, it demonstrates

the underlying assumptions behind the general research questions. If

possible, if should display the research paradigm that undergrids the

study and describe the assumptions and values the researcher brings to

the research enterprise. Second, it demonstrated that the researcher is

knowledgeable about related research and the scholarly traditions that

surround and support the study. Third, it shows that the researcher has

identified some gaps in previous research and that the proposed study

will fill a demonstrated need. Finally, the review refined and redefined the

research questions by embedding them in larger traditions of inquiry.

Thus the literature review is described as a conversation between the

researcher and the related literature based on past studies.

Reviewing the literature is worth the effort: it will give you a fascinating,

in-depth insight into the research topic and, even better, a great literature

review will vastly improve the chances of getting a great mark.

Literature reviews are written to...

To sharpen and deepen the theoretical framework of the research.

To familiarize the researcher with the latest developments in the area of

research.

Identify gaps in current knowledge and as well as weaknesses in

previous studies.

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To study the definitions used in previous works as well as the

characteristics of the populations investigated, with the aim of

adopting for the new research.

Show that researcher have a good knowledge of the research area, and

is aware of key themes, topics and debates.

Identify and discover connections and contradictions between different

research results by comparing various investigations.

Identify ideas and resources that can be used in the research.

To study advantages and disadvantages of the research methods used

by others, in order to adopt or improve on them in one‟s own research.

Identify the areas for future research.

Show that the researcher can make judgements and think critically

about published research.

To produce a rationale or justification for one‟s own study.

Experts and researchers all over the world studied the changes taking

place in various countries, economies, etc. Legal reforms, economic

reforms, technological changes, etc. were experienced in recent decades.

After nationalization, the operating environment in banking industry is

getting more and more complex. Emphasis on mass banking, priority

sector lending, etc. has brought in great pressures on profitability. The

position has been further compounded by loan melas and loan waivers

based primarily on political considerations. Under such circumstances, it

becomes necessary to keep a continuous watch on the profitability of this

vital sector of economy.

Profit is the main reason for the continued existence of every commercial

organization and profitability depicts the relationship of the absolute

amount of profit with various other factors.

Profitability of banking industry rests on two major segments, viz., Income

and Expenditure.

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22..22 RREEVVIIEEWW OOFF LLIITTEERRAATTUURREE

In the past, some attempts have already been made at individual as well

as at the official level and various aspects of commercial banking

profitability and productivity have been conducted and are being

reviewed hereunder:

Study No. 1

Title of the Research Study

“A Study of Profitability and Efficiency of Private Sector Banks”

Author of the Study

Swaty K. Thumar

Submission Details

M. Phil. Dissertation, Saurashtra University, March - 2009, pp.50-58 +

129-132.

Objectives of the Study

The following were the main objectives of the study:

1. To study the profitability of private sector banks.

2. To study the efficiency of private sector banks.

3. To examine the profitability and efficiency of private sector banks.

4. To study the trend of profitability of private sector banks.

5. To suggest ways and means to improve profitability and efficiency

without addition of financial sources.

6. To make suggestions for improving profitability and efficiency.

Data Collection of the Study

The study was based on secondary data and the data required was

collected annual reports of the selected banks, Indian Bank Association

Bulletin, RBI publication, journals, newspapers and websites.

Period of the Study

The study covered a period of five years from 2003-2004 to 2007-2008.

43

Sample of the Study

The researcher has selected five new private sector banks under the

study: ICICI Bank Ltd., HDFC Bank Ltd., Axis Bank Ltd., Kotak

Mahindra Bank Ltd., and IndusInd Bank Ltd.

Chapter Plan of the Study

The chapter plan of the study is mentioned hereunder:

1. Overview of Banking Industry in India.

2. Research Methodology.

3. Analysis of Profitability and Efficiency of Private Sector Banks.

4. Summary, Findings and Suggestions.

Tools and Techniques used for Analysis

1. Ratio Analysis.

2. Analysis of Variance (ANOVA).

3. Du-Pont Chart.

Findings of the Study

The findings of the study are shown below:

1. It was found that there was no significant difference between Net

Profit to Total Assets of the banks under study.

2. The study after analyzing the Profit after Tax to Average Total

Assets ratio found that the banking efficiency in utilization of assets

was generating revenue.

3. Analysis of Profits before Tax Net of prior period and extra ordinary

to Total Income Net of prior period and extra ordinary of the banks

under study showed fluctuating trend and reflected a significant

difference when hypothetically tested.

4. Further it was found that there was no significant difference

between Profits after Tax to Average Net Worth of the banks.

5. Total Income to Average Total Assets ratio indicated mix trend

during the study period and there was significant difference when

hypothetically tested.

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6. The ratio of Interest Income to Working Funds showed mixed trend

and it was maximum at 8.58% in 2007-08 and minimum at 7.31% in

2004-05.

7. The Operating Profit to Working Funds ratio indicated no

significant difference when tested hypothetically.

8. It was found that there was a significant difference between Gross

NPA to Gross Advances when hypothetically tested.

9. Net NPA to Net Advances ratio indicated efficiency of banks under

study rejecting the null hypothesis.

Suggestions of the Study

The following are the suggestions summarised by the study:

1. IndusInd Bank should take steps to improve profit for higher

profitability as it was having low ratio of Profits before Tax Net of

prior period and extra ordinary to Total Income Net of prior period

and extra ordinary and Operating Profit to Working Funds.

2. All banks should provide services like issue of draft, issue of

guarantees, phone banking to increase fund based income.

3. Higher operating cost is a major obstacle affecting the profitability

of private sector banks. Financial viability of private sector banks

can be enhanced by keeping a control on operating cost through

higher labour productivity, updated technology, low cost funds and

restricting branches.

4. Assets quality reflects the soundness of financial institutions.

Private sector banks should disburse their funds in quality assets to

reduce NPA level and banks should pay adequate attention to

quality of lending.

Review of Study

The research work was an attempt to study and analyse the

profitability and efficiency measurement of private sector banks. In this

study five new private sector banks were selected for a period of five

years from 2004 to 2008. The study revealed that private sector banks

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are lagging on the major thrust areas such as asset qualities, business

per employees‟, capital adequacy requirements and profitability. The

study made suggestions to implement restructuring plan, reduce

unnecessary expenses and provide quality products and services at

reasonable prices.

Study No. 2


“Financial Appraisal of Banking Industry – A comparative Insight of

ICICI Bank and State Bank of India”

Author of the Study

Dr. Sandip Goel

Publication Details

Management Accounting and Business Finance, Volume 1, No.1,

January - 2009, pp.11-23.


The study specifically aims at the following:

1. To appraise the profitability of the units in detail.

2. To analyse the liquidity trend.

3. To appraise the operating efficiency.

4. To have an in-depth view of the financial soundness.

5. To find out the value creation.

6. To find out the shortcomings, if any and suggest required remedial

measures thereof.


The study was based on secondary data and the data required was

collected annual reports of the selected banks, reference books,

journals, and websites.

Period of the Study

The study covered a period from 2006-2007 to 2007-2008.

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Sample of the Study

The researcher has selected two banks - ICICI Bank Ltd. and State Bank

of India for the study.


1. Trend Analysis.

2. Ratio Analysis.


Though both ICICI bank and SBI have been performing well, but one

aspect where ICICI bank lagged in its performance as compared to its

peers in the industry was the ability to raise funds at a lower cost and

even though the interest income earned as a percentage of the total

income was the same as the industry however the interest expended

was 12% points higher and thus the net profit as percentage to total

income it was little less than its industry peers. Net profit margin has

taken a dip for ICICI bank during the said period because of higher

cost of funds along with higher growth in interest earned than that in

net profit. SBI, on the other hand, showed a 48.17% growth in its net

profit compared to 31.4% growth in interest earned.

Regarding current account and saving account (CASA), there has been

an increase in the CASA ratio of ICICI bank because during the past

year there was an increased focus on the Retail Banking model. SBI

Retail Banking has been its core focus and thus it has always

maintained such a high CASA ratio. On cash front, an interesting point

to be noted in the banking industry was that though most of the banks

have high profits many banks have a negative cash inflow due to

operating activities. The major reason being that when advances are

more than the deposits the banks would generally have a negative cash

flow from operating activities. Thus a positive cash flow from

operating activities generally indicated declining credit/deposit ratio.

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The study made the following suggestions:

1. The regulatory systems of Indian banks should be more

strengthened to ensure stability, soundness and efficiency of the

financial sector.

2. There should be a „Lessening Quality of the Loan Portfolio‟.

Although there was a general deterioration in the quality of the loan

portfolio of the banks, the extent of the deterioration varied

substantially among individual banks. Overall, these indicators call

for an eye to watch.

3. There should be an adequate level of short-term and long-term

financing for the development of financial structure and policies to

encourage financial sector.

4. The mobilization of financial savings should be in a way which is

consistent with the stability of the financial system. Stability here

refers to the ability of the financial system to withstand

disturbances, including those that may arise internally.

5. Reporting and accounting standards and practices should be more

streamlined, particularly in private sector banks. An improvement

of accounting and disclosure practice would enhance transparency

in financial markets.

Review of Study

The study analysed the financial strength of the banking sector on a

comparative basis of ICICI bank and State Bank of India for a period of

2007 and 2008. The outcome of the study was that both ICICI and SBI

performed well, but ICICI bank lagged in its performance to its peer

SBI in the ability to raise funds at a lower cost. The study made

suggestions to strengthened regulatory systems of Indian banks, lessen

quality of the loan portfolio, adequate level of short-term and long-

term financing, financial savings to be mobilized consistently and

reporting, accounting standards and practices should be streamlined.

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Study No. 3


“Diversification in Banking Sector in India Determinants of Financial

Performance”

Author of the Study

Sangeeta Arora and Shubpreet Kaur

Publication Details

Indian Journal of Commerce, Volume – 61, No. 3, July-September, 2008,

pp.13-21.


The following were the main objectives of the study:

1. To study the determinants of diversification in banking sector.

2. To analyse the financial performance of diversified banks.


The main data source for the study came from the published

documents of IBA, databse of prowess and the reports on trend and

progress of banking in India.

Period of the Study

The study covered a span period of six years from 2000 to 2005.

Sample of the Study

The samples encompassed under the study are the nationalised banks,

State Bank of India group, new generation private sector banks and

foreign banks in India.


1. Ratio Analysis.

2. Pearson Correlation.

Findings, Suggestions and Conclusion of the Study

The study analysed the financial performance of diversified banks over

the study period and studied various internal and external factors like

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economies of scale and scope, competition, risk reduction, etc. which

always are forcing banks to diversify. Over the study period the non-

interest income showed an increased correlation with net interest

income over the last decade. A continuous decline in interest margin

after 2001 indicated that a low level of interest margin pushed the

banks to generate income from alternative sources of revenues other

than interest income.

As far as dependence is concerned, public sector banks in India still

rely heavily on interest income while foreign and private banks are

focusing on generating income from nontraditional source of income

which require low or minimum capital base such as income from fee

based services, foreign exchange transaction, security trading, etc. No

doubt, interest income is a major source of income in the operations of

Indian banks. However, the phenomenon of non interest income is

acquiring added significance in a deregulated and dynamic market.

Banks will have to concentrate more on providing better, faster and

more efficient customer service to permit banks to charge higher rates

for better and faster service. As retail income continues to grow, there

is immense opportunity for banks to raise fee-based income.

Review of Study

This research study was an attempt made to study the determinants of

diversification of banks in India and to analyse the financial performance

of banks over the period of 2000 to 2005. The study covered nationalized

banks, SBI and associates, new private sector banks and foreign banks.

Profitability ratios were found out to examine the financial performance of

banks. It was found out that though the interest income is still a major

source of income in the operations of banks in India, but the phenomenon

of non-interest income is acquiring added significance in the wake of

declined interest margins and increased disintermediation in commercial

banking. The study suggested that banks should concentrate more on

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providing better, faster and more efficient customer service to permit

banks to charge higher rates for better and faster service.

Study No. 4


“A Study of Profitability Performance of Public Sector Banks in India”

Author of the Study

Dr. M. Selvakumar and P. G. Kathiravan

Publication Details

Indian Journal of Finance, Volume – III, No. 9, September, 2009,

pp.3-13.


The following were the objectives of the study:

1. To study the income and expenditure pattern of Public Sector

Commercial Banks (PSCBs) in India.

2. To analyse the profitability performance of PSCBs in India.

3. To analyse the Non-Performing Assets of PSCBs in India.

4. To compare the growth of income, expenditure and profit of PSCBs

with Scheduled Commercial Banks (SCBs) in India.

5. To offer suitable suggestions based on the findings of the study.


The study based on secondary data was collected from RBI annual

reports, journals, reports on trend and progress of Banking in India,

government publications, books and websites.

Period of the Study

The study covered a period of ten years from 1996-1997 to 2005-2006.

Sample of the Study

All public sector commercial banks (PSCBs) comprising of State Bank

of India, its seven subsidiaries and nineteen other nationalised banks.

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1. Growth Rate.

2. Compound Growth Rate.

3. Co-efficient of Correlation.

4. Ratio Analysis.

5. Median Test.

6. Mann – Whitney „U‟ Test (MWU – Test)


The findings of the study are summarized below:

1. Interest income showed a fluctuating trend. The growth rate of

interest income of PSCBs in India was varying between 2.20% and

33.85%. The compound growth rate of interest income of PSCBs was

12.95%.

2. The growth of total income of PSCBs in India was varying between

7.10% and 28.79%. The compound growth rate of total income of

PSCBs in India was 13.95%.

3. The growth rate of total expenditure of PSCBs in India was varying

between 4.19% and 30.72%. The compound growth rate of total

expenditure of PSCBs in India was 13.01%.

4. The growth rate of net profit of PSCBs fluctuated during the period

under study. The highest growth rate 59.48% was registered in 1998.

The compound growth rate of net profit was 11.04% for the study

period.

5. The ratio of net profit to total assets varied between 0.34% and

1.12% during the study period.

6. The difference between the interest received and the interest paid is

spread. The interest spread showed an increasing trend in all the

years of the study period. The growth rate of spread was 7.69% in

1998 and 14.47% in 2006.

7. There was a high positive correlation between the profitability and

interest earned; profitability and interest paid; profitability and

52

operating expenses; and profitability and other income of PSCBs in

India.

8. According to the Median Test, there was no significant difference

between the profitability of PSCBs in India and SCBs in India.

9. There was no significant difference between the growth rates, total

income, total expenditure and net profit of PSCBs in India and SCBs

in India.


The following were the suggestions offered by the study:

1. Prompt measures should be taken to collect the overdues from the

borrowers that will help the banks to earn profit in future.

2. For improving operational efficiency, new technology should be

introduced. Computerization and automation will help in reducing

unproductive and costly operations.

3. The banks should take necessary steps to increase the non-interest

income, which only constitutes less than 20% of the total income, by

way of collection of cheque and bills, giving guarantees, locker

facilities, acting as agent providing merchant banking services etc.

4. The banks should conduct awareness programmes among the rural

poor about the repayment of loans and saving habits.

5. With regards to deposits, the current deposits carry zero rate of

interest. Therefore, the banks have to concentrate on mobilizing

current deposits.

6. To maintain a steady growth rate of deposits, it is recommended

that the banks should come forward to offer some subsidiary

services like marketing assistance, technological assistance,

insurance facilities, export facilities and so on.

7. The banks should take efforts to reduce the operating expenses by

means of improving the efficiency of the non-viable branches by

utilizing some expert services like professional management,

private management and the like.

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8. New attractive and innovative schemes should be introduced

according to the requirements of difference types of clients.

9. PSCBs should prepare a model scheme for granting loans. This

scheme should include each and every aspect, which the bank is

normally expected to look into while processing loan applications.

Review of Study

The study concentrated on analyzing the profitability of public sector

commercial banks in India for a period from 1997 to 2006. The positive

correlation between profitability and interest earned, interest paid,

operating expenses and other income was the major outcome of the

study. The study offered suggestions to collect overdues from the

borrowers, to introduce new technology, to conduct awareness

programmes among the rural poor the repay the loans, to concentrate

on mobilizing current deposits, to take efforts to reduce the operating

expenses and to introduce attractive and innovative schemes for the

requirements of different clients.

Study No. 5


“Profitability Performance of New Private Sector Banks – An Empirical

Study”

Author of the Study

Dr. N. Bharathi

Publication Details

Indian Journal of Finance, Volume – IV, No. 3, March, 2010, pp.16-24.


The following were the specific objectives of the study:

1. To assess the nature of profitability of the new private sector banks.

2. To analyse the consistency of the profitability of the new private

sector banks.

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3. To offer suggestions for the improvement of efficiency of the new

private sector banks.


The data were collected from the official directory and the database of

Centre for Monitoring Indian Economy (CMIE) namely PROWESS. The

published annual reports of the selected banks taken from their

websites, magazines and journals on finance have also been used as

sources of data.

Period of the Study

The study covered a period of ten years from 1998 to 2007.

Sample of the Study

The universe as a whole of new private sector banks consisting of nine

banks was selected as a sample size of the study namely, Bank of

Punjab (BOP), Centurion Bank, Development Credit Bank (DCB),

Housing Development Financial Corporation (HDFC), Industrial

Credit Investment Corporation of India (ICICI), IndusInd Bank, Kotak

Mahindra Bank (KMB), AXIS Bank and Yes Bank.


1. Mean.

2. Standard Deviation.

3. Co-efficient of Variation.

4. Correlation.

5. Multiple Regression.


The following suggestions were covered under the study:

1. The interest income and interest expenses in relation to working

fund were more than average in case of limited number of banks, so

the new private sector banks may concentrate their attention on

improving their interest income.

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2. The operating expenses of majority banks were more than average.

So the banks may take steps to reduce these expenses by increasing

the activities or otherwise.

Review of Study

The study was conducted to know whether the selected new private

sector banks are adept in retaining market shares and profit margins

amidst their reliability and overall performance for a period from 1998

to 2007. The outcome of the study was that overall banks performed

well but operating expenses of majority of the banks was more than

average. The banks were suggested that they should concentrate on

improving interest income and reducing operating expenses.

Study No. 6


“Indian Banking: Emerging Issues and Enhancing Competitive

Efficiency”

Author of the Study

R. K. Uppal

Publication Details

The IUP Journal of Business Strategy, Volume – VII, No. 1 & 2,

March-June, 2010, pp.71-82.


The study was aimed to achieve the following objectives:

1. To compare the performance of public, private and foreign sector

banks.

2. To suggest measures to enhance comparative competitive efficiency

in public sector banks.


Data required for the study was obtained from Performance

Highlights, various issues, IBA Publications.

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Period of the Study

The study period was from 1997 to 2008.

Sample of the Study

The three banks were selected – one each from the respective bank

groups, as listed hereunder:

1. State Bank of India from public sector banks (PSBs)

2. ICICI Bank from new private sector banks

3. Standard Chartered Bank from foreign banks


1. Ratio Analysis.

2. Mean.


4. Co-efficient of Variation.


The new private sector banks and foreign banks were found to be more

efficient. These banks were having more productivity than public

sector banks. The profitability of State Bank of India was the least. To

improve the efficiency and profitability of public sector banks, the

study suggested the following measures:

1. Public sector banks should design efficient plans to earn more

income from different sources.

2. They should adopt more and more new technologies and

innovations to increase their efficiency and productivity.

3. Services and products should be provided to the customers

according to their needs and expectations.

4. In competitive environment, information technology plays an

important role in every industry. Banks also should be fully

computerized and should be in a position to provide services to

their customers through the Internet and other e-channels.

5. Training should be imparted to the existing employees and

wherever possible appoint new trained staff.

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6. Updated information regarding the services offered should be

provided to their employees.

7. Banks should create and foster relationships with their customers.

8. Banks should pay some attention to non-interest income and

provide services such as ATM facility, locker facility and credit

cards.

9. Banks should introduce new schemes and allow concessions to their

customers on loans and on their bank accounts.

10. PSBs should launch unique deposit schemes.

11. PSBs should concentrate on increasing their business.

12. PSBs should increase their earnings through new resources.

13. PSBs should increase their profitability by using e-channels.

14. PSBs should concentrate on their efficiency.

15. PSBs should focus on improving their productivity.

Conclusion of the Study

The study revealed that comparative efficiency of new private sector

and foreign banks was much better as compared to PSBs. In some

aspects, the new private sector banks performed better than the foreign

banks. Productivity of foreign banks was the highest, although they

have the highest costs, whereas the new private sector banks followed

these banks with excellent growth and recorded the highest

profitability with lower operating costs and the maximum provisions

for contingencies.

Although PSBs have the lowest levels of costs, there was greater

decrease in their interest income and expenditure mainly due to

deregulation that created competition in the market and these banks

have to change the interest rates to sustain in the market. The decline in

interest income and expenditure further resulted in decrease in their

spread and brought down their profitability as compared to the new

private sector banks and foreign banks.

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To gain a sound position and compete in the global market, the PSBs

have to change their ways of working and dealing with customers and

hence need to adopt competitive strategies along with the latest

technology and change their mindset.

Review of Study

The study focused on the comparative performance of selected banks

namely SBI from public sector banks, ICICI bank from new private

sector banks and Standard Chartered bank from foreign banks

covering a period from 1997-98 to 2007-08. The study concluded that

profitability and productivity were much higher in case of new private

sector banks and foreign banks as compared to public sector banks. The

study suggested public sector banks to change their ways of working

and dealing with customers, to adopt competitive strategies alongwith

the latest technology and change their mindset to make them much

competitive as the new private sector banks and foreign banks.

Study No. 7


“Earning Quality of Scheduled Commercial Banks in India: Bank-wise

and Sector-wise Analysis”

Author of the Study

B. S. Bodla and Richa Verma

Publication Details

Prajnan, Journal of Social and Management Sciences, Volume –

XXXVII, No. 4, January-March, 2009, pp.257-281.


The objective of the study was to focus on Earning Quality of CAMEL

Model of rating banking institutions so as to catch the comparative

performance of various banks in terms of their Earning quality.

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The data was collected from the website of RBI and prowess database

of CMIE required for the study.

Period of the Study

The period under study was taken from 1991-92 to 2005-06, i.e. of

fifteen years. The study period was further divided into three sub-

periods: 1992-1995, 1996-2000 and 2001-2006.

Sample of the Study

The sample selected was scheduled commercial banks of India.


1. CAMEL Model – basically Ratio-Based model.

2. Mean or Average.

3. t - Test.


1. In regard to operating profits to average working funds, the analysis

brought out that, operating earnings of all scheduled commercial

banks has improved after liberalization because of increase in fee-

based income and curtailment of operating expenses on the part of

the banks. The difference in mean size of operating earning is found

significant in the period 1996-00 and 2001-06 in public sector banks

only. The average operating profits to average working funds was

worked out 3.07% in foreign banks, 2.32% in priavte banks and

2.22% in public sector banks.

2. Spread, an important measure of a bank‟s core income, indicated

declining trend in case of public sector banks, private sector banks

and foreign banks during the study period. The sector-wise analysis

indicated that the position of foreign banks was better in

comparison to both, public sector and private sector banks insofar

as the average spread to total assets ratio is concerned. It was found

3.69%, 2.82% and 2.73% in case of foreign, public sector and private

60

sector banks respectively during 1992-2006. The lower cost of

deposits was the major contributor of higher spreads in foreign

banks. The analysis revealed that the State Bank Group has

performed better than the other nationalised banks. The increase in

spread was sharper in foreign banks and private banks in

comparison with public sector banks. The spread was continuously

rising but the change in spread was marginal after 2001-02. The

spread of the banks was under pressure mainly due to declining

interest rate scenario upto 2004-05. However, the spread in India

was observed well above the international standards.

3. The net profit to average assets ratio was appreciated in public

sector banks but declined in private sector banks and foreign banks

in second and third sub-period. The profitability of public sector

banks went up considerable during last six years. In contrast, the

number of loss making banks has increased sharply in case of

private sector and foreign banks. The average of net profit to

average assets ratio for the period 1992-2006, was found 0.49%,

-6.17% and -9.59% in case of public sector, private sector and foreign

banks respectively. Hence, the public sector banks were performing

better than the private as well as foreign banks in terms of return on

assets. The net profits of the banks continuously rose due to

continuous rise in trading income since 2001-02, but a decline in

trading income was observed in 2005-06. According to the net profit

to average assets ratio, Kotak Mahindra Bank was at the top with

the mean of 5.10%.

4. The interest income to total income ratio indicated the ability of a

bank in generating income from its lending operations which

declined significantly in each sector for the period of study. Inter-

sector comparison indicated that this ratio was the highest in case of

public sector banks (86.24%) followed by private sector (83.75%) and

foreign banks (78.15%). Also, the proportion of interest income in

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case of domestic private banks was higher than that of foreign

banks. The interest income from last few years under study rose due

to increase in volume of credits. Non-interest income to total income

ratio, which measures the income from operations other than

lending increased in each sector during each sub-period. The overall

average of this ratio during 1992-2006, in foreign banks was far

ahead to both private and public sector banks during 1992-2006.

Review of Study

The study focused on earning quality of Indian banks as per CAMEL

Model to catch up the comparative performance of all selected

scheduled commercial banks for a period from 1991-92 to 2005-06. The

study concluded that the banks operating in India have shown

appreciable improvement in their fee-based income. Except net profit

to average assets ratio, the banks that ranked on the top on the basis of

their earning quality are of the foreign origin. At the end the study

suggested that profitability of scheduled commercial banks should

continuously grow by increasing fee-based income and curtailment of

operating expense.

Study No. 8


“Management of Profitability in Commercial Banking Sectors in India

in Post-Liberalisation Period”

Author of the Study

Sukhdev Singh

Internet Access Details

http://www.docstoc.com/docs/70849451/Financial-Analysis-of-

Banks-in-India.

62


The objective of the paper was to study the significance of variations in

performance of profitability among different sectors and segments of

banking industry in India.


The study was based on the secondary data collected and compiled

from various sources namely, IBA Bulletins, Bank Quest (A quarterly

journal of Indian Institute of Bankers), Credit Information Review (A

monthly report from RBI), Business Dailies (The Economic Times, The

Financial Express and The Business Lines etc.,) and website of the RBI.

Period of the Study

The study period was pertaining from the year 1993-94 to 2003-04.

Sample of the Study

The study undertook all public sector banks, private sector banks and

foreign banks operating in India.


1. Ratio Analysis.

2. Compound Growth Rate.

3. Arithmetic Mean.


5. Coefficient of Variation.

6. Coefficient of Determination.


1. The nationalised banks, State Bank group and old private sector

banks were not earning a satisfactory rate of return on assets. The

mean return on assets below the benchmark of more than 1%

suggested scope for improvement either by improving profits or

reducing the size of assets or both or by outsourcing operations.

2. As regards to return on own funds, the most consistent return on

won funds was earned by foreign banks followed by State Bank

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group. The maximum growth rate of 51.95% was recorded by

nationalized banks and all other sectors and segments were having

negative growth rate. Even the growth rate of nationalized banks

was insignificant as computed t –value was less than table value.

3. The decline in rate of return on own funds among the sectors and

segments of private sector and foreign banks calls for emergent

attention of the managements. The declined rate of return on own

funds among old private sector banks, new private sector banks and

foreign banks signaled out that these banks should reduce the

deployment of own funds by introducing degree of leverage.

4. The new private banks and foreign banks should give their due

attention to return on own funds as the level was far below the

target of benchmark i.e. more than 18%. Either these banks should

follow the strategies of reducing the amount of own funds or

improve disposable profits or simultaneously work on both

strategies.

Review of Study

This research study was conducted to examine the significance of

variations in performance of profitability of banking industry in India

covering all public sector banks, private sector banks and foreign banks

for a period from 1994 to 2004. The selected banks were lagging in one

or other aspects of the profitability performance, and so the banks were

suggested to improve their profits, reduce size of assets and reduce the

deployment of own funds by introducing degree of leverage.

Study No. 9


“Profitability Performance of Public Sector Banks in India”

Author of the Study

Jyoti Saluja and Dr. Rajinder Kaur

64

Publication Details

Indian Journal of Finance, Volume 4, No. 4, April – 2010, pp.17-25.


The study was aimed to achieve the following objectives:

1. To analyse the profitability of public sector banks in India.

2. To identify the factors responsible for good or poor profitability

performance.


The data for the study was taken mainly from „Statistical Tables

Relating to Banks in India‟ published by RBI.

Period of the Study

The reference period of the study of the data was taken from the year

1997-98 to 2006-07.

Sample of the Study

The study was conducted with reference to all public sector banks (SBI

and its associates and nationalized banks) of India.


1. Ratio Analysis.

2. Arithmetic Mean.


4. Coefficient of Variation.


The study revealed that three banks namely State Bank of Maharashtra,

Oriental Bank of Commerce and Punjab and Sind Bank achieved

excellent performance with regard to index to interest earned to total

assets ratio. A noteworthy point was that all the banks except State

Bank of Patiala, which achieved excellent performance level with

respect to the index of spread to total assets, have obtained fair

performance level in respect of the index of burden to total assets.

65

State Bank of Patiala achieved excellent performance level in five out of

total seven indexes namely, interest paid to total assets, spread to total

assets, non-interest expenditure to total assets, burden to total assets

and non-interest to total assets indices. State Bank of Bikaner and

Jaipur has achieved excellent performance level in respect of four

indexes.

As far as the index of interest paid to total assets is concerned State

Bank of Bikaner and Jaipur, State Bank of Patiala, Bank of Baroda,

Corporation Bank, Punjab National Bank and Syndicate bank obtained

the excellent performance level. As far as the index of non-interest

expenditure to total assets is concerned, State Bank of Hyderabad, State

Bank of Patiala, State Bank of Travancore, Canara Bank, Corporation

Bank, Oriental Bank of Commerce and United Bank of India achieved

excellent performance level; State Bank of India, State Bank of

Saurashtra, Bank of Baroda, Bank of India and Union Bank of India

achieved good performance level; State bank of India, Allahabad Bank,

Bank of Maharashtra, Dena Bank, Indian Bank, Punjab National Bank,

Uco Bank and Vijaya bank held fair performance level; and State Bank

of Bikaner and Jaipur, State Bank of Maharashtra, Central Bank of

India, Punjab and Sind Bank and Syndicate Bank held poor

performance level.

Banks can reduce their non interest expenditure by adopting effective

budgeting techniques and by implementing various cost reduction

programmes. Regarding the index of net profits to total assets, State

Bank of Bikaner and Jaipur, State Bank of Patiala, Allahabad Bank,

Corporation Bank, Oriental Bank of Commerce and Punjab National

Bank got excellent performance level but Dena Bank, Indian bank,

Punjab and Sind Bank and Union Bank of India got poor performance

level.

66

Review of Study

The study was conducted to analyze the profitability of selected public

sector banks in India for which analysis of the data were taken from

1997-98 to 2006-07. The study examined the factors responsible for

good or poor profitability performance of public sector banks operating

in India and suggested measures to reduce their non-interest

expenditure by adopting effective budgeting techniques and by

implementing various cost reduction programmes.

Study No. 10


“NPA Management: A Study of New Private Sector Banks in India”

Author of the Study

Dr. Ashok Khurana and Dr. Mandeep Singh

Publication Details

Indian Journal of Finance, Volume 4, No. 9, September – 2010, pp.3-13.


The main objectives of the study were:

1. To study the magnitude and trends of non-performing assets in the

new private sector banks.

2. To assess the health of various categories of loan assets i.e., sub-

standard assets, doubtful assets and loss assets.

3. To examine the asset quality of new private sector banks.

4. To analyse the sector wise non-performing assets of the new private

sector banks.

5. To evaluate the capital to risk weighted assets ratio of the new

private sector banks.


The relevant secondary data was collected from Report on Trend and

Progress of Banking in India, Economic Surveys of India, Global

67

Financial Stability Reports and websites of the selected private sector

banks operating in India.

Period of the Study

The study was conducted for the period from 2003-04 to 2007-08.

Sample of the Study

The study was confined to all new private sector banks of India, viz.,

Axis Bank Ltd., Centurion Bank of Punjab Ltd., Development Credit

Bank Ltd., HDFC Bank Ltd., ICICI Bank Ltd., IndusInd Bank Ltd.,

Kotak Mahindra Bank Ltd. and Yes Bank.


1. Ratio Analysis.

2. Arithmetic Mean.


4. Correlation.

5. Coefficient of Determination.

6. Regression.

7. Analysis of Variance (ANOVA).

8. Post-hoc Tukey HSD Test.

Suggestions and Conclusion of the Study

Indian banking industry is largely dominated by public sector banks

with almost two third share of total advances to the economy. Private

sector banks have shown their pressure and have successfully

expanded their business over the study period of five years in the

Indian economy.

The study conducted on the management of NPAs by new private

sector banks found that there was significant improvement in the asset

quality as reflected by decline in the diverse NPA ratios as well as asset

wise classification of NPAs of these banks. Asset quality of banks

registered a noteworthy improvement with top most reduction in the

NPAs level in non-priority sector.

68

The study observed that seven out of eight new private sector banks

have significantly reduced the Net NPAs to Net advances ratio and fall

in the category of less than 2% class. The new private sector banks have

managed to sustain a CRAR above the regulatory framework of Basel II

requirements, and were effectively capitalized to meet any credit

related stress. It was found that banks have been efficiently managing

its assets over the period of study however, rise in the NPA ratios over

last two years of study period showed that there was a scope for

further improvement in the recovery mechanism.

Review of Study

The study was confined to examine the state of non-performing assets

in the new private sector banks during the period from 2003-04 to

2007-08. The study found that though there was significant

improvement in the asset quality and registered noteworthy

improvement with top most reduction in the NPAs level in non-

priority sector; banks need further improvement in the recovery

mechanism.

Study No. 11


“Income Analysis of Indian Commercial Banks to make informed

decision: An empirical investigation”

Author of the Study

Subroto Chowdhary and Soma Panja Chowdhary

Publication Details

Journal of Management (Bi-annual Journal of the Asian School of

Business Management, Bhuvaneshwar), Volume III, No. 1 & 2, 2010,

pp.25-46.

69


The following specific objectives were addressed during the course of

the study:

1. To analyse the growth of interest income as a source of revenue for

the Indian banking sector.

2. To analyse the growth of non-interest as a source of revenue for the

Indian banking sector.

3. To find out the correlation between the non-interest income and the

total income of the banking sector.

4. To tank the selected banks on the criteria of interest income, non-

interest income, total income and net profit.

5. To overall rank the selected banks after taking into consideration of

all the four criteria of interest income, non-interest income, total

income and net profit.


For data collection Capital Line software was used.

Period of the Study

The data of ten years from 2000 to 2009 was taken into account for

empirical analysis.

Sample of the Study

The study covered twelve banks from the Nifty list, namely, Axis Bank

Ltd., Bank of Baroda, Bank of India, Canara Bank, HDFC Bank Ltd.,

IDBI Bank, ICICI Bank Ltd., Kotak Mahindra Bank Ltd., Oriental Bank

of Commerce, Punjab National Bank, State Bank of India and Union

Bank of India.


1. Financial Methods – Ratio Analysis.

2. Statistical Methods - Correlation.

70


1. HDFC bank exhibited highest correlation value (0.996686) whereas

the value of 0.640764 exhibited by IDBI bank was the lowest for the

correlation between the interest income and total income.

2. HDFC bank exhibited highest correlation value (0.999841) whereas

the value of 0.892432 exhibited by IDBI bank was lowest for

correlation between non-interest income and total income.

3. It was observed that State Bank of India was the top bank amongst

the selected banks in terms of interest income and non-interest

income with an overall score of 49.35897. Kotak Mahindra Bank was

ranked last with an overall score of 42.30769.

Conclusion of the Study

The main conclusion of the study was more multifaceted. All the banks

have showed higher dependency on fee based income in order to increase

their bottom line. Whether the increase in fee based income reduces risk

was an empirical question. Diversification alone cannot help to reduce

risk, the answer to which varied from case to case. The detailed analysis of

interest income and non-interest income suggested a different picture. Size

of operation gave clear advantage to big banks to top the charts in ranking

thus motivating for formulating other techniques of measurement.

Review of Study

The research study income aspects of the significance of the banks

operating in India for a period from 2000 to 2009 and found that the

selected banks performance was more multifaceted showing higher

dependency on fee based income; and thus suggested to reduce risk by

diversifying the banking operations and formulating other techniques of

measurement.

71

REFERENCES

1. Arora, Sangeeta and Kaur, Shubpreet, “Diversification in Banking Sector in

India Determinants of Financial Performance”, Indian Journal of Commerce,

Vol.61, No. 3, July-September, 2008, pp.13-21.

2. Bharathi, N., “Profitability Performance of New Private Sector Banks – An

Empirical Study”, Indian Journal of Finance, Vol. IV, No. 3, March, 2010,

pp. 16-24.

3. Bodla, B. S. and Verma, Richa, “Earning Quality of Scheduled Commercial

Banks in India: Bank-wise and Sector-wise Analysis”, Prajnan, Journal of

Social and Management Sciences, Vol. XXXVII, No. 4, January-March,

2009, pp. 257-281.

4. Chowdhary, Subroto and Chowdhary, Soma Panja, “Income Analysis of

Indian Commercial Banks to make informed decision: An empirical

investigation”, Journal of Management (Bi-annual Journal of the Asian

School of Business Management, Bhuvaneshwar), Vol. III, No. 1 and 2,

2010, pp. 25-46.

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Insight of ICICI Bank and State Bank of India”, Management Accounting

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New Private Sector Banks in India”, Indian Journal of Finance, Vol. 4,

No. 9, September, 2010, pp. 3-13.

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Banks in India”, Indian Journal of Finance, Vol. 4, No. 4, April, 2010,

pp. 17-25.

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Performance of Public Sector Banks in India”, Indian Journal of Finance,

Vol. III, No. 3, September, 2009, pp. 3-13.

9. Singh, Sukhdev, “Management of Profitability in Commercial Banking

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http://www.docstoc.com/docs/70849451/Financial-Analysis-of-Banks-

in-India.

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10. Thumar, Swaty K., “A Study of Profitability and Efficiency of Private Sector

Banks”, M. Phil. Dissertation, Saurashtra University, March, 2009,

pp. 50-58 + 129-132.

11. Uppal, R. K., “Indian Banking: Emerging Issues and Enhancing Competitive

Efficiency”, The IUP Journal of Business Strategy, Vol. VII, No. 1 and 2,

March-June, 2010, pp. 71-82.

12. www.info2india.com.

13. www.the-neutron.com.

14. www.bookpump.com/dps/pdf-b/9423510b.pdf.

2.1 introduction 2.2 review of literature...

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