a comparative study on financial performance of … - alpesh gajera.pdfidentification of difference...

“A comparative study on financial performance of private and public

sector banks with special reference to affecting factors and their impact on

performance indicators”

SYNOPSIS

Submitted To

Gujarat Technological University

For The Degree of

Doctor of Philosophy

(Faculty of Management)

Submitted By

Alpesh C. Gajera

Enrollment No. 119997392009

Assistant Professor

Sunshine Group of Institutions

Under The Supervision of

Dr. Vijay Pithadia

Director

Smt. S. H. Gajera MBA Mahila College – Amreli

International Co-Supervisor

Dr. Timotej Jegric

DPC Members

Dr. Sandip Solanki

Dr. Dharmesh Raval

INDEX

Sr. No. Particular Page No.

A Title of the thesis and abstract 1

B Brief Description on the state of the art of the research

topic

2

C Definition of the problem 4

D Objective and scope of the work 5

E Original contribution by the thesis 6

F Methodology of Research, Result/Comparison 7

G Achievement with respect to objectives 8

H Conclusion 14

I Copies of papers published and the list of all publications

arising from the thesis

15

J References 16

1

A. Title of the thesis and abstract

TITLE OF THESIS

“A comparative study on financial performance of private and public sector banks with

special reference to affecting factors and their impact on performance indicators”

ABSTARCT

Research work under this title is divided into two parts (1) Evaluation of financial

performance of private and public sector banks and (2) Identifying the factors responsible for

better/poor financial performance of private/public sector banks.

(1) Evaluation of financial performance of private and public sector banks: For

analyzing financial performance of private and public sector banks all private sector

banks (20) as well as all public sector banks (26) are taken into consideration. Private

sector banks include old private sector banks (13) as well as new private sector banks

(7). Public sector banks include SBI and its associates (6) as well as all nationalized

banks (20). (As on date of 31/03/2012). To evaluate the financial performance of

above banks 29 financial performance parameters are selected. Financial data of last

12 years, i.e. from year 2001 - 02 to 2012 – 13 are collected for calculating and

analyzing financial performance parameters.

(2) Identifying the factors responsible for better/poor financial performance of

private/public sector banks. : On the basis of result of financial performance

analysis, second part of research is to carry forward for identifying the factors

responsible for deviation in financial performance of private and public sector banks.

For identifying the factors responsible for better/poor financial performance of

private/public sector banks, parameters are decomposed by using their definitions.

So at the end of these two stage research, I came to know about the factors responsible for

better/poor financial performance of private/public sector banks in each financial indicators.

2

B. Brief Description on the state of the art of the research topic

It is most important to decide appropriate parameter at the time of measuring financial

performance of banks. Till today many experts have given their opinion on parameters of

financial performance of banks, even enormous numbers of research are available on

financial performance of banks which has used different parameters for measuring financial

performance.

In terms of financial performance of banks I would like to add one more point regarding

parameters of financial performance that time period also play a vital role in terms of

selection of financial parameters. The financial parameters that we should select in 1990 or

before must be different that the parameters we should select in 2010 -11, as since

independent Indian banking is passing through lots of changes which does not permit us to

evaluate on same parameters.

One more important aspect which one should highlight at the time of selecting financial

performance parameters is availability of data on selected parameters for desired time period.

Financial performance of banking industry

Definition of Financial performance

“The performance of banks in India has been assessed by considering variables, viz.

branches, deposits, advances, investments, spread, burden, business, operating profits, NPA,

cost of deposits, cost of borrowings, cost of funds, return on advances, return on investments,

return on funds, net profit, spread, burden and operating expenses and sectorial deployment

of credit.”

Suby, B. (2011). Performance of public and private sector banks in Kerala - A comparative study.

Kerala: Mahatma Gandhi University.

For this research work financial performance of banks is measured by selected financial

performance parameters which are divided into seven heads such as capital adequacy ratios,

debt coverage parameters, balance sheet parameters, management efficiency parameters,

profitability parameters, employee’s efficiency parameters and non performing assets

parameters.

There will be a vast difference in terms of selecting parameters for financial performance,

when we are talking about financial performance of any individual bank and financial

3

performance of banking sector, as Indian banking sector is divided into different sectors such

as SBI and its associates banks, nationalized banks, old private sector banks, new private

sector banks etc…which has some distinct characteristics in terms of its operations, rules and

regulations etc…

The diversity of Indian banking sector makes it more difficult for researcher to determine and

come up with a final list of parameters for financial performance of banking sector which

give equal representation to all banks and also depict true picture about financial performance

of Indian banking.

In this research work by going through lots of literature review, RBI bulletins, RBI database,

discussion with panel members at various occasions of progress review presentation,

discussion with DPC members and guide, I came up with final list of parameters for

measuring financial performance of banks, which are as under.

Capital adequacy ratio (BASEL – II)

Debt coverage parameters

Balance sheet parameters

Management efficiency parameters

Profitability parameters

Employee efficiency parameters

Nonperforming assets parameters

4

C. Definition of the problem

By going through literature review in form of research papers and Ph. D. thesis, I came to

know that almost all research papers are only talking about financial performance of different

sector banks such as private, public, foreign, co operative or combination there off. I came

across hundreds of research works which are advocating that one sector banks are performing

well compare to other sector banks, but I haven’t found any research work which extends

from evaluation of financial performance to identifying the reasons or factors responsible for

better or poor financial performance between different sector of banks.

So my research work is divided into two aspects.

1. Evaluating financial performance of all public sector banks, including SBI and its

associates and nationalized banks and private sector banks, including old private and

new private sector banks.

2. Identifying the factors responsible for better or poor financial performance of private

or public sector banks.

This research work will be helpful to readers in terms of judging financial performance of

Indian banks as well as they will also come to know about the reason behind better or poor

financial performance of banks.

5

D. Objective and scope of the work

This research work is carried out for attaining below mentioned objectives.

1. To study the financial performance of last 12 years of public and private sector banks.

2. To identify the parameters in which private/public sector banks are performing

better/poor compare to private/public sector banks.

3. To identify the factors (reasons) responsible for better/poor financial performance of

private/public sector banks.

As I have mentioned earlier there are enormous numbers of research which have analyzed

financial performance of different sector of banks time to time with suitable parameters as per

the objectives that they have stated in their research work. The scope of work in my Ph. D.

work is to extend from evaluation of financial performance to identifying the reason or

factors responsible for better or poor financial performance in between different sector of

banks.

6

E. Original contribution by the thesis

The thesis on mentioned topic will contribute to the Indian banking industry as a whole as

well as parties associated with banking industry as mention below.

1. As in this research work financial performance is evaluated on the basis of current

data, it will give the idea about current position of Indian banking industry.

2. All private sector banks and public sector banks are included in research. So all

bankers can get idea about their bank’s financial performance.

3. All Bankers and associated parties of banks can also get comparative analysis of

banking industry and compare their banks with other private and public sector banks

of Indian banking industry.

4. The main contribution of this thesis is identification of factors responsible for

better/poor financial performance of private/public sector banks. So reader of thesis

can also get information about the reasons behind better/poor financial performance in

particular parameters of their banks.

7

F. Methodology of Research, Result/Comparison

Research Methodology includes the assumptions and values, which is useful for interpreting

data and reaching to conclusions.

Any project requires a basic plan of action, or a series of actions chalked out, in order to

accomplish the objectives effectively and efficiently within a time framework, without

deviating from the original target. In other words we can say that, from where we are and

where we want to go, the process involved is carefully transformed in to a blue print called

the research design.

In this research three different research design have been used in parallel, which are as under

1. Descriptive Research Design

As in this research work first task is of determining financial performance parameters,

which is descriptive in nature as in this research work financial performance of banks

are described with the help of selected parameters.

2. Analytical Research Design

After selecting parameters for measuring financial performance the next task is to

analyze the financial performance of banks with the help of secondary data collected

on selected parameters. So this part of research is analytical in nature.

3. Exploratory Research Design

Next task after analyzing financial performance of banks is to identify the factor

responsible for better/poor financial performance of private/public sector banks. For

identification of factor responsible for better/poor financial performance of banks

exploratory research design is best suitable.

8

G. Achievement with respect to objectives

This research work is carried out to attain above mentioned three objectives. The

achievement with respect to individual objective is as under.

1. To study the financial performance of last 12 years of public and private sector

banks.

Activities required to achieve first objective is accomplished which includes.

a. Deciding parameters for analyzing financial performance.

b. Collecting secondary data for selected parameters to analyze financial performance.

c. Apply appropriate statistical tools on secondary data to analyze financial

performance.

2. To identify the parameters in which private/public sector banks are performing

better/poor compare to private/public sector banks.

Activities required to achieve second objective is also accomplished which include.

a. Achieving first objective which is pre-requisite for achieving second objective.

b. To identify whether there is any significant difference in the financial performance of

private and public sector banks.

c. Difference in financial performance is identified at three different level i. e. 1)

Identification of difference in financial performance between banks within sub sector.

2) Identification of difference in financial performance between sub sectors and 3)

Identification of difference in financial performance between private and public sector

banks.

3. To identify the factors (reasons) responsible for better/poor financial performance of

private/public sector banks.

Achievement of first and second objectives will automatically lead to achievement of third

and last objective. So there is nothing new, which needs to be done to achieve this objective.

To achieve this objective factors are identified for better/poor financial performance of

private/public sector banks with the help of secondary data analysis, parameter definition and

literature review of past research.

9

Summary of Financial Performance evaluation at three different level

Parameter

No.

Parameter

Name Bank Sector

Interbank

comparison

within sector

Comparison

between

sector

Private V/S

Public

banks

comparison

Remarks

1.1

Capital

adequacy ratio

(Tier – I)

SBI & Its Associate Banks Fail to Reject

Reject Reject

Difference in

performance

identified at all

three level of

evaluation

Nationalized Banks Reject

Old Private Sector Banks Reject

New Private Sector Banks Reject

1.2

Capital

adequacy ratio

(Tier – II)


Reject Reject

Difference in

performance

identified at all

three level of

evaluation




2.1 Cash to Deposit

Ratio


Fail to

Reject

Fail to

Reject

Difference in

performance

identified at first

level of evaluation

only




2.2 Credit to

Deposit Ratio


Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.




2.3 Investment to

Deposit


Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.




2.4 Ratio of SBI & Its Associate Banks Reject Reject Reject Difference in

10

Deposit to Total

Liabilities Nationalized Banks Reject performance

identified at all

three level of

evaluation



2.5

Ratio of

Demand &

Saving Bank

Deposit to total

Deposit


Fail to

Reject

Fail to

Reject

Difference in

performance

identified at first

level of evaluation

only

Nationalized Banks Fail to Reject

Old Private Sector Banks Fail to Reject


3.1

Ratio of

Priority Sector

Advance to

total Advance

SBI & Its Associate Banks Reject

Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.




3.2

Ratio of

Secured

Advance to

total Advance


Reject Reject

Difference in

performance

identified at all

three level of

evaluation




3.3

Ratio of term

loan to total

Advance


Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.




3.4

Ratio of

investment in

non approved

secirities to

total Investment


Reject Reject

Difference in

performance

identified at all

three level of

evaluation




4.1

Ratio of Interest

Income to Total

Assets


Reject Fail to

Reject

Difference in

performance

identified at first Nationalized Banks Reject


11

New Private Sector Banks Fail to Reject

two level of

evaluation.

4.2

Ratio of non

Interest income

to total assets


Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.




4.3

Ratio of

operating profit

to total assets


Fail to

Reject

Fail to

Reject

Difference in

performance

identified at first

level of evaluation

only




5.1 Return on

Assets


Reject Reject

Difference in

performance

identified at all

three level of

evaluation




5.2 Return on

Equity


Reject Reject

Difference in

performance

identified at all

three level of

evaluation




5.3 Cost of Deposit


Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.

Nationalized Banks Fail to Reject



5.4 Cost of

Borrowing


Reject Reject

Difference in

performance

identified at all

three level of

evaluation




12

5.5 Cost of Fund


Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.




5.6 Return on

Advance


Reject Reject

Difference in

performance

identified at all

three level of

evaluation




5.7 Return on

Investment


Reject Reject

Difference in

performance

identified at all

three level of

evaluation




6.1

Profit per

Emloyee

(Lakhs)


Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.




6.2

Business per

Employee

(Lakhs)


Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.




6.3 Wages as % of

Total Expenses


Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.




6.4 Wages as % to

total Income

SBI & Its Associate Banks Reject Reject

Fail to

Reject

Difference in

performance Nationalized Banks Reject

13

Old Private Sector Banks Reject identified at first

two level of

evaluation. New Private Sector Banks Reject

7.1

Gross NPA as

percentage of

Gross Advance


Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.




7.2

Gross NPA as

percentage of

Assets


Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.




7.3

Net NPA as

percentage of

Net Advance


Fail to

Reject

Fail to

Reject

Difference in

performance

identified at first

level of evaluation

only




7.4

Net NPA as

percentage of

Assets


Reject Fail to

Reject

Difference in

performance

identified at first

two level of

evaluation.




14

H. Conclusion

Since 2011 when I have been registered for Ph. D., lots of changes have been done in my

topic. I have given many presentations at various occasions such as DPCs, Research week

and also learned a lot in research. During these phases I have also attended various seminars

and FDPs which helped me lot to improve my research work.

After working for four years on this topic I am satisfactorily able to present it in a form of

synopsis. The present study titled “A comparative study on financial performance of private

and public sector banks with special reference to affecting factors and their impact on

performance indicators” has been undertaken to analyze the financial performance of all

private and all public sector banks, to compare the financial performance of private and

public sector banks and to identify the reason behind better/poor financial performance of

public/private sector banks for financial year 2001 - 02 to 2012 – 13.

Financial performances of banks have been analyzed at three different levels such as

interbank comparison within sector, comparison between sectors and comparison between

private and public sector banks. Differences in performances have been identified at all level

of comparison. Due to different level of comparison, level of intensity also came out in

difference in financial performance.

15

I. Copies of papers published and the list of all publications arising

from the thesis

1. Research Paper on the Title “Financial Performance Evaluation of Private & Public

Sector Banks with Reference to Capital Adequacy Ratio” Published in “PARIPEX

– Indian Journal of Research” in Volume No. 4 (2015), Issue No. 05(May) with

ISSN No. 2250-1991

2. Research Paper on the Title “Makers & Breakers for the Indian Banking sector in

2013” Published in “Vidyasankul Multidisciplinary Research Journal” in Volume

No. 1 (2014), Issue No. 01(July – Sep.) with ISSN No. 2350-0107

3. Research Paper on the Title “Employees efficiency analysis of private & public

sector banks of India” Published in “International Journal of Management, IT

and Engineering” in Volume No. 4 (2014), Issue No. 03 (March) with ISSN No.

2249-0558.

4. Research Paper on the Title “A Comparative Financial Analysis of Indian Banking

Sector in context of NPA Management” Published in “International Journal of

Research in Commerce, IT and Management” in Volume No. 3 (2013), Issue No.

08 (August) with ISSN No. 2231-5756.

16

J. References

1. Alpesh Gajera, Vijay Pithadia, “Financial Performance Evaluation of Private &

Public Sector Banks with Reference to Capital Adequacy Ratio”, PARIPEX – Indian

Journal of Research, Volume No. 4 (2015), Issue No. 05(May) ISSN No. 2250-1991

2. Alpesh Gajera, Vijay Pithadia, “Makers & Breakers for the Indian Banking sector in

2013”, Vidyasankul Multidisciplinary Research Journal, Volume No. 1 (2014), Issue

No. 01(July – Sep.) ISSN No. 2350-0107

3. Alpesh Gajera, Vijay Pithadia, “Employees efficiency analysis of private & public

sector banks of India”, International Journal of Management, IT and Engineering,

Volume No. 4 (2014), Issue No. 03 (March) with ISSN No. 2249-0558.

4. Alpesh Gajera, Vijay Pithadia, “A Comparative Financial Analysis of Indian Banking

Sector in context of NPA Management”, International Journal of Research in

Commerce, IT and Management, Volume No. 3 (2013), Issue No. 08 (August) with

ISSN No. 2231-5756.

5. Baby, S. (2011). Performance of public and private sector banks in Kerala - A

comparative study. Kerala: Mahatma Gandhi University.

6. Arora, S.; and Kaur, S. (2006), “Financial Performance of Indian Banking Sector in

Post-Reform Era”, The Indian Journal of Commerce, Vol.59, No.1, pp.96-105.

7. Jain, V. (2006), “Ratio Analysis: An Effective Tool for Performance Analysis in

Banks”, PNB Monthly Review, November, pp.27-29.

8. Kalita, B. (2004), “Post-1991 Banking Sector Reforms in India: Policies and Impact”,

http://ssrn.com/abstract=1089020.

9. Jain, V. (2006), “Ratio Analysis: An Effective Tool for Performance Analysis in

Banks”, PNB Monthly Review, November, pp.27-29.

10. Report on Trend and Progress of Banking in India 2010-2011.

11. www.rbi.org.in

12. www.dbie.rbi.org.in

http://www.rbi.org.in/

http://www.dbie.rbi.org.in/

a comparative study on financial performance of … - alpesh gajera.pdfidentification of difference...

Documents