managerial finance final

8/7/2019 Managerial Finance Final

http://slidepdf.com/reader/full/managerial-finance-final 1/52

SUBMITTED BY:

Submitted By:

Prateek Dudeja 071018

Ashima Aggrawal 071150

Nitish Malhotra 071177

Shivani Bansal 071268

Aditya Shantanu 071330

Rajat Bhardwaj 071375

(Electronics and Electrical

Communication)

Submitted To:

Ms. Anju Singla

Financial Performance of Banks

A comparative study of Private and Public Banks



Decl i

We hereby decl re that the pro ject work entitled ³Financial Performance of Banks: A comparati e st dy

of Pr i ate and Public Banks´ is an authentic record of the research and analysis carr ied out by us as a

par t of the academic curr iculum for the sub ject ³Manager ial Finance´ for the award of degree of B E

Electronics and Electr ical Communication Engineer ing, PEC Uni ersity of Technology, Chandigarh,

under the guidance of Ms. An ju Singla dur ing January to Apr il, 2011.

Prateek Dude ja (071018)

Ashima Aggarwal (071150)

Nitish Malhotra (071177)

Shi ani Bansal (071268)

Aditya Shantanu (071330)

R a jat Bhardwa j (071375)

Date: Apr il 18, 2011



Acknowledgement

We are greatly thankful to our professor, Ms. An ju Singla for hel ping us out immensely in this pro ject.

This pro ject would never have seen the light of the day had she not solved the problems we faced dur ing

the mak ing of this pro ject.

With this pro ject we have taken a new step into the wor ld of Finance where not only theoretical

knowledge, but a great amount of analytical knowledge is required to succeed. We feel that this pro ject

has done just the same for us.

Once again we would like to express our gratitude for giving us an oppor tunity to learn and we hope to

be presented with more oppor tunities that open us up to a whole new plethora of knowledge.

Prateek Dude ja

Ashima Aggarwal

Nitish Malhotra

Shivani Bansal

Aditya Shantanu

R a jat Bhardwa j



T le of Contents

Abstract«««««««««««««««««««««««««««««««««««...7

Chapter 1: Public and Pri ate Sector Banks in India: A comparati e Anal sis ........................ 8

1.1 Introduction ................................ ................................ ................................ .............................. 9

1.1.1 Public Sector Banks ................................ ................................ ................................ ...............11

1.1.2 Pr ivate Sector Banks ................................ ................................ ................................ ..............11

1.1.3 Performance of Pr ivate Sector and Public Sector Banks ................................ ......................... 12

1.2 Performance Parameters ................................ ................................ ................................ ...........13

1.2.1 Liabilities and Assets of Banks ................................ ................................ ..............................14

1.2.2 Share in Aggregate Deposits ................................ ................................ ................................ ..15

1.2.3 Pr ior ity Sector Lending................................ ................................ ................................ ..........16

1.2.4 Sensitive Sector Lending ................................ ................................ ................................ .......17

1.2.5 Credit Deposit R atio ................................ ................................ ................................ ..............18

1.2.6 Cost of Funds and R eturn on Funds ................................ ................................ ....................... 19

1.2.7 Operating and Net Prof it................................ ................................ ................................ ........20

1.2.8 Net Prof itability of Bank Groups ................................ ................................ ........................... 21

1.2.9 Gross and Net NPAs ................................ ................................ ................................ ..............22

1.2.10 Capital Adequacy R atio ................................ ................................ ................................ .......23

1.2.11 Number of ATMs ................................ ................................ ................................ ................24

1.3 Challenges«««««««««««««««««««««««««««««««««.25

Chapter 2: Comparati e Study of top 5 Indian Banks ................................ ...............................28

2.1 Introduction ................................ ................................ ................................ .............................29

2.2 Bank Prof iles ................................ ................................ ................................ ............................31

2.3 Data Analysis ................................ ................................ ................................ ...........................40

2.4 Findings and R ecommendations ................................ ................................ ...............................48

Conclusion ................................ ................................ ................................ ................................ ....51

Bibliography................................ ................................ ................................ ................................ .52



List Of Tables

Chapter 1: Public and Pri ate Sector Banks in India: A comparati e Analysis

1.1 Growth in Balance Sheet of Scheduled Commercial Banks«««««««««««««....14

1.2 Pr ior ity Sector Lending by Public and Pr ivate Sector Banks«««««««««««««...16

1.3 Lending to Sensitive Sector- Bank Group-wise«««««««««««««««««««17

1.4 Cost of Funds and R eturn on Funds: Bank Group-wise«««««««««««««««...19

1.5 Operating Prof it and Net Prof it- Bank Group-wise«««««««««««««««««..20

1.6 Gross and Net NPAs of Scheduled Coemmercial Banks«««««««««««««««..22

1.7 Capital Adequacy R atio- Bank Group-wise«««««««««««««««««..«««23

1.8 Number of ATMs of SCBs (as at end-March 2010)«.««««««««««««««««24

Chapter 2: Comparati e Study of top 5 Indian Banks

2.1 Capital Adequacy R atio (CAR ) ................................ ................................ ................................ 41

2.2 Earning Per Share (EPS) ................................ ................................ ................................ ...........42

2.3 Net Prof it Margin (NPM) ................................ ................................ ................................ .........43

2.4 R eturn on Assets (R OA) ................................ ................................ ................................ ... ««44

2.5 Credit Deposit R atio (CDR )««««««««««««««««««««««««««..45

2.6 Gross Non Performing Assets (GNPAs)«««««««««««««««««««««...46

2.7 Net Non Performing Assets (NNPAs)««««««««««««««««««««««...47



List of igures

Chapter 1: Public and Pri ate Sector Banks in India: A Comparati e Analysis

1.1 Share in Aggregate Deposits- Bank Group-wise «««««««««««««...................15

1.2 Group-wise Credit-Deposit R atio «««««««««««««........................................ ...18

1.3 Net Prof itability of Bank Groups ««««««««««««««««««««««««21

Chapter 2: Comparati e Study of top 5 Indian Banks

2.1 Percentage change in Net Sales and Net Prof it for HDFC Bank««««««««««««..33

2.2 Percentage change in Net Sales and Net Prof it for State Bank of India«««««««««...34

2.3 Percentage change in Net Sales and Net Prof it for AXIS Bank««««««««««««...36

2.4 Percentage change in Net Sales and Net Prof it for IDBI«««««««««««««««..38

2.5 Percentage change in Net Sales and Net Prof it for ICICI Bank«««««««««««.«..39

2.6 Capital Adequacy R atio (CAR )«««««««««««««««««««««««««.41

2.7 Earning Per Share (EPS)««««««««««««««««««««««««««««42

2.8 Net Prof it Margin (NPM)««««.«««««««««««««««««««««««..43

2.9 R eturn on Assets (R OA)«««««««.««««««««««««««««««««...44

2.10 Credit Deposit R atio (CDR )«««««...««««««««««««««««««««.45

2.11 Gross Non Performing Assets (GNPAs)«««««««««««««««««««««.46

2.12 Net Non Performing Assets (NNPAs)«««««««««««««««««««««.«47



Abstract

What are the trends observed in the performance of Public Sector and Private Sector Banks? How do

they perform when compared across the critical parameters of profitability, Non-performing Assets,

deposits and lending, and cost of funds? This repor t is a modest effor t to compare public and pr ivate

sector banks on the basis of eleven such crucial parameters. The var ious challenges and oppor tunities

confronting the Public sector banks and Pr ivate sector banks have also been discussed. Fur ther acompar ison study of top 5 banks in India namely ICICI, HDFC, IDBI, AXIS Bank, State Bank of India

has also been presented.

In Chapter 1 we have compared public and pr ivate sector banks on the basis of eleven crucial parameters.

The var ious challenges and oppor tunities confronting the Public sector banks and Pr ivate sector banks

have also been discussed.

In Chapter 2, performance of 5 banks is compared based on cer tain cr iter ia. The data analysis of the

information got from the balance sheets of the 5 banks was done and ratios were used. Graph and char tswere used to illustrate trends. The Sampling Plane of our analysis had the following 5 banks as a sample:

HDFC, State Bank of India, AXIS Bank, IDBI and ICICI Bank.



CHAPTER

1

Public Sector and Private Sector Banks in India

A Comparative Analysis



1.1 Introduction



The Indian f inancial system compr ises of four segments or components. These are f inancial institutions,

f inancial markets, f inancial instruments and f inancial services. Banks come under the f inancial

institutions segment. Financial institutions are intermediar ies that mobilize savings and facilitate

allocation of funds in an eff icient manner. The Indian f inancial system was quite well developed even

pr ior to India¶s political independence in August 1947. Both foreign and domestic banks were present

and so was a well-developed stock market. Until the 1990s, the Indian f inancial system was tightly

regulated. Following the balance of payments cr isis in 1991-92, a stabilization program was initiated

with the hel p of International Monetary Fund, which specif ically included a reform of the f inancial

system. The foundation for the f inancial sector reforms was laid by recommendations of the Committee

on Financial System 1991 (Narasimham Committee). The Committee again reviewed the f inancial

system in 1998 and made fur ther recommendations. The ob jectives of the f inancial sector reforms were

to br ing about greater eff iciency and competitiveness in all the spheres of the economic activity.

Bank ing in India has its or igin in Vedic times, i.e. 2000 to 1400 BC. Indigenous bankers and

moneylenders have played a vital role for centur ies. Modern bank ing in India emerged between the 18th

and beginning of 19th centur ies. In 1683, the off icers of East India Company set up the f irst bank in

Madras. Between 1770 and 1850 banks such as Bank of Hindustan, Commercial Bank, Calcutta Bank,

Bank of Calcutta and Bank of Bombay. Later, Commercial Bank and Calcutta Bank merged to form

Union Bank. Three Presidency Banks i.e. Bank of Bombay, Bank of Madras and Bank of Bengal which

were set up between 1809 and 1843 were amalgamated to form the Imper ial Bank of India in 1921.The

Imper ial Bank of India later became the State Bank of India.

The sudden boom of investment in the 1900¶s led to the emergence of leading joint stock banks such as

the Pun jab National (1895), Bank of India (1906), Indian Bank (1907), Bank of Baroda (1909), Central

bank of India (1911) and Union Bank of India (1919). The ma jor functions of these banks were to

f inance foreign trade while domestic trade was largely handled by the Multani Shroffs and

moneylenders. Between 1941 and 1945, the number of banks increased from 473 to 737 but these banks

suffered from cer tain limitations such as inadequate capital structure and unsound methods of operations

and management. Thus, the government in consultation with R eserve Bank of India enacted the Bank ing

Companies Act in 1949. Between 1947 and 1969 banks were under pr ivate ownershi p of mahara ja¶s, or

k ing s of the pr incely states of India and these banks served the r ich families and industr ial houses which

narrowed the industr ial growth of the bank ing system.

The R eserve Bank of India thus made it compulsory for reconstruction and / or merger of the weak units

with the sound one¶s as per the Bank ing Companies Act of 1960 and the number of banks declined from

548 in 1947 to 89 in 1969. Four teen pr ivate banks were nationalized on July 19, 1969 and another six in

1980. One of the ob jectives of nationalization was to extend the reach of organized bank ing to rural areas

and neglected sections of the society.



Between 1969 and 1992, there was rapid expansion of bank network. The number of bank branches

increased from 8262 to 60570. The bank ing system spread to rural areas. Small Scale, tiny and cottage

industr ies benef ited from the spread of bank ing system. The share pr ior ity sector in total bank ing grew

up from14 percentage in 1969 to 43% in 1990 and bank ing density improved from 64000 people per

branch in 1969 to 14000 people per branch in 1991.

1.1.1 Public Sector Banks

Public sector banks are the ones in which the government has a ma jor holding. They are divided into two

groups i.e. Nationalized Banks and State Bank of India and its associates. Among them, there are 19

nationalized banks and 8 State Bank of India associates. Public Sector Banks dominate 75% of deposits

and 71% of advances in the bank ing industry (Indian f inancial system, by Bhar ti Pathak, 2003).

1.1.2 Pri ate Sector Banks

Pr ivate sector banks came into existence to supplement the performance of Public sector banks and serve

the needs of the economy better. As the public sector banks were merely in the hands of the government,

banks had no incentive to make prof its and improve the f inancial health. Nationalized k illed competition

and stif led competition in bank ing. Banks operated in regulatory environment with administered rate of

interest structure; quantitative restr ictions on credit f lows, high reserve requirements and signif icant

propor tion of lend able resources going to the pr ior ity and government sectors. This resulted in low

levels of investment and growth, decline in productivity and erosion of prof itability of bank ing sector.

Thus, Narasimham Committee I (1991) which recommended the free entry of new banks in the f inancial

market provided they conf irm the minimum star t up capital and other requirements by the permission of

R eserve Bank of India. Currently there are 31 Pr ivate Sector Banks, which includes 23 old, and 8 new

banks. (Indian f inancial system, by Bhar ti Pathak, 2003)



1. Assets and Liabilities

2. Share in Aggregate Deposits

3. Priority Sector Lending

4. Sensitive Sector Lending

5. Credit Deposit Ratio

6. Cost of Funds and Return on Funds

7. Operating Profit and Net Profit

8. Net Profitability of Banks

9. Gross and Net NPAs

10. Capital Adequacy Ratio

11. Number of ATMs

1.1.3 Performance of Public and Private Sector Banks: A Comparison

The performance and the roles of private and public sector banks are undergoing changes. The banks,

both private as well as public have to now operate in an increasingly competitive environment. The

competition for public sector banks is coming from the private sector banks. Despite having the

advantage of a substantial presence and penetration in the rural areas, the public sector banks are under

tremendous pressure to maintain their margins and to survive the competition. The customer -centric

approach of private sector banks have thrown open many more challenges for the public sector banks

especially in retaining customers and expanding customer base.

We have compared Public and Private sector banks based on 11 parameters, which are critical while

evaluating their performance. These criteria are as follows:



13

1.2 Performance Parameters



14

1.2.1 Liabilities and Assets of Banks

On the back of robust economic growth and industr ial recovery, loans and advances witnessed strong

growth, investments, in a r ising interest rate scenar io. Deposits showed a lack luster performance in the

wake of increased competition from other saving instruments. Borrowings and net-owned funds (capital

and reserves and surplus), however, increased sharply underscor ing the growing impor tance of non-

deposit resources of SCBs. Bank group-wise, assets of new pr ivate sector banks grew at the highest rate,

followed by public sector banks and old pr ivate sector banks. As you can see below the percentage of

total assets and liabilities of New Pr ivate sector banks is higher than the Public sector Banks.

Source: R BI Table 1.1 Growth in Balance Sheet of Scheduled Commercial Banks

NOTE: Scheduled commercial banks (SCBs) consist of 28 public sector banks (State Bank of India and its

seven associates, nationalized banks and other public sector bank (one)),9 new pr ivate sector banks, 20 old Pr ivate

sector banks and 31 foreign banks.



15

1.2.2 Share in Aggregate Deposits

It can be seen below that Deposits of SCBs grew at a lower rate dur ing 2009-10 as compared in the

previous year because of slowdown in demand deposits and savings deposits. Deceleration in demand

deposits was due mainly to the base effect, as demand deposits had witnessed an unusually high growth

last year. The growth in demand deposits, however, was in line with the long-term average. Savings

deposits, which ref lect the strength of the retail liability franchise and are at the core of the banks¶

customer acquisition effor ts, grew at a healthy rate, although the growth was somewhat lower than the

high growth of last year. The higher growth of term deposits was mainly because of NR I deposits and

cer tif icates of deposit (CDs). Excluding these deposits, the growth rate of term deposits showed a

deceleration, which was on account of a possi ble substitution in favor of postal deposits and other

investment products, which continued to grow at a high rate benef iting from tax incentives and their

attractive rate of return in compar ison with time deposits.

Across bank groups, the rate of expansion of deposits was highest in respect of new pr ivate sector banks

(21.1 per cent), followed by PSBs (15.6 per cent), old pr ivate sector banks (10.8 per cent) and foreign

banks (7.9 per cent). The share of new pr ivate sector banks in total deposits has gradually increased over

the years. They are the ones, which took the initiative in hik ing the deposit rates.

Source: R BI igure 1.1 Share in Aggregate Deposits- Bank Group-wise



16

1.2.3 Priority Sector Lending

The performance of pr ivate sector banks in the area of pr ior ity sector lending remained less

satisfactory with 12 out of 30 pr ivate sector banks failing to achieve the overall pr ior ity sector targets.

Only one pr ivate sector bank could achieve the sub-targets within the pr ior ity sector. Advances to weaker

sections by the pr ivate sector banks of net bank credit were much lower than the sti pulated target for the

sector.

Public sector banks are enforced by government to under take lending mostly in the pr ior ity sector (40%)

at subsidized rates to encourage and suppor t the rural sectors. Pr ivate sector banks aims at prof itability

and marginal returns, so they concentrate more on the sensitive sector. Agr icultural sector gets less

impor tance in pr ior ity sector as compared to other sectors because pr ivate sector banks concentrate less

on this sector as compared to PSB¶s.

Source: R BI Table 1.2 Priority Sector Lending by Public and Pri ate Sector Banks



17

1.2.4 Sensiti e Sector lending

Sensitive Sector compr ises of Capital Market, R eal Estate Market, Commodities, and Venture Capital.

Among bank groups, old pr ivate sector banks had the highest exposure to the sensitive (measured as

percentage to total loans and advances of banks), followed by new pr ivate sector banks, foreign banks

and public sector banks.

Pr ivate sector banks focuses more on sensitive sectors as these markets are highly volatile involving high

returns and higher r isk. Since Public sector banks require high exper tise and high r isk is, involved they

refrain from lending to sensitive sector.

Source: R BI Table 1.3 Lending to Sensiti e Sector- Bank Group-wise



19

1.2.6 Cost of unds and Return on unds

Cost of deposits declined signif icantly dur ing 2009-10, ref lecting largely the impact of signif icant

decline in deposit rates in the last year. Signif icantly, the cost of borrowings was much lower than the

cost of deposits across all bank groups, barr ing foreign banks. The decline in cost of funds was

accompanied by a larger decline in return on advances, ref lecting mainly the increased lending at sub-

PLR rates because of competitive pressures. As a result, interest spread came under pressure, suggesting

that the benef its of low interest rates have begun to percolate to banks¶ borrowers.

If the cost of funds is going up then obviously, banks have to increase the return on their advances also.

What is happening is that deposit rates are being increased without a parallel need for the increase of the

wor th. As it is, the RBI's liquidity repor t suggests that there is an excess of liquidity. However, banks are

tak ing the deposits at much higher rate of interest than the real rate at which they should take it, they feel

that the interest on the advances should be increased.

B ank group/year Cost of Cost of Cost of R e turn on R e turn on R e turn on Spre ad

Deposits Borrow ings Funds Advances Investme nts Funds

1 2 3 4 5 6 7 8 = (7-4)

1 P u b li c sector banks

2 0 0 8 - 0 9 6 . 2 6 3 . 0 4 6 . 0 4 1 0 . 0 8 6 . 9 5 9 . 1 1 3 . 0 7

2 0 0 9 - 1 0 5 . 6 8 1 . 3 7 5 . 3 4 9 . 1 0 6 . 7 2 8 . 3 6 3 . 0 2

1.1 Nati on alised banks*

2008-09 6 .31 2 .76 6 .09 10.17 7 .05 9 .22 3 .14

2009-10 5 .64 1 .42 5 .35 9 .18 6 .88 8 .48 3 .13

1.2 SBI Group

2008-09 6 .17 3 .47 5 .94 9 .89 6 .77 8 .90 2 .95

2009-10 5 .75 1 .28 5 .32 8 .92 6 .41 8 .13 2 .81

2 Pr iv ate sector banks

2 0 0 8 - 0 9 6 . 6 0 3 . 5 6 6 . 1 8 1 1 . 4 1 6 . 9 3 9 . 8 5 3 . 6 7 2 0 0 9 - 1 0 5 . 3 6 1 . 9 5 4 . 8 3 9 . 8 9 6 . 2 5 8 . 6 0 3 . 7 7

2.1 Old p r iva te sector banks

2008-09 6 .73 4 .44 6 .67 11.82 6 .57 10.01 3 .34

2009-10 6 .27 1 .94 6 .13 10.95 6 .18 9 .25 3 .12

2.2 New pr iva te sector banks

2008-09 6 .56 3 .52 6 .04 11.29 7 .03 9 .80 3 .77

2009-10 5 .01 1 .96 4 .42 9 .56 6 .28 8 .40 3 .99

3 Fore ign banks

2 0 0 8 - 0 9 4 . 5 8 4 . 0 7 4 . 4 6 1 2 . 6 1 7 . 6 3 1 0 . 5 5 6 . 1 0

2 0 0 9 - 1 0 3 . 2 0 1 . 5 8 2 . 8 2 9 . 9 9 6 . 3 9 8 . 3 0 5 . 4 9

All SC Bs

2 0 0 8 - 0 9 6 . 2 4 3 . 3 7 5 . 9 6 1 0 . 5 0 7 . 0 1 9 . 3 6 3 . 4 0

2 0 0 9 - 1 0 5 . 4 9 1 . 5 7 5 . 0 9 9 . 2 9 6 . 5 9 8 . 4 1 3 . 3 1

N ote: 1) Cost of Deposit s = Interes t Pa id on Deposits/Average of curren t and prev iou s year¶s de pos it s.

2) Cost of B orrowings = Interest Paid on Borrowings/Average of curren t and prev iou s year¶s borr ow ings.

3) Cost of Funds = (In te rest Pa id on D epos it s + In teres t Pa id on Borrowings)/(Average of curren t and prev iou s year¶s dep os it s p lus borrow ings).

4) R e turn on Advances = In te res t E arned on Advances /Average of curren t and prev ious year¶s advances.

5) R e turn on Inve stme n ts = In teres t E arned on Investmen ts /Average of curren t and prev ious year¶s investme n ts.

6) R e turn on Funds = (In teres t E arned on Advances + In teres t E arned on Investments)/(Average of curren t and prev iou s year¶s

advances p lus investme nts).

7) *- In cludes IDBI B ank Ltd.

Source: Calcu lated from balance shee ts of respective banks.

T Table 1.4 Cost of unds and Return on unds: Bank Group-wise



20

1.2.7 Operating and Net Prof it

Net prof its declined by 7.0 per cent (excluding the conversion impact i.e. conversion of non-bank ing

entity to bank ing entity) dur ing 2009-10 as against an increase of 30.4 per cent in the last year. While net

prof its of nationalized banks, old pr ivate sector banks and foreign banks declined, those of SBI groupand new pr ivate sector banks increased. Sharp increase in the net prof its of new pr ivate sector banks was

because of a sharp decline in provision and contingencies (loans).

Banks operating prof it is calculated af ter deducting administrative expenses, which mainly includes

salary cost and network expansion cost. Operating margins are prof its earned by banks on its total

interest income. Net Prof it is calculated af ter deducting var ious cost of funds, since the cost of funds i.e.

the borrowing costs are higher as compared to the lending rates offered, the PSB¶s net prof it is lesser

compared to the pr ivate banks.

Source: R BI Table 1.5 Operating Prof it and Net Prof it- Bank Group-wise



21

1.2.8 Net Prof itability of Bank Groups

R eturn on assets ref lects the eff iciency with which banks deploy their assets. Net prof its to assets ratio of

SCBs declined marginally in 2009-10. However, except for the new pr ivate sector banks, the ratio

declined across bank groups, the decline being the highest in case of old pr ivate sector banks, followed

by foreign banks and public sector banks. In case of New Pr ivate Sector banks the duration of investment

is low, investment pattern differs, interest is high as a result the Net Prof itability is high.

Source: R BI igure 1.3 Net Prof itability of Bank Groups



22

1.2.9 Gross and Net NPAs

With provisioning for NPAs being somewhat lower dur ing 2004-05, the decline in the NPA ratio was

attr i butable to both increased recovery of NPAs and overall reduction in asset sli ppages. In absolute

terms, non- performing assets in µdoubtful¶ category increased, while those in sub-standard category

declined sharply, ref lecting the change in asset classif ication norm from the year ended March 2005,

whereby an asset was treated as doubtful if it remained as NPA for 12 months as against the ear lier norm

of 18 months. However, NPAs in doubtful category as percentage of net advances declined signif icantly.

PSB's NPA ratio is satisfactory compared to pr ivate banks. Higher NPAs ratio shows that bank is unable

to maintain the quality of its loans however; the ratio has been decreased compared to previous year.

Pr ivate banks NPA ratio is higher as they are offer ing loans without having required deposits to lend

them. PSB's have a better management and monitor ing over their deposits and the defaulters, which may

turn its lent amounts into a debt that could be returned by its defaulters comfor tably as compared to the

Pr ivate banks.

Source: R BI Table 1.6 Gross and Net NPAs of Scheduled Commercial Banks



23

1.2.10 Capital Adequacy Ratio

Among bank groups, the CR AR of new pr ivate sector banks improved signif icantly, which brought them

closer to other bank groups. Within the public sector banks, the CR AR of nationalized banks registered a

marginal improvement dur ing the year. The CR AR of the State Bank group, old pr ivate sector banks and

foreign banks declined. A banks CAR is ratio of qualifying capital to r isk ad justed assets. The RBI has

set the minimum CAR at 10%, a rate below the minimum indicates that the bank is not adequately

capitalized to expand its operations. However banks CAR can be a little higher than the minimum.

Overall, Public Sector Banks have shown satisfactory performance as compared to Pr ivate sector banks

as they are more cautious while lending. In case of PSB¶s CAR has decreased as compared to previous

year. Decreasing ratio could affect the business expansion and result in low level of income. Higher

CAR shows that bank can expand its business more and is less vulnerable to external shocks.

Source: R BI Table 1.7 Capital Adequacy Ratio- Bank Group-wise



24

1.2.11 Number of ATMs

Total number of ATMs installed in the country was 60,153 at end-March 2010. The SBI group of banks

constituted the largest share of ATMs, followed by nationalized banks, new pr ivate sector banks, old

pr ivate sector banks and foreign banks. While nationalized banks, old pr ivate sector banks and SBI group

had more on-site ATMs than offsite ATMs, SBI new pr ivate sector banks and foreign banks had more

off-site ATMs than on-site ATMs.

Source: R BI Table 1.8 Number of ATMs of SCBs



25

1.3 Challenges



26

Public Sector Banks

The public sector banks are turning the spotlight on the customer and offer ing quicker, better service.

That includes everything from ATM machines and computer ized branches to never before seen

marketing initiatives. Clear ly, public sector banks have woken up to competition. Post-li beralization,

several new generation pr ivate sector banks changed the face of the industry. Customers no longer had

to stand in long queues or make 10 tr i ps for loans to be sanctioned. These changes are tak ing place at a

par ticular ly fast pace in few of the banks including the State Bank of India, Corporation Bank, Indian

Bank, Bank of Baroda and the Union Bank of India.

Pr ivate sector banks brought in concepts like customer relations off icers focused marketing teams and

single window bank ing. Moreover, with new technology, pr ivate sector banks like ICICI and HDFC

Bank could offer customer services like ATMs, phone bank ing, internet bank ing, automatic money

transfer, mobile bank ing, Core bank ing solutions and computer ized monthly statements.R ecently a new

technology of cheque truncation is being introduced. As against physical travel of instruments, under

cheque truncation only the image of the instrument would travel. This would totally alter the face of

clear ing systems facilitating faster realization of instruments. It is currently being implemented on a

pilot basis in India.

Public sector banks¶ focus had ear lier remained on industr ial credit, which was slowing down. Lending

to corporates meant higher margins for banks. As interest rates came down corporates began to consider

alternate sources of funds. Banks then began to explore possi bilities like retail lending.The two impor tant challenges for public sector banks are:

To maintain prof itability inspite of government norms and regulations, as to maintain their PLR .

Put in place appropr iate technology of excellent standards that will make them be seen more as

vir tual banks rather than br ick and mor tar.

This will lead to consolidation of their respective network. They must be given autonomy -- operational

and administrative -- and be completely board dr iven, including in the selection of the chief executiveoff icer. Finally, they must be taken out of the purview of the Central Vigilance Commission, even if it

entails br inging them under the Companies Act. They need to improve in the services like ATMs, Credit

and Debit cards. They lack behind in providing facilities like loans and other accounts. These branches

are not inter linked with each other and customers visiting hours are less.



27

Pri ate Sector Banks

There are two types of pr ivate sector banks, the old and the new. As far as the old (mostly regional

banks) are concerned, inadequacy of capital will lead to their mergers sooner rather than later. Pr ivate

sector banks have good technology for handling transactions and also offer attractive products, but it

cannot be said that corporate governance and r isk management are far super ior to that of the Public

Sector Banks. Some of the most impor tant challenges for pr ivate sector banks are:

Pr ior ity sector credit: Generally, pr ivate sector banks lend money to individuals and corporate

sector whereas sectors like agr iculture, small-scale industr ies and retail trade small business is

neglected.

Consolidation and Convergence: The recent merger that happened was of Lord Kr ishna Bank

with Centur ion Bank. RBI may be inclined to approve the merger. The regulator, which has beeninsisting on promoters of smaller banks to lower their holdings, would possi bly prefer such

mergers. Centur ion Bank of Pun jab needs the additional business to compensate for its relatively

higher cost structures. It can cross-sell its bank ing products through the LK B network, including

traditional bank ing products and fee-based services like wealth management products, to aff luent

NR I customers.



28

CHAPTER2

Comparative Study of Top 5 Indian Banks

HDFC

State Bank of India

AXIS Bank

IDBI

ICICI



29

2. Intr du ti n



30

In the recent years the financial system especially the banks have undergone numerous changes in the

form of reforms, regulations & norms. It is important to evaluate the banks on certain criteria. The study

is conducted to analy e 5 banks to get the desired results by comparing the following parameters:

The data analysis of the information got from the balance sheets of the 5 banks was done and ratios were

used. Graph and charts were used to illustrate trends.

The Sampling Plane of our analysis had the following 5 banks as a sample.

y HDFC

y State Bank of India

y AXIS Bank

y IDBI

y I

CI

CI

Capital Adequacy Ratio

Earning Per Share

Net Profit Margin

Return on A

et

Credit Depo

it Ratio

Gro

Non Performing A

et

Net Non Performing A

et



31

2.2 Bank Profiles



32

HDFC Bank Ltd. is a ma jor Indian f inancial services company based in Mumbai, incorporated in August

1994, af ter the R eserve Bank of India allowed establishing pr ivate sector banks. The Bank was promoted

by the Housing Development Finance Corporation, a premier housing f inance company (set up in 1977)of India. HDFC Bank has 1,412 branches and over 3,295 ATMs, in 528 cities in India, and all branches

of the bank are linked on an online real-time basis. As of September 30, 2008 the bank had total assets of

INR 1006.82 billion. For the f iscal year 2008-09, the bank has repor ted net prof it of R s.2,244.9 crore, up

41%s from the previous f iscal. Total annual earnings of the bank increased by 58% reaching at

R s.19,622.8 crore in 2008-09. HDFC Bank is one of the Big Four Banks of India, along with State Bank

of India, ICICI Bank and Axis Bank ² its main competitors.

History

HDFC Bank was incorporated in the year of 1994 by Housing Development Finance Corporation

Limited (HDFC), India's premier housing f inance company. It was among the f irst companies to receive

an 'in pr inci ple' approval from the R eserve Bank of India (RBI) to set up a bank in the pr ivate sector.The

Bank commenced its operations as a Scheduled Commercial Bank in January 1995 with the hel p of

RBI's li beralization policies. In a milestone transaction in the Indian bank ing industry, Times Bank

Limited (promoted by Bennett, Coleman & Co. / Times Group) was merged with HDFC Bank Ltd., in

2000. This was the f irst merger of two pr ivate banks in India. As per the scheme of amalgamation

approved by the shareholders of both banks and the R eserve Bank of India, shareholders of Times Bank

received 1 share of HDFC Bank for every 5.75 shares of Times Bank.

In 2008 HDFC Bank acquired Centurion Bank of Punjab tak ing its total branches to more than 1,000.

The amalgamated bank emerged with a strong deposit base of around R s. 1,22,000 crore and net

advances of around R s. 89,000 crore. The balance sheet size of the combined entity is over R s. 1,63,000

crore. The amalgamation added signif icant value to HDFC Bank in terms of increased branch network,

geographic reach, and customer base, and a bigger pool of sk illed manpower.



33

Corporate Governance Rating

The bank was one of the f irst four companies, which sub jected itself to a Corporate Governance and

Value Creation (GVC) rating by the rating agency, The Credit R ating Information Services of India

Limited (CR ISIL). The rating provides an independent assessment of an entity's current performance and

an expectation on its "balanced value creation and corporate governance practices" in future. The bank has been assigned a 'CR ISIL GVC Level 1' rating which indicates that the bank's capability with respect

to wealth creation for all its stakeholders while adopting sound corporate governance practices is the

highest.

Figure 2.1HDFC Bank



34

State Bank of India is the largest bank ing and f inancial services company in India, by almost every

parameter - revenues, prof its, assets, market capitalization, etc. The bank traces its ancestry to Br itish

India, through the Imper ial Bank of India, to the founding in 1806 of the Bank of Calcutta, mak ing it theoldest commercial bank in the Indian Subcontinent. The Government of India nationalized the Imper ial

Bank of India in 1955, with the R eserve Bank of India tak ing a 60% stake, and renamed it the State Bank

of India. In 2008, the Government took over the stake held by the R eserve Bank of India.

SBI provides a range of bank ing products through its vast network of branches in India and overseas,

including products aimed at NR Is. The State Bank Group, with over 16,000 branches, has the largest

bank ing branch network in India. With an asset base of $260 billion and $195 billion in deposits, it is a

regional bank ing behemoth. It has a market share among Indian commercial banks of about 20% in

deposits and advances, and SBI accounts for almost one-f if th of the nation's loans.

SBI has tr ied to reduce over-staff ing by computer izing operations and "golden handshake" schemes that

led to a f light of its best and br ightest managers. These managers took the retirement allowances and

then went on to become senior managers in new pr ivate sector banks.

Figure 2.2 State Bank of India



35

Axis Bank, formally UTI Bank, is a f inancial services f irm that had begun operations in 1994, af ter the

Government of India allowed new pr ivate banks to be established. The Bank was promoted jointly by the

Administrator of the Specif ied Under tak ing of the Unit Trust of India (UTI-I), Life Insurance

Corporation of India (LIC), General Insurance Corporation Ltd., National Insurance Company Ltd., The

New India Assurance Company, The Or iental Insurance Corporation and United India Insurance

Company UTI-I holds a special position in the Indian capital markets and has promoted many leading

f inancial institutions in the country. The bank changed its name to Axis Bank in Apr il 2007 to avoid

confusion with other unrelated entities with similar name. Af ter the R etirement of Mr. P. J. Nayak,

Shikha Sharma was named as the bank's managing director and CEO on 20 Apr il 2009.

As on the year ended March 31, 2010, the Bank had a total income of R s 13,745.04 crore (US$ 2.93

billion) and a net prof it of R s. 1,812.93 crore (US$ 386.15 million). On February 24, 2010, Axis Bank

announced the launch of 'AXIS CALL & PAY on atom', a unique mobile payments solution using Axis

Bank debit cards. Axis Bank is the f irst bank in the country to provide a secure debit card-based payment

service over IVR . Axis Bank is one of the Big Four Banks of India, along with ICICI Bank, State Bank

of India and HDFC Bank.

Branch Network

At the end of March 2010, the Bank has a very wide network of more than 835 branch off ices and

Extension Counters. Total number of ATMs went up to 3595. The Bank has loans now (as of June 2007)

account for as much as 70 per cent of the bank¶s total loan book of R s 2,00,000 crore. In the case of Axis

Bank, retail loans have declined from 30 per cent of the total loan book of R s 25,800 crore in June 2006

to around 23 per cent of loan book of R s.41,280 crore (as of June 2007). Even over a longer per iod,

while the overall asset growth for Axis Bank has been quite high and has matched that of the other

banks, retail exposures grew at a slower pace. The bank, though, appears to have insulated such

pressures. Interest margins, while they have declined from the 3.15 per cent seen in 2003-04, are still

hover ing close to the 3 per cent mark.



36

Bankers Fair Practice Code

This is a voluntary Code, which sets standards of fair bank ing practices for member banks of Indian

Banks' Association to follow when they are dealing with individual customers. It provides valuable

guidance to you for your day-to-day operations. The Code applies to:

Current, savings and all other deposit accounts

Pension, PPF accounts etc. operated as agents of RBI/Government

Collection and remittance services offered by the banks

Loans and overdraf ts

Foreign-exchange services

Card products

Third par ty products offered through our network.

As a voluntary Code, it promotes competition and encourages market forces to achieve higher operating standards for the benef it of customers.

Figure 2.3 AXIS Bank



37

The Industr ial Development Bank of India Limited commonly known by its acronym IDBI is one of

India's leading public sector banks and 4th largest Bank in overall ratings. RBI categor ized IDBI as an

"other public sector bank". It was established in 1964 by an Act of Par liament to provide credit and other

facilities for the development of the f ledgling Indian industry. It is currently 10th largest development

bank in the wor ld in terms of reach with 1210 ATMs, 720 branches and 486 centers. Some of the

institutions built by IDBI are the National Stock Exchange of India (NSE), the National Secur ities

Depository Services Ltd (NSDL), the Stock Holding Corporation of India (SHCIL), the Credit Analysis

& R esearch Ltd, the Expor t-Impor t Bank of India (EXIM Bank), the Small Industr ies Development bank

of India(SIDBI), the Entrepreneurshi p Development Institute of India, and IDBI BANK, which today is

owned by the Indian Government, though for a br ief per iod it was a pr ivate scheduled bank.

The Industr ial Development Bank of India (IDBI) was established on July 1, 1964 under an Act of

Par liament as a wholly owned subsidiary of the R eserve Bank of India. In 16 February 1976, the

ownershi p of IDBI was transferred to the Government of India and it was made the pr inci pal f inancial

institution for coordinating the activities of institutions engaged in f inancing, promoting and developing

industry in the country. Although Government shareholding in the Bank came down below 100%

following IDBI¶s public issue in July 1995, the former continues to be the ma jor shareholder (current

shareholding: 52.3%).

Dur ing the four decades of its existence, IDBI has been instrumental not only in establishing a well-

developed, diversif ied and eff icient industr ial and institutional structure but also adding a qualitative

dimension to the process of industr ial development in the country. IDBI has played a pioneer ing role in

fulf illing its mission of promoting industr ial growth through f inancing of medium and long-term

pro jects, in consonance with national plans and pr ior ities. Over the years, IDBI has enlarged its basket of

products and services, cover ing almost the entire spectrum of industr ial activities, including

manufactur ing and services. IDBI provides f inancial assistance, both in rupee and foreign currencies, for

green-f ield pro jects as also for expansion, modernization and diversif ication purposes. In the wake of

f inancial sector reforms unveiled by the government since 1992, IDBI evolved an array of fund and fee-

based services with a view to providing an integrated solution to meet the entire demand of f inancial and

corporate advisory requirements of its clients.



39

ICICI Bank (former ly Industr ial Credit and Investment Corporation of India) is a ma jor bank ing and

f inancial services¶ organization in India. It is the 4th largest bank in India and the largest pr ivate sector

bank in India by market capitalization. The bank also has a network of 1,700+ branches (as on 31 March

2010) and about 4,721 ATMs in India and presence in 19 countr ies, as well as some 24 million

customers (at the end of July 2007). ICICI Bank offers a wide range of bank ing products and f inancial

services to corporate and retail customers through a var iety of delivery channels and specialization

subsidiar ies and aff iliates in the areas of investment bank ing, life and non-life insurance, venture capital

and asset management. (These data are dynamic.) ICICI Bank is also the largest issuer of credit cards in

India. ICICI Bank's shares are listed on the stock exchanges at Kolkata and Vadodara, Mumbai and the

National Stock Exchange of India Limited; its ADR s trade on the New York Stock Exchange (NYSE).

The Bank is expanding in overseas markets and has the largest international balance sheet among Indian

banks. ICICI Bank now has wholly-owned subsidiar ies, branches and representatives off ices in 19

countr ies, including an offshore unit in Mumbai. This includes wholly owned subsidiar ies in Canada,

R ussia and the UK (the subsidiary through which the Hi SAVE savings brand is operated), offshore

bank ing units in Bahrain and Singapore, an advisory branch in Dubai, branches in Belgium, Hong Kong

and Sr i Lanka, and representative off ices in Bangladesh, China, Malaysia, Indonesia, South Afr ica,

Thailand, the United Arab Emirates and USA. ICICI repor ted a 1.15% r ise in net prof it to R s. 1,014.21

crore on a 1.29% increase in total income to R s. 9,712.31 crore in Q2 September 2008 over Q2

September 2007. The bank's CASA ratio increased to 30% in 2008 from 25% in 2007.

Figure 2.5 ICICI Bank



40

2.3 Data Analysis



41

2.3.1 Capital Adequacy Ratio

R eserve Bank of India prescr i bes Banks to maintain a minimum Capital to r isk weighted Assets R atio

(CR AR ) of 9 percent with regard to credit r isk, market r isk and operational r isk on an ongoing basis, as

against 8 percent prescr i bed in Basel Documents. Capital adequacy ratio of the ICICI Bank was well

above the industry average of 13.97% t. CAR of HDFC bank is below the ratio of ICICI bank. HDFC

Bank¶s total Capital Adequacy stood at 15.26% as of March 31, 2010.

HDFC CAR is gradually increased over the last 5 year and the capital adequacy ratio of Axis bank is the

increasing by every 2 year. SBI has maintained its CAR around in the range of 11 % to 14 %. But IDBI

should reconsider their business as its CAR is falling YOY. Higher the ratio the banks are in a

comfor table position to absorb losses. So ICICI and HDFC are the strong one to absorb their losses.

Particular 2005-06 2006-07 2007-08 2008-09 2009-10

HDFC 11.40% 13.10% 13.60% 15.10% 17.40%

SBI 11.88% 12.34% 13.47% 14.25% 13.39%

AXIS 11.08% 11.57% 13.73% 13.69% 15.80%

IDBI 14.80% 13.73% 11.95% 11.57% 11.31%

ICICI 13.35% 11.69% 13.97% 15.53% 19.41%

Table 2.1 CAR

Figure 2.6 CAR



42

2.3.2 Earning Per Share

To calculate earning per share ratio, simply divide the company¶s net income by the number of shares

outstanding dur ing the same per iod. If the number of shares out in the market has changed dur ing that

per iod (ex. a share buyback), a weighted average of the quantity of shares is used.

Importance of EPS

The signif icance of EPS is obvious, as the viability of any business depends on the income it can

generate. A money losing business will eventually go bankrupt, so the only way for long term survival is

to make money. Earnings per share allow us to compare different companies¶ power to make money. The

higher the earnings per share with all else equal, the higher each share should be wor th. EPS is of ten

considered the single most impor tant metr ic to determine a company¶s prof itability. It is also a ma jor

component of another impor tant metr ic, pr ice per earnings ratio (P/E).

When we do our analysis, we should look for a positive trend of EPS in order to make sure that the

company is f inding more ways to make more money. Otherwise, the company is not growing and thus

should be considered only if you are conf ident that it can at least sustain its income.

Particular 2005-06 2006-07 2007-08 2008-09 2009-10

HDFC 27.90% 36.30% 46.20% 52.90% 67.60%

SBI 83.73% 86.29% 126.62% 143.77% 144.37%

AXIS 17.45% 23.50% 32.15% 50.61% 65.78%

IDBI 7.76% 8.70% 10.06% 11.85% 14.23%

ICICI 32.49% 34.84% 39.39% 33.76% 36.41%

Table 2.2 EPS

Figure 2.7 EPS



43

2.3.3 Net Prof it Margin

Net Prof it margin is a key method of measur ing prof itability. It can be interpreted as the amount of

money the company gets to keep for every dollar of revenue. That is,

Net Prof it Margin = Net Income ÷ Net Sales.

Prof it margins can be useful metr ics, but typically require some specif ic circumstances to really have

signif icance. Suppose we have Company A from above (15% prof it margins) and Company B (with 20%

prof it margins). If A and B are in the same industry and, indeed, are competitors, then B may be a more

intelligent investment.

If, however, companies A and B are not in the same space, then the differences in prof it margins may not

be so insightful. Suppose A is in an industry where prof it margins are typically less than 10%, and B is in

an industry where margins are typically greater than 25%, then A is probably a higher quality candidate.

Particular 2005-06 2006-07 2007-08 2008-09 2009-10

HDFC 19.46 16.57 15.72 13.75 18.23

SBI 12.31 11.5 13.75 14.3 12.91

AXIS 16.79 14.45 15.29 16.75 21.61

IDBI 10.42 9.93 9.09 7.38 6.75

ICICI 18.43 13.53 13.5 12.09 15.66

Table 2.3 NPM

Figure 2.8 NPM



44

2.3.4 Return on Assets

Where asset turnover tells an investor the total sales for each $1 of assets, return on assets, or R OA for

shor t, tells an investor how much prof it a company generated for each $1 in assets. The return on assets

f igure is also a sure-f ire way to gauge the asset intensity of a business. R OA measures a company¶s

earnings in relation to all of the resources it had at its disposal (the shareholders¶ capital plus shor t and

long-term borrowed funds). Thus, it is the most str ingent and excessive test of return to shareholders. If a

company has no debt, the return on assets and return on equity f igures will be the same. HDFC has

shown remarkable R OA over 5 years but AXIS bank will attract more eyes as its R OA increases for last

5 year. SBI¶s R OA is slightly low as compared to HDFC; reason is the SBI has highest assets in Indian

bank industry that¶s why its R OA is low as compared to AXIS bank and HDFC bank. IDBI is out

performed in R OA but ICICI¶s R OA is quite enough to attract investors.

Particular 2005-06 2006-07 2007-08 2008-09 2009-10

HDFC 1.39% 1.39% 1.42% 1.42% 1.45%

SBI 0.92% 0.98% 1.01% 1.04% 0.88%

AXIS 1.11% 1.07% 1.24% 1.44% 1.67%

IDBI 0.66% 0.66% 0.67% 0.62% 0.53%

ICICI 1.21% 1.04% 1.12% 0.98% 1.13%

Table 2.4 ROA

Figure 2.9 ROA



45

2.3.5 Credit Deposit Ratio

It is the propor tion of loan-assets created by banks from the deposits received. The higher the ratio, the

higher the loan-assets created from deposits.

Consider Bank X which has deposits wor th R s. 100 crores and a credit-deposit ratio of 60 per cent. That

means Bank X has used deposits wor th R s. 60 crores to create loan-assets. Only R s. 40 crores is

available for other investments.

Now, the Indian government is the largest borrower in the domestic credit market. The government

borrows by issuing secur ities (G-secs) through auctions held by the RBI. Banks, thus, lend to the

government by investing in these Gsecs. And Bank X has only R s. 40 crores to invest in G-secs. If more

banks like X have lesser money to invest in G-Secs, what will the government do? Af ter all, it needs to

raise money to meet its expenditure.

If the money so released is large, ``too much money will chase too few goods'' in the economy resultingin higher inf lation levels. This would prompt investors to demand higher returns on debt instruments.

Particular 2005-06 2006-07 2007-08 2008-09 2009-10

HDFC 65.79 66.08 65.28 66.64 72.44

SBI 62.11 73.44 77.51 74.97 75.96

AXIS 52.79 59.85 65.94 68.89 71.87

IDBI 238.79 166.12 124.35 100.13 86.28

ICICI 87.59 83.83 84.99 91.44 90.04

Table 2.5 CDR

Figure 2.10 CDR



46

2.3.6 Gross Non performing Assets

Gross NPAs are the sum total of all loan assets that are classif ied as NPAs as per RBI guidelines as on

Balance Sheet date. Gross NPA ref lects the quality of the loans made by banks. It consists of all the non

standard assets like as substandard, doubtful, and loss assets.

SBI maintained its GNPA to 3% which is very good sign of performances as SBI is the largest lender inINDIA. HDFC¶s GNPA is quite good as it is low with compared to ICICI and SBI but in 2008-09 GNPA

r ises. The reason may be economic cr ises. AXIS bank has lowest GNPA which shown its management

ability. ICICI has the highest GNPA in bank ing industry and r ising YOY.

Particular 2007-08 2008-09 2009-10

HDFC 1.30% 1.98% 1.43%

SBI 3.04% 2.84% 3.05%

AXIS 0.72% 0.96% 1.13%

IDBI 1.87% 1.38% 1.53%

ICICI 3.30% 4.32% 1.13%

Table 2.6 GNPA

Figure 2.11: Gross NPA



47

2.3.7 Net Non Performing Assets

Net NPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs. Net

NPA shows the actual burden of banks. Since in India, bank balance sheets contain a huge amount of

NPAs and the process of recovery and wr ite off of loans is very time consuming, the provisions the

banks have to make against the NPAs according to the central bank guidelines, are quite signif icant. That

is why the difference between gross and net NPA is quite high.

It can be calculated by following:

Net NPAs �

��

AXIS Bank has least Net NPA and ICICI has highest NNPA among group. HDFC shown its

management quality as it maintained its NNPA YOY. SBI has to keep NNPA below. IDBI hassuccessful to control NNPA YOY.

Particular 2007-08 2008-09 2009-10

HDFC 0.50% 0.60% 0.50%

SBI 1.78% 1.76% 1.72%

AXIS 0.36% 0.35% 0.36%

IDBI 1.30% 0.92% 1.02%

ICICI 1.12% 2.09% 2.12%

Table 2.7 Net NPA

Figure 2.12 Net NPA



48

2.4 Findings &

Recommendations



49

2.4.1 Findings

Capital Adequacy: HDFC BANK has shown best performance in CAR as it¶s gradually r ising

YOY and IDBI¶s decreasing YOY. IDBI should reconsider their business tactics.

Return on Assets: HDFC tops the group and IDBI again at last but this tie IDBI shown consistent

performance as compared to ICICI having higher R OA.

Earnings Per Share: SBI¶s EPS is highest among group. IDBI has least EPS. Investors will choice

SBI over all banks and IDBI at last.

Net Prof it Margin: AXIS Bank has highest NPM in 2009-10 and r ising YOY. IDBI¶s NPM is

decreasing YOY.

Credit Deposit Ratio: HDFC maintains its CDR and tops the group. IDBI again on worst side but

good thing is that it¶s decreasing YOY.

Gross NPA: AXIS bank has least GNPA and ICICI has highest among peers.

Net NPA: AXIS Bank again performed better than others and ICICI has maintained its position.

SBI has r ise in NNPA over the GNPA.



50

2.4.2 Recommendations

The banks should adapt themselves quick ly to the changing norms.

The system is getting internationally standardized with the coming of BASELL II accords so the

Indian banks should strengthen internal processes so as to cope with the standards.

The banks should maintain a 0% NPA by always lending and investing or creating quality assets

which earn returns by way of interest and prof its.

The banks should f ind more avenues to hedge r isks as the market is very sensitive to r isk of any type.

Have good appraisal sk ills, system, and proper follow up to ensure that banks are above the r isk.



51

Conclusion

In any bank ing system, no bank -- public or pr ivate -- can survive unless it continuously str ives to

transform its organization into a self-governing, self-correcting and self-ad justing entity. For banks to

grapple with these problems and manage the future, structural and institutional r igidities need to beeased in two cr itical areas: comprehensive legal suppor t for recovery of bad debts and a fundamental

change in the pattern of governance for the PSBs.

While public sector banks are in the process of restructur ing, pr ivate sector banks are busy

consolidating through mergers and acquisitions (the sector has been recently opened up for foreign

investments). PSB¶s need to improve in services like ATMs, Credit and Debit cards. They lack

behind in providing facilities like loans and other accounts. These branches are not inter linked with

each other and work ing hours are less. In case of Pr ivate sector banks customers are not aware of the

facts and hidden costs in view, as there are var ious products and facilities provided by the banks. The

charges that are been taken are also too high. Challenges and Oppor tunities exist for both the public

sector as well as the pr ivate sector banks, their nature however differs.

From the 11 parameters, we have identif ied 3 areas of challenges separately for pr ivate and public

sector banks.

The Credit Deposit R atio of Pr ivate sector banks is better compared to PSB¶s

The Capital Adequacy R atio of PSB¶s is satisfactory compared to that of Pr ivate Banks

The Net Prof it of PSB¶s is better than Pr ivate Sector



Bibliography

Publications; Trends and Progress in India- Operations and Performance of Commercial Banks:

www.rbi.org.in

htt p://rbidocs.rbi.org.in/rdocs/Publications/PDFs/04CPT081110.pdf

Bharati V. Pathak, Indian Financial System, Pearson Education Pvt. Ltd.

www.icici bank.com

www.hdfcbank.com

www.idbi.com

www.axisbank.com

www.statebankof india.com

www.scr i bd.com

www.bseindia.com

www.sify.business.com