The banking system is one of the few institutions that impinge on the economy and affect its performance for better. Since the process of liberalization and reform of the financial sector were set in motion in 1991, banking has undergone significant changes. Further, lowering of economic barriers by the majority of other countries is also expected to full the competition and affect the baking's operations. In Indian context, banking sector has always played a significant role in building up the economy of the country and hence its performance is continuously monitored. Its energy and vitality indicate the health and prosperity of the nation. The Indian banking Industry has been dominated by the Public Sector Banks. About 80% of commercial banking at present belongs to the Public Sector Banks. In this study, an attempt has been made to review the performance of banking sector in India during the post reform period. The main objective of this article is to make an evaluation of the financial performance of Indian Public Sector Banks .The performance of a bank is measured by a number of indicators with reference to Deposits, Advances, Total Income, Investment and Net Profit etc. Recommendations and suggestions have been given for improving the performance of Public Sector Banks in India.
Keywords: Financial Sector Reforms, Public Sector Banks, Performance Parameters
Introduction
Banking sector being an integral part of Indian financial system has undergone metamorphic changes over the past three decades. In particular, first phase of reforms was initiated both at micro and macro level in 1991. Financial sector reforms were initiated in India as a part of overall economic reforms. The reforms aimed at creating a more diversified, profitable, efficient and resilient banking system. The blueprint of these reforms was provided by Narasimham Committee Report, during the Parliamentary session of December 17, 1991. The recommendations of the committee touched upon almost all aspects of banking operations against the back drop of challenges faced by the Indian banks from within and outside the banking system in the country as well as forces of Globalization operating worldwide. It was followed by the second phase of reforms in 1998 where the main emphasis was to strengthen the banking system against international best practices and standards which will have lasting effects on the entire fabric of Indian financial system. Financial sector have reacted positively in the implementation of these reforms. These reforms have enhanced the overall efficiency and viability of the banks which have resulted in the entry of new players in the field in the form of new generation private sector banks and foreign banks. These banks entered in the market with the high tech and professional capabilities with quality services. The Public Sector Banks with an international presence have forced to reanalyze their performance and approach. After the implementation of reforms and freeing from regulatory clutches, they have improved significantly over the last decade.
Overview of Indian Commercial Banks
India's financial system broadly consists of "non-scheduled Banks" and "scheduled banks". Further, scheduled banks consist of "scheduled commercial banks" and "scheduled cooperative banks". The former are further divided into four categories: (1) Public Sector Banks (that are further classified as "nationalized banks" and the "State Bank of India (SBI) Banks," (2) Private Sector Banks (3) Foreign banks in India (4) regional rural banks. The most active sector of the Indian money market is the commercial banking sector. The majority of commercial banking in India is in the public sector with the State Bank of India and its associate's banks. After liberalization, several Private sector banks and foreign banks were allowed to open their business in the Indian financial system. In terms of business, the public sector banks now have a dominant position. They account for more than 80 percent of the entire banking business in the country. Public Sector Banks are the most important medium for savings, capital mobilization and financial resource allocation. Consequently, these roles make them important in economic growth and development. In performing this role, it must be realized that an efforts must be made to review the performance of banking sector in India during the post reform period.
Review of lit.
Sogala and Ramasastri (1998) analyzed the trends in excess capacity in the banking sector, during the period from 1992-93 to 1995-96, by comparing the return on earning assets of banks with a minimum threshold return. They noted that excess capacity, as measured by the percentage of banks along with the percentage of earning assets at sub-optimal level, showed a decreasing trend. It was highest among nationalized banks and lowest among foreign banks. Das (2002) developed a model to rank nationalized banks during 1999-2000 and 2000-2001. He covered 17 nationalized banks, excluding the Indian Bank and the UCO Bank. Corporation Bank emerged as the top-most bank, followed by Andhra Bank and Oriental Bank of Commerce (OBC). While, in business performance, Punjab National Bank (PNB) was the top ranker, in efficiency and labour productivity, Corporation Bank was at the top. In terms of safety and soundness, Andhra Bank obtained the highest rank. Arora and Verma (2005) analyzed the banking-sector reforms and evaluated the performance of 27 public-sector banks, during the period 1992 to 2003. They considered 31 indicators to measure the growth rate. Their study revealed that Corporation Bank had highest and Indian Bank had the lowest financial parameters. While, UCO Bank scored a negative growth in productivity and profitability parameters, Vijaya Bank scored top in profitability parameters and UBI got the highest rank in productivity parameters. Dangwal and Kapoor (2010) evaluated the financial performance of nationalized banks in India and assessed the growth index value of various parameters through overall profitability indices. The data for 19 nationalized banks, for the post-reform period from 2002-03 to 2006-07, was used to calculate the index of spread ratios, burden ratios, and profitability ratio. They found that while four banks had excellent performance, five achieved good performance, four attained fair performance, and six had poor performance. Jha and Sarangi (2011) analyzed the performance of seven public- sector and new private-sector banks, for the year 2009-10. They used three sets of ratios, operating performance ratios, financial ratios, and efficiency ratios. In all, eleven ratios were used. They found that Axis Bank, BOI, PNB, SBI, IDBI, and HDFC, in that order.
Objective of the study
The main objective of the study is to classify Indian public sector banks on the basis of their financial characteristics and to assess their financial performance with reference to Deposit, Advances, Business per Employee, Profit per Employee and Return on Assets.
Research Methodology
Period of the study: The post-reform period of five years has been taken for measuring the financial performance of public sector banks in India. The years selected for analysis are 2008-2012.
Sample size: The study include 20 public sector banks operating in India. It comprises of Nationalized Banks as well as State Bank of India.
Data collection: The data for the accomplishment of the afore mentioned research objectives used was secondary data with a view of evaluating performance and calculating financial ratios. The data was gathered from bank's financial statements as published in their annual reports (2008 to 2012). The data base of Indian Banking Association has also been utilized.
Data Analysis: The following accounting and statistical techniques are used:
The arithmetic mean of each parameter for bank has been calculated for the period of study.
Growth Rate in Percentage was calculated for measuring the performance of each Public Sector Bank.
Analysis and Discussion
Deposits: In general terms money deposits in banks are known as bank deposits. Deposits mobilization gets added attention in a developing country like India where resources mobilization acts as a prime mover of the development process. Expansion of Public Sector Banks deposits has been an important feature in recent years. Planned economic development, deficit financing and increase in currency issue have led to increase in Public Sector Banks deposits. At the same time Public Sector Banks have contributed greatly to the development of banking habit among the people. The deposits pattern of Public Sector Banks is given in Table-1.
Deposits of Indian Public Sector Banks (Rs. In Crore)
Banks
2008-09
2009-10
2010-11
2011-12
G.Rate
Average
Allahabad Bank
84971.79
106055.75
131887.16
159593.08
87.81
120626.95
Andhra Bank
59390.02
77688.21
92156.28
105851.22
78.23
83771.43
Bank of Baroda
192396.95
241044.26
305439.48
384871.11
100.04
280937.95
Bank of India
189708.48
229761.94
298885.81
318216.03
67.79
259143.07
Bank of Maharashtra
52254.92
63304.07
66844.74
76528.65
46.45
64733.1
Canara Bank
186892.51
234651.44
293436.64
327053.73
75
260508.58
Central Bank of India
131271.85
162107.47
179356.02
196173.33
49.44
167227.17
Corporation Bank
73983.91
92733.67
116747.5
136142.2
84.01
104901.82
Dena Bank
43050.61
51344.28
64209.62
77166.8
79.25
58942.83
Indian Bank
72581.83
88227.66
105804.18
120803.8
66.44
96854.37
Indian Overseas Bank
100115.89
110794.71
145228.75
178434.18
78.23
133643.38
Oriental Bank of Commerce
98368.85
120257.59
139054.26
155964.92
58.55
128411.41
Punjab & Sind Bank
34675.65
49155.09
59723.19
63123.98
82.04
51669.48
Punjab National Bank
209760.5
249329.8
312898.73
379588.48
81
287894.38
Syndicate Bank
115885.14
117025.79
135596.08
157941.06
36.29
131612.01
UCO Bank
100221.57
122415.55
145277.6
154003.49
53.66
130479.55
Union Bank of India
138702.83
170039.74
202461.29
222868.95
60.68
183518.2
United Bank of India
54535.9
68180.32
77844.8
89116.26
63.41
72419.32
Vijaya Bank
54535.42
61931.75
73248.32
83055.51
52.3
68192.75
State Bank of India
742073.13
804116.23
933932.81
1043647.36
40.64
880942.38
Source: Compiled from the Annual Reports of the Banks
Table 1 shows Total Deposits for all the selected Indian Public Sector Banks from 2007-2008 to 2011-12 and also reveal growth rate thereof based on 2007-08 as base year. It also provided the average of total deposits for various Indian Public Sector Banks. Bank of Baroda shows the highest growth rate in its deposits (100.04%) in 2011-12 comparing with its deposits in 2007-08. State Bank of India shows the highest Average Total Deposits of Rs. 880942.38 Crores.
Advances: Bank credit means the loan (advances) made by the banks to the customers. Credit deployment is the major force through which banks helps in the transformation of saving into capital. This is considered to be the single most important causal factor in the process of economic development with the expansion of bank deposits. There has been continued expansion of bank credit reflecting the rapid expansion of Industrial and agricultural output. The data relating to the advances pattern of the Public Sector Banks is presented in Table-2.
Advances of Indian Public Sector Banks (Rs. In Crore)
Banks
2008-09
2009-10
2010-11
2011-12
G.Rate
Average
Allahabad Bank
58801.76
71604.87
93624.89
111145.1
89.01
83794.15
Andhra Bank
44139.26
56113.51
71435.36
83641.83
89.5
63832.49
Bank of Baroda
143251.41
175035.29
228676.36
287377.29
100.61
208585.09
Bank of India
142909.37
168490.71
213096.18
248833.34
74.12
193332.4
Bank of Maharashtra
34290.77
40314.7
46880.77
56059.76
63.45
44386.5
Canara Bank
138219.4
169334.63
211268.29
232489.82
68.2
187828.03
Central Bank of India
85483.2
105383.49
129725.41
147512.85
72.56
117026.24
Corporation Bank
48512.16
63202.56
86850.4
100469.02
107.1
74758.54
Dena Bank
28877.54
35462.44
44828.05
56692.54
96.32
41465.14
Indian Bank
51396.54
62146.13
75249.91
90323.6
75.74
69779.04
Indian Overseas Bank
74885.27
79003.93
111832.98
140724.44
87.92
101611.67
Oriental Bank of Commerce
68500.37
83489.3
95908.22
111977.69
63.47
89968.9
Punjab & Sind Bank
24615.35
32639.11
42637.85
46151.41
87.49
36510.93
Punjab National Bank
154702.99
186601.21
242106.67
293774.76
89.9
219296.41
Syndicate Bank
81532.27
90406.36
106781.92
123620.18
51.62
100585.18
UCO Bank
68803.86
82504.53
99070.81
115540.01
67.93
91479.8
Union Bank of India
96534.23
119315.3
150986.08
177882.08
84.27
136179.42
United Bank of India
35393.55
42330.04
53502.44
63043.29
78.12
48567.33
Vijaya Bank
35467.67
41521.72
48718.63
57903.74
63.26
45902.94
State Bank of India
542503.2
631914.14
756719.45
867578.89
59.92
699678.92
Source: Compiled from the Annual Reports of the Banks
Table 2 Shows Total Credits, Growth Rate of credits and the average of total credits during 2007-08 to 2011-12 for the selected Public Sector Banks in India. State Bank of India has the highest average total credits of Rs. 699678.92 crores. Despite its State Bank of India has the lowest Growth Rate (59.92%) in its total credit. Therefore, it indicates that the bank with good growth rate of total credits during the study period does not always mean having the highest average of total credits.
Investment: - Investment as a window of deployment of funds was given more emphasis than lending. Investment can be defined as sacrifice of present consumption with expectation of return in future. Investment takes place at present but return can be expected in future but return is uncertain too. "Investment is made in assets. Assets in all are of two types- real assets (land, building, factures etc.) and financial assets (stock, bond, etc.). Highly developed financial institutions greatly facilitate real investment. "Investment is nothing but deploying our saving in manner that ensures safety of our money & provides a sustained return to supplement our regular income" (Delhi Stock exchange 2002). The data relating to Investment of the Public Sector Banks is presented in Table-3.
Investment of Indian Public Sector Banks (Rs. In Crore)
Banks
2008-09
2009-10
2010-11
2011-12
G.Rate
Average
Allahabad Bank
29651.05
38428.62
43247.06
54283.24
83.07
41402.49
Andhra Bank
16911.11
20881
24204
29628.9
75.2
22906.25
Bank of Baroda
52445.88
61182.38
71396.5
83209.4
58.66
67058.54
Bank of India
52607.18
67080.18
85872.42
86753.59
64.91
73078.34
Bank of Maharashtra
18382.14
21323.85
22491.08
22911.36
24.64
21277.1
Canara Bank
57776.9
69676.95
83636.02
102057.43
76.64
78286.83
Central Bank of India
43060.72
50562.87
54504.49
59243.27
37.58
51842.84
Corporation Bank
24937.77
34522.63
43452.74
47474.63
90.37
37596.94
Dena Bank
12473.08
15694.23
18768.91
23027.65
84.62
17490.97
Indian Bank
22800.57
28268.33
34783.76
37976.03
66.56
30957.17
Indian Overseas Bank
31215.44
37650.56
48610.45
55565.88
78.01
43260.58
Oriental Bank of Commerce
28488.95
35785.32
49545.41
52101.33
82.88
41480.25
Punjab & Sind Bank
12627.43
17886.84
18643.65
20064.13
58.89
17305.51
Punjab National Bank
63385.18
77724.47
95162.35
122629.47
93.47
89725.37
Syndicate Bank
30537.23
33010.93
35067.62
40815.06
33.66
34857.71
UCO Bank
29384.78
43521.43
42927.28
45771.5
55.77
40401.25
Union Bank of India
42996.96
54403.53
58399.14
62363.56
45.04
54540.8
United Bank of India
17924.21
26067.74
26258.95
29058.8
62.12
24827.42
Vijaya Bank
17387.7
21107.45
25138.58
28643.8
64.74
23069.38
State Bank of India
275953.96
285790.07
295600.57
312197.61
13.13
293285.55
Source: Compiled from the Annual Reports of the Banks
Table 3 shows That Punjab National Bank has the highest growth rate in its investment (93.47%)in 2011-2012 comparing with its investment in 2007-08 as well as it has the second highest average of Rs. 89725.37 in Crore. On the other hand State Bank of India has the highest average of total investment of Rs. 293285.55 crore.
Total Income:-Banks borrow money in the form of deposits and lend money as advances (loans) to the needy borrowers. Their main income is therefore, interest income. Interest Income of banks depends on the size of the asset portfolio, the rate of interest and the percentage of standard performing assets, i.e. the earning assets. It consists of: Interest on advances, discount on bills and Income on investments, etc. Non-interest income of banks arises from sources other than money lent. It comprises of- Commission, exchange, brokerage, Profit on sale of investment, Profit on sale of land, buildings and other assets and Profits on Foreign exchange transaction. Total Income pattern of Public Sector Banks is given in Table-4.
Total Income of Indian Public Sector Banks (Rs. In Crore)
Banks
2008-09
2009-10
2010-11
2011-12
G.Rate
Average
Allahabad Bank
8506.65
9885.1
12385.1
16821
97.74
11899.46
Andhra Bank
6140
7337.49
9188.23
12198.66
98.68
8716.01
Bank of Baroda
17849.24
19504.7
24695.1
33096.05
85.42
23786.27
Bank of India
19399.22
20494.62
24393.5
31801.84
63.94
24022.3
Bank of Maharashtra
4791.58
5326.81
6093.95
7854.63
63.93
6016.74
Canara Bank
19430.27
21609.86
25751.53
33778.22
73.84
25142.47
Central Bank of India
11525.16
13799.55
16485.61
20544.8
78.26
15588.78
Corporation Bank
7174.57
8481.03
10391.13
14510.4
102.25
10139.28
Dena Bank
3877.62
4598.99
5567.37
7376.3
90.23
5355.07
Indian Bank
7865.77
9030.78
10542.92
13463.48
71.17
10225.74
Indian Overseas Bank
11237.23
11389.03
13326.57
19578.13
74.23
13882.74
Oriental Bank of Commerce
9927.79
11475.17
13047.89
17055.13
71.8
12876.5
Punjab & Sind Bank
3654.86
4345.98
5369.59
6891.96
88.57
5065.6
Punjab National Bank
22191.9
25032.22
30599.06
40630.63
83.08
29613.45
Syndicate Bank
10440.01
11214.64
12365.98
16344.23
56.55
12519.22
UCO Bank
9141.28
10492.55
12296.22
15597.93
70.63
11881.99
Union Bank of India
13371.93
15277.42
18491.4
23476.66
75.57
17654.35
United Bank of India
4802.73
5807.68
6978.51
8694
81.02
6570.73
Vijaya Bank
5936.64
5880.1
6377.25
8516.03
43.45
6677.51
State Bank of India
76479.22
85962.07
97218.96
120872.9
58.04
95133.29
Table 4. Shows that Vijaya Bank has the lowest growth rate (43.45%). On the other hand State Bank of India has the second lowest growth rate (58.04%) with the highest average of total income i.e. 95133.29 Rs. in Crore.
Net Profit: - Profit is a financial measure of a firm's operations during a period. It is the difference between the income earned and the expenditure incurred to earn it during the period. It is, therefore, called the 'Net Result'. It is an accounting entity where-
Profit= Income- Expenditure. The balance of operating profit after the provisions and contingencies is known as net profit. Net Profit mainly depends upon productivity of the bank and growth of profit per employee. The data relating to Net Profit of Public Sector Banks are given in Table-5.
Net Profit of the Indian Public Sector Banks (Rs. in Crore )
Banks
2008-09
2009-10
2010-11
2011-12
G.RATE
Average
Allahabad Bank
768.6
1206.33
1423.11
1866.79
142.88
1316.21
Andhra Bank
653.05
1045.85
1267.07
1344.67
105.91
1077.66
Bank of Baroda
2227.2
3058.33
4241.68
5006.96
124.81
3633.54
Bank of India
3007.35
1741.07
2488.71
2677.52
-10.97
2478.66
Bank of Maharashtra
375.17
439.58
330.39
430.83
14.84
394.1
Canara Bank
2072.42
3021.43
4025.89
3282.71
58.4
3100.61
Central Bank of India
571.24
1058.23
1252.41
533.04
-6.68
853.73
Corporation Bank
892.77
1170.25
1413.27
1506.04
68.7
1245.58
Dena Bank
422.66
511.25
611.63
803.14
90.02
587.17
Indian Bank
1245.32
1554.99
1714.07
1746.97
40.28
1565.34
Indian Overseas Bank
1325.79
706.96
1072.54
1050.13
-20.79
1038.36
Oriental Bank of Commerce
890.42
1134.68
1502.87
1141.56
28.2
1167.38
Punjab & Sind Bank
431.18
508.8
526.17
451.29
4.66
479.36
Punjab National Bank
3090.88
3905.36
4433.5
4884.2
58.02
4078.49
Syndicate Bank
912.82
813.32
1047.95
1313.39
43.88
1021.87
UCO Bank
557.72
1012.19
906.54
1108.67
98.78
896.28
Union Bank of India
1726.55
2074.92
2081.95
1787.3
3.51
1917.68
United Bank of India
184.71
322.36
523.97
632.53
242.44
415.89
Vijaya Bank
262.48
507.3
523.82
581
121.35
468.65
State Bank of India
9121.23
9166.05
8264.52
11707.29
28.35
9564.77
Source: Compiled from the Annual Reports of the Banks
Table-5 shows that Punjab National Bank has the highest growth rate (242.44%) followed by Allahabad Bank (142.88%). On the other hand State Bank of India has the highest Average during the study period.
Recommendations to improve the performance of PSBs
The forgoing analysis reveals that through there is a Phenomenal development in the performance, still public sector banks lagging behind some major thrust areas. Some recommendations for improvement in performance of public sector banks are given below:
Technology: In a deregulated environment, managing a wide range of products on shrinking margin create a fiercely competitive environment and new challenges. In this context, technology will be the key to reduce transaction cost, offering customized products and managing risk. Foreign sector banks and private sector banks have competitive edge in terms of updated technology and infrastructure easily to adapt from the inception to operation. Our Public Sector Banks are lagging behind in technology when we compare them with their counterparts.
Competition: Due to LPG, the banks are facing a severe competition. To stay ahead in the race, therefore, banks will have to leverage technology development as well as developing sophisticated financial products. Public sector banks in particular will have to develop new tech-savvy products to beat the competition.
Effective handling of NPAs: For effective handlings of NPAs there is an urgent need that public sector banks should improve the quality of their appraisal for loan proposals. Further, they should also strengthen their loan monitoring system. More importance should be given to actual verification of the information provided.
Issue of HRM: Human resources development is a critical factor which can play major role in enhancing business per employee and profit per employee. Training, development and retraining is a major emerging challenge before the Public sector banks. Public sector banks should make proper policies for training, developing and retraining to the new and old employees. More and more training cells should be organized with highly skilled and having friendly staff to learn new techniques.
Check on operating cost: Highly operating cost is a major obstacle affecting the profitability of public sector banks. The financial viability of public sector banks can be enhanced by keeping a control on operating cost through higher labour productivity, updated technology, low cost funds and restructuring of unremunerating branches.
Conclusion:
In order to ensure the sustainable development of the banking sector, it is imperative to initiate some concrete actions. Application of recent technology in public sector banks, debt recovery mechanism, and improved manpower skills could be some way outs for improving the financial performance of the sector. Public sector banks are needed to devise innovative ways of responding to the evolving challenges. So, in the era of liberalization and globalization, the banks should adopt the latest framework as per the Basel-III Accord, and evolve cost- reduction strategies and should venture into integrated banking services. Further, to ensure the resilience of the banking sector and to avoid the volatility of other sector banks more stringent provisions may be enacted. This study may help the decision makers of Indian Public sector banks and other categories of banks in Indian Banking sector to concentrate on banking activities and thereby to increase the bank ranking and financial performance of the banks. It may help the management in formulating appropriate strategies for achievement of objectives.
