TOPIC: Fundamental Analysis of Selected Banks in India

Submitted by: Vidushi Sathoo ( 13020241062)

Mentor: Mr. Jeevan Nagarkar
Date: 23rd February 2015

ACKNOWLEDGEMENT
I want to express my deep gratitude to all those who were instrumental in helping me completing
my project report. I thank and express sincere gratitude to my mentor, Mr. Jeevan Nagarkar,
Head of Department, Finance at SIIB, Pune, who suggested and prepared the framework of the
project. I would also like to thank him for the continued support, advice and encouragement,
without which this report could not have been possible.
Thanking You
Vidushi Sathoo
SIIB, Finance Batch 2013-15
PRN- 13020241062

INDUSTRY PROFILE
2

HISTORY OF INDIAN BANKING INDUSTRY

India in known as the land of great economists and the Indian banking
system is very old taking many forms from the past to the present. India's
banking sector can be divided into stages in 4 portions:-

Pre Nationalisation
Phase

Nationalisati
on

Liberalisatio
n

Post 2000
changes

PRE NATIONALIZATION PHASE

In Accordance with Kautalyas Arthshastra, the lowest rate on capital was set at 15% per annum. Taking
some clue from the Sahukari systems from the time of Arthshastra evolution in India , Sahukars are
basically private bankers. In this system, the borrower knows the Sahukars, who then loan out to
borrowers with very little documentation, but do charge them at a very high interest rate, which were then
compounded at short time interval. Loan process often involves mortgage of property. Due to the lack of
education at that time, the documents were tampered with, and farmers often had to hand over their
properties to Corrupt Sahukars.
With the advent of British Rule in India, Commercial banks have been established. The first bank to be
established in the year 1786 is the Central bank, which was followed by the Hindustan Bank and
Bangladesh Bank .Later, East India Company started a number of their own banks. They include Bank of
Bangal (1809), Bank of Bombay (1840) and Bank of Madras (1843). Although these banks worked as
independent units then, but together they were called as the Presidency Bank. Later the three banks
merged in 1920 to form Imperial Bank of India. The bank's main shareholders were European.
When the Swadeshi movement was on its peak period, a number of banks under management of India got
established. Also, Punjab National Bank in 1894, headquartered in Lahore at that time. Bank of Baroda,
Canara Bank, Indian Bank, Bank of India, Central Bank of India and Bank of Mysore were also set up. In
addition to these many small banks, municipal city level banks also came into being. Since there were no
regulations to guide these banks, as a result many banks failed. The economic growth of these banks was
slow, as the economy was under the siege of British Rule in India.
NATIONALIZATION
Governments intervention into banks working began from the 1930s.Reserve Bank of India Act was
passed in 1934, the Reserve Bank of India was established in 1935, it acted as the Central Bank of India,
and had the right to issue bank notes, and act as a regulator of all banks and their exchange activities.
Before 1967, the Indian Banking System included schedule commercial banks; on them the control over
the Government was very limited. They were free to determine their credit policy had and provided
tailored financial services to their customers. This was the era of Class Indian Banking. Many sectors,
such as agriculture which had less profit, were overlooked for the balanced growth of the country.
3

On December 1967, the Indian Banking witnessed a social control. This was done in order to calibrate the
current banking policy to the Indian economic policy. On December 22, 1967 National Credit Council
was set up to discuss and access the credit policies of India. In order to promote exports, export credit
(discount) scheme was introduced in 1968. In order to tighten its control over the Indian banking industry,
the government established the Banking Committee in January 1969 and the Commission was to take care
of:
1) Bank charges
2) Legislation affecting the Indian banks
3) Indigenous processes
4) Bank formalities
5) Non-bank financial intermediaries
On 19th July 1969, in the Indian banking system, 14 major scheduled commercial banks with deposits
over fifty crore rupees were nationalized. As a result, mass banking period started. In the year, 1970 SLR
rate increased from 25 percentage points to 28 percentage points, and non-compliance fines of CRR and
SLR was started which helped RBI to control commercial banks. Six banks were nationalized on April
15, 1980, in order to further control the height of the economy.
By the end of 1990 nearly 80 percent of the banking sector came under government control. In this
planned economic development came in needs of huge development expenditures. This expenditure was
met by automatic monetization of the fiscal deficit. The development focused on mainly sectors like
agriculture, retail trade, small business, transport, and small scale industry.
There was another side of Nationalization which caused the deterioration of the customer relationship with the
bankers. There was no healthy competition among the banks in India. Administered by the complex structure of
the then prevailing interest rates, were guided more by social priorities, requiring cross-subsidies to maintain
commercial viability institutions. This distorted the interest rate mechanism and has also been a factor of
deterioration to the development of the financial markets. These were all signals of 'financial repression' in the
Indian system then.
LIBERALIZATION
Indian Economy faced a huge shame, when it was compelled to pledge its gold reserves in order to avoid a
balance of payments crisis. Narasimha Committee was set up for banking reform proposals. Based on the
committees report, reduction in base rates of CRR and SLR was done in 1991. SLR has gradually decreased
from a peak of 38.5% to 25%. The CRR was reduced from 15 % in 1989 to 1992 of 4.5% in 2003.
There were some structural changes in the system. Founded in 1994, the Board of financial supervision
(BFS), was set up to exercise powers in relation to banking companies, financial institutions and nonbanking companies. It was constituted to develop regulation and supervision in Banks. On some similar
lines, the board for regulation and supervision of payment and settlement systems (BPSS) provides
regulatory and supervisory policies for all types of payment and settlement systems, existing and future
systems, and sets criteria for membership of these systems.
4

Banking was open to private players in 1993, with private players been allowed to invest up to 49%in the
public sector banks of India. Diversified ownership, while retaining the public sector character of these
banks has led to greater market responsibility; improve efficiency, without losing the confidence and
security of the public. Since 1993, 12 private banks have been established.
With the increase of foreign direct investment limit banking 74% , it has attracted many foreign investors.
The main shareholders in ICICI and HDFC Banks are the foreign investors. With large amounts of foreign
investment and foreign management architecture to Indian banking industry, it has flourished over the
years. These private banks began giving international standards of service. Suddenly, the Indian urban
landscape was filled with ATMs.

THE POST 2000 CHANGES

In order to overcome the competition that the private players faced from the public sector banks, Private
Banks started having structural changes. State Bank of India, the largest public sector banks business
process reengineering. Business Process Reengineering (BPR) team was set up in June 2003 having
consultants as McKinsey & Company. BPRs basic objective was to create an operating system
architecture that will help the banking industry with the international standards of service delivery. The
project objective was defined as to improve customer satisfaction and convenience, make time for branch
managers and branch staff to focus on sales and marketing, and streamline the processes.
Other banks were also not too far behind in all this. In order to develop better employees, many banks
launched a Voluntary Retirement Scheme (VRS), making less efficient manpower in the banking system
to go away. Many new services were added to the Indian banking system. DEMAT accounts and
insurance services are a boon for both the customers and the bankers more.

IMPORTANT PARAMETERS IN THE BANKING INDUSTRY

ASSET QUALITY
5

Appreciation/ Depreciation of the banks assets are dependent on various and different market conditions.
Asset quality is said to have a direct impact on the performance of banks. The quality of assets in
particular loan assets and investments will depend on the bank's risk management system to a large
extent. In order to improve the profitability of the bank it loans out a lot so as to earn interest from the
lending. The nature and risks involved with each loan varies. Therefore, to measure the quality of assets,
it is necessary to look at the bank's non-performing assets. Bank's asset quality parameters are described
as:
1. Gross NPA to Advances
Through Gross NPA one can arrive at the total nonperforming assets in a year, as the provisions
are not reduced from it, it gives us the important information on how the assets have been
performing of a Bank in a given year. It can be calculated as given below:= Gross NPA / Total Advances
2. Net NPA to Advances
The ratio presents the information on the performance of total assets plus the provisions also. Lot
of banks that are basically operating has huge provisions for the banks Non-Performing Assets. It
is calculated from the formulae given below:= Net NPA/ Total Advances
MANAGEMENT
Company's key management of operations of banks plays a very crucial role. Performance of the
other five CAMELS components will depend on the vision, ability, agility, integrity and competence
of the bank's management. Some of the management efficiency parameters are as below:1. Advances to Deposit Ratio
The ratio shows us the amount of deposits that has been given as advances to others. The
advances are important in respect to earning profits for the bank and also service the interest that
is being paid to the deposits. It can be found out using the formulae that is given below:
= Total Advances/ Total Deposits
2. Loan per unit Spent
The ratio shows us the generated loan amount by the bank after spending a unit price on the
operational activities by the bank. A good banks management will basically focus on generating
as many creditors as it can with spending very less on the banks operational activities. It is
calculated using the given formulae:
= Term Loan/ Operating Expense

3.

Profit per Employee

The ratio depicts the average profit that is given per employee in the bank. An efficient
management would always motivate workers to gain profit for the bank.
6

EARNINGS
The main and final goal of any financial institution is to improve its bottom line and bring the profits to
its stakeholders. In addition, it also helps support organizations present and future operations. Banks must
earn a reasonable profit to support asset growth, establish adequate reserves, and increase shareholders
value. Good profit performance will inspire depositors, investors, creditor and the public in good faith
.The parameters are as below:1. ROAA (Return of Average Assets)
Depicts the amount of profits or gain, a bank can make using the its assets. It is a very useful tool
to assess the profitability or the gain derived from a firms precious assets. Commonly used by
banks and other financial institutions to measure their performance.
ROAA is derived at the end of the periods, hence does not depict any highs/lows but is merely an
average of the period.
2. Interest Income to Total Income
Banks core activity is to make provision for credit, on which it would earn an interest. The most
vital and important income that a bank may have is an interest income. The interest to total
income would depict the total interest earned on the given total income of the bank.
It can be calculated using the given formulae:= Interest Income/ Total Income
3. Earnings per Share
Person that is investing in any company would wish to get a good return out of the investment he
has made. Earnings per share show the profit a common stock holder can earn. It can also be
defined as the portion of the companys profit that has been assigned to each of the outstanding
share of common stock.
LIQUIDITY
In order to meet the customers demand; the depositors and creditors, the banks and other financial
institutions must maintain high liquidity in their assets. There is an effective mechanism called as the
management of assets and liabilities. It minimizes the mismatches in maturity that occurs between assets
and liabilities, and also income in a given period. Bank liquidity indicators used to determine the required
liquidity of a bank are as follow:-

1. Credit Deposit Ratio

The ratio gives us the information on the amount of the banks deposits that are given as credits
2. Cash Deposit Ratio
Cash that is liquid directly depicts to the bank's liquidity picture of all assets. But a lot of cash in the
system can be harmful for the bank's profit as well.
7

INDUSTRY

ANALYSIS

INDUSTRIAL DATA
In the current fiscal year is estimated 07-14 US $ 1.31 trillion banking deposits 19.7% CAGR.
Deposits increased due to the growth in the disposable income, increasing savings. Banking
system has improved due to improve the bank's technology, and banking freedom and nonmetropolitan areas continue to expand in the past few years, in order to promote the
improvement of the government's efforts. July 2013, the Reserve Bank to ease its branch
licensing policy; (meet certain financial criteria), allowing banks to set up branches -2 hierarchy
to 6 center is not the RBI's prior approval. Meanwhile, India's banking sector, which is to
maintain public confidence in the past few years, despite the turmoil in global stability.
9

Growth in Deposits (USD Billion)

1400
1200

1182

1170

FY 11

FY 12

1274

1312

FY 13

FY 14

1030

1000
822
800
600

763

665
489

400
200
0
FY 06

FY 07

FY 08

FY 09

FY 10

Source: Reserve Bank of India (RBI), Aranca Research

In addition to deposit assets expansion has taken place in the banking industry. The total
banking assets during USD1.7 one trillion yuan increase of 11.5%, which accounted for the
public sector banks. Assets of the public sector banks, which account for 72.7 per cent of the
total banking asset, grew at an average of 73.7 per cent. Private sector expanded at an CAGR* of
14.7 percent, while foreign banks posted a growth of 7.6 percent .Corporate demand for bank
loans have grown due to the continued infrastructure investments, and due to other policy
decisions such as reducing oil subsidies, issuing of telecom spectrum licenses and the proposed
abolition of penalty on loan prepayment.

10

Total Banking Sector Assets (USD Million)

2000
1800
1600
1400
1200
1000
800
600
400
200
0

1577

1736

1763

FY 12

FY 13

1271

FY 10

FY 11

Source: Reserve Bank of India (RBI), Aranca Research

The Indian Banking sector has seen a strong growth in the interest income in the past years. In
the public sector bank, interest income has accounted for more than 73.1%. 0verall interest
income for public sector banks has been increased to 15.4 % compound annual growth rate
during FY 09-13, the interest income for the entire sector has been at a rate of 14.4 % CAGR
during FY 09-13.

Interest Income growth in Indian Banking Sector

(USD billion)
100

89.3

90
76.4

80
67.1

70
60

57.6Public Banks

Private Banks

Foreign Banks

50
40
30
20

6.4

10

24.7

20.2

18.2

17.9

6.7

5.9

5.8

0
FY 09

FY 10

FY 11

11

FY 12

Source: Reserve Bank of India (RBI), Aranca Research

The net interest margin of the banking sector continues to remain strong. NIM for thr scheduled
commercial banks surged from 2.5% in FY 2010 to 2.8% in FY 2013 after the financial crisis has
improved. Foreign banks, State Bank of India & its associates as well as private sector banks
posted higher NIM at 3.9, 3.0 and 3.2 per cent, respectively in FY13 .Foreign and private banks
compare favorably to public banks, primarily due to higher income per employee in FY13, and
operating efficiency from use of technology.

Net interest margin across sector (FY13)

4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%

3.90%
3.00%

2.60%

2.40%

Source: Indian Banks Association, Aranca Research

12

3.20%

Net interest margins growth (FY13)

3.00%
2.91%
2.90%

2.90%
2.79%

2.80%
2.70%

2.63%

2.58%
2.60%

2.54%

2.50%
2.40%
2.30%
FY 08

FY 09

FY 10

FY 11

FY 12

FY 13

Source: Indian Banks Association, Aranca Research.

Indian banking sector enjoys a healthy Net Interest Margins (NIM) compared with global peers
HDFC leads the large banks with a NIM of over 4.4 per cent .Prominent Chinese banks have
NIMs between 2-3 percent, significantly lower than Indian peers. Despite virtually zero cost
funds, the banks in the US have NIMs comparable to Indian peers.

Net Interest Margins (FY14)

5.00%
4.50%

4.40%

4.00%

3.50%

3.30%

3.50%

3.80%

3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
HDFC

ICICI

SBI

13

Axis

Source: Company reports, Aranca Research

Loan-to-Deposit ratio for banks across sectors has increased over the years. Private and foreign
banks have posted high return on assets than nationalised and public banks.

Return on Assets
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%

163%
153%
143%
89%88%
79%

103%
88%
74%

96%88%
78%

FY 11
FY 12
FY 13

Loan to Deposit Ratio

86%
84%
82%
80%
78%
76%
74%
72%
70%
68%
66%

85%
82%
80%
75%75%
73%

78%78%
76%

82%82%
80%
FY 11
FY 12
FY 13

Source: Reserve Bank of India (RBI), Aranca Research

The Private Banks in India are aggressively increasing their presence. This can be found out
through the table below. Share of public sector banks in total deposits have also declined from
14

78.2 per cent in FY05 to 77.3 per cent in FY13.This is largely due to the fact that private banks
are rapidly capturing share in savings deposit.

Market share of bank groups by deposits

120.00%
100.00%
80.00%

4.70%

3.90%

17.10%

18.80%

Foreign Banks
Private Banks

60.00%
40.00%

Public Banks
78.20%

77.30%

FY 05

FY 13

20.00%
0.00%

Source: IBA statistics, Aranca Research

Despite the impact of the financial crisis, the net non-performing assets of the banking sector in
India (NPA) have declined in the past few years. While net NPA levels from fiscal year 2012 to
fiscal year 2013 has increased from 1.28% to 1.68%, private banks in the year 2013 have been
maintained a ratio of 0.52 percent compared to 0.46 percent in the year 2012.Private sector
banks had maintained a 2 % minimum of the total non-performing assets to the total advances.

15

Gross NPAs to Gross advances ( FY 13)

4.50%

4.10%

4.00%
3.50%
2.90%

3.00%
2.50%

2.00%

2.00%
1.50%
1.00%
0.50%
0.00%
Public Banks

Private Banks

Foreign Banks

Net NPA Levels

2.00%
1.50%

1.68%

1.30%
1.28%
1.00%
1.05% 0.97%
1.02% 1.11%
1.00% 1.05% 1.12%
0.50%
0.56% 0.46% 0.52%
0.00%
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13

Private Banks NPA

Overall NPA level

Source: Reserve Bank of India (RBI), Aranca Research

PORTERS FIVE FORCES MODEL

Banks in India can be divided into two kinds scheduled banks and non-scheduled banks.
Scheduled banks constitute the cooperative banks and commercial banks. There are 88
commercial banks that are scheduled. Among them, 27 banks are state-owned banks; the
government has a major stake. There are 31 private sector banks and 38 foreign sector banks in
India. Commercial banks in India have an extensive network of branches. Nearly 78 % of
Industrys banking assets are with the public sector banks.
Porter's five forces:

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A) The bargaining power of suppliers: It is high time, when there is emergence of tight liquidity.
As this is a service industry, human capital is one of the most important supplies to the industry.
Public sector banks have a huge Indian trade union that is having a very high bargaining power.
Establishing a well-functioning capital market in India has given people, a choice, savings,
investments, rather than savings. Moreover, with interest rates deregulations, the supplier
bargaining power has increased significantly.
B) The customer's bargaining power: With a large number of banks operating in India with good
credit borrowers has a high bargaining power. Development of capital markets in India has given
more choice , funding sources in Indian companies.
C) Threat of product substitues: With the development of well-functioning capital markets in
India, investors have the opportunity to direct their savings into the investment opportunities,
they decided to wait. Even corporate bonds have to raise capital through a public offering, the
bank's ratio of debt taken from the company's choice.
D) The threat of new entrants: After the changes supervision of banks, many new private foreign
banks are coming up are considering entering India. RBI is coming now with non-bank financial
institutions, "Who wants to start a new approach to commercial banking.
E) Competitive Rivalry: The high competition in the banking sector, due to the public sector,
private sector banks and non-bank financial companies with the presence of foreign banks.

COMPANY ANALYSIS

17

For the analysis of the Banking Industry, six banks are selected. The selection of
these companies was entirely done on the basis for these companies unique pattern
of holding. Shareholders in a bank are divided into seven groups. There are:
Government of India and Reserve Bank of India, Indian Financial Institutions, Foreign
Corporates, Indian Corporates, Individual Indian Residents, and Foreign Residents.

SHAREHOLDING PATTERN
The main banks selected for the analysis are:-

18

Axis Bank

Canara Bank

HDFC Bank

State Bank of
India

Government and RBI both are the main shareholders of Canara Bank, therefore it can be said that the
bank is more or less run by the Indian Government.

Source: RBI publications & Company Websites

ICICI Bank can be said to be run by foreign financial institutions, because they have nearly 66
percent stake in the bank. In case of Axis Bank, there is a collaboration of Indian and foreign
financial institutions. They each have a 46% and 42% stake in the bank. HDFC Bank can be said to
be a bank that is run majorly by Corporates. Indian and foreign corporates are a major shareholder of
this bank. Yes Bank is different in a manner that a 25% of its shares are held by Indian individuals.
Standard Chartered is a foreign bank operating in India.
CAPITAL ADEQUACY RATIO

19

CRAR
20
15
CRAR ( percentage)

Canara Bank
Axis Bank

10

HDFC Bank
SBI

5
0
2011

2012

2013

2014

YearS

Source: RBI publications & Company Websites

CRAR which is basically the measure of a banks capital is a very important analysis tool. Here
as it can be seen, that the private banks i.e. Axis and HDFC have a higher CRAR ratio as
compared to the Government operated banks.
The CRAR in 2014 was highest for HDFC bank standing at 16.07% followed by Axis bank.
CRAR for SBI stood at 12.96% in 2014 , same for Canara Bank was 11.14%.
The main reason that the banks have been maintaining high CRAR is to safeguard themselves
from any kind of financial shocks. In case of Canara bank, there can be seen a fall in the CRAR
from 2011 to 2014, the fall is of 4.24 % points.
DEBT-EQUITY RATIO

DEBT-EQUITY RATIO
1.5

Canara Bank
Axis Bank

1
Debt Equity Ratio

HDFC Bank
0.5
0
2011

SBI
2012

2013
Years

Source: RBI publications & Company Websites

20

2014

Indian Banks have an average debt equity ratio of 1. Canara Bank has a very less debt to equity
ratio of 0.5 in 2014. This is the lowest among the banks that are taken in this analysis. Hence,
Canara Bank can raise more capital when required as the ratio is way below 1.
In 2014, as can be seen the average of D/E Ratio of the banks taken for the analysis is 0.6, which
tells us the industry and the given banks have maintained a good D/E Ratio.

CASH TO DEPOSIT RATIO

Cash to Deposit Ratio

12
10
Canara Bank

8
CASH TO DEPOSIT RATIO

Axis Bank

HDFC Bank

SBI

2
0
2011

2012

2013

2014

YEARS

Source: RBI publications & Company Websites

Cash to Deposit ratio in 2014 can be seen highest for HDFC Bank that is 6.02 percentage points,
This means that the bank is keeping enough cash on hand. The lowest can be seen for Canara
Bank which is remarkably low at 4.84 percentage points.
CREDIT DEPOSIT RATIO
Due to the boom in the economy, banks in India have increased their Credit to Deposit ratio to
approximately 70 percentage points. In 2014, SBI has the highest Credit to Deposit ratios when
compared with other banks, the Credit to Deposit ratio stands at 86.64 percentage points. Axis
Bank enjoys a high Credit Deposit ratio of 80.03 percentage points, also HDFC bank has a credit
deposit ratio of 85.9 percentage points in 2014. All the banks experience an upward trend in the
ratio.
Canara Bank has somewhat a stagnant Credit to Deposit ratio standing at 69.95%, which is only
2.28% up from the year 2011 to 2014.

21

Credit to Deposit Ratio

CREDIT TO DEPOSIT RATIO

100
90
80
70
60
50
40
30
20
10
0
2011

Canara Bank
Axis Bank
HDFC Bank
SBI

2012

2013

2014

YEARS

Source: RBI publications & Company Websites

EARNINGS PER SHARE (EPS)

EPS
250
200
Canara Bank

150
Earning per share (in Rupees)

Axis Bank
HDFC Bank

100

SBI

50
0
2011

2012

2013

YEARS

Source: RBI publications & Company Websites

22

2014

As can be seen,that the Earning per share of HDFC bank is the lowest among its peers in the
given figure above. State Bank of India (SBI) enjoys a high earnings per share when compared to
its peers. The EPS of SBI is at Rs 145.88, whereas the same for HDFC bank is Rs 35.34 in 2014.
There has been a consistent rise in the EPS of Axis bank from 2011 to 2014, the rise being
approximately 60.3 percentage points. This shows that the bank has been doing well in the past
years.
Also, In case of Canara Bank, there has been a drop in the EPS from 2011 to 2014,the drop being
of 41.83 percentage points from 2011 to 2014.

INTEREST INCOME TO TOTAL INCOME

Interest Income to Total Income

100
80
in %age

Canara Bank

60

Axis Bank

40

HDFC Bank
SBI

20
0
2011

2012

2013

2014

YEARS

Source: RBI publications & Company Websites

Interest Income is one of the most important sources of revenue for the Indian Banks, although
they are diversifying into other operations. As can be seen that the weightage interest income
holds is about 70-80 % in nearly all the banks
Axis bank has a comparatively lower interest income as it forays into many other operations.
Highest can be seen for HDFC bank.

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ROAA

ROAA
2.00%
1.50%
in %age

Canara Bank
Axis Bank

1.00%

HDFC Bank
SBI

0.50%
0.00%
2011

2012

2013

2014

YEARS

Source: RBI publications & Company Websites

The return on average assets of AXIS and HDFC banks are high as compared to SBI and Canara
Banks. The return on Average Assets for HDFC in 2014 is around 1.90 which is pretty high. The
ROAA is low for SBI, due to the size of the assets it has which is tremendous. The profitability is
not able to match the huge assets and the nationwide presence that the bank has. The ROAA
currently in 2014 is around 0.60%.
NET NPA RATIO

Net NPA
3
2.5

Canara Bank

2
RATIO OF NPA

Axis Bank

1.5

HDFC Bank

SBI

0.5
0
2011

2012

2013
YEARS

Source: RBI publications & Company Websites

24

2014

This ratio is used to judge the overall quality of a Banks Loan book.Net NPAs are derived by
deducting cumulative provision balance at the end of a period from the gross NPAs. As, can be
seen the ratio seems to be highest for SBI at 2.6, this shows the bad quality of loans that the bank
has given. With SBI , another bank with alarmingly high NPAs is Canara Bank.
Ratio comes out to be lowest for HDFC bank, which is a good thing for the bank.
PROFIT PER EMPLOYEE

PROFIT PER EMPLOYEE

50000

IN 1000'S

40000

Canara Bank

30000

Axis Bank

20000

HDFC Bank

10000

SBI

0
2011

2012

2013

2014

YEARS

Source: RBI publications & Company Websites

Canara bank being a public sector bank, has a very low profit per employee ratio, as the public sector
is very resistive to any kind of changes. HDFC bank leads the race with the profit per employee
being the highest. Also, SBI has a low profit per employee ratio as the bank is a Government bank,
and there are no threats as such ,if inefficiency occurs at the workplace.

25

MAIN FINDINGS
1. Taking into note that CRAR is one of the most important indicators of the Banking
Industry. It was found out that presently all the banks are determined to maintain a high
CRAR, so as to withstand any kind of a financial shock that can hit the economy. Only,
Canara Bank saw a falling pattern with this respect.
2. The Banks that were taking in the survey had a good Debt- Equity Ratio. All the banks
have maintained a D/E ratio that is in line with the Industry Average.
3.

In case of Cash to deposit, Canara Bank is observed to keep a low cash to deposit ratio.
Also, SBI has comparatively Lower cash to Deposit Ratio.

4. In case of Credit to Deposit ratio, all the banks are seen to have a high ratio crossing
almost 70% points. SBI has the highest ratio in this regard. This high ratio can be
attributed to the prospective boom that the economy might observe in the coming years.
5. Earnings Per Share (EPS) , that determine profitability of a bank, was found to be highest
for SBI. HDFC in the past years has observed a rapid fall in the EPS. The EPS of Axis
Bank is found to be increasing over the years, and has not declined in the recent years,
this states that the bank is doing well financially.
6. Interest Income continues be a very vital source of revenue for the Banking Industry in
India. Although banks are now venturing into new operations, but interest income
continues be a source of major revenues for the Banks.
7. Return on Average Assets (ROAA) , an indicator of how the assets of a bank are being
utilized, and whether enough profits are generated from the banks assets. This ratio is
less for SBI , due to the presence of SBI throughout India, which can explain the scale of
operations that the bank handles. Hence, the profits do not cover the extent of the assets.
8. Net Non-Performing Assets Ratio depicts the quality of the loan book. The Net NPA is
found to be highest for State Bank of India and Canara Bank, this shows that the bank
needs to get rid of the bad loans that are there on its book. This ratio came out to be less
for the private banks, showing that the Private sector banks are very vigilant about the
loans that they give out , and check the creditworthiness of the creditor properly.

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9. Profit Per Employee for SBI and Canara Banks came out to be the least, as these are
public sector banks , and in this sector changes in terms of employment do not happen.
Efficiency is the biggest problem with the public sector. In case of private banks, the
scene is completely opposite; the profit pe employee in case of HDFC bank is around Rs
40000.

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CONCLUSION

The Banking Industry in India has gone through a lot of changes and has witnessed a number
of stages.
The current growth in the Banking Industry in India is attributed to a lot of financial reforms
that the Government has undertaken to improve the Banking Industry.

There is sufficient amount of capital today with the Banks, so as to protect themselves from
the risk-weighted Assets.

Banking Companies are witnessing an increase in their deposits currently as the Gross
domestic Product as market price continues to rise.

The Non-Performing Assets Ratio ( NPA) of the banks in India is way below the level that
is set by the Reserve bank of India and has been showing a declining trend.

The shareholder pattern is different across various banks in India, as can be seen due to the
differences in the shareholding pattern in case of private, public and Nationalized banks.

The analysis of the industry showed a rise in the total Income, liabilities, earnings, deposits,
bank index, number of bank offices and the employees.
The paper depicts that the entire industry is going through an expansion phase, the main
reasons of the growth of the banking sector are Nationalisation and Financial sector Reforms.

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REFERENCES
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

RBI Handbook - www.rbi.com

Annual Report HDFC 2011-2014
Annual Report Canara Bank 2011-2014
Annual Report State Bank of India ( SBI) 2011-2014
Annual Report Axis Bank 2011-2014
Money Control Website : www.moneycontrol.com
www.indiainfoline.com
www.tradingeconomies.com
Reserve Bank Of India- The Banking Sector in India: Emerging Issues and Challenge
Prasanna Chandra Investment Analysis and Portfolio Management

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