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INTERCONTINENTAL JOURNAL OF FINANCE RESEARCH REVIEW
ISSN:2321-0354 - ONLINE ISSN:2347-1654 - PRINT - IMPACT FACTOR:1.552

VOLUME 4, ISSUE 11, NOVEMBER 2016
COMPARATIVE ANALYSIS FOR JUDGING THE SHORT TERM
SOLVENCY AND PROFITABILITY IN PUBLIC AND PRIVATE
SECTOR BANKS.
Dr. RAM GARG1 GARIMA SHARMA2
1
Associate Professor, School of Management ,Poornima University, Jaipur
2
Research Scholar ,School of Management, Poornima University, Jaipur
ABSTRACT
Liquidity is concerned with short-term financial strength of a company. The term liquidity
implies conversion of assets into cash without much loss. Liquidity ratios measure a company's ability
to pay debt obligations and its margin of safety through the calculation of metrics including
the current ratio, quick ratio Profitability is the ability of a business to earn profit for its owners. It
has become very mandatory to study and to make a comparative analysis of services of public sector
banks and private sector banks.This paper give a review on the comparative performance of leading
public and private sector banks. This paper evaluates the changes in the profitability and solvency
position of banks by using various risk indicators for highlighting risk profile of Indian Banking
entities. The Paper evaluates in detail the risk profile of two public and private sector banks. The
objective of this study was profitability ratios show a company's overall efficiency and performance
of different private and public sectors banks in India .The various profitability ratios like current ratio,
quick ratio, net profit margin, return on net worth and return on assets are used. Ratio analysis is an
important and widely used technique of financial management. As a tool of financial analysis, ratios
are of crucial significance. Profitability ratios provide different useful insights into the financial health
and performance of a company. The present study analyzes the liquidity and profitability of financial
performance of private and public banks in India. The study is an attempt to portray some objective
conclusions on the diverse aspects of liquidity of selected banks in India. The two private (HDFC and
ICICI) and two public sector bank (SBI and Union bank) in India are selected for the study.
Key words- Liquidity, Profitability, financial analysis, current ratio, net profit,
OBJECTIVE OF THE STUDY
To determine the overall quantum of liquidity and profitability maintained by the selected public
and private banks in India and to compare the liquidity and profitability of all the banks.
To work out the relative position (rank method) of the sample banks in order of liquidity and
profitability maintained by them.
To compare the financial performance of private and public sector banks.
To offer findings and suggestions to enhance the financial performance of selected private and
public banks.
To highlight the Financial Growth of Private bank(HDFC and ICICI) and Public bank(SBI and
Union bank)
NEEDS AND SCOPE OF THE STUDY

The study endeavors to utilize techniques to explore the possibilities of reduction in different aspects
of the private and public bank, thereby maximizing their profitability, as this aspect has not received due
attention in previous research work. This study will also help to understand the financial performance of
both public sector and private sector. The study shows the role of profitability and liquidity position of
www.icmrr.org 9 icmrrjournal@gmail.com
private and public sectors banks in India. A properly conducted profitability analysis provides invaluable
evidence concerning the earnings potential of a company and the effectiveness of management. This study
will throw light on the different aspects where the public sector and private sector banks excel and how the
banks will provide an opportunity in balancing its activities to achieve the best performance. Therefore, it
is considered appropriate to focus on this aspect in this study.
REVIEW LITERATURE
Pai (2006) in his paper entitled Trends in the Indian Banking Industry: Analyses of Inter-regional
Trends in Deposits and Credits reveals that the performance of banks, as far as deposits and credits
are concerned at two point of time, has been largely similar. It was also observed that private
scheduled commercial banks had shown superior performance. This would challenge the pre-eminent
position of the public sector banks. The regions studied also reveal that their growths on these
parameters, at the two points in time, have been comparable between themselves.
Saho and Singh (2007) this paper attempts to examine, the performance trends of the Indian
commercial banks for period 1997-98 to 2004-05 empirical findings are indicative in many ways. The
selected public sector banks have performed well on the sources of growth rate financial efficiency
during the study period. The old private sector banks and new private sector banks play a vital role in
marketing of new type of deposits and advances schemes.
Harish Kumar Singla (2008) it is concerned with examining the profitability position of the selected
sixteen banks (BANKEX-based) for a period of five years (2000-01 to 2006-2007). The study reveals
that the profitability position was reasonable during the period of study when compared with the
previous years. Return on Investment proved that the overall profitability and the position of selected
banks were sustained at a moderate rate. From the study of the financial performance analysis of
selected banks, it can be concluded that the financial positions of banks is reasonable. Debt equity
ratio is maintained at an adequate level throughout and NPAs also witnessed a decline during the
study period. The ROI remains at a very low position, which is a worrying factor. We can conclude
that the banking sector, which is going through major reforms, is one of the emerging sectors and will
grow at a sustained rate over a period of time Profitability, efficiency and liquidity of the co-operative
banks.
Sinha et al. (2009) in their paper entitled Bank Ownership and Deposit Mobilization: A Non-
parametric Approach compare the performance of 40 Indian commercial banks using Window
Analysis, considering deposit mobilizations as the output indicator. The results obtained from the
study indicate that mean technical efficiency of the in-samples banks exhibited a declining trend for
the period. The decline in mean technical efficiency was due to a greater divergence in performance
compared to the frontier. Among the in- samples banks, the private sector banks performed better than
the public sector banks.
Junxun Dai et.al, (2009) has presented a comparative analysis of matched sample, univariate and
multivariate methods by using variety of empirical methods. Further author take a sample case study
in which author focus on corporate governance character of 437 banks with an appropriate proxy.
Author explains the two measures of banks prior performance, a q-ratio and return on assets (ROA).
q is the ratio of the market value to the replacement cost of a firms asset, if q is interpreted as the
ratio of the banks value as an ongoing concern to its liquidation value, q = (total assets market value
of equity book value of equity)/(total assets market value of investment securities and book value of
investment securities). Government banks agree to merger systematically benefits, targets,
shareholders and outside investors. Author fined a greater frequency of outside block holders in the
banks that become target, for large non-investors, shareholders who encourage banks to act in
shareholders best interest.
Verma et al. (2011) in their paper entitled Performance of Scheduled commercial banks in India: An
application of DEA analyze the efficiency of 88 SCBs with the data set ranging from the year 1998-
99 to 2007-08. The results indicate that the public sector and foreign banks needed to take steps to
reduce the expenses and improve the output at the given input level because they had failed to acquire
full efficiency score in six and five years respectively, out of the ten years under study.
RESEARCH SAMPLE DESIGN
The current study has been carried out by taking a sample of private (HDFC and ICICI) and
public sector bank (SBI and Union bank) in India. The banks are selected on the bases on their high
profit margin. The relevant data have been mainly gathered from the annual reports of the selected
banks. The other sources of information are trade journals, newspaper and other published
Information. The study covers a period of 5 years, from 2011-12 to 2015-16.
RESEARCH METHODOLOGY
Banking sector in India is considered one of the fastest growing financial institutions in the
world. Using purposive sample, two private and two public sector banks were selected as the sample
for bank. The sample selected banks were considered one of the successful units in the banking sector.
The technique of ratio analysis has also been used to draw inferences regarding the liquidity and
profitability position of the banks understudy, Liquidity ratios, viz; Current Ratio (CR) and Quick
Ratio (QR) and profitability viz; Net profit margin, Return on net worth, Return on assets have been
calculated to evaluate the short term financial strength of the banks. Descriptive Research Design is
used for the study and it is essentially a fact-finding approach. It aims to explain the characteristics of
an individual or group characteristics and to determine the frequency with the same things occurs.
Hypotheses Testing
Hypotheses testing enable a decision maker to draw inferences more precisely. Testing of
hypotheses is an essential part of the study for comparative analysis because it enables the researchers
to confidently examine the accuracy of their results. Several hypotheses testing have been formulated
and tested statistically to draw conclusions on the liquidity and profitability position of the selected
banks. The following Hypotheses have been set and tested in the present study.
H0: There is no significant difference between the diverse liquidity aspects of the selected private
and public banks
H1: There is a significant difference between the diverse liquidity aspects of the selected private
and public banks.
H0: There is no significant difference between the diverse profitability aspects of the selected
private and public banks
H1: There is a significant difference between the diverse profitability aspects of the selected
private and public banks.
Empirical Study
A proper balance between the two contradictory requirements, that is liquidity and profitability, is
required for efficient financial management. The Importance of adequate liquidity in the sense of the
ability of the banks to meet short term obligations when they become due for payment can hardly be
overstressed. In fact, Liquidity is a prerequisite for the very survival of a bank. The term profitability
means the profit earning capacity of any business activity. Thus, profit earning may be judged on the
volume of profit margin of any activity and is calculated by subtracting costs from the total revenue
accruing to a firm during a particular period.
Table: 1 Overall Calculation of Mean Liquidity and Profitability of Selected Private and Public
Banks
Company CR QR Net profit Return on net Return on
margin worth assets
HDFC 0.06 9.95 (L) 20.04 17.74 (H) 199.16 (L)
ICICI 0.08 (H) 13.46 20.68 (H) 12.33 406.32
SBI 0.04 11.94 9.08 (L) 10.89 927.77 (H)
Union bank 0.02 (L) 37.23 (H) 10.73 10.73 (L) 297.37
Note: - [H] Refers to the highest ratio and [L] refers to the lowest ratio.
Sources- Calculated from the Annual Reports of all the Selected banks, from 2011-12 to
2015-2016 year.
It is clear from Table 1 that the Current Ratio (CR) of ICICI(0.08) is highest, followed by
HDFC (0.06) SBI (0.04) and Union bank(0.02) during the period of study, it is less than 2:1 in
all the selected banks for the study. It is thus, quite clear that the short term liquidity of all the
sample banks is not satisfactory.
It is also clear from Table 1 that the Quick Ratio (QR) in Union bank (37.23) is again highest,
followed by ICICI (13.46) SBI (11.94) and HDFC (9.95) during the period of study. It is less
than 1:1 in all the selected banks for the study. It is thus, quite clear that the short term financial
strength of all the sample banks is not satisfactory.
It is also clear from Table 1 that net profit margin in ICICI (20.68) was highest followed by
HDFC (20.04), SBI (9.08), Union bank (10.73). The ratio of net profit margin is used to examine
profit. Higher Net Profit Ratio indicates the standard performance of the business concern.
It is also clear from Table 1 that the Return on net worth in HDFC (17.74) was highest, ICICI
(12.33), SBI (10.89), Union bank (10.73) followed by during the period of study. This ratio helps
to measure the profit as well as net worth. It is a reward for the assumption of ownership risk.
This ratio indicates the overall performance and effectiveness of the banks.
It is also clear from Table 1 that the Return on assets in SBI (927.77) was highest, ICICI
(406.32), Union bank (297.37), HDFC (199.16) followed by during the period of study.
Ranking of Selected banks
In the paper an attempt has been made to evaluate the financial position of the selected private and
public banks. For this purpose, ranks have been provided on the basis of mean liquidity and
profitability in descending order. Then, all the ranks given to each banks are added and final ranks
have been worked out on the basis of total ranks indicating the relative liquidity of the selected banks.
It is evident from Table 2 that ICICI occupies the first position, followed by HDFC (2 nd Rank), SBI
(3nd Rank) and Union bank (4nd Rank) maintaining their position during the period under reference.
Table 2:- Overall ranking of selected banks on the basis of the

Calculated mean ratios.
Company CR QR Net profit Return on Return on Total Rank
margin net worth assets
HDFC 2 4 2 1 4 13 2
ICICI 1 2 1 2 2 8 1
SBI 3 3 4 3 1 14 3
Union 4 1 3 4 3 15 4
bank
Sources- Calculated from the Annual Reports of all the Selected banks, from 2011-12 to 2015-2016
year.
CONCLUSION AND SUGGESTIONS
It is clear from the above analysis that the current and quick ratios are less than 2:1 and 1:1
respectively. It shows inadequate margin of safety to the creditors on the one hand and shortage
of working capital in the business in the other hand. It is therefore concluded that the short term
financial position of the selected banks is not good. It is concluded that out of private (HDFC
and ICICI) and public sector bank (SBI and Union bank) selected for this study the liquidity
position was comparatively better in ICICI and Union bank. It is suggested that the other banks
should increase investment in current assets as to improve their liquidity position and also to
provide adequate margin of safety to their creditors.
Net profit ratio is used to measure the relationship between net profit (either before or after
taxes) and sales. Net profit margin in ICICI (20.68) was highest followed by HDFC, SBI and
Union bank. Higher Net Profit Ratio indicates the standard performance of the business
concern. The ratio of net profit margin is used to examine profit. The banks need to increases
the income on its invested capital to increases the profit.
Return on net worth in HDFC (17.74) was highest, among ICICI, SBI and Union bank followed
by during the period of study. The overall performance of HDFC bank is good than other banks.
The public banks need more improvement in their efficiency with the help of resources which
have been employed in their banks.
Return on assets in SBI (927.77) was highest in compare with ICICI, Union bank and HDFC
followed by during the period of study.
It is further clear from the ranking of the selected banks that ICICI occupies the first position in
maintaining the liquidity and profitability followed by HDFC with 2 nd rank, SBI with 3nd rank
and Union bank with 4nd ranks. The performance in private banks ICICI is better than HDFC.
In conclusion the selected private banks (HDFC and ICICI) work comparatively better than
public banks (SBI and Union bank) in period of 2011-12 to 2015-16 years.
LIMITATION
The secondary data was taken from the annual reports of the (SBI, Union bank) and (HDFC,
ICICI) Bank. It may be possible that the data shown in the annual reports may be window
dressed which does not show the actual position of the banks.
The company personnel do not reveal the trade secrets and some confidential financial
information.
The study records restricted to a period of 5 years.
Ratio analysis has its own limitations.
Although the time duration of the project is not up to the extent, the collection of full-fledged
data could not be achieved.
Decisions based on these techniques are not completely true and accurate.
The scope of this study is confined to the banking sector only.
SUMMARY
This comparative study of selected private (HDFC and ICICI) and public sector bank (SBI and Union
bank) of India demonstrated the comparative analyses of profitability and liquidity position of banks.
The accounting technique of ratio analysis has been used to establish the relationship between two
items expressed in quantitative form. To compare the private and public banks the profitability and
liquidity aspects are taken in which Current Ratio (CR) and Quick Ratio (QR) ,Net profit margin,
Return on net worth, Return on assets have been calculated to evaluate the short term financial
strength of the banks. This study shows that the private banks are comparatively better than public
banks. The study also offers meaningful suggestions in order to improve the short term solvency of
the banks selected for the study.
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INTERCONTINENTAL JOURNAL OF FINANCE RESEARCH REVIEW

ISSN:2321-0354 - ONLINE ISSN:2347-1654 - PRINT - IMPACT FACTOR:1.552

OBJECTIVE OF THE STUDY

NEEDS AND SCOPE OF THE STUDY

RESEARCH SAMPLE DESIGN

Table 2:- Overall ranking of selected banks on the basis of the

CONCLUSION AND SUGGESTIONS

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