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FINANCIAL PERFORMANCE OF BANKS: A COMPARATIVE

ANALYSIS OF PUBLIC AND PRIVATE SECTOR BANKS

A Synopsis for Partial Fulfillment of


Post-Graduation Diploma in Business Economics

UNDER THE SUPERVISION OF: PRESENTED BY:


DR. RUPALI SATSANGI KANWALJYOT KAUR GANDHI
1801385

DEPARTMENT OF ECONOMICS
FACULTY OF SOCIAL SCIENCE

DAYALBAGH EDUCATIONAL INSTITUTE

AGRA
CONTENTS

1.1 Introduction

1.2 Review of Literature

1.3 Need of the Study

1.4 Objectives

1.5 Research Hypothesis

1.6 Research Methodology

1.7 Limitations
1.1 INTRODUCTION

A good bank is not only the financial heart of the community, but also one with an

obligation of helping in every possible manner to improve the economic conditions

of the common people. . Banks play an important role in the economic

development of every nation. They have control over a large part of the supply of

money in circulation. Through their influence over the volume of bank money,

they can influence in nature and character of production in any country. Economic

development is a dynamic and continuous process. Banks are the main stay of

economic progress of a country, because the economic development highly

depends upon the extent of mobilization of resources and investment and on the

operational efficiency of the various segments (i.e. Trade, Industrial Development,

and Agriculture) of the economy. Thus, in the modern economy, banks have

become a part and parcel of all economic activities in India

The banking sector is that the principal constituent of the financial system, that is

directly connected to the country’s economy. In the present day, commercial

Indian banking industry is split into following categories-(a) public sector banks

(b) private sector banks.

Public Sector Banks: Public sector bank is a bank in which the

government holds a major portion of the shares. Say for example, SBI is
public sector bank, the government holding in this bank is 58.60%.

Similarly PNB is a public sector bank, the government holds a stake of

58.87%. Usually, in public sector banks, government holdings are more

than 50 per cent.

Private Sector Banks: In these banks, most of the equity is owned by

private bodies, corporations, institutions or individuals rather than

government. These banks are managed and controlled by private promoters.

Post-liberalisation in the 1990s, banks such as ICICI, HDFC which got the

license are the new age Private sector banks. They owing to their improved

service offerings give a tough competition to the players in the public sector.

Of the total banking industry in India, Public sector banks constitute 72.9%

share while the rest is covered by private players. In terms of the number of

banks, there are 27 public sector banks whereas 22 private sector banks.

Nowadays both the categories of banks are doing good in the sector by

providing pronounced facilities and services to their customers. But, tough

competition can be seen between the public sector and private sector banks.

Whether, we want to invest our money or want to make a career in banking

sector, due to the ruthless competition, people have to think more than 100

times, before coming down to any one of the two. However, every
individual has certain priorities, and one can easily choose between the two,

by scheduling down their preferences and going for the one, that suits

best.It has become necessary to study and to form a comparative analysis of

performance of public sector Bank and private Sector bank in India.

Therefore, it is most important to decide appropriate parameter at the time of

measuring financial performance of banks. But time period also play a vital role in

terms of selection of financial parameters. The financial parameters that we should

select in 1990 or before must be different than that of the parameters we would

select in 2018-19, as sinceindependent Indian banking is passing through lots of

changes which does not permit us to evaluate on same parameters.

1.2 REVIEW OF LITERATURE

Uppal and Amit (2012) compared the growth balance sheet of all Indian

scheduled commercial banks for the time period of 2008-2011. The study is

concerned with banking industry as a whole and it is further divided into four parts

namely public sector banks, old private sector banks, new private sector banks and

foreign banks. The study takes into consideration each and every parameter of the

balance sheet of these four bank groups. The study concluded that public sector

banks and foreign banks are performing better on both sides of the balance sheet as
compared to the other two bank groups. The study pointed out that the

performance of old private sector banks is most disappointing among the four bank

groups.

Aspal and Malhotra(2013) measured the financialperformance of Indian public

sector banks’ asset by camel model and applying the tests like Anova, f test and

arithmetic test for the data collected for the year 2007-2011. They concluded that

the top two performing banks are bank of Baroda and Andhra bank because of

high capital adequacy and asset quality and the worst performer is united bank of

India because of management ine ciency, low capital adequacy and poor assets

and earning quality. Central bank of India is at last position followed by UCO bank

and bank of Maharashtra.

Vasant Desai, (2013): The performance of a bank can be assessed in there broad

dimension viz. business development, customer service and housekeeping. The

resources that a branch has are manpower, premises, planning, system procedure,

organizational structure and general administration. The efficiency of a branch

would be measured by the extent which it has balanced between three parameters
Gajera&Pithadia (2013) in their article titled “A Comparative Financial Analysis

of Indian Banking Sector In Context of NPA Management” attempt to analyze and

compare the financial performance of private, public and foreign sector banks.

Devanadhen (2013) studied the performance evaluation of large-size commercial

banks in India. The study covers 14 public sector and 3 private sector banks under

the CAMELS model for the period from 2000- 2011. The study found that the

Andhra Bank secured the first place followed by Corporation Bank and HDFC

Bank. Axis Bank and ICICI Bank were ranked 6th and 14th respectively. Central

Bank of India stood last in the overall performance and SBI (largest public sector

bank) exhibited better performance than ICICI Bank (largest private sector bank)

Rao (2013) examined the productivity, cost and profitability performance of

Traditional banks vis a vis Modern banks for the period from 2005-2011. The

study classified SBI group, nationalised group and old private sector banks group

as traditional banks and new private sector banks and foreign banks as modern

banks. A total number of 12 ratios have been selected with a minimum of three and

maximum of five in each category to examine the extent of gap between the

modern and traditional banks. The study concludes that the gap between the

modern and traditional banks significantly reduced during the study period.
GarimaChoudhary (2014): used network of banks, productivity of banks, capital

adequacy ratio, growth of banks as an indicator of measuring banks performance.

The study related that private sector banks have expanded faster than public sector

banks. The capital adequacy of new private sector banks is above RBI minimum

requirements. However the assets base of public sector banks raise faster than

private sector banks.

1.3 NEED OF THE STUDY

Significance of performance evaluation in an organization, for sustainable growth

and development, has been recognized since long. This calls for a system that first

measures and evaluates the performance, and then brings out the strengths and

weaknesses of the organization for the purpose of further improvement. Efficient

performance evaluation system encompasses all aspects of an organization. With

the advances in computational tools, performance evaluation systems have evolved

over a period of time from single-aspect systems to more comprehensive systems

covering all aspects of an organization. Moreover, almost every industry, that

envisages importance of evaluation, can adopt many methods to evaluate the

performance. It prove to be better for performance measurement, evaluation and


strategic planning for future growth and development of the Indian banks in the

light of changing requirements of this sector so to analyze the comparative

financial performance of banks for the financial periods 2018-19. By examining

the financial parameters such asas capital adequacy ratios, debt coverage

parameters, management efficiency parameters and profitability parameters, a

comparative analysis between public and private sector can be made. This will help

the banking industry for the improvement or change in their business model.

1.4 OBJECTIVES

The following are the objectives of the research:-

 To study and make a comparison between the financial performance of

public and private sectorbanks.

 To recognize the parameters in which public and private sector banks are

performing.

 To identify the factors (reason) responsible for financial performance of

private/public sector banks.


1.5RESEARCH HYPOTHESIS

H 0 : There is no significant difference between financial recital of public and


private sector banks.

1.6 RESEARCH METHODOLOGY

The study is based on secondary data that will be collected from annual reports of

the respective banks along with magazines, journals, documents and other

published information as well as through internet.

The present study will be analyzed by using Camel Model. It is a tool of

performance evaluation of banks over years. The financial performance of banks

are measured on basis of 5 important performance rating attributes such as capital

adequacy, assets quality, management, earnings and liquidity.

Tenure of the Study: The present study covers five years period ranging from

2013-14 to 2017-2018.

Financial Tools Used: Capital Adequacy Ratios, Debt Coverage Parameters,

Management Efficiency Parameters and Profitability Parameters.

Statistical Tool/Test Used: Arithmetic mean, Standard deviation, T-test


1.7 LIMITATIONS

 Financial performance of banks is analyzed on the basis of selected time

period i.e. 5 years.

 Only quantitative aspect has been taken into consideration for analyzing

financialperformance of banks.

 Geographical area- Agra.

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