J.D.

BIRLA INSTITUTE (MANAGEMENT SECTION)

NAME: ROLL NO.: SECTION: SEMESTER: SUBJECT: TOPIC: MENTOR:

MOHIT GUPTA 37 A BBA (5) TERM PAPER PUBLIC SECTOR BANKS AND ITS PROFITIBILITY MR. DEVI PRASAD BANDYOPADHYAY

DECLARATION
Declaration To include plagiarism and ethical statements and word count is a formal requirement. Declaration: I declare the following: 1. That the material contained in this dissertation is the end result of my own work and that due acknowledgement has been given in the bibliography and all references to ALL sources be they printed electronic or personal. 2. The word count of this term paper is around 11620 words. 3. That unless this term paper has been confirmed as confidential, I agree to an electronic copy or sections unless of the dissertation to be placed on the e-learning portal, if deemed appropriate, to allow future students the opportunity to see examples of past dissertations. I understand that if displayed on the e-learning portal it would be able to print off copies or download. The authorship would remain anonymous. 4. I agree to my term paper being submitted to a plagiarism detection service, where it will be stored in a database and compared against work submitted from this or any other school or from other institutions using this service. In the event to my service detecting a high degree of similarity between content within the service this will be reported back to my supervisor and second marker, who may decide to undertake further investigation that may ultimately lead to discipline actions, should instances of plagiarism be detected. I declare that ethical issues have been considered, evaluated and appropriately addressed in this research
Page | 2

Signed:

ACKNOWLEDGEMENT
I would like to extend my heartfelt gratitude to the following persons who have made the completion of this assignment possible: Our Director, Dr. Asit Dutta, for his vital encouragement and support.. My supervisor, Mr Devi Prasad Bandyopadhyay, a member of the faculty, for his full support and guidance throughout the course of research of material for the term paper. My heartfelt thanks to the coordinators of the Learning Resource Centre of our college, who assisted me to avail the relevant books and allowed me to carry out the necessary research for my term paper. My sincere thanks to all the librarians and all the faculty members, for their assistance and guidance in the completion of the term paper. It would not be possible to complete this term paper without their help and guidance. My friends and colleagues from college for their great help and valuable hints to complete my term paper.

Page | 3

INDEX
Contents 1. Abstract 2. Introduction 2.1 Field of Research 2.2 Purpose of Research 3. Literature Review Page No. 5

6 6 7

4. Research and Methodology 4.1 Introduction 4.2 Types of data 4.3 Statistical Tools 4.4 Data Analysis 5. Hypothesis 6. Results and Findings 6.1 Results 6.2 Recommendations 7. Conclusion 7.1 Limitations 7.2 Future Scope 8. Executive Summary

19 19 20 21 24

25 26

27 27 28
Page | 4

9. Annexure 10. Bibliography

30 39

ABSTRACT
This paper provides detailed information on the factors which affects the profitability of the public sector banks in India. The paper also includes the various steps taken by the government both during post liberalization and pre liberalization in order to improve the efficiency of the public sector banks. The parameters which affect the profits have been identified and analyzed with the help of regression. The paper also includes the findings from such analysis and also explains he ways in which the problems can be improved upon. The paper concludes with impact of the public sector banks on the economy and its importance.

Page | 5

1. INTRODUCTION
1.1 FIELD OF RESEARCH:The field of research is to study the factor which affects the profitability of the public sector banks, and analyze the degree of their impact on the profits of the public sector banks. It is an attempt to say that the role of the public sector banks in modern day economy is no less important than that of the private sector banks and its foreign competitors. The paper would also help to analyze the position of the public sector banks before Liberalization, Privatization, and Globalization (LPG), the steps taken by the government to identify the mistakes and rectify them and the position of the public sector banks after LPG.

1.2 PURPOSE OF RESEARCH:The purpose of the research is how to increase the profits of the public sector banks so that it can compete along with the private banks. The Indian Banking scenario has changed a lot in past decade or so. The purpose of the research is also to identify the ways in which the performance of the public sector banks could be improved and how it can cope up with the ever changing situation.

Page | 6

2. LITERATURE REVIEW
Banking in India was defined under Section 5(A) as "any company which transacts banking, business" and the purpose of banking business defined under Section 5(B),"accepting deposits of money from public for the purpose of lending or investing, repayable on demand through cheque/draft or otherwise". In the process of doing the above-mentioned primary functions, they are also permitted to do other types of business referred to as Utility Services for their customers (Banking Regulation Act, 1949). Soon after independence, as India embarked upon planned economic growth, like any other country, it needed a strong and efficient financial system to meet the multifarious requirements of credit and development. To achieve this objective it adopted a mixed pattern of economic development and devised a financial system to support such development. The success it achieved, particularly in taking banking to the masses and making the banking system a potent vehicle for furthering public policy has few parallels in the world. Nationalized banks dominate the banking system in India. The history of nationalized banks in India dates back to mid-20th century, when Imperial Bank of India was nationalized (under the SBI Act of 1955) and re-christened as State Bank of India (SBI) in July 1955. Then on 19th July 1960, its seven subsidiaries were also nationalized with deposits over 200 crores. These subsidiaries of SBI were State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Indore (SBIR), State Bank of Mysore (SBM), State Bank of Patiala (SBP), State Bank of Saurashtra (SBS), and State Bank of Travancore However, the major nationalization of banks happened in 1969 by the then-Prime Minister Indira Gandhi. The major objective behind nationalization was to spread banking infrastructure in rural areas and make cheap finance available to Indian farmers. The nationalized 14 major commercial banks were Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce (OBC), Punjab and Sind Bank, Punjab National Bank (PNB), Syndicate Bank, UCO Bank, Union Bank of India, United Bank of India (UBI), and Vijaya Bank.[1]

In the year 1980, the second phase of nationalization of Indian banks took place, in which 7 more banks were nationalized with deposits over 200 crores. With this, the Government of India held a control over 91% of the banking industry in India. After the nationalization of banks there was a huge jump in the deposits and advances with the banks. At present, the State Bank of India is the largest commercial bank of India and is ranked one of the top five banks worldwide. It serves 90 million customers through a network of 9,000 branches.

Page | 7

The Indian banking Scenario has changed considerably in the past decade. The economic liberalization kicked off by the then Narasimham Committee government has improved the width and depth of the financial system of India. A few years ago, withdrawing money from the bank meant having to take a day off from work, standing in the long queue for hours together, waiting to get a token and then having to wait in another queue, just to withdraw your own money from the bank. Fast forward to today, when all your banking transactions are just a click away. Public sector banks which were initially reluctant to change, later realized that this is the only mantra to succeed. They underwent a rapid makeover, with most of the banks now concentrating on a customer centric policy. LIST OF PUBLIC SECTOR BANKS

LIST OF PUBLIC SECTOR BANKS IN INDIA

Indian Bank Bank of India Union Bank Syndicate Bank Sate Bank of Saurashtra State Bank of Travancore Bank of Maharashtra Vijaya Bank UCO Bank Indian Overseas Bank Punjab National Bank Dena Bank State Bank of Hyderabad State Bank of Bikaner & Jaipur State Bank of India State Bank of Mysore State Bank of Indore Corporation Bank Allahabad Bank Andhra Bank Canara Bank Bank of Baroda Oriental Bank Punjab & Sind Bank IDBI Bank ICICI Bank UTI Bank United Bank

The rapid growth of the banking system in terms of presence as well as penetration over the two decades immediately following nationalization of banks in 1969 was impressive. By the 1990s the public sector banks had 90 per cent share in the countrys banking business. By March 1992, all the public sector banks together had a phenomenal branch network of 60,646 branches spread across the length and breadth of the country and held deposits of Rs. 1,10,000 crore and advances of Rs. 66,760 crore. Even as the banking systems branch network was growing at a fast pace, by the beginning of 1990s, it was realized that the efficiency of the financial system was not to be measured only by quantitative growth in terms of branch expansion and growth in deposits/advances or merely by fulfillment of social obligations of development. The financial strength and operational efficiency of the Indian banks and financial institutions which were working in a highly protected and regulated environment were not measuring up to international standards. The global and domestic developments called for corrections primarily with a view to strengthening the financial system and to bring it on par with institutions abroad. Hence, from 1992, a process of financial sector reforms, as a part of a broader programme of structured economic reforms was set in motion. The financial sector reforms covered deregulation of policies, prescription of prudential norms based on internationally accepted practices in respect of capital adequacy, income recognition,
Page | 8

asset classification and provisioning for impaired assets and introduction of competition in the banking sector. Several measures towards strengthening of supervision over banks were also introduced simultaneously. The prudential norms were adopted in a phased manner from 1992-93 to make the transition less painful. Till adoption of the prudential norms, twenty-six out of twenty-seven public sector banks were reporting profits (UCO Bank was incurring losses from 1989-90). In the first post-reform year, i.e., 1992-93, the profitability of PSBs as a group turned negative with as many as twelve nationalized banks reporting net losses. The remaining seven nationalized banks could show only marginal profits between Rs. 4 crore and Rs. 38 crore. As on 31 March 1993, only one public sector bank had capital adequacy ratio of above 8 per cent. By March 1996, the outer time limit prescribed for attaining capital adequacy of 8 per cent, eight public sector banks were still short of the prescribed level. The NPAs of the banks aggregating Rs. 39,253 crore as on 31 March 1993 brought the latent weaknesses in their asset portfolio out in the open. The emphasis on maintenance of capital adequacy and compliance with the requirement of asset classification and provisioning norms has put severe pressure on the profitability of PSBs. Deregulation of interest rates on deposits and advances has intensified competition and PSBs have to now contend with competition not only from other public sector banks but also from old/new private sector banks, foreign banks and financial institutions. Above all, with the growth of the capital markets, sound corporate clients now have the option of raising funds at lower cost by accessing capital markets for their equity as well as debt requirements. The response of the public sector banks to the above changes has been varied. While some have withstood all these pressures, for most, the shocks have been severe, at least, initially. The profitability of the public sector banks as a group remained negative in 1993-94. Despite improvement in 1994-95, there was a slippage again when the loss incurred by Indian Bank affected the profitability of the entire public sector bank group. However, there have been noticeable improvements since then and public sector banks, as a group, are now reporting profits. The position in regard to profitability of PSBs from 1992-93 to 1998-99 is given in the table below: Profitability of banks from 1992-93 to 1998-99 (Rs. crore) (ANNEXURE TABLE 1 )

Page | 9

Although as per the table only two banks recorded net loss as at the close of the year 1998-99 there is significant variation in the level of financial efficiency among the banks. It is also to be noted that good performance of some of the strong banks is neutralized by persistent underperformance of a handful of banks which are not improving enough and are, therefore, taking the shine away from the aggregate picture of PSBs performance. According to the www.rbi.org FINDINGS OF Committee headed by Shri M. Narasimham [2] To improve the profitability and economic strength of the banks, the Government Of India appointed a committee under a chairmanship of M. Narasimham, the former Governor of RBI, and this committee submitted its report in 1991. According to this committee, low profitability of public sector banks might be for two reasons:-

1. Increasing cost of operations.

2. Declining interest income of the banks. To make the banks more economically viable this committee suggested some measures:1. Statutory Liquidity Ratio (SLR) should be reduced from 38.5 percent to 25 percent.

2. Banks should get more freedom to fix lending rates of interest. 3. Credit to priority sectors should be reduced from 40 percent to 10 percent of the total credit. 4. The DRI scheme should be withdrawn 5. The number of nationalized banks should be reduced to ten only 6. Local banks are to be established to meet local needs. 7. Non- profitable branches should be closed down.
Page | 10

8. More foreign banks should be allowed to enter into the money market, which will create a competitive environment in the financial sector of the economy. 9. Reduction in CRR to 10 percent, payment of interest on CRR and use of CRR as instrument of monetary policy. Report of the Second Narasimham Committee:- A high level committee under the chairmanship of M. Narasimham, was constituted by the Government Of India again in December 1999 to review the record of implementation of the financial reforms recommended by the first Narasimham Committee in 1991, and chalk out the reforms necessary in the years ahead to make the banking system stronger and better equipped to compete effectively in the international economic environment. The committee had submitted its report in April 1998. Some of the major recommendations of this committee are as follows: (a) Relatively weak and unviable banks should be closed, and relatively strong banks should be merged with other banks or financial institutions. (b) The country should have two or three banks with international orientation, eight or ten national banks and a large number of local banks. The first and second tier banks should take care of the needs of the corporate sector and the banks in the third tier (i.e. the local banks) should be confined to smaller geographical regions. (c) The ratio of the capital to the risky assets of the bank should be at least 10 percent( it is known as capital adequacy norm) (d) Legal framework should be strengthened for the credit recovery (e) The net non performing assets for all the banks should be brought down to below 5 percent by the year 2000 and to 3 percent by 2002 (f) There should be rationalization of branches and staff (g) The policy of licensing new private banks may be continued. Recommendations of Working Group or Verma Committee:- Keeping in view the need to revive the weak public sector banks the RBI set up a Working Group in February 1999 under the chairmanship of M.S. Verma to suggest measures for the revival of the weak public sector banks in India. The Working group submitted its report in October 1999. This group has emphasized on three particular aspects of a bank which are:- solvency, earning capacity and profitability of the bank which are discussed later in detail. The Working Group has identified three weak banks Indian Bank, UCO Bank and United Bank of India. The recommendations of this working group include restructuring of banks on two stages:- (a) the first stage involves operational, organizational and financial restructuring aimed at resorting competitive efficiency; and (b) the second stage covers options of privatization and/or merger ith other bank. Criteria for identifying weakness The issue of deciding on a set of criteria for identifying weak banks has been examined earlier and the Committee on Banking Sector Reforms (CBSR) headed by Shri M. Narasimham, has recommended that a weak bank would be one
Page | 11

a. where accumulated losses and net NPAs exceed the net worth of the bank or b. one whose operating profits less the income on recapitalization bonds has been negative for three consecutive years. The table given below shows banks which would get categorized as weak going by either of the two tests provided in the definition given by the CBSR.
(a) Where accumulated losses and net NPAs exceed the net worth of the bank.

(ANNEXURE TABLE 2) (b) Where operating profits less the income on recapitalization bonds has been negative for three consecutive years 1996-97, 1997-98 and 1998-99 i. Indian Bank ii. UCO Bank iii. United Bank of India The definitions of weakness prescribed by the CBSR lay stress on solvency and profit earning capacity of banks. In the opinion of the Working Group, these definitions are well considered and acceptable. The Group also believes that in order to identify a banks weakness or strength with some degree of certainty, it would be desirable to use a few more specific tests in conjunction with the two suggested by the CBSR. The Groups major concern has been not only to find a proper definition of weakness in banks but also to assess the extent of such weakness. A standard definition may enable one to categorize a bank as weak or otherwise on a given date. But, what is needed is some clear indicators which while giving an idea of the reasons that have led to the weakness will also enable us to judge a banks capability to earn profits on a continuing basis and also to withstand pressures on its capital in times of adversity. The Group, therefore, selected seven parameters for assessing a banks strength/weakness covering three major areas, namely, (a) solvency, (b) earning capacity and (c) profitability. These are as under: Solvency i. Capital adequacy ratio ii. Coverage ratio Earning capacity iii. Return on assets iv. Net interest margin Profitability v. Ratio of operating profit to average working funds vi. Ratio of cost to income vii. Ratio of staff cost to net interest income (NII) + all other Income
Page | 12

All the above ratios are well known parameters on which banks performance and sustainability are judged. A study of these ratios in respect of a bank, historically or in comparison with its peers will give a clear view of its growing strength or weakness over a period as also of its ability to compete against others in the market. While all the seven ratios selected by the Working Group are considered equally important as they stress upon one or another critical aspect of a banks operations, in the context of studying weakness of banks, coverage ratio has an importance of its own and would, therefore, merit some elaboration. This is defined as the ratio of equity capital and loan loss provisions minus nonperforming loans to total assets. Equity capital + Loan loss provisions Non-performing loans -------------------------------------------------------------------------Total assets Expressed in terms of percentage, this ratio shows the ability of a bank to withstand losses in the value of its assets. The merit of the coverage ratio lies in the fact that it allows simultaneous monitoring of two important elements, viz., (I) level of non-performing loans and (ii) equity capital, adverse movements in which have been found to precede most cases of banking crises. Focusing on this ratio for identifying weakness of a bank is quite advantageous as it allows us to differentiate between banks which may have the same level of non-performing loans but different levels of equity capital and loan reserves. The differences in the latter could mean a wide difference in their comparative strengths and weaknesses. It thus gives due credit to the banks that have higher capital funds and have followed a more prudent policy of provisioning for their nonperforming loans. In the case of good, strong banks, this ratio would be higher bound and could go as high as the level of the capital adequacy required (8 to 12 per cent). As it declines and comes closer to zero, it shows the declining ability of the banks own resources, i.e., equity capital + loan loss provisions to cover for non-performing loans. Declining coverage ratio of a bank is thus a strong indicator of its fragility and susceptibility to distress. The Group has also considered the question whether it should decide upon a threshold for coverage ratio below which a bank should be considered weak or in distress. In this context, it could be argued convincingly that the threshold for coverage ratio for banks in India should be high since the definition of non-performing loans here is seen to be liberal compared to thedefinition generally used in banking systems abroad. It could be so also because the recoverability of such loans is not very high due to inadequacies in the extant laws and recovery procedures. Given, however, that the present equity ownership of the public sector banks is largely with the government, the Group feels that at this stage a coverage threshold of 0.5 per cent for public sector banks should be acceptable. It would mean that these banks have available capital equity and reserves to the extent of 0.5 per cent of the value of their total assets for meeting any further loss in their value. Based on the financial results for the year ended March 1999, 13 banks had coverage ratios above this threshold. A comparative position is shown in Annex 8 B.
Page | 13

An attempt was made by the Working Group to assess and rank all the 27 public sector banks on the above seven parameters. A table showing their ranking is given at Annex 8 which gives a fair idea of their strengths and weaknesses. The rankings show that Indian Bank, UCO Bank and United Bank of India are among the weakest in all the banks ranked. Use of the aforesaid additional parameters helps one to see clearly weakness of a bank as it gets reflected in the erosion of its net worth. These parameters also bring into sharp focus the incapacity of a bank to maintain a positive balance between its income and expenses and to do business on competitive terms. The Group, therefore, is of the opinion that the tests provided in the CBSR report supplemented by an analysis of performance based on the seven parameters detailed above, should serve as the framework for identifying weakness in banks in future. Identification of weakness in banks [3] The Group has looked at all the twenty-seven public sector banks in order to identify signs of weakness in them. Such an exercise is important as weaknesses which have not become quite manifest in some banks are, at present, covered or compensated by some countervailing strength. The identification of signals of latent weaknesses in these banks would help them initiate timely action and stop the problem from becoming chronic. The seven parameters mentioned in paragraph 3.16 are being used to identify weakness or strength of a bank. By the same token, these parameters can also be used to evolve benchmarks for competitive levels of performance by public sector banks. In the opinion of the Working Group, to begin with, these benchmarks should appropriately be the median levels of ratios relating to these parameters obtaining in the 24 public sector banks (excluding Indian Bank, UCO Bank and United Bank of India). The Working Group recognizes that the benchmarks evolved with reference to the performance of the 24 public sector banks do not necessarily represent the most desirable levels of performance or the highest goals which a bank needs to set for itself. However, these are levels which if not achieved could clearly spell trouble for the bank in question. These are, so to say, minimum levels of efficiency, which need to be achieved for remaining competitive and maintaining longer term viability. Failure of a bank to achieve these minimum levels of efficiency should be seen as a warning signal which if not attended to urgently would turn these banks into weak banks. Quite clearly, banks performing even below the median of the levels achieved by all their peers will not be able to compete with any of those whose performance levels are higher than the median. It needs to be kept in mind that competition to public sector banks is not only from their peers but also from the new private sector banks and foreign banks whose comparative levels of performance judged on the same parameters are in most cases higher. Benchmarks set at the median levels of performance of public sector banks are, therefore, only the initial benchmarks which these banks need to set for themselves. Gradually, these will have to be raised to be able to meet the compulsions of competition. Findings of the Working Group

Page | 14

The Working Group has evaluated the position of the 27 public sector banks on the above parameters for the financial years ended 31 March 1998 and 31 March 1999. The basis for evaluation was: a. a threshold level of 0.50 per cent in respect of the coverage ratio. b. capital adequacy ratio of 8 per cent for both the years. c. the median level of the other five efficiency parameters for the respective years. The comparative position of the 27 public sector banks in this regard for the years ended 31 March 1998 and 31 March 1999 is shown in Annex 8. The Working Group observed that based on the above analysis, public sector banks could be classified in terms of their strengths or weaknesses under three broad categories. Category 1: Banks where none of the seven parameters are met Category 2: Banks where all the parameters are met Category 3: Banks where some of the seven parameters are not met Category 1: Banks where none of the parameters are met:- Evidently banks under this category are the weakest and where symptoms of weakness have already emerged. Indian Bank appears in this category in both 1998 and 1999. The Group observed that UCO Bank and United Bank of India, which have been identified as weak banks on their past record of losses could comply with the capital adequacy prescription but failed to attain all the other six efficiency levels. The Group has noted that infusion of capital by the Government of India was confined mainly to the above three banks during 1997-98 and 1998-99, as the other banks have been able to generate adequate resources internally and reach the level prescribed by RBI. The poor operational results of these three banks have, however, shifted the responsibility of maintenance of CAR to the government. The Group recognized that compliance of CAR by these two banks was possible only due to infusion of capital of Rs. 550 crore in the two years in the case of UCO Bank and Rs. 300 crore in the same period for United Bank of India. However, in the case of Indian Bank, the deficit from the minimum CAR level was too wide to be bridged and the bank could manage a positive CAR of only 1.41 per cent despite receiving a massive infusion of Rs. 1,750 crore in 1998. The bank ended up with negative CAR in 1999 despite receiving Rs.100 crore as additional capital during the year. It is the considered view of the Group that achievement of capital adequacy entirely through capital infusion by the owner cannot be deemed as characteristic of a banks ability to reach minimum competitive efficiency. In the above background, the Group concluded that the above two banks also would have to be treated as weak banks on par with Indian Bank. The malady of all the three banks appears to be deep rooted. UCO Bank and Indian Bank have been incurring operating losses, through the last three years. United Bank of India which was in a similar position, recorded operating profits only in 1998 mainly due to a windfall income of Rs. 111 crore by way of interest received on income tax refund.

Page | 15

These three banks are now trapped in a vicious circle of declining capability of attracting good business and increasing need for capital support from the government. Their situation primarily is an amalgam of slippage in capital adequacy, low levels of interest income, diminishing margins, increasing cost of operations and falling market share. In sum, they are unable to perform with minimum competitive efficiency. Hence, the above three banks are to be deemed as the weakest, among the group of public sector banks, which need immediate restructuring. Category 2: Banks where all the parameters are met:- The following banks met all the parameters identified by the Working Group as tests of competitive efficiency. 31 March 1998 31 March 1999 Corporation Bank Oriental Bank of Commerce Dena Bank State Bank of Patiala Oriental Bank of Commerce State Bank of Patiala Category 3: Banks where some of the parameters are not met:- Besides the three banks which are to be treated as weak banks, four banks in the year 1997-98 and only two in 1998-99 were able to meet all the parameters. Based on the performance levels achieved in 1998 and 1999, the remaining banks were grouped further based on the number of parameters they failed to meet. (a) Compliance with CAR and non-compliance with five or six of the remaining efficiency parameters 31 March 1998-31 March 1999Allahabad Bank, Central Bank of India Central Bank of India, Indian Overseas Bank, Indian Overseas, Bank of Punjab and Sind Syndicate Bank, Union Bank of India, Vijaya Bank The Group observed that except for Syndicate Bank and Union Bank of India, the remaining five banks functioned below the required level of efficiency in both the years, typifying the persistence of causes that would eventually manifest in weakness. In the opinion of the Group, these banks were showing strong signs of distress and run high risk of slipping into the category of weak banks. They are vulnerable to sudden changes that could arise in the external environment. The Group noted that Syndicate Bank had shown improvement in 1998-99, as they were able to achieve a higher return on assets. However, it is also noted that during the year the bank was able to register additional income due to changes in method of valuation of current investments and writing back of excess provisions made earlier. The bank has also chosen not to make any provision for NPAs during the year. It continues to have adverse ratios relating to management of costs and, any unfavorable business development, which could deplete incomes, may pose serious problems unless in the meantime the ratios have been corrected. (b) Compliance with CAR and non-compliance with three or four of the remaining efficiency parameters

( ANNEXURE TABLE 3)

Page | 16

The above banks may not be deemed to be in distress, but their efficiency levels call attention to their potential weaknesses which could emerge over time. Early solutions would help them to shake off their weaknesses. A point of concern is the increase in the number of banks falling in this category in the year 1999. (c) Compliance with CAR and non-compliance with one or two of the remaining efficiency parameters (ANNEXURE TABLE 4)

The above banks are fairly well placed to tackle the visible pointers to weaknesses through internal strategies. The Group is of the opinion that the approach outlined in the above paragraphs is simple but effective and serves the immediate objective of setting the criteria for diagnosing weaknesses in banks in general and for identifying the potentially weak banks. It, therefore, recommends building up of a database in respect of banks on an ongoing basis for the purpose of benchmarking

THE FOLLOWING ARE THE PARAMETERS FOR JUDING THE PROFITABILITY OF PUBLIC SECTOR BANKS:1. CAPITAL ADEQUACY RATIO (CAR):- Bank capital plays a very important role in the

safety and soundness of individual banks and the banking system. Basel Committee for Bank Supervision (BCBS) has prescribed a set of norms for the capital requirement for the banks in 1988 known as Basel Accord I. These norms ensure that capital should be adequate to absorb unexpected losses or risks involved. If there is higher risk, then it would
Page | 17

be needed to back up with Capital and Vice versa. All the countries establish their own guidelines for risk based capital framework known as Capital Adequacy Norms. Capital Adequacy measures the strength of the bank. Capital Adequacy Ratio is also known as Capital risk weighted assets ratio. A measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures.

Also known as "Capital to Risk Weighted Assets Ratio (CRAR)." According to moneycontrol.com Targeting 8% capital adequacy ratio by Mar 2011[4] PSU lender Central Bank of India is eyeing a rights issue of about Rs 2,500 crore. The bank, which has reported a 94% growth in its net interest income in the first quarter of the current fiscal had received Rs 450 crore from the government on March 31, 2010. The government had also subscribed Rs 700 crore by way of tier-I capital from March to May of 2010. The government would infuse more capital into the bank by way of subscription to a rights issue. Speaking on the sidelines of the ICICI Securities conference, S Shridhar, CMD of the bank, in an interview with CNBC-TV18's Latha Venkatesh and Reema Tendulkar said, "We are looking at a rights issue of about Rs 2,500 crore. We are looking forward to contribution by the government to contribute fully to the extent of its shareholding which is about 80.2%. We are still in the modalities of finalizing the rights issue and we will come back to the markets within a few weeks."
2. RETURN ON ASSETS:- An indicator of how profitable a company is relative to its total

assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment". The formula for return on assets is:

Note: Some investors add interest expense back into net income when performing this calculation because they'd like to use operating returns before cost of borrowing.
3. NPA (NON PERFORMING ASSETS):- An asset is classified as Non-performing Asset

(NPA) if due in the form of principal and interest are not paid by the borrower for a period of 180 days. However with effect from March 2004, default status would be given to a borrower if dues are not paid for 90 days. If any advance or credit facility granted by banks to a borrower becomes non-performing, then the bank will have to treat all the advances/credit facilities granted to that borrower as non-performing without having any regard to the fact that there may still exist certain advances / credit facilities having performing status. NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and networth of banks and also erodes the value of the asset. The NPA growth involves the necessity of provisions, which reduces the overall profits and shareholders value. The issue of Non Performing Assets has been discussed at length for financial system all over the world. The problem of NPAs is not only affecting the banks but also the whole
Page | 18

economy. In fact high level of NPAs in Indian banks is nothing but a reflection of the state of health of the industry and trade. [5]
4. INTEREST ON LOANS: - An interest rate is the rate at which interest is paid by a

borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for deferring the use of funds and instead lending it to the borrower. The majority of revenue comes from accepting deposits from consumers and then lending that money, with interest, out to individuals and businesses in the form of bank loans. Hence the increase in the interest rates of the banks would definitely lead to the rise in the profits of the public sector banks.
5. NO. OF BRANCHES:- In order to correct the imbalances in the banking system,

nationalized banks set an objective to initiate the branch expansion programs, particularly in unbanked areas. Along with the expansion of bank branches, the rural branches also increased to a large extent. Thus the increase in number of branches of public sector banks would definitely mean that the reach of the bank increases which in turn means greater opportunity for the people to deposit their money in the banks and banks in turn could mobilize the deposits.
6. DIVERSIFICATION OF BANKING FUNCTIONS:- Recently the banks have begun to

undertake some new activities which are outside the traditional functions of the banks like portfolio management, hire purchase finance, provision of risk capital or venture capital, mutual funds etc. Nowadays mutual fund is becoming popular. Under this deposits are invited from the public and the funds thus collected are invested mostly in stocks and shares. The income from such operations is distributed as dividend among the depositors. 7. DEPOSITS AND ADVANCES:- The banks accepts deposits from the public in the form savings deposit, fixed deposits, or current deposits. In each of these three types banks pay certain interests to the customers for depositing their money with the banks. The banks in tern give these deposits as loans and advances at a higher rate of interest. The differences in the interest rates are profits of the banks. Thus it is needless to say that higher the deposits the higher will be the profits of the banks.

3. RESEARCH AND METHODOLOGY

3.1 INTRODUCTION With the gradual industrialization and consequent expansion of trade, businessmen can no longer rely on the old system of hit or miss methods, or leave the future on the chances. They now have to proceed on the scientific principles, prepare themselves for the competitive markets and plan their business accordingly. The traders, manufacturers, investors now therefore have to depend on the
Page | 19

variety of factors like past sales record, present labor conditions, prices of raw materials etc. All these factors are statistically taken account of before fixing the prices of the new commodity, so that it may find a suitable place in the market.[6] Therefore research methodology definitely is very important in todays competitive environment. Hence research refers to activities involving search of information and methodology refers to analysis of different techniques or methods which will be applied to the data collected. 3.2 DIFFERENT TYPES OF RESEARCH DATA There are two types of data:1. Qualitative Data 2. Quantitative Data Qualitative data is extremely varied in nature. It includes virtually any information that can be captured that is not numerical in nature, some of the major categories or types like that of in depth interviews, direct observation, written documents etc. Whereas Quantitative data deals with numbers and frequencies. In this research paper Quantitative data and secondary data has been used. Primary data are those which are collected for a specific purpose directly from the field of enquiry, and hence are original in nature. Such data are published by the authorities who themselves are responsible for their collection. Secondary data are such numerical information which have been previously been collected by some agency for one purpose and are merely compiled from that source for use in different connection. Publications from primary data include Reserve Bank of India Bulletin issued monthly by RBI or Indian Textile Bulletin issued monthly by Textile Commissioner. Secondary data would be Monthly Abstract Of Statistics issued by Central Statistical Association.[7] 3.3 STATISTICAL TOOLS:The data taken has been crunched analyzed using Regression Analysis and the data has been crunched with the help of Microsoft Excel 2007. Regression enables establishment of relationship between various economic factors like input and output, production and sales, demand and per capita income etc. Regression equation also helps in assessing the impact of each of the several factors and may be used in forecasting. Regression equation: - Y = a + bX The above mentioned regression equation is used to analyze the various factors affecting the profitability of public sector banks. Over here Y is the dependent variable and X is the independent variable i.e. how the different values of X like deposits, advances interest rates etc would affect the profitability of the public sector banks (Y). Hence we can say that profits of the public sector banks are dependent on the factors X.

Page | 20

The P value is a probability, with a value ranging from zero to one. It is the answer to this question: If the populations really have the same mean overall, what is the probability that random sampling would lead to a difference between sample means as large (or larger) than you observed? A hypothesis is like a statement, in an essay it is usually a statement you write at the beginning and the whole essay is about you proving that statement, with evidence and research etc. there are basically two types of hypothesis. They are: NULL HYPOTHESIS: A type of hypothesis used in statistics that proposes that no statistical significance exists in a set of given observations. The null hypothesis attempts to show that no variation exists between variables, or that a single variable is no different than zero. It is presumed to be true until statistical evidence nullifies it for an alternative hypothesis. ALTERNATE HYPOTHESIS: An alternative hypothesis is one that specifies that the null hypothesis is not true. . The alternative hypothesis is false when the null hypothesis is true and true when the null hypothesis is false.

3.4 DATA ANALYSIS

Influence of number of branches on profitability of public sector banks The number of branches is the independent variable (X) and the profits of the public sector banks are the dependent variable(Y). The following regression equation is constructed. Y = -96398.777 + 2.31X
Page | 21

In the above equation a = -96398.77 and b = 2.31. The hypothesis tested with the regression equation is as follows:H0: b=0 (no influence of the number of branches on profits of public sector banks) Ha: b0 (influence of the number of branches on the profits of public sector banks) At 95% confidence level the R2 value is 0.834655. This means that 83% of the influence of the branches of the public sector banks on the profits is explained. The p value is .010876 and this value is less than 0.05. This is the confidence with which the null hypothesis is rejected and the alternative hypothesis is accepted. Thus this regression equation proves that there is the influence of the number of branches on the profitability of the public sector banks. Refer to Table 5 and Table 10 in Annexure Influence of the deposits on the profitability of public sector banks The number of deposits is the independent variable (X) and the profits of the public sector banks are the dependent variable(Y). The following regression equation is constructed. Y = 5839.921 + .007477X In the above equation a = 5839.921 and b = .007477. The hypothesis tested with the regression equation is as follows:H0: b=0 (no influence of the deposits on profits of public sector banks) Ha: b 0 (influence of the deposits on the profits of public sector banks) At 95% confidence level the R2 value is 0.917612. This means that 91% of the influence of the deposits of the public sector banks on the profits is explained. The p value is 0.002619 and this value is less than 0.05. This is the confidence with which the null hypothesis is rejected and the alternative hypothesis is accepted. Thus this regression equation proves that there is the influence of the number of deposits on the profitability of the public sector banks. Refer to Table 6 and Table 11 in Annexure

Influence of the advances on the profitability of public sector banks The advances are the independent variable (X) and the profits of the public sector banks are the dependent variable(Y). The following regression equation is constructed. Y = 9075.572+ .008796X In the above equation a = 9075.572 and b = .008796. The hypothesis tested with the regression equation is as follows:Page | 22

H0: b=0 (no influence of the advances on profits of public sector banks) Ha: b 0 (influence of the advances on the profits of public sector banks) At 95% confidence level the R2 value is 0.864885. This means that 86% of the influence of the advances of the public sector banks on the profits is explained. The p value is 0.00718 and this value is less than 0.05. This is the confidence with which the null hypothesis is rejected and the alternative hypothesis is accepted. Thus this regression equation proves that there is the influence of the advances on the profitability of the public sector banks. Refer to Table 8 and Table 13 in Annexure

Influence of the non performing assets on the profitability of public sector banks The NOP is the independent variable (X) and the profits of the public sector banks are the dependent variable(Y). The following regression equation is constructed. Y = 55380.9+ (-0.71617) X In the above equation a = 55380.9 and b = -0.71617. The hypothesis tested with the regression equation is as follows:H0: b=0 (no influence of the non performing assets on profits of public sector banks) Ha: b 0 (influence of the non performing assets on the profits of public sector banks) At 95% confidence level the R2 value is 0.32293. This means that only 32% of the influence of the NOP of the public sector banks on the profits is explained. The p value is 0.239351 and this value is more than 0.05. This is the confidence with which the alternate hypothesis is rejected and the null hypothesis is accepted. Thus this regression equation proves that there is no influence of the NOP on the profitability of the public sector banks. Refer to Table 9 and Table 14 in Annexure

Influence of the capital adequacy ratio on the profitability on the public sector banks The capital adequacy ratio is the independent variable (X) and the profits of the public sector banks are the dependent variable(Y). The following regression equation is constructed. Y = 153551.2 + (-10465.4) X In the above equation a = 153551.2 and b = (-10465.4). The hypothesis tested with the regression equation is as follows:H0: b=0 (no influence of the capital adequacy ratio on profits of public sector banks) Ha: b 0 (influence of the capital adequacy ratio on the profits of public sector banks)
Page | 23

At 95% confidence level the R2 value is 0.569031. This means that 56% of the influence of the branches of the public sector banks on the profits is explained. The p value is 0.08311 and this value is more than 0.05. This is the confidence with which the alternate hypothesis is rejected and the null hypothesis is accepted. Thus this regression equation proves that there is no influence of capital adequacy ratio on the profitability of the public sector banks. Refer to Table 8 and Table 13 in Annexure

4. HYPOTHESIS

1. Influence of number of branches on profitability of public sector banks H0: b=0 (no influence of the number of branches on profits of public sector banks) Ha: b0 (influence of the number of branches on the profits of public sector banks)
2.

Influence of the deposits on the profitability of public sector banks

Page | 24

H0: b=0 (no influence of the deposits on profits of public sector banks) Ha: b 0 (influence of the deposits on the profits of public sector banks) 3. Influence of the advances on the profitability of public sector banks H0: b=0 (no influence of the advances on profits of public sector banks) Ha: b 0 (influence of the advances on the profits of public sector banks) 4. Influence of the non performing assets on the profitability of public sector banks H0: b=0 (no influence of the non performing assets on profits of public sector banks) Ha: b 0 (influence of the non performing assets on the profits of public sector banks) 5. Influence of the capital adequacy ratio on the profitability on the public sector banks H0: b=0 (no influence of the capital adequacy ratio on profits of public sector banks) Ha: b 0 (influence of the capital adequacy ratio on the profits of public sector banks)

5. RESULTS AND FINDINGS 5.1 FINDINGS:There are five parameters which are analyzed that affect the profitability of the public sector
banks:1. 2. 3. 4. 5. Deposits Advances Number of branches Capital adequacy ratio Nonperforming assets
Page | 25

1. Deposits: - Banks are also called custodians of public money. Basically, the money is accepted as deposit for safe keeping. But since the Banks use this money to earn interest from people who need money, Banks share a part of this interest with the depositors. The quantum of interest depends upon the tenor - length of time for which the depositor wishes to keep the money with the Bank - and the ease of withdrawal. The thumb rule is, longer the tenor, higher the rate of interest and lesser the restrictions on withdrawal, lesser the interest. Exceptions, however, exist. Deposits are accepted from both resident (domestic) or nonresident Indian customers. It is the business of the banker to accept deposits so that he can lend it to others and earn interest. Therefore it is quite clear that the profits of the banks are dependent on the deposits. The greater the amount of the deposits with a particular bank the greater is the amount it can lend to the public and earn interest. From regression analysis it is clear that 91% of the deposits do influence the profits of the banks. This means that greater the deposits the banks has the greater will be the profits of the banks. 2. Advances: - Loans and advances granted by commercial banks are highly beneficial to individuals, firms, companies. The growth and diversification of business activities are effected to a large extent through bank financing. Loan and advances granted by banks help in meeting short term and long term needs financial needs of the business. The greater the deposits with the banks the greater the advances it can make to the public and earn profits from the differences in the interest rates. From the regression analysis it is clear that the advances play a very important role in profitability of the public sector banks. It is seen that 86% of the advances has the influence on the profits of the banks. This means that the greater the advances and loans the bank grants the greater will be the profits of the banks. 3. Number of branches: - The number of branches of the public sector banks can also influence the profits of the public sector banks. The greater the number of branches the banks has it means that the greater the banks has the reach to the public and have more access to the deposits of the people hence it could lend more to the public in turn earning profits. Now customers do not visit banks but its reverse. From the regression analysis it is seen that 83% of the weight age of the number of branches on profits of the public sector banks. This means that greater the number of branches and better the distribution of funds of public sector banks the greater is the profits of the public sector banks. 4. Non-performing assets: - Non-performing assets, also called non-performing loans, are loans, made by a bank or finance company, on which repayments or interest payments are not being made on time. A loan is an asset for a bank as the interest payments and the repayment of the principal create a stream of cash flows. It is from the interest payments than a bank makes its profits. Banks usually treat assets as non-performing if they are not serviced for some time. If payments are late for a short time a loan is classified as past due. Once a payment becomes really late (usually 90 days) the loan classified as non-performing.. Hence greater the non performing assets are it would result in loss of the public sector banks and vice versa. The analysis shows that the NPA no longer affects the profits of the public sector banks as now the banks have the option to sell their non performing assets to the third party. Thus disposing off the non performing assets is no longer a headache for the banks.

Page | 26

5. Capital Adequacy Ratio: - Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of meeting the time liabilities and other risks such as credit risk, operational risk, etc. In the simplest formulation, a bank's capital is the "cushion" for potential losses, which protects the bank's depositors or other lenders. Banking regulators in most countries define and monitor CAR to protect depositors, thereby maintaining confidence in the banking system. From the regression analysis it is seen that 56% of the weight age of the capital adequacy ratio is on the profitability of the public sector banks. The lower the ratio is the greater will be the profits of the public sector banks.

5.2

RECOMMENDATION The performance of the public sector banks is definitely an important aspect in any economy. Therefore the importance and role of these banks cannot be neglected. In order to compete with the private sector banks in the economy, they have to focus on the customer services. Hence this means that the banks should increase its service facilities to the customers. We have seen in the analysis that the more the number of branches the more are the profits of the public sector banks. Therefore the banks should try to improve their distribution channels with which they could mobilize the funds in a better way which in turn is beneficial to both banks as well as economy.

6.
6.1 LIMITATIONS

CONCLUSION

In this term paper, no primary data has been collected. The focus has been on the collection of data from secondary sources only. The incorporation of the data from the primary sources would definitely add a value to the research. Sine secondary data has been used facts and figures may vary and it will not be accurate. The data has been collected for the year 2004 to 2010; the analysis of the data for the last 10 years couldnt be done as the data wasnt available. There are various other aspects of the industry for judging the profitability of the banks like credit deposit ratio, interest rates, no. of employees etc but all of them couldnt be analyzed. While analyzing the data only regression analysis has been used, other statistical tools like correlation, time series etc has not been used to evaluate the data.

Future Scope:-

Page | 27

Thus we have seen that the role of the public sector banks in the economy is as important as private sector banks. The public sector banks have also started hiring more number of employees which itself speaks about the increase in number of transactions of the banks. The profits of the public sector banks are increasing especially after the recommendations of the Second Narasimham Committee. The public sector banks are increasing their number of branches thus facilitating better services for the customers. The increase in the branches would definitely lead to higher profits as the deposits with the banks would increase, leading to increase in advances. Moreover the trust factor would also play a important role. People are likely to keep their money with the public sector banks because of the trust.

7.

EXECUTIVE SUMMARY

In the post-nationalization period, Indian political sector commercial banks have made rapid strides of progress by way of branch expansion, geographical coverage, priority sector lending and social banking. Departing from the tradition of lending to the agricultural sector, rural development and the small-sale entrepreneur and the tiny sector. Despite the positive emerging trends in the public sector banks by in servicing the priority sectors by adopting innovative schemes and developmental programs like PRI, VAP / SAA (Differential Rate of Interest, Village Adopted Programme / Service Area Approach / DIR, etc.) a disturbing trend in terms of mounting over dues, plummeting profits, weakening operational efficiency has been noticed. Narasimham Committee has sounded a note of warning to the public sector banks to arrest the rising trend in over-dues, phase out the priority sector lending The banking system in India is significantly different from that of other Asian nations because of the countrys unique geographic, social, and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. There are high levels of illiteracy among a large percentage of its population but, at the same time, the country has a large reservoir of managerial and technologically advanced talents. Between about 30 and 35 percent of the population resides in metro and urban cities and the rest is
Page | 28

spread in several semi-urban and rural centers. The countrys economic policy framework combines socialistic and capitalistic features with a heavy bias towards public sector investment. India has followed the path of growth-led exports rather than the exportled growth of other Asian economies, with emphasis on self-reliance through import substitution. These features are reflected in the structure, size, and diversity of the countrys banking and financial sector. The banking system has had to serve the goals of economic policies enunciated in successive five year development plans, particularly concerning equitable income distribution, balanced regional economic growth, and the reduction and elimination of private sector monopolies in trade and industry. In order for the banking industry to serve as an instrument of state policy, it was subjected to various nationalization schemes in different phases (1955, 1969, and 1980). As a result, banking remained internationally isolated (few Indian banks had presence abroad in international financial centers) because of preoccupations with domestic priorities, especially massive branch expansion and attracting more people to the system. Moreover, the sector has been assigned the role of providing support to other economic sectors such as agriculture, small-scale industries exports, and banking activities in the developed commercial centers (i.e., metro, urban, and a limited number of semi-urban centers). The banking systems international isolation was also due to strict branch licensing controls on foreign banks already operating in the country as well as entry restrictions facing new foreign banks. A criterion of reciprocity is required for any Indian bank to open an office abroad. These features have left the Indian banking sector with weaknesses and strengths. A big challenge facing Indian banks is how, under the current ownership structure, to attain operational efficiency suitable for modern financial intermediation. On the other hand, it has been relatively easy for the public sector banks to recapitalize, given the increases in nonperforming assets (NPAs), as their Government dominated ownership structure has reduced the conflicts of interest that private banks would face[9]. . The last decade has seen many positive developments in the Indian banking sector. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made several notable efforts to improve regulation in the sector. The sector now compares favorably with banking sectors in the region on metrics like growth, profitability and non-performing assets (NPAs). A few banks have established an outstanding track record of innovation, growth and value creation. This is reflected in their market valuation. However, improved regulations, innovation, growth and value creation in the sector remain limited to a small part of it. The cost of banking intermediation in India is higher and bank penetration is far ower than in other markets. Indias banking industry must strengthen itself significantly if it has to support the modern and vibrant economy which India aspires to be. While the onus for this change lies mainly with bank managements, an enabling policy and regulatory framework will also be critical to their success. The failure to respond to changing market realities has stunted the development of the financial sector in many developing countries. A weak banking structure has been unable to fuel continued growth, which has harmed the long-term health of their economies.[10] In this paper an attempt has been made to identify the profitability of the public sector banks. The public sector banks as analyzed play a very important role in the economy. Thus we have seen that there were many committees have been formed by the government to identify the weakness of these banks both in post liberalization and pre liberalization such as that of Narasimham Committee, Verma Committee etc. The government has also tried to ensure that all the
Page | 29

recommendations of the different committees has been properly executed, worked out and then implemented. The public sector banks has also coped up in this cut throat competition from the private sector banks in terms of use of technology, better access to customer, customer services etc. It is also seen that there is the growth of the employment opportunities in the public sector banks since last year. The following are the 5 parameters which affects the profitability of the public sector banks:- (a) deposits; (b) advances; (c) number of branches; (d) non-performing assets; (e) capital adequacy ratio.

8.ANNEXURE
TABLE 1:- Profitability of banks from 1992-93 to 1998-99 (Rs. crore)
Net Profit/Loss Total Profit (State Bank Group) Total Profit (Nationalized banks) Total Net Profit Total Loss (State Bank Group) Total Loss (Nationalized banks) Total Net Loss Net Position for PSBs 92-93@ 280 (8) 115 (7) 395 93-94 356 (8) 375 (7) 731 94-95 846 (8) 895 (11) 1,741 95-96 1,023 (7) 1,196 (12) 2,219 96-97 1,650 (8) 2,124 (16) 3,774 97-98 2,460 (8) 2,965 (17) 5,425 98-99 1,465 (8) 2,639 (17) 4,104

Nil Nil (0) (0) (-) 3,688 (-) 5,080 (12) (12) (-) 3,688 (-) 5,080 (-) 3,293 (-) 4,349

Nil (-) 230 (0) (1) (-) 625 (-) 2,360 (8) (7) (-) 625 (-) 2,590 1,116 (-) 371

Nil Nil Nil (0) (0) (0) (-) 679 (-) 398 (-) 846 (3) (2) (2) (-) 679 (-) 398 (-) 846 3,095 5,027 3,258

Note: Figures in brackets indicate number of banks. @: Excludes New Bank of India merged with Punjab National Bank in 1993.

Page | 30

Source: Balance sheets.

TABLE 2:- Accumulated losses and net NPAs exceed the net worth of the bank.
31 March 1998 Allahabad Bank Indian Bank Punjab and Sind Bank State Bank of Hyderabad @ State Bank of Indore @ State Bank of Mysore @ State Bank of Travancore @ United Bank of India 31 March 1999 Allahabad Bank Indian Bank Indian Overseas Bank Punjab and Sind Bank State Bank of Indore @ State Bank of Mysore @ State Bank of Travancore @ United Bank of India

Note: @: These banks get included because of low capital base which needs to be augmented. UCO Bank gets excluded as the bank received capital infusion of Rs. 350 crore and Rs. 200 crore in 1997-98 and 1998-99 respectively.

TABLE 3:Compliance with CAR and non-compliance with three or four of the remaining efficiency parameters

Page | 31

31 March 1998 Andhra Bank Bank of India Bank of Maharashtra Canara Bank State Bank of Indore State Bank of Mysore Union Bank of India State Bank of Travancore

31 March 1999 Andhra Bank Bank of India Bank of Maharashtra Dena Bank State Bank of Bikaner and Jaipur State Bank of India State Bank of Mysore State Bank of Travancore Syndicate Bank

TABLE 4:-Compliance with CAR and non-compliance with one or two of the
remaining efficiency parameters 31 March 1998 31 March 1999
Page | 32

Bank of Baroda Bank of Baroda Punjab National Bank Canara Bank State Bank of India Punjab National Bank State Bank of Hyderabad Corporation Bank State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of Saurashtra State Bank of Indore

TABLE 5:Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Profits Of Public Sector Banks Number of Branches 16546.38 48364 18975.81 49393 21523.87 50604 20152.18 52179 26592 53754 34394 54990

TABLE 6 Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Profits Of Public Sector Banks Deposits 16546.38 18975.81 21523.87 20152.18 26592 34394

1393734 1629043 1918994 2344109 2923495 3585963

TABLE 7
Page | 33

Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Profits Of Public Sector Banks Advances 16546.38 18975.81 21523.87 20152.18 26592 34394

806013 978801 1299542 1719133 2146551 2568731

TABLE 8 Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Profits Of Public Sector Banks Non Performing Assets 16546.38 54089 18975.81 51541 21523.87 47796 20152.18 42117 26592 38974 34394 40598

TABLE 9 Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Profits Of Public Sector Banks 16546.38 18975.81 21523.87 20152.18 26592 34394

Capital Adequacy Ratio 13.2 12.9 12.17 12.36 12.13 12.07

TABLE 10
Page | 34

Regression between Net Profit and Number of Branches

SUMMARY OUTPUT Regression Statistics 0.91359 Multiple R 458 0.83465 R Square 505 Adjusted R 0.79331 Square 881 Standard 2952.26 Error 098 Observations 6 ANOVA Df Regression Residual Total 1 4 5 Coeffici ents Intercept X Variable 1 96398.7 77 2.31688 967 SS 17598901 7.8 34863379 .61 21085239 7.4 Standard Error 26605.38 856 0.515605 233 MS 175989 018 871584 4.9 F 20.19 185 Significanc eF 0.0108762 99

t Stat 3.62328 4.49353 41

Pvalue 0.022 292 0.010 876

Lower 95% 170267.17 82 0.8853400 45

Upper 95% 22530.3 77 3.74843 929

Lower 95.0% 170267. 178 0.88534 005

Upper 95.0% 22530.37 66 3.748439 293

Page | 35

TABLE 11 Regression between Net profit and Deposits SUMMARY OUTPUT Regression Statistics 0.95792 Multiple R 092 0.91761 R Square 249 Adjusted R 0.89701 Square 562 Standard 2083.96 Error 275 Observation s 6 ANOVA Df Regression Residual Total 1 4 5 Coeffici ents Intercept X Variable 1 5839.92 091 0.00747 678 SS 193480794 .4 17371602. 99 210852397 .4 Standard Error 2712.4114 23 0.0011201 74 MS 1.93E +08 43429 01 F 44.551 051 Significa nce F 0.00261 87

t Stat 2.1530 37 6.6746 57

P-value 0.0976 484 0.0026 187

Lower 95% 1690.94 1 0.00436 67

Upper 95% 13370.7 823 0.01058 688

Lower 95.0% 1690.94 05 0.00436 668

Upper 95.0% 13370.78 233 0.010586 883

Page | 36

TABLE 12 Regression between Net profits and Advances

SUMMARY OUTPUT Regression Statistics 0.929991 Multiple R 93 0.864884 R Square 989 Adjusted R 0.831106 Square 237 2668.769 Standard Error 563 Observations 6 ANOVA df Regression Residual Total 1 4 5 Coefficien ts 9075.572 SS 182363073 .5 28489323. 92 210852397 .4 Standard Error 2965.2996 MS 1.82E +08 71223 31 F 25.604 41 Significa nce F 0.00718

Intercept

t Stat 3.0605

Pvalue 0.0376

Lower 95% 842.5808

Upper 95% 17308.

Lower 95.0% 842.5808 Page | 37

Upper 95.0% 17308.56

X Variable 1

489 0.008796 388

37 0.0017383 89

92 5.0600 8

37 0.0071 8

0.00397

56 0.0136 23

259 0.003969 846

42 0.013622 93

TABLE 13 Regression between Net Profit and Non Performing Assets SUMMARY OUTPUT Regression Statistics 0.75801 Multiple R 273 0.57458 R Square 33 Adjusted R 0.46822 Square 912 Standard 4735.50 Error 768 Observation s 6 ANOVA Df Regression Residual Total 1 4 5 SS 12115226 5.4 89700132. 01 21085239 7.4 MS 1.21E+ 08 224250 33 F 5.4025 46 Significa nce F 0.08075 2

Page | 38

Intercept X Variable 1

Coefficie nts 59373.2 116 0.79259 593

Standard Error 15754.704 43 0.3409986 15

t Stat 3.7686 02 2.3243 4

Pvalue 0.0196 28 0.0807 52

Lower 95% 15631.1 4 -1.73936

Upper 95% 103115. 28 0.15416 8

Lower 95.0% 15631.1 396 1.73935 987

Upper 95.0% 103115. 284 0.15416 8

TABLE 14 Regression between Net Profit and Capital Adequacy Ratio SUMMARY OUTPUT Regression Statistics 0.75434 Multiple R 144 0.56903 R Square 101 Adjusted R 0.46128 Square 876 Standard 4766.31 Error 003 Observations 6

Page | 39

ANOVA df Regression Residual Total 1 4 5 Coeffici ents Intercept X Variable 1 153551. 242 10465.3 64 SS MS 119981552 1.2E+0 .2 8 90870845. 22717 22 711 210852397 .4 Standard Error 56827.511 73 4553.8571 26 F 5.2814 1 Significan ce F 0.083109 675

t Stat

Pvalue

Lower 95% 4227.225 039 23108.89 863

Upper 95% 311329 .71 2178.1 7

Lower 95.0% 4227.22 5 23108.8 99

Upper 95.0% 311329.7 085 2178.170 028

2.7020 0.0539 58 79 2.2981 0.0831 3 1

9. BIBLIOGRAPHY
1. http://www.iloveindia.com/finance/bank/nationalised-banks/index.html 2. http://www.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=60

Page | 40

3. http://www.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=60

4. http://www.moneycontrol.com/news/business/targeting-8-capital-adequacy-ratio-by-mar-

2011-central-bk_483558.html)
5. http://www.123eng.com/forum/viewtopic.php?p=14590 6. http://www.socialresearchmethods.net/kb/qualdata.php

7. N.G. Das, Statistical methods , Page No. 5, Chapter No. 1

8. http://data.worldbank.org/indicator 9. http://www.adb.org/Documents/Books/Rising_to_the_Challenge/India/india_bnk. pdf 10.http://www.mckinsey.com/locations/india/mckinseyonindia/pdf/india_banking_2 010.pdf

11. The data regarding the Non Performing Assets has been taken from EIS (Economic Intelligence Survey) 12.http://www.indiastat.com/banksandfinancialinstitutions/3/publicsectorban ks/234/stats.aspx

Page | 41