A RESEARCH PROJECT REPORT ON

IMPACT OF BANKING REFORMS IN ITS PRODUCTIVITY AND PROFITABILITY

SUBMITTED In partial Fulfillment of the Requirement for the Award of degree Of MASTER OF BUSINESS ADMINISTRATION (2011-201 ! FROM MAHAMAYA TECHNICAL UNIVERSITY" NOIDA

Submitted to:

M,- P./0.1 0#%.,

S#$%&''() $*+ K#%., S.#,.$2

R344 N3-+1156780056

GNIT MANAGEMENT SCHOOL

5-C" K/394():( P.,0-II" G,(.'(, N3&). (G- B- N.:.,!

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STUDENT DECLARATION
I hereby declare and state that the RESEARCH BANKIN REPORT titled IMPACT OF

REFORMS ON IT!S PRO"#TI$IT% AN" PROFITABI&IT% is

s'b(itted in )artial *'l*ill(ent +* the re,'ire(ent *+r the A-ard +* "e.ree +* Master +* B'siness Ad(inistrati+n t+ the Maha(aya Technical #ni/ersity0 N+ida1 This )r+2ect is +ri.inal and has n+t been s'b(itted *+r any +ther "e.ree +r "i)l+(a +r Fell+-shi) t+ any +ther #ni/ersity +r Instit'ti+n1

P&ACE3 REATER NOI"A

K#MAR SA#RABH 4RO&&1NO1 1156789956:

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ACKNOWLEDGEMENT

Firstly0 I than< .+d -h+leheartedly *+r his Blessin. -ith+'t -hich this st'dy -+'ld ne/er be )+ssible1 I ta<e the h+n+r and )ri/ile.e t+ e=tend (y sincerest than<s t+ +'r res)ected "irect+r "r1SA$ITA MOHAN0 and I than< +'r HO"0 Dr. SATISH KUMAR *+r )er(ittin. (e t+ c+nd'ct this research re)+rt titled IMPACT OF BANKING REFORMS ON ITS PRODUCTIVITY AND PROFITABILITY1 I +-e a "ebt +* e/er be c+()leted1 Finally I e=tend (y heart*elt than<s t+ (y )arents and (y dear *riends *+r their (+ral s'))+rt and enc+'ra.e(ent t+ (a<e this h'(ble Endea/+'r a s'ccess1 ratit'de t+ (y research .'ide0 Mr. PANKAJ KUMAR *+r her sch+larly and )atient .'idance thr+'.h+'t the st'dy -ith+'t -h+( this research -+'ld

P&ACE3 REATER NOI"A

K#MAR SA#RABH 4RO&& NO1 1156789956:

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CONTENTS
CHAPTER?1 INTRO"#CTION @ 18 >;

1?Ab+'t (y t+)ic ;?Ob2ect +* the st'dy

CHAPTER?; CHAPTER?> CHAPTER?7 CHAPTER?@ CHAPTER?5 CHAPTER?8 CHAPTER?6 CHAPTER?C IN"#STR% PROFI&E COMPAN% PROFI&E RE$IEB OF &ITRAT#RE RESEARCH MATHO"O&O % "ATA ANA&%SIS FIN"IN S RECOMMEN"ATION AN" CONC&#SION S# ESTIONS

>>?>8
>6 A @7 @@ A @6 @C?59 51 A 88 86 A 69 61 A 6;

6> 67 6@

CHAPTER?19 &IMITATION OF ST#"% BIB&IO RAPH%

INTRODUCTION

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The ban<in. syste( in India is si.ni*icantly di**erent *r+( that +* +ther Asian Nati+ns beca'se +* c+'ntry! 'ni,'e .e+.ra)hic0 s+cial and ec+n+(ic characteristics1 The Indian ban<in. ind'stry has been trans*+r(ed since the i()le(entati+n +* the rec+((endati+n +* the Narsi(ha( C+((ittee Re)+rt al+n. -ith the liberaliDati+n and .l+baliDati+n +* the Indian ec+n+(y and *inancial syste(1 The C++)erati/e ban<in. syste( bein. an i()+rtant )layer +* the Indian credit syste( has als+ -itnessed a /ast and c+()rehensi/e chan.e *r+( re.'lated t+ c+()etiti/e and dere.'lated scenari+1 C++)erati/e ban<in.0 as disc'ssed here0 incl'des retail ban<in. carried +'t by credit 'ni+ns0 ('t'al sa/in.s ban<s0 b'ildin. s+cieties and c++)erati/es0 as -ell as c+((ercial ban<in. ser/ices )r+/ided by ('t'al +r.aniDati+ns 4s'ch as c++)erati/e *ederati+ns: t+ c++)erati/e b'sinesses1 There are di**erent .+als that are t+ be set ') by the ban<s b't earnin. (a=i('( )r+*it is the s')re(e +ne1 F+r the ban< (ana.e(ent in India0 the .r+-th +* the instit'ti+n and c+(('nity ser/ice are -+rth-hile +b2ecti/e1 In case +* a c+r)+rati+n0 -h+se st+c< is acti/ely traded0 the shareh+lders +* the instit'ti+n are in a better )+siti+n i* the instit'ti+n!s st+c< )rices in the (ar<et rise1

BANKING SECTOR REFORMS ROBTH OF BANKIN S%STEM IN IN"IA

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In +rder t+ 'nderstand )resent (a<e ') +* ban<in. sect+r in India and its )ast )r+.ress0 it -ill be *itness +* thin.s t+ l++< at its de/el+)(ent in a s+(e-hat l+n.er hist+rical )ers)ecti/e1 The )ast *+'r decades and )artic'larly the last t-+ decades -itnessed cataclys(ic chan.e in the *ace +* c+((ercial ban<in. all +/er the -+rld1 Indian ban<in. syste( has als+ *+ll+-ed the sa(e trend1 In +/er *i/e decades since de)endence0 ban<in. syste( in India has )assed thr+'.h *i/e distinct )hase0 /iD1 41: E/+l'ti+nary Phase 4)ri+r t+ 1C@9: 4;: F+'ndati+n )hase 41C@9?1C56: 4>: E=)ansi+n )hase 41C56?1C67: 47: C+ns+lidati+n )hase 41C67?1CC9: 4@: Re*+r(at+ry )hase 4since 1CC9: E$O&#TION PHASE3 4PRIOR TO 1C@9: Enact(ent +* the RBI Act 1C>@ .a/e birth t+ sched'led ban<s in India0 and s+(e +* these ban<s had already been established ar+'nd 1C611 The )r+(inent a(+n. the sched'led ban<s is the Allahabad Ban<0 -hich -as set ') in 165@ -ith E'r+)ean (ana.e(ent1 The *irst ban< -hich -as established -ith Indian +-nershi) and (ana.e(ent -as the O'dh C+((ercial Ban<0 I *+r(ed in 16610 *+ll+-ed by the A2+dhya Ban< in 16670 the P'n2ab Nati+nal Ban< in 16C7 and Ned'n.adi Ban< in 16CC1 Th's0 there -ere *i/e Ban<s in e=istence in the 1Cth cent'ry1 "'rin. the )eri+d 1C91? 1C170 t-el/e (+re ban<s -ere established0 )r+(inent a(+n. -hich -ere the Ban< +* Bar+da 41C95:0 the Canara Ban< 41C95:0 the Indian Ban< 41C98:0 the Ban< +* India 41C96: and the Central Ban< +* India 41C11:1Th's0 the *i/e bi. ban<s +* t+day had c+(e int+ bein. )ri+r t+ the c+((ence(ent +* the First B+rld Bar1 In 1C1>0 and als+ l in 1C;C0 the Indian Ban< *aced seri+'s crises1 Se/eral ban<s s'cc'(bed t+ these crises1 P'blic c+n*idence in ban<s recei/ed a 2+lt1 There -as a hea/y r'sh +n ban<s1 An i()+rtant )+int t+ be n+ted here is that n+ c+((ercial ban< -as established d'rin. the First B+rld Bar0 -hile as Page 5

(any as t-enty sched'led ban<s ca(e int+ e=istence a*ter inde)endence ?? t-+ in the )'blic sect+r and +ne in the )ri/ate sect+r1 The #nited Ban< +* India -as *+r(ed in 1C@9 by the (er.er +* *+'r e=istin. c+((ercial ban<s1Certain n+n?sched'led ban<s -ere incl'ded in the sec+nd sched'le +* the Reser/e Ban< in /ie- +* these *acts0 the n'(ber +* sched'led ban<s r+se t+ 611 O't +* 61 Indian sched'led ban<s0 as (any as ;> -ere either li,'idated +r (er.ed int+ +r a(al.a(ated -ith +ther sched'led ban<s in 1C560 lea/in. @6 Indian sched'le ban<s1It (ay be e()hasiDed at this sta.e that ban<in. syste( in India ca(e t+ be rec+.niDed inE the be.innin. +* ;9 cent'ry as )+-er*'l instr'(ent t+ in*l'ence the )ace and )attern +* ec+n+(ic de/el+)(ent +* the c+'nty1 In 1C;1 need -as *elt t+ ha/e a State Ban< end+-ed -ith all s'))+rt and res+'rces +* the +/ern(ent -ith a /ie- t+ hel)in. ind'stries and ban<in. *acilities t+ .r+- in all )arts +* the c+'ntry1 It is t+-ards the acc+()lish(ent +* this +b2ecti/e that the three Presidency Ban<s -ere a(al.a(ated t+ *+r( the I()erial Ban< +* India1 The r+le +* the I()erial Ban< -as en/isa.ed as t+ e=tend ban<in. *acilities0 and t+ render the (+ney res+'rces +* India (+re accessible t+ the trade and ind'stry +* this c+'ntry0 thereby )r+(+tin. *inancial syste( -hich is an indis)'table c+nditi+n +* the s+cial and ec+n+(ic ad/ance(ent +* India1#ntil 1C>@ -hen RBI ca(e int+ e=istence t+ )lay the r+le +* Central Ban< +* the c+'ntry and re.'lat+ry a'th+rity *+r the ban<s1 I()erial Ban< +* India )layed the r+le +* a ,'asicentral ban<1 It -as by (a<in. it the s+le re)+sit+ry +* all its *'nds and by chan.in. the /+l'(e +* its de)+sits -ith The Ban< as and -hen desired by it0 the +/ern(ent tried t+ in*l'ence the base +*

@6de)+sits and hence credit creati+n by I()erial Ban< and by rest +* the ban<in. syste(1 Th's0 the r+le +* c+((ercial ban<s in India re(ained c+n*ined t+ )r+/idin. /ehicle *+r the c+(('nity!s sa/in.s and attendin. t+ the credit needs +* +nly certain selected and li(ited se.(ents +* the ec+n+(y1 Ban<!s +)erati+n -as in*l'enced )ri(arily by c+((ercial )rinci)le and n+t by de/el+)(ental *act+r1Re.'lati+n -as still +nly bein. intr+d'ced and 'nhealthy )ractices in the ban<s -ere then (+re r'les than e=ce)ti+ns1 Fail're +* ban<s -as c+((+n as .+/ernance in )ri/ately +-ned 2+int st+c< ban<s le*t ('ch t+ be desired1 Page 8

7111; FO#N"ATION PHASE3 1C76?1C56

In th+se initial days0 the need +* the h+'r -as t+ re+r.aniDe and t+ c+ns+lidate the )re/ailin. ban<in. net-+r< <ee)in. in /ie- the re,'ire(ents +* the ec+n+(y1 The *irst ste) ta<en t+ that end -as the enact(ent +* the Ban<in. C+()anies Act0 1C7C *+ll+-ed by ra)id ind'strial *inance1 R+le )layed by ban<s -as instr'(ental behind ind'strialiDati+n -ith the i()et's .i/en t+ b+th hea/y and S(all Scale Ind'stries1 S'bse,'ently a*ter the ad+)ti+n +* s+cial c+ntr+l0 ban<s started ta<in. ste)s in e=tendin. credit t+ a.ric'lt're and s(all b+rr+-ers1 Finally0 +n F'ly lC5C0 17 ban<s -ere nati+naliDed -ith a /ie- t+ e=tendin. credit t+ all se.(ents +* the ec+n+(y and als+ t+ (iti.ate re.i+nal i(balances1 Th's0 the )eri+d +* re.'lated .r+-th *r+( 1C@9 till ban< nati+naliDati+n -itnessed a n'(ber +* *ar?reachin.chan.es in the ban<in. syste(1

7111> EGPANSION PHASE 41C56?1C67:

The (+tt+ +* ban< nati+naliDati+n -as t+ (a<e ban<in. ser/ices reach the (asses that can be attrib'ted as H*irst? ban<in. re/+l'ti+nH1 C+((ercial ban<s acted as /ital instr'(ents *+r this )'r)+se by -ay +* ra)id branch e=)ansi+n0 de)+sits (+biliDati+n and credit creati+n1 Penetratin. int+ r'ral areas and a.enda *+r .e+.ra)hical e=)ansi+n in the *+r( +* branch e=)ansi+n c+ntin'ed1 The sec+nd d+se +* nati+naliDati+n +* 5 (+re c+((ercial ban<s +n A)ril 1@0 1C69 *'rther -idened the )hase +* the )'blic sect+r ban<s and there*+re ban<s -ere t+ i()le(ent all the .+/ern(ent s)+ns+red )r+.ra((es

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and chan.e their attit'de in *a/+'r +* s+cial ban<in.0 -hich -as .i/en the hi.hest )ri+rity1 This )hase -itnessed s+cialiDati+n +* ban<in. in 1C561 It -as hardly realiDed that ban<s I-ere +r.aniDati+ns -ith s+cial res)+nsibilities b't n+t s+cial +r.aniDati+ns1 This )eri+d als+ -itnessed the birth +* Re.i+nal R'ral Ban< 4RRBS: in 1C8@ and NABARA" in 1C6; -hich had )ri+rity sect+r as their *+c's +* acti/ity1Alth+'.h n'(ber +* c+((ercial ban<s declined *r+( ;61 in 1C56 t+;56 in 1C670 n'(ber +* sched'led ban<s sh+t ') *r+( 81 t+ ;57 d'rin. the c+rres)+ndin. )eri+d0 n'(ber +* n+n?sched'led ban<s ha/in. re.istered )erce)tible decline *r+( ;19 t+ 7 d'rin. the )eri+d 'nder re*erence1 The rise in the n'(ber +* sched'led ban<s -as0 as stated ab+/e0 d'e t+ the e(er.ence +* RRBS1The *i*teen years *+ll+-in. the ban<s! nati+naliDati+n in 1C5C -ere d+(inated by the Ban<s! e=)ansi+n at a )ath brea<in. )ace1 As (any as @90999 ban< branches -ere set ')J three?*+'rths +* these branches -ere +)ened in r'ral and se(i?'rban areas1 Th's0 d'rin. this )eri+d a distinct trans*+r(ati+n +* *ar reachin. si.ni*icance +cc'rred in the Indian ban<in. syste( as it ass'(ed a br+ad (ass base and e(er.ed as an i()+rtant instr'(ent +* s+ci+?ec+n+(ic chan.es1 Th's0 -ith .r+-th ca(e ine**iciency and l+ss +* c+ntr+l +/er -idely s)read +**ices1 M+re+/er0 retail lendin. t+ (+re ris<?)r+ne areas at c+ncessi+nal interest rates had raised c+sts0 a**ected the ,'ality +* assets +* ban<s and )'t their )r+*itability 'nder strain1 The c+()etiti/e e**iciency +* the ban<s -as at a l+- ebb1 C'st+(er ser/ice beca(e least a/ailable c+((+dity1 Per*+r(ance +* a ban<Kban<er be.an t+ 51be (eas'red (erely in ter(s +* .r+-th +* de)+sits0 ad/ances and +ther s'ch tar.ets and ,'ality beca(e a cas'alty1The )r+.ress +* branch e=)ansi+n is )resented in the table

BRANCH EXPANSION SINCE 1969 TO 1991

%ear T+tal N+1 +* Branches R'ral Branches Se(i?'rban Branches 1C5C 6;5; 16>> >>7; 1C69 >;71C 1@19@ 61;;0 1CC1 590;;9 >@;95 110>77

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It can be seen *r+( the Table 711 that the t+tal n'(ber +* ban< branches increased ei.ht? *+ld bet-een 1C5C t+ 1CC11 The b'l< +* the increase -as +n acc+'nt +* r'ral branches -hich increased *r+( less than ;999 t+ +/er >@999 d'rin. the )eri+d1 The )ercenta.e share +* the r'ral and se(i?'rban branches r+se *r+( ;; and 7 res)ecti/ely in 1C5C t+ 7@ )er cent and ;@ )er cent in 1C69 and @6 )er cent and 16 )er cent in 1CC11 The i()act +* this )hen+(enal .r+-th -as t+ brin. d+-n the )+)'lati+n )er branch *r+( 590999 in 1C5C t+ ab+'t 1709991 The ban<in. syste( th's ass'(ed a br+ad (ass?base and e(er.ed as an i()+rtant instr'(ent +* s+cial?ec+n+(ic chan.es1 H+-e/er0 this s'ccess -as neither 'n,'ali*ied n+r -ith+'t c+sts1 Bhile the ra)id branch e=)ansi+n0 -ider .e+.ra)hical c+/era.e has been achie/ed0 lines +* s')er/isi+n and c+ntr+l had been stretched bey+nd the +)ti('( le/el and had -ea<ened1 M+re+/er0 retail lendin. t+ (+re ris<?)r+ne areas at c+ncessi+nal interest rates had raised c+sts0 a**ected the ,'ality +* assets +* ban<s and )'t their )r+*itability 'nder strain1

CONSOLIDATION PHASE !19"#$199%&

A realiDati+n +* the ab+/e -ea<nesses thr'st the ban<in. sect+r int+ the )hase +* c+ns+lidati+n1 This )hase be.an in 1C6@ -hen a series +* )+licy initiati/es -ere ta<en -ith the +b2ecti/es +* c+ns+lidatin. the .ains +* branch e=)ansi+n 'nderta<en by the ban<s0 and +* rela=in. albeit (ar.inally0 the /ery ti.ht re.'lati+n 'nder -hich the syste( -as +)eratin.1 Alth+'.h n'(ber +* sched'le ban<s increased *r+( ;57 in 1C67 t+ ;85 in 1CC90 branch e=)ansi+n 5; +* the ban<s sl+-ed d+-n1 Hardly 8999 branches -ere set ') d'rin. this )eri+d1 F+r the *irst ti(e0 seri+'s attenti+n -as )aid t+ i()r+/in. h+'se<ee)in.0 c'st+(er ser/ices0 credit (ana.e(ent0 sta** )r+d'cti/ity and )r+*itability +* the ban<s and c+ncrete ste)s -ere ta<en d'rin. this )eri+d t+ rati+naliDe the rates +* ban< de)+sits and lendin.1 Meas'res -ere initiated t+ red'ce the str'ct'ral c+nstraints -hich -ere then inhibitin. the de/el+)(ent +* (+ney (ar<et1 By this ti(e ab+'t C9L +* c+((ercial ban<s -ere in the )'blic sect+r and cl+sely re.'lated in all its *acets1 Prices +* assets liability -ere *i=ed by the RBIJ )rices +* ser/ice -ere *i=ed 'ni*+r(ly by the Indian Ban<in. Ass+ciati+n 4IBA:J c+()+siti+n +* assets Page 19

-as als+ s+(e-hat *i=ed in as ('ch as 5>1@L +* ban< *'nds -ere (+))ed ') by CRR and S&R and the re(ained -as t+ directed t+-ards )ri+rity sect+r leadin. and s(all l+anin.J salary str'ct're -as ne.+tiated by the IBA and /alidated by the Th's0 there -as n+ a't+n+(y in /ital decisi+ns +/ern(ent1 +/ern(ent1 Th's0 there -as n+

a't+n+(y in /ital decisi+ns1 C+((ercial a))r+ach in +)erati+ns and dri/e t+-ards e**iciency -as al(+st n+ne=istent1 The res'lt -as that d'rin. this )eri+d0 the ban<s ended ') c+ns+lidatin. their l+sses rather than the .ains1 A /ery interestin. de/el+)(ent that had ta<en )lace d'rin. 1C59s -as the li,'idati+n +* (any s(aller ban<s by a(al.a(ati+n -ith bi..er and str+n.er ban<s1 "'rin. the t-+ decades 1C7C t+ 1C5C the ban<in. sect+r -itnessed the )r+cess +* C+ns+lidati+n *+r the *irst ti(e1 The n'(ber +* ban<in. c+()anies ca(e d+-n drastically *r+( 5;9 in 1C7C t+ 6C in 1C5C1 The Table 71; sh+-s the )r+.ress +* c+((ercial ban<in. in 1India since 1C@115>

PRO RESS OF COMMERCIA& BANKIN

IN IN"IA3 1C@11C1 Indict+rK%ear 1C@1

1C5C 1C68 1CC1 11 N'(ber C+((ercial Ban<s 4incl'din. AABs: 3 @55 6C ;8C ;85 4a: Sched'led ban<s C; 8> ;8@ ;8; 4b: N+n?sched'led ban<s 787 15 7 7 ;1 N'(ber +* +**ices 71@1 6;5; @>0679 590;;9 >1 T+tal de)+sits +* Sched'led ban<s 4As1 Cr+res: C96 7575 1980>7@ ;9101CC 71 T+tal Credit +* Sched'led ban<s 4As1 Cr+res: @78 >@CC 570;1> 1;10665@ "e)+sit M+biliDati+n and Credit E=)ansi+n Bhile actin. as *inancial inter(ediaries bet-een the sa/ers and in/est+rs0 c+((ercial ban<s render a ye+(en ser/ice t+ the de/el+)(ent +* an ec+n+(y1 "e)+sit e=)ansi+n0 -hich is +ne +* the )ara(eters indicatin. the de/el+)(ent +* ban<in.0 c+ntrib'ted t+ the .r+-th +* the ec+n+(y1 Page 11

Nati+naliDati+n +* (a2+r ban<s in 1C5C acc+()anied by (assi/e branch e=)ansi+n .a/e *illi) t+ de)+sit (+biliDati+n1 The t+tal de)+sits -hich st++d at Rs1 C96 cr+re in 1C@1 increased t+ Rs1 7575 cr+re by 1C5C?an increase +* a little (+re than @ ti(es1 In the s'bse,'ent ei.ht years till 1C680 the de)+sits increased by Rs1 109;05CC cr+re They st++d at Rs1 ;09101CC cr+re in 1CC11 C+rres)+ndin.ly0 ban< credit had als+ increased *r+( Rs1 @78 cr+re in 1C@1 t+ Rs1 >@CC cr+re in 1C5C and t+ Rs1 10;1065@ cr+re in 1CC11

Pr'()*+,)-)*. '( B+/01

The ter( M)r+*itability! can be de*ined as an ability t+ earn )r+*it and its (eas'red in relati/e ter(s -ith /ari+'s *act+rs1 Pr+*itability is an i()+rtant criteria t+ e/al'ate the +/erall e**iciency +* ban<!s *'nd (ana.e(ent1 The C+((ittee +n Financial Syste( 4CFS:0 )+)'larly <n+-n as Narasi(ha( C+((ittee0 -as set ') in 1CC10 t+ rec+((end *+r brin.in. ab+'t the necessary re*+r(s in the *inancial sect+r1 Narasi(ha( C+((ittee a))raised and ac<n+-led.ed the s'ccess and )r+.ress +* Indian ban<s since the (a2+r ban<s -ere nati+naliDed +n 1C F'ly 1C5C1 #n*+rt'nately0 the de/el+)(ents -ere -itnessed +nly in the *ield +* e=)ansi+n and s)read +* ban< branches0 .enerati+n +* h'.e e()l+y(ent and (+biliDati+n +* sa/in.s rather than i()r+/e(ent in the e**iciency that c+'nts a l+t1 Besides0 c+rr')ti+n0 *ra'd0 (is'tiliDati+n in )'blic (+ney0 +'tdated techn+l+.y and )+liticiDati+n in )+licy (a<in. -ere *+'nd t+ be (a2+r dra-bac<s in the real )r+.ress +* the ban<s1 As the ban<in. sect+r )lays an i()+rtant and cr'cial r+le in the ec+n+(y +* a c+'ntry *+r its stabiliDati+n and balanced .r+-th0 (a2+r re*+r(s -ere 'r.ently *elt0 l+n. a*ter ;; years +* nati+naliDati+n0 t+ re/i/e Indian ban<s in the *ield n+t +nly +* )r+*itability b't als+ +* the +/erall e**iciency0 /iD10 better (ana.e(ent +* n+n?)er*+r(in. asset 4NPA:0 satis*yin. ca)ital re,'ire(ents0 increased c+st e**ecti/eness and c+ntr+l0 enhanced c'st+(er ser/ice0 i()r+/ed techn+l+.y0 establishin. c+()etiti/e interest rate0 e**ecti/e (an?)+-er )lannin.0 intr+d'cti+n +* asset? liability (ana.e(ent0 better )r+d'cti/ity0 la'nchin. ne)r+d'cts0 and bec+(in. (+re 15 )ri/ate sect+r ban<s in the era +* .l+baliDati+n and liberaliDati+n1 Page 1;

In the )+st liberaliDati+n era0 RBI has initiated se/eral (eas'res t+ ens're sa*ety and s+'ndness +* the Indian ban<in. syste( and at the sa(e ti(e t+ enc+'ra.e ban<s t+ )lay an e**ecti/e r+le in acceleratin. the .r+-th )r+cess1 It has been rec+.niDed that the Indian ban<in. syste( sh+'ld be in t'ne -ith -ell?laid?d+-n internati+nal standards and )r'dential n+r(s1 Alth+'.h the ban<s in India ha/e c+ntrib'ted si.ni*icantly in the Indian ec+n+(y0 certain -ea<nesses0 s'ch as decline in )r+d'cti/ity and e**iciency and er+si+n in )r+*itability had de/el+)ed in the syste(1 Kee)in. in /ie- these bac<dr+)s0 the C+((ittee +n Financial Syste( 4Narasi(ha( C+((ittee A I: -as set ')1 Meas'res +* a*ter?ta= rates +* ret'rn0 s'ch as the ret'rn +n a/era.e t+tal assets 4ROA: and the ret'rn +n t+tal e,'ity 4ROE:0 are -idely 'sed t+ assess the )er*+r(ance +* *ir(s0 incl'din. c+((ercial ban<s1 Ban< re.'lat+rs and analysts ha/e 'sed ROA and ROE t+ assess ind'stry )er*+r(ance and *+recast trends in (ar<et str'ct'reN as in)'ts in statistical (+dels t+ )redict ban< *ail'res and (er.ersNand *+r a /ariety +* +ther )'r)+ses -here a (eas're +* )r+*itability is desired1 The 'se*'lness +* standard )r+*it (eas'res can be a**ected by ta= la-s and re.'lati+ns0 -hich are s'b2ect t+ +ccasi+nal a(end(ent and re/isi+n1 S'bcha)ter S +* the *ederal ta= c+de0 *+r e=a()le0 -as established t+ bene*it s(all b'sinesses by .rantin. the( relie* *r+( the d+'ble ta=ati+n +* c+r)+rate di/idends1 The di/idends )aid by (+st c+r)+rati+ns are ta=ed t-iceN+nce at the *ir( le/el 'nder the c+r)+rate inc+(e ta= and a.ain at the shareh+lder le/el 'nder the )ers+nal inc+(e ta=1 H+-e/er0 the earnin.s +* ban<s and +ther *ir(s that elect s'bcha)ter S ta= treat(ent 4S?c+r)+rati+ns: are n+t s'b2ect t+ the *ederal c+r)+rate inc+(e ta=1 4H+-e/er0 shareh+lders +* S?c+r)+rati+ns are s'b2ect t+ )ers+nal inc+(e ta=es +n their )r+ rata share +* the *ir(!s entire earnin.s0 incl'din. n+n distrib'ted retained earnin.s1 C+r)+rati+ns n+t electin. s'bcha)ter S stat's +)erate 'nder s'bcha)ter C +* the *ederal ta= c+deNherea*ter0 C?c+r)+rati+ns1: Beca'se the earnin.s +* S? c+r)+rati+ns are ta=ed di**erently *r+( th+se +* C?c+r)+rati+ns0 the )r+*it rates +* S? and C?c+r)+rati+ns are n+t directly c+()arable +n the basis +* standard (eas'res +* a*ter?ta= rates +* ret'rn1

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As *inancial inter(ediaries0 ban<s )lay an i()+rtant r+le in the +)erati+n +* an ec+n+(y1 This is )artic'larly tr'e in the case +* Maca' -here n+ debt (ar<et e=ists1 Here0 ban<s are the s+le )r+/iders +* *'nds0 and their stability is +* )ara(+'nt i()+rtance t+ the *inancial syste(1 As s'ch0 an 'nderstandin. +* deter(inants +* their )r+*itability is essential and cr'cial t+ the stability +* the ec+n+(y1 In ban<in. literat're0 the deter(inants +* )r+*itability are e()irically -ell e=)l+red alth+'.h the de*initi+n +* )r+*itability /aries a(+n. st'dies1 "isre.ardin. the )r+*itability (eas'res0 (+st +* the ban<in. st'dies ha/e n+ticed that the ca)ital rati+0 l+an?l+ss )r+/isi+ns and e=)ense c+ntr+l are i()+rtant *act+rs in achie/in. hi.h )r+*itability1 In Maca+0 a relati/ely *est'dies ha/e been )er*+r(ed +n the deter(inants +* ban< )r+*itability1 The st'dy +* B+n. and Che'n. 41CC8: is by *ar the )rinci)al +ne -hich c+ncl'des that the ban<in. ind'stry in Maca+ is rather c+ncentrated0 -ith +ne sin.le .r+') +* ban<s .eneratin. the hi.hest le/el +* )r+*its1 H+-e/er0 the *act+rs -hich e=)lain s'ch a .++d )er*+r(ance are n+t e()irically e=)l+red in the st'dy1 The +b2ecti/e +* this )a)er is t+ e=a(ine the c+ntrib'ti+n +* ban<? s)eci*ic as -ell as (acr+ec+n+(ic and *inancial str'ct're *act+rs t+ the /ariati+n in )r+*itability acr+ss ban<s and +/er ti(e in Maca+1 #tilisin. ban< le/el data *+r the )eri+d 1CC>?;9980 -e ad+)t the )anel data re.ressi+n t+ deter(ine the i()+rtant *act+rs in achie/in. hi.h )r+*itability1 T+ this end0 a c+()rehensi/e set +* internal characteristics is e=a(ined1 Mean-hile0 -hen st'dyin. the relati+nshi) bet-een )r+*itability and ban<? s)eci*ic characteristics0 (acr+ec+n+(ic as -ell as *inancial str'ct're indicat+rs are als+ incl'ded t+ c+ntr+l *+r the e**ect +* e=ternal *act+rs1

D2()/)*)'/ '( B+/0)/34$ The de*initi+n +* a ban< /aries *r+( c+'ntry t+ c+'ntry1 #nder En.lish c+((+n la-0 a ban<er is de*ined as a )ers+n -h+ carries +n the b'siness +* ban<in.0 -hich is s)eci*ied as3 Page 17

 C+nd'ctin. c'rrent acc+'nts *+r his c'st+(ers Payin. che,'es dra-n +n hi(0 and C+llectin. che,'es *+r his c'st+(ers1 The b+rr+-in.0 raisin. +r ta<in. ') +* (+ney0 the lendin. +r ad/ancin. +* (+ney either -ith +r -ith+'t sec'rityJ actin. as a.ents *+r nay .+/ern(ent +r l+cal a'th+rity +r any +ther )ers+n +r )ers+ns1 C+ntractin. *+r )'blic and )ri/ate l+ans and ne.+tiatin. and iss'in. the sa(e1 The e**ectin.0 ins'rin.0 .'aranteein.0 'nder-ritin.0 )artici)atin. in (ana.in. and carryin. +'t +* any iss'e0 )'blic +r )ri/ate0 +* state0 ('nici)al +r +ther l+ans +r +* shares 0 st+c< 0 debent'res +r debent're st+c< +* any c+()any 0c+r)+rati+n +r ass+ciati+n and the lendin. +* (+ney *+r the )'r)+se +* any s'ch iss'e

E=a()les +* stat't+ry de*initi+ns HBan<in. b'sinessH (eans the b'siness +* recei/in. (+ney +n c'rrent +r de)+sit acc+'nt0 )ayin. and c+llectin. che,'es dra-n by +r )aid in by c'st+(ers0 the (a<in. +* c'st+(ers0 the (a<in. +* ad/ances t+ c'st+(ers0 and incl'des s'ch +ther B'siness as the A'th+rity (ay )rescribe *+r the )'r)+ses +* this ActJ Ban<in. Act 4Sin.a)+re:0 Secti+n ;0 Inter)retati+n:1 HBan<in. b'sinessH (eans the b'siness +* either +r b+th +* the *+ll+-in.3 11Recei/in. *r+( the .eneral )'blic (+ney +n c'rrent0 de)+sit0 sa/in.s +r +ther si(ilar acc+'nt re)ayable +n de(and +r -ithin less than O> (+nthsP 111+r -ith a )eri+d +* call +r n+tice +* less than that )eri+dJ ;1 Payin. +r c+llectin. che,'es dra-n by +r )aid in by c'st+(ers >1 Since the ad/ent +* EFTPOS 4Electr+nic F'nds Trans*er at P+int O* Sale:0 direct credit0 direct debit and internet ban<in.0 the che,'e has l+st its )ri(acy in (+st ban<in. syste(s as a )ay(ent instr'(ent1 Acc+rdin. t+ a Credit Ratin. and In*+r(ati+n Ser/ices +* India 4Crisil: st'dy0 &+-er +)eratin. e=)enses incl'din. rati+nalisati+n +* e()l+yee c+sts ha/e i()r+/ed the )r+*itability +* ban<s0 c+ntrary t+ the )+)'lar )erce)ti+n that +nly tradin. )r+*its hel)ed Page 1@

the ban<in. sect+r sh+re ') their b+tt+(lines1 The red'cti+n in +)eratin. e=)enses -as achie/ed thr+'.h lar.e?scale /+l'ntary retire(ent sche(es i()le(ented by )'blic sect+r ban<s1 Since this red'cti+n in +)eratin. e=)enses see(s s'stainable0 it )r+(ises a bri.hter *'t're *+r the ban<in. sect+r1 Alth+'.h the n+n?interest inc+(e +* ban<s did increase by 91>L d'rin. this )eri+d0 it -as (+re than +**set by a 91;1L increase in )r+/isi+ns and an identical decline in s)reads1 C+()ared t+ the relati/ely /+latile treas'ry inc+(e0 the red'cti+n in +)eratin. e=)enses i()arts a .reater le/el +* c+(*+rt in ter(s +* the ban<in. sect+rIs ability t+ s'stain its )r+*itability in the *'t're1 The ban<in. sect+r!s +/erall )r+*itability as (eas'red by the ret'rn +n a/era.e assets 4R+AA: has i()r+/ed t+ 9167 )er cent in ;991?9; *r+( 91@> )er cent in ;999?911 An analysis +* the incre(ental chan.e in the /ari+'s )r+*itability c+()+nents sh+-s3

Q In ;991?9;0 the sect+r!s n+n?interest inc+(e r+se by >; basis )+ints 4b)s: +/er the )re/i+'s year0 )ri(arily d'e t+ an increase in treas'ry )r+*its1 On the +ther hand0 the net interest inc+(e +r interest s)read declined by ;1 b)s in the sa(e )eri+d1 This -as in line -ith the declinin. interest rate re.i(e and increasin. c+()etiti+n in the sect+r1 At the sa(e ti(e0 )r+/isi+n and c+ntin.ency char.es r+se by ;1 b)s1 T+.ether0 the t-+ (+re than +**set the incre(ental c+ntrib'ti+n *r+( the n+n?interest inc+(e1

Q O)eratin. e=)enses0 h+-e/er0 declined si.ni*icantly by 71 b)s in ;991?9; +/er ;999? 91 and this enabled the ban<in. sect+r t+ re)+rt an +/erall increase in )r+*itability by >1 b)s1 The red'cti+n in +)eratin. e=)enses can be attrib'ted t+ the lar.e?scale /+l'ntary retire(ent sche(es 4$RS: bein. i()le(ented acr+ss all )'blic sect+r ban<s as -ell as +ther c+st?c'ttin. (eas'res1

A cl+ser analysis +* the di**erent ban<in. .r+')s 4)'blic sect+r ban<s0 +ld )ri/ate sect+r ban<s0 ne- )ri/ate sect+r ban<s and *+rei.n ban<s: als+ sh+-s that the red'cti+n in +)eratin. e=)enses -as +nly e=)erienced by the )'blic sect+r and *+rei.n ban<s1F+r )ri/ate sect+r ban<s0 the )r+*itability i()r+/e(ent -as (ainly beca'se +* the increase in treas'ry inc+(e and n+t d'e t+ any (aterial red'cti+n in +)eratin. e=)enses1 B't since )'blic sect+r and *+rei.n ban<s acc+'nt *+r +/er 69 )er cent +* the t+tal assets +* all Page 15

sched'led c+((ercial ban<s0 a red'cti+n in their c+re +)eratin. e=)enses c+ntrib'tes si.ni*icantly in i()r+/in. the )r+*itability +* the entire Indian ban<in. sect+r1 Crisil belie/es that the ban<in. sect+r is n+- rea)in. the bene*its +* rati+nalisin. its e()l+yee c+sts and 'nderta<in. +ther c+st?red'cti+n initiati/es0 -hich is a -elc+(e si.n in ter(s +* the ban<s! *inancial )er*+r(ance1 Crisil0 h+-e/er0 )+inted +'t that ban<s! ability t+ re)eat and s'stain s'ch e**+rts -+'ld be critical in (aintainin. their )r+*itability0 .i/en the increasin. )ress're +n interest s)reads and risin. )r+/isi+nin. le/els1 T+-ards the late 1C59s there -as debate re.ardin. the )r+(+ti+n +* the s(all scale ind'stries1 #CB!s ca(e t+ be seen as i()+rtant )layers in this c+nte=t1 The -+r<in. .r+') +n ind'strial *inancin. thr+'.h C+?+)erati/e Ban<s0 41C56 <n+-n as "a(ry r+'): atte()ted t+ br+aden the sc+)e +* acti/ities +* 'rban c+?+)erati/e ban<s by rec+((endin. these ban<s sh+'ld *inance the s(all and c+tta.e ind'stries1 This -as reiterated by the Ban<in. C+((issi+n in 1C5C1 The Madha/das C+((ittee 41C8C: e/al'ated the r+le )layed by 'rban c+?+)erati/e ban<s in .reater details and dre- a r+ad(a) *+r their *'t're r+le rec+((endin. s'))+rt *r+( RBI and +/ern(ent in the establish(ent +* s'ch ban<s in bac<-ard areas and )rescribin. /iability standard1 The Hate B+r<in. r+') 41C61: desired better 'tiliDati+n +* ban<!s s'r)l's *'nds and

that the )ercenta.e +* the Cash Reser/e Rati+ 4CRR: R the Stat't+ry &i,'idity Rati+ 4S&R: +* these ban<s sh+'ld be br+'.ht at )ar -ith c+((ercial ban<s0 in a )hased (anner1 Bhile the Marathe C+((ittee 41CC;: rede*ined the /iability n+r(s and 'shered in the era +* liberaliDati+n0 the Madha/a Ra+ C+((ittee 41CCC: *+c'sed +n c+ns+lidati+n0 c+ntr+l +* sic<ness0 better )r+*essi+nal standards in 'rban c+?+)erati/e ban<s and s+'.ht t+ ali.n the 'rban ban<in. (+/e(ent -ith c+((ercial ban<s1 A *eat're +* the 'rban ban<in. (+/e(ent has been its heter+.ene+'s character and its 'ne/en .e+.ra)hical s)read -ith (+st ban<s c+ncentrated in the states +* '2arat0 Karnata<a0 Maharashtra0 and Ta(il Nad'1 Bhile (+st ban<s are 'nit ban<s -ith+'t any Page 18

branch net-+r<0 s+(e +* the lar.e ban<s ha/e established their )resence in (any states -hen at their behest ('lti?state ban<in. -as all+-ed in 1C6@1 S+(e +* these ban<s are als+ A'th+riDed "ealers in F+rei.n E=chan.e1 Alth+'.h the e=act *i.'res ha/e n+t c+(e in0 indicati+ns are that the .+/ern(ent has e=ceeded the re/ised tar.et *+r indirect ta= c+llecti+ns in ;91;?1> and has (et the +/erall re/ised re/en'e tar.ets0 balancin. the s(all sh+rt*all in direct ta= c+llecti+ns1 Be ha/e e=ceeded the re/ised esti(ates in indirect ta=0S Re/en'e Secretary S'(it B+se said at an interacti/e sessi+n -ith the (e(bers +* the Ben.al Cha(ber +* C+((erce and Ind'stry here +n Friday1 The e=act n'(bers (ay be <n+-n +nly a*ter the third -ee< +* this (+nth1 The re/ised indirect ta= c+llecti+ns tar.et *+r ;91;?1> -as Rs1715 la<h cr+re0 -hile the t+tal re/ised re/en'e tar.et -as Rs1191> la<h cr+re1 Mr1 B+se said the .+/ern(ent -as cl+se t+ direct ta= c+llecti+n!s tar.et0 indicatin. that the tar.et (i.ht ha/e been (issed1 B't c+(binin. 4indirect and direct ta=:0 -e ha/e (et the tar.et0S he said1 The #ni+n Finance Ministry -as )lannin. t+ set ') the *i*th lar.e ta=)ayer 'nit 4&T#: in K+l<ata by F'ne0 he said0 addin. that the &T# -as e=)ected t+ )r+/ide s)ecialised ser/ices t+ lar.e ta= )ayers +* the eastern re.i+n1 He als+ said the trend in ta= t+ 517> )er cent1 "P rati+ a))eared t+ ha/e been stable in ;91;?1>0 bein. (aintained at the ;911?1; le/el +*

IT 51+32
Many +* the States ha/e d+ne -ell in ta= c+llecti+n0 and this is lar.ely d'e t+ 'se +* in*+r(ati+n techn+l+.y0S he added1 Acc+rdin. t+ Mr1 B+se0 the rati+ +* the c+(bined .r+ss state d+(estic )r+d'ct and ta= c+llecti+n i()r+/ed in the )ast *e- years d'e t+ the e=tra e**+rts (+'nted by the States1 Bith the .+/ern(ent ai(in. t+ reclai( its )ea< ta=? "P rati+ +* 111C )er cent s++n0 the Re/en'e Secretary said that b++stin. c+r)+rate ta= c+llecti+n -as <ey t+ i()r+/in. the cr'cial rati+1 Mr1 B+se said that hi.h ec+n+(ic .r+-th -as the Mre(edy! *+r i()r+/in. the l+- ta=? "P rati+ as +nly hi.h .r+-th -+'ld ens're hi.her c+r)+rati+n ta= c+llecti+n1

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L+/6 6272-'892/* ,+/014

The &and de/el+)(ent ban<s are +r.aniDed in > tiers na(elyJ State0 Central0 Pri(ary le/el and they (eet the l+n. ter( credit re,'ire(ents +* the *ar(ers *+r de/el+)(ental )'r)+ses1 The state land de/el+)(ent ban<s +/ersee0 the )ri(ary land de/el+)(ent ban<s sit'ated in the districts and tehsil areas in the state1 They are .+/erned b+th by the state .+/ern(ent and Reser/e Ban< +* India1 Recently0 the s')er/isi+n +* land de/el+)(ent ban<s has been ass'(ed by Nati+nal Ban< *+r A.ric'lt're and R'ral de/el+)(ent 4NABAR":1 The s+'rces +* *'nds *+r these ban<s are the debent'res s'bscribed by b+th central and state .+/ern(ent1 These ban<s d+ n+t acce)t de)+sits The ter( #rban C+?+)erati/e Ban<s 4#CBs:0 th+'.h n+t *+r(ally de*ined0 re*ers t+ )ri(ary c+?+)erati/e ban<s l+cated in 'rban and se(i?'rban areas1 These ban<s0 till 1CC50 -ere all+-ed t+ lend (+ney +nly *+r n+n?a.ric'lt'ral )'r)+ses1 This distincti+n d+es n+t h+ld t+day1 These ban<s -ere traditi+nally centered +n c+(('nities0 l+calities0 -+r< )lace .r+')s1 They essentially lend t+ s(all b+rr+-ers and b'sinesses1 T+day0 their sc+)e +* +)erati+ns has -idened c+nsiderably1 The +ri.ins +* the 'rban c+?+)erati/e ban<in. (+/e(ent in India can be traced t+ the cl+se +* nineteenth cent'ry1 Ins)ired by the s'ccess +* the e=)eri(ents related t+ the c+? +)erati/e (+/e(ent in Britain and the c+?+)erati/e credit (+/e(ent in er(any0 s'ch s+cieties -ere set ') in India1 C+?+)erati/e s+cieties are based +n the )rinci)les +* c++)erati+n0 ('t'al hel)0 de(+cratic decisi+n (a<in.0 and +)en (e(bershi)1 C+? +)erati/es re)resented a ne- and alternati/e a))r+ach t+ +r.aniDati+n as a.ainst )r+)rietary *ir(s0 )artnershi) *ir(s0 and 2+int st+c< c+()anies -hich re)resent the d+(inant *+r( +* c+((ercial +r.aniDati+n1 They (ainly rely ')+n de)+sits *r+( (e(bers and n+n?(e(bers and in case +* need0 they .et *inance *r+( either the district central c+?+)erati/e ban< t+ -hich they are a**iliated +r *r+( the a)e= c+?+)erati/e ban< i* they -+r< in bi. cities -here the a)e= ban< has its Head O**ice1 They )r+/ide credit t+ s(all scale ind'strialists0 salaried e()l+yees0 and +ther 'rban and se(i?'rban residents1

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F5/:*)'/1 '( ,+/014

Ban< als+ )er*+r(s the basic ban<in. *'ncti+ns +* ban<in. b't they di**er *r+( c+((ercial ban<s in the *+ll+-in. res)ects3 C+((ercial ban<s are 2+int?st+c< c+()anies 'nder the c+()anies! act +* 1C@50 +r )'blic sect+r ban< 'nder a se)arate act +* a )arlia(ent -hereas c+?+)erati/e ban<s -ere established 'nder the c+?+)erati/e s+ciety!s acts +* di**erent states1? C+((ercial ban< str'ct're is branch ban<in. str'ct're -hereas c+?+)erati/e ban<s ha/e a three tier set')0 -ith state c+?+)erati/e ban< at a)e= le/el0 central K district c+? +)erati/e ban< at district le/el0 and )ri(ary c+?+)erati/e s+cieties at r'ral le/el1 Only s+(e +* the secti+ns +* ban<in. re.'lati+n act +* 1C7C 4*'lly a))licable t+ c+((ercial ban<s:0 are a))licable t+ c+?+)erati/e ban<s0 res'ltin. +nly in )artial c+ntr+l by RBI +* c+?+)erati/e ban<s and Ban<s *'ncti+n +n the )rinci)le +* c++)erati+n and n+t entirely +n c+((ercial )ara(eters1

DECLINE IN PRODUCTIVITY AND PROFITABILITY

Page ;9

"es)ite this c+((endable )r+.ress seri+'s )r+ble(s ha/e e(er.ed re*lected in a decline in )r+d'cti/ity and e**iciency and er+si+n +* the )r+*itability +* the ban<in. sect+r1 The s,'eeDe +n )r+*itability has e(anated b+th *r+( the *act+rs +)eratin. +n the side +* inc+(e and +n the side +* e=)endit're1 The Narasi(ha( C+((ittee?I identi*ied the *+ll+-in. *act+rs as res)+nsible *+r decline in inc+(e earnin.s3 i1 "irected in/est(ent in ter(s +* (ini('( Stat't+ry &i,'idity Rati+s -hich t+.ether-ith/ariable Cash Reser/e Rati+0 )re?e()tin. -ell 57 +/er hal* +* the t+tal res+'rces (+biliDed by ban<s1 ii1 "irected credit )r+.ra((e +* de)l+yin. 79 )er cent +* ban< credit t+ the )ri+rity sect+rs at l+- interest rates1 iii1 &+- ca)ital base1 i/1 &+- techn+l+.y1 /1 Phen+(enal branch e=)ansi+n1 /i1 P+litical inter*erence in l+an disb'rsal and )+/erty eradicati+n )r+.ra((es1 The ab+/e *act+rs led t+ the de)ressi+n in the interest inc+(e a/ailable t+ ban<s +n the +ne hand and the deteri+rati+n in the ,'ality +* l+an )+rt*+li+ b+th +* the )ri+rity sect+r and traditi+nal sect+rs res'ltin. in acc'('lati+n +* n+n?)er*+r(in. assets +n the +ther1 This has been res)+nsible *+r er+si+n +* earnin.s and )r+*itability +* ban<s1C+((entin. +n the s,'eeDe +n the )r+*itability +* ban<s0 IThe Narasi(ha( C+((ittee +n Financial Syste(I +bser/ed0 HPerha)s the sin.le (+st i()+rtant ca'se *+r the *'rther increase in e=)endit're has been the i()act +* the )hen+(enal e=)ansi+n +* branch ban<in.1 r+-in. di/ersi*icati+n +* *'ncti+ns0 )artic'larly -ith res)ect t+ e=tendin. the c+/era.e +* ban< credit t+ a.ric'lt're and s(all ind'stries0 -here the 'nit c+st +* ad(inisterin. the l+an tend t+ be hi.h in )r+)+rti+nate ter(s0 ha/eals+c+ntrib'ted t+ a *aster .r+-th +* e=)endit're1 Many +* r'ral branches0 'n*+rt'nately0 ha/e n+t been able t+ .enerate Page ;1

ade,'ate b'siness t+ 2'sti*y their e=istence0 (+st +* the( +)eratin. bel+- the brea<?e/en )+int1 An in/erse c+rrelati+n bet-een the e=tent +* the c+((ercial ban<s )resence in r'ral areas and the /+l'(e +* b'siness .enerated by these +'tlets is clearly /isible1This has decisi/e i()act +n the +/erall )r+*its +* the ban<s1 The )'blic sect+r ban<s0 alth+'.h ha/e a lar.e n'(ber +* r'ral branches0 +nly a s(all )r+)+rti+n +* their b'siness is .enerated by these branches1 It is esti(ated that 71 )er cent +* PSBs branches handle +nly 19 )er cent +* t+tal ad/ances and the c+ntrib'ti+n +* r'ral branches t+ de)+sit (+biliDati+n is +nly 17 )er cent1 It is a lab+rintensi/e )r+cess t+ handle a lar.e n'(ber +* s(all de)+sit acc+'nts and this has res'lted in l+- a/era.e b'siness )er e()l+yee in r'ral branches1 These branches ha/e t+ ser/ice >C )er cent +* s(all b+rr+-in. acc+'nts a 5@(a2+r n'(ber +* -hich are less re/en'e .eneratin.1 The st+ry is n+t di**erent in the case +* )ri/ate sect+r ban<s1 ;; )er cent +* their r'ral branches (+biliDe +nly 5 )er cent +* their de)+sits1 They disb'rse hardly 7 )er cent +* the t+tal credit and de)l+y 11 )er cent +* the sta** t+ (ana.e these branches1 The r'ral branches +* the )ri/ate sect+r ban<s a))ear as a s(all a))enda.e (aintained beca'se +* its ine/itability 'nder the e=istin. ban<in. re.'lati+ns than *+r its 'tility0 As a res'lt +* theab+/e *act+rs .r+ss )r+*its ie s'r)l's be*+re )r+/isi+nbeen declinin. *+r the ban<in. syste( +/er the )ast decades and in the year1C6C?C90 s'ch )r+*it -ere n+ (+re than 1119 )er cent +* -+r<in. *'nds1 The Table 71> sh+-s the net 1)r+*its +* sched'led c+((ercial ban<s in the re*+r( year 1CC;? C> and the )recedin. years1

NET PROFITS OF SCHEDULED COMMERCIAL BANKS 4Rs1 Cr+re: Re)+rtin. ban<s 1CC11C; 1CC;?C> State Ban< .r+') 46: ;77 ;69 Page ;;

Nati+naliDed ban<s 41C: @@C 4?:>576 Pri/ate Sect+r ban<s 4>9: 88 59 F+rei.n ban<s 479: >;9 4?:67; It (ay be seen *r+( the Table 71> that in the case +* nati+naliDed ban<s0 +ther than State ban< .r+')0 )r+*itability -as ,'ite l+- d'rin. 1CC1? C; +/er 1CC;?C>1 "'rin. 1CC;?C> they )+sted h'.e l+sses t+ the t'ne +* Rs1 >576 cr+re1 In case +* )ri/ate sect+r ban<s t++ the net )r+*its ha/e declined *r+( Rs1 88 cr+re in 1CC1?C; t+ Rs1 59 cr+re1 In 1CC;?C>1 The F+rei.n ban<s t++ ha/e s'stained l+sses in 1CC;?C>1 These l+sses in 1CC;?C> (ay be attrib'ted (ainly t+ the sec'rities sca( en.ineered by Harshad Mehta and )r+/isi+ns (ade *+r n+n?)er*+r(in. assets1 F'rther0 it (ay be n+ted that the a/era.e Ret'rn +n Assets in the sec+nd hal* +* 1C69s -as ab+'t 911@ )er 55 cent0 an e=tra+rdinarily l+*i.'re -hen c+()ared t+ the internati+nal standards Re*lectin. l+- ca)italiDati+n +* Indian ban<s0 Ret'rn +n E,'ity c+/ered ar+'nd C1@ )er cent and ca)ital and reser/es a/era.ed ab+'t 119@ )er cent +* assets in shar) c+ntrast t+ 7 t+ 5 )er cent in +ther Asian c+'ntries1 The ca)ital base de*ined as the rati+ +* )aid?') ca)ital and reser/es t+ de)+sits +* PSBs at a sli.htly +/er ;16@ )er cent in 1CC9?C1 c+()ared /ery )++rly -ith .I+bal standards1 Th's by 1CC10 the c+'nty erected an 'n)r+*itable0 ine**icient and *inancially 'ns+'nd ban<in. sect+r1 The +)erati+nal e**iciency +* ban<in. syste( had been 'nsatis*act+ry in ter(s +* l+- )r+*itability0 .r+-in. incidence +* NPAs and relati/ely l+- ca)ital base1 C+nse,'ently0 the1*inancial health +* ban<s deteri+rated1 F'rther0 the c'st+(er ser/ice -as )++r0 their -+r< techn+l+.y -as +'tdated and they -ere 'nable t+ (eet the challen.es +* a c+()etiti/e en/ir+n(ent1 These necessitated de/isin. a re*+r( a.enda *+r the ban<in. sect+r1 de/el+)(ents ha/e

;.1.# REFORMATORY PHASE !1991 ONWARDS&

The (ain +b2ecti/e +* the *inancial sect+r re*+r(s in India initiated in the early 1CC9s -as t+ create an e**icient0 c+()etiti/e and stable *inancial sect+r that c+'ld then Page ;>

c+ntrib'te in .reater (eas're t+ sti('late .r+-th1 C+nc+(itantly0 the (+netary )+licy *ra(e-+r< (ade a )hased shi*t *r+( direct instr'(ents +* (+netary (ana.e(ent t+ an increasin. reliance +n indirect instr'(ents1 H+-e/er0 as a))r+)riate (+netary trans(issi+n cann+t ta<e )lace -ith+'t e**icient )rice disc+/ery +* interest rates and e=chan.e rates in the +/erall *'ncti+nin. +* *inancial (ar<ets0 the de/el+)(ent +* the (+ney (ar<et0 be c++rdinated1 c+rres)+ndin. +/ern(ent sec'rities (ar<et and the *+rei.n

e=chan.e (ar<et beca(e necessary1 Re*+r(s in the /ari+'s se.(ents0 there*+re0 had t+

;.< FINANCIAL AND BANKING SECTOR REFORMS 4

The last t-+ decades -itnessed the (at'rity +* IndiaIs *inancial (ar<ets1 Since 1CC10 e/ery .+/ern(ents +* India t++< (a2+r ste)s in re*+r(in. the *inancial sect+r +* the c+'ntry1 The i()+rtant achie/e(ents in the *+ll+-in. *ields0 is disc'ssed 'nder se)arate heads3 58 Financial (ar<ets Re.'lat+rs The ban<in. syste( N+n?ban<in. *inance c+()anies The ca)ital (ar<et M't'al *'nds O/erall a))r+ach t+ re*+r(s "ere.'lati+n +* ban<in. syste( Ca)ital (ar<et de/el+)(ents C+ns+lidati+n i()erati/e The details +* the ab+/e se.(ents ha/e been e=)lained se)arately as 'nder1

;.<.1 FINANCIAL MARKETS

In the last decade0 Pri/ate Sect+r Instit'ti+ns )layed an i()+rtant r+le1 They .re- ra)idly in c+((ercial ban<in. and asset (ana.e(ent b'siness1 Bith the +)enin.s in the Page ;7

ins'rance

sect+r

*+r

these

instit'ti+ns0

they

started

(a<in.

debt

in

the

(ar<et1C+()etiti+n a(+n. *inancial inter(ediaries .rad'ally hel)ed the interest rates t+ decline1 "ere.'lati+n added t+ it1 The real interest rate -as (aintained1 The b+rr+-ers did n+t )ay hi.h )rice -hile de)+sit+rs had incenti/es t+ sa/e1 It -as s+(ethin. bet-een the n+(inal rate +* interest and the e=)ected rate +* in*lati+n1 ;.<.< REGULATORS The Finance Ministry c+ntin'+'sly *+r('lated (a2+r )+licies in the *ield +* *inancial sect+r +* the c+'ntry1 The +/ern(ent acce)ted the i()+rtant r+le +* re.'lat+rs1 The Reser/e Ban< +* India 4RBI: has bec+(e (+re inde)endent1 Sec'rities and E=chan.e B+ard +* India 4SEBI: and the Ins'rance Re.'lat+ry and "e/el+)(ent A'th+rity 4IR"A: beca(e i()+rtant instit'ti+ns1 O)ini+ns are als+ there that there sh+'ld be a s')er? re.'lat+r *+r the *inancial ser/ices sect+r instead +* ('lti)licity +* re.'lat+rs156

;.<.= THE BANKING SYSTEM

Al(+st 69L +* the b'sinesses are still c+ntr+lled by P'blic Sect+r Ban<s 4PSBs:1 PSBs are still d+(inatin. the c+((ercial ban<in. syste(1 Shares +* the leadin. PSBs are already listed +n the st+c< e=chan.es1 The RBI has .i/en licenses t+ ne- )ri/ate sect+r ban<sas)art+*theliberaliDati+n )r+cess1 The RBI has als+ been .rantin. licenses t+ ind'strial h+'ses1 Many ban<s are s'ccess*'lly r'nnin. in the retail and c+ns'(er se.(ents b't are yet t+ deli/er ser/ices t+ ind'strial *inance0 retail trade0 s(all b'siness and a.ric'lt'ral *inance1The PSBs -ill )lay an i()+rtant r+le in the ind'stry d'e t+ its n'(ber +* branches and *+rei.n ban<s *acin. the c+nstraint +* li(ited n'(ber +* branches1 Hence0 in +rder t+ achie/e an e**icient ban<in. syste(0 the +n's is +n the +/ern(ent t+ enc+'ra.e the PSBs t+ be r'n +n )r+*essi+nal lines1

;.<.; DEVELOPMENTOF FINANCIAL INSTITUTIONS

FIsIs access t+ S&R *'nds red'ced1 N+- they ha/e t+ a))r+ach the ca)ital (ar<et *+r debt and e,'ity *'nds1 Page ;@

 C+n/ertibility cla'se n+ l+n.er +bli.at+ry *+r assistance t+ c+r)+rates sancti+ned by ter(?lendin. instit'ti+ns1 Ca)ital ade,'acy n+r(s e=tended t+ *inancial instit'ti+ns1 "FIs s'ch as I"BI and ICICI ha/e entered +ther se.(ents +* *inancial ser/ices s'ch as c+((ercial ban<in.0 asset (ana.e(ent and ins'rance thr+'.h se)arate /ent'res1 The (+/e t+ 'ni/ersal ban<in. has started1 ;.<.# NON$BANKING FINANCE COMPANIES In the case +* ne- NBFCs see<in. re.istrati+n -ith the RBI0 the re,'ire(ent +* (ini('( net +-ned *'nds0 has been raised t+ Rs1; cr+res1 #ntil recently0 the (+ney (ar<et in India -as narr+- and circ'(scribed by ti.htre.'lati+ns +/er interest rates and )artici)ants1 The sec+ndary (ar<et -as 'nderde/el+)ed and lac<ed li,'idity1 Se/eral (eas'res ha/e been 5Cinitiated and incl'de ne- (+ney (ar<et instr'(ents0 stren.thenin. +* e=istin. instr'(ents and settin. ') +* the "isc+'nt and Finance H+'se +* India 4"FHI:1 The RBI c+nd'cts its sales +* dated sec'rities and treas'ry bills thr+'.h its +)en (ar<et +)erati+ns 4OMO: -ind+-1 Pri(ary dealers bid *+r these sec'rities and als+ trade in the(1 The "FHI is the )rinci)al a.ency *+r de/el+)in. a sec+ndary (ar<et *+r (+ney (ar<et instr'(ents and +/ern(ent +* India treas'ry bills1 The RBI has intr+d'ced a li,'idity ad2'st(ent *acility 4&AF: in -hich li,'idity is in2ected thr+'.h re/erse re)+ a'cti+ns and li,'idity is s'c<ed +'t thr+'.h re)+ a'cti+ns1 On acc+'nt +* the s'bstantial iss'e +* .+/ern(ent debt0 the .ilt? ed.ed (ar<et +cc')ies an i()+rtant )+siti+n in the *inancial set? ')1 The Sec'rities Tradin. C+r)+rati+n +* India 4STCI:0 -hich started +)erati+ns in F'ne 1CC7 has a (andate t+ de/el+) the sec+ndary (ar<et in .+/ern(ent sec'rities1 &+n.?ter( debt (ar<et3 The de/el+)(ent +* a l+n.?ter( debt (ar<et is cr'cial t+ the *inancin.+*in*rastr'ct're1 A*ter brin.in. s+(e +rder t+ the e,'ity (ar<et0 the SEBI has n+- decided t+ c+ncentrate +n the de/el+)(ent +* the debt (ar<et1 Sta() d'ty is bein. -ithdra-n at the ti(e +* de(aterialiDati+n +* debt instr'(ents in +rder t+ enc+'ra.e )a)erless tradin.1

SCOPE OF THE S*56.

Page ;5

The PSBs acc+'nt *+r the (a2+r share +* ban<in. b'siness in this c+'ntry1 B't the PSBs are *'ncti+nin. 'nder )ress're *r+( .+/ern(ent0 re.'lat+ry a.encies0 and the )'blic1 The re*+r( )r+cess started in 1CC1 )+ses challen.es be*+re ban<ers as ne/er be*+re1 A*ter liberaliDati+n0 /ari+'s ne- )ri/ate sect+r ban<s and *+rei.n ban<s ha/e 2+ined the ban<in. ind'stry in India1 It is .enerally be li/ed that there is a decline in )r+*itability and )r+d'cti/ity +* the PSBs as a res'lt +* liberaliDati+n1 It is belie/ed that PSBs ha/e n+t +nly l+st their de)+sits t+ ne- .enerati+n )ri/ate sect+r ban<s b't als+ t+ +ld )ri/ate sect+r ban<s and *+rei.n sect+r ban<s1 Only *+'r ban<s0 viz. State Ban< +* India0 Ban< +* Bar+da0 P'n2ab Nati+nal Ban<0 and Canara Ban< had (+re than @ )er cent (ar<et share in March0 1CCC1 PSBs -itnessed s'bstantial l+ss in their (ar<et share de)+sit and still are l+sin.0 -ill ha/e really str'..le *+r retainin. their )+siti+n in the ne=t (illenni'(1 S+0 there is need t+ ha/e a l++< +n PSBs *+r )+st liberaliDati+n )eri+d1 As *ar as sc+)e +* the st'dy is c+ncerned0 it c+/ers all the ;8PSBs *'ncti+nin. in India1 These are3 11 Allahabad Ban< ;1 Andhra Ban< >1 Ban< +* Bar+da 71 Ban< +* India @1 Ban< +* Maharashtra 51 Canara Ban< 81 Central Ban< +* India 61 C+r)+rati+n Ban< C1 "ena Ban< 191 Indian Ban< 111 Indian O/erseas Ban< 1;1 Oriented Ban< +* C+((erce 1>1 P'n2ab and Sindh Ban< 171 P'n2ab Nati+nal Ban< 1@1 State Ban< +* Bi<aner and Fai)'r 151 State Ban< +* Hyderabad 181 State Ban< +* Ind+re 161 State Ban< +* Mys+re Page ;8

1C1 State Ban< +* Patiala ;91 State Ban< +* Sa'rashtra ;11 State Ban< +* Tra/anc+re ;;1 State Ban< +* India ;>1 Syndicate Ban< ;71 #nited C+((ercial Ban< ;@1 #ni+n Ban< +* India ;51 #nited Ban< +* India ;81 $i2aya Ban< The )eri+d +* the st'dy is 1; years s)annin. *r+( 1CC5 t+ ;9981As +bser/ed *r+( the re/ie- +* the literat're0 n+ st'dy has been carried +'t re.ardin. the i()act +* liberaliDati+n +n the )r+d'cti/ity and )r+*itability +* )'blic sect+r ban<s s+ it bec+(es i()erati/e t+ <n+- the i()act1 St'dies -hich ha/e been carried +'t )ri+r t+ liberaliDati+n are related t+ +ne +r the +ther as)ect +* )'blic sect+r ban<s1 E/en the researches carried +'t in the )+st?liberaliDati+n )eri+d i.n+red this i()+rtant as)ect and *ailed t+ .i/e the /ariables and their i()act +n PSBs1 The deri/ati+ns +* st'dies in )re liberaliDati+n )eri+d are .+in. t+ be 'sed as )er as the re,'ire(ents +* the )resent st'dy1

Pr'65:*)7)*.
Page ;6

Pr+d'cti/ity is a /ital indicat+r +* ec+n+(ic )er*+r(ance1 In si()le -+rds0 it is +'t)'t? in)'t rati+1 It is a relati+nshi) bet-een .i/en +'t)'t and the (eans 'sed t+ )r+d'ce it1 Ban<in. is )ri(arily a ser/ice ind'stry1 There are n'(ber +* indicat+rs t+ (eas're the Pr+d'cti/ity +* ban<in. sect+r1 Meas'res +* )r+d'cti/ity at ban< +r ind'stry le/el (ay di**er *r+( the indicat+rs +* )r+d'cti/ity at branch le/el1 Pr+d'cti/ity is a**ected by (an )+-er0 (echaniDati+n0 syste( and the )r+ced'res0 c+stin. +* +)erati+ns0 c'st+(er ser/ices and /ari+'s e=ternal as)ects1 There are n'(ber +* rati+s +* c+()'te Pr+d'cti/ity as3 P2r E98-'.22 I/6):+*'r1 !L+,'r Pr'65:*)7)*.&4 41: "e)+sit )er e()l+yee 4;: Ad/ance )er e()l+yee 4>: B'siness )er e()l+yee 47: T+tal e=)endit're )er e()l+yee 4@: T+tal inc+(e )er e()l+yee 45: S)read )er e()l+yee 48: Net )r+*it )er e()l+yee 46: B'rden )er e()l+yee P2r Br+/:> I/6):+*'r1 !Br+/:> Pr'65:*)7)*.&4 41: "e)+sits )er branch 4;: Ad/ance )er branch 4>: B'siness )er branch 47: T+tal inc+(e )er branch 4@: T+tal e=)endit're )er branch 45: B'rden )er branch 48: Net )r+*it )er branch 46: S)read )er branch

Pr'()*+,)-)*.
Page ;C

Pr+*itability is a rate e=)ressin. )r+*it as a )ercenta.e +* t+tal assets +r sales +r any +ther /ariable t+ re)resent the relati+nshi)1 In *act0 there (ay be /ari+'s di(ensi+ns +* )r+*itability analysis1 lar.e n'(ber +* rati+s can be 'sed in +rder t+ (eas're the ban<s Pr+*itability as3 11 Interest Inc+(e t+ B+r<in. F'nds Rati+ ;1 Interest E=)ended t+ B+r<in. F'nds Rati+ >1 S)read t+ B+r<in. F'nds Rati+ 71 N+n?Interest Inc+(e t+ B+r<in. F'nds Rati+ @1 N+n?Interest E=)endit're t+ B+r<in. F'nds Rati+ 51 B'rden t+ B+r<in. F'nds Rati+ 81 Net Pr+*it t+ B+r<in. F'nds Rati+ 61 Interest Inc+(e t+ T+tal Inc+(e Rati+ C1 Interest E=)ended t+ T+tal E=)endit're Rati+ 191 Sta** E=)endit're t+ O)eratin. E=)endit're Rati+1

Page >9

O,?2:*)72 '( *>2 1*56.

T+ identi*y the (eas're t+ be ta<en that -ill i()r+/e the )er*+r(ance +* the ban<s1 T+ e=a(ine the need and rele/ance +* re*+r( in Indian Ban<s1

T+ assess the e**iciency and )r+*itability +* Indian ban<s d'rin. re*+r(s *r+( di**erent )ers)ecti/es1

T+ (eas're the )er*+r(ance +* ban<s in India1

Page >1

INDUSTY PROFILE

A. Or)3)/ +/6 6272-'892/* '( *>2 )/651*r.

The eneral Ban< +* India c+(in. int+ e=istence in 18651 This -as *+ll+-ed by Ban< +*

Hind'stan1 B+th these ban<s are n+- de*'nct1 The +ldest ban< in e=istence in India is the State Ban< +* India bein. established as HThe Ban< +* Ben.alH in Calc'tta in F'ne 16951 A c+')le +* decades later0 *+rei.n ban<s li<e Credit &y+nnais started their Calc'tta +)erati+ns in the 16@9s1 At that )+int +* ti(e0 Calc'tta -as the (+st acti/e tradin. )+rt0 (ainly d'e t+ the trade +* the British E()ire0 and d'e t+ -hich ban<in. acti/ity t++< r++ts there and )r+s)ered1 The *irst *'lly Indian +-ned ban< -as the Allahabad Ban<0 -hich -as established in 165@1By the 1C99s0 the (ar<et e=)anded -ith the establish(ent +* ban<s s'ch as P'n2ab Nati+nal Ban<0 in 16C@ in &ah+re and Ban< +* India0 in 1C950 in M'(bai ? b+th +* -hich -ere *+'nded 'nder )ri/ate +-nershi)1 The Reser/e Ban< +* India *+r(ally t++< +n the res)+nsibility +* re.'latin. the Indian ban<in. sect+r *r+( 1C>@1 A*ter IndiaIs inde)endence in 1C780 the Reser/e Ban< -as nati+naliDed and .i/en br+ader )+-ers1 E+r-. >)1*'r. At the end +* late?16th cent'ry0 there -ere hardly any ban<s in India in the (+dern sense +* the ter(1 At the ti(e +* the A(erican Ci/il Bar0 a /+id -as created as the s'))ly +* c+tt+n t+ &ancashire st+))ed *r+( the A(ericas1 S+(e ban<s -ere +)ened at that ti(e -hich *'ncti+ned as entities t+ *inance ind'stry0 incl'din. s)ec'lati/e trades in c+tt+n1 Bith lar.e e=)+s're t+ s)ec'lati/e /ent'res0 (+st +* the ban<s +)ened in India d'rin. that )eri+d c+'ld n+t s'r/i/e and *ailed1 The de)+sit+rs l+st (+ney and l+st interest in <ee)in. de)+sits -ith ban<s1 S'bse,'ently0 ban<in. in India re(ained the e=cl'si/e d+(ain +* E'r+)eans *+r ne=t se/eral decades 'ntil the be.innin. +* the ;9th cent'ry1 At the be.innin. +* the ;9th cent'ry0 Indian ec+n+(y -as )assin. thr+'.h a relati/e )eri+d +* stability1 Ar+'nd *i/e decades ha/e ela)sed since the IndiaIs First -ar +* Page >;

Inde)endence0 and the s+cial0 ind'strial and +ther in*rastr'ct're ha/e de/el+)ed1 At that ti(e there -ere /ery s(all ban<s +)erated by Indians0 and (+st +* the( -ere +-ned and +)erated by )artic'lar c+(('nities1 The ban<in. in India -as c+ntr+lled and d+(inated by the )residency ban<s0 na(ely0 the Ban< +* B+(bay0 the Ban< +* Ben.al0 and the Ban< +* Madras ? -hich later +n (er.ed t+ *+r( the I()erial Ban< +* India0 and I()erial Ban< +* India0 ')+n IndiaIs inde)endence0 -as rena(ed the State Ban< +* India1 There -ere als+ s+(e e=chan.e ban<s0 as als+ a n'(ber +* Indian 2+int st+c< ban<s1 All these ban<s +)erated in di**erent se.(ents +* the ec+n+(y1 The )residency ban<s -ere li<e the central ban<s and dischar.ed (+st +* the *'ncti+ns +* central ban<s1 They -ere established 'nder charters *r+( the British East India C+()any1 The e=chan.e ban<s0 (+stly +-ned by the E'r+)eans0 c+ncentrated +n *inancin. +* *+rei.n trade1 Indian 2+int st+c< ban<s -ere .enerally 'nderca)italiDed and lac<ed the e=)erience and (at'rity t+ c+()ete -ith the )residency ban<s0 and the e=chan.e ban<s1 There -as )+tential *+r (any ne- ban<s as the ec+n+(y -as .r+-in.1 &+rd C'rD+n had +bser/ed then in the c+nte=t +* Indian ban<in.3 HIn res)ect +* ban<in. it see(s -e are behind the ti(es1 Be are li<e s+(e +ld *ashi+ned sailin. shi)0 di/ided by s+lid -++den b'l<heads int+ se)arate and c'(bers+(e c+()art(ents1H

B. Gr'@*> +/6 8r212/* 1*+*51 '( *>2 )/651*r.

D5r)/3 *>2 W+r13 The )eri+d d'rin. the First B+rld Bar 41C17?1C16: thr+'.h the end +* the Sec+nd B+rld Bar 41C>C?1C7@:0 and t-+ years therea*ter 'ntil the inde)endence +* India -ere challen.in. *+r the Indian ban<in.1 The years +* the First B+rld Bar -ere t'rb'lent0 and it t++< t+ll +* (any ban<s -hich si()ly c+lla)sed des)ite the Indian ec+n+(y .ainin. indirect b++st d'e t+ -ar?related ec+n+(ic acti/ities1 At least C7 ban<s in India *ailed d'rin. the years 1C1> t+ 1C16 as indicated in the *+ll+-in. table3 A'th+riDed Ca)ital 4Rs1&a<hs: ;87 819

%ears 1C1> 1C17

Failed Ban<s 1; 7;

Paid?') Ca)ital 4Rs1 &a<hs: >@ 19C Page >>

1C1@ 1C15 1C18 1C16

11 1> C 8

@5 ;>1 85 ;9C

@ 7 ;@ 1

P'1*$)/6282/62/:2 The )artiti+n +* India in 1C78 had ad/ersely i()acted the ec+n+(ies +* P'n2ab and Best Ben.al0 and ban<in. acti/ities had re(ained )aralyDed *+r (+nths1 IndiaIs inde)endence (ar<ed the end +* a re.i(e +* the &aisseD?*aire *+r the Indian ban<in.1 The +/ern(ent +* India initiated (eas'res t+ )lay an acti/e r+le in the ec+n+(ic li*e +* the nati+n0 and the Ind'strial P+licy Res+l'ti+n ad+)ted by the .+/ern(ent in 1C76 en/isa.ed a (i=ed ec+n+(y1 This res'lted int+ .reater in/+l/e(ent +* the state in di**erent se.(ents +* the ec+n+(y incl'din. ban<in. and *inance1 The (a2+r ste)s t+ re.'late ban<in. incl'ded3

In 1C760 the Reser/e Ban< +* India0 IndiaIs central ban<in. a'th+rity0 -as nati+naliDed0 and it beca(e an instit'ti+n +-ned by the +/ern(ent +* India1

In 1C7C0 the Ban<in. Re.'lati+n Act -as enacted -hich e()+-ered the Reser/e Ban< +* India 4RBI: Ht+ re.'late0 c+ntr+l0 and ins)ect the ban<s in India1H

The Ban<in. Re.'lati+n Act als+ )r+/ided that n+ ne- ban< +r branch +* an e=istin. ban< (ay be +)ened -ith+'t a licence *r+( the RBI0 and n+ t-+ ban<s c+'ld ha/e c+((+n direct+rs1

H+-e/er0 des)ite these )r+/isi+ns0 c+ntr+l and re.'lati+ns0 ban<s in India e=ce)t the State Ban< +* India0 c+ntin'ed t+ be +-ned and +)erated by )ri/ate )ers+ns1 This chan.ed -ith the nati+naliDati+n +* (a2+r ban<s in India +n 1Cth F'ly0 1C5C1

Page >7

N+*)'/+-)A+*)'/ By the 1C59s0 the Indian ban<in. ind'stry has bec+(e an i()+rtant t++l t+ *acilitate the de/el+)(ent +* the Indian ec+n+(y1 At the sa(e ti(e0 it has e(er.ed as a lar.e e()l+yer0 and a debate has ens'ed ab+'t the )+ssibility t+ nati+naliDe the ban<in. ind'stry1 Indira andhi0 the?then Pri(e Minister +* India e=)ressed the intenti+n +* the OI in the ann'al c+n*erence +* the All India C+n.ress Meetin. in a )a)er entitled HStray th+'.hts +n Ban< Nati+nalisati+n1H The )a)er -as recei/ed -ith )+siti/e enth'sias(1 Therea*ter0 her (+/e -as s-i*t and s'dden0 and the OI iss'ed an +rdinance and nati+nalised the 17 lar.est c+((ercial ban<s -ith e**ect *r+( the (idni.ht +* F'ly 1C0 1C5C1 Faya)ra<ash Narayan0 a nati+nal leader +* India0 described the ste) as a H(asterstr+<e +* )+litical sa.acity1H Bithin t-+ -ee<s +* the iss'e +* the +rdinance0 the Parlia(ent )assed the Ban<in. C+()anies 4Ac,'iti+n and Trans*er +* #nderta<in.: Bill0 and it recei/ed the )residential a))r+/al +n Cth A'.'st0 1C5C1 A sec+nd d+se +* nati+naliDati+ns +* 5 (+re c+((ercial ban<s *+ll+-ed in 1C691 The stated reas+n *+r the nati+naliDati+ns -as t+ .i/e the .+/ern(ent (+re c+ntr+l +* credit deli/ery1 Bith the sec+nd d+se +* nati+naliDati+ns0 the OI c+ntr+lled ar+'nd C1L +* the ban<in. b'siness +* India1 A*ter this0 'ntil the 1CC9s0 the nati+naliDed ban<s .re- at a )ace +* ar+'nd 7L0 cl+ser t+ the a/era.e .r+-th rate +* the Indian ec+n+(y1

COMPANY PROFILE
Page >@

B+/01 T+02/ F'r *>2 A/+-.1)14

State Ban< O* India P'n2ab Nati+nal Ban< H"FC Ban<

S*+*2 ,+/0 '( I/6)+4 S*+*2 B+/0 '( I/6)+ 4SBI: 4NSE3 SBIN0 BSE3 @9911;0 &SE3 SBI": is the lar.est ban<in. and *inancial ser/ices c+()any in India by re/en'e0 assets and (ar<et ca)italiDati+n1 It is a state?+-ned c+r)+rati+n -ith its head,'arters in M'(bai0 Maharashtra1 As +* March ;9110 it had assets +* #ST>89 billi+n -ith +/er 1>0999 +'tlets incl'din. 1@9 +/erseas branches and a.ents .l+bally1 The ban< traces its ancestry t+ British India0 thr+'.h the I()erial Ban< +* India0 t+ the *+'ndin. in 1695 +* the Ban< +* Calc'tta0 (a<in. it the +ldest c+((ercial ban< in the Indian S'bc+ntinent1 Ban< +* Madras (er.ed int+ the +ther t-+ )residencies ban<sN Ban< +* Calc'tta and Ban< +* B+(bayNt+ *+r( the I()erial Ban< +* India0 -hich in t'rn beca(e the State Ban< +* India1 The +/ern(ent +* India nati+naliDed the I()erial Ban< +* India in 1C@@0 -ith the Reser/e Ban< +* India ta<in. a 59L sta<e0 and rena(ed it the State Ban< +* India1 In ;9960 the .+/ern(ent t++< +/er the sta<e held by the Reser/e Ban< +* India1 SBI is ran<ed U;C; .l+bally in F+rt'ne l+bal @99 list in ;9111 SBI )r+/ides a ran.e +* ban<in. )r+d'cts thr+'.h its /ast net-+r< +* branches in India and +/erseas0 incl'din. )r+d'cts ai(ed at n+n?resident Indians 4NRIs:1 The State Ban< r+')0 -ith +/er 150999 branches0 has the lar.est ban<in. branch net-+r< in India1 SBI has 17 l+cal head +**ices sit'ated at Chandi.arh0 "elhi0 &'c<n+-0 Patna0 K+l<ata0 '-ahati 4N+rth East Circle:0 Bh'-anesh-ar0 Hyderabad0 Chennai0 Tri/andra(0 Ban.l+re0 M'(bai0 Bh+)al R Ah(edabad and @8 V+nal O**ices that are l+cated at i()+rtant cities thr+'.h+'t the c+'ntry1 It als+ has ar+'nd 1>9 branches +/erseas1

Page >5

SBI is a re.i+nal ban<in. behe(+th and is +ne +* the lar.est *inancial instit'ti+ns in the -+rld1 It has a (ar<et share a(+n. Indian c+((ercial ban<s +* ab+'t ;9L in de)+sits and l+ans1 The State Ban< +* India is the ;Cth (+st re)'ted c+()any in the -+rld acc+rdin. t+ Forbes1 Als+0 SBI is the +nly ban< *eat'red in the c+/eted Ht+) 19 brands +* IndiaH list in an ann'al s'r/ey c+nd'cted by Brand Finance and The Economic Times in ;9191 The State Ban< +* India is the lar.est +* the Bi. F+'r ban<s +* India0 al+n. -ith ICICI Ban<0 P'n2ab Nati+nal Ban< and H"FC Ban<Nits (ain c+()etit+rs1 State Ban< +* India is an India?based ban<1 As +* March >10 ;91;0 the Ban< had a net-+r< +* ;901C> branches0 incl'din. @09C5 branches +* its *i/e ass+ciate ban<s1 In additi+n t+ ban<in.0 the C+()any0 thr+'.h its /ari+'s s'bsidiaries0 )r+/ides a ran.e +* *inancial ser/ices0 -hich incl'de li*e ins'rance0 (erchant ban<in.0 ('t'al *'nds0 credit card0 *act+rin.0 sec'rity tradin.0 )ensi+n *'nd (ana.e(ent0 c'st+dial ser/ices0 .eneral ins'rance 4n+n?li*e ins'rance: and )ri(ary dealershi) in the (+ney (ar<et1 Its se.(ents incl'de Treas'ry0 -hich incl'des in/est(ent )+rt*+li+ and tradin. in *+rei.n e=chan.e c+ntracts and deri/ati/e c+ntractsJ C+r)+rateKBh+lesale Ban<in.0 -hich c+()rises lendin. acti/ities +* C+r)+rate Acc+'nts Stressed Assets Mana.e(ent Nati+nal Ban<in. r+')0 Mid C+r)+rate Acc+'nts r+') and r+')J Retail Ban<in.0 -hich c+()rises +* branches in

r+')0 -hich incl'des )ers+nal ban<in. acti/ities0 incl'din. lendin.

acti/ities t+ c+r)+rate c'st+(ers0 and Other Ban<in. B'siness1 In 1C@C0 the .+/ern(ent )assed the State Ban< +* India 4S'bsidiary Ban<s: Act0 -hich (ade ei.ht state ban<s ass+ciates +* SBI1 A )r+cess +* c+ns+lidati+n be.an +n 1> Se)te(ber ;9960 -hen the State Ban< +* Sa'rashtra (er.ed -ith SBI1 SBI has ac,'ired l+cal ban<s in resc'es1 The *irst -as the Ban< +* Behar 4est1 1C11:0 -hich SBI ac,'ired in 1C5C0 t+.ether -ith its ;6 branches1 The ne=t year SBI ac,'ired Nati+nal Ban< +* &ah+re 4est1 1C7;:0 -hich had ;7 branches1 Fi/e years later0 in 1C8@0 SBI ac,'ired Krishnara( Balde+ Ban<0 -hich had been established in 1C15 in -ali+r State0 'nder the )atr+na.e +* Mahara2a Madh+ Ra+ Scindia1 The ban< had been the Page >8

"'<an Pichadi0 a s(all (+neylender0 +-ned by the Mahara2a1 The ne- ban<s *irst (ana.er -as Fall N1 Br+acha0 a Parsi1 In 1C6@0 SBI ac,'ired the Ban< +* C+chin in Kerala0 -hich had 1;9 branches1 SBI -as the ac,'irer as its a**iliate0 the State Ban< +* Tra/anc+re0 already had an e=tensi/e net-+r< in Kerala1 Earlier SBI had se/en ass+ciate ban<s0 all +* -hich had bel+n.ed t+ )rincely states 'ntil the .+/ern(ent nati+nalised the( bet-een Oct+ber 1C@C and May 1C591 In t'ne -ith the *irst Fi/e %ear Plan0 -hich )ri+ritiDed the de/el+)(ent +* r'ral India0 the .+/ern(ent inte.rated these ban<s int+ State Ban< +* India syste( t+ e=)and its r'ral +'treach1 There has been a )r+)+sal t+ (er.e all the ass+ciate ban<s int+ SBI t+ create a H(e.a ban<H and strea(line the .r+')Is +)erati+ns1 The *irst ste) t+-ards 'ni*icati+n +cc'rred +n 1> A'.'st ;996 -hen State Ban< +* Sa'rashtra (er.ed -ith SBI0 red'cin. the n'(ber +* ass+ciate state ban<s *r+( se/en t+ si=1 Then +n 1C F'ne ;99C the SBI b+ard a))r+/ed the abs+r)ti+n +* State Ban< +* Ind+re1 SBI h+lds C61>L in State Ban< +* Ind+re1 4Indi/id'als -h+ held the shares )ri+r t+ its ta<e+/er by the .+/ern(ent h+ld the balance +* 1188L1: H)1*'r.4 The r++ts +* the State Ban< +* India lie in the *irst decade +* 1Cth cent'ry0 -hen the Ban< +* Calc'tta0 later rena(ed the Ban< +* Ben.al0 -as established +n F'ne ;0 16951 The Ban< +* Ben.al -as +ne +* three Presidency ban<s0 the +ther t-+ bein. the Ban< +* B+(bay 4inc+r)+rated +n A)ril 1@0 1679: and the Ban< +* Madras 4inc+r)+rated +n F'ly 10 167>:1 All three Presidency ban<s -ere inc+r)+rated as 2+int st+c< c+()anies and -ere the res'lt +* the r+yal charters1 These three ban<s recei/ed the e=cl'si/e ri.ht t+ iss'e )a)er c'rrency in 1651 -ith the Pa)er C'rrency Act0 a ri.ht they retained 'ntil the *+r(ati+n +* the Reser/e Ban< +* India1 The Presidency ban<s a(al.a(ated +n Fan'ary ;80 1C;10 and the re?+r.aniDed ban<in. entity t++< as its na(e I()erial Ban< +* India1 The I()erial Ban< +* India re(ained a 2+int st+c< c+()any1

Page >6

P'rs'ant t+ the )r+/isi+ns +* the State Ban< +* India Act +* 1C@@0 the Reser/e Ban< +* India0 -hich is IndiaIs central ban<0 ac,'ired a c+ntr+llin. interest in the I()erial Ban< +* India1 On A)ril >90 1C@@0 the I()erial Ban< +* India beca(e the State Ban< +* India1 The .+/ern(ent +* India recently ac,'ired the Reser/e Ban< +* IndiaIs sta<e in SBI s+ as t+ re(+/e any c+n*lict +* interest beca'se the RBI is the c+'ntryIs ban<in. re.'lat+ry a'th+rity1 In 1C@C0 the .+/ern(ent )assed the State Ban< +* India 4S'bsidiary Ban<s: Act0 enablin. the State Ban< +* India t+ ta<e +/er ei.ht *+r(er state?ass+ciated ban<s as its s'bsidiaries1 On Se)te(ber 1>0 ;9960 the State Ban< +* Sa'rashtra0 +ne +* its ass+ciate ban<s0 (er.ed -ith the State Ban< +* India1 SBI has ac,'ired l+cal ban<s in resc'es1 F+r instance0 in 1C6@0 it ac,'ired the Ban< +* C+chin in Kerala0 -hich had 1;9 branches1 SBI -as the ac,'irer as its a**iliate0 the State Ban< +* Tra/anc+re0 already had an e=tensi/e net-+r< in Kerala1 I/*2r/+*)'/+- 8r212/:24 The Israeli branch +* the State Ban< +* India l+cated in Ra(at an1 As +* "ece(ber >10 ;99C0 the ban< had 1@8 +/erseas +**ices s)read +/er >; c+'ntries1 It has branches +* the )arent in C+l+(b+0 "ha<a0 Fran<*'rt0 H+n. K+n.0 Tehran0 F+hannesb'r.0 &+nd+n0 &+s An.eles0 Male in the Maldi/es0 M'scat0 "'bai0 Ne- %+r<0 Osa<a0 Sydney0 and T+<y+1 It has +**sh+re ban<in. 'nits in the Baha(as0 Bahrain0 and Sin.a)+re0 and re)resentati/e +**ices in Bh'tan and Ca)e T+-n1 It als+ has an A"B in B+st+n0 #SA1 SBI +)erates se/eral *+rei.n s'bsidiaries +r a**iliates1 In 1CC90 it established an +**sh+re ban<3 State Ban< +* India 4Ma'riti's:1 In 1C6;0 the ban< established a s'bsidiary0 State Ban< +* India 4Cali*+rnia:0 -hich n+has ten branches A nine branches in the state +* Cali*+rnia and +ne in Bashin.t+n0 "1C1 The 19th branch -as +)ened in Fre(+nt0 Cali*+rnia +n ;6 March ;9111 The +ther ei.ht Page >C

branches in Cali*+rnia are l+cated in &+s An.eles0 Artesia0 San F+se0 Can+.a Par<0 Fresn+0 San "ie.+0 T'stin and Ba<ers*ield1 The Canadian s'bsidiary0 State Ban< +* India 4Canada: als+ dates t+ 1C6;1 It has se/en branches0 *+'r in the T+r+nt+ area and three in British C+l'(bia1 In Ni.eria0 SBI +)erates as INMB Ban<1 This ban< be.an in 1C61 as the Ind+?Ni.erian Merchant Ban< and recei/ed )er(issi+n in ;99; t+ c+((ence retail ban<in.1 It n+- has *i/e branches in Ni.eria1 In Ne)al0 SBI +-ns @@L +* Ne)al SBI Ban<0 -hich has branches thr+'.h+'t the c+'ntry1 In M+sc+-0 SBI +-ns 59L +* C+((ercial Ban< +* India0 -ith Canara Ban< +-nin. the rest1 In Ind+nesia0 it +-ns 85L +* PT Ban< Ind+ M+ne=1 The State Ban< +* India already has a branch in Shan.hai and )lans t+ +)en +ne in Tian2in1 In Kenya0 State Ban< +* India +-ns 85L +* ac,'ired *+r #ST6 (illi+n in Oct+ber ;99@1 The State Ban< +* India 4-ith 87L +* the t+tal ca)ital: al+n.-ith the lar.est .l+bal ban<in. .r+')NBNP Paribas 4-ith ;5L +* the re(ainin. ca)ital: head,'atered in Paris N*+r(ed a 2+int /ent're -hich established IndiaIs (+st re)'ted and tr'sted li*e ins'rance c+()any na(ed SBI &i*e Ins'rance c+()any &td1 in March ;991 ir+ C+((ercial Ban<0 -hich it

Page 79

P5/?+, N+*)'/+- B+/04

P5/?+, N+*)'/+- B+/0 4PNB: 4BSE3 @>;7510 NSE3 PNB: is an Indian *inancial ser/ices c+()any based in Ne- "elhi0 India1 PNB is the third lar.est ban< in India by assets1 It -as *+'nded in 16C7 and is c'rrently the sec+nd lar.est state?+-ned c+((ercial ban< in India ahead +* Ban< +* Bar+da -ith ab+'t @999 branches acr+ss 857 cities1 It ser/es +/er >8 (illi+n c'st+(ers1 The ban< has been ran<ed ;76th bi..est ban< in the -+rld by the Ban<ers Al(anac0 &+nd+n1 The ban<Is t+tal assets *+r *inancial year ;998 -ere ab+'t #ST59 billi+n1 PNB has a ban<in. s'bsidiary in the #K0 as -ell as branches in H+n. K+n.0 "'bai and Kab'l0 and re)resentati/e +**ices in Al(aty0 "'bai0 Osl+0 and Shan.hai1 P'n2ab Nati+nal Ban< -as re.istered +n 1C May 16C7 'nder the Indian C+()anies Act -ith its +**ice in Anar<ali BaDaar &ah+re1 The *+'ndin. b+ard -as dra-n *r+( di**erent )arts +* India )r+*essin. di**erent *aiths and a /aried bac<?.r+'nd -ith0 h+-e/er0 the c+((+n +b2ecti/e +* )r+/idin. c+'ntry -ith a tr'ly nati+nal ban< -hich -+'ld *'rther the ec+n+(ic interest +* the c+'ntry1 PNBIs *+'nders incl'ded se/eral leaders +* the S-adeshi (+/e(ent s'ch as "yal Sin.h Ma2ithia and &ala Har<ishan &al0 &ala &alchand0 Shri Kali Pr+sanna R+y0 Shri E1C1 Fessa-ala0 Shri Prabh' "ayal0 Ba<shi Faishi Ra(0 and &ala "h+lan "ass1O;P
O>P

&ala &a2)at Rai -as acti/ely ass+ciated -ith the

(ana.e(ent +* the Ban< in its early years1 The b+ard *irst (et +n ;> May 16C71 Ir+nically0 the PNB Bebsite n+- clai(s &ala &a2)at Rai t+ be the *+'ndin. *ather0 s'r)assin. Rai M'l Ra2 and "yal Sin.h Ma2ithia1 O7P The ban< +)ened *+r b'siness +n 1; A)ril 16C@ in &ah+re1 PNB has the distincti+n +* bein. the *irst Indian ban< t+ ha/e been started s+lely -ith Indian ca)ital that has s'r/i/ed t+ the )resent1 4The *irst entirely Indian ban<0 C+((ercial Ban<0 -as established in 1661 in FaiDabad0 b't *ailed in 1C@61:

Page 71

T)92-)/2 In 1C990 PNB established its *irst branch +'tside &ah+re in Ra-al)indi1 Branches in Karachi and Pesha-ar *+ll+-ed1 The ne=t year0 PNB abs+rbed Bha.-an "ass Ban<0 a sched'led ban< l+cated in "elhi Circle1 In 1C780 at the Partiti+n +* India and the c+((ence(ent +* Pa<istani inde)endence0 PNB l+st its )re(ises in &ah+re0 b't c+ntin'ed t+ +)erate in Pa<istan1 Partiti+n *+rced PNB t+ cl+se C; +**ices in Best Pa<istan0 >>L +* the t+tal n'(ber0 and -hich held 79L +* the t+tal de)+sits1 PNB still (aintained a *e- careta<er branches1 On >1 March 1C780 e/en be*+re Partiti+n0 PNB had decided t+ lea/e &ah+re and trans*er its re.istered +**ice t+ IndiaJ it recei/ed )er(issi+n *r+( the &ah+re Hi.h C+'rt +n ;9 F'ne 1C780 at -hich ti(e it established a ne- head +**ice in Calc'tta1

1C@13 PNB ac,'ired the >C branches +* Bharat Ban< 4est1 1C7;:J Bharat Ban< beca(e Bharat Nidhi &td1 1C593 PNB a.ain shi*ted its head +**ice0 this ti(e *r+( Calc'tta t+ "elhi1 1C513 PNB ac,'ired #ni/ersal Ban< +* India1 1C5>3 The 4%an.+n:1 +/ern(ent +* B'r(a nati+naliDed PNBIs branch in Ran.++n

Se)te(ber 1C5@3 A*ter the Ind+?Pa< -ar the .+/ern(ent +* Pa<istan seiDed all the +**ices in Pa<istan +* Indian ban<s1 PNB als+ had +ne +r (+re branches in East Pa<istan 4Ban.ladesh:1 1C59s3 PNB a(al.a(ated Ind+ C+((ercial Ban< 4est1 1C>>: in a resc'e1 1C5C3 The +/ern(ent +* India 4 OI: nati+naliDed PNB and 1> +ther (a2+r c+((ercial ban<s0 +n 1C F'ly 1C5C1

1C85 +r 1C863 PNB +)ened a branch in &+nd+n1 1C65 The Reser/e Ban< +* India re,'ired PNB t+ trans*er its &+nd+n branch t+ State Ban< +* India a*ter the branch -as in/+l/ed in a *ra'd scandal1 1C653 PNB ac,'ired Hind'stan C+((ercial Ban< 4est1 1C7>: in a resc'e1 The ac,'isiti+n added Hind'stanIs 17; branches t+ PNBIs net-+r<1 1CC>3 PNB ac,'ired Ne- Ban< +* India0 -hich the OI had nati+naliDed in 1C691 Page 7;

1CC63 PNB set ') a re)resentati/e +**ice in Al(aty0 KaDa<hstan1

In ;99>0 PNB t++< +/er Ned'n.adi Ban<0 the +ldest )ri/ate sect+r ban< in Kerala1 At the ti(e +* the (er.er -ith PNB0 Ned'n.adi Ban<Is shares had Der+ /al'e0 -ith the res'lt that its shareh+lders recei/ed n+ )ay(ent *+r their shares1 PNB als+ +)ened a re)resentati/e +**ice in &+nd+n1 The ne=t year0 PNB established a branch in Kab'l0 A*.hanistan and a re)resentati/e +**ice in Shan.hai1 PNB als+ established an alliance -ith E/erest Ban< in Ne)al that )er(its (i.rants t+ trans*er *'nds easily bet-een India and E/erest Ban<Is 1; branches in Ne)al1 C'rrently0 PNB +-ns ;9L +* E/erest Ban<1 In ;99@ PNB +)ened a re)resentati/e +**ice in "'bai1 T-+ years later0 PNB established PNBI& A P'n2ab Nati+nal Ban< 4Internati+nal: A in the #K0 -ith t-+ +**ices0 +ne in &+nd+n0 and +ne in S+'th Hall1 Since then it has +)ened (+re branches0 this ti(e in &eicester0 Bir(in.ha(0 Il*+rd0 Be(bly0 and B+l/erha()t+n1 PNB als+ +)ened a branch in H+n. K+n.1 In Fan'ary ;99C0 PNB established a re)resentati/e +**ice in Osl+0 N+r-ay1 PNB h+)es t+ ').rade this t+ a branch in d'e c+'rse1 In ;9190 PNB )'rchased a s(all (in+rity sta<e in KaDa<hstan?based FSC "ana Ban<1 Bithin the year PNB increased its +-nershi) and n+- PNB +-ns 67L +* -hat has bec+(e FSC 4SB: PNB1 The s'bsidiary has branches in Al(aty0 Astana0 Kan.and'0 and Pa/l+dar1 "anaban< -as established +n ;9 Oct+ber 1CC; in Pa/l+dar1 Als+0 in Fan'ary ;9190 PNB established a s'bsidiary in Bh'tan1 PNB +-ns @1L +* "r'< PNB Ban<0 -hich has branches in Thi()'0 Ph'entsh+lin.0 and Ban.d'e1 &+cal in/est+rs +-n the re(ainin. shares1 Then +n 1 May0 PNB +)ened its branch in "'baiIs *inancial center1In Se)te(ber ;9110 PNB +)ened a re)resentati/e +**ice in Sydney0 A'stralia1

Page 7>

In "ece(ber ;91; it si.ned an a.ree(ent -ith #S based li*e Ins'rance c+()any Metli*e t+ ac,'ire a >9L sta<e in Met&i*eIs Indian a**iliate Met&i*e India &i(ited1 The c+()any -+'ld be rena(ed PNB Met&i*e India &i(ited and PNB -+'ld sell Met&i*eIs )r+d'cts in its branches History: P'n2ab Nati+nal Ban< -as re.istered +n 1C May 16C7 'nder the Indian C+()anies Act -ith its +**ice in Anar<ali BaDaar &ah+re1 The *+'ndin. b+ard -as dra-n *r+( di**erent )arts +* India )r+*essin. di**erent *aiths and a /aried bac<?.r+'nd -ith0 h+-e/er0 the c+((+n +b2ecti/e +* )r+/idin. c+'ntry -ith a tr'ly nati+nal ban< -hich -+'ld *'rther the ec+n+(ic interest +* the c+'ntry1 PNBIs *+'nders incl'ded se/eral leaders +* the S-adeshi (+/e(ent s'ch as "yal Sin.h Ma2ithia and &ala Har<ishan &al0 &ala &alchand0 Shri Kali Pr+sanna R+y0 Shri E1C1 Fessa-ala0 Shri Prabh' "ayal0 Ba<shi Faishi Ra(0 and &ala "h+lan "ass1 &ala &a2)at Rai -as acti/ely ass+ciated -ith the (ana.e(ent +* the Ban< in its early years1 The b+ard *irst (et +n ;> May 16C71 Ir+nically0 the PNB Bebsite n+- clai(s &ala &a2)at Rai t+ be the *+'ndin. *ather0 s'r)assin. Rai M'l Ra2 and "yal Sin.h Ma2ithia1 PNB has the distincti+n +* bein. the *irst Indian ban< t+ ha/e been started s+lely -ith Indian ca)ital that has s'r/i/ed t+ the )resent1 4The *irst entirely Indian ban<0 the O'dh C+((ercial Ban<0 -as established in 1661 in FaiDabad0 b't *ailed in 1C@61: PNB has had the )ri/ile.e +* (aintainin. acc+'nts +* nati+nal leaders s'ch as Mahat(a andhi0 Shri Fa-aharlal Nehr'0 Shri &al Abrader Shastri0 Shri(ati Indira andhi0 as -ell as the acc+'nt +* the *a(+'s Falian-ala Ba.h C+((ittee1 H'51)/3 D272-'892/* F)/+/:2 C'r8'r+*)'/!HDFC&4

H"FC Ban< -as inc+r)+rated in 1CC7 by H+'sin. "e/el+)(ent Finance C+r)+rati+n &i(ited 4H"FC:0 IndiaIs lar.est h+'sin. *inance c+()any1 It -as a(+n. the *irst Page 77

c+()anies t+ recei/e an Iin )rinci)leI a))r+/al *r+( the Reser/e Ban< +* India 4RBI: t+ set ') a ban< in the )ri/ate sect+r1 The Ban< started +)erati+ns as a sched'led c+((ercial ban< in Fan'ary 1CC@ 'nder the RBIIs liberalisati+n )+licies1 Ti(es Ban< &i(ited 4+-ned by Bennett0 C+le(an R C+1 K Ti(es r+'): -as (er.ed

-ith H"FC Ban< &td10 in ;9991 This -as the *irst (er.er +* t-+ )ri/ate ban<s in India1 Shareh+lders +* Ti(es Ban< recei/ed 1 share +* H"FC Ban< *+r e/ery @18@ shares +* Ti(es Ban<1 In ;996 H"FC Ban< ac,'ired Cent'ri+n Ban< +* P'n2ab ta<in. its t+tal branches t+ (+re than 109991 The a(al.a(ated ban< e(er.ed -ith a base +* ab+'t Rs1 10;;0999 cr+re and net ad/ances +* ab+'t Rs16C0999 cr+re1 The balance sheet siDe +* the c+(bined entity is (+re than Rs1 105>0999 cr+re1 H"FC Ban< &td1 is a (a2+r Indian *inancial ser/ices c+()any based in M'(bai0 inc+r)+rated in A'.'st 1CC70 a*ter the Reser/e Ban< +* India all+-ed establishin. )ri/ate sect+r ban<s1 The Ban< -as )r+(+ted by the H+'sin. "e/el+)(ent Finance C+r)+rati+n0 a )re(ier h+'sin. *inance c+()any 4set ') in 1C88: +* India1 H"FC Ban< has 1071; branches and +/er >0;C@ ATMs0 in @;6 cities in India0 and all branches +* the ban< are lin<ed +n an +nline real?ti(e basis1 As +* Se)te(ber >90 ;996 the ban< had t+tal assets +* INR 199516; billi+n1 F+r the *iscal year ;996?9C0 the ban< has re)+rted net )r+*it +* Rs1;0;771C cr+re0 ') 71L *r+( the )re/i+'s *iscal1 T+tal ann'al earnin.s +* the ban< increased by @6L reachin. at Rs11C05;;16 cr+re in ;996?9C1 H"FC Ban< is +ne +* the Bi. F+'r Ban<s +* India0 al+n. -ith State Ban< +* India0 ICICI Ban< and A=is Ban< N its (ain c+()etit+rs1 H"FC &i(ited0 India!s )re(ier h+'sin. *inance instit'ti+n has assisted (+re than >1> (illi+n *a(ilies +-n a h+(e0 since its ince)ti+n in 1C88 acr+ss ;799 cities and t+-ns thr+'.h its net-+r< +* +/er ;@9 +**ices1 It has internati+nal +**ices in "'bai0 &+nd+n and Sin.a)+re -ith ser/ice ass+ciates in Sa'di Arabia0 Watar0 K'-ait and O(an t+ assist NRI!s and PIO!s t+ +-n a h+(e bac< in India1 As +* "ece(ber ;9960 the t+tal asset siDe Page 7@

has cr+ssed (+re than Rs1 C@0999 cr+res incl'din. the (+rt.a.e l+an assets +* (+re than Rs1 6;0699 cr+res1 The c+r)+rati+n has a de)+sit base +* Rs1 180@@1 cr+res0 earnin. the tr'st +* (+re than C0 990999 de)+sit+rs1 C'st+(er Ser/ice and satis*acti+n has been the (ainstay +* the +r.aniDati+n1 H"FC has set bench(ar<s *+r the Indian h+'sin. *inance ind'stry1 Rec+.niti+n *+r the ser/ice t+ the sect+r has c+(e *r+( se/eral nati+nal and internati+nal entities incl'din. the B+rld Ban< that has la'ded H"FC as a (+del h+'sin. *inance c+()any *+r the de/el+)in. c+'ntries1 H"FC has 'nderta<en a l+t +* c+ns'ltancies abr+ad assistin. di**erent c+'ntries incl'din. E.y)t0 Maldi/es0 and Ban.ladesh in the settin. ') +* h+'sin. *inance c+()anies1

W>'-21+-2 ,+/0)/3 12r7):21 F+r c'st+(ers *r+( +n.+leBl'e?chi) (an'*act'rin. c+()anies in the Indian c+r) t+ s(all R (id?siDed c+r)+rates and a.ri?based b'sinesses the Ban< )r+/ides a -ide ran.e +* c+((ercial and transacti+nal ban<in. ser/ices0 incl'din. -+r<in. ca)ital *inance0 trade ser/ices0 transacti+nal ser/ices0 cash (ana.e(ent0 etc1 The ban< is als+ a leadin. )r+/ider +* the ab+/e ser/ices t+ its c+r)+rate c'st+(ers0 ('t'al *'nds0 st+c< e=chan.e (e(bers and ban<s1 R2*+)- ,+/0)/3 12r7):21 H"FC Ban< -as the *irst ban< in India t+ la'nch an Internati+nal "ebit Card in ass+ciati+n -ith $ISA 4$isa Electr+n: and iss'es the Master Card Maestr+ debit card as Bell1 The Ban< la'nched its credit card b'siness in late ;9911 By March ;99C0 the ban< had a t+tal card base 4debit and credit cards: +* +/er 1> (illi+n1 The Ban< is als+ +ne +* the leadin. )layers in the (erchant ac,'irin.S b'siness -ith +/er 890999 P+int?+*?sale 4POS: ter(inals *+r debit K credit cards acce)tance at (erchant establish(ents1 The Ban< is )+siti+ned in /ari+'s net based B;C +))+rt'nities incl'din. a -ide ran.e +* Internet Page 75

ban<in. ser/ices *+r Fi=ed "e)+sits0 &+ans0 Bill Pay(ents0 etc1Bith Finest +* Techn+l+.y and Best +* Man )+-er in Ban<in. Ind'stry H"FC Ban<Is retail ser/ices ha/e bec+(e by and lar.e the best in India and since the c+ntrib'ti+n t+ CASA i1e1 t+tal n'(ber +* c'rrent and sa/in.s acc+'nt +* (+re than @9L0 H"FC BANK has *'ll )+tential t+ bec+(e IndiaIs N+11 Pri/ate Sect+r Ban<1 Tr2+15r. Bithin this b'siness0 the ban< has three (ain )r+d'ct areas ? F+rei.n E=chan.e and "eri/ati/es0 &+cal C'rrency M+ney Mar<et R "ebt Sec'rities0 and E,'ities1 These ser/ices are )r+/ided thr+'.h the ban<Is Treas'ry tea(1 T+ c+()ly -ith stat't+ry reser/e re,'ire(ents0 the ban< is re,'ired t+ h+ld ;@L +* its de)+sits in .+/ern(ent sec'rities1 The Treas'ry b'siness is res)+nsible *+r (ana.in. the ret'rns and (ar<et ris< +n this in/est(ent )+rt*+li+1 HDFC B+/0 L)9)*26 4BSE3 @991690 NSE3 H"FCBANK0 N%SE3 H"B: is an Indian *inancial ser/ices c+()any based in M'(bai0 Maharashtra that -as inc+r)+rated in A'.'st 1CC71 H"FC Ban< is the *i*th +r si=th lar.est ban< in India by assets and the *irst lar.est ban< by (ar<et ca)italiDati+n as +* N+/e(ber 10 ;91;1 The ban< -as )r+(+ted by the H+'sin. "e/el+)(ent Finance C+r)+rati+n0 a )re(ier h+'sin. *inance c+()any 4set ') in 1C88: +* India1 As +n "ece(ber ;91;0 H"FC Ban< has ;0885 branches and 1907C9 ATMs0 in 10>CC cities in India0 and all branches +* the ban< are lin<ed +n an +nline real?ti(e basis1 As +* "ece(ber ;91; the ban< had balance sheet siDe +* Rs1 >6>8 billi+n1 F+r the *iscal year ;911?1;0 the ban< has re)+rted net )r+*it +* @158198 cr+re 4#STC@9 (illi+n:0 ') >115L *r+( the )re/i+'s *iscal1On March 170 ;91> an +nline (a.aDine na(ed C+bra)+st1c+( released /ide+ *++ta.e *r+( O)erati+n Red S)ider sh+-in. hi.h ran<in. +**icials and s+(e e()l+yees +* H"FC ban< -illin. t+ t'rn blac< (+ney int+ -hite -hich is /i+lati+n +* M+ney &a'nderin. C+ntr+l Act1 A*ter this The .+/ern(ent +* India and Reser/e Ban< +* India ha/e +rdered an in,'iry1O Page 78

H)1*'r.4 H"FC Ban< -as inc+r)+rated in the year +* 1CC7 by H+'sin. "e/el+)(ent Finance C+r)+rati+n &i(ited 4H"FC:0 IndiaIs )re(ier h+'sin. *inance c+()any1 It -as a(+n. the *irst c+()anies t+ recei/e an Iin )rinci)leI a))r+/al *r+( the Reser/e Ban< +* India 4RBI: t+ set ') a ban< in the )ri/ate sect+r1 The Ban< c+((enced its +)erati+ns as a Sched'led C+((ercial Ban< in Fan'ary 1CC@ -ith the hel) +* RBIIs liberaliDati+n )+licies1 In a (ilest+ne transacti+n in the Indian ban<in. ind'stry0 Ti(es Ban< &i(ited 4)r+(+ted by Bennett0 C+le(an R C+1 K Ti(es r+'): -as (er.ed -ith H"FC Ban< &td10 in ;9991 This -as the *irst (er.er +* t-+ )ri/ate ban<s in India1 As )er the sche(e +* a(al.a(ati+n a))r+/ed by the shareh+lders +* b+th ban<s and the Reser/e Ban< +* India0 shareh+lders +* Ti(es Ban< recei/ed 1 share +* H"FC Ban< *+r e/ery @18@ shares +* Ti(es Ban<1 In ;996 H"FC Ban< ac,'ired C2/*5r)'/ B+/0 '( P5/?+, ta<in. its t+tal branches t+ (+re than 109991 The a(al.a(ated ban< e(er.ed -ith a str+n. de)+sit base +* ar+'nd Rs1 10;;0999 cr+re and net ad/ances +* ar+'nd Rs1 6C0999 cr+re1 The balance sheet siDe +* the c+(bined entity is +/er Rs1 105>0999 cr+re1 The a(al.a(ati+n added si.ni*icant /al'e t+ H"FC Ban< in ter(s +* increased branch net-+r<0 .e+.ra)hic reach0 and c'st+(er base0 and a bi..er )++l +* s<illed (an)+-er1

B51)/211 (':514 H"FC Ban< deals -ith three <ey b'siness se.(ents1 ? Bh+lesale Ban<in. Ser/ices0 Retail Ban<in. Ser/ices0 Treas'ry1 It has entered the ban<in. c+ns+rtia +* +/er @9 c+r)+rates *+r )r+/idin. -+r<in. ca)ital *inance0 trade ser/ices0 c+r)+rate *inance0 and (erchant ban<in.1 It is als+ )r+/idin. s+)histicated )r+d'ct str'ct'res in areas +* *+rei.n e=chan.e and deri/ati/es0 (+ney (ar<ets and debt tradin. and e,'ity research

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REVIEW OF LITERATURE L)*2r+*5r2 R27)2@

C+nsiderable -+r< +* research ta<es )lace +n e**iciency and )r+*itability +* Indian ban<s as -ell as +ther related *ields li<e ban<in. sect+r re*+r(s0 etc1 by the acade(icians0 researchers and instit'ti+ns indi/id'ally +'tside the ban<in. syste( and als+ by instit'ti+ns -ithin the *+ld +* Indian ban<in. syste(0 /iD1 RBI0 NIBM0 /ari+'s c+((ittees set ') by RBI etc1 in .eneral and als+ in )artic'lar1 A brie* re/ie- +* the (a2+r st'dies is .i/en here 'nder3 M:Gr23'r!19BB& in his st'dy ar.'ed that (ana.e(ent +* s)read0 -hich is a )+tent t++l *+r i()r+/in. )r+*it (ar.ins0 c+'ld be achie/ed by (a=i(iDin. net interest (ar.in1 The techni,'e +* s)read (ana.e(ent as sh+-n in this analysis indicates the relati+nshi) bet-een asset yield and liability c+sts1 H+@+1* +/6 J'>/ !19BB& in their st'dy states that ban< )r+*itability is si.ni*icantly deter(ined by c+st c+ntr+l (eth+ds ad+)ted by a )artic'lar ban<1 They c+ncl'ded that the hi.h )r+*it .eneratin. ban<s rec+rded l+-er +)eratin. c+sts as a )ercenta.e +* t+tal re/en'e than l+- )r+*it .eneratin. ban<s0 beca'se +* better c+st c+ntr+l (echanis( 'sed by hi.h )r+*it .eneratin. ban<s1 D27+*)+ +/6 V2/0+*+:>+-+9 !19B"& in their st'dy )r+)+sed a c+()+site inde= -hich they belie/e -+'ld be able t+ in/esti.ate the e**iciency +* ban< +)erati+ns and )r+*itability1 The (ain ele(ents +* this c+()+site inde= are +)erati+nal e**iciency in ter(s +* )r+d'cti/ity0 s+cial +b2ecti/es and )r+*itability1

Page 7C

 V+r62 +/6 S)/3>!19B9& in a th+'.ht )r+/+<in. st'dy +* nati+naliDed ban<s in India0 c+ncl'ded that an a/era.e0 the )r+*itability +* nati+naliDed ban<s in India declined d'rin. 1C57 A 881 They hi.hli.hted that the (ain ca'ses *+r this decline in )r+*itability are l+- s)read0 hi.h (an)+-er and +ther +)erati+nal e=)enses1 S>+> !19B9& in his st'dy ar.'es that ban< )r+*itability is lin<ed -ith ban< (ana.e(ent0 c'st+(er ser/ice0 and *inancial )er*+r(ance1 He rec+((ended that in +rder t+ i()r+/e )r+*itability in a ban<0 e()hasis sh+'ld be laid +n red'cin. c+sts0 creatin. a tea( s)irit0 i()r+/in. the (ana.e(ent0 and (a<in. the 'ser?)ay *+r the c+st in/+l/ed in a ser/ice1 Sr)7+1*7+ !19"1& tries t+ b'ild a relati+nshi) bet-een the )r+d'cti/ity and )r+*itability +* c+((ercial ban<s1 He ar.'es that an i()+rtant reas+n +* l+)r+*itability is beca'se +* l+- )r+d'cti/ity0 and l+- )r+d'cti/ity c+'ld be the res'lt +* ine**ecti/e ti(e that +cc'rs d'e t+ de*ects in the *+r(?desi.n0 ine**icient (eth+ds +* +)erati+ns0 bad lay+'ts0 e=cessi/e )r+d'ct /ariety0 bad -+r<in. c+nditi+ns0 )+-er brea<d+-n and )++r (aintenance +* rec+rds1 J'1>) !19"6& in his st'dy +* all sched'led c+((ercial ban<s +)eratin. in India analyses the )r+*itability and )r+*it )lannin. relatin. t+ the )eri+d 1C89 A 1C6;1 The st'dy disc'sses and trends in )r+*its and )r+*itability +* c+((ercial ban<s since nati+naliDati+n1 The *act+rs leadin. t+ the deteri+rati+n +* )r+*itability are hi.hli.hted1

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 I/*2r/+- 62*2r9)/+/*14 Internal deter(inants +* ban< )er*+r(ance can be de*ined as *act+rs that are in*l'enced by a ban<!s (ana.e(ent decisi+ns1 S'ch (ana.e(ent e**ects -ill de*initely a**ect the +)eratin. res'lts +* ban<s1 Alth+'.h a ,'ality (ana.e(ent leads t+ a .++d ban< )er*+r(ance0 it is di**ic'lt0 i* n+t i()+ssible0 t+ assess (ana.e(ent ,'ality directly1 In *act0 it is i()licitly ass'(ed that s'ch a ,'ality -ill be re*lected in the +)eratin. )er*+r(ance1 As s'ch0 it is n+t 'nc+((+n t+ e=a(ine a ban<!s )er*+r(ance in ter(s +* th+se *inancial /ariables *+'nd in th+se *inancial state(ents1 O* th+se state(ents0 the balance sheet and inc+(e state(ent are the t-+ )rinci)al +nes1 B+-+/:2 1>22*. In his st'dy +* the deter(inants +* ban<s! )er*+r(ance *+r t-el/e c+'ntries selected *r+( E'r+)e0 N+rth A(erica and A'stralia0 B'5r02 !19"9& n+tices a si.ni*icant )+siti/e relati+n bet-een ca)ital ade,'acy and )r+*itability1 He sh+-s that the hi.her the ca)ital rati+ is0 the (+re )r+*itable a ban< -ill be1 Si(ilarly0 the st'dies '( B2r32r !199#& +/6 A/3>+A' !199B& c+ncl'de that ban<s -hich are -ell?ca)italised are (+re )r+*itable than the +thers in the #SA1 The )+siti/e relati+n bet-een the ca)ital rati+ and )r+*itability is n+t li(ited t+ the #S ban<in. ind'stry1 In the st'dy +* ban<in. )r+*itability acr+ss ei.hteen E'r+)ean c+'ntries *+r the )eri+d 1C65?1C6C0 M'-./25C +/6 T>'r/*'/ !199<& als+ *ind that the ca)ital rati+ i()acts ban<s! )er*+r(ance )+siti/ely alth+'.h s'ch relati+nshi) is c+n*ined t+ 2'st the state?+-ned ban<s1 B'.6 +/6 R5/0-2 !199=&D in their ban<in. )er*+r(ance st'dy0 c+ncl'de that an in/erse relati+n e=ists bet-een siDe and )r+*itability1 Si(ilar res'lts are +btained by Page @1

 M)--2r +/6 N'5-+1 !199B& in the USAD N+:25r !<%%=& in T5/)1)+ +/6 J)+/3 et al. !<%%=& in H+n. K+n.0 i()lyin. that lar.er ban<s achie/e a l+-er le/el +* )r+*its than s(aller +nes1

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R212+r:> M2*>'6'-'3.
The ROE dec+()+siti+n (+del is )resented in a tree *+r( that -ill c+nsist +* ;9 rati+s0 s)read ') in *i/e sta.es1 This (+del hel)s t+ identi*y the areas +* ban< +)erati+n that!s need i()r+/e(ent1 The rati+s in the sta.e 1 t+ 7 are inte.rated1 The sta.e @ rati+s are certain cr'cial *'ncti+nal area +* the ban<1 The (+del is n+t cl+se ended and the sc+)e is +)en *+r *'rther detailed analysis1 Selected ban<s *r+( "ehrad'n -ill be 'sed as a sa()le in the st'dy1 D+*+ C'--2:*)'/4 The yearly data +* the ban<s has been ta<en *r+( the res)ecti/e -ebsites +* the sa()le ban<s as -ell as -ith the hel) +* +ther -ebsites li<e3 ---1(+neyc+ntr+l1c+( ---1yah++*inance1c+( 0 ---1.++.le*inance1c+( T''-1 ('r A/+-.1)14 The *+ll+-in. t++ls ha/e been 'sed *+r the st'dy3 ROE !R2*5r/ O/ EE5)*.&4 R2*5r/ '/ EE5)*.F R2*5r/ '/ A112* G EE5)*. M5-*)8-)2r The sec+nd ste) +* ROE dec+()+siti+n analysis *'rther s)lits ROA int+ t-+ *act+rs3 ROA !R2*5r/ O/ A112*1&4 R2*5r/ '/ A112*1F Pr'()* M+r3)/G A112* U*)-)A+*)'/ I* b+th the sta.es are c+(bined the ROE e,'ati+n bec+(es3

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 ROEF PMGAUGEM ROEF PMGAUGFLGDFL PM 4Pr+*it Mar.in: XEBITKT+tal Inc+(e AU 4Asset #tiliDati+n: X T+tal Inc+(eK Asset FL 4Financial &e/era.e: X T+tal Asset K Net B+rth DFL 4"e.ree +* Financial &e/era.e: X PATKEBIT ROEF !ROA$I/*2r21* C'1* A6?51*92/*&GF)/+/:)+- L272r+32 Bhere0 I/*2r21* C'1* A6?51*92/* F I/*2r21* EC82/121H T'*+- I/:'92

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ANALYSIS OF PROFITIBILITY OF BANKS THROUGH ROA AND ROE

This )art +* st'dy in/+l/es the calc'lati+n and analysis +* )r+*itability +* ban<s in India thr+'.h ROA 4Ret'rn On Assets: and -ith the hel) +* se/eral rati+s1 The *+ll+-in. tables are sh+-in. the inter)reted res'lts +* the data 3

Page @@

T+,-2 N'.1 R2*5r/ O/ EE5)*.

B+/01 S.B.I. P.N.B. H.D.F.C .

<%%" >155 17196 18158

<%%9 >178 151;C 1>16

<%1% 71>; ;911; 171C;

<%11 7158 ;916 1719>

<%1< @17 1C1C5 1@18

AVERAGE 71>97 161;@ 1@1;;7

I/*2r8r2*+*)'/4 Ab+/e table sh+-s that the ROE (+del *+r the *i/e years +* the three ban<s0 is c+()arati/ely )resented t+ .et an idea ab+'t shi*t in )r+*itability )+siti+n1 It has been +bser/ed *r+( the table0 that the ROE +* SBI Ban< is increasin. c+ntin'+'sly as c+()ared t+ +ther t-+ ban<s as the +ther ban<!s ROE is increasin. b't at a di(inishin. rate1 S+ SBI ban< has re(ained the leadin. )er*+r(er as )er the ROE )ara(eter1

T+,-2 N'. < R2*5r/ O/ A112*1

B+/01 S.B.I. P.N.B. H.D.F.C.

<%%" 911C 91C> 11;@

<%%9 91; 1197 111C

<%1% 91;> 11;> 11;>

<%11 91;5 11;6 11>5

<%1< 91;8 1118 117@

AVERAGE 91;> 111> 11;C5 Page @5

FINDINGS
This table sh+-s the analysis +* three ban<s P1N1B10 S1B1I10 H1"1F1C1 It is *+'nd that H1"1F1C1R P1N1B1 is )er*+r(in. -ell in the ab+/e (enti+ned years 1Indi/id'al )er*+r(ance +n di**erent )ara(eters +* each ban< is )resented in tables0 -hich e=)lains3? Findin.s *r+( the st'dy are3 1. The ROE +* SBI is increasin. c+ntin'+'sly in last *i/e years0 >155L in ;996 t+ hands+(e @17L in ;91;1 <. The ROA +* all three ban<s are sh+-in. si(ilar increasin. trend0 here PNB!s )er*+r(ance is better than +ther ban<s 01C>L in ;996 t+ a hands+(e 1118L in ;91;1B't the t+tal a/era.e sh+-s that the )er*+r(ance +* H"FC ban< is .++d i1e1 11;C5L1 =. As )er c+nce)t'al a))r+ach +* ROA0 i1e1 'sin. EBIT in )lace +* PAT0 i1e1 NET PROFIT it has been +bser/ed that all the ban<s 'nder the st'dy de)icted a *l'ct'ati+n in ret'rns1 On an a/era.e P1N1B 4;1;;6: is leadin. *+ll+-ed by H1"1F1C 4;19@6: R S1B1I 4917>5:1 Page @8

;.

The )r+*it (ar.in +* PNB R H"FC is sh+-in. a )+siti/e .r+-th as c+()ared t+ SBI1 PNB0s )r+*it (ar.in is 11166L in ;996 t+ 17175L in ;9111 Bhereas H"FC!s rati+ is 1>1C1L in ;996 t+ 151;7L in ;91;1

#.

As )er c+nce)t'al a))r+ach +* PROFIT MAR IN0 0 i1e1 'sin. EBIT in )lace +* PAT 0i1e1 NET PROFIT it has been +bser/ed that all the ban<s 'nder the st'dy de)icted a *l'ct'ati+ns0 here PNB!s )r+*it (ar.in is increased *r+( ;815L in ;996 t+ ;C191L in ;91;1

6.

The assets 'tiliDati+n +* SBI has sh+-n a .r+-th in *+'r years and start declinin. in @th year0 91915L in ;998 t+ 91918L in ;911 and decreases in;91; in 91991L1 By seein. +/erall )er*+r(ance +* all the Ban<s0 H1"1F1C is in leadin. )+siti+n +* 919C7;L1

B.

The e,'ity ('lti)lier +* PNB is increasin. c+ntin'+'sly in last *i/e years0 1@19;L ;998 t+ 18195L in ;91;1

".

The de.ree +* le/era.e0 On the a/era.e basis it has been de)icted that the a/era.e +* S1B1I is hi.her than the +ther t-+ ban<s0 11665L1

9.

Interest Inc+(e t+ T+tal Inc+(e +* all the sa()le ban<s are *l'ct'atin.0 +n an a/era.e basis P1N1B is leadin. then +ther t-+ ban<s -ith 91686L1

1%.

N+n Interest Inc+(e t+ T+tal Inc+(e +* all the sa()le ban<s are *l'ct'atin. in all the years +* the st'dy1 On an a/era.e basis H1"1F1C1 is leadin. t+ 91167L1

11. 1<.

The SA&ARIES TO TOTA& INCOME0 +n an a/era.e basis SBI is a leadin. )er*+r(er +* 911;8;L1 Fr+( the st'dy it has been de)icted that SBI is leadin. +* Other Establish(ent E=)ense t+ T+tal Inc+(eD 9195;L in ;998 t+ 91196L in ;91;1 Page @6

1=. 1;. 1#.

The C+st +* "e)+sits0 +n an a/era.e basis H"FC is a leadin. )er*+r(er +* 919>16L1 Fr+( the st'dy -e ha/e *ind that COST OF BORROBIN ;998 t+ 91188L in ;91;0 as c+()are t+ +ther t+ ban<1 The BEI HTE" A$ERA E COST OF F#N" +* PNB is 9191@6L -hich is .++d as c+()are t+ SBI R PNB1 +* H"FC is 91;5@L in

16.

Fr+( the .i/en table it has been c+ncl'ded that +n an a/era.e basis H"FC -ith 91@986 FINANCIA& MAR IN is better than PNB1

RECOMMENDATION
1? The ab+/e disc'ssi+n0 it can be c+ncl'ded that the Ban<s 'nder st'dy ha/e res)+nded t+ the +n.+in. *inancial re*+r(s in a )+siti/e (anner1 ;? &++<in. at the *i.'re +* SBI +* ;995?;998 and ;919?;9110 the ROE0 ROA0 EM ha/e increased -ell1 Bhile seein. at the *i.'res +* PNB +* ;995?98 and ;919?11 the ROE0 ROA0 PM0 A#0 EM0 "O& ha/e increased -ell1

>?

N+- l++<in. at the *i.'re +* H"FC +* ;995?98 and ;919?;911 the ROA0 PM0 A#0 "O& ha/e increased -ell1 The )er*+r(ance +* an a/era.e H"FC is .++d a(+n. all three ban<s0 -hich de)icts a (+re )r+*itable and 2'dici+'s 'se +* asset by H"FC Ban<1

7? The i()ressi+n0 as dra-n *r+( s'ch )er*+r(ance0 is that these ban<s are still attached t+ c+n/enti+nal ban<in. b'siness +* ta<in. de)+sits and .i/in. l+ans Page @C

+nly1 The )r+)+rti+n +* t+tal inc+(e as c+ns'(ed by salaries has seen a ne.ati/e trend0 e=ce)t H"FC ban<1

@? This indicates the des)ite en+r(+'s increase in the salaries +* H"FC ban<0 -hich hel) in increase in inc+(e at a hi.her )lace1 "es)ite the di(inishin. s'bsidy re.i(e +n b+rr+-in.s and increased c+st +* de)+sits0 there has been a )+siti/e shi*t in *inancial (ar.in +* all the ban<s1

CONCLUSION
The st'dy re/eals that th+'.h the Indian ban<s ha/e res)+nded t+ the *inancial re*+r(s )+siti/ely0 and (ade si.ni*icant )r+.ress0 there are se/eral challen.es *+r the( in *'t're1 11 The *irst challen.e *+r the ban<s is the c+ns+lidati+n +* ban<s and branches1 The e(er.ence +* titans has been +ne +* the n+ticeable trends in the ban<in. ind'stry at the .l+bal le/el1 ;1 These ban<in. entities are e=)ected t+ dri/e the .r+-th and /+l'(e +* b'siness in the .l+bal se.(ent1 In the Indian ban<in. sect+r als+0 c+ns+lidati+n is li<ely t+ .ain )r+(inence in the near *'t're1

>1 "es)ite the liberaliDati+n )r+cess0 state?+-ned ban<s d+(inate the ind'stry0 acc+'ntin. *+r three?,'arter +* ban< assets1 The c+ns+lidati+n )r+cess in recent years has )ri(arily been c+n*ined t+ a *e- (er.ers in the )ri/ate sect+r se.(ent0 alth+'.h s+(e recent c+ns+lidati+n in the state?+-ned se.(ent is e/ident as -ell1 Page 59

71 These (er.ers ha/e been based +n the need t+ attain a (eanin.*'l balance sheet siDe and (ar<et share in the *ace +* increased c+()etiti+n0 dri/en lar.ely by syner.ies and l+cati+n and B'siness?s)eci*ic c+()le(entarities1

SUGGESTIONS

11 SBI ban< is leadin. Ban< in the c+'ntryJ it!s )r+/ided a /ariety +* )r+d'cts and ser/ices t+ di**erent se.(ent +* c'st+(ers1

;1 The ban<s ai(s t+ ser/e c'st+(ers *r+( teena.ers t+ seni+r c i t i D e n s 0 h e n c e di**erent )r+d'cts desi.ned t+ s'it s)eci*ic re,'ire(ents +* the ab+/e1 >1 Ai(s t+ ser/e all classes +* the s+ciety *r+( the salaried (iddle class t+ the hi.h inc+(e b'siness class1 C'st+(ers are cate.+riDed and se.(ented acc+rdin. t+ their re,'ire(ents and needs1 71 SBI Ban< )r+/ides )ers+nal l+an at l+- interest rate -hich .++d *+r c'st+(ers1

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@1 The Ban< )rides itsel* -ith the ability t+ )r+/ide di**erentiate )r+d'cts in the cr+-ded (ar<et +* sa/in. acc+'nts1 Ban< +**ers *ree ins'rance0 s)ecial c+?branded debit cards -hich (a<es its )r+d'ct 'ni,'e1

L)9)*+*)'/ '( *>2 S*56.

The *+ll+-in. are the (ain li(itati+ns +* the st'dy3 11 In the )resent st'dy0 the )r+d'cti/ity and )r+*itability +* +nly PSBs ha/e been e=a(ined1 N+ )ri/ate sect+r ban<s and *+rei.n ban<s has been c+nsidered *+r this )'r)+se1 There*+re0 the st'dy d+es n+t re*lect the +/erall )ict're +* )r+d'cti/ity and )r+*itability +* the ban<in. sect+r1 ;1 The st'dy is based +n sec+ndary data as )'blished in /ari+'s )'blicati+ns +* RBI and IBA1 These data are based +n hist+rical acc+'ntin. c+nce)t0 -hich i.n+res the i()act +* in*lati+n1 Res'lts -+'ld ha/e been di**erent0 in case0 d'e c+nsiderati+n -as .i/en t+ )rice le/el chan.es1

Page 5;

>1 In the )resent st'dy0 +nly the ,'antitati/e as)ects +* )r+d'cti/ity and )r+*itability ha/e been e=a(ined1 W'alitati/e as)ects s'ch as (+ti/ati+n +* e()l+yees0 c'st+(er satis*acti+n0 and i(a.e +* the ban< ha/e n+t been

BIBLIOGRAPHY WEBSITES
11---1.++.le1c+1in ;1---1hll1c+( >1---1-i<e)edia1c+(

R(;(,(/<(=
11 Shah0 S1 10 Ban< Pr+*itability3 The Real Iss'es0S The Journal of the Indian Institute of Bankers, 4F'ly?Se)11C8C:0 ))1 1>9?1771 ;1 $ar.hese0 S1K10 Pr+*its and Pr+*itability +* Indian C+((ercial Ban<s in Se/enties0S Economic and Political Weekly, N+/10 1C6>0 ))1 M117@?1@81 Page 5>

>1 A.ed0 $1$1 and "e/ra20 $1F10 Pr+*itability and Pr+d'cti/ity +* Ban<s in India0S Economic and Political Weekly, N+/1;50 1C6>1 71 R+y0 "'r.adas0 Ban< Pr+*itability3 S+cial R+le is n+ Barrier0S Business tandard, N+/1;50 1C651 @1Ch+)ra Kiran0 !ana"in" Profits, Profitability and Productivity in Public Bankin". ABS )'blicati+ns0 Falandhar0 1C681 51 $ashisht0 A1K10 Per*+r(ance A))raisal +* C+((ercial Ban<s in IndiaS0 1C68 4A Thesis s'b(itted t+ the "e)art(ent +* C+((erce and B'siness Mana.e(ent0 HP#0 Shi(la: 81 Sin.h0 "r1 Fa.-ant0 Pr+d'cti/ity in Indian Ban<in.S0 1CC90 4A Thesis s'b(itted t+ #BS P# Chandi.arh:1 61A(andee)0 Pr+*its and Pr+*itability +* Indian Nati+naliDed Ban<sS 1CC10 4A Thesis s'b(itted t+ #BS0 P#0 Chandi.arh:1 C1 K+thari0 C1R10 ocial Bankin" and Profitability0 Arihant P'blishers0 Fai)'r0 1CC11 191 Salee(0 "r1 I(ran0 Strate.ic Re*+r(s +* Ban<in. Sect+rS0 !onthly #ommentary, Feb11CC@1 111 Ka'shi<0 San2ay0 S+cial Ob2ecti/es and Pr+*itability +* Indian Ban<s0S 41CC@: 4A Thesis s'b(itted t+ #BS0 P#0 Chandi.arh: ector

Page 57