1.

Executive Summary
The economic condition of the country is changing day by day. The changing economic
condition challenged too many financial institutions like banks to find out more efficient and
effective way to sustain in the market. So to compete with these challenges successfully in the
emerging competitive market is become a key to sustain in the market and it is also responsible
for the good and effective corporate strategies which are form by the banks. Banks are need to
opt for the strategy which is most innovative with entirely new skill sets, innovative concepts
,good organizational structure ,product and services which are able to fulfill the need of every
customer without compromising anything. But for all these one point need to consider in the
mind is that cost should not go high. The main objective of our research paper is to analyze the
sustainable growth in the Indian banking sector. To measure all the constructs we used five
point rating scaling technique. For our research purpose we consider 32 banks (15 private sector
and 17 public sector banks). One questionnaire is designed to collect the response from the
respondent. All the respondents which we have taken for our research purpose are the
employees of the banks there is no any respondent from outside the banks. The data will be
analyzed by various statistical tools to check the validity of the hypothesis. This paper will
throw some light on the innovative strategies used by the banking sector for the sustainable
growth.

1.1 INTRODUCTION
Over the last few decades the financial institution in developing and developed countries has
face many changes. Deregulation and tough competition led the banking sector to expand their
activities, so sustainable growth is the main key to sustain in the competitive market. Most
studies analyze that non interest activities are mostly associated with profitability gains but also
higher risk due to their unstable nature (Meslier.C,(2014) ). Some of the studies find that green
banking and CSR activities are often associated with the profitable gains and sustainability
(Rajput.N,(2013)).Our study directly does not associated with these factors but to provides the
insight effect of these factors on the sustainability.

1.2 SCOPE OF THE STUDY

The present banking scenario of India is not good as compare to past because many new players
have entered the market in private sector with good technology driven products as a result the
market share of public sector banks has gown down because they are finding difficult to
compete with private sector banks who are growing with good pace and also there is a decline
of margin of the banks because of poor quality of asset management this is mainly due to poor
risk management and also there is many other risk involved also they are market risk as well
as financial crisis and also the inflation rate which is growing over 9% as result the RBI has
ordered to cut the credit facility for banks .Also there was a recent case of Kingfisher Airlines
which SBI with other banks trying to put them in wilful defaulter list and UCO bank has already
done that because Kingfisher airlines has not paid thousand of crores as result most of the banks
has to put that into bad debts and also give huge set aside huge for provision and contingencies
which has affected profitability as well as their sustainability.

1.3 RESEARCH GAP

We can easily identified from the factor list only the used factors have been cover up by the
researcher while some of the factors which are not exposed by the researcher while doing the
research which is clearly showing the research gap. While in our research we will try to cover
all the factors in our study and try to fill the research gap.
Factors which are involved(used)

Factors which are not exposed(unused)

Number of account deposit, loan

Investment deposit ratio

Earnings per share

Cash deposit ratio

Debt equity ratio

Investment in rd

Return on assets

Profit per employee

Return on equity

Other income non interest income

retail vs corporate banking proportion

Margin or Spread

Provision of contingencies

Treasury income

Use of alternative delivery channel

Third party product

Operational profit

CAGR(business growth)

Operation cost(expense)

Proportion of CASA in total deposit

interest rate- base rate

Interest expanded

Interest income

P/E ratio

Business per employee

Rural vs. Urban proportion

Credit deposit ratio

Cost of funds(borrowing cost, bank rate)

Gross NPA

Cash Reserve ratio(CRR)

Net NPA

Margin standing facility(MSF

Capital adequacy ratio

Money market(call money interest rate)

Deposit Insurance

1.4 OBJECTIVE OF THE STUDY

1) To analyze the factors that affects the sustainable growth in Indian commercial banks.
2) To study the perception of bankers towards the major factors contributing towards the
banks sustainability

1.5 NEED OF STUDY

Indian banking sector is the main driver of the economy and it is the important contributor from
the finance sector to the Indian economy. Banks can able to provide important leadership to
renovation required for the economy and can able to provide new opportunities for investment
policies and financing as well as for strong portfolio management . With the help of this bank
can able to create strong economy. The European Banking Association published the results of
123 European banks out of which 23 banks fail the stress test conducted by them one of every
five European banks fail the crucial test of their financial strength leaving 25 billion capital
deficit in the contingent banking system at the time of renewed fears that the five year euro
zone crisis may be flaring up again. As a result it has again put up the question mark of
sustainability of their banks. In our research paper we have identified various factors that is
greatly affecting the sustainability like credit deposit ratio, Investment deposit ratio gross NPA
and net NPA Treasury income and operation cost and etc which are affecting the sustainability
of banks.

2.1 RESEARCH METHODOLOGY:

Design

: Descriptive

Method of research :

Primary data through Questionnaire from the employees of the

Banks (Above the rank of Scale I officer).
Secondary data from the financial reports of the banks as well as
from RBI database.

Sampling design

: Thirty two banks (Fifteen banks from private sector and seventeen

banks from Public sector banks).

Banks were selected on the criteria of market capitalization.
Scales to be used

Questionnaire for measuring the qualitative factors five point Likert

Scale would be used.

Analysis tool

Data Envelopment Analysis, Regression analysis, Factor analysis

Variables:
Dependent factors

Independent factors

Other income non-interest income

Interest Expended

Interest Income

Current Account Saving Account

Profit per employee

Cash deposit ratio

Operational Profit

Credit deposit ratio

Capital Adequacy Ratio

Investment deposit ratio

Earnings per Share

Loans

Return on Asset

Deposits

Return on Equity

Borrowings
Margins
Business per employee
Gross NPA
Net NPA
Operational Cost (expense)
Provision of Contingencies

3. REVIEW of LITERATURE
Shanmugam (2004) [5] in his study entitled Efficiency of Indian commercial banks during the
reform period stated that the banking efficiency literature by measuring technical efficiency
of banks in India during the reform period. Regression analysis and chi square test was used
.Studies also estimating the efficiency of financial institutions such as banks have relied on
accounting measures such as outputs, costs, and profit due to unavailability of engineering
information on the technology of financial institutions. Noninterest income and operation cost
was the measure factor leads to sustainability. Descriptive analysis was used in the study. The
results indicate that the efficiency of raising interest margin is time invariant while the
efficiencies of raising other outputs, investments, non-interest income and credits are time
varying.
Olson (2005)

[6]

in his paper entitled A New Application of Sustainable Growth: A Multi-

Dimensional Framework for Evaluating the Long Run Performance of Bank Mergers and
stated that the mergers of US publicly traded bank holding companies during 19872000 and
find that the acquiring firms sustainable growth rate is an important determinant of the crosssectional variation in the merged entitys long-term operating and stock performance.
Descriptive analysis is used during the study. Return of asset factor leads to sustainability
during the study. Researcher examines the long-term performance of bank mergers by
analyzing the cumulative buy-and-hold abnormal stock returns (BHAR) associated with each
deal on a cross-sectional basis. The study findings Sustainable growth refers to the growth the
firm can achieve given its financial and operating constraints. In this paper, we propose a new
application of sustainable growth that uses the measure as a multi-dimensional framework for
evaluating the long run performance of bank mergers.
Weber (2005)

[7]

the researcher had done the study in the European banking sector. In his

research paper he identified that the European banking sector followed several strategies for
the sustainability like focusing on the building new strategies, policies, launch of new product
and services. The multi level research analysis approach is used for the analyzing the
sustainability.
Hefferman (2007)

[8]

in his paper investigates cost efficiency in China's banking sector. He

identify bank reforms, joint stock banks are the major part of the study. The purpose of the
study is to assess whether different ownership types and banking reforms affect efficiency.
Descriptive analysis was used in the study. During study he analyzed the factor operation cost

and Interest expanded lead to sustainability .A two-stage regression model is estimated to

identify the significant variables influencing efficiency. The finding of the study is joint-stock
banks are found to be more efficient than the state-owned commercial banks. The conclusion
of the study is recent policies aimed at increased privatization, greater foreign bank
participation, and liberalized interest rates should help to improve the cost efficiency.
Explosive growth fueled by increased leverage and commercial borrowing.
Kumar (2010)[9] stated that the author makes an attempt to evaluate the total factor
productivity (TFP) growth in the banking sector, over the period 1995-2006. The popular non
parametric method namely data envelopment analysis (DEA) has been used for the purpose.
The measures of productivity growth are computed across the various bank types, namely
public sector banks (PSBs), old private banks (OPBs), new private banks (NPBs) and foreign
banks (FBs). The author has taken the qualitative variable like Total factor productivity for the
analysis .The tool used for the analysis is multiple regression analysis The author has found
out that after adopting technical efficiency in their process the net interest margin is in profit
for the banks.
Shaw (2010) [10]in his study entitled Sustainability and Livability in Banking Crisis stated
that there is a contrast between the role of complexity in enabling value creation and market
growth and its role in limiting sustainability. This paper analyses the recent banking crisis to
develop a framework that weaves together the many suggestions that have been made to fix
the banking system and to look for a root cause. The root cause of the banking crisis was in the
increased complexity of the supply chain that linked more borrowers to more investors. This
paper examines the recent credit crisis from the perspective of a partial transition to a lower
gain system and the associated requirement for the tighter regulation of the quality of resources
that the banking system consumes.
Jaykumar (2012) [11] Researcher studied in his paper that how all the banks adopted technology in their
business and what are the implications they faced while implementing new technology in their banking
system and how they overcome implications and challenges and what are the results after the
introduction new modern equipments in their system.

Dhanapal (2012)

[12]

studied with the aim to measure the profitability and operational

efficiency of public sector banks in India and identify the factors which influence the
profitability and operational efficiency .Research paper analyzed data of 5 yrs by using multiple
regression analysis ,DEA, profitability ratio ANNOVAS.

Vashishta (2012)

[13]

in his paper entitled An empirical study on innovative business

strategies a Key to progress in the emerging economies with special reference to Yes Bank
stated that competing successfully in emerging markets has become the key to a good and
effective corporate strategy and to grow and sustain profitably in these markets it is essential
to opt for a strategy based upon innovation blended

with entirely new set of skills,

organizational structures, new concepts, products and services that serves to the specific
requirements of the market, keeping in mind the cost factor. Descriptive analysis was used in
the study. one-sample t-test was used .The study conclude that challenges faced by
entrepreneurs in developing nations are different than that faced by them in developed nations
mainly because of the nations economies in which they work. Developing markets are
unstable, not matured and inconsistent as compared with the developed markets.
Ory (2012)

[14]

in his paper entitled efficiency and hybridization in cooperative banking

stated that French cooperative banking group adapted their organization status to develop and
grow until the current financial crisis. The main objective of the study to test the inefficiency
argument laid against cooperative banking. Descriptive analysis was used during the study.
Return on asset and return on equity, factor referred in his study. Paired sample wilcoxon tests
were used in his study. The study finding that cooperative networks and groups have played
different and important role in the banking industry. Finally he concludes that the theoretical
used as a reference tool by the mainstream to justify the relative poor efficiency of cooperative
banks.
Chavan (2013) [4] Researcher in his paper studied that how the modern technology in banks improve
their banking process to a greater extent also their revenues have gone up as a result which is giving
good sustainable base to them because their client expense have gone down due to mobile E-banking
,Internet banking and ATMs. The researcher also discusses that adaption to new technology for the
banks have become necessary due to free trade agreement between countries and also due to
deregulation.

Jayadev (2013) [15]in his study entitled Basel III implementation a issues and challenges for
Indian banks stated that the main thrust has been enhancing the banking sectors safety and
stability, emphasizes the need to improve the quality and quantity of capital components,
leverage ratio, liquidity standards, and enhanced disclosures. Descriptive analysis was used in
the study. The main factor return on asset and return and equity was leads to sustainability in
this study. Internal control systems should address the issue of hiding bad loans and greening
of assets.

Rajput (2013)

[16]

Researchers examined the relation between Indian banks and the external

environment and how they are responding to external environment and what are the action taken by the
Indian banks in overcoming the challenges and gaps The author has highlighted the key factors

Quality of assets of banks and its profitability is affected by environmental policy impacts. The
test used in the study are one sample t-test, KMO & Bartletts test secondary data.
Rao (2013)0

[17]

,stated that Indian banks are maintaining prudent banking practices to meet

the world class standards to improve the performance of public and private sector banks in
terms of reducing net NPAs, follow up of Basel standards to gain competitive advantages
trough implementing IT enabled solutions and greater outreach to develop rural banking
habits(Financial inclusion). The author has highlighted key factors which they have to consider
while adopting global standards in capital adequacy, income recognition and provisioning
norms. Risk management setup in Banks will need to be strengthened. Benchmark standards
could be evolved. Regulatory set-up will have to be strengthened, in line with the requirements
of a market-led integrated financial system. The author has used the following test in his
research paper statistical tools Descriptive analysis T-test correlation tools had applied to
analyze the results of public and private sector banks .The author has find out that Business for
employee is high in public Sector Banks as compared to private sector Profit per employee
high in public sector Capital and reserves of surplus is high in private sector banks, Advances
are high in public sector banks.
Ingaham (2013)

[18]

stated that In banks moving toward sustainability, sustainable banking

activities are limited and not integrated in the core business as they evolve progressively from
philanthropy to the development of products/services in micro finance the author gives various
definition for the sustainability. The methodology is based on the analysis of the secondary
data and interviews to determine the typical characteristics and differences of sustainable
banks.
Tiwari (2013)

[19]

Researcher focused on his study that introduction of new technology in

banking is really helpful to customers and is it really helping the rural masses or not and in
what way it has helped the bankers also this all things is covered by researcher in his paper .
The research methodology used is the collection of banks journals as well as going through
bank websites.
Sunitham (2013) [20] Researcher in his studied focus that what will be the impact on adopting
Basel III norms and is the banking sector going will be able to follow up all the norms of Basel
III .which on any condition has to be followed for the sound economy of the country .We know
9

that the banks are very strong pillars of financial system and according to prevent any financial
crisis like 2007 the banks have to prepare themselves to absorb the shock.
Onder (2013) [21] stated that the banks which are state owned are trying to enhanced the growth
of that region which are not fully developed and this mainly done in the under developed
countries like India, China etc. In this research paper main factors are consider are Gross NPA,
net NPA and return on assets. The tool used to analysis is paired sample t test.
Gwalani (2013)

[22]

researcher discuss in his research paper that every privileged person of

India whether it is poor or rich should get all the banking services in regard of demographical
area. The government has taken very initiatives like Jan Dhan Yojna which is recently carried
by our prime minister of India and the banks collected nearly 7000 crores deposits. The
regulatory body of all banks have order all the commercial banks to expand their base in rural
and semirural areas.
Soteriou (2014) [23] Researcher in his studied focused on the operational efficiency that how
the banks have increased their efficiency and what are the implications it has brought the bank
in increasing the efficiency the bank has improved in many areas in improving their only one
factor like their profit margin has increased which ultimately led to customer satisfaction. The
tools used by the researcher are data envelope analysis and multiple regression tools.
Ponniah (2014) [24] in his paper studied empirically analyze the impact of interest rate risk on
the performance of banks operating in India. The study mainly focused on the estimation of
sensitivity of bank stock returns to changes in interest rates. The study was taken with an
objective of analyzing the determinants of IRR and examining the strategy to manage such
exposures testing the banks long run sustainability. Multiple regression models were fitted to
identify the key determinants of interest rate risk. The findings of the study were to suggest the
ways to minimize the IRR and control its effect on the banks profit and also were to test impact
of IRR on the sustainability of the bank.
Rahman (2014) [1] researcher paper in his studied that the government have taken initiatives
to promote small industry and enterprise in financial sector. Small banking system provides
their services to the unemployed or those have low income. In his research paper multiple
regression technique was used to measure the sustainability if this financial sector using the
factors loans, operational profit etc. descriptive statistical tool was used to for the research
purpose.
Sharma (2014)

[25]

in his paper entitled Technology Trends in Banking Operations stated

that a strong, healthy and sustainable banking system is very essential for the overall
10

development of an economy and failure of which may lead to collapse of the economy
as a whole. Descriptive analysis is used during the study. The paper mainly focuses on the
technological innovation and qualitative factor use of alternate delivery channel is leads to
sustainability. The study conclude that technology in the form of electronic banking has
made it possible to find alternate banking practices at lower costs. The study findings
people are using electronic banking products and services and because a large section of the
banks future customer base will be made up of computer literate customer, the banks must
be able to offer these customers products and services that allow them to do their banking
by electronic means.
Sahitya (2014)

[26]

stated that banking sustainability can be achieved by taking the green

initiatives. This step is taken by the many main PSU banks and some private sector banks. In
her research paper case study based data and secondary data is collected from the banks
websites and annual reports of the banks.
Babalola (2014) [2] stated that the issue of corporate governance assumed great importance the
world over in the aftermath of the corporate financial scandals brought about by lack of
transparency and accountability in governance. The collapse of high profile institutions around
the world such as Enron, WorldCom, Parmalat, Barings Bank to mention just a few have
demonstrated that no company can be too big to fail. Sustainable banking on the other hand is
a philosophy that underpins everything about banking, a value system that says a banks
commercial activities must not only benefit its staff and shareholders, but also its customers
and the wider economy, while at the same time preventing, or at least minimizing, any undue
effects on society and the natural environment. This study, therefore, investigated the
significant relationship between corporate governance mechanisms and commitments to
sustainable banking.
Mghoi (2014)

[27]

stated that most of the players in the banking sector have experienced

increased competition over the last few years resulting from increased innovations among the
players and new entrants into the market. The only way for banks to remain relevant in their
operations is by coming up with competitive advantage that is sustainable. Developing a
competitive advantage alone is not enough. Its sustainability is the critical element. For a
competitive advantage to attain this aspect, critical thinking and time has to be devoted by the
managers concerned. Today, many companies are faced out by competitors since they are
unable to create offerings and create sustainable relationships with their customers. The aim of
11

this paper is to analyze how a firm can create a competitive advantage that enables it to be on
the forefront in the market and in its general operations.
Rao (2014) [28] in his research paper studied relationship banking and customer satisfaction: an
empirical study on selected private sector banks. During the study researcher used primary data
as well as secondary data. Descriptive analysis is used during the study. The main factor leads
to sustainability in this paper is retail vs corporate banking proportion. The study found that
private banks are maintaining good customer relations. However it requires further
improvement in terms of IT enabled solutions to meet the customer Expectations like Quick
response and good customer relation. The study has further revealed that the level of customer
satisfaction varies across different Types services offered by banks and the level of
expectations of the customers. There is not a single service in respect of which the actual
satisfaction is close to the expectations and the segmentation gap exists across services.
Hemal (2014) [29] studied with the objective of analyzing the nationalized banking profitability
and find out the factors which influence the banking profitability .It used the correlation
,Multiple regression ,Factor analysis and Trend analysis and finally concluded that Return on
Assets, Deposit Ratio, Credit to deposit ratio ,Ratio of term loan to total advances ,Provision
and contingency to total assets ,Return on net worth , Net NPA ratio to net advances, Capital
adequacy ratio influence the banking operational profitability .
Kumar & Reddy (2014)

[30]

researchers studied with the objective to know the private and

public banks operational efficiency and find out the causes of inefficiency .Research paper
studied the relation between inflation rate ,GDP growth rate SLR and CRR with the banking
efficiency indicator .Researcher used DEA model and concluded that these models have an
effect to efficiency of banks.
Abaidoo (2014)

[31]

Researchers aim to investigate the effect of macroeconomic variables to

commercial banking operational efficiency .Findings concluded exchange rate and inflation
conditions have positive relation with the banking operational efficiency .Study used ADL
methodology .
Ojong (2014)

[32]

in his paper entitled Banking Sector Reform in Nigeria: A Regulatory

Imperative for a Sustainable Banking Industry. The main objective of the study is to determine
how these factors impact positively, or otherwise, on the growth, stability and sustainability of
the banking sector. Descriptive analysis is used during the study and data were collected mainly
from secondary records and analyzed using ordinary least square method. Multiple regression
analysis tools used by the author during the study. In the study identified the keywords Bank
profit, Bank capitalization, Bank bad debts, Bank interest rate and the factor Use of alternative
12

delivery of channel. The study also reveals that huge bad debts profile or poor asset quality has
a negative contribution to bank performance and was statistically significant. Interest rate had
a positive effect and a significant effect on bank performance. It is concluded that effective
banking sector reforms is a regulatory imperative for a sustainable banking industry in Nigeria.
Carnevale (2014) [3] in his paper entitled Sustainability report and bank valuation: evidence
from European stock markets. The author stated that how the direct effects of the sustainability
report on stock price .The aim of this paper is to investigate whether SR publication affects,
either directly or indirectly, stock prices of a sample of European listed banks, and to test
whether there are differences across countries. Descriptive analysis is used during the study
and conducted the survey. Earnings per share factor leads to sustainability during the
study.Regression analysis tools used by the author during the study. After the study the results
show that investors appreciate the additional and complementary disclosure provided by the
sustainability report and that this disclosure produces a positive effect on stock prices. Results
also show that investors appreciate SR regardless of the business model used.
Tandon (2014) [33]stated that During the period March 2000 and March 2010, total assets with
the banks have increased more than five times, from $250 billion to more than $1.3 trillion,
registering a CAGR of 18% compared to average GDP growth of 7.2% during the same
period. In the last decade more than 14000 branches and 41000 ATMs have been added by the
banks to their network, besides broadening the scope of delivery channels to internet banking,
mobile banking, phone banking and call centers. The variables which have taken by the author
for analysis is mobile banking E-banking ,NEFT and RTGS .The tools used for the analysis is
paired sample t-test . The author has found out that use of more involvement of information
technology helps the banks to improve their customer services and also their net interest
margin.
Endric & Lestari (2014)

[34]

done a study with the objective to find out the technical efficiency of

banks listed in stock exchange of Indonesia during 2008-2012. He used Data Envelop Analysis (DEA)
and TOBIT Regression model and found that interest rate affected the banking technical efficiency
negatively and the rate of inflation as well as currency affected it positively. We can improve operational
efficiency by improving technical efficiency.

Reddy (2014) [35] studied with the objective to know the private and public banks operational
efficiency and find out the causes of inefficiency. He studied the relation between inflation
rate, GDP growth rate, SLR and CRR with the banking efficiency indicator. With the help of

13

DEA model he found that these factors have an effect to the efficiency of banks. He also
suggested that cost of deposit has inverse relation with operational efficiency.
M.khalad (2014) [36] examined the banking efficiency determinants in Libya by factors Return
on assets, Risk, size of operation, Government link, Merger, Ownership. He analyzed 17 banks
data of 2004 to 2010 with the help of DEA and TOBIT Model and found that there is Positive
relation between bank ROA and banking efficiency. 2The size of operation; capital adequacy,
and government link also influence positively to the efficiency of banks..
Mahajan (2014) [37] stated that for developing nations it is the era of inclusive growth and the
main key of inclusive growth is financial inclusion. There have been many challenges in
financial inclusion areas to seek out various issues coming up from time to time in changing
economic scenario. A nation can grow economically and socially if the financial dependent
section can turn out to be financial independent. In his research paper he try to overview the
concept of financial inclusion and state that it need for social and economic development. His
study also attempts to analyze the contribution of Indian banking sector in the economic
development. The variable used by author in this research paper is alternative delivery channel
and methodology based on the descriptive study.
Parmar (2014)

[38]

researcher in his paper studied that how the Non-Productive income is

affecting banks particularly the NPA which has hamper the growth of banks in very bad manner
because the banks have to keep up large amount from their profit for provision and contingency
which has put question mark on their sustainability .
Endric (2014) [39] done a study with the objective to find out the technical efficiency of banks listed in
stock exchange of Indonesia during 2008-2012. He used Data Envelop Analysis (DEA) and TOBIT
Regression model and found that interest rate affected the banking technical efficiency negatively and
the rate of inflation as well as currency affected it positively. We can improve operational efficiency by
improving technical efficiency.

Seshadri (2014)

[40]

studied with the objective to know the private and public banks

operational efficiency and find out the causes of inefficiency. He studied the relation between
inflation rate, GDP growth rate, SLR and CRR with the banking efficiency indicator. With the
help of DEA model he found that these factors have an effect to the efficiency of banks. He
also suggested that cost of deposit has inverse relation with operational efficiency.

14

4. DATA ANALYSIS AND FINDING

4.1 DEA Empirical Results
In this section, we will measure the operational efficiency of commercial banks through Data
Envelopment Analysis model.
We use a optimal frontier for efficiency analysis to focus on i) Input (minimum input to produce
a given level of output) or ii) Output (maximization of output with a given level of input.
The software Efficiency Measurement System, version 1.3 was used for this analyses. Data of
17 public sector and 15 Private sector banks used by classified their data into 14 input factor
and 8 output factor.
Inputs( Independent Factor) :- Interest expanded, CASA, Cash deposit ratio, Credit to
Deposit Ratio, Investment deposit ratio, Loan, Deposits, Borrowings, Margin, Business per
employee, Gross NPA, Net NPA, Operation cost(expense), Provision of contingencies

Outputs (Dependent Factor) :- Interest income, Other income (non interest income), Profit
per employee, Operational profit, Capital adequacy ratio, Earnings per share, Return on Asset,
Return on Equity

Efficiency Model :- Let X* be output and X be the actual Input. Efficiency is expressed as
TE = X* / X

Where TE = technical Efficiency

By using EMS we get following result :-

15

Efficiency of all banks

Table: 4.1.1
EMS (version1.3) based Efficiency output of all commercial banks.

(Sources: - Database of Capital Line and Money Control)

16

Banks Operational efficiency varies over the period of study during 2005 to 2014 the
Operating efficiency of Indian overseas bank as observed the highest while the efficiency of
yes bank is the lowest finding of the analysis are as follows.
Section A: Bank classification wise analysis
Banking sector has been classified into 4 subsector.
1) State Bank of India 2) Public sector Bank 3) Old generation Private sector Bank 4)
New generation private sector Bank.
1) SBIs efficiency is consistent with overall average of 19 which is less compare to
other players of banking sector.
2) In Public Sector banks category Indian overseas bank maintains the best
efficiency whereas Bank of India ranked to be the lowest rated.
3) In Old generation private sector banks The Federal Bank leads the peer member
in terms of efficiency and J&K Bank is the worst player
4) In new generation private sector banks Kotak Mahindra leads the ranking in terms
of efficiency and Yes Bank is the last ranked bank.

17

Section B: Yearly analysis

Table:4.1.2
Efficiency Rating of Commercial Banks over 2005-2014

18

 Initially SBI is performing better with increased in efficiency as well as improve in the
ranking from 2005 till 2008 but after wards it efficiency keeps on dipping but SBI
maintain its constant ranking among the peer members. But there is a sudden dip in
ranking also from constant 4th position it got slip to 28 and in final year it again regain
its position to 4th
PNB Bank also performing in similar manner in terms of efficiency initially there was
increase in efficiency middle years it got dip but minutely again in the later years it
starts performing better in terms of efficiency as well as ranking.
BOB remain throughout inconsistent with efficiency with fluctuations varying
throughout the 10 years highly and in terms of ranking it got better.
BOI also perform better in terms of efficiency it kept on increasing there was dip in
the middle but it improve drastically but in terms of ranking it got slipping down to 30
position.
Canara Bank was also a steady player in terms of efficiency as well as in ranking
because not variations was not witnessed.
UBI Union was very inconsistent player in terms of efficiency as well as in terms of
ranking it got dip drastically in the middle and tried to regain its position in last year
among its peer members.
IDBI Bank was also a better performer in terms of efficiency kept on performing its
efficiency constantly but dips is performance in ranking.
OBC Bank also remained inconsistent player in terms of efficiency as well as in ranking
in later stages try to improve its efficiency but in terms of ranking it got dip.
Indian bank also remained inconsistent player but it improve its ranking in latter stages
finally sat in good position in ranking among its peer members.
IOB Bank was a better performer in terms of efficiency recording the highest efficiency
among its fellow peer members. But in ranking terms it got dip.
ALLAHABAD Bank also remain inconsistent player in terms of ranking as well as in
terms of ranking high fluctuations were observed in both the parameters.
Corporation Bank didnt perform better initially because there was not much increased
in terms of efficiency but in last it improved in terms of efficiency as well as in ranking.
Syndicate Bank also remain inconsistent player in terms of efficiency as well in ranking
because in 10 years it try to gain its position it was quite successful but lost its position
also in the middle and recover very little in last years.

19

 Andhra Bank remained a very good player in terms of efficiency dip in middle little bit
but again in final years it improve its efficiency.
Dena bank remain a very consistent player in terms if efficiency it didnt have very
good efficiency but maintain it quite regularly.
Vijaya Bank of India also remain very inconsistent player in terms of efficiency there
was high fluctuations observed.
Bank of Maharashtra also remain inconsistent player same as Vijaya Bank in terms of
efficiency as well as in ranking also.
HDFC Bank also perform better it efficiency remain keeps on increasing steadily there
was a dip observed in middle only and that was slight but again later stages perform
better.
ICICI Bank was also a good performer it keeps on increasing its efficiency steadily
from 2005 right till 2014.
Axis Bank also perform better and its efficiency kept on increasing there was a dip in
performance in 2012 but again it came back efficiently.
Kotak Mahindra Bank remain a good player in terms of efficiency management but dip
in last year 2014 but throughout it perform better.
Indusind Bank also remain inconsistent player in terms of efficiency among its peer
members.
Yes Bank remain very poor in terms of efficiency its starting two years the efficiency
was zero and later on it got increased but not much.
Federal Bank also remain consistent player but it got dip only in 1 year drastically and
again it improved its efficiency.
ING Vysya Bank also started good but in middle as well as later its performance got
dip as compare to its peer members.
Karur Vysya Bank also struggled in middle as same as ING Vysya Bank and got
improved in last.
J&K Bank witnessed a huge dip in efficiency from the beginning right till the last.
South Indian bank started good but got dip in middle a lit bit but in later it got improved.
Karnataka Bank also perform better initially but got dip in middle and improved in last.
City Union Bank started well efficiency increased initially but later it kept on struggling
and efficiency kept on decreasing till the last.
DCB Bank also perform better right from the starting till the middle and in last year it
also got struggled as a result the dip in efficiency was observed.
20

 Dhanlaxmi Bank also perform better initially but in middle and in latter it also got
struggled and there was a dip in performance.
Constant performer
As per DEA result, it has been found that some banks like SBI, UBI, IOB, Vijaya Bank and
Bank of Maharashtra Bank has been performing very well over the decade .But some banks
like J&K Bank, Corporation Bank, Yes bank and city Union Banks has not improved at all.
On the basis of average efficiency based ranking top five Banks include Indian Overseas Bank,
Union Bank of India, Vijaya Bank, Syndicate Bank and Bank of Maharashtra (Average
efficiency of these Banks more than 70 percent. While J&K Bank, City Union Bank, Yes Bank,
Andhra bank and SBI are the least efficient bank .Efficiency average of these banks was below
40 percent.

21

4.2. Regression Analysis

A Statistical measurement tool that defines the strength of relationship between one
dependent variable and a series of other changing variables known as independent variables.
There are two basically two types of regression linear regression and multiple regression. In
our research we are using multiple regression.
The equation of multiple regression equation is
Multiple regression: Y= a+b1X1+b2X2+B3X3+....+BtXt+u
Y=the variable that we are trying to predict.
X= the variable that we are using to predict Y
Assumptions:
Normal Distribution, Linear Relationship, Homoscedasticity, Statistical Independence
Table 4.2.1
Dependent and Independent Factor
Code

Dependent Factor

Code

Independent Factor

Y1

Interest income,

X1

Interest expanded

Y2

Other income

X2

CASA

Y3

Profit per employee

X3

Cash deposit ratio

Y4

Operational profit

X4

Credit to Deposit Ratio

Y5

Capital adequacy ratio

X5

Investment deposit ratio

Y6

Earnings per share

X6

Loan

Y7

Return on Asset

X7

Deposits

Y8

Return on Equity

X8

Borrowings

X9

Margin

X10

Business per employee

X11

Gross NPA

X12

Net NPA

X13

Operation cost

X14

Provision of contingencies
22

Table 4.2.2
Regression coefficient of independent variables is proportion to Interest Income over
2005-2014

Equation

Y1= a+b1( ) +b2( ) +b3( ) +b4( ) +b5( ) +b6( ) +b7( ) +b8( ) +b9( ) +b10( ) +b11( )
+b12( ) +b13( ) +b14( )

Interpretation:
Business per employee, provision of contingencies and margin have strongly associative with
interest income with good impact. Credit have low significance with interest income with low
value.

23

Table 4.2.3
Regression coefficient of independent variables is proportion to Other Income over
2005-2014

Equation

Y2= a+b1( ) +b2( ) +b3( ) +b4( ) +b5( ) +b6( ) +b7( ) +b8( ) +b9( ) +b10( ) +b11( )
+b12( ) +b13( ) +b14( )

Interpretation:
Interest expended, margin, investment has good positive and negative influence over the year.
Provision of contingencies, operation cost, business per employee strongly associative with
other income over the year.

24

Table 4.2.4
Regression coefficient of independent variables is proportion to Profit Per Employee
over 2005-2014

Equation

Y3= a+b1( ) +b2( ) +b3( ) +b4( ) +b5( ) +b6( ) +b7( ) +b8( ) +b9( ) +b10( ) +b11( )
+b12( ) +b13( ) +b14( )

Interpretation:
Profit per employee has low association with every interdependent factor so it is not more
signify by above factors. Only provision of contingencies have some good impact with positive
relation over the year with profit per employee.

25

Table 4.2.5
Regression coefficient of independent variables is proportion to Operational Profit over
2005-2014

Equation

Y4= a+b1( ) +b2( ) +b3( ) +b4( ) +b5( ) +b6( ) +b7( ) +b8( ) +b9( ) +b10( ) +b11( )
+b12( ) +b13( ) +b14( )
Interpretation:
Provision of contingencies, business per employee have strongly associative with the
operational profit over the year. Operation cost has also some good impact over the year.
Investment, credit and cash show very low impact relation with operational profit over the year.

26

Table 4.2.6
Regression coefficient of independent variables is proportion to Capital Adequacy Ratio
over 2005-2014

Equation

Y5=a+b1( ) +b2( ) +b3( ) +b4( ) +b5( ) +b6( ) +b7( ) +b8( ) +b9( ) +b10( ) +b11( ) +b12(
) +b13( ) +b14( )

Interpretation:
Operational cost, provision of contingencies, margin and business per employee has highly
associative with the capital adequacy ratio over the year. Credit has very low significance
impact over the year.

27

Table 4.2.7
Regression coefficient of independent variables is proportion to Earning Per Ratio over
2005-2014

Equation

Y6= a+b1( ) +b2( ) +b3( ) +b4( ) +b5( ) +b6( ) +b7( ) +b8( ) +b9( ) +b10( ) +b11( )
+b12( ) +b13( ) +b14( )

Interpretation:
Provision of contingencies have strongly effective among the other independent variables and
it has positive effect over the year relation to earning per share. Investment, cash, credit has
very low associative with the earning per share.

28

Table 4.2.8
Regression coefficient of independent variables is proportion to Return on Assets over
2005-2014

Equation

Y7= a+b1( ) +b2( ) +b3( ) +b4( ) +b5( ) +b6( ) +b7( ) +b8( ) +b9( ) +b10( ) +b11( )
+b12( ) +b13( ) +b14( )

Interpretation: This table shows that Operation cost has strongly negative impact on return
on assets. After that Business per employee and then margin have some impact on return on
assets. It was less influenced by other factors. It has shown inverse relation with low
significance. Provision of contingencies has good positive relation with return on assets.

29

Table 4.2.9
Regression coefficient of independent variables is proportion to Return on Equity over
2005-2014

Equation

Y8= a+b1( ) +b2( ) +b3( ) +b4( ) +b5( ) +b6( ) +b7( ) +b8( ) +b9( ) +b10( ) +b11( )
+b12( ) +b13( ) +b14( )

Interpretation:
Return on equity also strongly associative with provision of contingencies which in both ways
positive and negative. It has also good impact with business per employee, margin and
operational cost. Credit, deposit has low significance with return on equity.

30

4.3. FACTOR ANALYSIS

Factor analysis is primarily used to reduce the summarized information of different variables
into some most effective factors. Factors analysis suggests deducing the number of factors to
be extracted from total number of variables used in the questionnaire while collecting the data.
In this part the major issues, challenges and problems being faced by Indian bank is
sustainability are studied. To identify all this, factor analysis has been applied on 46 statements
relating to problems in Indian banking system. A sample of 237 questionnaires which was filled
by Scale 1 officer of bank employee was considered for the study.

Kaiser-Meyer-Olkin Test:
In Table 4.3.1 The KMO measure of sampling adequacy was found to be 0.775 and Bartletts
test of sphericity was also significant (chi square= 3262.123718, df =1035, significance= .000)
indicating the suitability of the data for the factor analysis. Thus, all of these examination
revealed that data was fit for factor analysis. KMO test is used to check the adequacy of the
sample. KMO statistics compare the magnitude of observed correlation coefficient with the
magnitude of partial correlation coefficient. KMO coefficient below 0.5 is unacceptable. In this
study the KMO coefficient comes out to be 0.775 which is in the acceptable in good range.
This could be a result of high number of respondents in the sample.
Table 4.3.1
KMO and Bartlett's Test
Kaiser-Meyer-Olkin Measure of Sampling
Adequacy.

0.775

Bartlett's Test Approx. Chi-Square

3262.123718

of Sphericity Df

1035

Sig.

.000

31

Number of factor extracted

Rotated Component Matrix helps in deducing some exclusive factors from the existing factors.
In the Rotated Component Matrix the different values found by principal component matrix
are used to deduce number of factors from the large number of existing factors. In each
component the factors having value 0.5 or more than 0.5 are combined to form exclusive
factors. Table 4.3.2 shows that there are sixteen factors which are extracted having Eigen value
more than 1.
This is good deal because with only sixteen factors (reducing them from 46). The result of the
principle component analysis with varimax rotation are shown in Table 4.3.2. According to
the factor analysis, the number of factors having Eigen value more than 1 will only be included
for the analysis. Table 4.3.2 shows that sixteen factors have been extracted; the last column in
the column shows communalities. Communality is the amount of variance an original variable
shares with all other variables included in the analysis. Eigen values for factor 1 to 16 are 6.88,
3.894, 2.146, 1.805, 1.652, 1.472, 1.419, 1.361, 1.291, 1.263, 1.197, 1.186, 1.147, 1.091, 1.069,
and 1.059 as shown in the table 2. The percentage of variance explained by individual factors
is also shown in the table are 14.957, 8.466, 4.665, 3.924, 3.591, 3.199, 3.085, 2.959, 2.806,
2.746, 2.601, 2.578, 2.493, 2.371, 2.325, 2.301 respectively for all sixteen factors extracted.

32

Table 4.3.2
Rotated Component Matrix

33

Naming of Factors
Overall 16 factor have been extracted by the way of factor analysis and given appropriate
names on the basis of variables represented in each case. The names of factor, statements and
factor loadings have been summarized in :
Table 4.3.3
Naming of Factors
Name of the
Factor Factor (percent
S.No
variance)

Factor
1

Time Element
for delivery of
service (14.96%)

Factor
2

Financial
publication
(8.47%)

Factor
3

Alternative
delivery channel
(4.67%)

Factor
4

Green Banking
(3.92%)

Factor
5

Entry barrier
(3.59%)

Name of the variable

Weight

0.867
Operation Efficiency Of Staff
Require Gov. Subsidy
Deregulation Of Interest Rate
Time Management Practices
Customer Satisfaction
Basel3 Norms For Bank Sustainability
Inefficient Organization
Increase Margin Of Alternate Delivery Channel

0.854
0.852
0.822
0.806
0.595
0.581
0.511

Effect Of Solvency On Retail Banking

Basel Norms Affect Return On Equity
Basel3 Eliminate Bank From Market
Highly Asset Portfolio

0.761
0.691
0.684
0.556

Alternate Delivery Channel Leads Improve Efficiency

Bank Profitability

0.774
0.624

Technological Innovation
Green Banking Leads Low Carbon Society
Deregulation Is Essential For Efficiency
Enhancement

0.756
0.745

Reduce Operational Cost

Increase License Competition

0.79
0.661

0.568

34

Factor
6

Factor
7

New banking
license (3.20%)

Consistent to
value addition
(3.09%)

Banking License Reach In Urban Area

Limit Distribution Network For Alternate Delivery
Channel

0.587

Higher Return Satisfaction

0.736

New Banking License

Service Quality Leads Sustainability

0.585
0.555

0.538

Factor
8

Online fraud
(2.96%)

IT Support System Leads Sustainability

0.703

Factor
9

Exposure to
foreign exchange
business (2.81%)

Efficiency Currency Mgt Is Essential For

Sustainability

0.642

Foreign Exchange Business Leads Customer Base

0.579

R &D Investment
Provisioning Norms

0.678
0.591

Factor
10

Implementation
of Basel
3(2.75%)

Factor
11

Technogical
innovation
(2.60%)

Man Power Reduction

Factor
12

Retail Banking
(2.58%)

Retail Banking Provide Wide Customer Base

0.858

Factor
13

Bank
sustainability
(2.49%)

Sustainability In Banking

0.774

Factor
15

Faster Delivery
(2.33%)

Faster Service

0.784

Factor
16

Secure Income
(2.30%)

Stable Revenue

0.82

0.748

35

Factor 1 (Time Element for delivery of service) : This factor is emerged as the most
important one with 14.96% out of the total variance explained. Eight statement loaded in this
factors. Highest factor loading is for the statement Operation Efficiency of Staff (.867),
followed by Require Government Subsidy (.854), Deregulation of Interest Rate (.852),
Time Management Practices (.822) , Customer Satisfaction (.806), Basel3 Norms for
bank sustainability (0.595), Inefficient Organization (0.581), and Increase Margin of
Alternate delivery channel (0.511). Time Element is a very important parameter in
sustainability this is because if we improved our service delivery time then it will leads to
satisfied customer and will automatically leads to sustainability in Banking Sector.
Factor 2 (Financial publication): This factor has 8.47% of total variance having four
statement loaded in it. The statement Effect Of Solvency on Retail Banking (.761) has
highest factor loading followed by followed by Basel Norms Affect Return On
Equity(.691), Basel3 Eliminate Bank From Market(.684), and Highly Asset
Portfolio(.556). Financial ratio is important for the bank due to these it know the liquidity and
solvency position. After that it aware about all ratio and separate the entity which leads to
sustainability.
Factors 3 (Alternative delivery channel): This factor has 4.67% of the total variance having
two statement loaded in it. The statement Alternate Delivery Channel leads Improve
Efficiency(.774) has highest factor loading followed by Bank Profitability (0.624).
Alternate delivery channel is the major advancement for the bank and bank can focus on that
to increase the profitability.
Factor 4 (Green Banking): This factor has 3.92% of the total variance having three statements
loaded in it. The statement, Technological Innovation (.756) has highest factor loading
followed by Green banking leads Low Carbon Society (0.745), and Deregulation is essential
for Efficiency Enhancement (0.568). Bank can promoting environmental-friendly practices
and reducing carbon footprint from the banking activities. Bank can more focus on the green
banking. Bank can do the green initiatives programs.
Factor 5 (Entry barrier): this factor has 3.59% of total variances having two statements
loaded in it. The statement Reduce Operational Cost (0.79) has highest factor loading
followed by Increase Licence Competition (.661). The major challenges faced by that there
is higher requirement of capital to start a bank and there is a longer procedure and policies have
to be fulfilled.
36

Factor 6 (New banking license): This factor has 3.20% of the total variance having two
statements loaded in it. The statement Banking License Reach in Urban Area (0.587) has
highest factor loading and is followed by Limit Distribution Network for Alternate delivery
channel (0.538). Bank can focus on the financial inclusion especially in rural area and the
farthest area from the urban and improve more network for the profitability.
Factor 7 (Consistent to value addition): This factor has 3.09% of the total variance having
three statements loaded in it. The statement Higher Return Satisfaction (0.736) has highest
factor loading and is followed by New Banking Licence (0.585), and Service Quality Leads
Sustainability (0.555). It will also leads to sustainability this is because if there is higher return
satisfaction then it will leads to sustainability New Banking Licence helps in risk diversification
among banks as a result it will also leads to sustainability. Service Quality also leads to
sustainability if the banks provide good service with less time consumer will become satisfied
and satisfied customer is always a boon to organization.
Factor 8 (Online fraud): This factor has 2.96% of the total variance having only one
statements loaded in it. The statement IT Support System Leads Sustainability (0.703) has
factor loading. Bank can more focus on IT support system to reduce the online fraud. Due to
advancement of technology online safety is more concern for the bank.
Factor 9 (Exposure to foreign exchange business): This factor has 2.81% of the total
variance having two statements loaded in it. The statement Efficiency Currency Mgt is
essential for sustainability (0.642) has highest factor loading and is followed by Foreign
Exchange Business Leads Customer base (0.579). Bank need to expose the foreign trade for
the currency exchange in the global market due to enhancement of sustainability.
Factor 10 (Implementation of Basel 3): This factor has 2.75% of the total variance having
two statements loaded in it. The statement R &D Investment (0.678) has highest factor
loading and is followed by Provisioning Norms (0.591). Basel 3 norms are comprehensive
set of reform measures designed to improve the regulation, supervision and risk management
within the banking sector.
Factor 11 (Technogical innovation): This factor has 2.60% of the total variance having only
one statements loaded in it. The statement Man Power Reduction (0.748) has factor loading.
Due to advancement of technology bank can more focus on the faster service provided to the
customers.
37

Factor 12 (Retail Banking): This factor has 2.58% of the total variance having only one
statements loaded in it. The statement Retail Banking Provide Wide Customer Base (0.858)
has factor loading. Bank needed the services in rural area for the maximize the customers and
people are more aware about the banking services, due to these bank maximizing the
profitability.
Factor 13 (Bank sustainability): This factor has 2.49% of the total variance having only one
statements loaded in it. The statement Sustainability in Banking (0.774) has factor loading.
Operational efficiency, non-interest income, loan, deposits, operational profit, return on assets,
return on equity, capital adequacy ratio etc. these are the both dependent and independent factor
leads to sustainability in banking.
Factor 15 (Faster Delivery): This factor has 2.33% of the total variance having only one
statements loaded in it. The statement Faster Service (0.784) has factor loading. To sustain
in competitive market bank needed faster service such as real time gross settlement, national
electronic fund transfer, check truncation system etc.
Factor 16 (Secure Income): This factor has 2.30% of the total variance having only one
statements loaded in it. The statement Stable Revenue (0.82) has factor loading. To sustain
in competitive market bank needed to have stable revenue that will be in term of EMI on loans
and other charges.

38

5. CONCLUSIONS
During the study, the Indian Banking technical efficiency table can be seen, the best
Indian Overseas Banks, Union Banks of India and Syndicates Banks efficiency, while
the Yes Bank, City Union Banks and SBI was less efficient as compare to other banks.
Regression analysis has showed that Business per employee, provision of contingencies
and margin have strongly associative with all the dependent variables
Credit, cash has low impact relation with the dependent variables over the year.
Operation cost has also show good impact with the dependent variables.
Profit per employee has low association with every interdependent factor so it is not
more signify by above factors.
Business per employee and then margin have some impact on return on assets.
Return on equity also strongly associative with provision of contingencies which in
both ways positive and negative.

SUGGESTION: Today most of the Indian commercial banks are facing the sustainability issue both
from the economic perspective and social perspective.
In our research we have considered sustainability from the economic perspective. so
we have identified major factors that are affecting sustainability we have found 15
factors which the banking sector should take care off and to make strategies according
to that.
We have found three independent factors cash ,credit and CASA from the regression
analysis which have very weak relation with dependent factor ,so it clearly signifies
that the banking sector should take care of this three factors and devised the or strategy
according to that
Total in our study we have taken 33 factors both quantitative and qualitative and we
have grouped them in fifteen factors like Time Element for delivery of service
(Operation Efficiency Of Staff, Require Gov. Subsidy, Increase Margin Of Alternate
Delivery Channel) etc.so different banks can devise common strategy for all these
factors because we pull them in one factor by naming them in factor analysis.

39

 Sustainability reporting is also one area which is facing insufficient quantities in Indian
banking sector, more formal frameworks and clear policies are required for reporting
in a sustainable way.
According to factor analysis bank can more need to improve the financial publication
such as effect of solvency on retail banking , highly asset portfolio etc.
Environmental authorities have to be more serious and stricter about adoption of
sustainability issue.
RBI has to play more proactive role by passing the mandates, rules, regulations to tackle
this critical issue of climate change.

Awareness on sustainability issues, international guidelines and frameworks needs

urgent attention as this will lead to formulation of more responsible policies embedding
sustainability issues. This will lead to highlighting of global efforts and will clearly
exhibit where we are lacking behind and the areas which need improvement.

6. Limitation
DEA does not identify the factors that cause efficiency or inefficiency. It simply measures the
weighted percentage of input over output. In this study we have taken few factors but there are
some other factors also which influence the operational efficiency and we cannot take all the
factors.

40

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43

8. APPENDIX

Bank rate

It is the interest rate at which a nation's central bank (RBI)

lends money to domestic or public sector banks. Often these
loans are very short in duration.

Base rate

It is the minimal interest rate at which the bank does not lend
money to the banks until it is not assured by the reserve bank
of India.

CAGR(business growth )

It is referred as compound annual growth rate and it is the

reflect the growth rate of the investment which are done on the
yearly basis.

Capital adequacy ratio is generally the measure of the banks

capital i.e how much capital does banks have which is
accessible and it also expressed as percentage of banks risk
weighted credit exposure.
.
CASA(current a/c saving These accounts are most important in middle and southeast
a/c)
Asia. These accounts are just an initiative to combine saving
account and checking accounts to attract customers so that they
can put their money in the banks.
Capital adequacy ratio

Cash deposit ratio

According to this ratio the banks should have minimum

amount in their account to assure the customer that whenever
they want their account back, the bank will able to pay their
amount to them.

Cash Reserve ratio(CRR)

It is the ratio by which the bank should keep minimum amount

in their reserve so that whenever there is any possibility of loss
they can use their reserve cash for the recovery.

Commercial bank

A financial institution that provides services, such as accepting

deposits, giving business loans and auto loans, mortgage
lending, and basic investment products like savings accounts
and certificates of deposit.

Consolidation

It is a process in which the parent company gives all its

financial information clubbing with its SBU

Contingencies

It is the uncertainty which can effect the financial institution in

a brutal manner.

44

Credit deposit ratio

It is the ratio by which the bank come to know that how much
a bank can lend to the other party.

Debt equity ratio

It is the ratio which is used to find out the financial leverage of

the company which can be calculated by debt (total liability) to
the equity.

Deposit Insurance

Deposit insurance is a measure implemented in

many countries to protect bank depositors, in full or in part,
from losses caused by a bank's inability to pay its debts when
due. Deposit insurance systems are one component of
a financial system safety net that promotes financial stability.

Earnings per share

Earnings per share are the measure of the companys earning

on every share and it is the indicator of profitability of the
company.

Ethical bank

Ethical banks are also known as the sustainable banks which are
take care of society and environment impact on the loans and
investments.

Gross NPA

It is the total sum of all the non-performing assets.

Interest Income

It is the income for the banks which earned by them by

charging the interest on the each lending.

Liberalization

Liberalization commonly referred as the freedom given to

banks or other corporate institution from the government rules
and regulation.

Money Market

It is the market where all the securities, bonds and all other
financial products are traded.

NPA

These are the non-performing assets. These types of assets are

those who dont have any guarantee to recover.

Inflation

It is the rate at which the price of the commodities start rises

and the purchasing power of the customer is decreased.

Capital

It is the fund invested when new venture or business will be

started.

Credit risk

Credit risk can be defined as the potential that a bank borrower

will fail to meets its obligation in accordance with agreed term.
The goal of credit risk management is to maximize a banks
risk adjusted rate of return by maintaining credit risk exposure
within acceptable parameters.

45

Data envelopment Analysis It is the linear programming based technique for the
(DEA)
measurement of the performance of the organizations.
Operation cost(expense)

It is the cost occurs in the business with the regular operations.

Management

Management is the simple process by which banks are able to

utilize its resources in the effective and efficient way.

Operational profit

The profit which is earned by the business with its regular

operations is called operational profit.

P/E ratio

It is the profit to earnings ratio and used to measure the profit

as compare to its current share price earnings.

Merger

Combining of two or more entities into one, through a purchase

acquisition or a pooling of interests.

E-banking

Banking through internet is called e-banking

Reform

Doing the some changes in the operation or management of the

company.

Operations

It is a process which is followed by the banks when they do

their daily routine process like clearing of cheque allocation of
loan.
It tells that how efficiently company using their assets to
generate their revenue

ROA
ROE

It refers to how much return a company is getting on their

investor shares.

Deposits

It is a amount which is deposited by depositors in the bank and

bank lend this money to earn interest.

Sustainable development

Sustainable development in the banks which can able to satisfy

the basic need of the customers either it is future generation or
the present generation. Every generations need should be
satisfy without any compromise.

46

Factors identified from previous study which affect operational efficiency of

commercial banks.
Sr. No. Quantitative
1 Deposits
2 Loans & Advances
3 ROA
4 ROE
Capital Adequacy
5 ratio
6 Operating Cost/profit
7 Bank Liquidity
8 Financial Leverage
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

Borrowings
NPA
Staff cost
Physical capital
Non int. Income
Personal exp.
Net Profit
Int. Margin
Cash to deposit ratio
Deposits cost
Credit to deposit ratio
Business/employee
Profit/employee
Return on net worth
Profit/branch
Asset/no. of branch
Interest expenses
Credit risk
Credits
Deposit to total assets
Ownership
E-banking,etc
Diversification
No. of Emp.

Sr.No. Qualitative
Technological
1 innovation
2 Retail banking
Time element for
3 delivery of services
Alternative delivery
4 channel
Implementation of
5 Bassel-3
6 Green banking
New banking license
7 leads to
Deregulation of
8 saving interest rates
Exposure to foreign
9 exchange business
10 Online fraud

47

9. Annexure:9.1 Formula Used:

CASA Ratio (%) = CASA Deposits/Total Deposits

Total Business = Total advances + Total deposits

Total Deposits = Demand Deposits + Savings Bank Deposit + Term Deposits

Total Business = Total advances + Total deposit

Net Interest Income = Interest Earned - Interest Expended.

Net Interest Margin (%) = Net Interest Income/Average Assets

Interest Cost (%) = Interest expended/Average Borrowed funds

Return on Assets (%) = Net Income or Profit/Average Total Assets

Return on Equity (%) = Net Income or Profit/Net-worth

Cash - Deposit Ratio (%) = [Cash in hand + Balances with RBI]/ Total deposits

Credit - Deposit Ratio (%) = Total Advances/Total Deposits

Business per employee = Total Business/ Total Employees

Profit per employee = Net Profit/ Total Employees

Employee per branch = Total Employee/Total Branches

Total Advances = Bills purchased & discounted (Short term) + Cash credits,
overdrafts & loans (Short term) + Term loans

CASA Deposits = Demand Deposits + Savings Bank Deposits

CASA Ratio (%) = CASA Deposits/Total Deposits

Total Deposits = Demand Deposits + Savings Bank Deposit + Term Deposits.

Capital adequacy Ratio(%) = Capital Fund/Risk Weighted Assets

48

9.1 Diagram of Efficiency Trends of Indian commercial Banks

X-axis = Year
Y-axis = Percentage of Efficiency
1. Private Bank

HDFC Bank
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
2004

49.9%
38.9%

38.4%

2007

2008

43.3%

43.3%

42.3%

49.1%

55.4%

35.2%

22.4%

2005

2006

2009

2010

2011

2012

2013

2014

2015

ICICI Bank
50.0%
40.0%

38.1%
32.2%

30.0%
23.4%

20.0%
10.0%
0.0%
2004

10.2%
2005

11.4%

2006

28.0%

11.4%

8.3%

2007

23.4%

37.8%

2008

2009

2010

2011

2012

2013

2014

2015

Axis Bank
80.0%
60.0%

58.0%

54.9%

51.7%

55.0%

60.0%

60.0%

63.8%

59.0%

67.9%

49.6%

40.0%

20.0%
0.0%
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

49

Kotak Mahindra Bank

100.0%
80.0%

69.2%

60.0%
40.0%
20.0%
0.0%
2004

80.5%

79.6%

71.8%

68.1%

68.1%

67.7%

64.7%

38.0%
15.2%
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

IndusInd Bank
100.0%
80.0%

77.4%

70.2%

62.5%

60.0%

53.4%

53.4%
42.4%

40.0%
20.0%
0.0%
2004

45.6%

40.1%

46.6%

24.0%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Yes Bank
15.0%
12.3%
10.0%

8.6%

8.6%

8.4%
6.4%

5.0%

5.0%

2.4%
0.0%
2004
-5.0%

0.0%
0.0%
0.0%
2005
2006
2007
2008

2009

2010

2011

2012

2013

2014

2015

Federal Bank
100.0%
80.0%

73.7%

77.5%

74.1%

73.1%

74.1%

82.7%

82.4%

71.6%

78.9%

60.0%
43.5%

40.0%
20.0%
0.0%
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

50

ING Vysya Bank

100.0%
82.7%

80.0%
70.4%
60.0%

82.7%

72.3%

69.8%

62.3%

61.4%

51.5%

50.4%
40.0%
20.0%
0.0%
2004

14.8%
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Karur Vysya Bank

80.0%

75.9%

69.5%
49.9%

47.0%

40.0%
24.0%

20.0%
0.0%
2004

71.2%
61.8%

61.1%

60.0%

2005

47.0%

23.6%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

J & K Bank
50.0%
40.0%

40.9%

44.0%
38.4%
33.1%

30.0%
20.0%

19.0%

19.0%

17.8%

15.3%

10.0%
0.0%
2004

5.5%

4.3%
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

South Indian Bank

80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
2004

74.7%
52.9%
35.5%

52.9%

57.1%
45.8%

42.4%

32.5%

16.2%
2.1%
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

51

Karnataka Bank
100.0%
83.7%

80.0%
60.0%

58.1%

55.0%

51.8%

88.6%

81.1%

80.7%

76.3%

77.6%

51.8%

40.0%
20.0%
0.0%
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

City Union Bank

60.0%
53.7%

50.0%
40.0%

39.6%

37.0%

33.2%

30.0%

26.4%

23.3%

20.6%

20.0%

11.2%

10.0%
0.0%
2004

34.5%

2005

2006

2007

2008

2009

11.2%

2010

2011

2012

2013

2014

2015

DCB Bank
120.0%
100.0%

99.3%

80.0%
67.5%

60.0%

78.1%

84.6%

84.6%

76.1%

48.1%

40.0%

42.6%
23.0%

20.0%
0.0%
2004

0.0%
2005
2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Dhanlaxmi Bank
100.0%
90.6%
80.0%

78.7%

78.7%

79.8%

79.6%

60.0%
40.0%

37.9%

23.8%

20.0%
0.0%
2004

2005

2006

2007

25.9%

2008

2009

24.6%

2010

2011

0.0%
2012
2013

2014

2015

52

2. Public Bank:

SBI
30.0%

27.9%

25.0%
20.0%

20.3%

19.2% 18.3%
15.8%

15.0%

20.6% 21.3% 20.5%

16.3% 16.8%
SBI

10.0%
5.0%
0.0%
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

PNB
0.70
62.7%

0.60

56.1%

0.50

0.40

40.0% 39.9%

49.6%

45.0%

41.5%

36.5%

PNB 24.1%

0.30
24.1%

0.20

11.1%

0.10

0.00
0

0.00
2

10

12

Bank of Baroda
90.0%

80.0%
70.0%

75.9%

69.2% 69.5%

80.8%
73.0%

69.4%

62.3%

60.0%

54.6%

50.0%

49.3%

40.0%

46.4%

Bank of Baroda

30.0%
20.0%
10.0%
0.0%
2004

2006

2008

2010

2012

2014

2016

53

Bank of India
120.0%
100.0%
80.0%
60.0%
40.0%

96.9%
66.6%72.2%
58.8%62.5%57.0%58.5%57.3%63.6%
48.3%

Bank of India

20.0%
0.0%
2004

2006

2008

2010

2012

2014

2016

canara bank
80.0%

74.8%
71.8%
66.0%
65.9%
63.4%61.1%

60.0%

52.1%
45.7%

40.0%
20.0%
0.0%
2004

canara bank
24.6%26.8%

2006

2008

2010

2012

2014

2016

UBI (union)
120.0%
100.0%
80.0%

97.8%95.3%
87.7%

94.5%96.5%
83.8%83.9%
79.0%
72.8%

60.0%

UBI (union)

48.8%

40.0%
20.0%
0.0%
2004

2006

2008

2010

2012

2014

2016

54

idbi bank
80.0%

68.4%

60.0%
49.5%

40.0%
20.0%

12.2%

0.0%
2004

17.8%

24.5%

2006

32.5%

38.2%

2008

42.5% 41.3%

2010

48.1%
idbi bank

2012

2014

2016

OBC
100.0%
83.1%

80.0%
60.0%

66.1%

59.6%

40.0%

84.4%

75.0%

63.2%

67.4%
53.7%
OBC

43.3%

39.9%

20.0%
0.0%
2004

2006

2008

2010

2012

2014

2016

indian bank
80.0%
59.1%60.6%

60.0%
40.0%

36.5%

34.0%
28.0%

20.0%
0.0%
2004

2006

59.0%

2010

indian bank

29.7%

22.3%21.7%

2008

57.4%

2012

2014

2016

IOB
150.0%
100.0%

85.0% 78.9% 76.3% 84.9% 82.3% 86.9%

97.7%

82.6%

99.2% 97.3%
IOB

50.0%
0.0%
0

10

12

55

Allahabad Bank
120.0%
100.0%

98.1%

96.4%
87.4%
83.0%
80.2%
77.2%

82.2%

80.0%

60.0%

57.7%

40.0%

Allahabad Bank

37.5%
24.8%

20.0%
0.0%
2004

2006

2008

2010

2012

2014

2016

corporation bank
70.0%
61.1%

60.0%

50.0%
41.7%40.4%
35.4%
33.1%
32.5%
30.4%
27.1%
26.3%
24.7%

40.0%
30.0%
20.0%

corporation bank

10.0%
0.0%
0

10

12

Syndicate bank
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
2004

83.9%82.9%
79.3%81.8%

85.0%86.5%81.8%

68.8%

78.0%

64.3%
Syndicate bank

2006

2008

2010

2012

2014

2016

56

andhra bank
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
2004

97.7%
75.2%
70.2%
57.5%
56.3%52.3%62.6%
43.4%
38.2%
23.9%
2006

2008

2010

2012

andhra bank

2014

2016

dena bank
0.6%

0.6%

0.5%

0.5%

0.4%
0.3%
0.2%

0.2%

0.2%

0.2% 0.2%

0.1%

dena bank
0.2%
0.1% 0.1%
0.0%

0.0%
0

10

12

vijaya bank of india

100.0%
86.1%
75.9%

80.0%

73.1%
59.1%
55.8%

60.0%
40.0%

89.9%
84.0%
73.9%
61.2%
vijaya bank of india

40.4%

20.0%

0.0%
2004

2006

2008

2010

2012

2014

2016

Bank of maharashtra
120.0%
100.0%

90.8%

80.0%

80.1%
71.4%

60.0%

97.0%
86.9%
79.6%
73.7%

90.4%
Bank of maharashtra

40.0%

36.8%

32.2%

20.0%
0.0%

10

12

57