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Introduction
1
Introduction
1.1. The Evolution of Indian Banking System
The first Bank in India was set up in the year 1786
named as General Bank of India. Thereafter, three more
Banks were established named as Bank of Bengal in the
year 1806, Bank of Bombay in 1840 and Bank of Madras
in 1843; which were called as Presidency Banks. These
three banks were amalgamated in 1921 and named as
Imperial Bank of India.
Thereafter, Indians established Allahabad Bank in 1865
followed by Punjab National Bank Limited in 1894 having
its headquarters at Lahore. During the period 1885 and
1913, 6 more Banks were established named as Bank of
India, Central Bank of India, Bank of Baroda, Canara
Bank, Indian Bank and Bank of Mysore. Then, Reserve
Bank of India was established in 1935.
The first phase witnessed very slow growth and banks
witnessed periodic failures during the period 1913 and
1948. In order to streamline the functioning and activities
of commercial banks, the Government of India brought
Banking Companies Act, 1949 which was later on changed
to Banking Regulation Act, 1949 as per Amending Act of
1965 (Act No. 23 of 1965). The Government of India vested
extensive power for the supervision of banking in India
to the Reserve Bank of India as the Central Banking
Authority.
Introduction
Introduction
Introduction
due. The assets are now classified on the basis ,of their
performance into 4 categories: (a) standard, (b) substandard, (c) doubtful, and (d) loss assets. Adequate
provision is required to be made for bad and doubtful
debts (substandard assets). Besides, a credit exposure
norm of 15 per cent to a single party and 40 per cent to
a group has been prescribed. The Committee also
recommended provisioning norms for non-performing assets
(NPA).
(C) Competition Directed Measures
The RBI announced new guidelines for opening of private
sector banks and public limited companies as a policy
January 1993 when the criteria for setting up of new
banks in private sector were: (a) capital of Rs. 100 crore,
(b) most modern technology, and (c) head office at a nonmetropolitan centre. In January 2001, paid-up capital of
these banks was increased to Rs. 200 crore which was to
be raised to Rs. 300 crore. The promoters share was
required to be at least 40 per cent. After the issue of
guidelines in 1993, 9 new banks were set up in the private
sector besides foreign banks were also permitted to setup subsidiaries, joint ventures or branches. Banks were
also permitted to rationalize their existing branches,
opening of specialized branches, convert the existing nonurban rural branches into satellite offices. Banks were
also permitted to close down branches except in rural
areas. Banks who maintained capital adequacy norms
and prudential accounting standards were allowed to setup new branches without the prior approval of RBI. Foreign
banks were also allowed free entry for opening their
branches.
(D) Supportive Measures
A new format for balance sheet and profit and loss account
was introduced from the accounting year 1991-92. The
RBI evolved a risk-based supervision methodology with
international practices. Financial Supervision Board was
set-up in the RBI to tighten up the supervision of banks.
Introduction
10
Introduction
11
12
AP
v it y t
u it x t , where AP = Average Productivity,
y = Output, x = Input
v xi
s.t.
u yj vxj 0
uyj =1
u ui /v xi
uyj /vxj
u, v 0
This problem can be converted into LPP as follows
Max
s.t.
u yi
uyi-vxj
v xj = 1
u, v 0
This problem can be solved with the simplex method to
get the optimal solution.
Heres several important points require emphasis. First,
the shadow prices of inputs cause the value of the observed
input bundle x of the firm under evaluation to equal
unity. As a result, the value of the output bundle itself
(u, yi) becomes a measure of its average productivity.
Secondly, at prices (v, xi) the observed input-output bundle
of no firm in the sample would result in a positive surplus
of revenue over cost. If one interpreted the input prices
as the imputed values of these scarce resources, then if
the prices chosen are such that the imputed value of any
input bundle is less than the imputed valuation of the
output bundle it produces, clearly the resources are being
under-valued and the imputed input prices should be
revised upwards. Similarly, if the output prices reflect
the cost of the inputs drawn away from other uses to
produce one unit of output, then the total imputed value
of the output bundle exceeding the total imputed cost of
the input bundle used would imply that the output bundle
is overvalued.
13
Introduction
u,v 0
Here the optimal values of primal and dual function are
equal and it represents the efficiency of the firm. The
number of constraints of the primal depends upon the
number of DMU, while the number of constraints of the
dual depends upon the number of inputs and outputs.
The computational efficiency of LP depends upon the
number of constraints rather than the number of variables.
Hence, the dual formulation is computationally more
efficient than the primal. Primal provides optimal weights
to input and outputs; the dual provides weights to DMU.
The constraint states that the dual variable should be
chosen such that the weighted combination of all the
output of all the firms should be at least equal to the
output of the reference firm. If the firm is efficient, the
strict equality holds with no slack in the constraint.
The DEA programs involving weights of inputs and outputs
(u, v) are called multiplier DEA programs. A general
envelopment DEA program corresponding to the output
maximizing multiplier model is written as
min
s.t.. y jn n y jm
in
n mxim;
n 0,m= unrestricted
Those involving weights of firms (,) are called
Envelopment DEA programmes
With input-oriented DEA, the linear programming model
is configured so as to determine how much the input use
of a firm could contract, if used efficiently in order to
achieve the same output level. For the measurement of
14
15
Introduction
n
the constraint is
i 1
i 1
Malmquist Index
The Malmquist productivity index introduced by Caves,
Christensen, and Diewert (CCD) (1982) is a ratio of the
levels of technical efficiency of two firms measured against
a reference technology characterized by constant returns
to scale. DEA-based Malmquist productivity index (MPI)
measures the productivity change over time. This index
can be decomposed into two components: one measures
the technical efficiency change and the other measures
the frontier shift. MPI has been used in several applications
like productivity developments in Swedish hospitals, (Fare
et al, 1994), studying the effect of mergers on bank
efficiency and productivity (Radam et al, 2009) and so
on. Fare et al (1992) measures the total factor productivity
change (TFPCH) of a particular firm in time t + 1 and t
is given as TFPCH (y and x represent outputs and inputs
across time t and t+1)
16
(TFPCH)
measures the
17
Introduction
Revenue Efficiency
Staff Efficiency
Inputs
Capital, reserves
and deposits
Interest paid
and other
expenses
No. of
employees
Outputs
Investment and
loan
Interest income
and non-interest
income
Advances,
deposits and
investment
18
19
Introduction
Capital Adequacy
1) Capital Adequacy Ratio
Increase
Asset Quality
2) Return on Assets
Increase
Decrease
Profitability
4) Spread to Total Assets
Increase
Decrease
Increase
Increase
Productivity
9) Staff Cost to Net Income
Decrease
Decrease
Increase
20
Introduction
21
Where:
22
23
Introduction
Efficiency Ratios
Assets turnover ratio
H0: d = 1 - 2 = 0
Where d is the mean value of the difference.
Formula
Cash
Profitability ratios
Return on assets
Return on Equity
H1: d = 0
Advances/deposits ratio
H1: d > 0
H1: d < 0
Deutsche Bank
Citi Bank
Barclays Bank
BNP Paribus
Karnataka Bank
Nainital Bank
Ratnakar Bank
10
11
12
13
Indusind Bank
ICICI Bank
Bank of Ceylon
Bank of America
Vijaya Bank
19
Federal Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab and Sind Bank
Punjab National Bank
Syndicate Bank
United Commercial Bank
Union Bank of India
United Bank of India
Hyderabad
Mysore
Patiala
Travancore
of
of
of
of
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Allahabad Bank
Andhra Bank
HDFC Bank
of India
of Bikaner
Dhanlaxmi Bank
State Bank
State Bank
and Jaipur
State Bank
State Bank
State Bank
State Bank
1
2
S. No.
S.No.
Table 1.5: List of Private Sector Banks and Foreign Banks under Study
25
Introduction
Axis Bank
24
26
Target Bank
Acquirer Bank
2000
2001
ICICI Bank
2004
Bank of Baroda
2004
2006
2006
Introduction
27
28
29
Review of Literature
2
Review of Literature
30
Review of Literature
31
regional supply and demand factors, the high and lowprofit banks are estimated to earn equal market rates of
return on individual assets and liabilities. There is virtually
no evidence that differential prices are an important
discriminator between the two bank groups. However,
some evidences show that the high-earnings banks
experience lower operating costs on some liabilities, but
the opposite is true in respect to selected asset items.
Overall, there is no compelling evidence that high-profit
banks are characterized by greater operating efficiency
than their low-earnings counterparts.
Allen. N. Berger (1995) investigated profit structure
relationship in the banking sector. For this purpose return
on assets and return on equity are regressed separately
on concentration measure (Herfindahl index), market share
(banks share of deposits), efficiency index, market growth
(growth in deposits). The study examines 30 separate
data sets between 1300 and 2000 observations each in
order to provide a comprehensive treatment of the industry.
The data provided partial support to the fact that efficient
management of resources is associated with higher profit.
It also supported the fact that larger banking firms in
the market are able to exercise market power in pricing
well differentiated products through advertising, location
or other advantages.
Cevdet Denizer (1997) examined several aspects of the
banking market in Turkey to assess the nature of its
structure and the state of competition. The relationship
between market structure and performance of banks was
determined by using the structure conduct- performance
(SCP) paradigm as a framework. The focus was on the
commercial retail banking market since it is primarily
through this channel that resources were mobilized and
allocated .In particular, the impact of new bank entry
and sunk investments in the system that resulted from
pre-1980 interest rate and regulatory policies on
competition was being analyzed. The data covered the
period between 1986 and 1992 and included all deposit
money banks. The sample contained ratios and a number
32
Review of Literature
33
34
Review of Literature
35
the UK commercial banking industry over the period 19952002. The results showed that the ratio of cost to income
is negative and statistically significant in all cases.
Liquidity is negatively related to NIM but positively related
to ROAA. Capital strength is one of the main determinants
of UK banks performance providing support to the
argument that well capitalized banks face lower cost of
going bankrupt, which reduces their cost of funding.
Finally, the relationship between size and performance
is significant only in the case of NIM indicating the
existence of diseconomies of scale in the UK banking
sector. As far as macroeconomic variables are concerned,
it was observed that both inflation and GDP growth rate
have a positive and significant impact on performance.
Stefan Gerlach, Wenshang Peng, Chang Shu (2005) used
bank level data, to examine the determinants of banks
profitability for all 29 banks in Hong Kong between 19942002, with the focus on the impact of macroeconomic
development on the non interest margin and asset qualitythe two key drivers of profitability. The results indicated
that profitability was related to difficult macro-economic
conditions and increased competition. Performance varied
across banks groups of different sizes with smaller banks
recording larger decline in profits. The empirical analysis
suggests that both the net interest margin and asset
quality are affected by macroeconomic and financial
developments.
Damir osi (2006) evaluated the proposition that foreign
banks in emerging market were more efficient than the
domestic ones by using data from transition economy of
Bosnia and Herzegovina. Efficiency was measured in terms
of banks excess reserve holdings with the central bank.
Two different types of efficiency in reserve management
were evaluated: static and dynamic. The efficiency gained
from foreign ownership were economically substantial. It
had been found out that foreign banks were more efficient
than the domestic ones. On the static measure of efficiency,
foreign banks held 8.8 percent of their deposit base while
domestic banks held 13.7 percent points. Foreign banks
36
Review of Literature
37
38
Review of Literature
39
40
Review of Literature
41
42
Review of Literature
43
44
Review of Literature
45
46
Review of Literature
47
48
Review of Literature
49
50
Review of Literature
51
52
Review of Literature
53
54
Review of Literature
55
56
Review of Literature
57
Healy, Palepu, and Ruback (1992) studied the postacquisition accounting data for the 50 largest US mergers
between 1979 and mid-1984 and found that the
announcement returns based on stock price changes of
the merging firms were significantly associated with
enhancement in post-merger operating performance,
indicating that anticipated gains drive the share prices
at announcement. They also found significant
improvements in asset productivity for these firms following
the acquisition.
58
Review of Literature
59
60
Review of Literature
61
62
63
3
Performance Analysis of Indian
Banking Sector
64
65
1974
1981
1987
1991
4
7.5
10
15
33
35
37.5
38.5
1994
1997
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
15
10
9
8.5
8
4.75
4.5
5
5
5.25
7.5
5.5
5
6
6
31.5
25
25
25
25
25
25
25
25
25
25
24
25
24
24
REPO RATE
1974
1981
1987
1991
1992
1997
2001
2007
2009
2011
Source: RBI Annual Reports, various issues
9
10
10
11
12
9
6.5
7.75
4.75
8.5
66
67
68
Capital
Reserves
Borrow
Deposits
Total
Liabilities
SB(6)
NBs(19)
FBs (14)
PrBs (13)
All Banks
9.01*
7.90*
39.00*
30.15*
11.61
21.85*
22.36*
17.39*
35.81*
23.40
-3.73
3.36*
19.50
37.34*
13.29
20.21*
13.69*
32.50*
25.31*
16.10
13.80*
13.43*
15.48*
27.39*
15.12
69
Advances
Investment
Fixed Asset
SB
12.50*
18.79*
17.18*
NBs
13.82*
14.82*
9.22*
FBs
17.43*
15.41*
12.88*
PrBs
27.72*
30.19*
26.78*
All Banks(Average)
15.15
17.55
13.77
70
Total Income
Total Expenditure
SB
12.86*
10.48*
NBs
12.94*
9.66*
FBs
14.20*
9.98*
PrBs
26.05*
24.35*
All Banks
14.29
11.32
71
Profits (Rs. L)
Years
Profits (Rs. L)
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
1,1,9683
-4,15,087#
-3,64,633#
2,06,502
-9,23,46#
4,53,392
6,45,060
4,66,245
11,98,400
19,74,600
2002
2003
2004
2005
2006
2007
2008
2009
2010
29,81,800
40,59,200
52,67,300
51,32,000
53,65,809
51,09,120
45,20,300
48,80,640
49,32,980
#Losses
Source: Statistical Tables relating to Banks: RBI Various issues
Table 3.5 shows that out of all the groups of banks the
private sector banks have grown in their financial performance
significantly, compared to other groups of banks. Nationalized
banks and foreign banks are successful in controlling the
rate of growth of their total expenditure. SB group is having
a status quo growth in their earnings as well as expenditure
72
SB
14,992
24,524
28,003
35,605
84,648
80,348
1,66,989
2,41,148
1,46,565
5,84,000
5,73,900
8,72,000
11,22,900
14,36,300
15,25,900
16,56,700
17,09,876
17,24,387
18,89,900
19,42,500
NBs
31,518
60,108
-3,57,313#
-4,70,582#
26,931
-1,13,834#
1,44,519
2,56,728
1,79,244
2,43,700
8,05,400
12,95,700
18,48,600
25,11,300
23,79,300
24,56,000
23,87,652
23,78,905
25,34,600
25,76,340
FBs
14,615
26,866
-92,847#
57,383
54,676
-2,17,705#
77,018
62,993
69,565
1,03,500
3,10,500
3,51,300
3,72,800
4,98,600
4,59,900
4,78,300
4,89,675
3,56,980
4,09,830
4,80,450
Profits CAGR
SB(1991-2010)
35.55*
NBs(1991-2010)
55.09*
PrBs
FBs(1991-2010)
34.27*
3,843
8,185
7,070
12,961
40,247
1,58,845
64,866
84,191
70,871
2,67,200
2,84,800
4,62,800
7,14,900
8,21,100
7,66,900
8,01,800
8,34,780
7,90,651
7,40,380
8,23,540
PrBs(1997-2010)
38.2*
All(1991-2010)
41.57
#Losses
Source: Statistical Tables relating to Banks: RBI Various issues
73
74
Interest
Earned
Other
income
Interest Paid
Paid
Operating
Expenditure
12.5*
14.82*
12.31*
7.11*
NBs
12.31*
17.07*
10.87*
7.42*
FBs
13.08*
18.68*
11.82*
7.82*
PrBs
24.45*
31.89*
26.27*
20.13*
All Banks
13.58
18.41
12.9
8.42
75
Table 3.9 shows that all the groups of banks are competent
in earning income from sources other than interest like feebased and knowledge-based income i.e. income earned from
commission, exchange and brokerage. Besides these sources,
the income can be earned even through the rent or the sale
of investments etc. Sometimes, the income is earned even
from the exchange transactions. The table shows that the
minimum rate of growth in non-interest income is shown in
SB group at 14.82 percent. The NBs group is growing their
non-interest income at a moderate rate 17.07 percent. Amongst
all the groups of banks, PrBs group has shown the fastest
rate of growth in interest as well as non-interest income at
24.45 percent and 31.89 percent respectively.
SB
76
SB
NBs
FBs
PrBs
All Bank
Average Capital
Adequacy Ratio
(CAR)
Average growth
of Capital Adequacy
Ratio
12.16
10.74
25.62
12.80
14.62
3.22
7.09
6.21
-3.61
0.91
77
78
ROE
79
ROA
ROE
Net Interest
Margin to Assets
-0.35**(0.09)
0.00(0.00)
-0.032(0.09)
0.29(0.15)
0.07(0.08)
-0.07(0.08)
0.02(0.08)
-0.05(0.14)
-22.86(51.07)
21
.51
4.96***(1.38)
21
-0.04
Independent
Variable
CRR
-0.32**(0.10)
SLR
-0.07(0.08)
GDP GROWTH
-0.032(0.09)
Minimum Lending 0.35*(0.17)
Rate
Constant
-0.93(1.89)
N
21
Adj.R-squared
.52
ROA
ROE
Net Interest
Margin to Assets
CRR
-1.03**(0.34)
-0.09**(0.05)
-0.18(0.08)
SLR
-0.18(0.24)
-0.03(0.02)
-0.04(0.07)
GDP Growth
-0.65*(0.29)
-0.07(0.04)
0.16(0.08)
0.9(0.46)
0.09(0.05)
0.22(0.14)
0.16(1.38)
Independent
Variable
Minimum Lending
Rate
Constant
4.93(4.89)
0.23(0.58)
21
21
21
Adj.R-Squared
.52
.51
-0.04
80
ROA
Independent
Variable
CRR
-1.21**(0.44)
SLR
-0.2(0.29)
GDP Growth
-0.75*(0.42)
Minimum Lending
0.7(0.26)
Rate
Constant
7.93(4.19)
N
21
Adj.R-squared
.51
ROE
Net Interest
Margin to Assets
-0.19**(0.05)
-0.05(0.04)
-0.06(0.04)
0.06(0.05)
-0.15(0.09)
-0.04(0.07)
0.19(0.05)
0.12(0.10)
0.43(0.78)
21
.54
0.26(1.60)
21
-0.03
81
82
83
84
40
30
20
V alu e
85
P R T YPUB
10
P R T YPVT
1
1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2
9 9 99 99 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 01
2. 3 . 4 . 5 . 6 . 7 . 8. 9. 0 . 1 . 2 . 3 . 4 . 5 . 6 . 7 . 8 . 9 . 0. 1 .
0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00
Y EAR
2.2
2.0
1.8
17
1.6
16
1.4
1.2
15
1.0
Value
Value
14
13
NPATAPUB
.8
.6
NPATAPVT
19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
.0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12
CADQPUB
YEAR
11
CADQPVT
10
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
YEAR
Figure: 3.1 Capital Adequacy Ratio of Public and Private Sector Banks
86
87
4.0
40
3.5
3.0
30
2.5
2.0
1.5
20
O PT APUB
.5
0.0
Value
V a lu e
1.0
O PT APVT
19 1 9 1 1 1 9 19 1 1 20 20 20 20 20 20 20 20 20 2 20 20
92 9 3 9 94 9 95 9 6 9 7 9 98 9 99 0 0 0 1 02 03 0 4 05 06 07 0 8 0 09 1 0 1 1
. 0 .0 .0 .0 . 0 .0 . 0 . 0 . 0 .0 . 0 . 0 . 0 .0 . 0 . 0 . 0 .0 . 0 . 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
O ET EPUB
10
O ET EPVT
1 9 1 9 1 9 1 9 1 9 1 9 1 9 19 2 0 20 2 0 20 2 0 20 2 0 20 20 2 0 20 2 0
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
. 0 .0 . 0 .0 . 0 .0 . 0 .0 .0 .0 .0 .0 .0 . 0 .0 . 0 .0 .0 . 0 .0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Y E AR
YEAR
30
30
20
20
10
WBT IPUB
0
WBT IPVT
19 1 9 1 9 1 9 1 9 19 1 9 1 9 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0
92 93 94 95 96 9 7 98 99 0 0 01 0 2 03 04 0 5 06 07 08 09 10 11
. 0 .0 .0 .0 .0 . 0 .0 .0 . 0 .0 . 0 . 0 .0 . 0 .0 . 0 . 0 .0 .0 . 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
YEAR
V alue
Va lue
10
ROEPUB
0
ROEPVT
1 9 1 9 19 1 9 1 9 1 9 19 19 2 0 2 0 2 0 2 0 2 0 2 0 20 20 2 0 2 0 2 0 20
92 93 94 9 5 9 6 97 98 99 00 01 02 03 04 05 06 07 0 8 09 10 11
.0 .0 .0 . 0 . 0 .0 .0 .0 . 0 . 0 .0 . 0 .0 . 0 .0 .0 . 0 . 0 .0 .0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
YEAR
88
1 .6
89
70
1 .4
60
1 .2
50
1 .0
40
.8
30
.6
20
0 .0
RO APV T
1 9 1 9 1 9 1 9 1 9 1 9 1 9 19 2 0 2 0 20 2 0 20 2 0 2 0 2 0 2 0 2 0 2 0 2 0
92 93 94 95 9 6 97 98 99 00 01 02 03 04 05 06 0 7 08 0 9 10 1 1
.0 . 0 .0 .0 . 0 .0 . 0 .0 .0 .0 . 0 .0 . 0 .0 .0 . 0 .0 . 0 .0 . 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
V alue
RO APUB
.2
10
LNDE PPUB
LNDE PPVT
19 1 9 1 9 19 19 19 1 9 1 9 20 20 2 0 2 0 2 0 20 20 2 0 20 20 20 2 0
92 93 9 4 95 96 97 9 8 99 00 01 02 03 04 05 06 0 7 08 09 10 11
. 0 . 0 .0 .0 . 0 .0 .0 . 0 .0 . 0 . 0 . 0 .0 . 0 .0 .0 .0 . 0 .0 . 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
YE AR
YE AR
3 .5
3 .0
The data of Capital Adequacy ratio was available from 199596 onwards. Capital Adequacy Ratio of the new private sector
banks was high at the beginning of the inception of these
banks. Over the years, it declined due to increase of their
business portfolio in risk based assets.
2 .5
2 .0
1 .5
V a lu e
Value
.4
NIMT APU B
1 .0
NIMT APV T
1
1 19 1 1 19 1 1 20 20 2 20 20 2 2 2 2 2 2 2
9
9
9
0
0 0 0 0 0 0 0
92 93 94 95 99 6 9 7 9 98 99 00 01 02 03 04 05 06 07 08 0 9 10 11
.0 . 0 . 0 .0 . 0 . 0 .0 .0 . 0 .0 .0 .0 .0 .0 . 0 .0 .0 . 0 .0 .0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Y E AR
90
YEAR
1996-97
2000-01
2005-06
2010-11
State Bank
Group
State Bank
Group
State Bank
Group
State Bank
Group
Nationalized
Banks
Nationalized
Banks
Nationalized
Banks
State Bank of
India
Old Private
Sector Banks
Old Private
Sector Banks
New Private
Sector Banks
Nationalized
Banks
New Private
Sector Banks
New Private
Sector Banks
Old Private
Sector Banks
Old Private
Sector Banks
Foreign Banks
Foreign Banks
91
YEAR
1996-97
2000-01
2005-06
2010-11
State Bank
Group
State Bank
Group
State Bank
Group
Foreign Banks
Foreign Banks
Banks
Nationalized
Banks
Nationalized
Banks
Nationalized
Banks
New Private
New Private
New Private
New Private
Sector Banks
Sector Banks
Sector Banks
Sector Banks
Nationalized
Banks
Old Private
Sector Banks
Old Private
Sector Banks
Old Private
Sector Banks
Old Private
Sector Banks
3.5.3. Profitability
In this present deregulated environment, banks are under
pressure to reduce the interest rate both on deposits and
advances. To increase the profitability, banks have not
only to increase the spread, but also to reduce the burden.
Public Sector Banks have improved their performance in
terms of Spread as % to Total Assets as compared to
92
YEAR
1996-97
2000-01
2005-06
2010-11
State Bank
Group
State Bank
Group
State Bank
Group
State Bank
Group
Nationalized
Banks
Nationalized
Banks
New Private
Sector Banks
New Private
Sector Banks
New Private
Sector Banks
Old Private
Sector Banks
Nationalized
Banks
Nationalized
Banks
Old Private
Sector Banks
New Private
Sector Banks
Old Private
Sector Banks
Old Private
Sector Banks
Foreign Banks
Foreign Banks
3.5.4. Productivity
Staff Cost to Net Income was significantly high for public
sector banks due to huge branch network in rural and
93
94
YEAR
1996-97
2000-01
2005-06
2010-11
State Bank
Group
State Bank
Group
State Bank
Group
New Private
Sector Banks
Nationalized
Banks
Nationalized
Banks
Nationalized
Banks
State Bank
Group
New Private
Sector Banks
New Private
Sector Banks
New Private
Sector Banks
Nationalized
Banks
Old Private
Sector Banks
Old Private
Sector Banks
Old Private
Sector Banks
Foreign Banks
Foreign Banks
Foreign Banks
3.6. Conclusion
By taking ROA, ROE and Net Interest Margin to Assets
as dependent variable and CRR, SLR, minimum lending
rates and GDP growth rate as independent variable in
regression analysis, it has been observed that in all groups
of banks except public sector banks there is negative
relation between CRR and ROA, ROE as well as NIM.
However, SLR is negatively related to ROA, ROE and
NIM. This shows higher the reserve requirements lesser
will be the profitability. The minimum lending rate is
positively related to ROA, ROE and net interest margin
to assets. However, the PSBs show negative relation
between minimum lending rates and net interest margin
to assets. As far as GDP growth rate is concerned it is
inversely related to ROA and ROE and positively related
to net interest margin.
The ROA and net interest margin of public sector banks
was higher than the private sector banks before the crisis.
But the situation got reversed in the post crisis period.
On the other hand, ROE of both the sector is increasing
before 2006, but after that private sector bank showed
95
96
97
4
Productivity Analysis of
Banking Sector
98
99
NBs (19)
SB(6)
OPB (13)
FBs(11)
NPB (5)
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Avg.
0.976
0.980
0.969
0.974
0.950
0.970
0.967
0.975
0.978
0.977
0.976
0.933
0.991
0.988
0.992
0.935
0.957
0.910
0.937
0.977
0.9656
0.961
0.968
0.959
0.963
0.964
0.999
0.972
0.964
0.975
0.985
0.990
0.966
0.966
0.980
0.991
0.996
0.988
0.934
0.966
0.985
0.9736
0.661
0.689
0.634
0.622
0.602
0.601
0.964
0.98
0.973
0.974
0.956
0.979
0.981
0.923
0.912
0.922
0.908
0.902
0.933
0.945
0.85305
0.838
0.753
0.773
0.814
0.722
0.711
0.591
0.693
0.739
0.794
0.778
0.719
0.661
0.689
0.634
0.622
0.602
0.601
0.642
0.649
0.70125
0.946
0.823
0.928
0.880
0.856
0.870
0.930
0.949
0.926
0.930
0.918
0.902
0.953
0.989
0.914286
100
NBs (19)
SB(6)
OPB (13)
FBs(11)
NPB (5)
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
12
10
8
7
10
10
11
11
10
9
9
12
12
11
12
14
11
10
9
10
4
6
2
5
5
5
6
6
6
6
5
5
6
5
5
5
6
4
5
6
10
7
8
8
6
9
9
7
8
9
7
8
10
7
6
6
6
9
10
10
4
3
6
4
8
7
5
7
9
7
6
8
8
7
8
9
7
6
7
5
4
5
2
3
5
5
4
3
3
4
4
4
4
101
I
L
L
L
L
E
E
L
L
I
L
L
I
E
L
I
I
I
I
ABD BANK
AND BANK
BOB
BOI
BOMa
CB
CBI
COR BANK
DENA BANK
IB
IOB
OBC
PSIND BANK
PNB
SYNBANK
UCO BANK
UBI
UNIBI
VB
I
I
L
L
L
E
I
L
L
I
L
I
I
E
I
I
E
I
L
92
I
I
L
L
I
E
I
L
L
I
L
I
L
E
I
I
I
I
I
93
I
I
L
L
I
I
I
I
L
I
I
L
I
E
I
L
L
I
I
94
I
E
L
L
I
E
L
L
I
L
L
I
I
E
L
I
I
I
I
95
I
E
L
L
I
I
L
I
L
L
I
L
I
E
I
I
I
E
E
96
I
E
L
L
I
I
L
L
I
I
I
E
I
E
L
I
L
E
E
97
E
I
I
I
I
I
I
I
I
L
L
E
L
E
L
L
L
L
L
98
I
E
L
L
E
E
L
E
L
L
L
I
I
I
I
I
I
I
I
I
I
L
I
E
L
E
E
I
I
E
E
I
E
E
I
I
I
I
I
I
I
L
E
L
E
L
I
I
E
L
I
E
E
E
I
L
L
02
I
L
E
I
L
I
L
L
E
L
L
I
I
E
I
E
I
L
L
03
I
E
E
I
L
I
L
I
E
L
I
I
E
E
L
L
I
L
I
04
I
E
E
E
E
I
I
I
E
E
L
L
E
E
L
L
I
I
I
05
I
E
E
E
E
E
L
L
L
E
E
I
E
E
E
I
E
I
I
06
I
L
E
E
E
E
L
E
L
E
E
I
I
E
I
I
I
I
I
07
L
L
E
L
E
I
I
E
L
L
E
I
I
E
I
I
I
I
I
E
I
I
L
L
E
SBI
SBBJ
SBH
SBM
SBOP
SBT
92
93
94
95
96
97
99 2000 01
L stands for less efficient unit i.e. DEA score range is 0.5- 1
98
91
Bank
02
03
04
05
06
07
08 09
I
E
I
I
L
L
E
E
L
I
I
L
E
E
I
I
I
I
I
08 09
10
I
I
I
I
I
I
E
E
E
E
E
E
E
E
E
E
I
I
I
10
I
I
I
I
I
I
I
E
L
L
E
E
I
E
I
I
E
L
L
99 2000 01
91
Bank
Table 4.3: Capital Efficiency Status of Individual Banks (NBs Group) (Under CRS Conditions)
102
Productivity Analysis of Banking Sector
103
I
L
KVB
LVB
92
93
94
95
96
97
98
02
03
04
05
06
07
L
L
I
I
I
I
I
BNPPARI
CITIBNK
DEUTBNK
JPMCBNK
OMANIBNK
SCHBNK
SBMRITUS
93
94
95
96
97
98
99
2000
L stands for less efficient unit i.e. DEA score range is 0.5- 1
I
L
BOA
BCLYBNK
ADCB
BOC
92
Bank
01
02
03
04
05
06
07
10
08 09 10
08 09
99 2000 01
L stands for less efficient unit i.e. DEA score range is 0.5- 1
KB
JKB
TMB
INGVB
SIB
FB
DB
CUB
RB
CSB
NB
91
Bank
104
Productivity Analysis of Banking Sector
105
L
I
107
I
I
L stands for less efficient unit i.e. DEA score range is 0.5- 1
L
E
I
I
L
I
L
INDUSBNK
L
L
E
E
I
I
E
E
L
E
E
L
E
I
L
L
ICICIBNK
L
HDFCBNK
E
E
E
E
L
E
E
E
E
E
L
E
E
L
L
E
E
L
E
DEVCDBNK
E
AXISBNK
10
08
2000
97
Bank
98
99
01
02
03
04
05
06
07
09
106
Years
NBs (19)
SB (6)
OPB (13)
FBs (11)
NPB (5)
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
9004
2005
2006
2007
2008
2009
2010
Avg.
0.986
0.994
0.99
0.99
0.972
0.989
0.991
0.982
0.995
0.99
0.985
0.976
0.995
0.998
0.978
0.965
0.967
0.928
0.957
0.989
0.9881
0.982
0.996
0.992
1
0.986
1
0.998
0.977
0.994
0.997
1
0.989
0.991
0.996
0.981
0.991
0.985
0.997
0.969
0.980
0.9927
0.999
0.993
0.984
0.97
0.974
0.97
0.969
0.986
0.981
0.985
0.978
0.989
0.993
0.978
0.972
0.918
0.906
0.912
0.919
0.925
0.9821
0.864
0.878
0.865
0.904
0.854
0.946
0.945
0.979
0.994
1
0.956
0.972
0.948
0.989
0.985
0.908
0.902
0.927
0.942
0.949
0.9353
0.996
0.950
0.965
0.994
0.938
0.987
0.993
0.994
0.976
0.939
0.998
0.976
0.903
0.969
0.977
108
NBs (19)
SB (6)
OPB (13)
FBs (11)
NPB (5)
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
15
12
13
10
14
14
12
17
13
12
13
15
15
14
13
14
13
12
14
14
5
6
6
6
6
5
6
4
5
6
6
6
6
6
5
6
6
5
6
6
13
11
8
9
8
10
10
8
9
11
11
12
11
11
10
9
10
9
9
10
7
5
5
6
8
8
9
10
10
9
9
9
10
9
8
8
7
9
9
5
4
5
5
5
5
5
5
5
5
5
5
5
5
109
I
L
L
L
L
E
E
L
L
I
L
L
L
E
L
L
L
I
I
ABD BANK
AND BANK
BOB
BOI
BOMa
CB
CBI
COR BANK
DENA BANK
IB
IOB
OBC
PSIND BANK
PNB
SYN BANK
UCO BANK
UBI
UNIBI
VB
I
I
I
I
L
E
I
L
E
L
L
I
L
E
L
L
E
I
L
92
E
E
E
E
L
E
L
L
L
L
L
I
L
E
I
I
I
I
I
93
E
E
E
E
L
E
L
L
E
I
I
L
I
E
I
I
I
I
I
94
L
E
L
L
L
E
E
L
I
E
L
I
I
E
L
I
I
L
L
95
I
E
E
E
E
I
L
I
E
E
E
E
I
E
I
I
L
E
E
96
E
E
L
I
L
L
L
E
I
I
I
E
I
E
L
L
L
E
I
97
L
E
E
I
E
L
L
E
L
E
L
E
L
E
L
L
L
L
I
98
I
I
I
I
I
E
E
E
L
L
E
E
I
E
L
L
L
L
L
I
L
E
L
E
L
E
E
I
I
E
E
I
E
E
E
E
I
I
I
L
L
L
E
L
E
L
I
I
E
L
I
E
E
E
L
L
E
02
L
L
E
I
L
L
L
L
E
E
E
E
I
E
L
E
E
I
I
03
L
E
E
L
E
L
E
I
E
I
L
L
E
E
E
E
I
I
I
04
I
E
E
E
E
I
L
L
E
E
I
I
E
E
E
L
E
I
I
05
I
I
I
E
E
E
I
L
E
E
E
I
E
E
E
L
E
E
L
06
L
E
E
E
E
E
I
I
L
E
E
I
I
E
E
L
E
I
I
07
I
I
I
E
E
E
L
E
E
I
I
I
I
E
E
E
L
E
L
E
L
I
L
L
E
SBI
SBBJ
SBH
SBM
SBOP
SBT
92
93
94
95
96
97
98
99 2000 01
L stands for less efficient unit i.e. DEA score range is 0.5- 1
91
Bank
02
03
04
05
06
07
I
I
E
E
E
E
E
E
E
E
E
E
E
E
E
E
I
I
I
10
08 09 10
L
E
E
L
I
I
E
E
L
L
E
E
E
E
L
E
I
I
I
08 09
L
I
L
L
I
E
E
E
L
E
E
E
L
E
I
I
I
I
I
99 2000 01
91
Bank
110
Productivity Analysis of Banking Sector
111
E
L
L
L
L
L
L
L
L
L
L
L
L
CSB
CUB
DB
FB
INGVB
JKB
KB
KVB
LVB
NB
RB
SIB
TMB
92
93
94
95
96
97
98
02
03
04
05
06
07
L
E
E
E
L
L
I
E
I
I
I
ADCB
BOA
BOC
BCLY BNK
BNPPARI
CITI BNK
DEUT BNK
JPMC BNK
OMANI BNK
SCH BNK
SBMRITUS
93
94
95
96
97
98
99
2000
L stands for less efficient unit i.e. DEA score range is 0.5- 1
92
Bank
01
02
03
04
05
06
07
08 09
08 09
10
10
99 2000 01
L stands for less efficient unit i.e. DEA score range is 0.5- 1
91
Bank
112
Productivity Analysis of Banking Sector
113
E
E
E
L stands for less efficient unit i.e. DEA score range is 0.5- 1
E
L
L
INDUSBNK
E
L
E
E
E
L
L
L
E
E
L
ICICIBNK
115
L
E
E
L
L
L
L
E
L
HDFCBNK
DEVCDBNK
E
E
E
E
E
E
E
E
AXISBNK
10
07
02
01
98
97
Bank
99
2000
03
04
05
06
08
09
114
EFFCH
TECHCH
PECH
SECH
TFPCH
NBs
SB
OPB
FBs
NPB
1
0.98
1
1
0.995
1
0.99
1
1
0.9975
1
0.85
0.95
1
0.95
0.88
0.98
1.01
0.89
0.94
1.001
0.83
1
1.001
0.958
116
117
Years
NBs (19)
SB (6)
OPB (13)
FBs(11)
NPB (5)
1991
0.971
0.993
0.799
0.873
1992
0.896
0.922
0.853
0.829
1993
0.891
0.966
0.926
0.902
1994
0.894
0.982
0.920
0.931
1995
0.874
0.981
0.872
0.928
1996
0.895
0.994
0.880
0.941
1997
0.906
0.999
0.905
0.948
0.942
1998
0.922
0.994
0.894
0.925
0.952
1999
0.905
0.977
0.898
0.941
0.948
2000
0.958
0.957
0.888
0.955
0.936
2001
0.946
0.951
0.890
0.926
0.942
2002
0.964
0.952
0.922
0.953
0.952
2003
0.912
0.766
0.890
0.819
0.910
2004
0.944
0.965
0.844
0.958
0.860
2005
0.967
0.948
0.830
0.912
0.875
2006
0.923
0.971
0.839
0.841
0.868
2007
0.983
0.980
0.853
0.953
0.837
2008
0.992
0.972
0.857
0.966
0.901
2009
0.988
0.944
0.875
0.938
0.920
2010
0.956
0.911
0.896
0.973
0.923
Average
0.933
0.958
0.880
0.923
0.911
Years
NBs (19)
SB(6)
OPB (13)
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
8
6
6
3
3
2
2
3
5
5
3
6
5
5
6
5
3
6
5
5
4
3
3
4
5
6
6
5
4
3
3
3
1
3
3
2
3
2
4
5
2
3
5
6
4
6
6
6
5
6
8
5
3
8
7
6
6
3
7
6
_____5
4
4
3
4
3
3
2
2
2
2
3
2
3
I
I
I
I
I
I
I
I
I
I
E
E
I
E
I
I
I
I
I
I
I
I
I
I
I
E
L
I
I
E
L
I
E
E
I
I
I
I
I
L
E
I
L
I
I
I
E
I
I
I
I
E
I
I
I
I
I
I
I
I
I
L
I
L
I
E
L
I
I
I
E
I
I
I
I
I
I
I
E
I
E
I
I
I
E
E
I
I
E
E
I
I
I
I
I
I
I
I
I
E
E
I
L
I
I
I
I
E
E
I
I
I
I
I
I
I
I
I
I
E
I
E
I
I
I
I
I
E
I
I
I
I
I
I
L
I
I
E
I
I
E
L
L
I
I
I
E
I
I
I
I
I
I
I
I
I
L
I
E
I
L
I
I
I
I
E
I
I
I
I
I
I
I
I
I
I
I
E
I
E
I
E
I
E
E
I
I
I
I
I
119
I
I
I
I
I
I
I
E
L
L
E
I
I
E
I
I
I
I
I
I
I
I
I
I
I
I
I
L
L
L
I
I
E
I
I
I
E
I
I
I
I
I
I
I
I
I
I
L
I
E
I
E
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
E
L
I
I
I
I
I
I
I
L
I
I
I
I
I
I
I
I
I
E
I
I
I
I
I
L
E
I
I
I
I
I
I
I
I
I
I
I
E
I
I
I
I
I
I
I
L
I
I
I
I
I
L
I
I
I
I
E
I
I
I
I
I
I
I
L
L
I
E
I
L
L
I
I
I
I
E
I
I
I
I
I
I
I
L
L
L
E
I
I
L
I
I
I
I
E
I
I
I
I
I
10
08 09
07
06
05
04
03
02
99 2000 01
98
97
96
95
I
L
L
L
L
E
E
L
I
I
I
I
I
E
I
I
I
I
I
ABD BANK
AND BANK
BOB
BOI
BOMa
CB
CBI
COR BANK
DENA BANK
IB
IOB
OBC
PSIND BANK
PNB
SYNBANK
UCO BANK
UBI
UNIBI
VB
94
93
92
91
For the FBs group, the year 1994 and 2007 is better, as
the maximum banks are efficient in this year. For the
OPB group, year 2001 and 2004 are the efficient year as
in this year 8 banks from this group are efficient banks.
For NPB initial years were good as most of the banks
are efficient.
Bank
118
91
E
I
I
L
L
E
Bank
SBI
SBBJ
SBH
SBM
SBOP
SBT
92
92
93
93
94
94
95
95
96
96
97
97
98
98
02
02
03
03
04
04
05
05
06
06
07
07
I
I
I
L
I
I
I
I
JKB
KB
KVB
LVB
NB
RB
SIB
TMB
92
93
94
95
96
97
98
02
03
04
05
06
07
08 09
10
10
10
99 2000 01
L stands for less efficient unit i.e. DEA score range is 0.5- 1
DB
CUB
INGVB
CSB
FB
91
Bank
08 09
08 09
99 2000 01
99 2000 01
L stands for less efficient unit i.e. DEA score range is 0.5- 1
91
Bank
Table 4.19: Revenue Efficiency Status of Individual Banks (SB Group) (Under CRS
Conditions)
120
121
L
L
I
I
I
I
I
I
BCLY BNK
BNPPARI
CITI BNK
DEUT BNK
JPMC BNK
OMANI BNK
SCH BNK
SBMRITUS
93
94
95
96
97
98
99
01
02
03
04
05
06
07
E
E
L
L
L
AXISBNK
DEVCDBNK
HDFCBNK
ICICIBNK
INDUSBNK
98
99
2000
01
02
L stands for less efficient unit i.e. DEA score range is 0.5- 1
97
Bank
03
04
05
06
07
08
09
08 09
10
10
2000
L stands for less efficient unit i.e. DEA score range is 0.5- 1
I
L
BOC
ADCB
BOA
92
Bank
122
Productivity Analysis of Banking Sector
123
124
NBs (19)
SB (6)
OPB (13)
FBs(11)
NPB (5)
Years
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Average
NBs(19)
0.986
0.904
0.903
0.909
0.896
0.912
0.947
0.959
0.951
0.969
0.958
0.979
0.934
0.968
0.934
0.902
0.988
0.933
0.927
0.924
0.944
SB(6)
0.996
0.956
0.986
0.992
0.986
0.998
1
1
0.988
0.989
0.981
0.981
0.914
0.99
0.989
0.972
0.965
0.982
0.974
0.981
0.9837
OPB(13)
0.942
0.915
0.958
0.962
0.919
0.951
0.94
0.938
0.943
0,904
0.903
0.942
0.923
0.938
0.927
0.943
0.974
0.938
0.954
0.938
0.936
FBs(11)
0.968
0.894
0.934
0.96
0.937
0.956
0.961
0.943
0.964
0.972
0.975
0.983
0.907
0.986
0.978
0.974
0.989
0.958
0.974
0.997
0.9551
NPB(5)
0.971
0.982
0.968
0.961
0.964
0.962
0.937
0.924
0.923
0.935
0.918
0.917
0.910
0.912
0.959
125
NBs (19)
SB (6)
OPB (13)
FBs(11)
NPB (5)
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
12
6
7
4
5
4
4
8
9
9
8
9
9
11
10
12
11
12
11
11
5
4
5
6
6
6
6
6
5
6
5
6
4
6
6
6
6
6
6
5
7
5
6
7
5
7
7
7
10
8
9
8
6
9
8
9
8
9
8
8
5
7
7
5
5
8
6
7
4
7
6
7
7
7
6
6
6
8
7
5
5
5
4
4
4
3
5
4
3
5
4
5
5
126
127
L
L
L
L
L
E
E
L
L
L
L
I
I
E
I
I
I
I
I
ABD BANK
AND BANK
BOB
BOI
BOMa
CB
CBI
COR BANK
DENA BANK
IB
IOB
OBC
PSIND BANK
PNB
SYNBANK
UCO BANK
UBI
UNIBI
VB
I
I
I
I
L
E
I
L
E
I
L
I
I
E
I
I
I
I
I
92
I
L
I
I
I
I
I
L
L
L
L
I
L
E
I
I
I
I
I
93
E
E
E
I
I
I
I
I
I
I
I
I
I
E
I
I
I
I
I
94
I
I
I
I
I
I
I
I
I
I
L
I
I
E
I
I
I
L
L
95
I
E
E
I
I
I
I
I
I
I
I
I
I
E
I
I
L
I
I
96
I
I
I
I
I
I
L
I
I
I
I
I
I
E
I
I
L
E
I
97
L
E
E
I
E
L
I
I
L
E
I
I
I
E
I
I
I
I
I
98
L
I
I
I
I
E
I
I
I
I
E
E
I
E
I
L
L
L
L
I
I
I
I
I
L
E
E
I
I
E
E
I
E
I
E
E
I
I
I
L
L
I
E
I
E
L
I
I
E
L
I
E
E
I
I
I
I
02
I
I
I
I
I
I
I
L
E
E
E
E
I
E
L
E
E
I
I
03
L
E
E
L
E
L
E
I
E
I
I
I
E
E
E
I
I
I
I
04
I
I
I
I
E
I
L
L
E
E
I
I
E
E
E
L
E
I
I
05
I
I
I
E
E
E
I
L
E
E
E
I
E
E
E
L
E
I
I
06
I
I
E
E
E
E
I
I
L
E
E
I
I
E
E
L
E
I
I
07
I
I
I
E
E
E
L
E
E
I
I
I
I
E
E
E
L
E
L
E
L
I
L
L
E
SBI
SBBJ
SBH
SBM
SBOP
SBT
92
93
94
95
96
97
98
99 2000 01
91
Bank
02
03
04
05
06
07
08 09
I
I
I
L
I
I
E
E
L
L
E
E
E
E
L
E
I
I
I
08 09
10
I
I
E
E
E
E
E
E
E
E
E
E
I
E
I
I
I
I
I
10
L
I
L
L
I
E
I
E
I
I
E
E
I
E
I
I
I
I
I
99 2000 01
91
Bank
Table 4.25: Revenue Efficiency Status of Individual Banks (NBs Group) (Under
VRS Conditions)
128
Productivity Analysis of Banking Sector
129
L
L
KVB
LVB
92
93
94
95
96
97
98
02
03
04
05
06
07
L
E
E
I
I
L
I
E
I
I
I
ADCB
BOA
BOC
BCLYBNK
BNPPARI
CITIBNK
DEUTBNK
JPMCBNK
OMANIBNK
SCHBNK
SBMRITUS
93
94
95
96
97
98
2000
L stands for less efficient unit i.e. DEA score range is 0.5- 1
99
92
Bank
01
02
03
04
05
06
07
08 09
08 09
10
10
99 2000 01
KB
TMB
JKB
INGVB
SIB
FB
DB
CUB
RB
CSB
NB
91
Bank
130
Productivity Analysis of Banking Sector
131
EFFCH
TECHCH
PECH
SECH
TFPCH
NBs
SB
OPB
FBs
NPB
0.998
1.031
0.999
0.999
1.00675
0.998
1.037
0.999
0.998
1.008
1.008
0.923
0.998
1.01
0.98475
1.008
0.99
1
1.008
1.0015
0.985
0.986
0.992
0.993
0.989
L
L
E
E
E
I
E
E
E
E
I
09
07
L stands for less efficient unit i.e. DEA score range is 0.5- 1
E
L
INDUSBNK
E
L
E
ICICIBNK
E
I
L
L
E
I
L
E
L
HDFCBNK
DEVCDBNK
E
I
E
E
E
AXISBNK
02
2000
99
98
97
Bank
133
01
03
04
05
06
08
10
Table 4.29: Revenue Efficiency Status of Individual Banks (NPB Group) (Under
VRS Conditions)
132
134
NBs(19)
SB(6)
FBs(14)
OPB(13)
0.78
0.825
0.762
0.713
0.727
0.738
0.755
0.717
0.638
0.549
0.82
0.69
0.714
0.692
0.723
0.813
0.678
0.649
0.703
0.792
0.723
0.845
0.799
0.846
0.872
0.885
0.906
0.901
0.895
0.883
0.903
0.907
0.868
0.857
0.823
0.854
0.869
0.820
0.831
0.862
0.827
0.862
0.413
0.591
0.624
0.538
0.479
0.607
0.695
0.73
0.741
0.683
0.656
0.613
0.649
0.874
0.810
0.724
0.792
0.803
0.784
0.723
0.674
0.674
0.719
0.572
0.561
0.539
0.694
0.729
0.742
0.761
0.792
.0.799
0.737
0.786
0.743
0.738.
0.727
0.767
0.709
0.729
0.731
0.706
135
NBs(19)
SB(6)
FBs(14)
OPB(13)
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
3
2
3
2
3
1
3
1
1
1
2
2
1
3
4
3
3
2
3
2
2
1
1
2
3
3
2
1
2
3
3
4
2
2
2
2
2
3
2
3
1
2
1
0
1
3
2
3
1
3
3
2
3
3
3
2
1
2
2
2
2
2
1
1
1
2
2
2
3
3
2
4
1
2
2
2
4
3
4
I
I
I
I
L
I
E
I
I
I
I
I
I
E
I
I
I
I
I
I
I
I
I
I
I
I
E
I
I
I
I
I
E
I
I
I
I
I
I
I
I
I
I
E
I
E
I
I
I
I
I
E
I
I
I
I
I
I
I
I
I
I
I
I
L
I
I
I
I
E
E
I
I
I
I
I
I
I
E
I
E
I
I
I
I
E
I
I
I
E
I
I
I
I
I
I
I
I
I
I
I
I
I
E
L
I
I
I
E
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
E
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
E
E
I
I
I
I
Source: computed from individual Bank DEA scores
I stands for inefficient unit i.e. DEA score < 0.5
L stands for less efficient unit i.e. DEA score range is 0.5- 1
E stands for efficient unit DEA score = 1
I
I
I
I
I
I
I
I
I
I
E
I
I
E
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
E
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
E
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
E
I
I
I
I
I
I
I
I
I
I
I
I
I
L
I
L
I
I
E
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
E
I
I
I
I
I
I
E
I
I
I
I
I
I
I
I
I
I
I
E
L
I
I
I
I
I
I
I
I
I
I
I
I
L
I
I
I
I
E
I
I
I
I
I
I
I
L
I
I
E
I
I
I
I
I
I
I
E
I
I
I
I
I
I
I
I
I
I
I
I
I
L
I
I
I
I
E
I
I
I
I
I
08 09
07
06
05
04
03
02
99 2000 01
98
97
96
I
I
I
I
I
I
I
L
I
I
I
I
I
E
L
I
I
I
I
ABD BANK
AND BANK
BOB
BOI
BOMa
CB
CBI
COR BANK
DENA BANK
IB
IOB
OBC
PSIND BANK
PNB
SYNBANK
UCO BANK
UBI
UNIBI
VB
95
94
93
92
10
137
I
I
I
I
I
I
I
I
I
I
I
I
E
E
I
I
I
I
I
91
Bank
136
E
I
I
L
I
I
SBI
SBBJ
SBH
SBM
SBOP
SBT
92
93
94
95
96
97
98
02
03
04
05
06
07
I
I
I
L
I
I
I
I
JKB
KB
KVB
LVB
NB
RB
SIB
TMB
92
93
94
95
96
97
98
02
03
04
05
06
07
08 09
10
10
99 2000 01
L stands for less efficient unit i.e. DEA score range is 0.5- 1
DB
CUB
INGVB
CSB
FB
91
Bank
08 09
99 2000 01
L stands for less efficient unit i.e. DEA score range is 0.5- 1
91
Bank
138
139
I
I
I
I
I
I
10
SB(6)
FBs(14)
OPB(13)
0.862
0.844
0.812
0.808
0.843
0.847
0.878
0.839
0.83
0.728
0.879
0.807
0.862
0.864
0.870
0.837
0.861
0.832
0.842
0.871
0.836
0.882
0.919
0.912
0.937
0.941
0.94
0.94
0.934
0.92
0.918
0.916
0.871
0.879
0.879
0.814
0.828
0.839
0.892
0.879
0.857
0.913
0.693
0.688
0.725
0.76
0.795
0.901
0.921
0.936
0.929
0.921
0.805
0.823
0.79
0.874
0.883
0.872
0.891
0.890
0.853
0.872
0.826
0.728
0.802
0.646
0.642
0.632
0.778
0.797
0.865
0.873
0.863
0.865
0.807
0.864
0.436
0.549
0.578
0.782
0.856
0.830
0.829
0.743
I
I
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Average
L stands for less efficient unit i.e. DEA score range is 0.5- 1
I
I
SBMRITUS
I
I
I
I
L
I
L
I
I
I
L
I
I
I
L
I
I
I
I
I
I
I
SCHBNK
OMANIBNK
I
I
I
I
I
L
I
L
I
I
I
I
L
JPMCBNK
I
I
I
I
I
I
I
I
I
I
I
I
I
I
L
I
I
E
I
I
I
L
I
I
I
I
I
DEUTBNK
CITIBNK
I
I
I
I
I
L
I
I
L
I
I
I
I
L
I
I
I
I
I
I
E
I
I
I
I
I
L
L
I
BNPPARI
BCLYBNK
I
I
I
I
I
E
I
I
I
I
L
L
I
I
L
I
I
I
I
I
I
I
I
L
I
BOA
BOC
I
I
L
L
L
I
I
I
E
I
I
ADCB
I
I
I
99
97
96
95
93
92
94
141
Years
98
2000
01
02
03
04
05
06
07
08 09
Bank
140
Note: Figures in the bracket shows the numbers of Banks selected from
each group
142
143
The VRS model shows that in the year 2006, the maximum
number of banks is staff efficient.
Years
NBs(19)
SB(6)
OPB(13)
FBs(11)
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
6
7
6
4
4
4
7
5
6
4
6
7
7
7
9
8
8
8
7
6
3
4
3
4
5
5
5
4
4
4
4
4
4
4
4
6
5
6
6
6
3
4
3
4
5
5
5
4
4
4
4
4
4
4
4
5
5
5
5
7
2
2
4
4
5
5
5
6
4
4
5
4
6
7
6
4
5
5
6
Table 4.38 shows that for NBs group, the highest efficiency
was before the beginning of reforms i.e. in 1990. The
lowest efficiency was in the year 2000 at 0.728. In the
year 2004, it shows the upward trend in the staff efficiency.
I
I
I
I
I
E
E
L
I
I
I
I
I
E
I
I
L
I
L
ABD BANK
AND BANK
BOB
BOI
BOMa
CB
CBI
COR BANK
DENA BANK
IB
IOB
OBC
PSIND BANK
PNB
SYNBANK
UCO BANK
UBI
UNIBI
VB
L
I
I
I
L
E
I
L
E
I
L
I
I
E
I
I
I
I
I
92
I
L
I
I
I
I
I
L
L
L
L
I
I
E
I
I
I
I
I
93
E
E
E
I
I
I
I
I
I
I
I
I
I
E
I
I
I
I
I
94
I
I
I
I
I
I
I
I
I
I
L
I
I
E
I
I
I
L
L
95
I
E
E
I
I
I
I
I
I
I
I
I
I
E
I
I
L
I
I
96
I
L
L
I
I
L
L
I
I
I
I
I
I
E
I
I
L
E
I
97
L
E
E
I
I
I
I
I
I
I
I
I
I
E
I
I
L
I
I
98
I
I
I
I
I
E
I
I
I
I
E
E
I
E
I
L
I
I
L
I
I
I
I
I
I
E
E
I
I
E
E
I
E
I
E
I
I
I
I
L
I
I
E
I
E
L
I
I
E
L
I
E
I
I
I
I
I
02
I
I
I
I
I
I
I
I
E
E
E
E
I
E
L
E
I
I
I
03
I
E
E
I
I
L
E
I
E
I
I
I
E
E
I
I
I
I
I
04
I
I
I
I
E
I
L
L
E
E
I
I
E
E
E
I
E
I
I
05
I
I
I
E
E
E
I
L
E
E
E
I
I
E
I
I
I
I
I
06
I
I
E
E
E
E
I
I
L
I
I
I
I
E
E
L
I
I
I
07
I
I
SBOP
SBT
92
93
94
95
96
97
98
99 2000 01
L stands for less efficient unit i.e. DEA score range is 0.5- 1
I
L
SBBJ
SBM
SBI
SBH
91
Bank
02
03
04
05
06
07
I
I
I
L
I
I
E
E
L
L
E
I
I
E
I
I
I
I
I
08 09
I
I
I
I
I
E
L
E
E
I
I
I
I
E
E
E
L
I
I
08 09
10
I
I
I
I
I
I
I
E
E
E
E
E
I
E
I
I
I
I
I
10
L
I
I
I
I
E
I
E
I
I
I
I
I
E
I
I
I
I
I
99 2000 01
91
Bank
144
Productivity Analysis of Banking Sector
145
I
I
I
L
L
I
I
I
I
I
I
CUB
DB
FB
INGVB
JKB
KB
KVB
LVB
NB
RB
SIB
TMB
92
93
94
95
96
97
98
02
03
04
05
06
07
I
I
I
I
I
L
I
E
I
I
I
ADCB
BOA
BOC
BCLYBNK
BNPPARI
CITIBNK
DEUTBNK
JPMCBNK
OMANIBNK
SCHBNK
SBMRITUS
93
94
95
96
97
98
99
2000
L stands for less efficient unit i.e. DEA score range is 0.5- 1
92
Bank
01
02
03
04
05
06
07
08 09
10
08 09 10
99 2000 01
I
L
CSB
91
Bank
146
Productivity Analysis of Banking Sector
147
148
SB
OPB
FBs
EFFCH
0.99
1.08
0.98
0.98
TECHCH
1.07
0.96
0.91
1.01
PECH
0.99
0.98
0.99
SECH
1.1
1.08
0.98
1.0125
1.03
0.9925
0.99
TFPCH
4.4. Conclusion
In the present study capital efficiency, revenue efficiency
and staff efficiency of individual and group banks is
compared by using different inputs and outputs. In order
to measure capital efficiency; capital, reserves and deposits
are taken as inputs and investment and loans are as
outputs. Similarly, revenue efficiency is measures by taking
interest paid and other expenses as inputs and interest
income and non- interest income as output. Number of
employees is taken as input to compute staff efficiency
and advances, deposit and investment are outputs.
The efficiencies are compared at constant returns to scale
as well as variable return to scale. While comparing the
capital efficiency of different groups of banks, SB group
stand first; nationalized banks, new private sector banks,
old private sector banks held second, third and fourth
149
150
151
152
153
5
Mergers and Acquisitions in
Indian Banking Sector
Period
Number of Mergers
46
13
13
24
83
154
Target Bank
Acquirer Bank
1993
1993
1994
1996
1997
1997
1999
1999
2000
2001
2001
2001
2002
2002
2003
2004
2004
2005
2005
2006
2006
2007
2007
2007
2008
2008
2010
2010
OBC Bank
Centurian Bank
IDBI Bank
Federal Bank
IDBI Ltd.
ICICI Bank
Centurian Bank of Punjab Ltd.
Indian Overseas Bank
HDFC Bank
State Bank of India
ICICI Bank
State Bank of India
155
156
157
1.183
0.590
1.547
2.920
-3.197
-2.540
-0.932
-do-
0.105
0.087
7.150
-do-
2.693
5.065
-4.565
-do-
1.345
1.448
-0.476
-do-
0.338
0.274
2.70
-do-
1.055
1.248
-0.636
-do-
0.706
0.641
1.031
-do-
Return on assets
8.403
6.307
6.786
-do-
Profitability Ratios
Return on equity
21.02
18.524
0.560
-do-
Advances/deposit ratio
0.438
0.436
0.06
-do-
Equity capital/total
assets
0.076
0.012
3.794
-do-
0.671
0.431
2.281
-do-
Profitability Ratios
Capital Structure
Ratios
The above results suggest that for the HDFC Bank, merger
had caused a marginal but statistically insignificant decline
in profitability performance in terms of return on equity
and advances/deposits ratio. Based on the results, the
hypotheses H P has being accepted.
Capital Structure Ratios
The mean equity capital/total assets ratio had marginally
declined during post-merger period (0.076% to 0.012%)
158
159
0.232
10.380
2.920
1.28
-2.900
24.879
-do-
0.133
0.079
2.051
-do-
1.854
2.225
-0.482
-do-
1.130
2.104
-2.510
-do-
3.253
0.867
2.454
-do-
0.695
1.264
-26.421
-do-
0.362
1.191
-1.597
-do-
Return on assets
3.749
5.641
-0.941
-do-
Liquidity Ratios
Return on Equity
16.177
13.352
0.385
-do-
Advances/deposits ratio
0.382
1.164
-5.597
-do-
Equity capital/total
assets
0.032
0.009
7.530
-do-
0.227
0.185
0.720
-do-
Profitability ratios
Capital structure
ratios
160
161
Liquidity Ratios
162
163
0.709
0.559
1.045
2.920
-5.921
-7.950
4.570
-do-
0.099
0.076
15.033
-do-
10.25
9.264
37.950
-do-
2.112
2.343
-0.394
-do-
0.218
0.148
8.562
-do-
1.816
1.222
6.951
-do-
Profitability Ratios
0.797
0.680
0.485
-do-
6.797
13.353
0.528
4.57
11.48
0.614
8.069
0.641
-1.114
-do-do-do-
0.004
0.003
3.311
-do-
0.203
0.785
-1.634
-do-
Efficiency Ratios
Profitability Ratios
Return on assets
Return on Equity
Advances/deposits ratio
Capital Structure
Ratios
Equity capital/total
assets
Interest coverage ratio
164
165
Capital Structure
Ratio
2.097
1.940
2.029
2.920
-10.997
-9.817
-0.454
-do-
0.113
0.079
14.078
-do-
25.074
12.921
21.739
-do-
1.691
0.957
4.315
-do-
0.259
0.146
46.421
-do-
2.005
1.073
5.496
-do-
1.255
0.733
3.229
-do-
Profitability Ratios
Return on assets
8.267
5.37
11.022
-do-
Return on equity
18.183
14.323
10.954
-do-
0.491
0.629
-4.815
-do-
Equity capital/total
assets
0.006
0.004
7.407
-do-
0.257
0.268
-0.153
-do-
Advances/deposits ratio
Liquidity Ratios
The comparison of the pre- and post merger liquidity
ratios for the OBC Bank showed that there was a marginal
decline in the mean liquidity current ratio (2.097% to
166
167
168
0.774
1.091
-0.604
2.920
-6.455
-12.057
1.483
-do-
0.07
4.875
0.074
3.581
-0.209
1.912
2.920
-do-
1.304
1.439
-4.251
-do-
0.126
1.421
2.508
0.120
1.120
1.119
0.165
1.056
0.906
-do-do-do-
8.173
6.3
7.395
6.313
8.323
1.162
0.714
-1.923
2.911
-do-do-do-
0.014
0.089
0.006
0.109
4.861
-1.005
-do-do-
169
Liquidity Ratios
The results showed that there was an increase in mean
liquidity current ratio (0.774% to 1.091%) during the post
merger period but the increase was not statistically
significant (t-value of -0.604). In contrast, the mean acid
test ratio showed a decline during the post-merger period
(-6.455% to -12.057%) but the decline was not statistically
validated (t-value of 1.483).
The above finding suggested that merger had caused no
improvement in liquidity position. Based on the results,
the hypotheses H L has being accepted.
Efficiency Test Ratios
The comparison between the mean pre- and post-merger
efficiency ratios for IDBI Bank showed that mean assets
turnover ratio had increased (0.07% to 0.074%) but increase
was not statistically validated (t-value of -0.209). There
was decline in mean fixed assets turnover ratio (4.875%
to 3.581%) during the post-merger period, but the decrease
was statistically insignificant (t-value of 1.912). There
was a rise in mean current assets turnover ratio (1.304%
to 1.439%) and the t-value of -4.251 suggested that the
difference was statistically significant.
The mean advances turnover ratio had declined marginally
(0.126% to 0.120%) from pre- to post-merger period, and
the decline was not statistically validated (t-value of 0.165).
Likewise, the mean equity turnover ratio (1.421% to
1.120%) and the mean cash turnover ratio (2.508% to
1.119%) had declined during the post merger period and
again the declines were not statistically significant (tvalues of 1.056 and 0.906 respectively).
The results suggested that merger had not yielded any
improvement in efficiency performance for IDBI. Based
on the results, the hypotheses H E is being accepted.
Profitability Ratios
As would be seen from table, there was a decline in the
mean return on assets (8.173% to 6.313%), during the
170
171
Liquidity Ratios
Liquidity current ratio
0.902
1.143
-2.168
2.920
-9.249
-10.563
3.152
-do-
0.098
0.090
0.647
-do-
8.151
12.483
-4.803
-do-
2.109
1.558
3.840
-do-
0.191
0.155
1.385
-do-
2.270
1.009
8.298
-do-
1.185
1.028
0.679
-do-
Profitability Ratios
Return on assets
6.344
6.548
-0.166
-do-
Return on equity
17.763
13.480
1.165
-do-
0.573
0.705
-10.439
-do-
0.002
0.004
-1.443
-do-
0.224
0.356
-2.286
-do-
Advances/deposits ratio
Capital Structure
Ratios
Liquidity Ratios
The comparison of the differences in mean pre- and postmerger liquidity ratios showed that there was increase
172
173
1.000
1.000
Staff Efficiency
1.000
1.000
0.645
1998
Pre-merger
1.000
1.000
0.668
1999
1.000
1.000
0.643
2000
Merger
Year
.995
.998
0.508
2002
Post-merger
1.000
.993
0.556
2003
1.000
1.000
0.671
Mean
Pre-merger
Efficiency
0.997
0.994
0.573
Mean
Post-merger
Efficiency
1.000
1.000
Revenue Efficiency
Staff Efficiency
1.000
1.000
1.000
1999
Pre-merger
1.000
1.000
1.000
2000
1.000
1.000
1.000
2001
Merger
Year
.990
.992
0.971
2003
Post-merger
.978
.99
1.000
2004
1.000
1.000
1.000
Mean
Pre-merger
Efficiency
0.977
0.962
Revenue Efficiency
Staff Efficiency
0.990
1.000
0.938
2002
Pre-merger
0.999
1.000
0.951
2003
0.950
0.958
0.964
2004
Merger
Year
1.000
1.000
0.915
2005
0.899
0.913
0.917
2006
Post-merger
0.873
0.934
0.933
2007
0.984
0.992
0.953
Mean
Pre-merger
Efficiency
0.924
0.949
0.922
Mean
Post-merger
Efficiency
0.985
0.978
Revenue Efficiency
Staff Efficiency
0.980
0.976
0.975
2002
Pre-merger
1.000
0.968
1.000
2003
1.000
0.881
0.995
2004
Merger
Year
0.994
0.984
0.744
2005
0.912
0.952
0.804
2006
Post-merger
0.867
0.855
0.915
2007
0.986
0.976
0.987
Mean
Pre-merger
Efficiency
0.924
0.930
0.821
Mean
Post-merger
Efficiency
0.987
2001
Capital Efficiency
Efficiency
Table 5.12: Mean Pre and Post Merger Period Efficiency of Oriental Bank of
Commerce - Global Trust Bank Ltd.
0.969
2001
Capital Efficiency
Efficiency
0.992
0.987
0.990
Mean
Post-merger
Efficiency
Table 5.11: Mean Pre and Post Merger Period Efficiency of Bank of BarodaSouth Gujarat Local Area Bank Ltd.
.998
.980
0.998
2002
1.000
1998
Capital Efficiency
Efficiency
Table 5.10: Mean Pre and Post Merger Period Efficiency of ICICI Bank- Bank of
Madura Ltd.
.997
.99
0.654
2001
0.700
Revenue Efficiency
1997
Capital Efficiency
Efficiency
Table 5.9: Mean Pre and Post Merger Period Efficiency of HDFC Bank Ltd. Times Bank Ltd.
174
175
0.988
0.978
Staff Efficiency
0.973
0.987
1.000
2004
Pre-merger
0.948
0.959
1.000
2005
0.925
0.931
0.958
2006
Merger
Year
0.967
0.973
0.953
2007
0.967
0.975
0.596
2008
Post-merger
0.962
0.970
0.775
2009
0.966
0.978
0.942
Mean
Pre-merger
Efficiency
0.965
0.973
0.775
Mean
Post-merger
Efficiency
1.000
0.990
Staff Efficiency
0.999
1.000
0.938
2004
Pre-merger
0.950
0.958
0.951
2005
0.962
0.977
0.93
2006
Merger
Year
0.945
0.945
0.824
2007
0.935
0.974
0.882
2008
Post-merger
0.948
0.967
0.939
2009
0.980
0.986
0.953
Mean
Pre-merger
Efficiency
1.060
1.008
1.041
1.003
1.000
BOB- (SGLAB)
OBC-(GTB)
IDBI (UWB)
FB-(GBK)
0.992
0.986
0.978
0.987
0.953
0.967
TECHCH
0.992
0.989
1.018
0.995
1.01
1.059
TFPCH
1.096
ICICI (BoM)
TEFFCH
1.000
0.976
1.013
0.970
1.008
0.996
TEFFCH
0.980
1.003
0.985
0.999
0.987
0.983
TECHCH
0.980
.978
0.997
0.969
0.995
0.979
TFPCH
0.943
0.962
0.882
Mean
Post-merger
Efficiency
0.969
Revenue Efficiency
2003
Capital Efficiency
Efficiency
Table 5.14: Mean Pre and Post Merger Period Efficiency of Federal Bank Ltd. Ganesh Bank of Kurundwad
0.977
Revenue Efficiency
2003
Capital Efficiency
Efficiency
Table 5.13: Mean Pre and Post Merger Period Efficiency of IDBI Bank Ltd. United Western Bank Ltd.
176
Mergers and Acquisitions in Indian Banking Sector
177
178
5.4. Conclusion
Merger means combining two commercial companies into
one. Bank merger is a result of consolidation of previously
distinct banks into one institution. Following the
recommendations of Narasimham Committee, banks
mergers speed up in 1990 onwards. The idea is to have
few big banks instead of large number of small banks.
In order to fulfil the dreams and to see the after effects
of it the performance of the acquired banks has been
analysed. It is clear from the analysis that the only
hypothesis set for the validation is accepted and the
acquiring banks have not created difference from the
merger in terms of profitability, liquidity, efficiency and
capital structure. For comparing the performance of the
bank before and after merger period financial ratios for
179
180
6
Summary
Summary
181
182
Summary
183
6.1. Findings
1. The profitability of different bank groups has been
analysed using the multiple regression analysis.
CRR, SLR, GDPgr and MLR, the independent
variables affecting the three profitability
parameters i.e. ROA, ROE and NIMTA.
It has been examined that CRR is inversely related
to ROA. CRR is a percentage of the total bank
deposits kept in the current account with RBI.
These forced reserves affect foreign banks more
than the domestic banks. This can be seen from
the result. One percent increase in CRR leads to
0.32 percent, 1.03 percent and 1.21 percent decrease
in the ROA of public sector banks, private sector
banks and foreign banks respectively.
2. SLR is percentage of the total bank deposits that
banks are required to invest in certain specified
securities predominantly in central government
and state government securities. It is again the
compulsory investment, however, it do earn some
rate of return as compare to CRR. But still, it
leads to decline in the profitability of banks. One
percent increase in SLR leads to 0.07 percent
decrease in ROA of public sector banks, 0.18 percent
in case of private sector banks and 0.2 percent in
case of foreign banks.
3. The third variable that affects ROA is MLR or
the Base Rate. This is the rate at which RBIlends
money to other banks or financial institutions.
There is a positive relation between MLR and
ROA. It indicates that, if the bank rate goes up
i.e. banks will hike their own lending rates to
ensure that they continue to make profit. This is
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-4.80) and advance to deposit ratio (t- value: 10.43) shows the improvement after the merger.
On the other hand, there is significant fall in the
performance of acid test ratio (t- value: 3.15),
current asset turnover ratio (t- value: 3.84) and
equity turnover ratio (t- value: 8.29) after the
merger.
It is clear from the analysis that all the hypothesis
set for the validation are accepted and the acquired
banks have not benefitted much from the merger.
44. The DEA is used to measure and compare the
capital efficiency, revenue efficiency and staff
efficiency of acquired banks before and after the
merger. It has been noticed that ICICI is on the
frontier in all the three efficiencies and HDFC
Bank is on the frontier for revenue and staff
efficiencies before the merger as both the banks
acquired the mean efficiency of one. However, after
the merger, the efficiencies of all the banks have
decreased and none of them was able to have DEA
score of one.
45. The Malmquist Productivity index or total factor
productivity change (TFPCH) is also calculated.
TFPCH is the product of TEFFCH (technical
efficiency change) and TECHCH (technological
change). The result shows the TEFFCH has
decreased for all the acquired banks except for
Federal Bank. It remained same for Federal bank.
However, banks became technologically advanced
after the merger. But still TFPCH has declined
in the post merger period due to fall in TEFFCH.
TFPCH remained same for Federal Bank.
6.2. Suggestions
1. The yield on government securities should be
reduced further. This will prevent banks to take
shelter in government securities and starve
productive sector is bound to persist.
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203
Bibliography
Bibliography
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Bibliography
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Bibliography
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Bibliography
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Padmanabhan, S. (1995). Report of the Committee on OnSite supervision of Banks. Reserve Bank of India,
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