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CHAPTER- IIREVIEW OF LITERATURE Remarkable and rapid transformation has taken place in financial and banking sector in the liberalized and post reform period. As outcome of these, significant studies were undertaken and significant body of literature has evolved on the subject. It explores the performance of financial institutions. The main motive of studies, in general, is to analyze the efficiency and productivity of banking systems. Such studies and analysis are important from the policy standpoint. Success or Failure of policy initiatives are identified by policymakers, researchers and academicians. Framing and Formulating appropriate policies enables banks to function in a better way and which may be reflected in safety and soundness of the financing system. Banks play an important role in the financial markets of developing economy and it is very important to evaluate whether banks operate efficiently or not. Banking developments greatly contributed to economic development of the country. A positive relationship between financial sector development and economic growth was established by economists in various empirical studies. (Goldsmith 1969, King and Levine 1993, Levine 1999, Khan and Senhadji, 2000). In pre-reform period, the commercial banks and other financial institutions were operating in stable environment with little or absence of competition. But in the reform period remarkable changes took place in banking industry. During liberalised era, banking industry entered new phase and became globally competitive. It has to fulfill both social and national objectives. In wake of these changes it is necessary to study the performance of the banks. State Bank of India, being the oldest and largest commercial bank of the country, contributed remarkably to the development of Indian banking industry. Therefore it is essential to study the performance of State Bank of India and its associates in the changed and competitive environment. As per the topic of the research “An Analysis of Performance of SBI and its associate banks” an attempt has been made to study the different studies in this field to assess the performance of banks in India. c 34 C Birla Institute of Scientific Research (1981) 1 attempts to make comparative analysis of performance of the public banks and the major private banks since nationalisation. Comparisons are made in terms of ratios and growth rates. The study brings out that the profitability ratios have been higher for selected group of the private sector banks than for the nationalised banks. Though public sector banks has vast network of branches and wide coverage, yet the credit of taking banking services to large mass of population goes to private sector banks. Malhotra R N (1986)2 has highlighted the fact that nationalisation of Indian commercial banks has brought dramatic changes in the profile of Indian banking. Banking has emerged as an effective catalytic agent of socioeconomic change. It has acquired a broad base and has also emerged as an agent of development in the rural sector. The new phase of banking will be characterised by increasing sophistication. Increased sophistication will be reflected in introduction of modern technology and changes in the composition of bank business. Policies and specific measures are being framed to bring about all round improvement in banking operations. Robert M (1991)3 The study attempts to analyze the trends in profitability, assess the operational efficiency of Public sector banks, estimated the behavioural function of profit effecting profit for individual banks and for the banking industry as a whole. The study covers 14 banks nationalised in 1969. These were classified as large scale banks, medium scale banks and small scale banks in order to make inter-bank comparisons. The study covers a period of 15 years from 1973 to 1987. Herfindhal’s index of concentration is used to study the performance of each unit of the system with reference to the system as a whole. Bank-wise trend in profitability showed that out of 14 banks, 12 showed decline in profitability during this period. Operational efficiency based on manpower expenses and other expenses to total staff revealed that CBI, UCB and DB were the highest cost effective banks among large, medium and small banks. 1 2 3 Birla Institute of Scientific Research, "Banks Since Nationalisation", Economic Research Division, Allied Publishers, News Delhi, 1981. Malhotra R N, “Banking Enter a New Phase”, The Journal of the Institute of Bankers, Special Number: Bank Economists Conference, Vol. 57, No. 2, April-June 1986, pages. 94-103. Robert M, “Profitability in Public Sector Banks in India” Thesis Abstract, The Journal of Institute of Public Enterprises, Vol. 14(4), 1991, pages. 315-321. c 35 C Singh Jagwant (1993) 4 in his book is concerned with trends and changes in productivity with particular emphasis on employee and branch productivity in the Indian banking industry. It determines the level of productivity and its growth during the period 1969-85. The 22 public sector banks i.e. banks of the SBI group and 14 nationalised in 1969 have been taken up for the study. The study attempts to make cross-sectional and intertemporal analysis on the basis of 17 indicators. The indicators have been divided into 3 categories which measure labour productivity, branch productivity and financial productivity. T-scores have been used for giving ranking to the banks. The ranking of the banks reveal that most significant improvement in the ranking was achieved by Indian Bank and Indian Overseas Bank. United Commercial Bank recorded maximum deterioration. From the SBI group the performance of State Bank of India was better. Agarwal R N (1993) 5 in his paper analysed the profits of Public Sector Banks since their nationalisation and discuss the determinants of profitability. The study covers State Bank Group and Nationalized Bank Group. Time series data for the period 1970-1987 has been used. The profit equation is estimated by ordinary least square method. Empirical results indicate that profitability of public sector banks has been adversely affected by increasing statutory reserve ratios, lending to priority sectors at lower rates of interest, expansion of bank branches in the rural and semi-urban regions and rising wages of employees. Declining labour productivity has also adversely affected profitability. Time deposits are found important to encourage profitability. The two banking groups are found significantly different in their financial performance. Zacharias Thomas (1997) 6 This study is undertaken to review and analyze the performance effectiveness of Syndicate Bank and other Nationalized banks in India using an Economic Managerial- Efficiency Evaluation Model (EMEE Model) developed by researcher. A period of ten years from 1984 to 1993-94 is taken for the study. Thomas in this study found 4 5 6 Singh Jagwant, “Indian Banking Industry- Growth and Trends in Productivity”, Deep and Deep Publications, New Delhi, 1993. Agarwal R N, “Analysis of Profitability of Public Sector Banks: A Case for Financial Sector Reforms”, Journal of Income and Wealth, Vol. 15, No. 2, 1993, pages. 123-131. Zacharias Thomas, “Performance effectiveness of Nationalized Banks- A case stydy of Syndicate Bank”, Ph.D thesis, Cochin University, Kochi, Finance India, Vol. XIV, March, 1997, pages 187192. c 36 C that Syndicate Bank got 5th position in capital adequacy and quality of assets, 15th in profitability, 14th position in social banking, 8th in growth, 7th in productivity and 15th position in customer service among the nationalized banks. Further, he found that five nationalized banks showed low health performance, seven low priority performance and eleven low efficiency performance in comparison with Syndicate Bank. Das Abhiman (1997) 7 in paper examines the efficiency of Indian banking. Overall efficiency is decomposed into allocative and technical efficiency. Technical efficiency is further decomposed into pure technical efficiency and scale efficiency. Comparison of the efficiency of banks prior to and after deregulation is done. A non-parametric frontier methodology has been utilised to derive several efficiency measures for public sector banks in India for the years 1970, 1978, 1984, 1990 and 1996. The results indicate that the State Bank of India and its Associates are more efficient than the nationalised banks. Shajahan K M (1998)8 in paper seeks to analyze the trends in priority sector bank lending. It was held that in the pre-nationalisation period the crucial sectors were neglected. Lending to priority sectors became as an essential component of national agenda after bank nationalisation. Banking sector reforms had negative impact on lending to priority sectors. The percentage of credit channelled to priority sectors of the economy has been on the decline. As a result of RBI guideline that 40 percent of net bank credit should be provided for the priority sectors of the economy, there was shortfall in priority sector credit in individual states. Das Abhiman (1999) 9 evaluates the inter-bank performance of Public sector banks during the reform period. It made use of sequential decomposition model for profitability analysis. This study was carried out for a period of three years i.e. 1992, 1995, 1998 in order to study the changing pattern of profitability of public sector banks at various points of time in the reform period. Variables used for the profitability decomposition model are 7 8 9 Das Abhiman, “Technical, Allocative and Scale Efficiency of Public Sector Banks in India”, RBI Occasional Papers Vol. 18, No. 2 & 3, Special Issue, June-September, 1997. Shajahan K M, “Priority Sector Bank Lending- Some Important Issues”, Economic & Political Weekly, October 17-24, 1998. Das Abhiman “Profitability of Public Sector Banks: A Decomposition Model”, Reserve Bank of India Occasional Papers, Vol. 20, No. 1, Summer, 1999, pages 55-81. c 37 C working fund, operating profit, spread and burden. Public Sector banks have recorded a reduction in the burden of raising working funds in the post reform period. Profitability indicated relatively high degree of variability. Banks need to concentrate on improving customer services to become more profitable and efficient. Athma Prashanta (2000) 10 made an attempt to evaluate the performance of Public Sector Commercial banks with special emphasis on State Bank of Hyderabad. The period of the study for evaluation of performance is from 1980 to 1993-94. Trends in deposits, various components of profits, trends in Asset Structure of SBH are analyzed. It evaluated the level of customer satisfaction and compared the performance of SBH with other PSBs, Associate Banks of SBI and SBI. Statistical techniques like ratios, percentages, compound annual rate growth and averages are computed for the purpose of meaningful comparison and analysis. A comparison of SBH performance in respect of resource mobilization with other banks showed that the average growth of deposits of SBH is higher than any other bank group. Profits of SBH showed an increasing trend a more than proportionate increase in spread than in burden. Finally, majority of the customers have given a very positive opinion about the various statements relating to counter service offered by SBH. Altunbas Yener, Evans Lynne & Molyneux Philip (2001) 11 in paper attempts to find whether the ownership structure of banks influence their economic behaviour. A variety of models are used for evaluating cost and profit efficiencies as well as the impact of technical progress for private commercial, public savings and mutual cooperative banks operating in the German banking market between 1989 and 1996. Intermediation approach is used for the definition of inputs and outputs. Inefficiency measures are estimated using the stochastic frontier approach and distribution free approaches. The stochastic approach labels a bank as inefficient if its costs are higher or profits lower. It is concluded that there is little evidence to 10 11 Athma Prashanta, “Performance of Public Sector Commercial Banks- A Case Study of State Bank of Hyderabad”, Finance India, Indian Institute of Finance, Vol. 14, No. 1, March 2000, pages. 183186. Altunbas Yener, Lynne Evans, Philip Molyneux, “Bank Ownership and Efficiency”, Journal of Money, Credit and Banking, Vol. 33, No. 4, November 2001. c 38 C suggest that privately owned banks are more efficient than their mutual and public sector counterparts in German banking market. Dasgupta Debajyoti (2001) 12 in paper attempts to analyse impact of reforms on the profitability of the Indian Public Sector Banks. The study has selected six banks i.e. State Bank of India, Canara Bank, Punjab National Bank, Syndicate Bank, Vijaya Bank, Corporation Bank. Time period for the study is 1985-86 to 1996-97. The study made use of two key parameters Net Profit and Net Worth. It was observed that two banks with lowest owner equity that Vijaya Bank and Corporation Bank have attained better results. Except State Bank of India all other banks along with Public sector banks as a whole recorded a negative growth in profitability. The year 1996-97 was considered year of recovery. Higher owner equity has helped the State Bank of India to yield good result whereas bigger size in case of Canara Bank has helped the bank to achieve better result. Saha Gurudas (2001) 13 in study analyses the major financial parameters of Public and Private Sector Banks and highlights the strategic importance of banking cost determination and cost management. Public sector banks are unable to compete private sector banks due to poor governance. The financial performance of public sector banks is the lowest whereas that of SBI group is better in all ratios. SBI group have registered a higher growth in all the business parameters as compared to Nationalised banks but in the revenue parameters they are below nationalised banks, all private banks and foreign banks. It is indicated that public sector banks are losing its market share to private sector banks and foreign banks. Janaki J (2001)14 highlighted that due to extensive liberalisation banking system has to face both internal and external competitive pressures. The task before the Indian banking in the new millennium is to transform its 12 13 14 Dasgupta Debajyoti “Profitability of Indian public sector banks in the light of liberalisation of Indian economy- An overview”, The Management Accountant, Vol. 36, No. 9, September 2001, pages 693-699. Saha Gurudas, “Financials of Indian Banking Industry and the Competitive Viability of the Public Sector Banks”, The Management Accountant, Vol. 36, No. 5, May 2001, pages. 373-386. Janaki J, “Impact of Liberalization on Banking”, in S. Gurusamy (ed.) ‘Banking in the New Millennium: Issues, Challenges and Strategies’, Kanishka Publishers, New Delhi, 2001, pages. 109-117. c 39 C banking system from domestic one to truly international one. Extensive liberalisation determined stabilisation and growth. Banks and other financial intermediaries are refocusing on core competencies and strategies. Initiatives for technological change have been integral part of the reform process. Legal reforms must support and complement financial sector reforms by providing for internal governance as well as external discipline. Mergers and Acquisitions have emerged as the appropriate approach to consolidate a banks’ position in the aggregate banking system. Banks should first identify their strengths and weaknesses and then venture into new related areas. Subrahmani & Raghav (2001)15 analysed and compared the efficiency in six public sector banks, four private sector banks and three foreign banks for the year 1996-1997. Operational efficiency is calculated in terms of total business and salary expenditure per employee. The analysis revealed that higher per employee salary level need not result in poor efficiency and business per employee efficiency co-efficient was calculated. Among the PSBs, Bank of Baroda registered the high efficiency and operating profit per employee. Among the private sector banks Indus Bank followed by Citi Bank registered highest and second highest operating profit per employee respectively. However, among the Nationalised Banks there existed wide variations in efficiency. Das Abhiman (2002) 16 in his paper seeks to examine the interrelationships among risk, capital and productivity change for the public sector banks in India. The paper studies the public sector banks for the period 1995-96 to 2000-2001. The analysis reveals that capital adequacy has a negative and significant effect on asset quality. The results imply that inadequately capitalised banks have a lower productivity and are subject to a higher degree of regulatory pressure than adequately capitalised ones. Poor performers are more prone to risk taking than better performing banking organisations. Finally, it has been laid that lowering government ownership tends to improve productivity. 15 16 Subrahmani & Raghav, “Operational Efficiency of Banks” in S. Gurusamy (ed.) ‘Banking in the New Millennium- Issues, Challenges and Strategies’, Kanishka Publishers, New Delhi, 2001. Das Abhiman “Risk and Productivity Change of Public Sector Banks”, Economic & Political Weekly, February 2, 2002. c 40 C Chaudhuri Saumitra (2002) 17 in paper observed that profitability of public sector banks is continuously declining. Public sector banks are facing triple jeopardy. Their market share and profitability are declining. Balance sheets do not pose strong picture. Many serious difficulties continue to beset the banking sector. Efficient banking does not simply mean to tell bankers exactly what they should and should not do. The major factor responsible for inefficiency in Public sector banks is state ownership. Banking reforms initiated in 1991 transformed the face of banking in India including that of Public sector banks. Mathur K B L (2002)18 in paper examined the arguments extended to a case for the privatisation of public sector banks mainly nationalised banks. Re-capitalisation of Public sector banks is a huge burden on the government budget. State ownership of banks reduces competition and thus breeds inefficiency. There is no evidence that state ownership lowers the probability of banking crisis. Private and foreign banks stimulate efficiency, innovation and economic growth. It is held that the arguments which are put forward for the privatisation of PSBs are not strong. Private ownership may lead to crisis if the regulatory system is unable to control the adverse extraneous pressures. State ownership of banks should be maintained until the conditions such as smooth legal system, strong regulatory framework, reduced fiscal deficit and a sharp reduction in controls on flow of foreign capital are appropriate for privatisation. Nagar Nirupma & Mishra Jitendra Kumar (2002) 19 The present study is confined to State Bank of Indore which has large spread of branches in most of the parts of Madhya Pradesh. The high level of NPAs of the bank in Madhya Pradesh causes serious concern for the bank under study. Reasons for the piling up of NPAs are political interference in the working of banks, lengthy judicial process, time and costs overrun in project implementation, shortage of raw materials along with power shortage etc. It is suggested that to succeed in the changed scenario of globalisation NPAs will have to be 17 18 19 Chaudhari Saumitra “Some Issues of Growth and Profitability in Indian Public Sector Banks”, Economic & Political Weekly, June, 2002. Mathur K B L “Public Sector Banks in India- Should They Be Privatised”, Economic & Political Weekly, June 8, Vol. XXXVII, No. 23, 2002. Nagar Nirupma & Mishra Jitendra Kumar “Non-Performing Assets of Commercial Banks- A Case Study of State Bank of Indore”, Madhya Pradesh Journal of Social Sciences, Vol. 7, No.1, 2002, pages. 102-112. c 41 C brought down to a significantly low level. The State Bank of Indore shows a declining trend of its NPAs on a year by year basis but it is the result of recovery and not because of assessment capacity. Incidence of NPAs can be tackled through better selection of borrowers, more scientific credit appraisal and supervision. Aparna T (2002) 20 in article highlights the fact that SBI is the largest and oldest public sector bank of India. Due to greater competitive pressures and changes in Indian Economy it has felt the need to revitalize and restructure itself. SBI is planning for technology upgradation. In order to increase its income it has shifted its focus from traditional banking to retail finance and housing finance. It is State Bank of India and its associates that have developed banking habit in the country. The financial performance of banks has been satisfactory over a period of time. Total income, operating profit and Net interest income showed a rising trend. SBI has the largest holdings of government securities. SBI has computerised 80% of its business operations and has highest number of ATMs in the country. Housing finance is the new thrust of SBI. SBI targeted to bring down its NPAs. SBI should continue its revitalising and reorienting process so that it can keep its flag flying high even amidst cut throat competition. Ram Mohan TT (2002) 21 in his paper evaluated the performance of PSBs since deregulation in absolute and relative terms and attempts to understand the factors underlying their improved performance. In India due to regulatory norms, government-owned banks have minimal exposures to risk assets such as real estate and stock market. Restructuring in banking backed by the required capital has produced healthy results. It was observed that the efficiency of the banking system as a whole measured by declining spreads has improved. The performance of public sector banks has improved both in absolute and relative terms. Bhide MG, Prasad A, Ghosh Saibal (2002)22 The paper presents in brief the highlights of the important aspects of financial sector reform and the 20 21 22 Aparna T, “State Bank of India: Flying High”, Chartered Financial Analyst, Vol. 8, Issue. 9, September 2002, pages. 60-61. Ram Mohan TT, “Deregulation and Performance of Public Sector Banks”, Economic & Political Weekly, Vol. XXXVII, No. 5, February 2, 2002, pages. 393-397. Bhide MG, Prasad A, Ghosh Saibal, “Banking Sector Reforms: A Critical Overview”, Economic & Political Weekly, Vol. XXXVII, No. 5, February 2, 2002, pages. 399-408. c 42 C weaknesses and some of the crucial issues faced by the banking system at the present juncture. The paper concludes that implementation of banking sector reforms had achievements as well as pitfalls. It is important to strike a balance and find a middle path between the over zeal for intervention and ability of banking system to self rectify its deficiencies. Banking authorities are under constant challenge of identifying newer risks and strengthening the banking sector to keep pace with changes in technology. Pandey Rajendra & Bandyopadhyaya Sanjiban (2003) 23 in paper attempts to ascertain the factors affecting the profitability of performance of PSBs on the basis of Break Even Analysis. In this study the cost-volume-profit analysis helps in determining the optimum level of bank’s performance. The study covers all the 27 public sector banks of India. Time period of the study is from 1990-2000. It is observed that performance of all the banks together is poor which is supported by negative profitability performance during four out of ten years. Results of multiple regression analysis, suggests that the profitability is influenced by operating cost, interest earned, interest paid and other income. It is suggested that in order to improve margin of safety profit earning bank must reduce operating cost and losing bank must reduce the burden of interest payment. Singh Kunal (2003) 24 This article highlights the fact that due to competitive pressures the largest public sector bank that is State Bank of India is entering into businesses like credit cards, insurance, brokerage, gold etc. It has also focused on the most profitable home loan business. It is entering retail business by employing new and innovative schemes. SBI is one of the most profitable banks in India. Net Profits, Operating Profits, Net Interest Income, Advances, Average resources deployed in treasury operations, average deposits has shown an interesting trend over a period of time. SBI is also planning to introduce special Prime Lending Rate (PLR) for housing loans. SBI has introduced schemes for Doctor, Teacher and Justice under which they would be provided loans at a cheaper rate. SBI has tied up 23 24 Pandey Rajendra & Bandyopadhaya Sanjiban “Cost-Volume-Profit analysis and Banks Performance A Case Study of Public Sector Banks”, The Management Accountant, Vol.38, No. 6, June 2003. Singh Kunal, “State Bank of India: Aggressive Game Plans”, Chartered Financial Analyst, Vol. 9, No. 5, 2003, pages. 27-28. c 43 C with Maruti Udyog Ltd for financing cars at cheaper rates. SBI is also selling life-insurance and health care products. Rao Srinivasa K S & Prasad Chowdari (2003)25 The paper makes the survey on banks over a period of time and compared Indian public sector banks among themselves as a closed model and later with other banks as an open model using various statistical techniques like cluster analysis. Cluster analysis was done in case of closed model in order to compare 27 public sector banks among themselves. Similarly, cluster analysis was done in case of open model to compare PSBs with private sector banks and foreign banks. In case of closed model, 8 out 0f 27 banks were graded as best banks. In open model out of 86 banks 11 are considered best banks. Chellasamy P & Sumathi N (2004) 26 depicted the real picture of Indian banking. Indian banking has become highly proactive and dynamic entity. This transformation occurred due to liberalization and economic reforms initiated in nineties. The nationalized banks continue to dominate the Indian banking arena. State Bank of India is the largest bank in India in terms of profits, assets, deposits, branches and employees. It is concluded that Indian banking industry is currently in a transition phase. Indian banks are not only keen to tap the domestic market but also to compete in the global market place. New foreign banks have been equally keen to gain a foothold in the Indian market. Sisodiya Amit Singh & Rao N Janardhan (2004) 27 in article highlighted the performance of SBI. SBI is largest Public Sector Bank in India. It has business in retail and wholesale market and provides products like credit cards, insurance, gold etc. The bank has wide network of rural, semi urban, urban and metropolitan branches. Its major business areas are corporate banking, International banking, Domestic banking, Associate Bank divisions for looking after the working of these banks. Credit division is formed for monitoring the overall credit finance, corporate development and 25 26 27 Rao Srinivasa K S & Prasad Chowdari, “Can Public Sector Banks Compete with Foreign/Private Banks? A Statistical Analysis”, Paper submitted to the International Conference on “Business & Finance” to be held during 15-16, December 2003 at ICFAI Business School, Hyderabad. Chellasamy P & Sumathi N “Role of Banking System in India”, Journal of Global Economy, Vol. 2, No. 4, December, 2004, pages 289-295. Sisodiya Amit Singh & Rao N Janardhan, “Spotlight: State Bank of India”, Chartered Financial Analyst, Vol. 10, No. 11, 2004. c 44 C Inspection. State Bank of India has the largest ATM network in India. It is expanding its business in foreign countries also. Ram Mohan TT & C Ray Subhash (2004) 28 in paper attempts to compare performance among three categories of banks- Public, Private and Foreign. The study made use of physical quantities of inputs and outputs. It compared the revenue maximisation efficiency of banks during 1992-2000. Data Envelopment Analysis is used in order to make comparisons. It is concluded that public sector banks performed significantly better than private sector banks. Superior performance of public sector banks is due to higher technical efficiency rather than higher allocative efficiency. Because of its size, State Bank of India is found to efficient on all counts in VRS model. Using financial measures of performance, it is found that there is convergence in performance between public and private sector banks in the post-reform era. Sooden Meenakshi & Bali (2004) 29 has stressed that the public sector banks should give emphasize on both economic and social profits in a desirable mix to make themselves a strong pillar of modern development framework. They analyzed the profitability of the public sector banks in both pre and post reform period for the year 1982 to 2000. In late 1990s economic profitability of public sector banks started improving and priority sector lending started falling. It led to erosion of social profitability in public sector banks. Singh Bhupinder Pal (2004)30 The objective of the present study is to analyse the impact of banking reforms on technical efficiency of public sector banks, to find interbank variation in technical efficiency, to find impact of banking sector reforms on the total factor productivity growth of the Indian public sector banks. Time period for the study is taken from 1987-2003. Data Envelopment Analysis and DEA- Malmquist Product Index have been used. It is concluded that banking sector reforms had a favourable impact on productive efficiency of Indian Public Sector Banks. 28 29 30 Ram Mohan TT & C Ray Subhash, “Comparing Performance of Public and Private Sector BanksA Revenue Maximisation Efficiency Approach”, Economic & Political Weekly, March 20, 2004. Sooden Meenakshi & Bali, “Profitability in Public Sector Banks in India in the pre and post reform period”, India Management Studies Journal, Vol. 8, No. 2, October 2004, pages. 69-80. Singh Bhupinder Pal, “Banking Reforms and Productive Efficiency of Indian Public Sector Banks”, Dissertation, Master of Philosophy in Economics, Punjabi University, Patiala, 2004. c 45 C Prasad A & Ghosh Saibal (2005) 31 in paper analyzed whether competition has yielded significant benefits in terms of greater product sophistication and cost reduction. The study used annual data on scheduled commercial banks for the period 1996-2004. The study considers 27 stateowned banks, 15 old and 8 new private sector banks, 14 foreign banks. The study reveals that the competitive nature of the Indian banking industry is not significantly different from the banking system in other countries, particularly in view of the fact that nearly 75 percent of banking system assets is with state-owned banks. Recent trend towards consolidation led to more rather than less competition in the banking sector. The empirical evidence reveals that the Indian banking system operates under competitive conditions and earns revenues as if under monopolistic competition. Patnaik U C & Patnaik Manoj (2005) 32 The overall objective of the study is to evaluate the profitability of public sector banks in general and SBI in particular. The present study covers the ten year period from 1992-93 to 2001-02. The techniques used for analysis include trend analysis, commonsize income statement and ratio analysis with their mean, coefficient of variation and coefficient of correlation. It is concluded on the basis of overall analysis that the profitability performance of SBI was much better in the postreform era as compared to the pre-reform era of banking sector. Hence, the hypothesis that with the introduction of reforms in the banking sector, the profitability of SBI has improved holds good and is accepted. The study suggests that the level of Non-Performing Assets should be reduced. In order to raise the level of customer satisfaction, Banks should set up CRM groups and CRM departments. To improve the profitability and productivity, the banks should improve extensively their Information and Communication Technology. Chakrabarti Rajesh & Chawla Gaurav (2005)33 pointed out that performance and efficiency of commercial banks are key elements of the efficiency and efficacy of country’s financial sector. CAMELS rating system is used to evaluate the health and performance of commercial banks. Data 31 32 33 Prasad A. & Ghosh Saibal “Competition in Indian Banking” IMF Working Paper, WP/05/141, July, 2005. Patnaik U C & Patnaik Manoj, “Profitability in Public Sector Banks”, Sonali Publications, New Delhi, 2005. Chakrabarti Rajesh & Chawla Gaurav, “Money and Finance-Banking Efficiency in India since the Reforms- An Assessment”, Money and Finance, Vol. 2, Issue, 22-23, 2005. c 46 C Envelopment Analysis is used to measure efficiency. The most significant change that occurred in the banking sector is the emergence of new private sector banks as well as the entry of new foreign banks. Professionalism has increased in the banking sector due to emergence of new private banks. Public sector banks continue to enjoy pre-eminent position in Indian banking sector accounting for over 80% of deposits and credit. There is however a noticeable trend of private banks gradually eroding the market share of the public sector. The foreign banks turnover per employee is about five times that of the nationalised banks. Mohan Rakesh (2005)34 explored the impact of banking sector productivity on the rest of the economy. Productivity and efficiency issues in banking are discussed in conjunction with the level of financial development and other country-specific features. The patterns of efficiency and technological changes witnessed in Indian banking can be viewed as consistent with rapid changes in banking industry which is outcome of forces of deregulation. The evidence of competitive pressure is well supported from the declining trend of Herfindahl’s concentration index. Declining index generally indicate a loss of pricing power and increase in competition. It is concluded that as deregulation gathers momentum, commercial banks would need to devise ways of augmenting their incomes and more importantly their fee based incomes so as to raise efficiency and productivity levels. Sahu Bihari Gagan & Rajasekhar D (2005-06) 35 in paper analysed the trends in credit flow to agriculture by SCBs. Time period for the study taken is from 1981 to 2000. The analysis brings out that the share of credit to agriculture in total net bank credit had significantly declined especially, after the introduction of banking sector reforms. The analysis also shows that SCBs provided larger quantum of funds to activities earning higher interest income. Credit flow to agriculture was negatively associated with investment in government securities. Credit supply to agriculture was positively associated with the incidence of rural bank branches. Increasing lending rate reduces 34 35 Mohan Rakesh Address delivered at the 21st Annual General Meeting and conference of the Pakistan Society of Development Economists at Islambad in December, 2005. Sahu Bihari Gagan & Rajasekhar D, “Banking Sector Reform and Credit Flow to Indian Agriculture”, Economic & Political Weekly, Vol. XL, No. 53, Dec-Jan, 2005-06, pages. 5550-5559 c 47 C the credit disbursed to agriculture by SCBs. It is suggested that cost of lending should be reduced in order to reduce the burden of credit subsidy. Kumar Parmod (2006) 36 in his book attempts to explore the broad structure of banking system in India, to analyze the overall efficiency of the system in terms of various financial parameters, to delineate and analyze the overall efficiency into its components: technical efficiency and allocation efficiency. In general the time period covered is 1969-70 to 2002-03 but the efficiency analysis has been limited to the reforms period only. The analysis has been carried out at the banks group level. Overall efficiency has been analyzed first by using a stochastic-coefficients frontier production-function approach. Data Envelopment technique is utilised to analyse components of overall efficiency. In terms of overall economic efficiency, the public sector banks are still better performers than the private banks and are slightly lower than the foreign banks. The overall average allocative efficiency of the foreign banks is the highest. Samanta Amitava (2006)37 in his paper attempts to analyse the impact of NPA on the working of Commercial Banks in India. It is held that India has acquired an alarming number of Non-Performing assets over the last two decades. NPA has affected the profitability, liquidity and competitive functioning of public and private sector banks. Now-days the psychology of the banks is to insulate themselves with zero percent risk and paying little attention to fresh credit. Greater emphasis has been laid on credit risk management. Bhasin Niti (2006) 38 in her work explains and examines the changes which have taken place in the Indian banking sector over the last 60 years since Independence. She highlighted that the banking system of India consists of the Central bank (Reserve Bank of India), Commercial banks, Cooperatives banks and developmental banks. These institutions act as intermediary between savers and investors. Banks play an important role in the 36 37 38 development process of underdeveloped countries. Banking Kumar Parmod, “Banking Sector Efficiency in Globalised Economy”, Deep and Deep Publications, New Delhi, 2006. Samanta Amitava, “Impact of NPA on Working of Commercial Banks in India”, Journal of Economic and Social Development, Vol.11, No.1, 2006, pages 87-95. Bhasin Niti, “Banking Developments in India 1947 to 2007 Growth, Reforms and Outlook”, New Century Publications, New Delhi. 2006. c 48 C developments in India are largely due to various actions taken by government. The book describes the role of banking system in a developing country like India. It also explains about the changing functions of banks to meet challenges of changing world economic order. Sensaram Rudra (2006) 39 estimated efficiency of Indian banks and then estimated a measure of productivity that includes an efficiency term. Following this comprehensive measure, we find that banks have improved their performance during the period 1986 to 2000 in terms of both efficiency and productivity. Foreign banks have been the worst performers throughout the period as compared with state owned and private domestic banks. Varadi, Kumar Vijay, Kumar Pradeep & Boppana Nagarjuna (2006)40 The present study focuses on estimation of the efficiency of commercial banks including public, private and foreign banks operating in India with four indicators i.e. productivity, profitability, financial management and asset quality. Data Envelopment Analysis is used for measuring the efficiency of banks in India. The study covers 93 banks. Time series data from 2000 to 2003 is used for the study. Intermediation Approach is used. It is concluded that public sector banks are having higher efficiency in terms of productivity, profitability, financial management and asset quality. Private Banks are having a very high inefficiency levels during the sample period in the different indicators. Foreign banks are more efficient than the private banks. The public sector banks profitability has improved and their NPAs have declined massively. Public sector banks are having more high possibility to fulfil corporate and social responsibilities. Sharma Neeraj (2006)41 in present study is a case study concerned with the performance measurement of PNB in Haryana state and seeks to find out its contribution in the economic development of the state. The purpose is to find out that whether PNB is truly a lead bank of the state. Comparison of PNB is done with public sector banks and all banks (Public, Private, RRBs’) operating in Haryana. In present study, five variables have been taken to 39 40 41 Sensaram Rudra, “Are foreign banks always the best? Comparison of state-owned, private and foreign banks in India”, Economic Modelling, Vol. 23, Issue. 4, July 2006, pages. 717-735. Varadi, Kumar Vijay, Kumar Pradeep & Boppana Nagarjuna, “Measurement of Efficiency of Banks in India, MRPA Paper No. 17350, posted 17, September 2009, Online at http:// mpra.ub.unimuenchen.de/17350 , 2006. Sharma Neeraj “Performance of Punjab National Bank in Competitive Environment: A Case Study of Haryana”, Ph.D Thesis, Punjabi University, Patiala, 2006. c 49 C evaluate the overall performance of PNB in Haryana state for the period 19932004. These variables are: Branches, Deposits, Advances, Priority Sector Advances, C-D ratio. Arithmetic Mean, Standard deviation, Coefficient of variation, Correlation coefficient, simple and trend growth rate are used for analysing the data. It is suggested that multi pronged approach should be adopted by the banks to raise capital from domestic as well as foreign markets. Research efforts should be so directed so that these are meant for understanding the need based problems faced by the people living in rural and urban areas. Rao Ramachandra, Das Abhiman, Singh Kumar Arvind (2006)42 in paper examines the trends in sectoral allocation of bank credit to the SSI in comparison to non-SSI sector in the post reform period. The paper also makes an attempt to understand variations in bank credit to the SSI sector across bank groups and also the influence of the size and performance of banks on credit to the SSI sector. The study covers 97 Scheduled commercial banks. These banks are also classified into three size classes based on the total assets as on March 31, 2003. Time period of the study is from 1992 to 2003. It is believed that the working capital support extended by commercial banks to small-scale industry is far from adequate. Share of SSI in total priority sector advances of all scheduled commercial banks has been falling consistently. The results indicate that the high incidence of bad loans arising out of SSI advances could be one of the reasons for the declining share of SSI loans of the commercial banks. Mittal R.K & Dhingra Sanjay (2007)43 in paper evaluates the impact of computerisation on the performance of Indian banks in terms of their profitability and productivity. Data Envelopment analysis is used to study the impact of computerisation on Indian banks productivity and profitability. Results show that ICICI Bank is found to be efficient in all indicators. Only two public sector banks, Oriental Bank of Commerce and Corporation Bank were in top ten. The output of DEA indicates that private banks are much better than public banks in productivity and profitability indicators. 42 43 Rao Ramachandra KS, Das Abhiman, Singh Arvind Kumar, “Commercial Bank Lending to SmallScale Industry”, Economic & Political Weekly, Vol. XLI, No. 11 March 2006, pages. 1025-1033. Mittal R K & Dhingra Sanjay “Assessing the impact of computerization on productivity and profitability of Indian banks- An Application of Data Envelopment Analysis”, Delhi Business Review, Vol. 8, No. 1, January- June, 2007. c 50 C Mittal Manish & Dhade Aruna (2007) 44 in paper compares various categories of banks in terms of their productivity and profitability. This paper focuses on the achievement and performance of Public Sector Banks vis-a-vis Private sector banks and Foreign Banks. The time period for the performance analysis has been chosen as 1999-2000 to 2003-2004. The study uses Ratio analysis to compare profitability and productivity of different categories of banks. It is concluded that public sector banks and old private sector banks are lagging far behind their competitors in terms of both productivity and profitability with the exception of State Bank of India and its associates. A three point program is suggested for public sector banks and old private sector banks. They should reduce overstaffing, forge strategic alliance with the rural regional banks to open up rural branches and increased use of technology for improved products and services for the same. Sufian Fadzlan (2007)45 provides new empirical evidence on the performance of the Malaysian Islamic banks over the period of 2001-2004 by applying the Malmquist Total Factor Productivity Index. For the empirical analysis all Malaysian conventional banks that offered Islamic banking were incorporated in the study. A variation of intermediation approach or asset approach is adopted. Results hold that the domestic banks have exhibited higher productivity growth compared to their foreign counterparts. Technological change is mainly responsible for productivity progress of Malaysian Islamic banks. Singh Sultan (2007) 46 made an attempt to assess the impact of reforms on the operational performance and efficiency of the commercial banks in India. Ratio Analysis has been used as a major tool for assessing the performance of the selected commercial banks. The hypothesis that the profitability position has improved in reform period may be accepted to some extent. It was observed that in the PSBs the size of NPAs has also been reduced to some extent and quality of service has improved in reform period. The priority sector lending has registered a decline in the deregulation era. 44 45 46 Mittal Manish & Dhade Aruna “Profitability and Productivity in Indian Banks: A comparative Study”, AIMS International, Vol. 1, No. 2, May 2007, pages. 137-152. Sufian Fadzlan “Productivity Growth in the Malaysian Islamic Banking Industry: A NonParameteric Malmquist Productivity Index Approach”, The ICFAI Journal of Industrial Economics, Vol. IV, No. 1, 2007, pages. 20-36. Singh Sultan “Banking Sector Reforms in India”, Kanishka Publishers, New Delhi, 2007. c 51 C Rangarajan C (2007) 47 in lecture focuses on the banking sector reforms and improvement in the performance of Indian banking Industry. It is held that the development of the financial system is essential for sustaining higher economic growth. Reform measures were initiated in India so that banks can overcome external constraints and operate with greater flexibility. Favourable impact of banking sector reforms on Indian banking Industry is also shown. Proper attention should be paid to issues like consolidation, capital adequacy, risk management and customer service. Productivity and Profitability can be improved by combining corporate planning with organisational restructuring. Financial inclusion and governance have emerged as the key issues for socio-economic development. Gopinath Shyamala (2007) 48 in her speech focused on impact of financial sector reforms especially on banks. It improved the efficiency, soundness and ensured financial stability of the entire system. Financial sector reforms in India were introduced in India in the early 1990’s. They were part of the structural adjustment and economic reforms programme and had profound impact on the functioning of the financial institutions especially banks. The reforms were introduced neither because of any banking crisis nor due to any external support package. To prepare financial system to compete in globalized environment and to promote financial stability was on top of agenda of reforms. Monterio Mohan N J & Ananthan B R (2007)49 studied the two highly banked districts of Karnataka state namely, Dakshina Kannada and Udupi. Corporation Bank Ltd was selected as respondent bank as it has more number of branches and has covered wider area in the districts. A total of 35 managers of the respondent bank were chosen to gather the data relevant for the study. A comprehensive questionnaire covering structured and nonstructured questions was administered to the bank managers and personal interview was held to gather additional data. The issues covered in the questionnaire included the possible causes for NPAs, options available when 47 48 49 Rangarajan C “The Indian Banking System – Challenges Ahead”, Indian Institute of Banking and Finance, First R. K. Talwar Memorial Lecture, July 31, 2007. Gopinath Shyamala “Special Features of Financial Sector Reforms in India”, Inaugral address by Smt Shyamala Gopinath, Deputy Governor, RBI delivered at the 18th Annual National Conference for Forex Association on April 6, 2007 at Bangkok. Monterio Mohan N.J & Ananthan B R, “NPA in Public Sector Banks: Causes and Cures”, The Indian Journal of Commerce, Vol. 60, No. 2, April-June 2007, pages. 1- 11. c 52 C loans turn sticky, possible steps to reduce and control NPAs etc. It is found that irregular payment was the major cause for an account turning into NPA. Good pre-sanction scrutiny, effective post-sanction supervision and effective recovery steps were the measures to control NPAs. Uppal R K & Kaur Rimpi (2007) 50 in paper describes the necessity of the banking sector reforms from the angle of national development policy. It analyzes the impact of reforms on the performance of the banking sector. The study reveals that the gap in the productivity and profitability of major bank groups has widened. Performance of banking sector has improved under reform period but still public sector banks are lagging behind in their performance when compared with counterparts. The paper concludes how banking industry can improve its performance and suggests future agenda for the banking industry particularly to the public sector banks. A strategic action plan should be initiated for reducing NPAs. Indian banking sector should develop its own model based on local ethos and cultural backdrop. Public sector banks should adopt the same strategies as that of private sector and foreign banks to gain competitive edge. Kumar Vishal & Savita (2007)51 in present paper attempts to identify the challenges in Indian banking sector and also suggested strategies for future. Some of the major challenges faced by the Indian banking industry are improvement in profitability, technology upgradation, building proper risk management structure, rural and social banking issues and proper human resource management. It is concluded that due to changing economic scenario world wide banks will have to take steps for cost reduction, technology up-gradation, innovation in services and products, seeking newer markets and reorientation in attitudes towards the constantly changing environment. 50 51 Uppal RK & Kaur Rimpi, “Banking Sector Reforms: Their Efficacy and Future Agenda” in R K Uppal & Rimpi Kaur (ed.) ‘Banking in the New Millennium: Issues, Challenges and Strategies’, Mahamaya Publishing House, New Delhi, 2007, pages. 1-21. Kumar Vishal & Savita, “Banking in the New Millennium: Challenges and Strategies”, in R K Uppal & Rimpi Kaur (ed.) ‘Banking in the New Millennium:Issues, Challenges and Strategies”, Mahamaya Publishing House, New Delhi,2007, pages. 155-172. c 53 C Kapoor Seema (2007) 52 This paper attempts to discuss the process of banking reforms and examines its impact on the performance of Scheduled commercial banks in general and Public sector banks in particular during post reform period. The parameters used in the study to evaluate the performance of Indian banks are capital adequacy and asset quality, efficiency, profitability and business of banks in rural areas. It is concluded that Indian banking system is well in co-ordination with International standards. Deregulation, technological upgradation, increased market integration and human resource management are the key factors which stimulated change in the financial sector. Dey S K & Kumar Pradeep (2007) 53 in article highlights the fact that development is both economic and social phenomenon. Social lending became one of the thrust areas under the poverty alleviation programme in the country. It is suggested that direct subsidy component in social lending should be scrapped. Social lending should result in mutual benefits. It should be properly designed and monitored from time to time. Self Help groups should be encouraged for social lending. It is concluded that profitability and social lending of banks should go hand in hand. Profitable banks can do social lending more aggressively for a long time. Uppal R K (2008) 54 in his book focuses on issues like Basel- II Accord guidelines, second generation banking sector reforms, cost-benefit and productivity analysis of Indian banks, danger zone banks, privatisation and comparative efficiency of Indian banks and the recent reform measures. He emphasised that banking sector reforms in India enabled Indian banking industry to face competitive pressures. Banking sector have stimulated the Indian economy to move towards higher growth path. It is indicated that Indian banking system today is more stable and efficient. It is suggested that there is a need to ensure long-term finance to support development and growth in the economy. 52 53 54 Kapoor Seema, “Reforms in Indian Banking Sector: Agenda for Future” in R K Uppal & Rimpi Kaur (ed.) ‘Banking in the New Millennium: Issues, Challenges and Strategies‘, Mahamaya Publishing House, New Delhi, 2007, pages. 379-394. Dey SK & Kumar Pradeep, “Relevance of Social Lending in Indian Banking” in Mohan Prasad Shrivastava, Pradeep Kumar Pandey, V P Vidyarthi (ed.) ‘Banking Reforms and Globalisation’, APH Publishing Corporation, New Delhi, 2007, pages. 297-304. Uppal R K “Indian Banking in the Globalised World”, New Century Publications, New Delhi, 2008. c 54 C Kalluru Siva Reddy & K Bhat Sham (2008)55 explored the determinants of banks profitability during the post reform period. The fixed effects model as well as the random effects has been employed to identify the determinants of profitability of commercial banks in India. The study was conducted on 87 commercial banks which consist of 28 public sector banks. Return on Assets and Returns on Capital are considered as alternative measure of profitability. Empirical results revealed that efficiency is not the sole determinant of profitability as other internal variables such as capital to assets, non-interest income to assets, loans to assets and overhead expenses to assets are statistically significant. Size is negatively associated with the profitability of public sector banks in ROA and positively associated with private banks in ROC specification. Ownership and political party in power also play a vital role in determining bank profitability in India. Inflation and profitability is negatively associated with the profitability of Indian banks. Determinants of bank profitability vary significantly across the bank groups. Gupta Sumeet & Verma Renu (2008) 56 analyses the overall financial performance of major private sector banks in India through application of CAMEL Model. Ten major private sector banks has been taken- Axis Bank, Bank of Rajasthan, City Union Bank, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Karnataka Bank, Karur Vysya Bank, South Indian Bank, Yes Bank. The ranking of these banks has been done by calculating the average of different financial ratios of 5 years from 2003 to 2007 at the rating scale of 1-10. For comparative analysis of overall performance, Composite Ranking method has been applied on the basis of group performance. Analysis shows that Karur Vysya Bank has the top position in overall performance followed by City Union Bank and Kotak Mahindra Bank, Bank of Rajasthan has got the lowest Composite Rank among all the banks under study. It can be concluded that transparency and good governance would work as principal guiding force in present scenario. 55 56 Kalluru Siva Reddy & K Bhat Sham “An Empirical Analysis of Profitability Determinants in Indian Commercial Banks during Post Reform Period”, The ICFAI University Journal of Industrial Economics, Vol. V, No. 4, 2008. Gupta Sumeet & Verma Renu “Comparative Analysis of Financial Performance of Private Sector Banks in India: Application of CAMEL Model”, Journal of Global Economy, Vol. 4, No. 2, AprilJune, 2008, pages 144-158. c 55 C Rao D Suryachandra (2008) 57 The major objective of the study is to assess the impact of reform measures on the efficiency, profitability and overall performance of banks taking public and private sector bank during the period 1992-93. Six efficiency indicators and five profitability indicators are taken to evaluate the performance of banks. The performance analysis is carried out in two ways that is time-wise analysis and period-wise analysis. The reform measures have a positive impact on profitability, efficiency and overall performance of all groups of banks. The financial health of banks improved due to prudential norms. New private sector banks have showed better performance than old private sector banks and public sector banks. Kumar Sunil (2008) 58 explored the relationship between Technical efficiency in the Indian public sector banks. The study is based on crosssectional data for 27 banks. The technique of Data envelopment analysis has been utilised to compute the technical efficiency score for each bank in the year 2005. The mean level of technical efficiency for the industry is found to be 88.5 percent. This implies that public sector banks can produce 1.13 times as much output from the same inputs, if they operate at efficiency frontier in 20 inefficient banks. This paper explains the performance variance and relative efficiencies of 19 public sector banks excluding State Bank group operating in India during 2003-2008. Bodla B S & Verma Richa (2008-09) 59 attempted to view the Earning Quality of Indian banks as per CAMEL Model. This paper highlights the earning quality in terms of operating profit and net profit, fund based and fee based income of the banks. Earning Quality determines the profitability of the banks. The study covers 88 scheduled commercial banks for the time period 1991-92 to 2005-06. The study period was further divided into three subperiods 1992-95, 1996-00 and 2001-06. T-test was applied to examine the significance of difference in various parameters between various sub-periods and across various sectors. It is concluded that on the whole the banks operating in India have shown appreciable improvement in their fee-based 57 58 59 Rao D Suryachandra, “Banking Reforms in India: An Evaluative Study of the Performance of Commercial Banks, Regal Publications, New Delhi, 2008. Kumar Sunil, “An Analysis of Efficiency-Profitability Relationship in Indian Public Sector Banks”, Global Business Review, Vol. 9, No. 1, 2008, pages. 115-129. Bodla B S & Verma Richa “Earning Quality of Scheduled Commercial Banks in India: Bank-wise and Sector-wise Analysis”, Prajnan, Vol. XXXVII, No. 4, 2008-09, pages 257-283. c 56 C income. Banks of foreign origin are ranked on the top on the basis of their earning quality. Profitability of Scheduled Commercial banks is growing continuously due to increasing fee-based income and curtailment of operating expense. Raju. D N M (2009) 60 The objectives of the study are to appraise the performance of the bank in regulating NPAs and identification of the problems faced by the bank and suggests remedial measures to overcome inefficiencies, shortcomings and bring down NPAs. The study covered SBI branches operating in Vijayawada zone covering three districts of Coastal Andhra Pradesh. The financial and operating performance of the SBI was examined with reference to deposit mobilisation, deployment of credit and profits. The period covered for the study is 1990-91 to 2000-01. Two structured questionnaires were administered a) on select employees of SBI dealing with NPAs and few other senior officers b) on bank officers dealing with advances. Statistical tools used in the study are percentage, mean, ratio analysis, correlation, regression and chi-square. The study brings out a number of suggestions for improving the performance of SBI, strengthening the recovery position of NPAs, prevention and reduction of NPAs. Kalluru Siva Reddy & Sham Bhat K (2009) 61 in paper investigates the effects of foreign banks entry on the operations of public sector banks in India for the period 1996-2007. Variables employed to mark the intensity of foreign bank’s presence that ratio of number of foreign banks to the total number of banks in the country. Net interest margin to total assets, Non-interest income to total assets, profits before tax to total assets, overhead expenses to total assets, non-performing loans to total loans are the variables which measure the income, profitability and costs of public sector banks. The empirical results reveal that foreign bank entry usually increases competition in the banking industry as is evidenced by increasing profitability of banks. It is concluded that foreign bank entry in the Indian banking system adversely affects the operations of PSBs. 60 61 Raju D N M “Evaluation of the Performance of State Bank of India with special reference to NonPerforming Assets (NPAs)”, Abstract of Doctoral Dissertation, Finance India, Indian Institute of Finance, Vol. XXIII, No. 3, September, 2009, pages. 985-989. Kalluru Siva Reddy & Sham Bhat K “Does Foreign Bank Entry Affect Operations of Domestic Banks ? A Study of Indian Public Sector Banks”, The ICFAI University Journal of Managerial Economics, Vol. VII, Nos. 3 & 4, August & November, 2009. c 57 C Dhade Aruna (2009) 62 in doctoral dissertation has focused on the yearly performance of State Bank of India to find out the extent to which State Bank of India is affected due to entry of new private sector banks. The study covered the area of Madhya Pradesh State. The time period is selected from 1994-95 to 2004-05. Various statistical tools such as measure of central tendency, standard deviation, hypothesis testing and T test is also used. The influences of the New Private Banks have been assessed by applying t-test for finding the significant difference in the pre and post performance of the business of State Bank of India. Financial ratios are also used for finding the changes in the business of State Bank of India after the entry of New Private Sector Banks. The study concluded that no impact was found on the overall business of State Bank of India. It is suggested that State Bank of India must equip itself to face the rising competition of New Private Sector Banks within Madhya Pradesh state. Pal Ved, Bishnoi N. K. (2009)63 in paper seeks to explain the productivity growth of the Indian banking sector using panel data of 63 commercial banks from 1996-2005. The study intends to analyze the productivity of commercial banks by measuring the total productivity growth and its components. The study is based on the secondary data published by the Reserve Bank of India. The study used Data Envelopment Analysis to calculate and decompose the Malmquist index of total factor productivity growth into technical change, change in technical efficiency and change in scale efficiency. For the purpose of productivity measurement three important approaches are used that Asset approach, Value addition approach and income approach. As per the Malmquist productivity indices, Indian commercial banks on average have shown improvement in productivity during the post-liberalization period. The public sector banks have attained the highest growth in the overall productivity and its components under the asset and income approaches. The nationalized banks had attained second highest growth in this approach and also registered improvement in all the components of total productivity. 62 63 Dhade Aruna, “Impact of New Private Sector Banks on State Bank of India Special reference to Madhya Pradesh State” Abstract of Doctoral Dissertation, Finance India, Indian Institute of Finance, Vol. XXIII No. 4, December 2009, pages. 1357-1363. Pal Ved, Bishnoi N.K, “Productivity Analysis of Commercial Banks in India”, Decision, Indian Institute of Management, Calcutta, Vol. 36, No. 1, April 2009, pages 131-157. c 58 C Gulati Rachita & Kumar Sunil (2009) 64 explores the relationship between efficiency and profitability in 51 Indian domestic banks operating in the financial year 2006-2007. Efficiency-profitability relationship is explored at the level of individual banks. For this purpose, efficiency-profitability matrix is constructed. Data Envelopment Analysis has been used to obtain efficiency score for individual banks. The study utilized CCR model to reduce the multiple-input, multiple- output situation for each DMU to a scalar measure of technical efficiency. The results obtained using CCR model distinguishes the DMUs as: efficient and inefficient. The empirical results show that out of 51 sample banks only 9 banks have been found to be technically efficient. The efficiency-profitability matrix reveals that the resource utilization processes in 22 banks that fall in the first and last quadrant are not functioning well. Further, Tamilnad Mercantile Bank and Yes Bank may be considered as an ideal benchmark for the poor performing banks on the efficiency and profitability dimensions of performance evaluation. Rao Nageshwar & Tiwari Shefali (2009)65 attempted to identify efficiency factors affecting the banks individually as well as industry. Out of the scheduled commercial banks, a sample of fifteen banks is selected. The data is collected for a period of five years (2001-2005). The variables considered for the study are taken as independent and dependent variables. The independent variables are deposits, assets and advances. Dependent variables are classified into three categories such as efficiency factors related to per branch, efficiency factors related to operations, efficiency factors influencing ultimate profits. Product moment correlation was used for data processing. It is concluded that efficiency factors related to per branch and efficiency factors related to operations play a significant role in influencing the overall efficiency of public sector banks. Only one factor i.e. efficiency factors influencing ultimate profits is significantly correlated to efficiency of private sector banks. In case of foreign banks efficiency factors influencing ultimate profits is significantly correlated to efficiency for foreign sector banks. General suggestion given is that if operating expenses are reduced the per branch 64 65 Gulati Rachita & Kumar Sunil, “Efficiency-Profitability Relationship in Indian Domestic Banks: A Disaggregate Analysis”, Asian Economic Review, Journal of the Indian Institute of Economics, Vol. 51, No. 3, December 2009, pages 411-433. Rao Nageshwar & Tiwari Shefali “Efficiency Indicators of Commercial Banks in Liberalised Environment in India”, Abhigyan, Vol. XXVII, No. 1, 2009, pages 10-19. c 59 C efficiency and operational efficiency of public sector banks will automatically increase which in turn will increase their overall efficiency. Verma Amitabh (2009) 66 evaluated the impact of technology on the performance of Indian banks in terms of their profitability and productivity. IT has become buzzword in Indian banking industry. Technology can be the key differentiator between two banks and major factor to attain competitive edge. The primary challenge for banks is to provide consistent service to customers irrespective of the kind of channel they use. It is concluded that Indian Public sector banks have a unique advantage over their counterparts in terms of their branch network and the large customer base but it is the use of technology that will enable Public Sector Banks to build on their strengths. Shanker Daya, Wadud IKM Mokhterul & Singh Harminder (2009) 67 compares the operative performances of banking sectors of India and China taking into account the institutional aspects of their development. Efficiency of the banks is assessed using non-parameteric technique between the time period 2002 and 2005. Sample consists of 13 Chinese banks and 19 Indian banks. The results suggest that restructured Chinese banks recorded a continuing decline in their efficiencies over the study period. On the other hand, two Indian banks, State Bank of India and ICICI were consistently considered as efficient banks. It is also suggested that loans which are not returned are considered as subsidy to export-oriented industries in China. Transparency forms the integral part of the level playing field. Tandon Deepak, Ahuja Kanhaiya & Tandon Neelam (2009) 68 attempted to analyse technical efficiency of PSBs operating in India by applying the DEA model. Relative efficiency is calculated with respect to the most technical efficient bank in terms of minimum output and maximum output. The performance of most efficient PSB is considered as a benchmark. On the basis of analysis it was concluded that the best bank with consistency in performance is Corporation Bank. Least efficient bank in terms of interest 66 67 68 Verma Amitabh, “The impact of Technology on Productivity and Profitability of Indian Banks in Post Liberalised Period”, Abhigyan, Vol. XXVII, No. 2, 2009. Shanker Daya, Wadud IKM Mokhtarul, Singh Harminder, “A Comparative Study of Banking in China and India- Non-Performing Loans and the Level Playing Field”, The Indian Economic Journal, Vol. 57(3), October-December, 2009, pages. 118-138. Tandon Deepak, Ahuja Kanahaiya &Tandon Neelam, “Relative Performance of Banks- A Study”, The Indian Banker, Vol. IV, No. 7, July 2009. c 60 C expenses and operating expenses as inputs and business as output is Punjab and Sind Bank. Varshney Chanchal (2009) 69 examines the role of institutional finance in the development of the priority sectors of India. It also examines the role of State Bank of India in lending to Agriculture, Small Scale Industries and other priority sector. The study is based on secondary data. The detailed data is collected from lead bank (Canara Bank) Aligarh on population group wise number of bank offices, deposit mobilisation and deployment of credit by State Bank of India in Aligarh from the year 1991 to 2001. Questionnaire was also prepared and personal discussions were also conducted with bank officials concerned with priority sector lending. Major finding of the study were that priority sector lending worsened during the last decade from 1991-2001 due to declining in the C/D ratio. Declining of priority sector lending is due to increasing ratio of NPAs. Disconnectivity among employment, education, health care and transport was found. To overcome the problems it is suggested that quantum of loan amount should be increased and rate of interest on loan should be reduced. Priority sector lending’s should be linked to net bank deposit rather than net bank credit. Kumar Sunil & Gulati Rachita (2009)70 in paper examines the interbank differentials in income generating efficiency. The study covers 28 Public Sector Banks operating in India during the financial year 2006-2007. The technique of Data Envelopment Analysis has been used to compute the efficiency scores for individual Public Sector Banks. The empirical findings reveal that Public Sector Banks are generating net-interest and non-interest incomes with high level of efficiency which is reflected by the mean efficiency score of 0.918. The study suggests that for improving their performance, the inefficient Public Sector Banks should concentrate more on generating noninterest income from the off-balance sheet activities rather than interest income from the traditional activities like advancing loans and investments in other earning assets. 69 70 Varshney Chanchal , “Role of State Bank of India in Financing the Priority Sector: Case Study of Aligarh District” Abstract of Doctoral Dissertation, Finance India, Indian Institute of Finance, Vol. XXIII, No. 2, June 2009, pages. 634-636. Kumar Sunil & Gulati Rachita, “Income-Generating Efficiency of Public Sector Banks in India: An Application of Data Envelopment Analysis”, ArthVijnana, Vol. 11, No. 2, June 2009, pages. 103126. c 61 C Singh Ram Pratap & Chatterjee Biswajit (2009-10) 71 seeks to compare the performance of 40 Indian commercial banks regarding deposit mobilization in the reform period. The paper made use of a non-parametric approach that is Data Envelopment Analysis (DEA). It uses the Window Analysis developed by Klopp. Time span used for the present study is five years that is 2001-02 to 2005-06. One important objective of the study has been to see whether bank ownership mattered in respect of deposit mobilization. The result suggests that the public sector banks have fallen behind the in-sample private sector commercial banks in terms of deposit mobilization. Uwafio Jeremaiah, Idialu & Yomere O Gabriel (2010) 72 focused on the quantitative analysis of financial performance of Nigerian Banks. The study employed the stochastic cost frontier approach to generate Xefficiencies for each bank over the time period 2000-2004. The specific issue examined in this study is cost efficiency. For the purpose of the study, the banks are classed into two groups, the 10 dominant banks and the rest banks. A variation of the intermediation approach is used with total costs as dependent variable and the independent variables includes total customer loans, other earning assets, staff expenses/average number of personnel, interest expenses/total customer deposits, other non-interest expenses/total fixed assets and other fixed assets, total shareholders funds, Non-Performing loans/total loans. The study has revealed that there is inefficiency in the Nigerian banking system and that the level of inefficiency ranges between 0 and 19 percent of total cost. The study proved that there is inefficiency in the Nigerian banking system. Kodian Narander, Kumar Shalinder & Kodan Anand Singh (2010) 73 in article analyzed the trends of growth of banking Industry in India. The study has highlighted the trends relating to infrastructure development, expansion of total credits and deposits, expansion of rural credit by Scheduled Commercial Banks, 71 72 73 investment in government securities, non-performing assets. Sinha Ram Pratap & Chatterjee Biswajit, “Bank ownership and Deposit Mobilization: A NonParameteric Approach”, Prajnan, Vol. XXXVIII, No. 3, 2009-10. Uwafio Jeremaiah, Idialu &Yomere O Gabriel, “Stochastic Frontier Analysis of the Efficiency of Nigerian Banks”, Indian Journal of Economics and Business, Vol. 9, No. 1, 2010, pages. 75-86, Serial Publications, New Delhi. Kodian Narander, Kumar Shalinder & Kodan Anand Singh, “Scheduled Commercial Banks: Growth Trends”, Yojana, Vol. 54, No. 2, February, 2010, pages. 47-50. c 62 C Comparison of Indian banking Industry with that of Chinese banking Industry with respect to Return on Assets, Return on Equity, Non-Performing loan to Total Loan, Capital Adequacies. It is concluded that decline in percentage share of rural credit is a matter of concern. Moffat Boitumelo & Narayana N (2010) 74 “examines the performance of major financial institutions in Botswana using data envelopment analysis. This paper specifically examines the relative efficiency of financial institutions in a developing country like Botswana through time and using various inputoutput classification criteria. Time period covered for the study is 2001-2006. In order to make detailed analysis of inefficient units and take corrective actions to improve their performance, this paper considers both the CRS assumption and the VRS assumption in estimating the efficiency indices. The robustness and sensitivity of estimated efficiency scores is examined by using value added, intermediation and operating approaches. The empirical results indicate the Bank of Baroda and First National Bank and Botswana savings bank are consistently among the most efficient institutions. Botswana Development Corporation, African Bank Corporation and National Development Bank are the least efficient ones. It is held that financial institutions in Botswana should utilise their resources more efficiently to further improve their efficiency so that they can compete with rest of the world. Sen Mitali (2010)75 in her empirical work makes an exploratory attempt to study the liability structure of Indian Commercial Banks. The sample of 82 Indian Commercial Banks is drawn for which consistent data is available over the period 1995-96 to 2003-04. The major findings of the study are that set of six critical factors that is profitability, size, liquidity, risk and asset quality, fee based earnings and efficiency influence the liability structure of commercial banks. From empirical analysis it can be inferred that banks should concentrate more on fee based activities. 74 75 Moffat Boitumelo & Narayana N, “The Performance of Financial Institutions in Botswana: A Study of Selected Banking and Non-Banking Financial Institutions”, Asian-African Journal of Economics and Econometrics, Vol. 10, No. 1, 2010. Sen Mitali “Liability Structure of Indian Commercial Banks”, Northern Book Centre, New Delhi, 2010. c 63 C Kumar Sunil & Gulati Rachita (2010) 76 appraised the efficiency, effectiveness and performance of 27 public sector banks operating in India by using a two-stage performance evaluation model. Using the cross-sectional data for the financial year 2006/2007, the technique of data envelopment analysis has been used for computing the efficiency and effectiveness scores for individual PSBs. The empirical results reveal that high efficiency does not stand for high effectiveness in the Indian PSB industry. A positive and strong correlation between effectiveness and performance measures has been noted. Further, on the efficiency front, State Bank of Travancore appears as an ideal benchmark, while State Bank of Bikaner and Jaipur and State Bank of Mysore emerge as ideal benchmark on the effectiveness front. Kumar Sunil & Gulati Rachita (2010) 77 attempted to analyse the performance of Public Sector Banks in the post-reform period by looking at the trends of cost efficiency and convergence in its level across banks. The time period for the study is from 1992-93 to 2007-08. This paper made use of Data Envelopment Analysis to estimate empirically the cost, technical and allocative efficiency scores for individual public sector banks. Empirical results show that deregulation had a positive impact on the cost efficiency levels of Indian Public Sector Banks. Cost efficiency in majority of banks that belong to SBI group followed a declining trend and the banks that belong to Nationalised group experienced an increasing trend in cost efficiency levels. It is concluded that the deregulation process has strengthened the cost efficiency of the majority of PSBs. In the light of empirical findings the future reforms in the banking sector should be directed towards strengthening competitive and market oriented policies. Khan MY (2010)78 in article has focused on the decision of the government to permit the entry of new private banks in the country. RBI has prepared a draft on the scheme for issuing banking licences to the private sector. The experts hold the view that the new banks will promote competition in the banking sector. It is held that policy has taken a U-turn from the policy 76 77 78 Kumar Sunil &Gulati Rachita, “Measuring efficiency, effectiveness and performance of Indian public sector banks”, International Journal of Productivity and Performance Management”, Vol. 59, Issue. 1, 2010, pages 51-74. Kumar Sunil & Gulati Rachita, “Dynamics of Cost Efficiency in Indian Public Sector Banks: A Post-Deregulation Experience” Paper submitted for presentation in the Twelfth Annual Conference on Money and Finance in The Indian Economy 11th and 12th March, 2010. Khan MY, “A U-turn Banking” The Economic Times, 1 October, 2010. c 64 C focus on consolidation of banks by merger. The purpose is not to oppose new banks but to prevent return to the pre-1969 era of banking. It is suggested that new banks have to adopt a human approach in the areas like urban slums and rural sector so that the income gap may be reduced and asset generation take place. Ram Mohan TT (2010) 79 in article highlighted the fact that despite the worst financial crisis of the century, Indian banking sector fared well. Indian banks showed 1% ROA in both 2007-08 and 2008-09. Capital adequacy and spread also improved. All these indicators place banking sector among most profitable banks in the world today. ROA of 1% is a benchmark of good performance in banking despite the ups and downs of the economy. This shows that Indian banking is crisis proof. It is suggested that banks need more sophisticated products and should meet the challenge of financial inclusion. Ram Mohan TT (2010) 80 This article highlights the proposition given by President of America Obama that higher capital requirements are not sufficient but the caps on the size of banks are also required. He hold the view that bank’s size should be fixed in relation to the economies in which they operate that 5-10% of GDP. Big or small banks are likely to fail despite steps taken to make banks safe. The damage will be greater if the size of bank is bigger. As a result there will be greater need for a government help. Efficiencies of scale in banking are attained at a relatively low size. Pande Bhanu (2010) 81 indicates that in the worst recession of global banking industry, several big banks of the world collapsed but strong Indian banks have improved their brand value rapidly. There are 20 Indian banks in the Brand Finance Global Banking 500. It is annual international ranking by UK-based Brand Finance. The State Bank of India (SBI) became the first Indian bank to break into the world’s Top 50 list. The study used discounted cash flow methodology to arrive at a net present value of trademark and associated intellectual property that the brand value. SBI’s brand value more than tripled to $4,551 million up from $1,448 million in 2009 helping to grab the 36th position in the list. 79 80 81 Ram Mohan TT, “A Crisis Proof Banking Sector”, The Economic Times, 7 January, 2010. Ram Mohan TT, “At last, the remaking of banks”, The Economic Times, 4 February, 2010. Pande Bhanu, “State Brand of India” The Economic Times, 1 February, 2010. c 65 C Although a lot of work has been carried out for the evaluation of commercial banks efficiency in the world, but very little work has been carried to evaluate the performance of public sector bank in India in general and State Bank of India in particular. This study will try to find out the impact of banks specific variables on the efficiency of SBI and its associates. So under present scenario there is dire need to carry out a study to analyze the performance of SBI and its associate banks to provide answer to all problems of banking industry. It can be concluded that for performance analysis, a variety of tools have been used by the different studies. Review is indicative of the fact that most of the studies done or too aggregative, if somewhere the disaggregation have been achieved, the coverage is too small. Analysis of a single bank group based performance and its relation with economic development is relatively unexplored area of research. The present work filled this research gap. ********* c 66 C