A Comparative Study on the Performance of largest Public Sector and Private Sector Banks in India


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International Journal in Management and Social Science (Impact Factor- 5.276)

A Comparative Study on the Performance of largest Public Sector and Private Sector Banks in India

Dr.Seema Mishra Upadhyay

Faculty university institute of Management R.D.V.V Jabalpur


The banking sector constitutes a predominant component of the financial services industry. The performance of any economy to a large extent is dependent on the performance of the banking sector. The banking sector’s performance is seen as the replica of economic activities of the nation as a healthy banking system acts as the bedrock of social, economic and industrial growth of a nation. For this study, we take two largest public sector banks and two largest private sector banks largest in terms of total assets Enhancing efficiency and performance of banks is a key objective of economic reforms in many countries including India. This study attempts to measure the relative performance of Indian banks

Key Words: Efficiency, Profitability, Performance, Indicators


In this era of liberalization, Privatization and globalization banking sector has become backbone of Indian economy now a day’s banking sector being an integral part of Indian financial system has undergone dramatic changes reflecting the ongoing economic and financial sector reforms. Banking sector has playing vital role in development of Indian agriculture and industries. At presently Banking has become Important part of economy & society. Banking industry which was highly regulated in pre-reform period is reorienting itself to face new challenges emerging in the financial sector globally. Basis factors responsible for performance of public sectors banks were stringent regulation, poor recovery process and above all lack of competition.

The study of Indian Banking sector occupies an important place in development of economy in India, and is related to close and critical study of various measures observed in the operation of business and management organization. A sound financial system is indispensable for a healthy and vibrant economy. The banking sector constitutes a predominant component of the financial services industry. The performance of any economy to a large extent is dependent on the performance of the banking sector. The banking sector’s performance is seen as the replica of economic activities of the nation as a healthy banking system acts as the bedrock of social, economic and industrial growth of a nation. Banking institutions in our country have been assigned a significant role in financing the process of planned economic growth. During the past six decades since independence, the banking sector has witnessed significant changes and has surely come a long way from the days of nationalisation during early 1970s to the advent of liberalization, privatization and globalization, in the post-991 era. The flurry of reforms witnessed over the last one and half decade has brought about significant changes in the banking arena in the country. Leveraging on their new found tech-savvy and increased thrust on product/service innovation, the banks in the country witnessed a phenomenal growth in the last few years as the economic growth moved up into top gear to be amongst top in the world.



International Journal in Management and Social Science (Impact Factor- 5.276)

land mark in the history of commercial banking of India in July of that year, the government nationalized 14 major commercial banks of the country. In April 1980 government nationalized 6 more commercial bank. These nationalized banks are called public sector banks the other are private sector banks. After the nationalization of banks a new dimension has been added to the function expected from public sector banks. Banks in general and public sector bank in particular are required to take on certain social as well as economic responsibilities. Banking is a service sector. To serve the societies is the major aim of banking industries to achieve this aim public sector banks plays a vital roll among all the commercial banks. In India about 80% of total population depends upon these banks. The post nationalization period witnessed a remarkable expansion in the banking and financial system. This investment of the biggest achievements of the national role among liberalization was the reallocation of sectoral credit in favour of agriculture, small industries and exports which formed the core of the priority sectors. The development of sound banking system was considered essential for the future growth of the financial system.

The Indian banking system has come a long way since independence from nationalization to liberation. It has witnessed from a slow business institution to highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization an economic reform that allowed banks to explore new business opportunities rather than generating revenue from conventional streams. India’s financial market has been gradually developing, but still remains bank dominated in the reform period. The banking system forms the core of the financial system of the economy. The roll of commercial bank is particular important in under developed country’s. Through mobilization of resources and their better allocation, commercial banks play an important roll in the development process of underdeveloped countries. Financial sector reform aimed at improving efficiency, introduction transparency and insuring a sound financial footing of the banking sector. Review of Literature

Cheenu Goel and Chitwan Bhutani Rekhi(2013) in their study attempts to measure the relative performance of Indian banks. For the study, they used public sector banks and private sector banks.. Overall, the analysis supports the conclusion that new banks are more efficient that old ones. The public sector banks are not as profitable as other sectors are. It means that efficiency and profitability are interrelated. The key to increaseperformance depends upon ROA, ROE and NIM.

Dr. N. Kavitha (2012) in his study examine the profitability of banks during the period 2000-2010. To assess the profitability of banking sector in India, discriminate analysis and discriminate function analysis which measures the profitability of banks from each important parameter like the differences between the mean profitability of two periods.

Jha and Sarangi (2011) analyzed the performance of seven public sector and private sector banks for the year 2009-10. They used three sets of ratios, operating performance ratios, financial ratios, and efficiency ratios. In all eleven ratios were used. They found that Axis Bank took the first position, followed ICICI Bank, BOI, PNB, SBI, IDBI, and HDFC, in that order.


International Journal in Management and Social Science (Impact Factor- 5.276)

Usman et al (2009) conduct a study on banking efficiency dynamic with financial sector reforms effect. They took the data set of 20 commercial banks of Pakistan and measure the efficiency using Data Envelopment Analysis Malmquist productivity index of total factor productivity (TFP) from 1990-2005. Al-Obaidan(2008) suggest that larger banks are more efficient then small banks in the gulf region.

Jahangir,Shill and Haque (2007) Stated that the traditional measure of profitability through stockholders equity is quite different in banking industry from any other sector of business where loan– to-deposit ratio works as very good indicator of banks profitability as it depicts the status of assts-liability management of banks.

Tarawneh(2006) found that the bank with higher total capital, deposits, credits, or total assets does not always means that has better profitability performance.

Fadxlan Sufian (2006) applied DEA window analysis approach to examine the long term trend in the efficiency of 29 Singapore banking group during the period of 1993-2000.

X.Chen et all (2005) applies frontier analysis (X-efficiency) using DEA to examine the cost, technical and locative efficiency of 43 Chinese banks over the period 1993-2000.

Chien-Ta(Bruce)(2004) Used a new approach of performance evaluation,grey relation analysis(GRA),which is a concept borrowed from the study of industry and is increasingly applied to commerce.GRA is used to evaluate the realative performance of three of Australia’s major banks.

Maghyereh (2003) Jordian undertook major financial sector liberalization starting in the early of 1990’s.The effect of these reform on the efficiency of the banking sector is evaluated.

Choudhary (2002) observed that the banking industry of Bangladesh is a mixed one comprising nationalized, private and foreign commercial banks many efforts have been made to explain the performance of these banks.

Need of the Study

Since long it has been recognised that their is great significance of performance evaluation in an organization, for sustainable growth and development. Efficient performance evaluation system encompasses all aspects of an organization It prove to be better for performance measurement, evaluation and strategic planning for future growth and development of the Indian banks in the light of changing requirements of this sector so to analyze the comparative profitability performance of banks for the financial periods 2011-2015.. This will help the banking industry for the improvement or change in their business model.

Objectives of the Study

1.To compare the profitability of the selected public sector banks and private sector banks from the year 2011 to 2015.

2. To investigate the factors affecting the profit earning of the selected banks during the period.

Research Methodology

Research Design: This present study is conducted by following a Descriptive Design.


International Journal in Management and Social Science (Impact Factor- 5.276)

Sample Size: For the in-depth analysis of the profitability, two major public sector and two private sector banks are selected on the basis of their Total Assets from the year 2011 to 2015.


BANK OF BARODA 545469.424



ICICI 1592829.26

HDFC 427539.314

Sampling Technique: Judgmental sampling.

Data Collection: Data was collected through Reserve Bank of India monthly bulletins, annual reports, moneyrediff, moneycontrol , banks websites etc. Two largest private sector and two largest public sector banks were selected on the basis of their total assets.

Data Analysis: Suitable statistical techniques are used for data analysis like ratio analysis.and mean .

Data Analysis and Interpretation RATIOS

1. Credit to deposit ratio (CD ratio): This ratio indicates how much of the advances lent by banks is done through deposits. It is the proportion of loan-assets created by banks from the deposits received. The higher the ratio, the higher the loan-assets created from deposits. Deposits would be in the form of current and saving account as well as term deposits. The outcome of this ratio reflects the ability of the bank to make optimal use of the available resources.



2011 73.87 76.25 90.45 76.02

2012 74.76 77.39 97.71 78.06

2013 71.68 78.13 99.25 80.14

2014 69.54 78.06 100.71 81.79

2015 69.54 76.60 104.72 81.71

MEAN 71.87 77.28 98.56 79.54

. As per table ICICI bank is issuing maximum credit as per the deposits generated by them 98.56 and other banks are almost at same level and variation in least in case of HDFC and maximum in case of BOB.

2. Capital adequacy ratio (CAR): A bank's capital ratio is the ratio of qualifying capital to risk adjusted (or weighted) assets. The RBI has set the minimum capital adequacy ratio at 9% for all banks. A ratio below the minimum indicates that the bank is not adequately capitalized to expand its operations. The ratio ensures that the bank do not expand their business without having adequate capital.


International Journal in Management and Social Science (Impact Factor- 5.276)

It must be noted that it would be difficult for an investor to calculate this ratio as banks do not disclose the details required for calculating the denominator (risk weighted average) of this ratio in detail. As such, banks provide their CAR from time to time.

Tier I Capital funds include paid-up equity capital, statutory and capital reserves, and perpetual debt instruments eligible for inclusion in Tier I capital. Tier II capital is the secondary bank capital which includes items such as undisclosed reserves, general loss reserves, subordinated term debt, amongst others.




2011 14.52 12.42 19.54 16.22

2012 14.67 12.63 18.52 16.52

2013 13.30 12.72 18.74 16.80

2014 12.28 12.11 17.70 16.07

2015 12.60 12.89 17.02 16.79

MEAN 13.47 12.55 18.30 16.48

In this case ICICI has the capacity to meet the time liabilities and other risks such as credit risk, operational risk etc. at 18.30 followed by HDFC at 16.48 and variation is more in case of ICICI and least in PNB.

3. Net Interest Margin

A measure of the return on a Company's investments relative to its interest expenses.

The net interest margin helps a company determine whether or not it has made wise investment decisions.

A negative net interest margin indicates that interest expenses exceed investment returns and that the company therefore has a net negative return. A positive net interest margin indicates the opposite. Net Interest Margin = (Interest Received - Interest Paid) / total Assets



2011 2.76 3.57 2.34 4.72

2012 2.56 3.22 2.44 4.00

2013 2.28 3.18 2.74 4.28

2014 1.98 3.14 2.91 4.14

2015 1.92 2.88 3.07 4.14

MEAN 2.3 3.19 2.7 4.31

As shown in table NIM of HDFC is more than othersi.e. 4.31 which shows that interest earned by HDFC bank is much more than expended and other banks are earning less interest. Interest earned by bank is there foremost income which is more in case of HDFC and


International Journal in Management and Social Science (Impact Factor- 5.276)

4.Return on assets (ROA): Returns on asset ratio is the net income (profits) generated by the bank on its total assets (including fixed assets). The higher the proportion of average earnings assets, the better would be the resulting returns on total assets. Similarly, ROE (returns on equity) indicates returns earned by the bank on its total net worth.

ROA = Net profits / Avg. total assets .



2011 537.45 632.48 478.31 545.46

2012 668.34 777.39 524.01 127.52

2013 758.91 884.03 578.21 152.20

2014 838.02 952.50 633.92 181.23

2015 180.13 203.24 138.72 247.39

MEAN 596.57 689.92 470.63 250.76

As shown in table ROA is highest in case of PNB followed by BOB and PNB and variation is more in case of HDFC and least in case of ICICI. This return is related with overallprofitability.

5. Net Profit Margin Ratio

Net profit margin is the percentage of revenue remaining after all operating expenses,

interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue.



2011 19.38 16.42 19.83 19.70

2012 16.87 13.40 19.27 18.93

2013 12.73 11.33 20.77 19.18

2014 11.66 7.73 22.20 20.61

2015 7.91 6.61 22.76 21.07

MEAN 13.71 11.09 20.96 19.85

As per table ICICI bank enjoys more net profit than other banks at 20.96 and followed by HDFC BANK at 19.85 and variation is also least in case of BOB bank and much higher variation in PNB.


Banking sector in Indian has given a positive and encouraging responses to the financial sector reforms. Entry of new private banks and shaken up Public sector banks to competition. The financial sector reforms have brought India financial system closer to global standards. With the India increasingly getting integrated with the global financial world, the Indian banking sector has a still long way to go to catch up with their counter parts.


International Journal in Management and Social Science (Impact Factor- 5.276)

manner as they are giving credit on it and there CDR and profitability is well associated. Debt equity ratio is also very high. To increase the profitability their

capital adequacy ratio should also be looked into.

For PNB return on assets is very high as compared to other banks and they have good association with deposits but there conversion of deposits into credits is very less and more need to work on it. NIM is also very less and need increase the interest income ascompared to interest expended.

For ICICI bank it have good association with deposits so there CDR is also very high and NPM is also high.ICICI bank laeds with high NPM and high CAR.

For HDFC bank it has good association with CAR and deposits in banks are very high and NIM is high which shows impact of profitability.ROA is very less in it.CDR and CAR is high as compared to public sector bank under study. which is great sign for increase in profitability and in this case NIM and deposits are high which has drastically impacted the NP.

Recommendations and suggestions for public sector and private sector banks

The forgoing analysis reveals that thought there is phenomenal development in various banking sectors yet the public sectors in particular is still lagging behind major thrust areas such as asset quality, business per employee capital adequacy requirements, and profitability etc. Some suggestions and recommendations for improvement in performance of public sector banks are given below. Higher operating cost is a major obstacle affecting the profitability of public sector banks. . Public Sector Banks are lagging behind in Human Resource Development practices as compared to foreign and private sector banks. Public Sector Banks should devise continuous and compulsory training and development program in their organizations to inculcate professional work culture, and interpersonal skills. Efforts should also be made for making for making the staff technical. Human resource development is a critical factor which can play major role in enhancing business per employee and profit per employee. Assets quality reflects the soundness of financial institutions. Public Sector Banks should disburse their funds in quality assets to reduce NPA level. As the risk profile of banks lending is adequate attention to quality of lending so that credit expansion could be on sustainable basis building upon higher profitability while ensuring financial stability. Information technologies have become a driver along with business enabler. Public Sector Banks required considerable investment on computerization of branch networks and their operations to get quick and greater access to information.. Strong internal control and supervision mechanism can play an important role in ensuing quality of assets and reduction in NPA lever. For financial stability, an efficient and sound risk management system is a pre-requisite..


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International Journal in Management and Social Science (Impact Factor- 5.276)

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