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Feeling
The Squeeze
Public
sector banks are still king of the heap. But the twister
this time is the dip in the aggregate net profit of the
banking sector for the first time in three years, writes
B G Shirsat
The
Indian banking sector’s growth story took a Couple
of hard knocks in the year 2004-05. First, the sector’s
aggregate net profit declined for the first time in three
years, thanks to the vanishing treasury income.
Two,
the growth in business volume did not translate into higher
income, as the interest income of the banks grew by a paltry
7.05 per cent even though their advance portfolio galloped
by 29.5 per cent. The net profit of 76 banks – 26 public,
23 private and 27 foreign banks covered in the BS Banking
Annual Survey for 2004-05 – dipped 9.14 per cent during
the year, which was marked by a reversal in the interest
rate cycle.
The
total income of 76 banks was up 2.46 per cent. While their
interest income was up 7.05 per cent, other income dropped
sharply by 14.26 per cent as treasury profits disappeared
with the rise in interest rates.
But
the good news is that, despite a decline in treasury profits,
banks continued cleaning up their balance sheets by reducing
non-performing assets (NPAs). The net NPAs of the 76 banks
studied declined by 9.48 per cent or by Rs 2,175 crore to
Rs 20,758 crore in 2004-05.
Andhra
Bank stood out for its exceptional performance on profitability
parameters. This Hyderabad-based public sector entity climbed
back to the top of the best banks’ chart in our Annual
Survey for 2004-05.
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In
2003-04, the Bangalore-based Vijaya Bank had dethroned
Andhra Bank, which was the best bank in 2002-03. Andhra
Bank’s return to the top slot was aided by its
profitability ratios – its return on assets was
the highest among Indian banks and return on equity
was the highest among all players, including the foreign
banks.
It
was among the Top 10 in three out of the five criteria
used for the survey. It topped the list in profitability,
stood 6th in productivity, 9th in growth, 25th in
safety and 42nd in efficiency.
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TOP
10 BANKS
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Rank
2004
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Rank
2005
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NAME
|
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2
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1
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Andhra
Bank
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6
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2
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SB
of Mysore
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16
|
3
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Indian
Overseas Bank
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|
4
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4
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Allahabad
Bank
|
|
1
|
5
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Vijaya
Bank
|
|
-
|
6
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IndusInd
Bank
|
|
25
|
7
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Punjab
National Bank
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|
8
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8
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Oriental
Bank of Commerce
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46
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9
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Bank
of America
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15
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10
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SB
of Travancore
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For
the third consecutive year, public sector banks have come
in for a round of applause, cornering all the top five slots
for the best banks in 2004-05. The overwhelming domination
of PSBs is evident from the fact that eight of the top 10
banks are government-owned. Private sector IndusInd Bank
at sixth rank and Bank of America at ninth rank are the
only two non-PSU banks to find a place in the top 10 list.
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TOP
10 PRIVATE BANKS
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|
Rank
2004
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Rank
2005
|
NAME
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|
–
|
1
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IndusInd
Bank
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|
16
|
2
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Tamilnad
Mercantile Bank
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|
8
|
3
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HDFC
Bank
|
|
2
|
4
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City
Union Bank
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5
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5
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UTI
Bank
|
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13
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6
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Karnataka
Bank
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14
|
7
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ICICI
Bank
|
|
4
|
8
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Karur
Vysya Bank
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7
|
9
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Kotak
Mahindra Bank
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-
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10
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Centurion
Bank
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TOP
FOREIGN BANKS
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|
Rank
2004
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Rank
2005
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NAME
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6
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1
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Bank
of America
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2
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2
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Citibank
|
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3
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3
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Standard
Chartered Bank
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5
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4
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HSBC
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4
|
5
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ABN
Amro
|
|
1
|
6
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Deutsche
Bank
|
|
-
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7
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American
Express Bank
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|
-
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8
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BNP
Paribas
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It
scored 2nd in productivity, 3rd in profitability, 7th in
growth, 22nd in safety and 25th in efficiency. Vijaya Bank,
the topper in 2003-04, slipped to the fifth position in
2004-05. State Bank of Mysore leaped to the second position
from the sixth while Allahabad Bank and Oriental Bank of
Commerce (the eighth best) held on to their previous-year
ranks.
| How
we ranked banks |
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Ranking
banks is not a subjective exercise. It starts with
the Business Standard Research Bureau collecting data
on a number of variables from the annual reports of
banks. Next, the data is collated under five heads
– profitability, safety, productivity, efficiency
and growth. Banks are ranked on the basis of these
five indicators.
However,
only those banks that have a total asset base of at
least Rs 500 crore and five branches are considered
for ranking, even though all banks operating in the
country are included in the survey. A threshold limit
for assets is fixed to eliminate the bias in the growth
parameters, resulting from too low a base.
This
annual survey covers 79 banks. IDBI Bank has not been
considered for ranking as it was merged with financial
institution IDBI, which has converted itself into
a bank. The annual report of the merged entity is
for the six months ended March 2005, and no data for
corresponding year is available. Two foreign banks
– Credit Lyonnais and Calyon Bank – which
were included in last year’s survey have not
been considered this year as we could not collect
their annual reports for 2004-2005. Sumitomo Mitsubishi
Banking Corporation also does not figure this time
as its Indian operations have been acquired by Standard
Chartered Bank.
Each
indicator is essentially an index built from a set
of 22 variables. These variables were standardised
to make any meaningful comparisons for ranking for
the best banks. The normalisation or standardisation
has been done in relation to the relevant aggregates.
In general, normalisation has been done in relation
to advances, deposits, assets and so on.
Having
normalised them, the next step is to give an index
number to these variables. The standardised variable
has been converted into an index number by deflating
with the aggregated sector value. In other words,
indices of specific indicators have been worked out
relative to the banking sector’s average.
In
arriving at an assessment of which the best bank is,
the inherent bias in favour of smaller and private
sector banks has to be neutralised. For instance,
productivity in the case of public sector banks turns
out to be low as their staff strength is huge even
after the successful implementation of a voluntary
retirement scheme. On the other hand, private and
foreign banks have a slender workforce and, naturally,
their employees are more productive. To neutralise
the bias, the weightage given to productivity is low
while arriving at which the best bank is.
The
parameters to arrive at the most productive bank are
profit, income, expenditure, deposit and advance per
employee. Expenditure is deducted from the total score;
marks are given in an inverse proportion. With profitability
gaining precedence over the growth in advances and
deposits, the former is given a higher weightage.
In
the growth parameters, there is a bias in favour of
newly set up private banks, which post very high growth
figures (in percentage terms) because of their small
bases. To even out this bias, the growth parameter
has also been allocated a low weightage. To assess
which bank is the safest, Business Standard has looked
at the capital risk-weighted adequacy ratio, the stock
of non-performing assets and the liquid assets of
various banks.
The
other indicators for arriving at the best of the lot
are efficiency and profitability. The parameters to
arrive at the most efficient bank are the return on
capital employed, the spread on assets, the yield
on investments and the spread over establishment expenses.
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IndusInd
Bank emerged the best among the Top 10 private sector
banks.
Ranked
sixth in the overall list in 2004-05, IndusInd was
not considered for the ranking last year on account
of its merger with Ashok-Leyland Finance Ltd. Bank
of America, ranked 46th in 2003-04, climbed up to
the 9th slot this year.
Apart
from Bank of America, the other banks to figure in
the top 10 list are Indian Overseas Bank, Punjab National
Bank and State Bank of Travancore.
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TOP
10 PSBS
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|
Rank
2004
|
Rank
2005
|
NAME
|
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2
|
1
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Andhra
Bank
|
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5
|
2
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SB
of Mysore
|
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11
|
3
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Indian
Overseas Bank
|
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3
|
4
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Allahabad
Bank
|
|
1
|
5
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Vijaya
Bank
|
|
17
|
6
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Punjab
National Bank
|
|
6
|
7
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Oriental
Bank of Commerce
|
|
10
|
8
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SB
of Travancore
|
|
11
|
9
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Union
Bank of India
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|
23
|
10
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United
Bank of India
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These
moved in, as Citi Union Bank, State Bank of Indore, Deutsche
Bank, Jammu & Kashmir Bank and Catholic Syrian Bank
bowed out of the top 10 list.
Though
profits declined in 2004-2005, the overall business of the
Indian banking sector grew substantially. The total advances
of the 76 banks rose 29.51 per cent or by Rs 249,697 crore
to Rs 10,95,757 crore. Private sector banks stole the show
with a 36.85 per cent rise in advances to Rs 2,18,463 crore.
Public sector banks’ advances rose 28.06 per cent to
Rs 8,02,935 crore and foreign banks’ loan assets increased
25.14 per cent to Rs 74,358 crore.•
Click
here for OVERALL RANKING
Continued
to next page
| Top |
Business
Standard •
BANKING
ANNUAL •
November 2005
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