Performance ion of Banks in India

8/9/2019 Performance ion of Banks in India

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INDIAN FINANCIAL SYSTEM

S.P.B PATEL ENGINEERING COLLEGE, LINCH

A

PROJECT REPORT ON

PERFORMANCE COMPARISION OFBANKS IN INDIA

SAVE YOUR MONEY FOR ENJOYING

YOUR FUTURE««««««««««

SUBMITTED TO: SUBMITTED BY:

M/S. KHUSHBU SHAH, PATEL DIPAK B. (0831)

FACULTY OF PRAJAPATI KINJAL D. (0848)

S.P.B.PATEL ENG. COLLEGE

(MBA Programme)




S.P.B.PATEL ENGINEERING COLLEGE





OVERVIEW ON BANKING SECTOR

Banking in India was defined under Section 5(A) as "any company which

transacts banking, business" and the purpose of banking business defined under Section 5(B),"accepting deposits of money from public for the purpose of lending

or investing, repayable on demand through cheque/draft or otherwise". In the

process of doing the above-mentioned primary functions, they are also permitted

to do other types of business referred to as Utility Services for their customers

(Banking Regulation Act, 1949).

During Britishers' time, three Presidency Banks were opened in Bengal (1809),

Bombay (1840) and Madras (1843) with powers to issue Notes. In the year

1921, due to banking crisis during First World War, the three Presidency Banks

merged to form Imperial Bank of India. In the year 1955, after Independence,

Imperial Bank of India was nationalized and renamed as State Bank of India

(SBI) with a primary mandate to go to rural areas by opening at least 400

branches immediately. In the year 1957, the seven banks that were earlier

catering to the rulers of different areas or States viz., Patiala, Bikaner, Jaipur,

Indore, Saurashtra, Hyderabad, Mysore, Travancore, became subsidiaries of

SBI. In 1969 and 1980, Government of India nationalized 14 and 6 major banks

respectively. After the merger of New Bank of India with Punjab National Bank

during the era of Financial Sector Reforms, the number of PSBs became 27,

which are under present study.

The type and nature of businesses handled by the Public Sector Banks have not

been merely confined to primary functions. Class Banking was replaced with





mass banking primarily by the Public Sector Banks by opening branches in

remote parts of the country even without basic amenities of life. Profit was not

the motive for these bank branches for about 3 decades. Their personnel

undertook barefoot banking in godforsaken areas and implemented various

poverty alleviation schemes as directed by Reserve Bank of India (RBI) or

Government of India and Sate Governments concerned. The authorities were

confident of delivering credit to the needy masses through the channel of Public

Sector Banking in the name of "Priority Sector Advances" combining the subsidy

or margin money supported schemes. All these were aimed at generating income

or employment to large number of rural masses comprising weaker sections of

society, artisans, agriculturists and self-employed persons including educated

unemployed youth (Chowdari Prasad, 2002).

In India, till the eighties, the banks operated in a protected environment

characterized by administered interest rates, high levels of pre-emption in the

form of reserve requirements and directed credit. Financial and Banking sector

reforms were initiated in India in 1991 against the backdrop of challenges faced

by the Indian banks from within and outside the banking system in the country as

well as forces of globalization operating worldwide. The accent of the reform

process was to improve productivity and efficiency of the financial system and to

provide a highly competitive environment.

In the present scenario of banking industry, competition among the banks is very

severe. The banks have been trying to find new avenues not only to retain the

present customer strength but also attracting new customers by offering hassle-

free services. In the process, strategies of certain banks, specially Public Sector





Banks, are aiming to divide customers into different segments on the basis of the

type of service they would like to render and also trying to segregate their

servicing counters in their respective branches to enable customer to have easy

access to a particular transaction (Srinivasa Rao, K.S. and Rama Rao,U., 1998).

On the other side, Foreign Banks and old and new Private Sector Banks in India,

have progressed well in the areas of technology up-gradation in operations,

extending the business hours, introduction of new products and services like

"Any Where Banking", "Any Time Money", "Electronic Fund Transfer", "Electronic

Clearing", "Tele-Banking", etc.. These new tools enabled them to improve the

quality of service and introduce Value Added Products (Saraf, W.S., 1997).

The Indian economy under Liberalization, Privatization and Globalization (LPG)

throws mind-boggling process for existence and growth of the sector. WTO was

established in 1995 and signing of WTO Agreement by Indian Government

meant greater competition from foreign and domestic bankers in terms of speed,

sophistication and professionalism. The banks are now expected to maintain

transparency in their operational and financial statements. However, in the

deregulated virtual market, small banks with high Return on Equity (ROE) will

have an edge over the large banks. In fact, modern commercial banks have to be

much more agile in order to stay in the competitive market. Adoption of

Information Technology is vital for survival and growth of the sector and will fix

the future of commercial banks in the LPG economy. Adoption of Information

Technology is vital for survival and growth of the sector and will fix the future of

commercial banks in the LPG economy.





Bank-Group Wise Number of Commercial Banks Functioning in Various States ± March 2002

SBIAND

NATIO- FOREIGN REGIONAL OTHER NON- ALL

ITS NALISED BANKS RURAL SCHED SCHED COMME-

STATE/UNION

TERRITORY

ASSOC- BANKS BANKS ULED ULED RCIAL

IATES COM. COM. BANKS

BANKS BANKS

Andaman &

Nicobar Islands

1 9 ² ² ² ² 10

Andhra Pradesh 8 19 9 17 27 2 82Arunachal

Pradesh

1 4 ² 1 ² ² 6

Assam 2 17 2 5 2 ² 28

Bihar 3 19 ² 16 7 ² 45Chandigarh 5 19 2 ² 14 ² 40

ChhattisgarhSs 3 19 ² 5 4 ² 31

Dadra & Nagar Haveli 1 3 ² ² 2 ² 6

Daman & Diu 2 7 ² ² 2 ² 11Delhi 8 19 21 ² 29 ² 77Goa 3 19 ² ² 17 ² 39

Gujarat 8 19 7 9 26 1 70

Haryana 7 19 1 4 15 ² 46HimachalPradesh

2 17 1 2 2 ² 24

Jammu &Kashmir 2 16 1 3 2 ² 24Jharkhand 2 19 ² 6 6 ² 33

Karnataka 8 19 11 13 29 1 81

Kerala 6 19 5 2 23 ² 55Lakshadweep ² 1 ² ² ² ² 1Madhya Pradesh 8 19 ² 20 13 ² 60

Maharashtra 8 19 35 10 30 ² 102

Manipur 1 9 ² 1 ² ² 11Meghalaya 1 13 ² 1 1 ² 16

Mizoram 1 2 ² 1 ² ² 4 Nagaland 1 8 ² 1 1 ²

Orissa 5 19 ² 9 9 ² 42

Pondicherry 4 17 ² ² 12 ² 33

Punjab 4 19 3 5 14 1 46Rajasthan 8 19 1 14 14 ² 56

Sikkim 1 8 ² ² 1 ² 10

Tamil Nadu 8 19 14 3 27 ² 71

Tripura 1 12 ² 1 ² ² 14Uttar Pradesh 8 19 2 36 18 ² 83

Uttaranchal 3 18 ² 5 4 ² 30West Bengal 8 19 11 9 23 ² 70

ALL-INDIA 8 19 40 196 31 4 298





CENTRAL BANK

COMMERCIAL

BANKSSPECIALISED

BANKS

INSTITUTIONAL

BANKS

NON BANKING

FINANCIAL

INSTITUTION

NATIONALISEDBANKS

SBI &ASSOCIATE

BANKS

PRIVATE SECTOR

BANKS

FOREIGN

BNAKS

OLD PRIVATESECTOR BANKS

NEW PRIVATESECTOR BANKS

LAND MORTGAGE

RURAL CREDIT

INDUSTRIAL DEV.

HOUSING FINANCE

EXIM BANK

IFCI

SFCs

IRBI

NABARD

HDFC

SIDBI

MUTUAL

FUNDS

PRIVATESECTOR

NBFC





Present scenario of the banks in India:

Banks are extremely useful and indispensable in the modern community.The banks create the purchasing power in the form of bank notes, cheques bills,

drafts etc, transfers funds bring borrows and lenders together, encourage thehabit of saving among people.

The banks have played substantial role in the growth of Indian economy.From the meager start in 1860 the banks have come to long way. At present inIndia there are 20 nationalized banks, State bank of India and its seven

Associate banks, 21 old private sector banks and 8 new private sector banks.Besides them there are more than 30 foreign banks either operating themselvesor having their branches in India. The statistical table hereunder shows thefinancial position of the banks as on 31.03.2005.

Statistical table for banks in India (Year 2004-05)

State bank of India and its associates (Rs. In Crores)

Name of bank

Year of incorporation

No. of Offices

Networth Deposits Advances Interestincome

NetNPAratio

State Bank of Bikaner &Jaipur

1966 833 1298 19038 12009 1741 1.61

State Bank of Hyderabad

1941 943 1765 28930 15600 2325 0.61

State Bank of India

1955*. 9161 24072 367048 202374 32428 2.65

State Bank of Indore

1960 456 904 13807 9041 1110 1.00

State Bank of Mysore

1913 639 756 13585 8781 168 0.92

State Bank of Patiala

1917 754 2045 26496 15359 2133 1.23

State Bank of Saurashtra

1902 429 794 12613 6714 1132 1.40

State Bank of Travancore

1945 681 1130 24133 14848 2008 1.81

* From 27th January 1921 to 30th June 1955 it was Imperial Bank of India, whichcame about by merger of Bank of Bengal (2nd June 1806), Bank of Bombay (15th

April 1840) and Bank of Madras (1st July, 1843).





Nationalized Banks

Name of

bank

Year of

incorporation

No. of

Offices

Networth Deposits Advances Interest

income

Net

NPAratio

AllahabadBank

1865 2027 2328 40762 21151 3186 1.28

AndhraBank

1923 1159 1837 27551 17517 2273 0.28

Bank of Baroda

1908 2772 5628 81333 43400 6431 1.45

Bank of India

1906 2668 4465 78821 56013 6032 2.77

Bank of

Maharashtra

1935 1330 1543 28844 13062 2368 2.15

CanaraBank

1906 2627 6109 96908 60421 7572 1.88

CentralBank of India

1911 3239 3265 60752 27277 5205 2.98

CorporationBank

1906 799 3054 27233 18546 2250 1.12

Dena Bank 1938 1072 1104 20096 11309 1725 5.23

Indian Bank 1907 1417 5936 34809 18360 2871 1.35

Indian

OverseasBank

1937 1583 2575 44241 25205 3951 1.27

OrientalBank of Commerce

1943 1166 3327 47850 25299 3572 1.29

Punjab &Sind Bank

1908 787 440 14171 6322 1249 8.11

PunjabNationalBank

1895 4117 8161 103167 60413 8460 0.20

Syndicate

Bank

1925 1905 2199 46295 26729 3758 1.59

UCO Bank 1943 1801 2049 49470 27656 3547 2.93

Union Bankof India

1919 2140 3614 61831 40105 4970 2.64

United Bankof India

1950 1343 1957 25348 11390 2133 2.43

Vijaya Bank 1931 966 1590 25618 14336 2094 0.59





Old private Sector Banks

Name of bank Year of incorpora

tion

No. of Offices


NetNPAratio

Bank of Rajasthan

1943 388 351 8120 2896 522 2.50

BharatOverseas Bank

1973 91 199 2749 1651 219 1.56

Catholic Syrian

Bank

1920 314 210 4021 2289 368 3.80

City Union Bank 1904 137 241 3095 2013 291 3.37DevelopmentCredit Bank

1995** 88 200 3895 2001 303 6.83

DhanalakshmiBank

1927 180 114 2339 1410 192 3.92

Federal Bank 1931 471 724 15193 8823 1191 2.21

Ganesh Bank of Kurundwad

-- 31 11 217 95 18 8.32

ING Vysya Bank 1930 381 710 12569 9081 991 2.13

Jammu &

Kashmir Bank

1938 439 1665 21645 11517 1549 1.41

Karnataka Bank 1924 398 978 10837 6287 840 2.29

Karur VysyaBank

1926 249 761 6672 4620 591 1.66

Lakshmi VilasBank

1926 239 230 3496 2318 298 4.98

Lord KrishnaBank

1940 118 181 2176 1387 195 4.22

Nainital Bank 1922 69 76 933 363 74 0.00

Ratnakar Bank 1943 75 45 784 424 66 5.54

Sangli Bank 1948 192 85 1985 812 137 4.30

SBI Comm. &Intl. Bank

1993 3 88 331 231 26 7.65

South IndianBank

1929 438 456 8492 5365 709 3.81

TamilnadMercantile Bank

1921 183 559 4827 2626 513 2.95

United Western 1936 237 244 6453 3976 487 5.97





Bank

** Converted to a private sector commercial bank on 31st May, 1995. Started as aCredit Society set up by the followers of His Highness the Aga Khan in the 1930sand later converted into Co-operative Bank.

New Private Sector banks

Name of bank

Year of incorporation

No. of Offices


NetNPAratio

Bank of Punjab*

1995 120 241 4307 2417 329 4.64

CenturionBank

1994 77 590 3530 2194 346 2.51

HDFC Bank 1994 446 4520 36354 25566 3093 0.24ICICI Bank 1994 519 12900 99819 91405 9410 1.65IDBI BankLtd.

1994 157 5929 15103 45414 2656 1.74

IndusIndBank

1995 127 830 13114 9000 1134 2.71

KotakMahindraBank

1985 54 757 4300 4017 420 1.56

UTI Bank 1994 249 2422 31712 15603 1924 1.39

Yes Bank 2003 3 217 663 761 30 0.00

* now merged with Centurion Bank

Foreign Banks

Name of bank No. of Offices


Net NPAratio

ABM Amro Bank 19 1347 7077 9831 907 0.35

Abu Dhabi

Commercial Bank

2 71 1663 90 150 12.73

American ExpressBank

8 301 2264 1483 270 0.99

Antwerp DiamondBank

1 128 50 434 26 0.00

Arab BangladeshBank

1 45 23 22 3 0.28





Bank InternationalIndonesia

1 74 11 20 1.81 10.49

Bank of America 5 1437 1993 3219 257 0.00

Bank of Bahrain &Kuwait

2 67 394 264 34 5.53

Bank of Ceylon 1 54 104 59 8 13.76Bank of NovaScotia

5 257 1602 2053 159 3.08

Bank of TokyoMitsubishi

3 369 532 559 57 0.01

Barclays Bank 1 698 75 2 31 0.00BNP Paribas 9 333 1674 1719 176 0.00

Calyon Bank 4 328 1306 674 117 0.30ChinatrustCommercial Bank

1 45 48 59 9 6.02

Cho Hung Bank 1 72 97 69 0.99 0.00

Citibank 35 3310 21484 18111 2203 1.00DBS Bank 1 556 611 560 30 0.00

Deutsche Bank 5 1232 3625 2541 390 0.00

Hongkong &Shanghai BankingCorpn.

39 3578 17013 12621 1627 0.50

JP Morgan ChaseBank

1 266 930 150 40 0.00

Krung Thai Bank 1 40 34 16 4 0.00

Mashreq Bank 2 58 269 19 29 0.00Mizuho Corporate

Bank

1 164 110 267 17 0.00

Oman InternationalBank

2 161 225 13 18 55.05

Societe Generale 2 321 527 159 37 0.00Sonali Bank 1 6 22 6 1 1.90

Standard CharteredBank

85 3234 22522 19970 2493 1.12

State Bank of Mauritius

3 126 148 222 36 4.08

UFJ Bank 1 228 71 102 16 0.00(Source: A profile on banks 2004-05, RBI))

The banks in India are operating through 55530 branches. All the banks together had the net worth of Rs. 149385 crores as on 31st March, 2005. The banks also hadthe deposit base of Rs. 1836985 crores and the advances of Rs. 1151113 crorestaking the total business to Rs. 2988098 crores. During the year 2004-05 the bankshad earned the interest income of Rs. 154761 crores. The average net NPA ratio of the banks was also less 3.84% in year 2005.









Introduction

The last decade saw many positive developments in the Indian banking

sector. The policy makers and financial sector regulatory entities have made

several notable efforts to improve regulation in the sector. The sector now

compares favourably with banking sectors in the region on metrics like growth,

profitability and non-performing assets (NPAs). However, improved regulations,

innovation, growth and value creation in the sector remain limited to a small part

of it. The cost of banking intermediation in India is higher and bank penetration is

far lower than in other markets. India¶s banking industry must strengthen itself

significantly if it has to support the modern and vibrant economy which India

aspires to be. In this paper, we have tried to evaluate the riskiness of Indian

Banks, a year wise and a relative comparison between Pubic and Private sector

banks in India using the risk index suggested by Hannan an Hanweck (1988).

This measure of insolvency risk i.e. Z statistic incorporates data on a bank's

expected profits, the likelihood that these profits will be realized, and a bank's

capital base. The Z statistic attempts to capture the likelihood of a bank's

earnings in a given year becoming low enough to exhaust the bank's capital baseand, thus, the likelihood of the bank becoming insolvent. Specifically, Z is defined

as:

ROA + (Capital to Asset Ratio)Z =





S.D. of ROAWhere:

Return on Assets (ROA) = Net Income/ Average of Total Assets.

Capital-to-Asset Ratio (CAP) = Equity/ Total Assets.

Higher values of Z imply lower insolvency risk because higher values of Z

correspond with higher levels of equity relative to a potential shock to the

earnings of a bank. Thus, banks with risky loan portfolios can maintain a low risk

of insolvency as long as they are adequately capitalized. The risk index

suggested by Hannan and Hanweck (1988) was used by Liang and Savage

(1990), Eisenbeis and Kwast (1991), Sinkey and Nash (1993), and Sinkey and

Blasko (2001)

Z statistic for individual banks.

The bank's average return on assets(ROA) over the years 2004 through

2008 period proxies for the bank's expected earnings and the standard deviation

of each bank's ROA proxies for the riskiness of its earnings. The bank's capital-

to-asset ratio is measured as of March 2008. Unfortunately, using this

methodology yields Z scores that are implausibly high and, thus, failure

probabilities that are implausibly low, since insolvency probabilities are inversely

related to Z scores. However, if the ordinal ranking of the banks in terms of their

expected return/riskiness trade-off is captured during the 2004 through 2008 time

period, even though the level of individual Z scores provides poor estimates of

absolute insolvency risk, individual Z scores can still be used to examine relative

insolvency risk.





Z statistic for a group of banks:

Expected earnings for a group are proxied by averaging individual banks'

ROA between 2004 and 2008 for all banks in a particular group (failed/survived).

Earnings riskiness for each group is proxied by the standard deviation of this

distribution of ROAs. The capital-to-asset ratio is the group average as of the end

of 2008.

John S. Jordan (1998) found that the banks that failed had an average

individual Z score of 21.22 (the median was 16.76) while survivors had an

average score of 37.62 (the median was 29.56). The difference in means is

significant at the 5 percent level. Group Z scores provide similar results. The

group of banks that went on to fail had a composite Z score of 8.71 while the

composite score for the surviving banks was13.33.

The Case of Global Trust Bank

Bankruptcy is a situation in which an organization falls short of cash to

repay its debt or has liabilities that exceed its assets.

The Indian Company Law Board treats insolvency in a slightly different

manner. When over 50 per cent of a company¶s net worth is washed away,





making it impossible to repay debts, the company declares itself potentially µsick¶

and BIFR (Board for Industrial and Financial Reconstruction) begins the process

of finding out if the company can be rehabilitated.

A case in point is Global Trust Bank. The bank became sick with huge bad

debts in 2004. However, the RBI managed the crisis by merging it with Oriental

Bank of Commerce.

Now, when we apply the framework developed by Hannan and Hanweck to

GTB for the year 2003, we get the Z-statistic for GTB as 1.93, which is much less

than the survivors Z-score found during the study conducted on the Banks in

New England. Hence the framework is relevant in the current scenario.

Year 2003

ROA 0.004601

CAP 0.034901

Standard Deviation (ROA) 0.02041

Z 1.935419

Table1. Case of Global Trust Bank

Measuring the Risk Index for Indian Banks

If we want to capture the overall risk of a bank, the variability of ROA

provides a comprehensive measure that reflects not only credit risk but also





interest rate risk, liquidity risk and any other risk that is realized in bank earnings.

The standard deviation of ROA is a good measure of the variability of ROA.

Thus, the Z-statistic is a function of the normal profit margin of the bank,

the variation in that profit margin, and the equity capital available to absorb that

variation. In effect, the Z-ratio measures the number of standard deviations by

which ROA would have to decline before the book equity capital of the bank

would be exhausted. The relationship between the Z-ratio and the probability of

insolvency is an inverse one, with higher Z-ratios indicating a lower probability of

insolvency. If the assumption is made that the potential ROAs of the business are

normally distributed, then the one-period probability of insolvency can be

calculated as a function of the Z-ratio:

2

P=1/[2Z ]

However, empirical studies indicate that ROAs are not normally distributed, but

instead are ³fat-tailed,´ so that the actual probability of insolvency may be greater

than that calculated using the assumption of normality. Moreover, this one-period

probability may understate the true probability of insolvency because it measures

the risk of a single-period loss being so large it wipes out equity. In reality,

insolvency often occurs after a sequence of smaller losses occurring over several

periods, indicating that serial correlation between negative shocks may exist.

Year 2006 2007

CAP 0.067845 0.06090309 0.076489

E(ROA) 0.008694 0.00878688 0.009143





Standard Deviation (ROA) 0.006402 0.0054265 0.004814

Z 11.95607 12.842528 17.78941

Probability of book value insolvency (P) 0.003497788 0.00303158 0.00158

Table 2. Z statistic & probability of book value insolvency for Indian Banks over years

A random sample of 15 banks were chosen consisting of 6 public sector

banks and 9 private sector banks. Table 2. shows that with relatively strong

capital position, stable earnings, and accepted E(ROA), the Z ± statictic has

increased over years and hence the probability of book-value insolvency has

decreased.

It can be observed from table 2. that the group score obtained for various

years are much higher than the Z statistic obtained for banks that failed(obtained

from the studies conducted on the banks in New England). Also, the two

measures of risk, the risk index and the standard deviation of ROA indicate that

Indian banks became safer in 2008 as compared to 2007 or 2006.

The Z statistic was also calculated for the two groups of Public and Private

sector banks separately for the year 2008. Table 3 shows the results obtained for

the same.

Year: 2008 Public Sector Banks Private Sector Banks

CAP 0.0573255 0.089264111ROA 0.010486681 0.008246557

Standard Deviation(ROA) 0.001664097 0.006046488

Z 40.75013312 16.12682808





P 0.000301101 0.001922525

Table 3. Z statistic& probability of book value insolvency for Public & Private sector banks

From table 3 it can be observed that the Z statistics obtained for the

group for the group of public and private sector banks are much higher than

the Z values obtained for banks that failed (obtained from the studies

conducted on the banks in New England). Also, from the table, it can be

observed that the Z statistic obtained for Public sector banks are much

higher than that obtained for Private sector banks indicating that Public

sector banks are safer as compared to Private banks and the probability of

book value insolvency is lower.





Conclusion

Financial sector reforms were initiated as part of overall economic reforms

in the country and wide ranging reforms covering industry, trade, taxation,

external sector, banking and financial markets have been carried out since mid

1991. A decade of economic and financial sector reforms has strengthened the

fundamentals of the Indian economy and transformed the operating environment

for banks and financial institutions in the country. The sustained and gradual

pace of reforms has helped avoid any crisis and has actually fuelled growth. The

most significant achievement of the financial sector reforms has been the marked

improvement in the financial health of commercial banks in terms of capital

adequacy, profitability andasset quality as also greater attention to risk

management and this improvement is visible in the form of increasing Z-statistic

values obtained over years.

Some of the major reform initiatives in the last decade that have changed the

face of the Indian banking and financial sector are:

Interest rate deregulation.

Adoption of prudential norms in terms of capital adequacy, asset classification,

income recognition, provisioning, exposure limits, investment fluctuation reserve,

etc.





Lowering of reserve requirements (SLR and CRR), thus releasing more

lendable resources which banks can deploy profitably.

Government equity in banks has been reduced and strong banks have been

allowed to access the capitalmarket for raising additional capital.

Banks now enjoy greater operational freedom

Banks have been allowed to operate in new areas like bank financing:

insurance, infrastructure financing, leasing, gold banking, besides of course

investment banking, asset management, factoring, etc.

New instruments have been introduced for greater flexibility and better risk

management

Several new institutions have been set up including the National Securities

Depositories Ltd., Central Depositories Services Ltd. and the Clearing

Corporation of India Ltd.

Limits for investment in overseas markets by banks, mutual funds and

corporates have been liberalised. Full convertibility for deposit schemes of NRIs

introduced.

Adoption of global standards. Prudential norms for capital adequacy, asset

classification, income recognition and provisioning are now close to global

standards. RBI has introduced Risk Based Supervision of banks (against the

traditional transaction based approach). Best international practices in

accounting systems, corporate governance, payment and settlement systems,

etc. are being adopted.

RBI guidelines have been issued for putting in place risk management systems

in banks. Risk Management Committees in banks address credit risk, market risk

and operational risk. Banks have specialised committees to measure and monitor

various risks and have been upgrading their risk management skills and systems.





All these measure have proved to be fruitful. Results obtained from the study

conducted have shown that the probability of book value insolvency has reduced

over years and the the probability of book value insolvency is lower in case of

public sector banks in comparison to private sector banks in India.

Appendix

Table A1: Table shows consolidated results for the randomly selected group of Banks.

BANKS 2006 2006 2007 2007 2008 2008

CAP ROA CAP ROA CAP ROA

Punjab National

Bank

0.064546 0.010637 0.064249 0.010348563 0.061895 0.0103377

Bank of Baroda 0.06918 0.008602 0.060427 0.008243882 0.061492 0.0081936

Indian Overseas

Bank

0.05353 0.012284 0.048511 0.012277591 0.04768 0.012183

Federal Bank 0.060552 0.008428 0.059873 0.009237702 0.120767 0.0096546

IndusInd Bank 0.069335 0.014928 0.068191 0.014543322 0.077135 0.0144032

State Bank of

Mysore

0.048363 0.012163 0.042519 0.011443279 0.041664 0.0110829

HDFC Bank 0.072097 0.012277 0.070511 0.012335399 0.086331 0.0122564

Bank of Rajasthan 0.036804 0.004513 0.037016 0.005669631 0.059398 0.0059937

Centurion Bank of

Punjab

0.127945 -0.01056 0.082188 -0.00736005 0.075535- 0.0045746

ING Vysya Bank 0.060815 0.000841 0.057205 0.001783488 0.060128 0.0024961

Allahabad Bank 0.065806 0.012708 0.066163 0.012302648 0.063265 0.0121926

ICICI Bank 0.089725 0.011712 0.071559 0.011040261 0.117111 0.0130728

Axis Bank 0.058025 0.010048 0.046442 0.009784708 0.080041 0.0097826

Kotak Mahindra 0.084971 0.012729 0.083449 0.011321709 0.126931 0.011134





Bank

State Bank of Indi 0.055974 0.009103 0.055243 0.008831108 0.067957 0.0089301

Average Values 0.067845 0.008694 0.060903 0.008786883 0.07648860.0091426

Standard Deviatio 0.021229 0.006402 0.013568 0.005426499 0.0261233 0.0048136

Z Statistic 0.006402 12.84252797 17.789413

Table A2: Table shows consolidated results for Public Sector Banks in India.

Public Sector Banks ROA CAP

Punjab National Bank 0.010337695 0.061895Bank of Baroda 0.008193684 0.061492

Indian Overseas Bank 0.012183 0.04768

State Bank of Mysore 0.011082974 0.041664

Allahabad Bank 0.0121926 0.0

State Bank of India 0.008930133 0.067957

Average 0.010486681

Standard Deviation 0.001664097 0.010245631

Z- Statistic 40.75013312





Table A3: Table shows consolidated results for Private Sector Banks in India.

Private Sector Banks ROA CAP

Federal Bank 0.009654636 0.120767

IndusInd Bank 0.014403209 0.077135HDFC Bank 0.0122564 0.086331

Bank of Rajasthan 0.005993734 0.059398

Centurion Bank of Punjab -0.004574603 0.075535

ING Vysya Bank 0.002496176 0.060128

ICICI Bank 0.013072864 0.117111

Axis Bank 0.009782596 0.080041

Kotak Mahindra Bank 0.011134 0.126931

Average 0.008246557 0.0892641

Standard Deviation 0.006046488 0.025876742

Z- Statistic 16.12682808




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Performance ion of Banks in India