Financial Performance Measurement of SBI Groups An Empirical Study

(Synopsis) Prasanta Saha

Purash-Kanpur Haridas Nandi Mahavidyalaya, Howrah

Introduction:
Why you choose SBI? You have to clarify it in a paragraph. The Imperial Bank was established in 1921 by amalgamation of three presidency banks the Bank of Bengal, the Bank of Bombay and the Bank of Madras under a special legislation. These presidency banks were created as a charter to deal in bill of exchange payable in British India and were an integral part of Indian treasury. The Imperial Bank acted as a banker of the government until the establishment of Reserve Bank of India in 1935. State Bank of India was formed on July 1, 1955 by nationalizing the Imperial Bank under the State Bank of India Act, 1955 which was passed in parliament on May 8, 1955. The main objective of nationalization was not only extending banking facilities to rural and semi-urban areas in the newly formed independent India but also to promote agricultural finance and help the government to pursue the board economic policies. Initially 60% stake in SBI was taken over by the Reserve Bank of India but the controlling interest has been transferred to the Government of India in 2008 to remove any conflict of interest as it is the country's banking regulatory authority. The State Bank Group, with a network of 18,266 branches including 4,724 branches of its five Associate Banks, dominates the banking industry in India. The market share of SBI in domestic advances was 16.40% and its five Associate Banks had a market share of 6.00% as on March 2011. The SBI's market share in deposits was 16.40% and its five Associate Banks had a market share of 5.88% as on March 2011.8(Please put reference in this section) So, the SBI group has a major market share among Indian commercial banks of covering more than 20% in deposits and loans. SBI also operates several foreign subsidiaries putting the mark of foot print in the global market. During the last decade, the Indian banking industry has recorded a compounded average growth rate (CAGR) of 18 percent as compared to the countrys average GDP growth of 7.2 percent during the same period. The overall development in banking industry has been supplemented with greater efficiency and productivity of the banking sector (K. C. Chakrabarty Committee, 2012). As per the report published by McKinsey & Company on Indian Banking 2010, Indian banking index has grown at a compounded annual rate of over 51

per cent since April 2001 as compared to a 27 per cent growth in the market index for the same period. However, as per a report of Reuters published in December, 2012 the private sector banks such as HDFC Bank (HDBK.NS) and YES Bank (YESB.NS) trade at 3.2-5.3 times book value as compared with State Bank of India at 1.4 times. The public sector banks facing a stiff competition from the new private sector banks. Seven new private sector banks have already entered in financial system since reforms were undertaken with an existing 14 old private sector banks. In addition, a total of 27 new foreign banks opened branches in India following the reforms of 1991 with an existing 18 foreign banks which were already operating in India. They have come with innovative product, superior service and greater efficiency to tap new and existing market (Bharati V. Pathak, 2011). The Parliament has already passed Banking Laws (Amendment) Bill, 2012. The amendment will facilitate the big corporate houses to establish large-sized banks. What is the need for the study? You have to write clearly. Please write definition of the research problem (Financial Performance Measurement) in terms of banking sector as well as SBI. What is the significance of the study? What is the financial performance of SBI during the last twelve years? You have to write clearly in a paragraph. What is the aim of the study? You have to write clearly in a paragraph.

As competition gains further momentum, there would be a need to focus on the organizational efficiency and effectiveness of the public sector banks to sustain in a globalised scenario. The effective studies for proper identification of the weak areas of operation and functioning as well as the identification of risky activities are necessary for taking adequate remedial measures which can only protect and defend them against potential distress.

Review of Literatures:
Until the early 1990s, the focus of RBIs regulation of commercial banks in India was mainly on solvency issues. However the RBI has been taking steps to realign its supervisory and regulatory standards with the international best practices in a phased manner taking into consideration the economic conditions of the country since 1988 Basel-I Accord. In this context, few expert groups have conducted reviews of the supervisory processes viz. systems and procedures relating to the statutory inspections, during the last two decades. In the year 1996, S. Padmanabhan Committee recommended supervisory rating six factors viz. Capital Adequacy, Asset Quality, Management, Earnings,

Liquidity, Systems and Controls (i.e. CAMELS) for the Indian public sector and private sector banks (K. C. Chakrabarty Committee, 2012). The analytical framework of the CAMELS rating system is a device created by federal banking regulators in the 1970s as a composite measure to assess the overall performance of commercial banks (Rose, 2010). In the year 2009, the regulatory parameter in respect of Earnings Appraisal components have revised only for CAMELS in India for the public and private sector commercial banks (K. C. Chakrabarty Committee, 2012). Mishra, Harsha, Anand and Neil5 have used CAMEL and observe that private sector banks are at the top of the list with their performances in terms of soundness being the best and public sector banks have taken a backseat having low economic soundness in comparison. Siva and Natarajan6 have found significant difference in ratios of CAMEL among the State Bank Groups in India. Makkar and Dr. Singh7 concluded that private sector banks are in sound position in comparison to public sector banks with the help of Bankometer Model. S-factor or Sensitivity/Risk factor of CAMELS has not been considered in most of the studies. Analysis of risk with the performance analysis and their relation may help to improve the efficiency level of the largest public sector bank. What is the research gap? You have to write clearly in a paragraph.

Objectives of the Study:

The main object of the present study is to examine the financial performance of SBI Groups. More specifically it seeks to reside upon chiefly the following issues:

Methodology of the Study:

To determine the growth performance of the SBI Groups under the study; To evaluate the productivity and profitability performance of the SBI Groups under the study; To assess the relationship between profitability and growth & productivity indicators of the SBI Groups under the study; To compare the financial performance between SBI Groups and Private Sector Bank in India;

The proposed research work will be on purely empirical in nature. Purposive (convenience) sampling will be adopted to represent the universe. The study will be based on secondary data collected from various data sources including RBI databases and CMIE database for the period of the last ten years. Besides, the facts, figures and findings advanced in similar earlier studies and the government publications are also used to supplement the secondary data. In the course of analysis, various accepted accounting and statistical tools will be used for the present study. The use of all these techniques at different places will be made in the light of requirement of analysis.

Chapter Scheme of the Study:

Chapter Chapter Chapter Chapter I: Introduction II: Analysis of Growth Performance of SBI Groups III: Productivity and Profitability Performance of the SBI Groups IV: Relationship between profitability and growth & productivity indicators of

the SBI Groups

Chapter V: Findings of the Study Chapter VI: Suggestions and Recommendations

Bibliography:
1. Rose, P. & Hudgins, S. (2010), Bank Management and Financial Services, 8e, McGraw-Hill/Irwin. 2. Review of Supervisory Processes for Commercial Banks, Report of the High Level Steering Committee chaired by K. C. Chakrabarty, 2012. 3. Bharati V. Pathak, (2011), The Indian Financial System: Market, Institution and Services, 3e, Pearson. 4. Official Website of the Reserve Bank of India, www.rbi.org.in 5. Mishra, Harsha, Anand and Neil, Analyzing Soundness in Indian Banking: A CAMEL Approach, Research Journal of Management Sciences, October (2012). 6. Siva and Natarajan, Camel Rating Scanning (CRS) of SBI Groups, Journal on Banking Financial Services & Insurance Research, (October, 2011). 7. Makkar and Dr. Singh, Evaluating the Financial Soundness of Indian Commercial Banks: An Application of Bankometer, National Conference on Emerging Challenges for Sustainable Business 2012. 8. Annual Report of SBI, 2010-11. 9. Official Website of the State Bank of India, www.sbi.co.in