GALAXY International Interdisciplinary Research Journal_______________________ ISSN 2347-6915

GIIRJ, Vol.2 (3), MARCH (2014)

PERFORMANCE OF INDIAN BANKS IN AND AFTER FINANCIAL

CRISIS - A COMPARATIVE STUDY OF SELECTED BANKS
RAKESH KUMAR*; DR. BIMAL ANJUM**
. *ASSTT. PROFESSOR,
PG DEPARTMENT OF COMMERCE,
SGGS KHALSA COLLEGE,
MAHILPUR.
**ASSTT. PROFESSOR,
PG DEPARTMENT OF COMMERCE,
DAV COLLEGE,
CHANDIGARH.

ABSTRACT
Banking sector plays an important role in present economic scenario of a country. The Indian
banking sector sees tremendous changes in past few years. After the 2008 global financial
crisis, many developments seen in the Indian banking sector also. These developments affect
the performance of Indian banks. The present paper highlights the major indicators of
performance of banks in past three years. The study is restricted to selected banks from each
sector. For the purpose of study, three major banks from each sector selected for study. The
selection is made on the basis of assets size and capitalization of banks.
KEY WORDS: Public Sector, Private Sector, Foreign Sector, Financial Performance.

Introduction
The banking sector, being a crucial constituent of financial system is the lifeline of any
modern economy. It is one of the important financial pillars of the financial system which
plays a vital role in the success /failure on an economy. Banks are one of the oldest financial
intermediaries in the financial system. They play an important role in the mobilization of
deposits and disbursement of credit to various sectors of the economy. The banking system is
the fuel injection system which spurs economic efficiency by mobilizing savings and
allocating them to high return investment. Research confirms that countries with a well
developed banking system grow faster than those with a weaker one. The Indian banking
sector witnessed major changes in their structure due to global meltdown in 2008-09. The
economic slowdown has exerted pressure on banks profitability and capital. Public sector
banks, with a 70 percent share, were worst hit due to corporate borrowers declining loanservicing capacity, their own tax credit appraisal and the undue advantage they took of the
debt restructuring mechanism to defer non-performing asset formation. Private Banks,
cautious in expanding their balance sheets, fared well. While private banks have seen
improvement in asset quality and efficiency parameters, public sector banks have seen
declines in both areas. The present paper attempts to understand how various categories of
banks have performed since the crisis.
Historical Perspective in the Development of Banking in India: In India, the modern
banking system was initiated with the establishment of the Presidency Bank of Bengal in
1806, and the Presidency bank of Madras in 1840.However, the post independence period
witnessed the massive growth in the Indian banking sector. Reserve Bank of India was
nationalized on January 1, 1949 under the terms of the Reserve Bank of India Act, 1948. In
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1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India
to regularize, control and inspect the banks in India. The Banking Regulation Act also
provided the number of new banks or branches of an existing bank would be opened with a
license from the Reserve Bank of India. The RBI acts as banker, both to the central
government and state governments. It manages all the banking transactions of the
government involving the receipt and payment of money. In addition, RBI remits exchange
and performs other banking operations. RBI provides short-term credit to the central
government. Such credit helps the government to meet any shortfalls in its receipts over its
disbursements. RBI also provides short term credit to state governments as advances.
Review of Literature
Mahalakshmi Krishnan (2012) in her paper Trends and Growth Opportunities of Indian
banking sector studies the correlation between Indian Banks Business growth and the GDP
using Karl Pearsons Correlation co-efficient. The data were collected from various
secondary published sources and research studies. The studies show a strong positive
correlation between Indian Banks Business Growth and the GDP. The Big Banks of USA
and Europe buckled under crisis but India could withstand the crisis mainly on the strength of
its banking industry. The paper also finds that in Retail Banking development shows in
Urban-centric and in rural area the concept is beyond the thinking of people. So attempt is
made to strengthen the Indian Banking system.
Kapoor Reetu & R.C.Dangwal (2012) in their paper titled Factors Affecting Bank
Profitability: An Empirical Study studied Profitability of Different Sector Banks in India
through factor analysis. Twelve variables used for study for a period of five years for the
analysis. The paper concludes that the evaluation of banks in terms of profitability, spread
seems to be affect the profitability of banks more for all bank groups. Paper also suggest that
banks should not only augment their interest income but also try to maximize their ancillary
and fee based income. Banks should keep a check on exorbitant expectations for
unproductive purpose.
Objectives of Study
1. To compare and analyze the financial performance of banks in Indian in the period of
financial crisis and in 2012-13.
2. To study the factors affecting performance of banks in India.
Banks selected for study
(A) Top Public Sector Banks which includes State Bank of India, Bank of Baroda &
Punjab National Bank
(B) Top Private Sector Banks which includes ICICI Bank, HDFC Bank & Axis Bank
(C) Top Foreign Sector Banks which includes Standard Chartered Bank , HSBC &
Citibank
Analysis and Interpretation
The data has been collected from various RBI publications of banks. On the basis of collected
data, results are interpreted after the end of each table. The data shown on various tables
relates only the year of financial crisis i.e. 2008-09 and compare with the figures of 2012-13
for the banks selected for study. The results and findings are described below:-

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Table 1: Business per employee (in cr.)

Name of Bank
2008-09
State Bank of India
5.56
Bank of Baroda
9.14
Punjab National Bank
6.56
ICICI bank
11.54
HDFC Bank
4.46
Axis Bank
10.60
Standard Chartered Bank
9.71
HSBC Bank
9.62
Citibank
18.80

2012-13
9.44
16.89
13.70
7.35
7.50
12.15
16.88
18.90
21.24
(Source: RBI)
The above table highlights the business per employee of banks selected for study. The data
shows that in 2012-13 the business per employee increases in public sector banks as compare
to the year of crisis. In private sector ICICI bank shows negative trends. The percentage
increase is also high in case of foreign sector banks and HSBC bank tops in ranking because
of higher percentage increase in their business per employee. The foreign sector banks
maintain their workforce according to requirements. This is the main reason for increase their
overall per employee business.
Table 2: Profit per employee (in cr.)
Name of Bank
2008-09
2012-13
State Bank of India
0.05
0.07
Bank of Baroda
0.06
0.10
Punjab National Bank
0.05
0.04
ICICI bank
0.11
0.14
HDFC Bank
0.04
0.10
Axis Bank
0.10
0.15
Standard Chartered Bank
0.24
0.41
HSBC Bank
0.16
0.40
Citibank
0.45
0.50
(Source: RBI)
The profit per employee indicates the productivity of employees of banks. The profit per
employee also shows increasing trends in the entire banking sector. But foreign sector banks
maintain the leads also in these aspects as compare to other sectors.
Table 3: Net Interest Margin (in %)
Name of Bank
2008-09
State Bank of India
2.48
Bank of Baroda
2.52
Punjab National Bank
2.80
ICICI bank
2.15
HDFC Bank
4.69
Axis Bank
2.87
Standard Chartered Bank
3.70
HSBC Bank
4.30
Citibank
4.67
(Source: RBI)

2012-13
3.06
2.28
2.14
2.70
4.28
3.09
4.15
3.74
4.03

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Net interest margin shows increasing trend only in case of State Bank of India in Public
sector bank. In private sector, ICICI bank maintains a lead and in foreign sector bank
standard Chartered Banks growth positive. Due to global meltdown, majority of banks
effected. This will result in decrease their net interest margin.
Table 4: Return on Equity (in %)
Name of Bank
State Bank of India
Bank of Baroda
Punjab National Bank
ICICI bank
HDFC Bank
Axis Bank
Standard Chartered Bank
HSBC Bank
Citibank

2008-09
17.05
18.62
20.37
7.80
17.17
19.12
20.45
13.13
20.83

2012-13
15.43
15.07
7.66
13.10
20.34
18.53
17.78
12.84
16.30

Return on equity shows the share received by the holders of equity capital from banks
earnings available after all interest and taxes. Profits of all banks are declined due to
financial crisis. This will affect the return on equity of banks also. The table 4 shows the
figures regarding return on equity of banks selected for study in the financial crisis period
and now and it highlights that only private sector banks maintain the same level or above the
previous level only. Other sector banks worst affected because of financial crisis.
Table 5: Return on Asset (in %)
Name of Bank
State Bank of India
Bank of Baroda
Punjab National Bank
ICICI bank
HDFC Bank
Axis Bank
Standard Chartered Bank
HSBC Bank
Citibank

2008-09
1.04
1.09
1.24
0.98
1.28
1.44
2.87
1.51
2.12

2012-13
0.91
0.90
0.44
1.70
1.90
1.70
2.43
1.81
2.12

(Source: RBI)
Return on assets shows the relationship between earning after tax and total assets of banks.
The table 5 indicates that private sector banks and foreign sector banks return on assets
improved slightly, but no improvement shown in case of public sector bank.
Table 6: Net NPA Ratio (in %)
Name of Bank
State Bank of India
Bank of Baroda
Punjab National Bank
ICICI bank
HDFC Bank
Axis Bank
Standard Chartered Bank
HSBC Bank
Citibank

2008-09
1.79
0.31
0.32
2.09
0.63
0.40
1.37
1.42
2.63

2012-13
2.10
1.28
2.16
0.77
0.20
0.36
1.63
0.33
1.47

(Source: RBI)
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NPA ratio highlights the share of non-performing assets from the total assets of banks. The
non-performing assets also increased after financial crisis period in case of public sector
banks as compare to other sector banks in India.
Table 7: Capital adequacy Ratio (in %)
Name of Bank
State Bank of India
Bank of Baroda
Punjab National Bank
ICICI Bank
HDFC Bank
Axis Bank
Standard Chartered Bank
HSBC Bank
Citibank

2008-09
14.25
14.05
14.35
15.53
15.69
13.69
11.56
15.31
13.23

2012-13
12.92
13.30
12.91
18.74
16.80
17.00
13.00
17.10
15.90

(Source: RBI)
Capital Adequacy Ratio (CAR), also known as Capital to Risk (Weighted) Assets Ratio
(CRAR), is the ratio of a bank's capital to its risk. National regulators track a bank's CAR to
ensure that it can absorb a reasonable amount of loss and complies with statutory Capital
requirements. This ratio is propounded to ensure that banks can adopt a reasonable level of
losses arising from operations and to ascertain banks loss bearing capacity. Higher the ratio
means banks are stronger and the investors are more protected. Latest RBI guideline for
banks in India is to maintain a CRAR of 9%. Capital to Risk-weighted Assets Ratio (CRAR)
= (Tier-I + Tier-II)/Risk Weighted Assets. Tier 1 capital includes shareholders equity;
perpetual non-cumulative preference shares, disclosed reserves and innovative capital
instruments. Tier 2 capital includes undisclosed reserves, revaluation reserves of fixed assets
and long-term holdings of equity securities, general provisions/general loan-loss reserves;
hybrid debt capital instruments and subordinated debt. The table 7 depicts the Capital
Adequacy Ratio of banks selected for study. All the banks maintain their CAR above the
average level. But public sector bank fails to maintain their past level of this ratio as compare
to other sector banks. At present the ratio is maximum in ICICI bank following by Axis
Bank. This shows the banks awareness regarding risk associated with their business.
Challenges & Opportunities before the Banking Sector:
1. Rural Markets: Large number of people does not have access to banking facilities
due to scattered and fragmented locations. Significant proportion of the same lies in
rural areas where private banks have little incentive to invest. As per Census 2011
about 58.7 per cent households in India avail banking facilities. The proportion is less
than 50 per cent in case of States like Bihar, Chhattisgarh, Odisha, West Bengal &
North Eastern states like Manipur & Nagaland, Assam & Meghalaya. However, with
increasing consumption levels of rural India & cut throat competition in urban
markets, rural areas are gaining increasing importance.
2. Increased competition: Profits of banks are being affected by increased competition,
with different public and private sector banks vying for increased share of customers.
But increased competition has also resulted in increased efficiency, improved
customer services and profitability in terms of returns on both equity and assets.
Banks, now have to continuously innovate their practices to stay ahead in the market.
Increasing competition, however, might also induce the banks to higher risk taking
strategies.

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3. Management of Risks: Researchers have found that Indian banks risk management
capabilities has been improving over time. However cyber banking, existing global
banking scenario etc have introduced newer types of risk. International regulatory
norms have become more stringent in view of failure of many financial institutions.
4. Global & Domestic Environment: Bankruptcy of Lehman Brothers Holdings Inc,
fourth largest investment bank in US, in 2008, revealed financial instability in Global
markets. Instability of sovereign debt market in Euro zone continues as increasing
number of countries in European Union face tough situation. Amidst worsening
global scenario, banking rules & regulation framework of India has prevented it from
economic crisis. But the stagnation & even recession in some global markets leading
to lesser demand and slower pace of growth of Indian economy has constrained the
credit uptake. However, Indian financial system is expected to remain robust on
account of banks capability to withstand stress. However, a series of stress tests
conducted by the Reserve Bank in respect of credit, liquidity and interest rate risks
showed that banks remained reasonably resilient. However, under extreme shocks,
some banks could face moderate liquidity problems and their profitability could be
affected. In the long run, with high growth potential of the Indian economy and
favorable demographics, banks have immense opportunities to further expand their
business both with traditional and innovative products and through financial inclusion
using technology enabled sustainable business models.
5. Compliance with International Requirements: In the background of recent global
regulatory developments, Basel III largely aiming at higher and better quality capital;
an internationally harmonized leverage ratio to constrain excessive risk taking; capital
buffers which would be built up in good times so that they can be drawn down in
times of stress; minimum global liquidity standards; and stronger standards for
supervision, public disclosure and risk management, was introduced. A few individual
banks may fall short of the Basel III norms and will have to augment their capital.
Banks will also face challenges of upgrading risk management systems and meeting
the credit needs of a rapidly growing economy even while adjusting to a more
demanding regulatory regime. Introduction of International Financial Reporting
System (IFRS) to facilitate comparability between enterprises operating in different
jurisdictions has also placed additional demands on Indian banks. In order to make the
transition to IFRS they would have to handle accounting issues and upgrade their
infrastructure including IT & human resource.
Conclusion
After the financial crisis that began in 2008, banks are taking steps to improve their
performance measurement capabilities in light of changed economic and market conditions
and new management needs. For example, new regulatory strictures are affecting the
underlying economics of such businesses as payment-card issuing and processing. Capital
requirements are increasing for most banking businesses. New channels like mobile phones
are becoming more important. Revenue growth continues to be difficult to achieve due to
weak economic conditions, low interest rates and regulatory restrictions. Banks are trying to
manage costs better, deepen relationships with customers and enhance product mix and
pricing decisions. Banks at present described as indicators of financial soundness of any
economy. Due to global crisis, the overall performance of bank affected to the extent. The
data shown in the tables clearly indicates that the performance of public sector banks is
mostly affected after the financial crisis period. The private sector banks and foreign sector
banks are least affected because of adoption of proper policies regarding various aspects of
workings. Private and foreign sector banks also maintain the level of CAR to cover the risks
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in future. The above discussion shows that public sector banks mostly affected after financial
crisis. So public sector banks must adopt the appropriate standards regarding smooth
functioning of banks. Management of Indian banks has worked hard in maintaining the
growth of Indian Banking industry. To reduce the level of NPAs, A healthy Banker-Borrower
relationship should be developed. Many instances have been reported about forceful recovery
by the banks, which is against corporate ethics. Debt recovery will be much easier in a
congenial environment.
References:(1) Factors Affecting Bank Profitability: An Empirical Study Kapoor Reetu &
R.C.Dangwal Journal of Accounting and finance Vol. 26 No.2 April-September 2012 pp2537
(2) Trends and Growth Opportunities of Indian banking sector studies the correlation
between Indian Banks Mahalakshmi Krishnan Journal of Management Outlook Volume 2,
No. 1, Jan-June 2012, pp 76-85
(3) Indian Banking Industry Challenges & Opportunity, Dr K A Goyal & Vijay Joshi,
International Journal of Business Research and Management (IJBRM), Volume
3: Issue (1): 2012
(4) RBI- A Profile of Banks-2012
(5) Report on Trend & Progress of Banking in India 2010-11, Reserve bank of India.

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