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CHAPTER- II

REVIEW OF LITERATURE

Remarkable and rapid transformation has taken place in financial and

banking sector in the liberalized and post reform period. As outcome of these,

significant studies were undertaken and significant body of literature has

evolved on the subject. It explores the performance of financial institutions.

The main motive of studies, in general, is to analyze the efficiency and

productivity of banking systems. Such studies and analysis are important from

the policy standpoint. Success or Failure of policy initiatives are identified by

policymakers, researchers and academicians. Framing and Formulating

appropriate policies enables banks to function in a better way and which may

be reflected in safety and soundness of the financing system. Banks play an

important role in the financial markets of developing economy and it is very

important to evaluate whether banks operate efficiently or not.

Banking developments greatly contributed to economic development of

the country. A positive relationship between financial sector development and

economic growth was established by economists in various empirical studies.

(Goldsmith 1969, King and Levine 1993, Levine 1999, Khan and Senhadji,

2000). In pre-reform period, the commercial banks and other financial

institutions were operating in stable environment with little or absence of

competition. But in the reform period remarkable changes took place in

banking industry. During liberalised era, banking industry entered new phase

and became globally competitive. It has to fulfill both social and national

objectives. In wake of these changes it is necessary to study the performance

of the banks. State Bank of India, being the oldest and largest commercial

bank of the country, contributed remarkably to the development of Indian

banking industry. Therefore it is essential to study the performance of State

Bank of India and its associates in the changed and competitive environment.

As per the topic of the research “An Analysis of Performance of SBI and its

associate banks” an attempt has been made to study the different studies in

this field to assess the performance of banks in India.

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Birla Institute of Scientific Research (1981)1 attempts to make

comparative analysis of performance of the public banks and the major

private banks since nationalisation. Comparisons are made in terms of ratios

and growth rates. The study brings out that the profitability ratios have been

higher for selected group of the private sector banks than for the nationalised

banks. Though public sector banks has vast network of branches and wide

coverage, yet the credit of taking banking services to large mass of population

goes to private sector banks. Malhotra R N (1986)2 has highlighted the fact that nationalisation of

Indian commercial banks has brought dramatic changes in the profile of

Indian banking. Banking has emerged as an effective catalytic agent of socio-

economic change. It has acquired a broad base and has also emerged as an

agent of development in the rural sector. The new phase of banking will be

characterised by increasing sophistication. Increased sophistication will be

reflected in introduction of modern technology and changes in the composition

of bank business. Policies and specific measures are being framed to bring

about all round improvement in banking operations. Robert M (1991)3 The study attempts to analyze the trends in

profitability, assess the operational efficiency of Public sector banks,

estimated the behavioural function of profit effecting profit for individual banks

and for the banking industry as a whole. The study covers 14 banks

nationalised in 1969. These were classified as large scale banks, medium

scale banks and small scale banks in order to make inter-bank comparisons.

The study covers a period of 15 years from 1973 to 1987. Herfindhal’s index

of concentration is used to study the performance of each unit of the system

with reference to the system as a whole. Bank-wise trend in profitability

showed that out of 14 banks, 12 showed decline in profitability during this

period. Operational efficiency based on manpower expenses and other

expenses to total staff revealed that CBI, UCB and DB were the highest cost

effective banks among large, medium and small banks.

1 Birla Institute of Scientific Research, "Banks Since Nationalisation", Economic Research Division,

Allied Publishers, News Delhi, 1981. 2 Malhotra R N, “Banking Enter a New Phase”, The Journal of the Institute of Bankers, Special

Number: Bank Economists Conference, Vol. 57, No. 2, April-June 1986, pages. 94-103. 3 Robert M, “Profitability in Public Sector Banks in India” Thesis Abstract, The Journal of Institute

of Public Enterprises, Vol. 14(4), 1991, pages. 315-321.

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Singh Jagwant (1993)4 in his book is concerned with trends and

changes in productivity with particular emphasis on employee and branch

productivity in the Indian banking industry. It determines the level of

productivity and its growth during the period 1969-85. The 22 public sector

banks i.e. banks of the SBI group and 14 nationalised in 1969 have been

taken up for the study. The study attempts to make cross-sectional and inter-

temporal analysis on the basis of 17 indicators. The indicators have been

divided into 3 categories which measure labour productivity, branch

productivity and financial productivity. T-scores have been used for giving

ranking to the banks. The ranking of the banks reveal that most significant

improvement in the ranking was achieved by Indian Bank and Indian

Overseas Bank. United Commercial Bank recorded maximum deterioration.

From the SBI group the performance of State Bank of India was better.

Agarwal R N (1993)5 in his paper analysed the profits of Public Sector

Banks since their nationalisation and discuss the determinants of profitability.

The study covers State Bank Group and Nationalized Bank Group. Time

series data for the period 1970-1987 has been used. The profit equation is

estimated by ordinary least square method. Empirical results indicate that

profitability of public sector banks has been adversely affected by increasing

statutory reserve ratios, lending to priority sectors at lower rates of interest,

expansion of bank branches in the rural and semi-urban regions and rising

wages of employees. Declining labour productivity has also adversely affected

profitability. Time deposits are found important to encourage profitability. The

two banking groups are found significantly different in their financial

performance. Zacharias Thomas (1997)6 This study is undertaken to review and

analyze the performance effectiveness of Syndicate Bank and other

Nationalized banks in India using an Economic Managerial- Efficiency

Evaluation Model (EMEE Model) developed by researcher. A period of ten

years from 1984 to 1993-94 is taken for the study. Thomas in this study found 4 Singh Jagwant, “Indian Banking Industry- Growth and Trends in Productivity”, Deep and Deep

Publications, New Delhi, 1993. 5 Agarwal R N, “Analysis of Profitability of Public Sector Banks: A Case for Financial Sector

Reforms”, Journal of Income and Wealth, Vol. 15, No. 2, 1993, pages. 123-131. 6 Zacharias Thomas, “Performance effectiveness of Nationalized Banks- A case stydy of Syndicate

Bank”, Ph.D thesis, Cochin University, Kochi, Finance India, Vol. XIV, March, 1997, pages 187-192.

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that Syndicate Bank got 5th position in capital adequacy and quality of assets,

15th in profitability, 14th position in social banking, 8th in growth, 7th in

productivity and 15th position in customer service among the nationalized

banks. Further, he found that five nationalized banks showed low health

performance, seven low priority performance and eleven low efficiency

performance in comparison with Syndicate Bank. Das Abhiman (1997)7 in paper examines the efficiency of Indian

banking. Overall efficiency is decomposed into allocative and technical

efficiency. Technical efficiency is further decomposed into pure technical

efficiency and scale efficiency. Comparison of the efficiency of banks prior to

and after deregulation is done. A non-parametric frontier methodology has

been utilised to derive several efficiency measures for public sector banks in

India for the years 1970, 1978, 1984, 1990 and 1996. The results indicate that

the State Bank of India and its Associates are more efficient than the

nationalised banks. Shajahan K M (1998)8 in paper seeks to analyze the trends in priority

sector bank lending. It was held that in the pre-nationalisation period the

crucial sectors were neglected. Lending to priority sectors became as an

essential component of national agenda after bank nationalisation. Banking

sector reforms had negative impact on lending to priority sectors. The

percentage of credit channelled to priority sectors of the economy has been

on the decline. As a result of RBI guideline that 40 percent of net bank credit

should be provided for the priority sectors of the economy, there was shortfall

in priority sector credit in individual states. Das Abhiman (1999)9 evaluates the inter-bank performance of Public

sector banks during the reform period. It made use of sequential

decomposition model for profitability analysis. This study was carried out for a

period of three years i.e. 1992, 1995, 1998 in order to study the changing

pattern of profitability of public sector banks at various points of time in the

reform period. Variables used for the profitability decomposition model are

7 Das Abhiman, “Technical, Allocative and Scale Efficiency of Public Sector Banks in India”, RBI

Occasional Papers Vol. 18, No. 2 & 3, Special Issue, June-September, 1997. 8 Shajahan K M, “Priority Sector Bank Lending- Some Important Issues”, Economic & Political

Weekly, October 17-24, 1998. 9 Das Abhiman “Profitability of Public Sector Banks: A Decomposition Model”, Reserve Bank of

India Occasional Papers, Vol. 20, No. 1, Summer, 1999, pages 55-81.

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working fund, operating profit, spread and burden. Public Sector banks have

recorded a reduction in the burden of raising working funds in the post reform

period. Profitability indicated relatively high degree of variability. Banks need

to concentrate on improving customer services to become more profitable and

efficient.

Athma Prashanta (2000)10 made an attempt to evaluate the

performance of Public Sector Commercial banks with special emphasis on

State Bank of Hyderabad. The period of the study for evaluation of

performance is from 1980 to 1993-94. Trends in deposits, various

components of profits, trends in Asset Structure of SBH are analyzed. It

evaluated the level of customer satisfaction and compared the performance of

SBH with other PSBs, Associate Banks of SBI and SBI. Statistical techniques

like ratios, percentages, compound annual rate growth and averages are

computed for the purpose of meaningful comparison and analysis. A

comparison of SBH performance in respect of resource mobilization with other

banks showed that the average growth of deposits of SBH is higher than any

other bank group. Profits of SBH showed an increasing trend a more than

proportionate increase in spread than in burden. Finally, majority of the

customers have given a very positive opinion about the various statements

relating to counter service offered by SBH. Altunbas Yener, Evans Lynne & Molyneux Philip (2001)11 in paper

attempts to find whether the ownership structure of banks influence their

economic behaviour. A variety of models are used for evaluating cost and

profit efficiencies as well as the impact of technical progress for private

commercial, public savings and mutual cooperative banks operating in the

German banking market between 1989 and 1996. Intermediation approach is

used for the definition of inputs and outputs. Inefficiency measures are

estimated using the stochastic frontier approach and distribution free

approaches. The stochastic approach labels a bank as inefficient if its costs

are higher or profits lower. It is concluded that there is little evidence to

10 Athma Prashanta, “Performance of Public Sector Commercial Banks- A Case Study of State Bank

of Hyderabad”, Finance India, Indian Institute of Finance, Vol. 14, No. 1, March 2000, pages. 183-186.

11 Altunbas Yener, Lynne Evans, Philip Molyneux, “Bank Ownership and Efficiency”, Journal of Money, Credit and Banking, Vol. 33, No. 4, November 2001.

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suggest that privately owned banks are more efficient than their mutual and

public sector counterparts in German banking market. Dasgupta Debajyoti (2001)12 in paper attempts to analyse impact of

reforms on the profitability of the Indian Public Sector Banks. The study has

selected six banks i.e. State Bank of India, Canara Bank, Punjab National

Bank, Syndicate Bank, Vijaya Bank, Corporation Bank. Time period for the

study is 1985-86 to 1996-97. The study made use of two key parameters Net

Profit and Net Worth. It was observed that two banks with lowest owner equity

that Vijaya Bank and Corporation Bank have attained better results. Except

State Bank of India all other banks along with Public sector banks as a whole

recorded a negative growth in profitability. The year 1996-97 was considered

year of recovery. Higher owner equity has helped the State Bank of India to

yield good result whereas bigger size in case of Canara Bank has helped the

bank to achieve better result.

Saha Gurudas (2001)13 in study analyses the major financial

parameters of Public and Private Sector Banks and highlights the strategic

importance of banking cost determination and cost management. Public

sector banks are unable to compete private sector banks due to poor

governance. The financial performance of public sector banks is the lowest

whereas that of SBI group is better in all ratios. SBI group have registered a

higher growth in all the business parameters as compared to Nationalised

banks but in the revenue parameters they are below nationalised banks, all

private banks and foreign banks. It is indicated that public sector banks are

losing its market share to private sector banks and foreign banks.

Janaki J (2001)14 highlighted that due to extensive liberalisation

banking system has to face both internal and external competitive pressures.

The task before the Indian banking in the new millennium is to transform its

12 Dasgupta Debajyoti “Profitability of Indian public sector banks in the light of liberalisation of

Indian economy- An overview”, The Management Accountant, Vol. 36, No. 9, September 2001, pages 693-699.

13 Saha Gurudas, “Financials of Indian Banking Industry and the Competitive Viability of the Public Sector Banks”, The Management Accountant, Vol. 36, No. 5, May 2001, pages. 373-386.

14 Janaki J, “Impact of Liberalization on Banking”, in S. Gurusamy (ed.) ‘Banking in the New Millennium: Issues, Challenges and Strategies’, Kanishka Publishers, New Delhi, 2001, pages. 109-117.

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banking system from domestic one to truly international one. Extensive

liberalisation determined stabilisation and growth. Banks and other financial

intermediaries are refocusing on core competencies and strategies. Initiatives

for technological change have been integral part of the reform process. Legal

reforms must support and complement financial sector reforms by providing

for internal governance as well as external discipline. Mergers and

Acquisitions have emerged as the appropriate approach to consolidate a

banks’ position in the aggregate banking system. Banks should first identify

their strengths and weaknesses and then venture into new related areas.

Subrahmani & Raghav (2001)15 analysed and compared the efficiency

in six public sector banks, four private sector banks and three foreign banks

for the year 1996-1997. Operational efficiency is calculated in terms of total

business and salary expenditure per employee. The analysis revealed that

higher per employee salary level need not result in poor efficiency and

business per employee efficiency co-efficient was calculated. Among the

PSBs, Bank of Baroda registered the high efficiency and operating profit per

employee. Among the private sector banks Indus Bank followed by Citi Bank

registered highest and second highest operating profit per employee

respectively. However, among the Nationalised Banks there existed wide

variations in efficiency. Das Abhiman (2002)16 in his paper seeks to examine the

interrelationships among risk, capital and productivity change for the public

sector banks in India. The paper studies the public sector banks for the period

1995-96 to 2000-2001. The analysis reveals that capital adequacy has a

negative and significant effect on asset quality. The results imply that

inadequately capitalised banks have a lower productivity and are subject to a

higher degree of regulatory pressure than adequately capitalised ones. Poor

performers are more prone to risk taking than better performing banking

organisations. Finally, it has been laid that lowering government ownership

tends to improve productivity.

15 Subrahmani & Raghav, “Operational Efficiency of Banks” in S. Gurusamy (ed.) ‘Banking in the

New Millennium- Issues, Challenges and Strategies’, Kanishka Publishers, New Delhi, 2001. 16 Das Abhiman “Risk and Productivity Change of Public Sector Banks”, Economic & Political

Weekly, February 2, 2002.

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Chaudhuri Saumitra (2002)17 in paper observed that profitability of

public sector banks is continuously declining. Public sector banks are facing

triple jeopardy. Their market share and profitability are declining. Balance

sheets do not pose strong picture. Many serious difficulties continue to beset

the banking sector. Efficient banking does not simply mean to tell bankers

exactly what they should and should not do. The major factor responsible for

inefficiency in Public sector banks is state ownership. Banking reforms

initiated in 1991 transformed the face of banking in India including that of

Public sector banks. Mathur K B L (2002)18 in paper examined the arguments extended to

a case for the privatisation of public sector banks mainly nationalised banks.

Re-capitalisation of Public sector banks is a huge burden on the government

budget. State ownership of banks reduces competition and thus breeds

inefficiency. There is no evidence that state ownership lowers the probability

of banking crisis. Private and foreign banks stimulate efficiency, innovation

and economic growth. It is held that the arguments which are put forward for

the privatisation of PSBs are not strong. Private ownership may lead to crisis

if the regulatory system is unable to control the adverse extraneous

pressures. State ownership of banks should be maintained until the conditions

such as smooth legal system, strong regulatory framework, reduced fiscal

deficit and a sharp reduction in controls on flow of foreign capital are

appropriate for privatisation. Nagar Nirupma & Mishra Jitendra Kumar (2002)19 The present study

is confined to State Bank of Indore which has large spread of branches in

most of the parts of Madhya Pradesh. The high level of NPAs of the bank in

Madhya Pradesh causes serious concern for the bank under study. Reasons

for the piling up of NPAs are political interference in the working of banks,

lengthy judicial process, time and costs overrun in project implementation,

shortage of raw materials along with power shortage etc. It is suggested that

to succeed in the changed scenario of globalisation NPAs will have to be 17 Chaudhari Saumitra “Some Issues of Growth and Profitability in Indian Public Sector Banks”,

Economic & Political Weekly, June, 2002. 18 Mathur K B L “Public Sector Banks in India- Should They Be Privatised”, Economic & Political

Weekly, June 8, Vol. XXXVII, No. 23, 2002. 19 Nagar Nirupma & Mishra Jitendra Kumar “Non-Performing Assets of Commercial Banks- A Case

Study of State Bank of Indore”, Madhya Pradesh Journal of Social Sciences, Vol. 7, No.1, 2002, pages. 102-112.

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brought down to a significantly low level. The State Bank of Indore shows a

declining trend of its NPAs on a year by year basis but it is the result of

recovery and not because of assessment capacity. Incidence of NPAs can be

tackled through better selection of borrowers, more scientific credit appraisal

and supervision.

Aparna T (2002)20 in article highlights the fact that SBI is the largest

and oldest public sector bank of India. Due to greater competitive pressures

and changes in Indian Economy it has felt the need to revitalize and

restructure itself. SBI is planning for technology upgradation. In order to

increase its income it has shifted its focus from traditional banking to retail

finance and housing finance. It is State Bank of India and its associates that

have developed banking habit in the country. The financial performance of

banks has been satisfactory over a period of time. Total income, operating

profit and Net interest income showed a rising trend. SBI has the largest

holdings of government securities. SBI has computerised 80% of its business

operations and has highest number of ATMs in the country. Housing finance

is the new thrust of SBI. SBI targeted to bring down its NPAs. SBI should

continue its revitalising and reorienting process so that it can keep its flag

flying high even amidst cut throat competition. Ram Mohan TT (2002)21 in his paper evaluated the performance of

PSBs since deregulation in absolute and relative terms and attempts to

understand the factors underlying their improved performance. In India due to

regulatory norms, government-owned banks have minimal exposures to risk

assets such as real estate and stock market. Restructuring in banking backed

by the required capital has produced healthy results. It was observed that the

efficiency of the banking system as a whole measured by declining spreads

has improved. The performance of public sector banks has improved both in

absolute and relative terms. Bhide MG, Prasad A, Ghosh Saibal (2002)22 The paper presents in

brief the highlights of the important aspects of financial sector reform and the

20 Aparna T, “State Bank of India: Flying High”, Chartered Financial Analyst, Vol. 8, Issue. 9,

September 2002, pages. 60-61. 21 Ram Mohan TT, “Deregulation and Performance of Public Sector Banks”, Economic & Political

Weekly, Vol. XXXVII, No. 5, February 2, 2002, pages. 393-397. 22 Bhide MG, Prasad A, Ghosh Saibal, “Banking Sector Reforms: A Critical Overview”, Economic &

Political Weekly, Vol. XXXVII, No. 5, February 2, 2002, pages. 399-408.

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weaknesses and some of the crucial issues faced by the banking system at

the present juncture. The paper concludes that implementation of banking

sector reforms had achievements as well as pitfalls. It is important to strike a

balance and find a middle path between the over zeal for intervention and

ability of banking system to self rectify its deficiencies. Banking authorities are

under constant challenge of identifying newer risks and strengthening the

banking sector to keep pace with changes in technology. Pandey Rajendra & Bandyopadhyaya Sanjiban (2003)23 in paper

attempts to ascertain the factors affecting the profitability of performance of

PSBs on the basis of Break Even Analysis. In this study the cost-volume-profit

analysis helps in determining the optimum level of bank’s performance. The

study covers all the 27 public sector banks of India. Time period of the study

is from 1990-2000. It is observed that performance of all the banks together is

poor which is supported by negative profitability performance during four out

of ten years. Results of multiple regression analysis, suggests that the

profitability is influenced by operating cost, interest earned, interest paid and

other income. It is suggested that in order to improve margin of safety profit

earning bank must reduce operating cost and losing bank must reduce the

burden of interest payment. Singh Kunal (2003)24 This article highlights the fact that due to

competitive pressures the largest public sector bank that is State Bank of

India is entering into businesses like credit cards, insurance, brokerage, gold

etc. It has also focused on the most profitable home loan business. It is

entering retail business by employing new and innovative schemes. SBI is

one of the most profitable banks in India. Net Profits, Operating Profits, Net

Interest Income, Advances, Average resources deployed in treasury

operations, average deposits has shown an interesting trend over a period of

time. SBI is also planning to introduce special Prime Lending Rate (PLR) for

housing loans. SBI has introduced schemes for Doctor, Teacher and Justice

under which they would be provided loans at a cheaper rate. SBI has tied up

23 Pandey Rajendra & Bandyopadhaya Sanjiban “Cost-Volume-Profit analysis and Banks

Performance A Case Study of Public Sector Banks”, The Management Accountant, Vol.38, No. 6, June 2003.

24 Singh Kunal, “State Bank of India: Aggressive Game Plans”, Chartered Financial Analyst, Vol. 9, No. 5, 2003, pages. 27-28.

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with Maruti Udyog Ltd for financing cars at cheaper rates. SBI is also selling

life-insurance and health care products. Rao Srinivasa K S & Prasad Chowdari (2003)25 The paper makes

the survey on banks over a period of time and compared Indian public sector

banks among themselves as a closed model and later with other banks as an

open model using various statistical techniques like cluster analysis. Cluster

analysis was done in case of closed model in order to compare 27 public

sector banks among themselves. Similarly, cluster analysis was done in case

of open model to compare PSBs with private sector banks and foreign banks.

In case of closed model, 8 out 0f 27 banks were graded as best banks. In

open model out of 86 banks 11 are considered best banks. Chellasamy P & Sumathi N (2004)26 depicted the real picture of

Indian banking. Indian banking has become highly proactive and dynamic

entity. This transformation occurred due to liberalization and economic

reforms initiated in nineties. The nationalized banks continue to dominate the

Indian banking arena. State Bank of India is the largest bank in India in terms

of profits, assets, deposits, branches and employees. It is concluded that

Indian banking industry is currently in a transition phase. Indian banks are not

only keen to tap the domestic market but also to compete in the global market

place. New foreign banks have been equally keen to gain a foothold in the

Indian market.

Sisodiya Amit Singh & Rao N Janardhan (2004)27 in article

highlighted the performance of SBI. SBI is largest Public Sector Bank in India.

It has business in retail and wholesale market and provides products like

credit cards, insurance, gold etc. The bank has wide network of rural, semi

urban, urban and metropolitan branches. Its major business areas are

corporate banking, International banking, Domestic banking, Associate Bank

divisions for looking after the working of these banks. Credit division is formed

for monitoring the overall credit finance, corporate development and

25 Rao Srinivasa K S & Prasad Chowdari, “Can Public Sector Banks Compete with Foreign/Private

Banks? A Statistical Analysis”, Paper submitted to the International Conference on “Business & Finance” to be held during 15-16, December 2003 at ICFAI Business School, Hyderabad.

26 Chellasamy P & Sumathi N “Role of Banking System in India”, Journal of Global Economy, Vol. 2, No. 4, December, 2004, pages 289-295.

27 Sisodiya Amit Singh & Rao N Janardhan, “Spotlight: State Bank of India”, Chartered Financial Analyst, Vol. 10, No. 11, 2004.

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Inspection. State Bank of India has the largest ATM network in India. It is

expanding its business in foreign countries also. Ram Mohan TT & C Ray Subhash (2004)28 in paper attempts to

compare performance among three categories of banks- Public, Private and

Foreign. The study made use of physical quantities of inputs and outputs. It

compared the revenue maximisation efficiency of banks during 1992-2000.

Data Envelopment Analysis is used in order to make comparisons. It is

concluded that public sector banks performed significantly better than private

sector banks. Superior performance of public sector banks is due to higher

technical efficiency rather than higher allocative efficiency. Because of its

size, State Bank of India is found to efficient on all counts in VRS model.

Using financial measures of performance, it is found that there is convergence

in performance between public and private sector banks in the post-reform

era. Sooden Meenakshi & Bali (2004)29 has stressed that the public sector

banks should give emphasize on both economic and social profits in a

desirable mix to make themselves a strong pillar of modern development

framework. They analyzed the profitability of the public sector banks in both

pre and post reform period for the year 1982 to 2000. In late 1990s economic

profitability of public sector banks started improving and priority sector lending

started falling. It led to erosion of social profitability in public sector banks.

Singh Bhupinder Pal (2004)30 The objective of the present study is to

analyse the impact of banking reforms on technical efficiency of public sector

banks, to find interbank variation in technical efficiency, to find impact of

banking sector reforms on the total factor productivity growth of the Indian

public sector banks. Time period for the study is taken from 1987-2003. Data

Envelopment Analysis and DEA- Malmquist Product Index have been used. It

is concluded that banking sector reforms had a favourable impact on

productive efficiency of Indian Public Sector Banks.

28 Ram Mohan TT & C Ray Subhash, “Comparing Performance of Public and Private Sector Banks-

A Revenue Maximisation Efficiency Approach”, Economic & Political Weekly, March 20, 2004. 29 Sooden Meenakshi & Bali, “Profitability in Public Sector Banks in India in the pre and post reform

period”, India Management Studies Journal, Vol. 8, No. 2, October 2004, pages. 69-80. 30 Singh Bhupinder Pal, “Banking Reforms and Productive Efficiency of Indian Public Sector

Banks”, Dissertation, Master of Philosophy in Economics, Punjabi University, Patiala, 2004.

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Prasad A & Ghosh Saibal (2005)31 in paper analyzed whether

competition has yielded significant benefits in terms of greater product

sophistication and cost reduction. The study used annual data on scheduled

commercial banks for the period 1996-2004. The study considers 27 state-

owned banks, 15 old and 8 new private sector banks, 14 foreign banks. The

study reveals that the competitive nature of the Indian banking industry is not

significantly different from the banking system in other countries, particularly

in view of the fact that nearly 75 percent of banking system assets is with

state-owned banks. Recent trend towards consolidation led to more rather

than less competition in the banking sector. The empirical evidence reveals

that the Indian banking system operates under competitive conditions and

earns revenues as if under monopolistic competition. Patnaik U C & Patnaik Manoj (2005)32 The overall objective of the

study is to evaluate the profitability of public sector banks in general and SBI

in particular. The present study covers the ten year period from 1992-93 to

2001-02. The techniques used for analysis include trend analysis, common-

size income statement and ratio analysis with their mean, coefficient of

variation and coefficient of correlation. It is concluded on the basis of overall

analysis that the profitability performance of SBI was much better in the post-

reform era as compared to the pre-reform era of banking sector. Hence, the

hypothesis that with the introduction of reforms in the banking sector, the

profitability of SBI has improved holds good and is accepted. The study

suggests that the level of Non-Performing Assets should be reduced. In order

to raise the level of customer satisfaction, Banks should set up CRM groups

and CRM departments. To improve the profitability and productivity, the banks

should improve extensively their Information and Communication Technology. Chakrabarti Rajesh & Chawla Gaurav (2005)33 pointed out that

performance and efficiency of commercial banks are key elements of the

efficiency and efficacy of country’s financial sector. CAMELS rating system is

used to evaluate the health and performance of commercial banks. Data

31 Prasad A. & Ghosh Saibal “Competition in Indian Banking” IMF Working Paper, WP/05/141,

July, 2005. 32 Patnaik U C & Patnaik Manoj, “Profitability in Public Sector Banks”, Sonali Publications, New

Delhi, 2005. 33 Chakrabarti Rajesh & Chawla Gaurav, “Money and Finance-Banking Efficiency in India since the

Reforms- An Assessment”, Money and Finance, Vol. 2, Issue, 22-23, 2005.

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Envelopment Analysis is used to measure efficiency. The most significant

change that occurred in the banking sector is the emergence of new private

sector banks as well as the entry of new foreign banks. Professionalism has

increased in the banking sector due to emergence of new private banks.

Public sector banks continue to enjoy pre-eminent position in Indian banking

sector accounting for over 80% of deposits and credit. There is however a

noticeable trend of private banks gradually eroding the market share of the

public sector. The foreign banks turnover per employee is about five times

that of the nationalised banks. Mohan Rakesh (2005)34 explored the impact of banking sector

productivity on the rest of the economy. Productivity and efficiency issues in

banking are discussed in conjunction with the level of financial development

and other country-specific features. The patterns of efficiency and

technological changes witnessed in Indian banking can be viewed as

consistent with rapid changes in banking industry which is outcome of forces

of deregulation. The evidence of competitive pressure is well supported from

the declining trend of Herfindahl’s concentration index. Declining index

generally indicate a loss of pricing power and increase in competition. It is

concluded that as deregulation gathers momentum, commercial banks would

need to devise ways of augmenting their incomes and more importantly their

fee based incomes so as to raise efficiency and productivity levels.

Sahu Bihari Gagan & Rajasekhar D (2005-06)35 in paper analysed

the trends in credit flow to agriculture by SCBs. Time period for the study

taken is from 1981 to 2000. The analysis brings out that the share of credit to

agriculture in total net bank credit had significantly declined especially, after

the introduction of banking sector reforms. The analysis also shows that SCBs

provided larger quantum of funds to activities earning higher interest income.

Credit flow to agriculture was negatively associated with investment in

government securities. Credit supply to agriculture was positively associated

with the incidence of rural bank branches. Increasing lending rate reduces

34 Mohan Rakesh Address delivered at the 21st Annual General Meeting and conference of the

Pakistan Society of Development Economists at Islambad in December, 2005. 35 Sahu Bihari Gagan & Rajasekhar D, “Banking Sector Reform and Credit Flow to Indian

Agriculture”, Economic & Political Weekly, Vol. XL, No. 53, Dec-Jan, 2005-06, pages. 5550-5559

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the credit disbursed to agriculture by SCBs. It is suggested that cost of

lending should be reduced in order to reduce the burden of credit subsidy. Kumar Parmod (2006)36 in his book attempts to explore the broad

structure of banking system in India, to analyze the overall efficiency of the

system in terms of various financial parameters, to delineate and analyze the

overall efficiency into its components: technical efficiency and allocation

efficiency. In general the time period covered is 1969-70 to 2002-03 but the

efficiency analysis has been limited to the reforms period only. The analysis

has been carried out at the banks group level. Overall efficiency has been

analyzed first by using a stochastic-coefficients frontier production-function

approach. Data Envelopment technique is utilised to analyse components of

overall efficiency. In terms of overall economic efficiency, the public sector

banks are still better performers than the private banks and are slightly lower

than the foreign banks. The overall average allocative efficiency of the foreign

banks is the highest. Samanta Amitava (2006)37 in his paper attempts to analyse the impact

of NPA on the working of Commercial Banks in India. It is held that India has

acquired an alarming number of Non-Performing assets over the last two

decades. NPA has affected the profitability, liquidity and competitive

functioning of public and private sector banks. Now-days the psychology of

the banks is to insulate themselves with zero percent risk and paying little

attention to fresh credit. Greater emphasis has been laid on credit risk

management. Bhasin Niti (2006)38 in her work explains and examines the changes

which have taken place in the Indian banking sector over the last 60 years

since Independence. She highlighted that the banking system of India

consists of the Central bank (Reserve Bank of India), Commercial banks, Co-

operatives banks and developmental banks. These institutions act as

intermediary between savers and investors. Banks play an important role in

the development process of underdeveloped countries. Banking

36 Kumar Parmod, “Banking Sector Efficiency in Globalised Economy”, Deep and Deep

Publications, New Delhi, 2006. 37 Samanta Amitava, “Impact of NPA on Working of Commercial Banks in India”, Journal of

Economic and Social Development, Vol.11, No.1, 2006, pages 87-95. 38 Bhasin Niti, “Banking Developments in India 1947 to 2007 Growth, Reforms and Outlook”, New

Century Publications, New Delhi. 2006.

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developments in India are largely due to various actions taken by government.

The book describes the role of banking system in a developing country like

India. It also explains about the changing functions of banks to meet

challenges of changing world economic order. Sensaram Rudra (2006)39 estimated efficiency of Indian banks and

then estimated a measure of productivity that includes an efficiency term.

Following this comprehensive measure, we find that banks have improved

their performance during the period 1986 to 2000 in terms of both efficiency

and productivity. Foreign banks have been the worst performers throughout

the period as compared with state owned and private domestic banks. Varadi, Kumar Vijay, Kumar Pradeep & Boppana Nagarjuna

(2006)40 The present study focuses on estimation of the efficiency of

commercial banks including public, private and foreign banks operating in

India with four indicators i.e. productivity, profitability, financial management

and asset quality. Data Envelopment Analysis is used for measuring the

efficiency of banks in India. The study covers 93 banks. Time series data from

2000 to 2003 is used for the study. Intermediation Approach is used. It is

concluded that public sector banks are having higher efficiency in terms of

productivity, profitability, financial management and asset quality. Private

Banks are having a very high inefficiency levels during the sample period in

the different indicators. Foreign banks are more efficient than the private

banks. The public sector banks profitability has improved and their NPAs have

declined massively. Public sector banks are having more high possibility to

fulfil corporate and social responsibilities. Sharma Neeraj (2006)41 in present study is a case study concerned

with the performance measurement of PNB in Haryana state and seeks to find

out its contribution in the economic development of the state. The purpose is

to find out that whether PNB is truly a lead bank of the state. Comparison of

PNB is done with public sector banks and all banks (Public, Private, RRBs’)

operating in Haryana. In present study, five variables have been taken to 39 Sensaram Rudra, “Are foreign banks always the best? Comparison of state-owned, private and

foreign banks in India”, Economic Modelling, Vol. 23, Issue. 4, July 2006, pages. 717-735. 40 Varadi, Kumar Vijay, Kumar Pradeep & Boppana Nagarjuna, “Measurement of Efficiency of

Banks in India, MRPA Paper No. 17350, posted 17, September 2009, Online at http:// mpra.ub.uni-muenchen.de/17350 , 2006.

41 Sharma Neeraj “Performance of Punjab National Bank in Competitive Environment: A Case Study of Haryana”, Ph.D Thesis, Punjabi University, Patiala, 2006.

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evaluate the overall performance of PNB in Haryana state for the period 1993-

2004. These variables are: Branches, Deposits, Advances, Priority Sector

Advances, C-D ratio. Arithmetic Mean, Standard deviation, Coefficient of

variation, Correlation coefficient, simple and trend growth rate are used for

analysing the data. It is suggested that multi pronged approach should be

adopted by the banks to raise capital from domestic as well as foreign

markets. Research efforts should be so directed so that these are meant for

understanding the need based problems faced by the people living in rural

and urban areas. Rao Ramachandra, Das Abhiman, Singh Kumar Arvind (2006)42 in

paper examines the trends in sectoral allocation of bank credit to the SSI in

comparison to non-SSI sector in the post reform period. The paper also

makes an attempt to understand variations in bank credit to the SSI sector

across bank groups and also the influence of the size and performance of

banks on credit to the SSI sector. The study covers 97 Scheduled commercial

banks. These banks are also classified into three size classes based on the

total assets as on March 31, 2003. Time period of the study is from 1992 to

2003. It is believed that the working capital support extended by commercial

banks to small-scale industry is far from adequate. Share of SSI in total

priority sector advances of all scheduled commercial banks has been falling

consistently. The results indicate that the high incidence of bad loans arising

out of SSI advances could be one of the reasons for the declining share of

SSI loans of the commercial banks. Mittal R.K & Dhingra Sanjay (2007)43 in paper evaluates the impact

of computerisation on the performance of Indian banks in terms of their

profitability and productivity. Data Envelopment analysis is used to study the

impact of computerisation on Indian banks productivity and profitability.

Results show that ICICI Bank is found to be efficient in all indicators. Only two

public sector banks, Oriental Bank of Commerce and Corporation Bank were

in top ten. The output of DEA indicates that private banks are much better

than public banks in productivity and profitability indicators. 42 Rao Ramachandra KS, Das Abhiman, Singh Arvind Kumar, “Commercial Bank Lending to Small-

Scale Industry”, Economic & Political Weekly, Vol. XLI, No. 11 March 2006, pages. 1025-1033. 43 Mittal R K & Dhingra Sanjay “Assessing the impact of computerization on productivity and

profitability of Indian banks- An Application of Data Envelopment Analysis”, Delhi Business Review, Vol. 8, No. 1, January- June, 2007.

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Mittal Manish & Dhade Aruna (2007)44 in paper compares various

categories of banks in terms of their productivity and profitability. This paper

focuses on the achievement and performance of Public Sector Banks vis-a-vis

Private sector banks and Foreign Banks. The time period for the performance

analysis has been chosen as 1999-2000 to 2003-2004. The study uses Ratio

analysis to compare profitability and productivity of different categories of

banks. It is concluded that public sector banks and old private sector banks

are lagging far behind their competitors in terms of both productivity and

profitability with the exception of State Bank of India and its associates. A

three point program is suggested for public sector banks and old private

sector banks. They should reduce overstaffing, forge strategic alliance with

the rural regional banks to open up rural branches and increased use of

technology for improved products and services for the same.

Sufian Fadzlan (2007)45 provides new empirical evidence on the

performance of the Malaysian Islamic banks over the period of 2001-2004 by

applying the Malmquist Total Factor Productivity Index. For the empirical

analysis all Malaysian conventional banks that offered Islamic banking were

incorporated in the study. A variation of intermediation approach or asset

approach is adopted. Results hold that the domestic banks have exhibited

higher productivity growth compared to their foreign counterparts.

Technological change is mainly responsible for productivity progress of

Malaysian Islamic banks. Singh Sultan (2007)46 made an attempt to assess the impact of

reforms on the operational performance and efficiency of the commercial

banks in India. Ratio Analysis has been used as a major tool for assessing the

performance of the selected commercial banks. The hypothesis that the

profitability position has improved in reform period may be accepted to some

extent. It was observed that in the PSBs the size of NPAs has also been

reduced to some extent and quality of service has improved in reform period.

The priority sector lending has registered a decline in the deregulation era.

44 Mittal Manish & Dhade Aruna “Profitability and Productivity in Indian Banks: A comparative

Study”, AIMS International, Vol. 1, No. 2, May 2007, pages. 137-152. 45 Sufian Fadzlan “Productivity Growth in the Malaysian Islamic Banking Industry: A Non-

Parameteric Malmquist Productivity Index Approach”, The ICFAI Journal of Industrial Economics, Vol. IV, No. 1, 2007, pages. 20-36.

46 Singh Sultan “Banking Sector Reforms in India”, Kanishka Publishers, New Delhi, 2007.

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Rangarajan C (2007)47 in lecture focuses on the banking sector

reforms and improvement in the performance of Indian banking Industry. It is

held that the development of the financial system is essential for sustaining

higher economic growth. Reform measures were initiated in India so that

banks can overcome external constraints and operate with greater flexibility.

Favourable impact of banking sector reforms on Indian banking Industry is

also shown. Proper attention should be paid to issues like consolidation,

capital adequacy, risk management and customer service. Productivity and

Profitability can be improved by combining corporate planning with

organisational restructuring. Financial inclusion and governance have

emerged as the key issues for socio-economic development. Gopinath Shyamala (2007)48 in her speech focused on impact of

financial sector reforms especially on banks. It improved the efficiency,

soundness and ensured financial stability of the entire system. Financial

sector reforms in India were introduced in India in the early 1990’s. They were

part of the structural adjustment and economic reforms programme and had

profound impact on the functioning of the financial institutions especially

banks. The reforms were introduced neither because of any banking crisis nor

due to any external support package. To prepare financial system to compete

in globalized environment and to promote financial stability was on top of

agenda of reforms.

Monterio Mohan N J & Ananthan B R (2007)49 studied the two highly

banked districts of Karnataka state namely, Dakshina Kannada and Udupi.

Corporation Bank Ltd was selected as respondent bank as it has more

number of branches and has covered wider area in the districts. A total of 35

managers of the respondent bank were chosen to gather the data relevant for

the study. A comprehensive questionnaire covering structured and non-

structured questions was administered to the bank managers and personal

interview was held to gather additional data. The issues covered in the

questionnaire included the possible causes for NPAs, options available when 47 Rangarajan C “The Indian Banking System – Challenges Ahead”, Indian Institute of Banking and

Finance, First R. K. Talwar Memorial Lecture, July 31, 2007. 48 Gopinath Shyamala “Special Features of Financial Sector Reforms in India”, Inaugral address by

Smt Shyamala Gopinath, Deputy Governor, RBI delivered at the 18th Annual National Conference for Forex Association on April 6, 2007 at Bangkok.

49 Monterio Mohan N.J & Ananthan B R, “NPA in Public Sector Banks: Causes and Cures”, The Indian Journal of Commerce, Vol. 60, No. 2, April-June 2007, pages. 1- 11.

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loans turn sticky, possible steps to reduce and control NPAs etc. It is found

that irregular payment was the major cause for an account turning into NPA.

Good pre-sanction scrutiny, effective post-sanction supervision and effective

recovery steps were the measures to control NPAs. Uppal R K & Kaur Rimpi (2007)50 in paper describes the necessity of

the banking sector reforms from the angle of national development policy. It

analyzes the impact of reforms on the performance of the banking sector. The

study reveals that the gap in the productivity and profitability of major bank

groups has widened. Performance of banking sector has improved under

reform period but still public sector banks are lagging behind in their

performance when compared with counterparts. The paper concludes how

banking industry can improve its performance and suggests future agenda for

the banking industry particularly to the public sector banks. A strategic action

plan should be initiated for reducing NPAs. Indian banking sector should

develop its own model based on local ethos and cultural backdrop. Public

sector banks should adopt the same strategies as that of private sector and

foreign banks to gain competitive edge. Kumar Vishal & Savita (2007)51 in present paper attempts to identify

the challenges in Indian banking sector and also suggested strategies for

future. Some of the major challenges faced by the Indian banking industry are

improvement in profitability, technology upgradation, building proper risk

management structure, rural and social banking issues and proper human

resource management. It is concluded that due to changing economic

scenario world wide banks will have to take steps for cost reduction,

technology up-gradation, innovation in services and products, seeking newer

markets and reorientation in attitudes towards the constantly changing

environment.

50 Uppal RK & Kaur Rimpi, “Banking Sector Reforms: Their Efficacy and Future Agenda” in R K

Uppal & Rimpi Kaur (ed.) ‘Banking in the New Millennium: Issues, Challenges and Strategies’, Mahamaya Publishing House, New Delhi, 2007, pages. 1-21.

51 Kumar Vishal & Savita, “Banking in the New Millennium: Challenges and Strategies”, in R K Uppal & Rimpi Kaur (ed.) ‘Banking in the New Millennium:Issues, Challenges and Strategies”, Mahamaya Publishing House, New Delhi,2007, pages. 155-172.

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Kapoor Seema (2007)52 This paper attempts to discuss the process of

banking reforms and examines its impact on the performance of Scheduled

commercial banks in general and Public sector banks in particular during post

reform period. The parameters used in the study to evaluate the performance

of Indian banks are capital adequacy and asset quality, efficiency, profitability

and business of banks in rural areas. It is concluded that Indian banking

system is well in co-ordination with International standards. Deregulation,

technological upgradation, increased market integration and human resource

management are the key factors which stimulated change in the financial

sector. Dey S K & Kumar Pradeep (2007)53 in article highlights the fact that

development is both economic and social phenomenon. Social lending

became one of the thrust areas under the poverty alleviation programme in

the country. It is suggested that direct subsidy component in social lending

should be scrapped. Social lending should result in mutual benefits. It should

be properly designed and monitored from time to time. Self Help groups

should be encouraged for social lending. It is concluded that profitability and

social lending of banks should go hand in hand. Profitable banks can do

social lending more aggressively for a long time. Uppal R K (2008)54 in his book focuses on issues like Basel- II Accord

guidelines, second generation banking sector reforms, cost-benefit and

productivity analysis of Indian banks, danger zone banks, privatisation and

comparative efficiency of Indian banks and the recent reform measures. He

emphasised that banking sector reforms in India enabled Indian banking

industry to face competitive pressures. Banking sector have stimulated the

Indian economy to move towards higher growth path. It is indicated that Indian

banking system today is more stable and efficient. It is suggested that there is

a need to ensure long-term finance to support development and growth in the

economy.

52 Kapoor Seema, “Reforms in Indian Banking Sector: Agenda for Future” in R K Uppal & Rimpi

Kaur (ed.) ‘Banking in the New Millennium: Issues, Challenges and Strategies‘, Mahamaya Publishing House, New Delhi, 2007, pages. 379-394.

53 Dey SK & Kumar Pradeep, “Relevance of Social Lending in Indian Banking” in Mohan Prasad Shrivastava, Pradeep Kumar Pandey, V P Vidyarthi (ed.) ‘Banking Reforms and Globalisation’, APH Publishing Corporation, New Delhi, 2007, pages. 297-304.

54 Uppal R K “Indian Banking in the Globalised World”, New Century Publications, New Delhi, 2008.

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Kalluru Siva Reddy & K Bhat Sham (2008)55 explored the

determinants of banks profitability during the post reform period. The fixed

effects model as well as the random effects has been employed to identify the

determinants of profitability of commercial banks in India. The study was

conducted on 87 commercial banks which consist of 28 public sector banks.

Return on Assets and Returns on Capital are considered as alternative

measure of profitability. Empirical results revealed that efficiency is not the

sole determinant of profitability as other internal variables such as capital to

assets, non-interest income to assets, loans to assets and overhead

expenses to assets are statistically significant. Size is negatively associated

with the profitability of public sector banks in ROA and positively associated

with private banks in ROC specification. Ownership and political party in

power also play a vital role in determining bank profitability in India. Inflation

and profitability is negatively associated with the profitability of Indian banks.

Determinants of bank profitability vary significantly across the bank groups. Gupta Sumeet & Verma Renu (2008)56 analyses the overall financial

performance of major private sector banks in India through application of

CAMEL Model. Ten major private sector banks has been taken- Axis Bank,

Bank of Rajasthan, City Union Bank, HDFC Bank, ICICI Bank, Kotak

Mahindra Bank, Karnataka Bank, Karur Vysya Bank, South Indian Bank, Yes

Bank. The ranking of these banks has been done by calculating the average

of different financial ratios of 5 years from 2003 to 2007 at the rating scale of

1-10. For comparative analysis of overall performance, Composite Ranking

method has been applied on the basis of group performance. Analysis shows

that Karur Vysya Bank has the top position in overall performance followed by

City Union Bank and Kotak Mahindra Bank, Bank of Rajasthan has got the

lowest Composite Rank among all the banks under study. It can be concluded

that transparency and good governance would work as principal guiding force

in present scenario.

55 Kalluru Siva Reddy & K Bhat Sham “An Empirical Analysis of Profitability Determinants in

Indian Commercial Banks during Post Reform Period”, The ICFAI University Journal of Industrial Economics, Vol. V, No. 4, 2008.

56 Gupta Sumeet & Verma Renu “Comparative Analysis of Financial Performance of Private Sector Banks in India: Application of CAMEL Model”, Journal of Global Economy, Vol. 4, No. 2, April-June, 2008, pages 144-158.

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Rao D Suryachandra (2008)57 The major objective of the study is to

assess the impact of reform measures on the efficiency, profitability and

overall performance of banks taking public and private sector bank during the

period 1992-93. Six efficiency indicators and five profitability indicators are

taken to evaluate the performance of banks. The performance analysis is

carried out in two ways that is time-wise analysis and period-wise analysis.

The reform measures have a positive impact on profitability, efficiency and

overall performance of all groups of banks. The financial health of banks

improved due to prudential norms. New private sector banks have showed

better performance than old private sector banks and public sector banks. Kumar Sunil (2008)58 explored the relationship between Technical

efficiency in the Indian public sector banks. The study is based on cross-

sectional data for 27 banks. The technique of Data envelopment analysis has

been utilised to compute the technical efficiency score for each bank in the

year 2005. The mean level of technical efficiency for the industry is found to

be 88.5 percent. This implies that public sector banks can produce 1.13 times

as much output from the same inputs, if they operate at efficiency frontier in

20 inefficient banks. This paper explains the performance variance and

relative efficiencies of 19 public sector banks excluding State Bank group

operating in India during 2003-2008. Bodla B S & Verma Richa (2008-09)59 attempted to view the Earning

Quality of Indian banks as per CAMEL Model. This paper highlights the

earning quality in terms of operating profit and net profit, fund based and fee

based income of the banks. Earning Quality determines the profitability of the

banks. The study covers 88 scheduled commercial banks for the time period

1991-92 to 2005-06. The study period was further divided into three sub-

periods 1992-95, 1996-00 and 2001-06. T-test was applied to examine the

significance of difference in various parameters between various sub-periods

and across various sectors. It is concluded that on the whole the banks

operating in India have shown appreciable improvement in their fee-based

57 Rao D Suryachandra, “Banking Reforms in India: An Evaluative Study of the Performance of

Commercial Banks, Regal Publications, New Delhi, 2008. 58 Kumar Sunil, “An Analysis of Efficiency-Profitability Relationship in Indian Public Sector

Banks”, Global Business Review, Vol. 9, No. 1, 2008, pages. 115-129. 59 Bodla B S & Verma Richa “Earning Quality of Scheduled Commercial Banks in India: Bank-wise

and Sector-wise Analysis”, Prajnan, Vol. XXXVII, No. 4, 2008-09, pages 257-283.

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income. Banks of foreign origin are ranked on the top on the basis of their

earning quality. Profitability of Scheduled Commercial banks is growing

continuously due to increasing fee-based income and curtailment of operating

expense. Raju. D N M (2009)60 The objectives of the study are to appraise the

performance of the bank in regulating NPAs and identification of the problems

faced by the bank and suggests remedial measures to overcome

inefficiencies, shortcomings and bring down NPAs. The study covered SBI

branches operating in Vijayawada zone covering three districts of Coastal

Andhra Pradesh. The financial and operating performance of the SBI was

examined with reference to deposit mobilisation, deployment of credit and

profits. The period covered for the study is 1990-91 to 2000-01. Two

structured questionnaires were administered a) on select employees of SBI

dealing with NPAs and few other senior officers b) on bank officers dealing

with advances. Statistical tools used in the study are percentage, mean, ratio

analysis, correlation, regression and chi-square. The study brings out a

number of suggestions for improving the performance of SBI, strengthening

the recovery position of NPAs, prevention and reduction of NPAs. Kalluru Siva Reddy & Sham Bhat K (2009)61 in paper investigates the

effects of foreign banks entry on the operations of public sector banks in India

for the period 1996-2007. Variables employed to mark the intensity of foreign

bank’s presence that ratio of number of foreign banks to the total number of

banks in the country. Net interest margin to total assets, Non-interest income

to total assets, profits before tax to total assets, overhead expenses to total

assets, non-performing loans to total loans are the variables which measure

the income, profitability and costs of public sector banks. The empirical results

reveal that foreign bank entry usually increases competition in the banking

industry as is evidenced by increasing profitability of banks. It is concluded

that foreign bank entry in the Indian banking system adversely affects the

operations of PSBs.

60 Raju D N M “Evaluation of the Performance of State Bank of India with special reference to Non-

Performing Assets (NPAs)”, Abstract of Doctoral Dissertation, Finance India, Indian Institute of Finance, Vol. XXIII, No. 3, September, 2009, pages. 985-989.

61 Kalluru Siva Reddy & Sham Bhat K “Does Foreign Bank Entry Affect Operations of Domestic Banks ? A Study of Indian Public Sector Banks”, The ICFAI University Journal of Managerial Economics, Vol. VII, Nos. 3 & 4, August & November, 2009.

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Dhade Aruna (2009)62 in doctoral dissertation has focused on the

yearly performance of State Bank of India to find out the extent to which State

Bank of India is affected due to entry of new private sector banks. The study

covered the area of Madhya Pradesh State. The time period is selected from

1994-95 to 2004-05. Various statistical tools such as measure of central

tendency, standard deviation, hypothesis testing and T test is also used. The

influences of the New Private Banks have been assessed by applying t-test

for finding the significant difference in the pre and post performance of the

business of State Bank of India. Financial ratios are also used for finding the

changes in the business of State Bank of India after the entry of New Private

Sector Banks. The study concluded that no impact was found on the overall

business of State Bank of India. It is suggested that State Bank of India must

equip itself to face the rising competition of New Private Sector Banks within

Madhya Pradesh state. Pal Ved, Bishnoi N. K. (2009)63 in paper seeks to explain the

productivity growth of the Indian banking sector using panel data of 63

commercial banks from 1996-2005. The study intends to analyze the

productivity of commercial banks by measuring the total productivity growth

and its components. The study is based on the secondary data published by

the Reserve Bank of India. The study used Data Envelopment Analysis to

calculate and decompose the Malmquist index of total factor productivity

growth into technical change, change in technical efficiency and change in

scale efficiency. For the purpose of productivity measurement three important

approaches are used that Asset approach, Value addition approach and

income approach. As per the Malmquist productivity indices, Indian

commercial banks on average have shown improvement in productivity during

the post-liberalization period. The public sector banks have attained the

highest growth in the overall productivity and its components under the asset

and income approaches. The nationalized banks had attained second highest

growth in this approach and also registered improvement in all the

components of total productivity. 62 Dhade Aruna, “Impact of New Private Sector Banks on State Bank of India Special reference to

Madhya Pradesh State” Abstract of Doctoral Dissertation, Finance India, Indian Institute of Finance, Vol. XXIII No. 4, December 2009, pages. 1357-1363.

63 Pal Ved, Bishnoi N.K, “Productivity Analysis of Commercial Banks in India”, Decision, Indian Institute of Management, Calcutta, Vol. 36, No. 1, April 2009, pages 131-157.

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Gulati Rachita & Kumar Sunil (2009)64 explores the relationship

between efficiency and profitability in 51 Indian domestic banks operating in

the financial year 2006-2007. Efficiency-profitability relationship is explored at

the level of individual banks. For this purpose, efficiency-profitability matrix is

constructed. Data Envelopment Analysis has been used to obtain efficiency

score for individual banks. The study utilized CCR model to reduce the

multiple-input, multiple- output situation for each DMU to a scalar measure of

technical efficiency. The results obtained using CCR model distinguishes the

DMUs as: efficient and inefficient. The empirical results show that out of 51

sample banks only 9 banks have been found to be technically efficient. The

efficiency-profitability matrix reveals that the resource utilization processes in

22 banks that fall in the first and last quadrant are not functioning well.

Further, Tamilnad Mercantile Bank and Yes Bank may be considered as an

ideal benchmark for the poor performing banks on the efficiency and

profitability dimensions of performance evaluation. Rao Nageshwar & Tiwari Shefali (2009)65 attempted to identify

efficiency factors affecting the banks individually as well as industry. Out of

the scheduled commercial banks, a sample of fifteen banks is selected. The

data is collected for a period of five years (2001-2005). The variables

considered for the study are taken as independent and dependent variables.

The independent variables are deposits, assets and advances. Dependent

variables are classified into three categories such as efficiency factors related

to per branch, efficiency factors related to operations, efficiency factors

influencing ultimate profits. Product moment correlation was used for data

processing. It is concluded that efficiency factors related to per branch and

efficiency factors related to operations play a significant role in influencing the

overall efficiency of public sector banks. Only one factor i.e. efficiency factors

influencing ultimate profits is significantly correlated to efficiency of private

sector banks. In case of foreign banks efficiency factors influencing ultimate

profits is significantly correlated to efficiency for foreign sector banks. General

suggestion given is that if operating expenses are reduced the per branch 64 Gulati Rachita & Kumar Sunil, “Efficiency-Profitability Relationship in Indian Domestic Banks: A

Disaggregate Analysis”, Asian Economic Review, Journal of the Indian Institute of Economics, Vol. 51, No. 3, December 2009, pages 411-433.

65 Rao Nageshwar & Tiwari Shefali “Efficiency Indicators of Commercial Banks in Liberalised Environment in India”, Abhigyan, Vol. XXVII, No. 1, 2009, pages 10-19.

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efficiency and operational efficiency of public sector banks will automatically

increase which in turn will increase their overall efficiency. Verma Amitabh (2009)66 evaluated the impact of technology on the

performance of Indian banks in terms of their profitability and productivity. IT

has become buzzword in Indian banking industry. Technology can be the key

differentiator between two banks and major factor to attain competitive edge.

The primary challenge for banks is to provide consistent service to customers

irrespective of the kind of channel they use. It is concluded that Indian Public

sector banks have a unique advantage over their counterparts in terms of

their branch network and the large customer base but it is the use of

technology that will enable Public Sector Banks to build on their strengths. Shanker Daya, Wadud IKM Mokhterul & Singh Harminder (2009)67

compares the operative performances of banking sectors of India and China

taking into account the institutional aspects of their development. Efficiency of

the banks is assessed using non-parameteric technique between the time

period 2002 and 2005. Sample consists of 13 Chinese banks and 19 Indian

banks. The results suggest that restructured Chinese banks recorded a

continuing decline in their efficiencies over the study period. On the other

hand, two Indian banks, State Bank of India and ICICI were consistently

considered as efficient banks. It is also suggested that loans which are not

returned are considered as subsidy to export-oriented industries in China.

Transparency forms the integral part of the level playing field. Tandon Deepak, Ahuja Kanhaiya & Tandon Neelam (2009)68

attempted to analyse technical efficiency of PSBs operating in India by

applying the DEA model. Relative efficiency is calculated with respect to the

most technical efficient bank in terms of minimum output and maximum

output. The performance of most efficient PSB is considered as a benchmark.

On the basis of analysis it was concluded that the best bank with consistency

in performance is Corporation Bank. Least efficient bank in terms of interest

66 Verma Amitabh, “The impact of Technology on Productivity and Profitability of Indian Banks in

Post Liberalised Period”, Abhigyan, Vol. XXVII, No. 2, 2009. 67 Shanker Daya, Wadud IKM Mokhtarul, Singh Harminder, “A Comparative Study of Banking in

China and India- Non-Performing Loans and the Level Playing Field”, The Indian Economic Journal, Vol. 57(3), October-December, 2009, pages. 118-138.

68 Tandon Deepak, Ahuja Kanahaiya &Tandon Neelam, “Relative Performance of Banks- A Study”, The Indian Banker, Vol. IV, No. 7, July 2009.

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expenses and operating expenses as inputs and business as output is Punjab

and Sind Bank. Varshney Chanchal (2009)69 examines the role of institutional finance

in the development of the priority sectors of India. It also examines the role of

State Bank of India in lending to Agriculture, Small Scale Industries and other

priority sector. The study is based on secondary data. The detailed data is

collected from lead bank (Canara Bank) Aligarh on population group wise

number of bank offices, deposit mobilisation and deployment of credit by

State Bank of India in Aligarh from the year 1991 to 2001. Questionnaire was

also prepared and personal discussions were also conducted with bank

officials concerned with priority sector lending. Major finding of the study were

that priority sector lending worsened during the last decade from 1991-2001

due to declining in the C/D ratio. Declining of priority sector lending is due to

increasing ratio of NPAs. Disconnectivity among employment, education,

health care and transport was found. To overcome the problems it is

suggested that quantum of loan amount should be increased and rate of

interest on loan should be reduced. Priority sector lending’s should be linked

to net bank deposit rather than net bank credit. Kumar Sunil & Gulati Rachita (2009)70 in paper examines the inter-

bank differentials in income generating efficiency. The study covers 28 Public

Sector Banks operating in India during the financial year 2006-2007. The

technique of Data Envelopment Analysis has been used to compute the

efficiency scores for individual Public Sector Banks. The empirical findings

reveal that Public Sector Banks are generating net-interest and non-interest

incomes with high level of efficiency which is reflected by the mean efficiency

score of 0.918. The study suggests that for improving their performance, the

inefficient Public Sector Banks should concentrate more on generating non-

interest income from the off-balance sheet activities rather than interest

income from the traditional activities like advancing loans and investments in

other earning assets.

69 Varshney Chanchal , “Role of State Bank of India in Financing the Priority Sector: Case Study of

Aligarh District” Abstract of Doctoral Dissertation, Finance India, Indian Institute of Finance, Vol. XXIII, No. 2, June 2009, pages. 634-636.

70 Kumar Sunil & Gulati Rachita, “Income-Generating Efficiency of Public Sector Banks in India: An Application of Data Envelopment Analysis”, ArthVijnana, Vol. 11, No. 2, June 2009, pages. 103-126.

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Singh Ram Pratap & Chatterjee Biswajit (2009-10)71 seeks to

compare the performance of 40 Indian commercial banks regarding deposit

mobilization in the reform period. The paper made use of a non-parametric

approach that is Data Envelopment Analysis (DEA). It uses the Window

Analysis developed by Klopp. Time span used for the present study is five

years that is 2001-02 to 2005-06. One important objective of the study has

been to see whether bank ownership mattered in respect of deposit

mobilization. The result suggests that the public sector banks have fallen

behind the in-sample private sector commercial banks in terms of deposit

mobilization. Uwafio Jeremaiah, Idialu & Yomere O Gabriel (2010)72 focused on

the quantitative analysis of financial performance of Nigerian Banks. The

study employed the stochastic cost frontier approach to generate X-

efficiencies for each bank over the time period 2000-2004. The specific issue

examined in this study is cost efficiency. For the purpose of the study, the

banks are classed into two groups, the 10 dominant banks and the rest banks.

A variation of the intermediation approach is used with total costs as

dependent variable and the independent variables includes total customer

loans, other earning assets, staff expenses/average number of personnel,

interest expenses/total customer deposits, other non-interest expenses/total

fixed assets and other fixed assets, total shareholders funds, Non-Performing

loans/total loans. The study has revealed that there is inefficiency in the

Nigerian banking system and that the level of inefficiency ranges between 0

and 19 percent of total cost. The study proved that there is inefficiency in the

Nigerian banking system. Kodian Narander, Kumar Shalinder & Kodan Anand Singh (2010)73

in article analyzed the trends of growth of banking Industry in India. The study

has highlighted the trends relating to infrastructure development, expansion of

total credits and deposits, expansion of rural credit by Scheduled Commercial

Banks, investment in government securities, non-performing assets. 71 Sinha Ram Pratap & Chatterjee Biswajit, “Bank ownership and Deposit Mobilization: A Non-

Parameteric Approach”, Prajnan, Vol. XXXVIII, No. 3, 2009-10. 72 Uwafio Jeremaiah, Idialu &Yomere O Gabriel, “Stochastic Frontier Analysis of the Efficiency of

Nigerian Banks”, Indian Journal of Economics and Business, Vol. 9, No. 1, 2010, pages. 75-86, Serial Publications, New Delhi.

73 Kodian Narander, Kumar Shalinder & Kodan Anand Singh, “Scheduled Commercial Banks: Growth Trends”, Yojana, Vol. 54, No. 2, February, 2010, pages. 47-50.

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Comparison of Indian banking Industry with that of Chinese banking Industry

with respect to Return on Assets, Return on Equity, Non-Performing loan to

Total Loan, Capital Adequacies. It is concluded that decline in percentage

share of rural credit is a matter of concern. Moffat Boitumelo & Narayana N (2010)74 “examines the performance

of major financial institutions in Botswana using data envelopment analysis.

This paper specifically examines the relative efficiency of financial institutions

in a developing country like Botswana through time and using various input-

output classification criteria. Time period covered for the study is 2001-2006.

In order to make detailed analysis of inefficient units and take corrective

actions to improve their performance, this paper considers both the CRS

assumption and the VRS assumption in estimating the efficiency indices. The

robustness and sensitivity of estimated efficiency scores is examined by using

value added, intermediation and operating approaches. The empirical results

indicate the Bank of Baroda and First National Bank and Botswana savings

bank are consistently among the most efficient institutions. Botswana

Development Corporation, African Bank Corporation and National

Development Bank are the least efficient ones. It is held that financial

institutions in Botswana should utilise their resources more efficiently to

further improve their efficiency so that they can compete with rest of the world. Sen Mitali (2010)75 in her empirical work makes an exploratory attempt

to study the liability structure of Indian Commercial Banks. The sample of 82

Indian Commercial Banks is drawn for which consistent data is available over

the period 1995-96 to 2003-04. The major findings of the study are that set of

six critical factors that is profitability, size, liquidity, risk and asset quality, fee

based earnings and efficiency influence the liability structure of commercial

banks. From empirical analysis it can be inferred that banks should

concentrate more on fee based activities.

74 Moffat Boitumelo & Narayana N, “The Performance of Financial Institutions in Botswana: A

Study of Selected Banking and Non-Banking Financial Institutions”, Asian-African Journal of Economics and Econometrics, Vol. 10, No. 1, 2010.

75 Sen Mitali “Liability Structure of Indian Commercial Banks”, Northern Book Centre, New Delhi, 2010.

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Kumar Sunil & Gulati Rachita (2010)76 appraised the efficiency,

effectiveness and performance of 27 public sector banks operating in India by

using a two-stage performance evaluation model. Using the cross-sectional

data for the financial year 2006/2007, the technique of data envelopment

analysis has been used for computing the efficiency and effectiveness scores

for individual PSBs. The empirical results reveal that high efficiency does not

stand for high effectiveness in the Indian PSB industry. A positive and strong

correlation between effectiveness and performance measures has been

noted. Further, on the efficiency front, State Bank of Travancore appears as

an ideal benchmark, while State Bank of Bikaner and Jaipur and State Bank

of Mysore emerge as ideal benchmark on the effectiveness front. Kumar Sunil & Gulati Rachita (2010)77 attempted to analyse the

performance of Public Sector Banks in the post-reform period by looking at

the trends of cost efficiency and convergence in its level across banks. The

time period for the study is from 1992-93 to 2007-08. This paper made use of

Data Envelopment Analysis to estimate empirically the cost, technical and

allocative efficiency scores for individual public sector banks. Empirical results

show that deregulation had a positive impact on the cost efficiency levels of

Indian Public Sector Banks. Cost efficiency in majority of banks that belong to

SBI group followed a declining trend and the banks that belong to

Nationalised group experienced an increasing trend in cost efficiency levels. It

is concluded that the deregulation process has strengthened the cost

efficiency of the majority of PSBs. In the light of empirical findings the future

reforms in the banking sector should be directed towards strengthening

competitive and market oriented policies. Khan MY (2010)78 in article has focused on the decision of the

government to permit the entry of new private banks in the country. RBI has

prepared a draft on the scheme for issuing banking licences to the private

sector. The experts hold the view that the new banks will promote competition

in the banking sector. It is held that policy has taken a U-turn from the policy 76 Kumar Sunil &Gulati Rachita, “Measuring efficiency, effectiveness and performance of Indian

public sector banks”, International Journal of Productivity and Performance Management”, Vol. 59, Issue. 1, 2010, pages 51-74.

77 Kumar Sunil & Gulati Rachita, “Dynamics of Cost Efficiency in Indian Public Sector Banks: A Post-Deregulation Experience” Paper submitted for presentation in the Twelfth Annual Conference on Money and Finance in The Indian Economy 11th and 12th March, 2010.

78 Khan MY, “A U-turn Banking” The Economic Times, 1 October, 2010.

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focus on consolidation of banks by merger. The purpose is not to oppose new

banks but to prevent return to the pre-1969 era of banking. It is suggested that

new banks have to adopt a human approach in the areas like urban slums

and rural sector so that the income gap may be reduced and asset generation

take place.

Ram Mohan TT (2010)79 in article highlighted the fact that despite the

worst financial crisis of the century, Indian banking sector fared well. Indian

banks showed 1% ROA in both 2007-08 and 2008-09. Capital adequacy and

spread also improved. All these indicators place banking sector among most

profitable banks in the world today. ROA of 1% is a benchmark of good

performance in banking despite the ups and downs of the economy. This

shows that Indian banking is crisis proof. It is suggested that banks need

more sophisticated products and should meet the challenge of financial

inclusion. Ram Mohan TT (2010)80 This article highlights the proposition given by

President of America Obama that higher capital requirements are not

sufficient but the caps on the size of banks are also required. He hold the view

that bank’s size should be fixed in relation to the economies in which they

operate that 5-10% of GDP. Big or small banks are likely to fail despite steps

taken to make banks safe. The damage will be greater if the size of bank is

bigger. As a result there will be greater need for a government help.

Efficiencies of scale in banking are attained at a relatively low size. Pande Bhanu (2010)81 indicates that in the worst recession of global

banking industry, several big banks of the world collapsed but strong Indian

banks have improved their brand value rapidly. There are 20 Indian banks in

the Brand Finance Global Banking 500. It is annual international ranking by

UK-based Brand Finance. The State Bank of India (SBI) became the first

Indian bank to break into the world’s Top 50 list. The study used discounted

cash flow methodology to arrive at a net present value of trademark and

associated intellectual property that the brand value. SBI’s brand value more

than tripled to $4,551 million up from $1,448 million in 2009 helping to grab

the 36th position in the list.

79 Ram Mohan TT, “A Crisis Proof Banking Sector”, The Economic Times, 7 January, 2010. 80 Ram Mohan TT, “At last, the remaking of banks”, The Economic Times, 4 February, 2010. 81 Pande Bhanu, “State Brand of India” The Economic Times, 1 February, 2010.

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Although a lot of work has been carried out for the evaluation of

commercial banks efficiency in the world, but very little work has been carried

to evaluate the performance of public sector bank in India in general and

State Bank of India in particular. This study will try to find out the impact of

banks specific variables on the efficiency of SBI and its associates. So under

present scenario there is dire need to carry out a study to analyze the

performance of SBI and its associate banks to provide answer to all problems

of banking industry. It can be concluded that for performance analysis, a variety of tools

have been used by the different studies. Review is indicative of the fact that

most of the studies done or too aggregative, if somewhere the disaggregation

have been achieved, the coverage is too small. Analysis of a single bank

group based performance and its relation with economic development is

relatively unexplored area of research. The present work filled this research

gap.

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