CHAPTER VSTATISTCAL ANALYSIS

OF THE PUBLIC AND

PRIVATE SECTOR BANKS

As the task of making the catalytic agents o f development continues, the

extensive application financial analysis of banks will assume greater

significance. In the current banking environment marked by increased market

competition restricting of the banking industry, rising customers expectation

and increasing demand for risk management measures, banks in India have

perhaps no option but to embark upon an integrated development and

application o f financial analysis tools together with application statistical tools

for analysis o f banking efficiency. In fact, the underlying objective of all this

should be to bring about improvement indecision-making, productivity,

profitability, asset quality, management efficiency, liquidity and above all

upgrade risk management measures. In this context, banks have been asked to

use CAMEL parameters for extensive improvement in their performance and

efficiency by diverting more attention on these parameters while operating their

business. It is against this backdrop, which in previous chapter an analysis of

bank’s understudy has been presented based on CAMEL parameters. It is

common observation that these banks that consistently experience above-

average interest spread, capital adequacy and profitability have been

categorized as growth banks.

However, financial theorists such as saloman (1 9 6 3 )1 and Miller and

Modigliani (1 9 6 1)2 define a growth company as a firm with the management

ability and the opportunities to make investments yield rates of return greater

than the firm’s required rate of return. As a result these growth banks shall

have to excel not only on capital adequacy, asset quality, earning and liquidity

front but should have to depict sheen in significant manner in management

efficiency and risk sensitivity also, therefore, in present chapter an attempt is

made to analyse the bank under study on the basis o f CAMEL parameter using

1 Salmon, Ezra 1963. “ The Theory of Financial M anagem ent New York, Columbia University

press.2 Modigliani, F. and Leah Modigliani, 1997. “Risk Adjusted Performance”, Journal of Portfolio

Management, 23 (2 ) writer : 45-54.

129

different statistical measures, so as to judge the performance on these

parameters.

1) Capital Analysis Statistical Analysis

Capital adequacy is important for a bank to maintain depositors’ confidence

and preventing the bank from going bankrupt. Capital is seen as a cushion to

protect depositors and promote the stability and efficiency of financial system

around the world.

Table 5.1: Capital Adequacy Ratios - Select Statistics

(Figures in percent)

Ratios Banks Mean

Ratio

StandardDeviation

F - Value Significance

(Two-Tailed)

ACGR Significance

of ACGR

Capital

Adequacy

Ratio

SBI 13.10 0.97

5.83 0.008

0.80 0.361

BOB 12.53 0.84 1.14 0.123

PNB 11.18 1.82 4.54 0.001

Debt-Equity

Ratio

SBI 1.38 0.40

25.55 0.000

6.41 0.044

BOB 0.51 0.20 5.67 0.208

PNB 0.67 0.23 4.61 0.478

Advances to

Assets

SBI 39.39 4.13

4.21 0.026

1.39 0.229

BOB 44.14 2.57 1.08 0.093

PNB 41.36 4.10 3.16 0.000

G-securities

to Total

Investments

SBI 78.41 8.88

2.18 0.132

3.74 0.000

BOB 65.32 11.88 5.55 0.000

PNB 66.92 21.91 9.54 0.257

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Table 5.1 presents statistical analysis o f capital adequacy position o f the

three public sector banks under study in terms o f four ratios namely: Capital

Adequacy Ratio, Debt-Equity Ratio, Advances to Assets and G-securities to

Total Investments. It is obvious from the table that these banks have

maintained the average Capital Adequacy Ratio at 13.10%, 12.53% and

11.18% respectively between 1998-99 to 2007-08. This shows that banks under

study have maintained higher CRAR than the prescribed level. The Annual

Compound Growth Rate is found positive in case o f all the three banks; it

indicates the banks have enough capital to absorb unexpected losses. The above

also holds good with respect to Debt/Equity Ratio, wherein the compound

growth rates are positive 6.41, 5.67 and 4.61 percent. This indicates that the

dependence on debt capital has increased overall over the period of study

although debt capital has decreased over the last five years in case of all the

three banks, therefore the statistical analysis depicts that Indian public sector

banks are credit shy. The positive annual growth rate o f Advances to Assets

ratio at 1.39% in SBI, 1.08% in BOB and 3.16% in PNB indicates towards an

improvement in case of all the three public sector banks. As regards the ratio of

government securities to total investment, the table under reference offers that

SBI has maintained the mean ratio at 78.41% , BOB at 65.32% and PNB at

66.92% . The difference between the three banks on this count is found

insignificant at 0.05 level of significance, which indicates that no bank is

superior to the other bank in terms of the ratio Government Securities to Total

Investment. Interestingly, this ratio (percentage o f investment in government

securities to total investment) indicates an increasing trend of three banks, but

the compound growth rate is found significant in case o f SBI and PNB. Hence

the approach of the banks is turning as conservative.

131

Table 5.1(A): Capital Adequacy Ratios - Select Statistics

(Figures in percent)

Ratios BanksMeanRatio

StandardDeviation

F - ValueSignificance(Two-Tailed)

ACGRSignificance

of ACGR

Capital Adequacy Ratio

ING 14.25 5.22

8.22 0.002

-8.74 0.008

FB 10.90 1.27 3.26 0.001

JKB 17.42 3.16 -3.49 0.055

Debt-Equity

Ratio

ING 1.47 0.83

13.73 0.000

24.75 0.003

FB 0.95 0.34 -5.10 0.203

JKB 0.23 0.13 9.05 0.279

Advances to

Assets

ING 45.95 7.92

9.21 0.001

4.54 0.006

FB 53.12 2.80 0.63 0.293

JKB 41.61 6.30 3.90 0.007

G-securities to

Total Investments

ING 62.68 12.37

1.30 0.289

6.02 0.000

FB 62.68 12.37 6.02 0.000

JKB 55.98 6.29 3.62 0.000

Table 5.1 (A ) presents statistical analysis of capital adequacy position of

the three private sector banks under study in terms of four ratios namely:

Capital Adequacy Ratio, Debt/Equity Ratio, Advances to Assets and G-

securities to Total Investments. It is obvious from the table that these banks

have maintained the average Capital Adequacy Ratio at an average of 14.25%,

10.90% and 17.42% respectively between 1998-99 to 2007-08. This shows that

132

banks under study have maintained higher CRAR than the prescribed level.

The Annual Compound Growth Rate is found negative in case of ING Vysya

and JK Bank because the ratio has shown declining trend for the last five years;

in case of Federal Bank ACGR is found positive, it indicates the banks have

enough capital to absorb unexpected losses. Debt/Equity Ratio have increased

in case of the banks except The Federal Bank. This has also been conformed by

the ACGR, wherein the compound growth rates are positive in case of ING

Vysya, JK Bank and negative in case of Federal Bank. This indicates that the

dependence on debt capital has increased overall over the period o f study in

case of ING Vysya and JK Bank although debt capital has decreased over the

last five years in case of all the three banks. The positive annual growth rate of

Advances to Assets ratio at 4.54% in ING Vysya, 0.63% in Federal Bank and

3.90% in JK Bank indicates towards an improvement in case o f all the three

private sector banks. As regards the ratio o f government securities to total

investment, the table under reference offers that ING Vysya has maintained the

mean ratio at 62.68% , Federal Bank at 62.68% and JK Bank at 59.98% the

difference between the three banks on this count is found insignificant at 0.05

level of significance, which indicates that no bank is superior to the other bank

in terms o f the ratio Government Securities to Total Investment. Interestingly,

this ratio (percentage of investment in government securities to total

investment) indicates an increasing trend of three banks and the compound

growth rate is found significant in case of all the three banks. Hence the

approach of the bank’s is turning as conservative.

2) Asset Quality Statistical Analysis

The quality of assets is an important parameter to gauge the strength of

the bank. The prime motto behind measuring the assets quality is to ascertain

the component o f non-performing assets (NPA’s) as a percentage of the total

assets.

133

Table 5.2: Asset Quality Ratios - Select Statistics

(Figures in percent)

Ratios BanksMean

RatioStandardDeviation

F - ValueSignificance

(Two-Tailed)ACGR

Significance of ACGR

Gross NPA’s to Gross Advances

SBI 12.57 5.28

0.18 0.839

-15.99 0.000BOB 13.14 5.22 -15.15 0.000PNB 11.85 3.97 -12.59 0.001

Gross NPA’s to Total

Assets

SBI 4.84 2.08

0.65 0.528

-14.93 0.000BOB 5.73 1.83 -11.93 0.001PNB 5.07 1.48 -10.23 0.002

Net NPA’s to

Net Advances

SBI 5.11 1.88

0.05 0.954

-13.72 0.000BOB 5.11 2.75 -23.36 0.000PNB 5.47 3.99 -53.76 0.006

Net NPA’s to Total Assets

SBI 3.23 2.33

6.24 0.006

-22.77 0.000BOB 3.70 2.09 -25.15 0.000PNB 0.98 0.57 -15.47 0.025

Table 5.2 presents statistical analysis o f asset quality position o f the

three public sector banks under study in terms o f four ratios namely: Gross

NPA’s to Gross Advances, Gross NPA’s to Total assets, Net NPA’s to Net

Advances and Net NPA’s to total Assets. The analysis depicts a tremendous

improvement in asset quality o f all the three public sector banks. The annual

compound growth rate of these ratios has witnessed significant growth for the

three public sector banks. The absolute values o f asset quality ratios are

revealing no significant difference between the three public sector banks as

revealed by the F- test applied for the purpose at 1 percent and 5 percent level

of significance as p > 0.05. However, it can be seen that there is significance

134

difference between banks in case of Net NPA’s to Total Asset ratio (0.05). The

variability in terms of standard deviation is recorded highest for all the banks in

case o f Gross NPA’s to Total Assets ratio. The analysis in asset quality ratios

of all banks it can be deduced that asset quality of all the banks have witnessed

significant improvement over the period of study. However, in terms of

variability PNB has registered picture because S.D. is lower against other two

banks for all the ratios studied for analysis of asset quality. The behaviour of

asset quality shows tunic style decline in NPA’s.

Table 5.2(A): Asset Quality Ratios - Select Statistics(Figures in percent)

Ratios Banks Mean

Ratio

StandardDeviation

T - Value SignificanceTwo-Tailed)

ACGR Significance

of ACGR

Gross NPA’s

to Gross Advances

ING 6.76 4.28

8.54 0.001-23.21 0.000

FB 10.82 3.47 -11.16 0.000JKB 4.68 1.97 -13.37 0.000

Gross NPA’s to Total Assets

ING 3.68 2.82

8.46 0.001-24.17 0.000

FB 5.94 2.09 -12.18 0.000JKB 2.10 0.91 -12.36 0.000

Net NPA’s to

Net Advances

ING 5.64 3.91

2.60 0.093

-18.63 0.002

FB 5.03 3.28 -20.03 0.049

JKB 2.66 1.60 -18.77 0.000

Net NPA’s to

Total Assets

ING 3.23 2.33

6.18 0.006

-22.77 0.000FB 3.70 2.09 -25.15 0.000

JKB 0.98 0.57 -15.47 0.025

135

Table 5.2(A ) presents statistical analysis o f asset quality position o f the

three private sector banks under study in terms o f four ratios namely: Gross

NPA’s to Gross Advances, Gross NPA’s to Total assets, Net NPA’s to Net

Advances and Net NPA’s to total Assets. The analysis depicts a tremendous

improvement in asset quality of all the three private sector banks. The annual

compound growth rate of these ratios is significant at 0.05 level of significance

for the three public sector banks. The absolute values o f asset quality ratios are

revealing significant difference between the three private sector banks as

revealed by the F- test applied for the purpose at 1 percent and 5 percent level

of significance as p > .05. However, it can be seen that there is significance

difference between banks in case of Net NPA’s to Total Asset ratio (0.05). The

variability in terms of standard deviation is recorded highest for all the banks in

case o f Gross NPA’s to Total Assets ratio. From the analysis in asset quality

ratios o f all banks, it can be deduced that the banks have witnessed significant

improvement over the period of study. However, in terms o f variability JK

Bank has registered picture because S.D. is lower against other two banks for

all the ratios studied for analysis of asset quality. The behaviour of asset quality

shows tunic style decline in NPA’s. Overall asset quality ratios have registered

a declining trend. Thus, indicating improvement in asset quality position of

both Public and Private Banks.

3) Management Soundness

A particularly interesting form of financial performance analysis of

banking companies is the analysis of management efficiency. The efficient

management shall reflect in increased employee, branch and overall

productivity of assets and liabilities of the banks.

136

Table 5.3: Management Soundness Ratios - Select Statistics

(Figures in percent)

Ratios Banks Mean

RatioStandardDeviation

F - Value Significance

(Two-Tailed)ACGR Significance

of ACGR

Net Total

Income to No. of

employees

SBI 0.14 0.05

0.65 0.532

12.88 0.000

BOB 0.15 0.04 8.96 0.000

PNB 0.12 0.05 12.48 0.000

Profit per employee

SBI 0.01 0.01

2.57 0.095

8.82 0.006

BOB 0.01 0.01 6.72 0.086

PNB 0.02 0.02 -10.30 0.201

Business per

employee

SBI 1.60 0.71

0.50 0.614

14.44 0.000

BOB 1.97 0.95 13.12 0.000

PNB 1.68 0.91 18.81 0.000

Table 5.3 exhibit the select statistics representing the level of

management efficiency of the three public sector banks under study. From the

table it is evident that almost each ratio indicates upward trend for all the banks

and indicates high level of productivity. Table 5.3 reveals that the ACGR

concerning each o f the management efficiency ratios are positive except profit

per employee ratio in case of PNB (10.30). The ratio o f Net Income to Number

o f Employees is an indicator of management’s efficiency; the mean score of the

three banks in case of this ratio is registered at 0.14 percent in case of SBI, 0.15

percent in case o f BOB and 0.12 percent in case o f PNB. There is no

significant difference between the three banks and the same is confirmed by the

F-test also as p > 0.05. The ratios of Profit per Employee and Business per

Employee are found almost same in case o f all the three banks. This indicates

no significant difference in the ratio of the three banks under reference.

137

However, business per employee is more variable in terms o f S.D. for all the

three banks but lower in case of SBI. There is variability in case of PNB, but

the bank has witnessed better profitability ratios needs in-depth study before

any reasons may be assigned to this state of phenomenon.

Table 5.3(A): Management Soundness Ratios - Select Statistics(Figures in percent)

Ratios BanksMean

Ratio

Standard

DeviationF - Value

Significance

(Two-Tailed)ACGR

Significance

of ACGR

Net Total Income to No. of employees

ING 0.16 0.04

0.44 0.649

9.56 0.000

FB 0.18 0.04 8.41 0.000

JKB 0.18 0.07 14.59 0.001

Profit per

employee

ING 0.01 0.01

7.03 0.003

- -

FB 0.01 0.005 7.14 0.044

JKB 0.03 0.02 16.20 0.017

Business per employee

ING 2.32 1.15

0.23 0.796

16.13 0.000

FB 2.09 1.23 11.81 0.519

JKB 2.50 1.54 39.75 0.012

(- ) indicates dependent variable has non-positive values; no equation estimated.

Table 5.3 (A ) exhibit the select statistics representing the level of

management efficiency of the three private sector banks under study. From the

table it is evident that almost each ratio indicates upward trend for all the banks

and indicates high level of productivity. Table 5.3(A ) reveals that the ACGR

concerning each of the management efficiency ratios are positive except profit

per employee ratio in case of ING. The ratio o f Net Income to Number of

Employees is an indicator of management’s efficiency; the mean score of the

three banks in case o f this ratio is registered at 0.16 percent in case of ING,

0.18 percent in case of FB and 0.18 percent in case o f JK Bank. There is no

138

significant difference between the three banks and the same is confirmed by the

F-test also as p > 0.05 except in case of profit per employee ratio. However,

business per employee is more variable in terms of S.D. for all the three banks

but lower in case o f ING. There is variability in case o f FB, but the bank has

witnessed better profitability ratios needs in-depth study before any reasons

may be assigned to this state of phenomenon. Private sector banks succeeded

higher level o f management efficiency than public sector banks.

4) Earnings Statistical analysisIn the earning perspective, the focus o f analysis is the impact of

changes in interest rates on accrual or reported earnings. This is the most used

approach to interest rate risk assessment taken by many banks. Variation in

earnings is an important focal point for interest rate analysis because reduced

earnings or outright losses can threaten the spread insulation and financial

stability o f an institution by undermining its capital adequacy and by reducing

its market confidence.

i) Spread Statistical Analysis: The difference between the total income and

total expenses o f the banks gives the pre-tax income. However, considering the

intermediation function, it is the interest income (N il) that is more crucial for

the banks. N il or spread is the difference the interest income and the interest

expenses. Spread is the bread for the banks. For long term sustenance of the

bank, this should be positive. In a deregulated interest rate environment, the

market plays a critical role deciding the interest rates. In addition to the

pressure built by competition for deposits and is thereby affecting the NIL The

main ratio depicting potential of banks from there prime activity is spread

analysis. The insulation of positive spread indicates that asset liabilities have

been positively and properly managed. The group o f ratios lime lighting the

spread insulation o f bank under study is presented in Table 5.4. The ACGR

measured interms of Interest Income to Total Income is recorded at -0.57

percent in case of SBI, -1.31 percent in case of BOB and -0.70 percent in case

of PNB.

139

Table 5.4: Spread Ratios - Select Statistics(Figures in percent)

Ratios Banks Mean

Ratio

StandardDeviation

F - Value Significance(Two-Tailed)

ACGR Significance

of ACGR

Interest Income to

Total Income

SBI 84.46 2.41

0.25 0.783

-0.57 0.067

BOB 85.13 4.22 -1.31 0.007

PNB 83.87 4.94 -0.70 0.322

Interest

Income to

Total Assets

SBI 8.22 0.81

3.44 0.047

-3.11 0.000

BOB 7.34 0.97 -4.16 0.000

PNB 8.48 1.21 -4.66 0.000

Interest

Expenses to Total Income

SBI 55.11 4.93

0.87 0.429

-1.88 0.057

BOB 54.91 6.72 -3.72 0.001

PNB 51.70 7.50 -3.70 0.011

Interest Expenses to

Total Assets

SBI 5.37 0.79

0.02 0.983

-4.45 0.002

BOB 5.34 1.18 -7.46 0.000

PNB 5.28 1.21 -7.62 0.000

Net Interest

Margin

SBI 2.82 0.25

1.80 0.185

-0.98 0.328

BOB 3.07 0.33 1.02 0.403

PNB 3.11 0.44 1.66 0.394

All the three banks have witnessed negative growth in terms of this

important parameter and as such pin points that gap between asset and

liabilities mismatch. Other spread ratios are no way exception to this ratio. In

case o f Net Interest margin the ACGR is recorded at -0.98 (SBI), 1.02 (BOB)

and 1.66 (PNB). However, there is positive sign as the Interest Expenses to

Total Assets ant Total Income ratio have shown significant decline also

resulting in positive net interest margin for PNB and BOB and insignificant

140

ratio for SBI. This further reveals that PNB has utilized best practice of risk

management and as such are able to increase the net margin o f 1.66. The

insignificance is also confirmed by the result of F-test in respect of all the

above spread ratios. The important finding of study in this context is that

significant difference is discovered between banks in their interest income to

total asset ratio as p < .05. This means banks are not properly considering

proper match o f asset and liabilities.

Table 5.4(A): Spread Ratios - Select Statistics(Figure in percent)

Ratios BanksMean

Ratio

StandardDeviation

F - ValueSignificance(Two-Tailed)

ACGRSignificance of

ACGR

Interest

Income to

Total

Income

ING 82.28 2.92

0.37 0.695

-0.41 0.325

FB 86.10 3.92 -0.66 0.210

JKB 80.40 25.67 3.31 0.698

Interest Income to

Total Assets

ING 8.81 1.15

2.54 0.098

-3.14 0.029

FB 9.29 1.48 -4.37 0.007

JKB 8.03 1.12 -4.38 0.001

Interest

Expenses to

Total

Income

ING 62.46 9.13

1.91 0.167

-4.45 0.000

FB 62.75 10.33 -5.12 0.000

JKB 56.30 4.21 -0.93 0.292

Interest Expenses to

Total Assets

ING 6.63 1.63

3.91 0.032

-8.45 0.000

FB 6.86 1.90 -8.88 0.001

JKB 5.12 0.77 -4.61 0.001

Net Interest

Margin

ING 2.01 0.67

5.71 0.009

7.45 0.045

FB 2.42 0.66 7.38 0.023

JKB 2.92 0.44 -4.08 0.007

141

The main ratio depicting potential of banks from there prime activity is

spread analysis. The insulation of positive spread indicates that asset liabilities

have been positively and properly managed. The group o f ratios lime lighting

the spread insulation of bank under study is presented in Table 5.4. The ACGR

measured in terms of Interest Income to Total Income is recorded at -0.41

percent in case o f ING, -0.66 percent in case of FB and 3.31 percent in case of

JK Bank. ING Vysya and Federal Bank have witnessed negative growth in

terms o f this important parameter and as such pin points that gap between asset

and liabilities mismatch. Other spread ratios are no way exception to this ratio.

In case of Net Interest margin the ACGR is recorded at -3.14 (ING), -4.37 (FB)

and -4.38 (JKB). However, there is positive sign as the Interest Expenses to

Total Assets ant Total Income ratio have shown significant decline also

resulting in positive net interest margin for ING and FB and insignificant ratio

for JKB. This further reveals that ING and FB have utilized best practice of

risk management and as such are able to increase the net margin of 7.45 in case

of ING and 7.38 in case of FB. The insignificance is also confirmed by the

result o f F-test in respect of all the above spread ratios. The important finding

of study in this context is that significant difference is discovered between

banks in their N il ratio as p < 0.05. This means banks are not properly

considering proper match of asset and liabilities.

The N il is the actual measure of banks performance as an intermediary,

as it examines the bank’s ability in mobilizing lower cost funds and investing

them at a reasonably higher interest. By borrowing short and lending long,

banks could have earned higher spreads nevertheless by doing so they will be

exposed to greater risks. Net Interest Margin (i.e. spread) for private Indian

banks are normally higher than public sector banks. However, one important

revelation o f this study speaks that deregulation of interest rate have squeezed

the NIM for Indian banks though banks have tried their best to manage spread.

142

The results o f spread analysis are corroborating with finding of (Mohan,•>

2005) . The situation of JK Bank in last year o f study shows more impact on

spread insulation because it declined compared to FB and ING Vysya.

ii) Burden Statistical Analysis:

Table 5.5: Burden Ratios - Select Statistics

(Figures in percent)

Ratios BanksMean

Ratio

Standard

DeviationF - Value

Significance(Two-Tailed)

ACGRSignificance of ACGR

Non-Interest

Expenses to Total Income

SBI 25.24 2.34

2.31 0.119

0.04 0.974

BOB 23.55 2.20 1.89 0.051

PNB 25.75 2.61 1.35 0.232

Non-Interest

Income to Non-

Interest

Expenses

SBI 62.65 10.24

3.29 0.053

3.25 0.061

BOB 64.03 20.20 7.81 0.008

PNB 49.45 8.82 1.72 0.433

Non-Interest Income to

Average

working Funds

SBI 1.54 0.22

1.32 0.284

0.90 0.593

BOB 1.36 0.30 2.23 0.331

PNB 1.41 0.26 -0.92 0.683

The Burden Analysis reveals as to what extent the bank is in a position

to cover the non interest expenditure through non-interest income. If a bank is

able to cover the non-interest expenses with the help o f non-interest income the

bank is said to have fine performance and as much have no burden on interest

income on account of non-interest expenditure. The above analysis depicts that

mean score o f Non-Interest Expense to Total Income is lowest incase of BOB

3 Mohan, R. 2005. “Financial Sector Reforms: Policies and Performance Analysis”, Economic Political Weekly, Special Issue on Money, Banking and Finance (March), 40: 1106-1121.

143

(23 .55 ), followed by SBI (25 .24 ) and PNB (225.75). However, in case of PNB

the ratio of Non-Interest Income to Non-Interest Expenses is highest in case of

BOB (64.03), followed by SBI (62.65) and in case o f PNB the ratio stood at

(49.45). The input o f these two ratios can also be seen in case o f Non-Interest

Income to Average Working Funds, where this ratio is witnessed highest incase

of SBI (1 .54), followed by PNB (1 .41) and BOB (1.36). Variability in terms of

S.D., SBI has lowest variability (0.22), PNB (0 .26 ) and highest for BOB (0.30).

There was no significant difference in burden ratios of the three banks as

revealed by the F-test at 5percent significance level but there were significant

difference between banks on account of non-interest income and non-interest

expenses as p < .05.

Table 5.5(A): Burden Ratios - Select Statistics

(Figures in percent)

Ratios BanksMean

Ratio

Standard

DeviationF - Value

Significance

(Two-Tailed)ACGR

Significance

of ACGR

Non-Interest

Expenses to Total Income

ING 18.97 5.90

0.65 0.529

2.30 0.544

FB 18.30 2.55 3.06 0.025

JKB 16.96 2.58 0.55 0.764

Non-Interest

Income to Non- Interest Expenses

ING 87.35 24.18

3.37 0.049

-5.94 0.160

FB 81.00 15.23 3.33 0.096

JKB 62.40 25.94 4.43 0.429

Non-Interest

Income to

Average working

Funds

ING 2.20 0.95

6.42 0.005

-2.74 0.620

FB 2.30 0.80 10.30 0.001

JKB 1.14 0.58 -0.49 0.938

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The Burden Analysis of private sector banks reveals as to what extent

the bank is in a position to cover the non interest expenditure through non­

interest income. If a bank is able to cover the non-interest expenses with the

help o f non-interest income the bank is said to have fine performance and as

much have no burden on interest income on account o f non-interest

expenditure. The above analysis depicts that mean score of Non-Interest

Expense to Total Income is lowest incase of ING (18 .97 ), followed by FB

(18 .30 ) and JKB (16.96). However, in case of ING the ratio of Non-Interest

Income to Non-Interest Expenses is highest in case of BOB (87.37), followed

by FB (81 .00 ) and in case of JKB the ratio stood at (62.40). The input of these

two ratios can also be seen in case of Non-Interest Income to Average Working

Funds, where this ratio is witnessed highest incase o f FB (2 .30 ), followed by

ING (2 .20 ) and JKB (1.14). Variability in terms o f S.D., JKB has lowest

variability (0 .58 ), FB (0 .80 ) and highest for ING (0 .95). There was significant

difference in burden ratios of the three banks except in case of non-interest

expenses to total income as revealed by the F-test at 5 percent significance

level.

iii) Profitability Statistical analysis: The group o f profitability for SBI,

BOB and PNB banks is depicted in table 5.6. It is obvious from the table that

these banks have maintained the average Profit Margin Ratio at 9.17% , 8.63%

and 9.14% respectively between 1998-99 and 2007-08. The Annual Compound

Growth Rate o f profitability is found highly significant in case of PNB only.

The difference between the three public sector banks on this count is found

significant at 0.009 level of significance, which indicates that PNB, enjoying

super profitability over other two public sector banks. The positive annual

growth of the Asset Utilization ratio at 12.70 percent in SBI, 10.31 Percent in

BOB and 13.13 in PNB shows that it gives inputs in the efficiency of all the

three public sector banks and positive annual growth o f Equity Multiplier is

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recorded at 12.70 percent in SBI, 10.31 in BOB and 13.13 in PNB indicates

towards an improvement in the efficiency of the three public sectors banks.

Table 5.6: Profitability Ratios - Select Statistics

(Figures in percent)

Ratios BanksMeanRatio

StandardDeviation

F - ValueSignificance

(Two-Tailed)ACGR

Significance

of ACGR

ProfitMargin

SBI 9.17 1.94

0.17 0.847

0.19 0.948

BOB 8.63 2.24 3.51 0.309

PNB 9.14 2.79 7.79 0.009

AssetUtilization

SBI 9.71 0.82

0.41 0.665

12.70 0.000

BOB 9.69 1.12 10.31 0.000

PNB 10.09 1.34 13.13 0.000

EquityMultiplier

SBI 606.44 218.00

17.79 0.000

12.70 0.000

BOB 239.68 76.28 10.31 0.000

PNB 304.25 106.36 13.13 0.000

Return on

Assets

SBI 0.89 0.21

0.46 0.635

2.35 0.429

BOB 0.81 0.19 0.26 0.936

PNB 0.88 0.18 3.89 0.100

Return on

Equity

SBI 528.53 197.86

14.69 0.000

10.45 0.002

BOB 193.23 78.36 11.35 0.006

PNB 278.59 129.32 16.99 0.000

The ratio Return on Assets is registered at 0.90% approximately for SBI

and PNB but is lower in case of BOB (.80 percent). PNB has outperformed SBI

and BOB in terms of growth rate in Return on Assets front. The difference the

three banks on this count is found significant at 0.10 level o f significance,

which indicates the supremacy of PNB over the other two public sector banks

in terms of the ratio Return on Equity. Interestingly, the Return on Equity

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indicates increasing trend in case of all the three public sector banks, but PNB

has also outperformed SBI and BOB in terms of growth rate in case of Return

on Equity. It is 10.45 percent, 11.35 and 16.99 percent in case of SBI, BOB and

PNB respectively. The study of profitability ratio is depicting one interesting

revelation that variability in terms standard deviation is highest in case of PNB

for all the ratio of profitability. There were “significant difference” discovered

between PNB, SBI and BOB on account of Equity Multiplier and ROE ratio as

p < .05. The various ratios measuring profitability in case o f ING Vysya,

Federal Bank and JK Bank banks are depicted in table 5.6 (A). It is obvious

from the table that these banks have maintained the average Profit Margin

Ratio at 4.32% , 6.80% and 12.70% respectively between 1996-97 and 2005-06.

Annual Compound Growth Rate is found significant only in case of ING Vysya

Bank. The banks differ significantly incase o f profit margin over the period of

study. The mean ratio of the Asset Utilization ratio at -10.53 percent in ING, -

10.79 Percent in FB and 9.13 in JK Bank indicates towards an improvement in

the efficiency of all the three private sector banks. A substantially lower than

average ratio may indicate an institution is not generating the same income off

its assets as its peers. The reasons for this can be investigated i.e. it could

indicate over-capitalization, say something about the efficiency in the use of

resources. The annual growth o f the ratio (Equity Multiplier) at -12.18 percent

in ING, 1.01 in FB and 7.27 in JKB measures financial leverage and represents

both a profit and risk management. It compares assets with equity and large

values indicate a large amount of debt financing in comparison to equity. It has

impact on return on assets. A critical scrutiny of EM helps to evaluate whether

capital support is proportionate to the risks assumed in the balance sheet. As

regards the ratio Return on Assets, the table under reference offer that ING has

maintained around .55 percent, during last ten years, FB has maintained it

around .70 percent and FB has maintained it around 1.18 percent. JK Bank has

147

outperformed ING and FB in terms of growth rate in this ratio (Return on

Assets).

Table 5.6(A): Profitability Ratios - Select Statistics

(Figures in percent)

Ratios BanksMean

Ratio

StandardDeviation

F - ValueSignificance(Two-Tailed)

ACGRSignificance of

ACGR

ProfitMargin

ING 4.32 3.80

10.19 0.001

18.43 0.019

FB 6.80 3.41 15.06 0.203

JKB 12.70 5.34 4.71 0.353

AssetUtilization

ING 10.53 1.46

3.51 0.044

-3.92 0.006

FB 10.79 1.65 -3.75 0.027

JKB 9.13 1.37 -3.61 0.037

EquityMultiplier

ING 390.48 158.88

27.90 0.000

-12.18 0.079

FB 394.33 142.03 1.01 0.806

JKB 36.11 16.03 7.27 0.166

Return on

Assets

ING 0.55 0.40

5.83 0.008

- -

FB 0.70 0.28 3.10 0.323

JKB 1.18 0.56 1.07 0.863

Return on

Equity

ING 220.21 180.36

7.51 0.003

- -

FB 280.90 172.24 12.35 0.314

JKB 39.94 22.70 8.38 0.177

(- ) indicates dependent variable has non-positive values; no equation estimated.

148

The difference the three banks on this count is found significant at 0.05 level of

significance, which indicates the supremacy of JK Bank over the other two

private sector banks in terms of the ratio Return on Equity. Interestingly, the

ratio percentage o f Return on Equity indicates increasing trend in case of all the

three private sector banks, The difference between the three banks on this count

is found significant at 0.05 level of significance and the private banks differ

significantly in case of ROE ratio.

From the above analysis it is revealed that the Net Interest Income

(Spread) of the banks has declined in the interest rate deregulated period but

the banks could increase and sustain the profit during the same period by

reducing the Burden. The effect o f control on burden ratio and spread managed

by banks witnessed in the earlier analysis has been evidently reflected in the

increased profitability ratio of both public and private sector banks during the

post deregulation period o f interest rates.

5) Liquidity Statistical Analysis

Banks need liquidity to meet deposit with drawls and to fund loan demand. The

variability of loan demand and variability of deposit determine banks liquidity

needs. Liquidity is essential in all banks to compensate the expected and

unexpected Balance Sheet fluctuations and to provide funds for growth. The

price o f liquidity is a function of market conditions and market perceptions of

the risk, both interest rate and credit risk reflected in the banks balance sheet

and off balance sheet activities. If liquidity needs are not taken care off, banks

may be forced to restructure or acquire additional liabilities under market

conditions. It is believed that under deregulation interest rate this problem is

evident to arise for banks. The banks portfolio policies should be so designed

as to enable the banks to meet the liquidity requirements without exposing

itself both to embracement or unusual pressures and in short to liquidity risk.

149

Keeping in view the liquidity importance of banks, the most important liquidity

ratio in terms o f statistical analysis is presented in table 5.7.

Table 5.7: Liquidity Ratios - Select Statistics

(Figures in percent)

Ratios Banks MeanRatio

StandardDeviation

F - Value Significance(Two-Tailed)

ACGR Significance

of ACGR

Total Liquid

Assets to Total

Assets

SBI 19.07 5.70

2.52 0.099

-9.71 0.001

BOB 17.19 6.99 -12.50 0.001

PNB 13.77 2.13 -2.62 0.129

Total Liquid

Assets to Total

Deposits

SBI 26.32 8.68

6.20 0.006

-11.18 0.000

BOB 19.66 8.38 -12.95 0.001

PNB 14.66 4.50 -4.08 0.239

Credit to

Deposits

SBI 6.26 1.28

9.16 0.001

0.05 0.983

BOB 3.61 1.83 11.26 0.032

PNB 3.64 1.61 10.84 0.001

Inter bank

deposits to Total deposits

SBI 10.40 0.87

54.28 0.000

2.16 0.010

BOB 7.92 0.88 3.39 0.000

PNB 6.88 0.57 2.05 0.003

The ACGR of first two liquidity ratios namely Total Liquid Assets to

Total Assets and Total Liquid Assets to Total Deposits are found negative and

therefore are insignificant and the same is conformed by the F-test. However,

the trend in ACGR is found positive in case of Total Liquid Assets / Total

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Deposits and Inter bank deposits/Total deposits. An attempt is also made to

determine whether the liquidity ratios o f the above three banks differ

significantly. The result indicates significant difference between the liquidity

positions o f the three banks only in terms o f liquidity ratio Inter bank

deposits/Total deposits, out o f four ratios. Hence, there is no acknowledgeable

difference in the liquidity position of the three banks under reference. There

were significant differences between banks in terms o f Total Liquid Assets to

Total Deposits, Credit to Deposits and Inter Bank Deposits to Total Deposits as

p < 0.05.

Table 5.7(A): Liquidity Ratios - Select Statistics(Figure in percent)

Ratios BanksMean

Ratio

Standard

DeviationF - Value

Significance(Two-Tailed)

ACGRSignificance of

ACGR

Total Liquid

Assets / Total Assets

ING 15.12 6.31

1.89 0.171

-14.31 0.000

FB 11.72 4.20 2.25 0.638

JKB 15.94 4.70 -8.29 0.005

Total Liquid

Assets / Total Deposits

ING 18.30 7.44

2.01 0.154

-13.93 0.000

FB 13.23 4.51 2.13 0.630

JKB 17.50 5.90 -8.83 0.010

Credit /

Deposits

ING 62.56 6.70

16.26 0.000

3.11 0.000

FB 60.69 2.86 -0.95 0.062

JKB 51.42 3.53 1.81 0.007

Inter bank

deposits / Total

deposits

ING 7.47 0.77

36.47 0.000

2.84 0.005

FB 5.82 0.50 1.75 0.047

JKB 4.55 0.95 6.18 0.001

The ACGR of first two liquidity ratios namely Total Liquid Assets to

Total Assets and Total Liquid Assets to Total Deposits are found negative

except Federal Bank and therefore are insignificant and the same is conformed

151

by the F-test. However, the trend in ACGR is found positive in case of Credit

to Deposits and Inter bank deposits/Total deposits. An attempt is also made to

determine whether the liquidity ratios o f the above three banks differ

significantly. The result indicates significant difference between the liquidity

positions o f the three Private Banks, in terms of Credit to Deposits and liquidity

ratio Inter bank deposits to Total deposits, out o f four ratios. Hence, there is no

acknowledgeable difference in the liquidity position o f the three banks under

reference. There were significant differences between banks in terms o f Total

Liquid Assets to Total Deposits and Credit to Deposits as p < 0.05.

The banks portfolio policies should be so designed as to enable the

banks to meet the liquidity requirements without exposing itself both to

embracement or unusual pressures and in short to liquidity risk. Keeping in

view the liquidity importance of banks, the most important liquidity ratio in

terms o f statistical analysis is presented in table 5.7 (A). The overall

conclusions o f this analysis shows that banks have managed the liquidity

properly during post deregulation period and have maintained ALM in terms

liquidity gaps and duration.

Volatile Liquidity statistical Analysis: Table 5.8 depicts the volatile

liquidity position of SBI, BOB and PNB. It is obvious from the table that the

three public sector banks indicates negative trend in Volatile liabilities minus

temporary investment to Net loans plus investment due in more than one year

on an average, these banks are found maintain this ratio at 19.26 percent (SBI),

15.41 percent (BOB) and 7.06 percent (PNB) over the period o f study.

152

Table 5.8: Volatile Liquidity Dependence Ratios - Select Statistics

(Figures in percent)

Ratios Banks Mean

RatioStandardDeviation

F - Value Significance(Two-Tailed)

ACGR Significance

of ACGR

Volatile liabilities-

temporary

investment to Net loans + investment

due in more than

one year

SBI 19.26 5.40

16.92 0.000

-9.18 0.000

BOB 15.41 6.15 -11.12 0.001

PNB 7.06 1.39 -3.49 0.106

Credit to Total

Liabilities

SBI 39.51 5.51

0.85 0.438

2.99 0.019

BOB 44.06 4.47 2.69 0.003

PNB 41.45 11.53 5.14 0.249

Purchased funds to Total Assets

SBI 4.51 0.62

7.70 0.002

-0.78 0.657

BOB 2.83 1.36 10.77 0.030

PNB 2.65 1.35 15.68 0.030

Loan losses (NPA’S) to Total

net loans

SBI 5.11 1.89

1.66 0.208

13.80 0.000

BOB 7.08 0.73 -1.88 0.068

PNB 5.48 3.96 -44.21 0.001

The above indicates that the liquidity position o f SBI is sounder as

compared to BOB and PNB. Opposite is the position obtained about the ratio of

Credit to Total Liabilities. The ratio is recorded on an average at 39.51 percent,

44.06 percent and 41.45 percent in case o f SBI, BOB and PNB respectively,

ACGR in case of this ratio is positive and there is no significance difference

between the banks as revealed by the F-test. The ratio Purchased funds to

Total Assets is recorded at on an average o f 4.51 percent, 2.83 percent and 2.65

percent in case of SBI, BOB and PNB respectively their is significance

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difference between the banks as revealed by the F-test in case of this ratio.

However the trend in ACGR is found in case of BOB and PNB. The ratio Loan

losses (N PA ’S) to Total net loans on an average stood at 5.11 percent, 7.08

percent and 5.48 percent in case of SBI, BOB and PNB respectively. However,

ACGR is found positive in case of SBI only. In so far as the absolute value of

the above ratio is concerned, no significance difference between the sample

organizations is revealed by the F-test applied for the purpose at 5 percent level

of significance.

Table: 5.8 (A) Volatile Liquidity Dependence Ratios - Select Statistic(Figures in percent)

Ratios BanksMean

Ratio

StandardDeviation

F-ValueSignificance(Two-Tailed)

ACGRSignificance

of ACGR

Volatile liabilities

-temp, investment

to Net loans +

investment due in

more than one

year

ING 6.96 0.88

5.95 0.007

-0.390 0.805

FB 4.06 0.97 -5.92 0.008

JKB 6.47 3.23 -15.88 0.000

Credit to Total

Liabilities

ING 46.65 8.69

2.98 0.068

5.53 0.000

FB 50.19 5.65 -1.21 0.366

JKB 42.38 6.81 4.39 0.002

Purchased funds

to Total Assets

ING 4.17 0.60

3.43 0.047

2.55 0.106

FB 3.16 0.62 5.35 0.001

JKB 3.45 0.69 4.92 0.015

Loan losses

(NPA’S) to Total

net loans

ING 5.33 3.84

4.19 0.026

-19.04 0.001

FB 5.69 3.03 -16.27 0.036

JKB 2.29 1.03 -14.93 0.000

Table 5.8 (A ) depicts the volatile liquidity position of ING, FB and JK

Bank. It is obvious from the table that the three private sector banks indicates

154

negative trend in Volatile liabilities minus temporary investment to Net loans

plus investment due in more than one year on an average, these banks are

found maintain this ratio at 6.96 percent (ING), 4.06 percent (FB), and 6.47

percent (JK B) over the period o f study. The above indicates that the liquidity

position o f ING is sounder as compared to other two banks. Opposite is the

position obtained about the ratio of Credit to Total Liabilities. The ratio is

recorded on an average at 46.65 percent, 50.19 percent and 42.38 percent in

case of ING, FB and JKB respectively, ACGR in case of this ratio is negative

only in case of Federal Bank and there is no significance difference between

the banks as revealed by the F-test. The ratio Purchased funds to Total Assets

is recorded at on an average of 4.17 percent, 3.16 percent and 3.45 percent in

case of ING, FB and JKB respectively, their is significance difference between

the banks as revealed by the F-test in case of this ratio. The trend in ACGR is

found in case o f all the three banks. The ratio Loan losses (NPA’S) to Total net

loans on an average stood at 5.33 percent, 5.69 percent and 2.29 percent in case

of ING, FB and JKB respectively. However, ACGR is found negative in case

of all the banks. In so far as the absolute value of the above ratio is concerned.

There is significance difference between the samples organizations is revealed

by the F-test applied for the purpose at 5 percent level of significance.

6) Asset Liability Management statistical Analysis

Business o f banking involves the identifying, measuring, accepting and

managing the risk, the heart of bank financial management is risk management.

One of the most important risk-management functions in bank is Asset

Liability Management. Traditionally, administered interest rates were used to

price the assets and liabilities of banks.

155

Table 5.9: Asset Liability Management Ratios - Select Statistics

(Figures in percent)

Ratios BanksMeanRatio

StandardDeviation

F - ValueSignificance(Two-Tailed)

ACGRSignificance

of ACGR

Working

funds/ Total Assets

SBI 11.57 4.39

6.48 0.005

-11.48 0.002

BOB 17.58 5.07 -7.94 0.009

PNB 11.73 3.12 -6.80 0.039

Retained

Earnings/

Total Assets

SBI 0.65 0.16

3.57 0.042

1.94 0.578

BOB 0.58 0.19 2.17 0.645

PNB 0.80 0.20 2.20 0.419

EBIT(nnrt)/

Total Assets

SBI 6.50 0.74

0.04 0.956

-3.30 0.002

BOB 6.37 1.19 -6.12 0.001

PNB 6.44 0.90 -4.50 0.000

Market value

of Equity/Book

Value of total

Liabilities

SBI 6.51 2.67

0.74 0.489

2.30 0.667

BOB 5.21 2.39 3.49 0.506

PNB 6.43 2.90 3.88 0.501

The above table 5.9 reveals the statistical analysis o f Asset Management

ratios of the three public sector banks. The analysis o f the sample organizations

is done with the help of four ratios. Annual Compound Growth Rate in case of

the ratio working funds to Total Assets is found negative all the three public

sector banks. This ratio, frequently found in studies o f corporate problems is a

measure o f a firm’s net liquid assets relative to its capitalization. Liquidity and

size characteristics are explicitly considered ordinarily; a firm experiencing

consistent operating losses will have shrinking current assets in relation to total

assets. From the analysis of above ratios it can be deduced deregulation of

156

interest rates have put pressure on banks liquidity. The ratio Retained Earnings

to Total Assets has been registered at 1.94 percent in case o f SBI, 2.17 percent

in case o f BOB and 2.20 percent in case of PNB in terms o f ACGR. A high or

increasing Retained Earnings to Total Assets ratio is usually a positive sign,

showing the bank is able to continually retain increasingly more earnings. As a

bank grows and matures, you should see this ratio increase. The ratio earning

before Interest and Tax (net of non recurring transactions) to Total Assets, the

ACGR is found negative and there is no significant difference between the

samples in case of the above ratio. The ratio Market value o f Equity to Book

Value o f total Liabilities has registered an increasing trend in ACGR of all the

three banks but the growth is not significant as the p > 0.05 in case o f this

ratio.

The table 5.9 (A ) reveals the statistical analysis o f asset management

ratios of the three private sector banks. The analysis of the sample

organizations is done with the help of four ratios. Annual Compound Growth

Rate in case o f the ratio working funds to Total Assets is found negative all the

three private sector banks. The ratio was maintained on an average of 12.95%,

11.54% and 13.72% in case of ING, FB and JK Bank respectively. This ratio,

frequently found in studies of corporate problems is a measure o f a firm’s net

liquid assets relative to its capitalization. Liquidity and size characteristics are

explicitly considered ordinarily; a firm experiencing consistent operating losses

will have shrinking current assets in relation to total assets. From the analysis

of above ratios it can be deduced deregulation o f interest rates have put

pressure on banks liquidity. The ratio Retained Earnings to Total Assets has

been registered at -3.31 percent in case of ING, 1.74 in case o f FB and -0.50 in

case o f JKB. A high or increasing Retained Earnings to Total Assets ratio is

usually a positive sign, showing the bank is able to continually

retain increasingly more earnings. As a bank grows and matures, you should

see this ratio increase but in case of the private sector banks the ACGR is

157

negative in case o f the said ratio and that is not the good sine for the long term

solvency for the banks. The ratio earning before Interest and Tax (net of non

recurring transactions) to Total

Table 5.9(A): Asset Liability Management Ratios — Select Statistics

(Figures in percent)

Ratios BanksMean

Ratio

StandardDeviation

F-ValueSignificance

(Two-Tailed)ACGR

Significance

of ACGR

Working funds to

Total Assets

ING 12.95 7.77

0.37 0.696

-21.38 0.000

FB 11.54 4.50 5.22 0.257

JKB 13.72 4.31 -8.67 0.013

Retained

Earnings to Total Assets

ING 0.56 0.17

8.24 0.002

-3.31 0.356

FB 0.77 0.18 -1.74 0.615

JKB 0.92 0.23 -0.50 0.868

EBIT(nnrt) to

Total Assets

ING 7.79 1.81

0.69 0.512

-7.99 0.000

FB 8.22 1.95 -7.14 0.004

JKB 7.28 1.55 -4.48 0.095

Market value of

Equity to Book

Value of total Liabilities

ING 5.54 2.41

1.05 0.364

10.99 0.025

FB 3.84 2.28 11.28 0.066

JKB 4.05 3.66 30.75 0.000

Assets, the ACGR is found negative and there is no significant difference

between the samples in case of the above ratio. The ratio Market value of

158

Equity to Book Value of total Liabilities has registered an increasing trend in

ACGR and maintained on an average of 5.54%, 3.84% and 4.05% in case of

ING, FB and JKB respectively but the growth is not significant as the p > 0.05

in case of this ratio.

From the statistical analysis of the banks it can be concluded that the

banks have performed nicely in the deregulated environment. Banks were able

to maintain the mean ratio on a good average in case of all the performance

parameters, were able to minimize the variability and therefore were able to

manage risk but have failed to achieve the positive ACGR in case of many

important performance ratios.

159