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Financial Performance of Private Sector Banks in India - An Evaluation

IndianMoney.com Research Team | Posted On Monday, March 09,2020, 05:33 PM

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Financial Performance of Private Sector Banks in India - An Evaluation

 

 

While the public sector banks are government-owned institutions that play an important role in the economy. The private sector banks too are an integral part of the country’s banking system as it has introduced the customers to an effective and hassle-free banking system.

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Financial Performance of Private Sector Banks in India - An Evaluation

Previously the banking sector was dominated by public sector banks. But the inefficiency and the lack of upgraded systems left scope for private banks to operate and grow their business in the Indian economy. With private banks and the foreign banks operating in the Indian economy, we must make an assessment and try and understand their financial performance with respect to returns on assets, cost of operating branches, profit per employee, NPAs etc:

List of The Private Sector Banks:

  1. Bank of Rajasthan
  2. Catholic Syrian Bank Ltd
  3. City Union Bank
  4. Dhanalaxmi Bank Ltd.
  5. Federal Bank
  6. ING Vyasa Bank Ltd.
  7. Karnataka Bank
  8. Jammu and Kashmir Bank
  9. Karur Vyasa Bank Ltd.
  10. Laxmi Vilas Bank
  11. Development Credit Bank
  12. IndusInd Bank
  13. HDFC Bank
  14. ICICI Bank
  15. Kotak Mahindra Bank
  16. Axis Bank

See Also: Public Sector Banks and Private Sector Banks

A Brief Analysis of the Performance of the Private Sector Banks:

  • Ratio return on assets: the ratio of returns on assets is used to evaluate the profitability of the bank. As per the reports, the four major banks i.e. ICICI Bank, HDFC Bank, Axis Banks and Kotak Mahindra Bank shows positive returns ratio in the year 2009.
  • Business per employee: in order to measure the efficiency of employees employed in private banks, banks often use the profit per employee tool. As per reports of the RBI assessment 2009, the Development Credit Bank ranks last with a loss of Rs. 7 lakhs per employee.
  • Operating profit: In terms of operating profit, ICICI ranks highest among all the banks in all the years. However, as per the assessment of the year 2009 the development credit bank has incurred a huge operating loss and has been placed in the last rank.
  • Capital adequacy ratio: the capital adequacy ratio is calculated using a formula where the capital is divided by risk weighted assets. The currency capital adequacy limit is fixed by RBI at 8%. Higher the ration, more are the chances that the bank will absorb losses comfortably. As per the reports of the year, 2005 to 2006 the United Western Bank has a capital adequacy ratio of less than 8% and contains a negative figure.
  • Operating expenses: As per the bank-wise assessment conducted by RBI in the year 2009, the HDFC Bank and the ICICI Bank holds the first and the second position of the highest operating expenses of branches.
  • Credit deposit ratio: This is another important parameter that is used to analyse the liquidity position of any bank. It indicates how the bank’s core funds are used for lending money. A high ratio indicates pressure on the bank resources and a low ratio indicates that the bank is not using its resources optimally. Banks like ICICI Bank Ltd, Yes Bank and Ing Vysya Bank maintain a high ratio during the course of the analysis.  
  • NPA: The NPA stands for Non-performing assets, which is the percentage of net advances on which the principal or the interest payment remains overdue for a period of 90 days. As of 2009, ICICI Bank, Karur Vysya Bank and IndusInd Bank contain the highest amount of Non-performing assets while Federal Bank has taken the least position.

See Also: How Private Banks are Taking Over Indian Banking

Summary:

The following has been summarized as per the above analysis:

  • We can conclude from the above points that Banks such as ICICI Bank, HDFC Bank, Axis Banks and Kotak Mahindra Bank are in a comfortable position as it shows positive results on the maximum number of parameters.
  • It is clear from the above analysis that the Credit Development Bank performs the least among all banks.
  • Axis Bank shows the highest figure when it comes to profit per employee.
  • The highest operating expenses mean banks such as HDFC and ICICI are constantly upgrading and adopting new technologies to provide the customer with the best services.
  • While studying the net NPA, we can conclude that banks like Karur Vysya Bank and IndusInd Bank have taken the top position of NPA as per the reports of the year 2009.

See Also: A Brief History of Nationalization of Banks

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