EXECUTIVE SUMMARY

To facilitate the transition and uplift the Indian banking system to an international standard,
various measures have been introduced by the Reserve bank of India. One of such measures to
assess the financial viability is the CAMEL (Capital adequacy, Asset quality, Management,
Earnings and Liquidity) model. For the purpose of the study, each constituent is considered as a
module and an attempt has been made to evaluate and rank the public sector banks on each
module and subsequently on the aggregate of all the modules. In addition to specified factors,
Non-performing assets are one of the major concerns for banks in India that reflects the
performance of banks. The rise in level of NPAs suggests an increase in the number of credit
defaults which ultimately had an effect on the profitability and net-worth of banks, deteriorates
the asset value. To reduce the NPA growth, RBI made provisions which result in increase in the
overall profits of banks and its shareholders’ value.

The problem of NPAs is not only affecting the banks but also the whole economy. In fact the
level of NPAs in Indian banks is nothing but a reflection of the state of health of the industry and
trade. However lending also carries a risk called credit risk, which arises from the failure of
borrower. Non-recovery of loans along with interest forms a major hurdle in the process of credit
cycle.

In this report I have made an attempt to analyze how efficiently the banks managed their
financial indicators like Net interest margin ratio, Non performing assets ratio, Credit to deposit
ratio, capital adequacy ratio, return on assets ratio and cost to income ratio. Secondary data has
been collected for the banks from the RBI publications, news articles, journals etc. The financial
details of banks has been collected from bank's websites for a period of three years i.e. from
2013 to 2015. The data has been analyzed using percentage and ratio method, and selected tests
such as graphs in Excel.

1
 CHAPTER I

INTRODUCTION

2
1.1 INTRODUCTION

The economic scene at the post independence period has seen a drastic change which resulted an
enormous progress in diverse fields. There has been a quantitative expansion as well as
diversification of economic activities. 1980s experiences have led to the conclusion to obtain all
the benefits of greater reliance on voluntary, market-based decision-making, India needs efficient
financial systems. The financial system is possibly the most important institutional and
functional vehicle for economic transformation. Finance is a bridge between the present and the
future and whether it be the mobilization of savings or their efficient, effective and equitable
allocation for investment, it is the success with which the financial system performs its functions
that sets the pace for the achievement of broader national objectives.

Financial stability means financial institutions individually and collectively are being able to
deliver their functions properly, withstanding external shocks and avoiding internal weaknesses.
The 'India Financial Stability Report' published by Reserve Bank of India (March 2010), defines
financial stability: "From a macro prudential perspective, financial stability could be defined as a
situation in which the financial sector provides critical services to the real economy without any
discontinuity."

A well-built banking sector is significant for a prosperous economy. The crash of the banking
sector may have an unfavorable blow on other sectors. A banker shall be very cautious in
lending, because banker is not lending money out of his own capital. A major portion of the
money lent comes from the deposits received from the public and government share. At present
NPA in the banking sector is debate topic because NPA is increasing year by year particularly in
nationalized banks.

ESSENTIALS OF SOUND BANKING SYSTEM

Stability: Bank failures damage the whole economy by destroying the general confidence of the
people in such situations. Bank must therefore maintain liquidity and refrain from riskless
lending or investment. The good sense of banks in this respect is reinforced by legislation. In
India, under the Banking Regulation Act 1949, the Reserve Bank has been given extensive
powers of supervision, direction and regulation of commercial banks. Insurance of deposits upto
Rs. 20,000 has been introduced so that depositors may feel secure. Training of bank staff has
been undertaken to see officers have adequate theoretical background.

Liquidity: Liquidity means the capacity to promptly meet the demands of depositors. This can
be done only by keeping such cash or near cash. Too much liquidity is costly, for liquid assets do
not yield much income and a bank cannot offered to ignore profitability. Bank therefore keep in

3
addition to cash, a large proportion to their funds in realizable or transferable assets, which also
earn income.

Flexibility: Both the deposit and credit systems should be kept so flexible that they can meet the
varying psychological requirements and business needs of the customers. The policy of selective
liberalization and control is an example of flexible banking policy.

Dispersal: Banking facilities should not get concentrated in a small region but get dispersed over
the whole country to enable equitable regional growth. Such banking can secure better deposit
mobilization which is essential for a proper and balanced growth.

Profitability: Profitability should not be sacrificed, the responsibility to share holders and
optional business choices in raising resources and extending credit facility within the basic farm
work of security of investment demand it.

CAMEL Framework
The acronym "CAMEL" refers to the six components of a bank's condition that are assessed:
Capital adequacy, Asset quality, Management, Earnings & Liquidity.

CAPITAL ADEQUACY

Capital adequacy ultimately determines how well financial institutions can cope with shocks to
their balance sheets. Thus, it is useful to track capital-adequacy ratios that take into account the
most important financial risks—foreign exchange, credit, and interest rate risks—by assigning
risk weightings to the institution’s assets. A sound capital base strengthens confidence of
depositors. This ratio is used to protect depositors and promote the stability and efficiency of
financial systems around the world.

ASSET QUALITY

The asset quality rating is a function of present conditions and the likelihood of future
deterioration or improvement based on economic conditions, current practices and trends. The
examiner assesses credit union's management of credit risk to determine an appropriate
component rating for Asset Quality. Interrelated to the assessment of credit risk, the examiner
evaluates the impact of other risks such as interest rate, liquidity, strategic, and compliance.

4
MANAGEMENT

Management is the most forward-looking indicator of condition and a key determinant of

whether a credit union possesses the ability to correctly diagnose and respond to financial stress.
The management component provides examiners with objective, and not purely subjective,
indicators. An assessment of management is not solely dependent on the current financial
condition of the credit union and will not be an average of the other component ratings.
Reflected in this component rating is both the board of directors' and management's ability to
identify, measure, monitor, and control the risks of the credit union's activities, ensure its safe
and sound operations, and ensure compliance with applicable laws and regulations. Management
practices should address some or all of the following risks: credit, interest rate, liquidity,
transaction, compliance, reputation, strategic, and other risks.

EARNINGS

The continued viability of a credit union depends on its ability to earn an appropriate return on
its assets which enables the institution to fund expansion, remain competitive, and replenish
and/or increase capital. In evaluating and rating earnings, it is not enough to review past and
present performance alone. Future performance is of equal or greater value, including
performance under various economic conditions. Examiners evaluate "core" earnings: that is the
long-run earnings ability of a credit union discounting temporary fluctuations in income and one-
time items. A review for the reasonableness of the credit union's budget and underlying
assumptions is appropriate for this purpose. Examiners also consider the interrelationships with
other risk areas such as credit and interest rate.

LIQUIDITY

Asset/liability management (ALM) is the process of evaluating, monitoring, and controlling

balance sheet risk (interest rate risk and liquidity risk). A sound ALM process integrates
strategic, profitability, and net worth planning with risk management. Examiners review (a)
interest rate risk sensitivity and exposure; (b) reliance on short-term, volatile sources of funds,
including any undue reliance on borrowings; (c) availability of assets readily convertible into
cash; and (d) technical competence relative to ALM, including the management of interest rate
risk, cash flow, and liquidity, with a particular emphasis on assuring that the potential for loss in
the activities is not excessive relative to its capital. ALM covers both interest rate and liquidity
risks and also encompasses strategic and reputation risks.

1.2 RESEARCH MOTIVATION

5
 1.2.1 PROBLEM DEFINITION

The Banking Sector has undergone a complex, but comprehensive phase of restructuring since
1991 with a view to make it sound, efficient, and at the same time forging its links firmly with
the real sector for promotion of savings, investment and growth. This is the natural framework to
analyze and compare overall performance under which banks are required to enhance capital
adequacy, strengthen asset quality, improve management, increase earnings and reduce
sensitivity to various financial risks.

1.2.2 RESEARCH OBJECTIVES

 To create a frame work to study the financial stability of banks.

 To measure the financial stability of banks.
 To understand the concept of Non-performing assets (NPA).
 To highlight the NPA position of selected public and private sector banks.
 To assess the comparative position of NPAs in public and private sector categories of Indian
banking.
 To study the general reasons for assets to become Non-performing assets.
 To study the strength of Indian Banks using CAMEL Framework as a tool for Performance
Evaluation.
 To compare the performances of public sector and private sector banks in India using different
parameters such as Capital Adequacy, Profitability, Asset Quality & Financial Leverage.
 To offer suggestions based on findings of the study.

1.2.3 NEED AND SCOPE OF THE STUDY

The non-performing assets that are not able to generate income for the bank are the great threat
for the banking institution. Rather than generating profit for the bank, NPA drains off the income
earned by the other performing asset by the way of paying interest to the real owner of the
resources. It affects the overall profitability of the bank adversely by affecting the return on
equity and return on asset. Thus, the need of the study of the NPA is must necessary due to these
reasons. One has to realize these matters and has to take corrective action against NPA reasons,

6
as for as possible one has to convert all the NPA accounts into PA accounts. As far as the
importance of the study is concern, without the study, one can’t identify the whole gamut of the
NPA. To know, how the account is becoming NPA is must necessary. After identifying the
reason behind the particular NPA account, one can go for a step ahead. That means for the step
of how to convert into PA and how to prevent other account from becoming NPA. As for as
possible, one has to eradicate the reasons of NPAs. Thus, it is highly importance to study NPA in
detail.

IMPACT OF NPA

Profitability: NPA means booking of money in terms of bad asset, which occurred due to wrong
choice of client. Because of the money getting blocked the prodigality of bank decreases not only
by the amount of NPA but NPA lead to opportunity cost also as that much of profit invested in
some return earning project/asset. So NPA doesn’t affect current profit but also future stream of
profit, which may lead to loss of some long-term beneficial opportunity. Another impact of
reduction in profitability is low ROI (return on investment), which adversely affect current
earning of bank.

Liquidity: Money is getting blocked, decreased profit lead to lack of enough cash at hand which
lead to borrowing money for shortest period of time which lead to additional cost to the
company. Difficulty in operating the functions of bank is another cause of NPA due to lack of
money.

Involvement of management: Time and efforts of management is another indirect cost which
bank has to bear due to NPA. Time and efforts of management in handling and managing NPA
would have diverted to some fruitful activities, which would have given good returns. Now a
day’s banks have special employees to deal and handle NPAs, which is additional cost to the
bank.

Credit loss: Bank is facing problem of NPA then it adversely affect the value of bank in terms of
market credit. It will lose its goodwill and brand image and credit which have negative impact to
the people who are putting their money in the banks.

1.2.4 LIMITATIONS OF THE STUDY

7
 Time and resources constraints.
 The study was completely done on the basis of ratios calculated from the balance sheets.
 It has not been possible to get sensitive real data on actual CAMELS analysis.
 The present study is confined to Indian public and private banks only.
 The conclusions of the study are based on the secondary information only. Thus, some amount of
subjectivity might remain.

8
 CHAPTER II

LITERATURE REVIEW

2.1. DETAILS OF LITERATURE REVIEW CONDUCTED

9
Bank size has substantially increased around the world in recent years. The financial stability is
not same for all the banks, this financial stability depends on many factors like stressed assets ,
market size, liquidity, credit risk etc.

Hakkon Kim, Kwangwoo Park, Sangjin Song(2015) tells how large banks market share affects
the financial stability of small banks in Asia. they also tells that the larger banks in the major
Asian markets tend to have lower capital adequacy ratios, liquidity ratios, and distance to
defaults.

Dr. Durga Madabh Mahapatra, Prof Ashok Kumar Mohanty(2012) tells that the profitability of
banks are affected by Non Performing assets irrespective of the ownership pattern. Renu Arora,
Archana Singh(2015) tells that the credit risk management is a key to banking system to control
non performing loans, and banks need efficient alignment of credit strategy, credit policy and
processes. There research also tells that there is a need for improvements in key areas like HR
potential developments through risk trainings, data management, integration across credit
departments, increasing consistencies in credit rating approaches, reducing loan processing time
and increasing focal attention on problem loans. O.P.Bhatt(2008) 2008 was a bad year for the
financial world. But Indian Banks are strong and no bank failed in India by showing their
strength.

2.2. Gap identified from literature review:

The affects of financial stability in Indian banks, the role of nonperforming assets, credit risk are
seen in the literature review. But there is a gap in literature review which did not tell about the
banks that are financially stable in India (the names of good and worst financial stability of
banks). In my research I would like to differentiate banks with good financial stability and worst
financial stability using different indicators and measures and to compare between the public
sector banks and private sector banks. This will give a brief idea for the investors or depositors to
safeguard their money from banks being bankrupt.

10
 CHAPTER III

RESEARCH METHODOLOGY

3. DESCRIPTION OF THE METHODOLOGY PROPOSED:

11
3.1. DATA COLLECTION METHOD

This study is based on secondary data. The required data for this study can be collected from the
various sources like Research Articles, RBI bulletins, published by RBI, Govt. of India, Annual
reports of various banks, publications and notifications of RBI, Capitaline Database.

The study covers both Public Sector and Private sector Banks in India since liberalization.

3.2. METHODOLOGY

The methodology adopted here in conducting the study is Analytical research. For the data
collected for Indian Public & Private Sector Banks, different ratios are calculated with the help
of MS Excel.

3.3. TOOLS USED FOR ANALYSIS

MS Excel for calculating different ratios.

12
 CHAPTER IV

DATA ANALYSIS

4. DATA ANALYSIS

13
 Sample taken:

5 public sector banks

 State Bank of India

 Bank of Baroda
 Punjab National Bank
 IDBI
 Central Bank of India

5 private sector banks

 ICICI bank
 HDFC bank
 Axis bank
 Kotak Mahindra bank
 Indusind bank

The indicators like Net interest margin ratio, Credit to deposit ratio, Capital adequacy ratio,
Non-performing asset ratio, Return on assets, Cost to income ratio are calculated to all the banks
for 2013, 2014, 2015.

Respective charts are given below to analyze the trend of these ratios by which the financial
stability of banks can be determined.

14
Net Interest margin Ratio:

Net Interest margin Ratio  

  2015 2014 2013

SBI 12.31004 13.15532 13.37042

BOB 10.80738 10.07581 11.06069

PNB 11.22153 11.79909 11.76634

IDBI 5.115221 5.944946 5.905286

CBI 7.980956 8.182479 8.703372

ICICI 10.20876 9.457423 8.379675

HDFC 15.58441 15.89462 15.12327

AXIS 11.3423 10.51683 9.342558

KOTAK 14.31063 13.68723 12.71076

INDUSIND 14.07627 14.02674 13.0477

Net Interest Margin ratio

18

16

14

12 2015
10 2014
2013
8

0
SBI BOB PNB IDBI CBI ICICI HDFC AXIS KOTAK INDUSIND

The Net Interest Margin is a performance metric which examines the success of firm's
investment decisions to its debt situations. This ratio indicates the effectiveness of banks in

15
deploying their funds to generate income from credit and investment operations. Since high Net
Interest margin provides profitability, the bank with high NIM is considered more efficient than
the bank with low NIM. In the sample that is taken SBI is more effective in public sector banks
and HDFC is more effective in private sector banks. Among all the banks HDFC is more
effective.

Credit to deposit ratio

Credit to deposit ratio  

  2015 2014 2013

SBI 82.44749 86.76286 86.93624

BOB 69.31561 69.7855 69.25455

PNB 71.63429 77.3752 78.84492

IDBI 80.19554 83.84568 86.43426

CBI 76.28641 73.86009 76.06491

ICICI 107.1798 102.0454 99.19204

HDFC 81.07777 82.48553 80.91918

AXIS 87.17322 81.89045 77.97124

KOTAK 121.6749 89.76729 94.98363

INDUSIND 92.78855 91.07397 81.89818

Credit to Deposit ratio

140

120

100
2015
80 2014
2013
60

40

20

0
SBI BOB PNB IDBI CBI ICICI HDFC AXIS KOTAK INDUSIND

16
Credit to deposit ratio indicates how much of the advances lent by banks is done through
deposits. The higher the CDR, the higher will be the loan-assets created from deposits. If the
ratio is very high, it tells that banks might not have enough liquidity to cover the fund
requirements. If the ratio is too low, banks may not be earning as much as they could. If the
percentage is lower than 100, which mean the banks are lending credit to their customers from
their own deposits. If on the other hand, the percentage is greater than 100, the banks have
borrowed money which they gave credit at higher rates, without relying entirely on their own
deposits. The average CDR is around 77.5 as per RBI. In public sector banks central bank of
India, SBI, and IDBI are near to this average. In private sector banks HDFC is near to the
average value. ICICI and Kotak Mahindra banks have more than 100% which means these two
banks are not relying on their own deposits.

Capital Adequacy Ratio

Capital Adequacy Ratio  

  2015 2014 2013

SBI 12.00437 12.23158 10.92894

BOB 13.06757 12.88 13.30

PNB 12.9003 12.11211 12.72

IDBI 11.85525 12.08947 9.677641

CBI 10.90383 10.7906 10.15181

ICICI 17.0205 18.34422 17.44658

HDFC 16.80459 16.00103 14.68858

AXIS 15.19676 16.29605 16.14009

KOTAK 17.56131 18.10339 18.16

INDUSIND 12.08923 13.8 15.01

17
 Capital Adequacy Ratio
20
18
16
14
2015
12 2014
10 2013

8
6
4
2
0
SBI BOB PNB IDBI CBI ICICI HDFC AXIS KOTAK INDUSIND

A banks capital adequacy ratio is the ratio of qualifying capital to risk weighted assets. RBI has
set the minimum capital adequacy ratio at 9% for all banks. The ratio below the minimum
indicates that the bank is not adequately capitalized to expand its operations. It is used to protect
the depositors and to promote the stability and efficiency of financial systems around the world.
It is also known as capital to risk weighted assets ratio. All the public sector banks and private
sector banks in the sample have met the minimum 9% of CAR according to Basel III.

Nonperforming Asset Ratio

Nonperforming Asset Ratio  

  2015 2014 2013

4.02395
SBI 2.122309 3.488494 9

1.27733
BOB 1.885108 1.520068 5

2.34399
PNB 5.849159 2.839355 4

1.57934
IDBI 2.875809 2.479842 7

2.90108
CBI 3.49136 3.74982 2

0.76849
ICICI 1.614238 0.973704 8

HDFC 0.482394 0.270637 0.19562

18
 4

0.35748
AXIS 0.468438 0.445358 8

0.64249
KOTAK 0.687199 1.081625 3

INDUSIN
D 0.306012 0.334018 0.30857

Non Performing Asset Ratio

7

5
2015
4 2014
2013
3

0
SBI BOB PNB IDBI CBI ICICI HDFC AXIS KOTAK INDUSIND

This ratio is used to measure the overall quality of banks loan book. NPA's are those assets for
which interest is overdue for more than 90 days. Higher ratio shows that there is rise in bad
quality of loans. In public sector banks PNB has high NPA ratio followed by Central bank of
India which says that these banks are not very efficient in maintaining the stressed assets. Bank
of Baroda is better in maintaining the NPA ratio. In private sector banks ICICI bank has high
NPA ratio and Indusind bank has low NPA ratio.

Return on Assets

Return on Assets    

  2015 2014 2013

SBI 0.682226 0.431427 0.63144

BOB 0.4945 0.376341 0.45057

PNB 0.008339 0.649488 1.0133

19
 IDBI 0.256257 0.344112 0.61397

CBI 0.194268 -0.45293 0.407672

ICICI 1.801357 1.734164 1.647887

HDFC 1.888161 1.901128 1.822244

AXIS 1.574732 1.71805 1.654272

KOTAK 1.131809 1.75447 1.822062

INDUSIND 1.828998 1.756376 1.621328

Return on Assets
2.5

1.5
2015
1 2014
2013

0.5

0
SBI BOB PNB IDBI CBI ICICI HDFC AXIS KOTAK INDUSIND

-0.5

-1

This return on Asset ratio is the net profits generated by the bank on its total assets. ROA
specifies how efficient the management is at using its assets to generate earnings. ROA is more
for SBI in public sector banks which says that SBI has more returns on assets and more
profitable. In private sector banks HDFC has high return on assets. In both the public sector and
private sector banks HDFC has high return on assets.

Cost to Income

Cost to Income    

20
   2015 2014 2013

SBI 28.7023 27.92256 26.33618

BOB 16.20192 16.44393 15.31588

PNB 20.09641 19.53602 17.70805

IDBI 12.52244 11.22129 11.08182

CBI 19.72292 19.65432 17.9885

ICICI 18.76341 18.87861 18.61346

HDFC 24.34044 24.54827 26.80532

AXIS 20.99221 20.76615 20.49655

KOTAK 27.70379 25.00888 24.01058

INDUSIND 22.5361 21.54246 21.04385

Cost to Income Ratio

35

30

25
2015
20 2014
2013
15

10

0
SBI BOB PNB IDBI CBI ICICI HDFC AXIS KOTAK INDUSIND

Cost to Income ratio is also known as operating expense ratio which is a measure of what it costs
to operate a piece of property compared to the income that the property brings in. Lower the
ratios, better the efficiency of bank. In public sector banks, IDBI has low Cost to income ratio
followed by Bank of Baroda. In private sector banks, ICICI has low cost to income ratio
followed by Axis bank.

21
By analysing all the banks using these indicators, private sector banks are financially more stable
than public sector banks. Mainly in terms of nonperforming assets private sector banks are more
efficient. Capital adequacy ratio is also high for private sector banks.

CHAPTER V

FINDINGS

22
5. FINDINGS
Trend of Ratios with respect to each Bank:

5.1. SBI

Net Interest margin

13.6
13.4
13.2
13
12.8 SBI
12.6
12.4
12.2
12
11.8
11.6
2015 2014 2013

Net Interest margin has reduced from 2013 to 2015. The trend of net profit margin has declined
which shows that the profitability of SBI is not high because higher the ratio, the more effective
the bank.

Credit to deposit ratio

88

87

86

85
SBI
84

83

82

81

80
2015 2014 2013

Credit to deposit ratio of SBI has declined from 2013 to 2015. This shows that the banks might
have enough liquidity to cover fund requirements. The average percentage is 77.5 and SBI CDR

23
is near to that which is not too high nor too low, SBI is lending credit to their customers from
their own deposits with depending on borrowed funds.
Capital adequacy
12.5

12

11.5
SBI

11

10.5

10
2015 2014 2013

The Capital adequacy ratio of SBI has increased from 2013 to 2014 and slightly decreased in
2015. But it met the minimum requirement of RBI, which shows the bank is adequately
capitalised.

Non performing assets

4.5

3.5

2.5 SBI

1.5

0.5

0
2015 2014 2013

Nonperforming asset ratio of SBI has reduced from 2013 to 2015. NPA's should be less for any
bank to be effective. NPA ratio for SBI is not low but the ratio has been declining since 2013
which shows that the bank is trying to reduce NPA's.

Return on assets
0.8

0.7

0.6

0.5
SBI
0.4

0.3

0.2

0.1

0
2015 2014 2013

24
Return on assets ratio of SBI has increased in 2015, that shows the banks profits which are
generated on its total assets have increased.
Cost to income
29

28.5

28

27.5
SBI
27

26.5

26

25.5

25
2015 2014 2013

The cost to income ratio which is also known as operating expense ratio . Lower the ratio better
the efficiency of the bank. For SBI, cost to income ratio has increased since 2013, which means
that the costs are rising at a high income. So the bank is not that profitable as the ratio increased.

5.2. BANK OF BARODA

Net Interest margin

11.2

11

10.8

10.6

10.4 BOB

10.2

10

9.8

9.6

9.4
2015 2014 2013

The Net Interest margin for Bank of Baroda is high at 2013 at declined drastically in 2014 but in
2015 it has increased which shows that the bank has become effective in terms of profitability.
But compared to SBI the ratio is little less for this bank.

25
 Credit to deposit
69.9
69.8
69.7
69.6
69.5
BOB
69.4
69.3
69.2
69.1
69
68.9
2015 2014 2013

CDR of Bank of Baroda is less than 100 and not very high nor very low, which means the banks
are lending credit to their customers from their own deposits.

Capital Adequacy
13.4

13.3

13.2

13.1
BOB
13

12.9

12.8

12.7

12.6
2015 2014 2013

Capital adequacy ratio of Bank of Baroda is around 13 and it met the RBI minimum requirement.
The ratio was high in 2013 and has declined in 2014 but again increased in 2015. This bank has
high CAR among public sector banks.

Non Performing Assets

2
1.8
1.6
1.4
1.2
BOB
1
0.8
0.6
0.4
0.2
0
2015 2014 2013

Nonperforming assets of Bank of Baroda has increased since 2013, the ratio is not very high but
the trend line is increasing every year which is not a good sign for a bank.

26
 Return on Assets
0.6

0.5

0.4
BOB
0.3

0.2

0.1

0
2015 2014 2013

The Return on assets ratio of Bank of Baroda has increased in 2015. this tells that the
management is efficient in generating earnings using assets.

Cost to income
16.6
16.4
16.2
16
15.8
BOB
15.6
15.4
15.2
15
14.8
14.6
2015 2014 2013

The Cost to income ratio of Bank of Baroda has slightly declined in 2015 which is a good sign
for the bank.

5.3. PUNJAB NATIONAL BANK

Net Interest margin

11.9
11.8
11.7
11.6
11.5
PNB
11.4
11.3
11.2
11.1
11
10.9
2015 2014 2013

27
Net Interest margin for Punjab National Bank has declined from 2013 to 2015, this bank is not
effective in terms of profitability. The ratio is little high compared to Bank of Baroda but little
lower than SBI.

Credit to deposit
80

78

76
PNB
74

72

70

68
2015 2014 2013

CDR trend of Punjab National Bank has declined from 2013 to 2015. This bank has less than the
average CDR which means that the bank is not earning as much as they could to cover the fund
requirements.

Capital Adequacy
13

12.8

12.6

12.4 PNB

12.2

12

11.8

11.6
2015 2014 2013

Capital adequacy ratio of Punjab National Bank has increased in 2015 and has met the minimum
requirement of RBI.

Non Performing assets

7

4 PNB

0
2015 2014 2013

28
Punjab National Bank has Nonperforming asset ratio of around 6 which is very high and the
trend is also increasing since 2013 which shows that the bank has lot of stressed assets and it is
not maintaining those effectively.

Return on assets
1.2

0.8
PNB
0.6

0.4

0.2

0
2015 2014 2013

The Return on assets of Punjab National bank is very low and has declined since 2013 to 2015. It
shows that the profits generated are very low for PNB.

Cost to income
20.5

20

19.5

19
PNB
18.5

18

17.5

17

16.5
2015 2014 2013

The Cost to income ratio of Punjab National bank has increased since 2013 which means the
bank is not that profitable and efficient in terms of utilizing costs.

29
5.4. IDBI

Net Interest margin

6.2

5.8

5.6
IDBI
5.4

5.2

4.8

4.6
2015 2014 2013

Net interest margin for IDBI has declined at 2015, the ratio is very less compared to other banks
in the sample. This shows that IDBI is not effective in terms of profitability.

Credit to Deposit
87
86
85
84
83
IDBI
82
81
80
79
78
77
2015 2014 2013

The credit to deposit ratio of IDBI bank has also declined from 2013 and it is above the average
percentage which says that the bank depends on its own deposits and it has enough liquidity.

Capital Adequacy
14

12

10

8 IDBI

0
2015 2014 2013

The capital Adequacy ratio of IDBI bank is in the increasing trend and it is around 12 which
shows that bank is performing effectively.

30
 Non performing Asset
3.5

2.5

2 IDBI

1.5

0.5

0
2015 2014 2013

Nonperforming asset ratio of IDBI bank has increased from 2013, and the ratio is also high,
which says that the bank is not performing effectively in terms of NPA's.

Return on Assets
0.7

0.6

0.5

0.4 IDBI

0.3

0.2

0.1

0
2015 2014 2013

IDBI bank return on assets ratio is also low and has declined since 2013. The profits are very low
to this bank also.

Cost to Income
13

12.5

12
IDBI
11.5

11

10.5

10
2015 2014 2013

The Cost to income ratio of IDBI bank has also increased which shows that the bank is not that
efficient in terms of utilizing costs. But the ratio is less compared to all the other banks.

31
5.5. CENTRAL BANK OF INDIA

Net Interest margin

8.8

8.6

8.4

CBI
8.2

7.8

7.6
2015 2014 2013

Net Interest margin of Central bank of India has declined in 2015. The ratio is less than SBI,
BOB, PNB but more than IDBI. This says that this bank is also not effective.

Credit to Deposit
76.5

76

75.5

75
CBI
74.5

74

73.5

73

72.5
2015 2014 2013

Central bank of India has CDR near to the average ratio and trend shows that it has increased for
one year. This bank also depends on its own deposits.

Capital Adequacy
11

10.8

10.6

10.4 CBI

10.2

10

9.8

9.6
2015 2014 2013

Central bank of India has low CAR compared to all other public sector banks in the sample still
this bank also met the minimum requirement of CAR by RBI.

32
 Non performing asset
4

3.5

2.5
CBI
2

1.5

0.5

0
2015 2014 2013

The Nonperforming asset ratio of Central bank of India is high which is around 3 and the trend
shows that it has slightly declined for one year.

Return on Asset
0.5
0.4
0.3
0.2
0.1 CBI
0
2015 2014 2013
-0.1
-0.2
-0.3
-0.4
-0.5

The Return on assets ratio for Central bank of India has increased from 2014, in 2014 the ratio
was in negative which means it is very low and the bank was in loss. In 2015 CBI profits got
increased.
Cost to Income
20

19.5

19
CBI
18.5

18

17.5

17
2015 2014 2013

The Cost to income ratio of Central bank of India has increased since 2013 and this bank is also
not efficient in terms of utilising costs.

33
5.6. ICICI

Net Interest margin

12

10

8
ICICI
6

0
2015 2014 2013

Net Interest margin of ICICI bank has gradually increased in 2015. This says that the bank is
effectively utilizing its profits. In private sector banks ICICI bank has less Net interest margin
ratio.
Credit to deposit
108

106

104

102
ICICI

100

98

96

94
2015 2014 2013

ICICI bank has the CDR more than 100 which says that the bank might not have enough
liquidity to cover the fund requirements and depends on the borrowed funds to lend the credit
without relying on their own deposits.

Capital Adequacy
18.5

18

17.5
ICICI

17

16.5

16
2015 2014 2013

34
ICICI bank has CAR around 17 and this ratio is high which means it has less risky weighted
assets and the bank is not aggressive in taking risks. This shows that ICICI is effective in
maintaining risky assets with their capital.

Non Performing asset

1.8

1.6

1.4

1.2

1 ICICI

0.8

0.6

0.4

0.2

0
2015 2014 2013

The nonperforming asset ratio of ICICI is around 1 and it has increased from 2013 to 2015. This
ratio is not very high but the increasing trend should not be continued for a bank.

Return on assets
1.85

1.8

1.75
ICICI
1.7

1.65

1.6

1.55
2015 2014 2013

In ICICI bank the Return on assets ratio has increased since 2013 and the returns are high which
shows that the management is efficient in generating returns.

Cost to Income
18.95
18.9
18.85
18.8
18.75
ICICI
18.7
18.65
18.6
18.55
18.5
18.45
2015 2014 2013

35
The Cost to income ratio of ICICI bank has declined from 2014 , which means the bank is trying
to utilize the costs effectively, still it is a little high ratio.

5.7. HDFC

Net Interest margin

16

15.8

15.6

15.4 HDFC

15.2

15

14.8

14.6
2015 2014 2013

Net interest margin of HDFC bank is very high compared to all the other banks. The ratio is
slightly less in 2013 and has increased in 2014 but in 2015 it declined slightly but is higher than
all the banks that are in the sample.

Credit to deposit
83

82.5

82
HDFC
81.5

81

80.5

80
2015 2014 2013

Credit to deposit ratio of HDFC is around 81 which is near to the average ratio and trend shows
that the ratio was high in 2014 and reduced in 2015.

36
 Capital adequacy
17

16.5

16

15.5
HDFC

15

14.5

14

13.5
2015 2014 2013

The capital adequacy ratio of HDFC is also high and the trend has been increasing since 2013
which is really good for a bank to maintain the CAR.

Non performing Assets

0.6

0.5

0.4
HDFC
0.3

0.2

0.1

0
2015 2014 2013

The Nonperforming asset ratio of HDFC is less but the trend shows that the ratio has inclined
since 2013.

Return on assets
1.92

1.9

1.88

1.86
HDFC

1.84

1.82

1.8

1.78
2015 2014 2013

The Return on assets ratio for HDFC is high compared all the other banks in the sample taken
which shows that the bank has been generating good returns.

37
 Cost to income
27

26.5

26

25.5
HDFC
25

24.5

24

23.5

23
2015 2014 2013

The Cost to income ratio of HDFC bank has declined since 2013 and it shows that the bank is
efficiently working on utilising costs.

5.8. AXIS BANK

Net Interest margin

12

10

8
AXIS
6

0
2015 2014 2013

Net Interest margin ratio of AXIS bank has increased gradually from 2013 to 2015 but it is less
than HDFC and more than ICICI. this shows the bank is performing effectively.

Credit to deposit
88

86

84

82
AXIS
80

78

76

74

72
2015 2014 2013

38
CDR of axis bank has increased from 2013 to 2015 and is near to 90 which is a good sign that
the bank is effective in terms of lending credit from their deposits.

Capital Adequacy
16.4

16.2

16

15.8

15.6 AXIS

15.4

15.2

15

14.8

14.6
2015 2014 2013

The capital adequacy ratio of AXIS bank has reduced from 2014 to 2015 but the ratio is not low ,
it is near 16, which shows that the bank is effective and stable.

Non performing assets

0.5
0.45
0.4
0.35
0.3
AXIS
0.25
0.2
0.15
0.1
0.05
0
2015 2014 2013

AXIS bank Nonperforming asset ratio is very less compared to other banks but the ratio has
increased slightly compared to previous year.

Return on assets
1.75

1.7

1.65
AXIS

1.6

1.55

1.5
2015 2014 2013

The return on assets ratio of AXIS bank is also good but the trend of the ratio has declined from
2014 still it is higher than the other banks.

39
 Cost to Income
21.1

21

20.9

20.8

20.7 AXIS

20.6

20.5

20.4

20.3

20.2
2015 2014 2013

The Cost to income ratio of AXIS bank has been slightly increasing since 2013, which shows
that the bank is not utilizing the costs effectively.

5.9. KOTAK MAHINDRA

Net interest margin

14.5

14

13.5
KOTAK
13

12.5

12

11.5
2015 2014 2013

Net interest margin for Kotak Mahindra bank has increased gradually from 2013 to 2015. The
ratio is more than ICICI and AXIS but less than HDFC.

40
 Credit to deposit
140

120

100

80 KOTAK

60

40

20

0
2015 2014 2013

Credit to deposit ratio of Kotak Mahindra bank is more than 100 which is very high, it means the
bank might not have enough liquidity to cover the fund requirements and depends on the
borrowed funds.
Capital adequacy
18.4

18.2

18
KOTAK
17.8

17.6

17.4

17.2
2015 2014 2013

Kotak Mahindra bank has high CAR than all the other banks taken in the sample. But the trend
shows that the CAR has declined since 2013, though the bank is efficient.

Non performing assets

1.2

0.8
KOTAK
0.6

0.4

0.2

0
2015 2014 2013

Kotak Mahindra bank Nonperforming asset ratio has declined from previous year and the ratio is
also low which indicates a good sign for the bank.

41
 Return on assets
2
1.8
1.6
1.4
1.2
KOTAK
1
0.8
0.6
0.4
0.2
0
2015 2014 2013

The return of assets ratio of Kotak Mahindra bank is good but it has declined since 2013. The
ratio is less among all the private sector banks that are in the sample.

Cost to income
28

27

26
KOTAK
25

24

23

22
2015 2014 2013

The Cost to income ratio of Kotak Mahindra bank has also increased since 2013, which shows
that this bank is also not utilizing the costs effectively.

5.10. INDUSIND

Net Interest margin

14.2

14

13.8

13.6

13.4 INDUSIND

13.2

13

12.8

12.6

12.4
2015 2014 2013

42
Net Interest margin of Indusind bank has increased gradually. This bank is also performing
effectively compared to other banks but the ratio is less than HDFC and Kotak mahindra banks.

Credit to deposit
94

92

90

88

86 INDUSIND
84

82

80

78

76
2015 2014 2013

CDR of Indusind bank has increased from 2013 to 2015 and the percentage of credit to deposit is
not very high but it shows the bank also depends on the borrowed funds to lend money to their
customers.

Capital adequacy
16

14

12

10
INDUSIND
8

0
2015 2014 2013

The Capital adequacy ratio of Indusind bank is around 12 and it is less among the private sector
banks but it has met the minimum requirement of RBI.
Non performing assets
0.34
0.34
0.33
0.33
0.32
INDUSIND
0.32
0.31
0.31
0.3
0.3
0.29
2015 2014 2013

The Nonperforming asset ratio of Indusind bank has declined and this is the least among all the
banks in the sample. This shows that this bank has very few NPA's and they are maintaining the
assets effectively.

43
 Return on assets
1.85

1.8

1.75

1.7 INDUSIND

1.65

1.6

1.55

1.5
2015 2014 2013

The Return on assets of Indusind bank has increased since 2013 and it is high which shows that
the bank has generated good returns.

Cost to income
23

22.5

22
INDUSIND
21.5

21

20.5

20
2015 2014 2013

The Cost to income ratio of Indusind bank has also increased since 2013 and it is not a good sign
for the banks in terms of utilizing costs.

OBSERVATIONS

 The net interest margin ratio is a percentage of interest bearing assets. This ratio is the metric that
is used to assess bank's performance in terms of deployment of funds and their cost. In public
sector banks SBI has high NIM and in private sector banks HDFC has high NIM. The trend line
of all the banks of NIM shows that most of the public sector banks NIM has reduced from 2013
to 2015 but in private sector banks the trend of NIM has increased. Looking the trend of NIM, it
shows the performance of public sector banks are good compared to private sector banks.

 The credit to deposit ratio reflects how much of the advances lent by banks are done through
deposits. It shows the dependency of banks on their own deposits and borrowed funds in lending

44
 credit.CDR is very high for Kotak Mahindra bank in 2015 and very low for Bank of Baroda. The
average percentage is 77.5 according to RBI. If the percentage is above this rate then it tells that
the banks do not have enough liquidity to cover the fund requirements or banks might not be
earning as much as they could. From the trend line the results tells that the public sector banks
have less CDR compared to private sector banks. Depending only on the banks own deposits is
not a very good sign in terms of growth and profitability.

 The capital adequacy ratio is the ratio of qualifying capital to risk weighted assets. This CAR
determines the capacity of bank in terms of meeting the liabilities and the other risks such as
market risk, credit risk, operational risk, etc. Tier 1 capital and Tier 2 capital both are included in
the calculation. RBI has set the minimum requirement of CAR that is 9% and all the public
sector and private sector banks have met the minimum requirement. Compared to public sector
banks private sector banks has high CAR in that Kotak Mahindra bank and ICICI bank maintains
high capital adequacy ratio. According to this indicator also Private sector banks performance is
effective than that of public sector banks.

 The Nonperforming asset ratio is a metric to measure the quality of banks loan book. If the
interest is overdue for more than 90 days then those assets are called as Nonperforming assets. If
the ratio is high, it shows that the bad quality of loans or stressed assets have increased. For any
bank to be financially stable, NPA's should be very low because these assets effect the
profitability of the bank and also leads to the bankruptcy if not managed effectively. In the
sample that has taken, public sector banks have high NPA ratios compared to private sector
banks. In private sector banks, Indusind bank has less NPA's followed by AXIS and HDFC. This
shows that the performance of private sector banks is better and financially stable.

 The Return on assets ratio is a profitability ratio that measures the net income produced by total
assets during a period. It measures how efficiently a company can manage its assets to produce
profits. Higher the ratio the more effective is the bank in managing assets to produce greater
amounts of net income. Return on assets ratio is less for all public sector banks compared to
private sector banks. In private sector banks HDFC bank has high ROA followed by Indusind
and ICICI. In terms of returns also private sector banks has performed well which means the
performance is effective and financially stable.

 The Cost to income ratio is equally important as the indicators mentioned above for determining
the profitability of a bank. Lower the ratio, more profitable the bank. If the ratio rises , it means
that the costs are rising at a higher rate than income. This depends on the economy, inflation in
the country etc. There is an inverse relationship between bank's profitability and cost to income
ratio. In the sample taken, IDBI bank has less Cost to income ratio followed by Bank of Baroda
in public sector banks and in private sector banks ICICI bank has less Cost to income ratio
followed by AXIS bank. Public sector banks performance is better than the private sector banks
in terms of cost to income ratio.

45
 CHAPTER VI

RECOMMENDATIONS

46
 6. RECOMMENDATIONS

 Most of Public Banks have poor performance in terms of earnings, asset quality. These can be
improved by having better portfolio management.
 Banks should increase their capital from reserves, instead of declaring dividends they can re
infuse the earning into the capital which thereby lead to appreciation in the market value.
 All banks, especially public sector banks should take care of Non-performing assets by different
schemes like Strategic Debt Restructuring Scheme.
 Liquidity of a bank is like the blood in the body of human. The bank should be in a position to
meet all its liabilities when ever demand rises.
 Banks should improve the credit-deposit proportion.
 Banks should always monitor the controlling mechanism on important indicators.
 Banks should concentrate on profitability and utilizing costs.
 There must be an effective and regular follow up with the customers and there is a need to watch
if there is any diversion of funds, monitoring on money-laundering.
 Political pressures should not be encouraged by banks for lending credit.

Preventive measures to be taken by banks to control NPA or manage NPA:

 Large exposure on big corporate or single project should be avoided.

 Operating staffs’ credit skills should be up graduation.
 There is need to shift bank’s approach from collateral security to viability of the project and
intrinsic strength of the promoters.
 The credit sanction should carefully watch the warning signals i.e., non-payment of interest
dishonour cheques etc.
 Effective inspection system should be implemented.
 Close monitoring of the operations of the accounts of borrowed units.
 Identifying reasons for turning of asset into NPA is the important factor for upgrading the asset
quality.

47
 CONCLUSION

 In the current scenario the banks are performing at a slow pace. RBI has concluded to issue few
more licenses to private players which seem to be a threat to the existing banks.
In the race of applying licenses there are some major market players who already have
experience in financial services. Among which Post Office of India is one such player which has
wide reachability to public both in rural and urban market.
 In order to sustain the competition in future, Banks must focus on performance. From the above
research it could be inferred that most of banks are not utilizing their assets in best possible way.
Hence banks need to concentrate on the better utilization of assets which will increase the
profitability of banks.

Scope for Further Studies

 CAMEL Model can also be used to compare the performance of Indian Scheduled Commercial
Banks and Foreign Banks.
 Using Regression for Data Analysis can further enhance the data and findings.
 Different factors which indirectly influence the Non Performing Assets like the changes in the
business environment and macro economic factors can also be considered for impact of NPA on
the Net profit of the banks.

48
REFERENCES

Ruchi Gupta. ( Jan. 2014). Analysis of Indian Public Sector Banks using CAMEL Approach.

IOSR Journal of Business and Management (IOSR-JBM), Bangalore.

Prof. Dr. Mohi-ud-Din Sangmi. (2010). Analyzing Financial Performance of Commercial Banks
in India: Application of CAMEL Model, Srinagar.

Winker Dzeawuni & Dr. Muhammad Tanko. (June 24,2008). CAMEL AND Banks
Performance Evaluation.

Srinivas. K.T. (2013). A study on non-performing assets of commercial banks in India.

International monthly referred journal of research in management and technology. (vol.2, ISSN-
2320-0073). Bangalore

www.rbi.org.in

http://www.capitaline.com

49