International Journal of Management (IJM)

Volume 11, Issue 12, December 2020, pp. 1939-1949. Article ID: IJM_11_12_179
Available online at http://iaeme.com/Home/issue/IJM?Volume=11&Issue=12
Journal Impact Factor (2020): 10.1471 (Calculated by GISI) www.jifactor.com
ISSN Print: 0976-6502 and ISSN Online: 0976-6510
DOI: 10.34218/IJM.11.12.2020.179

© IAEME Publication Scopus Indexed

FUNDAMENTAL ANALYSIS OF SELECTED

PRIVATE AND PUBLIC BANK SECTORS IN
INDIA
Ananth H. Iyer
Assistant Professor, Universal Business School, Karjat, Mumbai, India

Prachi Agrawal
MBA Student, Universal Business School, Karjat, Mumbai, India

Kinjal Painter
MBA Student, Universal Business School, Karjat, Mumbai, India

ABSTRACT
In this study, we have examined the performance of selected public private sector
banks in India, namely, HDFC Bank, ICICI Bank, Axis Bank in the private sector
while State Bank of India (SBI), Bank of Baroda (BOB) and Punjab National Bank
(PNB) in the pubic sector. Primarily, the study conducted was fundamental analysis.
The results state that HDFC Bank has topped in performance across various sectors
while Punjab National Bank was facing issues in Net Profit Margin.

Key words: Fundamental Analysis, Private Sector Banks, Public Sector Banks, Bank’s
Performance
Cite this Article: Ananth H. Iyer, Prachi Agrawal and Kinjal Painter, Fundamental
Analysis of Selected Private and Public Bank Sectors in India, International Journal of
Management, 11(12), 2020, pp 1939-1949.
http://iaeme.com/Home/issue/IJM?Volume=11&Issue=12

1. INTRODUCTION
A Bank is a financial institution that accepts deposits from the public and creates credit.
Lending activities can be performed either directly or indirectly through capital markets. Due
to their importance in the financial stability of a country, banks are highly regulated in most
countries. Most nations have institutionalized a system known as fractional reserve banking
under which banks hold liquid assets equal to only a portion of their current liabilities.
(Goldschmidt, 1981)

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 Fundamental Analysis of Selected Private and Public Bank Sectors in India

In this paper we are focusing on Analysis of Profitability of banks in India and understand
how various factors affect it is covered data set of five years are from fiscal year 2016-2020
has been taken into consideration to analyze the various aspects of profitability of Bank. In
total there are almost 90+ National & International Banks in India. These banks are serving
millions of customers with thousands of branches and relationship centers. The State Bank of
India aka SBI is the largest Public Sector Bank and HDFC is the largest Private Sector Bank
in India. literature. Hence, it was decided to analyze SISRI’s suitability in the Indian scenario.

2. NEED FOR THE STUDY

Satish Kumar (2008), in his article on an evaluation of the financial performance of Indian
private sector banks He wrote Private sector banks play an important role in development of
Indian economy. After liberalization, the banking industry underwent major changes. The
economic reforms totally have changed the banking sector. RBI permitted new banks to be
started in the private sector as per the recommendation of Narasimhan committee. The Indian
banking industry was dominated by public sector banks. But now the situations have changed
new generation banks with used of technology and professional management has gained a
reasonable position in the banking industry.
Seema Malik (2014) has analyzed the effect of technology on transformation of banking
in India and also studied the benefits and challenges of changing banking trends. Technology
and financial innovations have led to tremendous improvement in banking services and
operations over the past decade. Survival, growth and profitability of banks depend upon the
organizational effectiveness and operational efficiency in today's competitive scenario where
customers’ needs are changing every day and technology is touching new highs.
Dutta et. al (2013), examined the determinants of ROA of banks in public sector. In this
research paper we understood that the variables taken like spread ratio, provisions and
contingencies, non-interest income, credit-deposit ratio, operating expense, investment-
deposit ratio and capital adequacy ratio were found to be the significant determinants of ROA
public sector banks. In the selected variables only two shown a positive influence and all
other shown negative impact which were Spread ratio and Non-interest income. During the
research they found out that to improve the ROA of public sector banks should focus on
reducing their operating expenses, provision and contingencies and NPA’s.
Rohit Bansal (2014) A Comparative Analysis of the Financial Ratios of Selected Banks in
the India for the period of 2011- 2014. He researched the execution of four private area banks
for the time of 2011 to 2014. He found that HDFC and Federal had genuinely stable resource
turnover proportion which demonstrated its proficient use of assets in income era and Federal
had the best value profit proportion among different banks.
De (2003) analyzed the impact of proprietorship on bank execution with regards to Indian
business banks. He found out that ROA has no significant ownership effects. He noticed that
if there should be an occurrence of open area banks, old private part banks and new private
division banks, the possession had no impact on the arrival on resources. He found that new
private division banks were demonstrating a higher profit for resources when the SBI and its
partners were dropped from the specimen.
Indian Brand Equity Foundation (2015) It has studied that Indian banks are focusing on
adopting an integrated approach to risk management. Banks have already embraced the
international banking supervision accord of Basel II. According to RBI, majority of the banks
already meet with the capital requirements of Basel III, which has a deadline of March 31,
2019. Most of the banks have put in place the framework for asset—liability match, credit and
derivatives risk management. As per their report, rising incomes are expected to increase the
need for banking services in rural areas which will positively affect the growth of the banking

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 Ananth H. Iyer, Prachi Agrawal and Kinjal Painter

sector. The RBI has relaxed its branch licensing policy which emphasized the need to focus
on spreading the reach of banking services to the un—banked population of India.
Koeva (2003) gave new empirical evidence on the impact of financial liberalization on the
performance of Indian commercial Banks. The analysis focuses on examining the
determinants of bank intermediation costs and profitability during the liberalization period.
The empirical results suggest that ownership type has a significant effect on some
performance indicators and that ownership type has a significant effect during financial
liberalization. This has been associated with lower intermediation costs and profitability of the
Indian banks
Dangwal and Kapoor (2010) assessed the monetary execution of nationalized banks in
India and surveyed the development file estimation of different parameters through general
gainfulness lists. The information for 19 nationalized banks, for the post-change period from
2002-03 to 2006- 07, was utilized to ascertain the list of spread proportions, trouble
proportions, and gainfulness proportions. They found that while four banks had brilliant
execution, five accomplished great executions, four achieved reasonable executions, and six
had poor execution.
Roy and Kumar (2013) An analysis of Financial Performance of Indian Commercial
Banks’ studied the various financial aspects of banks in India. The present study was done to
examine the importance of financial performance of the commercial banks during the period
of 2000 to 2011. The study applied key profitability ratios for assessing the financial
performance of the commercial banks. Financial stability of the banks plays a crucial role in
the growth of the banks. To accomplish this objective a regression analysis between Earnings
before interest and tax and different factors affecting banks profitability was done.
The study reveals that the during the period Return on Assets which indicates how
efficiently the company is using its total assets shows an increasing trend in the last five years
from 2007 to 2011. Return on Net Worth shows an increasing trend from 2007 onwards with
very poor performance in 2006. The Capital adequacy ratio has strong negative relation with
Net Assets to RONW ratio and NPA to net assets ratios.
Mariappan (2005-06) during the IT revolution in the banking sector, analyzed that the IT
revolution It has brought a stunning change in the business environment, with the maximum
impact on the banking and finance sector; as a result, the banking sector sports a new look
today.
Singla (2008) examined the profitability position of SElected Sixteen banks from the
banker index for a period of six years (2001-06).The study reveals that the profitability
position was reasonable during the period of study when compared with the previous years.
Strong capital position and balance sheet place Public and Private Sector Banks in India 35
banks in a better position.
Seema Malik (2014) has analyzed the effect of technology on transformation of banking
in India. She analyzed the effect of technology and also studied the benefits and challenges of
changing banking trends. Technology and financial innovations have led to tremendous
improvement in banking services and operations over the past decade. Survival, growth and
profitability of banks depend upon the organizational effectiveness and operational efficiency
in today's competitive scenario where customers’ needs are changing every day and
technology is touching new highs.3. OBJECTIVES OF THE STUDY

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 Fundamental Analysis of Selected Private and Public Bank Sectors in India

Two questions were identified to guide the study:

 To analyze whether SISRI is a valid measure of spiritual intelligence in the Indian
scenario.
 To identify the relationship, if any, between spiritual intelligence and the
organisational outcome variable  work performance.

3. OBJECTIVES OF THE STUDY

3.1. Statement of the Problem
How the profitability of banks is affecting their return from investment and most importantly
how it affects the reward to its shareholders or owners and aim is to understand how managers
have taken steps to change the business and improve profitability.

3.2. Research Objectives

 Performing fundamental analysis of public sector and private sector banks in India has
been done with the objective of analysing the profitability position of the selected
banks which is helpful in taking investment decision.
 Which variable affects the most on the performance of both public sector and
private sector bank?

3.3. Hypothesis
H0: There is no significant difference between the selected variables of selected banks.
H1: There is a significant difference between the selected variables of selected banks. To
analyze the fundamentals of top six banks
H2: There is significant difference between the net profit margin of SBl, BOB, PNB, HDFC
Bank, ICICI Bank, Axis Bank.
H3: There is significant difference between the return on asset of SBI, BOB, PNB, HDFC
Bank, Axis Bank and ICICI Bank.
H4: There is significant difference between the earnings per share of SBI, BOB, PNB, HDFC
Bank, Axis Bank and ICICI Bank
H5: There is significant difference between the current account and savings account deposits
of SBI, BOB, PNB, HDFC Bank, Axis Bank and ICICI Bank

3.4. Key Variables

 Operating profit margin
 Net profit margin
 Return on Asset
 Earnings per share
 CASA

4. METHODOLOGY
The present study attempts to evaluate the performance of selected public and private sector
banks in India. It examines and compares the various aspects of performance of selected
public and private sector banks in India. Secondary data has been used for the purpose of this
study.

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 Ananth H. Iyer, Prachi Agrawal and Kinjal Painter

To analyze the fundamentals of the top six banks, three in the public sector and three in
the private sector have been taken as samples. State Bank of India, Bank of Baroda, Punjab
National Bank, HDFC Bank, ICICI Bank, Axis Bank (selection is made on Net sales of each
Bank, above ₹40,000 Cr.) have been taken as samples for the purpose of this study. The
variables which are considered for analyzing the profitability are Net profit margin, operating
profit margin, Return on Asset, Earnings per share, Dividend per share, CASA and Cost to
income ratio. The variables are studied over a period of five years starting from 2016 to 2020.
To analyze the fundamentals of top six banks Key Variable:
 Operating profit margin
 Net profit margin
 Return on Asset
 Earnings per share
 CASA

4.1. Source of Data

The data has been collected from various sources such as Statistical Tables relating to Banks
in India, Trends and Progress of Banks in India, RBI Monthly Bulletin published by RBI, IBA
Bulletins published by IBA, and annual reports of banks. Following were the major sources of
data for this study:
 Statistical Tables Relating to Banks in India for various years published by the
Reserve Bank of India, Mumbai and moneycontrol.com.
 Performance Highlights of Public Sector Banks, Indian Bank’s Association, Mumbai.
 Annual Reports of the selected banks.
 Various journals, bulletins, periodicals and newspapers devoted to the subject of
banking in India.

4.2. Analysis Tools

Ratios, Anova, Standard Deviation, Average

5. RESULTS AND DISCUSSION

5.1. Operating Profit Margin
Table 1

(times, n.d.)

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 Fundamental Analysis of Selected Private and Public Bank Sectors in India

The operating profit margin is a type of profitability ratio known as a margin ratio. The
information with which to calculate the operating profit margin comes from a company's
income. Operating Profit Margin = Operating income /Sales Revenue

Table 2

The operating profit margin gives the business owner a lot of important information about
the firm's profitability, particularly with regard to cost control. It shows how much cash is
thrown off after most of the expenses are met. Table 1 shows that the average OPM of HDFC
Bank is the highest among all the six banks, followed by ICICI Bank, SBI.
There is significant difference between the operating profit margin of SBI, BOB, PNB,
HDFC Bank, ICICI Bank, Axis Bank. As the calculated value 10.4 is greater than the critical
value 2.62 at 5% level of significance, the null hypothesis is rejected. Hence, HDFC Bank is
the most efficient in controlling the cost of its operations. companies with high operating
profit margin ratios are generally:
 Better able to pay for their fixed costs and interest on debt
 Better able to survive economic downturns
 More competitive because they can offer lower prices than the competition because of
their higher profit margin ratio

5.2. Net Profit Margin

The net profit margin, also known as net margin, indicates how much net income a company
makes with total sales achieved. A higher Public and Private Sector Banks in India net profit
margin means that a company is more efficient at converting sales into actual profit. The net
sales part of the equation is gross sales minus all sales deductions, such as sales allowances.
The formula is: Net Profit Margin= (Net profits/ Net sales) x 100

Table 3

(times,n.d.)

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 Ananth H. Iyer, Prachi Agrawal and Kinjal Painter

It can be seen that HDFC Bank has earned the highest NPM of ₹ 21.468 for every ₹100
among all the six banks. It shows that company’s management is generating enough profit
from its sales and whether operating costs and overhead costs are being contained.

Table 4

HDFC Bank is closely followed by ICICI Bank, Axis Bank and State Bank of India. PNB
has the highest degree of variability in NPM with a standard deviation of 13.69. As per the
alternative hypothesis, there is significant difference between the net profit margin of SBl,
BOB, PNB, HDFC Bank, ICICI Bank, Axis Bank. As the calculated value 9.37 is greater than
the critical value.

5.3. Return on Asset (ROA)

Table 5

(times, n.d.)
Like all businesses, banks profit by earning more money than what they pay in expenses.
The major portion of a bank's profit comes from the fees that it charges for its services and the
interest that it earns on its assets. Its major expense is the interest paid on its liabilities. The
major assets of a bank are its loans to individuals, businesses, and other organizations and the
securities that it holds, while its major liabilities are its deposits and the money that it
borrows, either from other banks or by selling commercial paper in the money market.
Banks increase profits by using leverage sometimes too much leverage, which helped
precipitate the credit crisis that occurred in 2007 to 2009. ROA = (Fee Income + Net Interest
Income – Operating cost) / Average total asset.

So, what is "good" profitability?

In terms of ROA and ROE, 1% and 10%, respectively are generally considered to be good
performance numbers. Higher ROA indicates more asset efficiency and it can be clearly seen

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 Fundamental Analysis of Selected Private and Public Bank Sectors in India

that HDFC Bank scores highest in average ROA followed by ICICI Bank and these two are
more efficient in comparison to other four banks.
As we know that small differences in ROA can result in much larger differences in ROE –
a metric even more important to bank equity investors. So, change of much higher ROA is
seen in PNB which will affect ROE of PNB which would be much higher in comparison to
other Five banks and this trend is followed up by BOB and one more observation is that been
HDFC Bank topping in OPM, NPM in comparison to other five banks but in 2018 it is seen
even HDFC Bank is going down by 0.04% but in the year 2019 and 2020 it has improved.
which may seem every low, but it would make much larger difference in ROE of HDFC
Bank.

Table 6

In this case, the alternative hypothesis states that significant difference between the return
on asset of SBI, BOB, PNB, HDFC Bank, Axis Bank and ICICI Bank. As the calculated
value 14.94 is higher than the critical value 2.62 at 5% level of significance, the null
hypothesis is rejected. Hence, there is significant difference between the return on asset of
SBI, BOB, PNB, HDFC Bank, Axis Bank and ICICI Bank.

5.4. Earnings Per Share (EPS)

Table 7

Earnings per share is the portion of a company's profit that is allocated to each outstanding
share of common stock, serving as an indicator of the company's profitability. It is often
considered to be one of the most important variables in determining a stock's value. Higher
the EPS, higher is the profitability of the company. EPS is calculated as: EPS = net income /
average outstanding common shares. Above table shows the earnings per share of the selected
banks. It can be seen that HDFC Bank tops in terms of EPS with the highest average value of
Rs.300.

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 Ananth H. Iyer, Prachi Agrawal and Kinjal Painter

Table 8

B stands lowest with an average EPS of negative Rs.26.93. Also, the degree of
variability of EPS is lowest in case of SBI Bank with a standard deviation of 9.09.
There is significant difference between the earnings per share of SBI, BOB, PNB, HDFC
Bank, Axis Bank and ICICI Bank. As the calculated value 16.68 is greater than the critical
value 2.62 at 5% level of significance, the null hypothesis is rejected. Hence, there is a
significant difference between the earnings per share of SBI, BOB, PNB, HDFC Bank, Axis
Bank and ICICI Bank. 2.62 at 5% level of significance, the null hypothesis is rejected.

5.5. CASA (Current Account and Savings Account Deposits)

CASA stands for Current Account and Savings Account which is mostly used in West Asia
and South- east Asia. CASA deposit is the amount of money that gets deposited in the current
and savings accounts of bank customers. It is the cheapest and major source of funds for
banks. The savings accounts portion pays more interest compared to current accounts.
There are various types of accounts under CASA, there are term deposits- Fixed deposits
and Non term deposits- Current and savings accounts. A Term deposit is for a fixed period
and a non-term deposits are recurring in nature. Term deposits pay a fix amount at the end of
the maturity. Non-term deposits are daily functional deposits where their ae daily transactions
of withdrawal and deposits which depends on the terms and conditions of a particular bank.
Since interest rates are lower than term deposits, CASA is a cheaper source of funds for
banks. For this reason, financial experts also look at CASA ratio to understand a bank’s
financial health, as the same reflects the bank’s capacity to raise money with lower borrowing
costs.

Table 9

(times, n.d.)

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 Fundamental Analysis of Selected Private and Public Bank Sectors in India

Table 10

 HDFC Bank topped in selected variables in selected banks.

 Operating Profit Margin
 PNB is facing a major difficulty in current market as cost to income is
increasing and therefore showing poor results in OPM, NPM, ROA, EPS,
CAR, DPS. These signs are showing that PNB would be a wrong choice for
investment decision in comparison to selected banks in India.
 Net Profit Margin
HDFC Bank is the most efficient in controlling the cost of its operations. companies
with high operating profit margin ratios are generally:
 Better able to pay for their fixed costs and interest on debt
 Better able to survive economic downturns
 More competitive because they can offer lower prices than the competition
because of their higher profit margin ratio
 ROA
 It can result in much larger differences in ROE – a metric even more important
to bank equity investors. So, change of much higher ROA is seen in PNB
which will affect ROE of PNB which would be much higher in comparison to
other Five banks and this trend is followed up by BOB.
 EPS
 HDFC Bank tops in terms of EPS with a highest average value of Rs.300. PNB
stands lowest with an average EPS of negative Rs.134.

6. CONCLUSION
This research provided insights on the financial performance of the selected banking
companies. HDFC Bank scores the highest average in terms of Earnings per Share and PNB is
going through worst situation where in all selected variable it shown poor result.
In perspective of investment decision in these current selected banks we can select and
HDFC bank for higher return per share and in Public sector, State Bank of India and BOB has
possibility of growth and reduction of NPA’s, but it all depends on new reforms and rules
made by govt regarding loan defaulter and making the process of realization faster in
comparison to current pace.
Indian banking system requires major addition in current offering and handling customer
demand and try to improve returns to investors as current trend is making investors sentiments
week and reducing faith in banking sector of India.

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 Ananth H. Iyer, Prachi Agrawal and Kinjal Painter

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