IMPACT OF BANKING REFORMS IN IT’S PRODUCTIVITY AND PROFITABILITY

8/13/2019 IMPACT OF BANKING REFORMS IN ITS PRODUCTIVITY AND PROFITABILITY

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A RESEARCH PROJECT REPORT ON

IMPACT OF BANKING REFORMS IN ITSPRODUCTIVITY AND PROFITABILITY

SUBMITTEDIn partial Fulfillment of the Requirement for the Award of degree

Of MASTER OF BUSINESS ADMINISTRATION

(2011-201!

FROM

MAHAMAYA TECHNICAL UNIVERSITY" NOIDA

Submitted to: S#$%&'') $*+ M, P./. #%., K#%., S.#,.$

R344 N3+1156780056

GNITMANAGEMENT SCHOOL

5-C" K/394): P.,-II" G,.', N3&). (G B N.:.,!

Page 1


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STUDENT DECLARATION

I hereby declare and state that the RESEARCH REPORT titled IMPACT OF

BANKIN REFORMS ON IT!S PRO"#TI$IT% AN" PROFITABI&IT% is

s'b(itted in )artial *'l*ill(ent +* the re,'ire(ent *+r the A-ard +* "e.ree +* Master +*

B'siness Ad(inistrati+n t+ the Maha(aya Technical #ni/ersity0 N+ida

This )r+2ect is +ri.inal and has n+t been s'b(itted *+r any +ther "e.ree +r "i)l+(a +r

Fell+-shi) t+ any +ther #ni/ersity +r Instit'ti+n

P&ACE3 REATER NOI"A K#MAR SA#RABH

4RO&&NO 1156789956:

Page ;


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ACKNOWLEDGEMENT

Firstly0 I than< .+d -h+leheartedly *+r his Blessin. -ith+'t -hich this st'dy -+'ld ne/er

be )+ssible

I ta


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CONTENTS

CHAPTER?1 INTRO"#CTION

1?Ab+'t (y t+)ic;?Ob2ect +* the st'dy

@

18

>;

CHAPTER?; IN"#STR% PROFI&E >>?>8CHAPTER?> COMPAN% PROFI&E >6 @7

CHAPTER?7 RE$IE OF &ITRAT#RE @@ @6

CHAPTER?@ RESEARCH MATHO"O&O% @?59

CHAPTER?5 "ATA ANA&%SIS 51 88

CHAPTER?8 FIN"INS 86 69

CHAPTER?6 RECOMMEN"ATION AN" CONCSION 61 6;

CHAPTER? S#ESTIONS 6>

CHAPTER?19 &IMITATION OF ST#"% 67

BIB&IORAPH% 6@

INTRODUCTION

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The ban


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In +rder t+ 'nderstand )resent (a: E=)ansi+n )hase 4156?167:

47: C+ns+lidati+n )hase 4167?19:

4@: Re*+r(at+ry )hase 4since 19:

E$OTION PHASE3 4PRIOR TO 1@9:

Enact(ent +* the RBI Act 1>@ .a/e birth t+ sched'led ban


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(any as t-enty sched'led ban

intr+d'ced and 'nhealthy )ractices in the ban


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71; FO#N"ATION PHASE3 176?156

In th+se initial days0 the need +* the h+'r -as t+ re+r.aniDe and t+ c+ns+lidate the

)re/ailin. ban


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and chan.e their attit'de in *a/+'r +* s+cial ban


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It can be seen *r+( the Table 71 that the t+tal n'(ber +* ban< branches increased ei.ht?

*+ld bet-een 15 t+ 11 The b'l< +* the increase -as +n acc+'nt +* r'ral branches

-hich increased *r+( less than ;999 t+ +/er >@999 d'rin. the )eri+d The )ercenta.e

share +* the r'ral and se(i?'rban branches r+se *r+( ;; and 7 res)ecti/ely in 15 t+ 7@

)er cent and ;@ )er cent in 169 and @6 )er cent and 16 )er cent in 11 The i()act +*

this )hen+(enal .r+-th -as t+ brin. d+-n the )+)'lati+n )er branch *r+( 590999 in

15 t+ ab+'t 170999 The ban


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-as als+ s+(e-hat *i=ed in as ('ch as 5>@L +* ban< *'nds -ere (+))ed ') by CRR

and S&R and the re(ained -as t+ directed t+-ards )ri+rity sect+r leadin. and s(all

l+anin.J salary str'ct're -as ne.+tiated by the IBA and /alidated by the +/ern(ent

Th's0 there -as n+ a't+n+(y in /ital decisi+ns +/ern(ent Th's0 there -as n+

a't+n+(y in /ital decisi+ns C+((ercial a))r+ach in +)erati+ns and dri/e t+-ards

e**iciency -as al(+st n+ne=istent The res'lt -as that d'rin. this )eri+d0 the ban0679 590;;9

> T+tal de)+sits +* Sched'led ban7@ ;9101

7 T+tal Credit +* Sched'led ban@ 570;1> 1;10665@

"e)+sit M+biliDati+n and Credit E=)ansi+n hile actin. as *inancial inter(ediaries

bet-een the sa/ers and in/est+rs0 c+((ercial ban


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Nati+naliDati+n +* (a2+r ban@ cr+re in 15 and t+ Rs 10;1065@ cr+re in 11

Pr'()*+,)-)* '( B+/0

The ter( )r+*itability! can be de*ined as an ability t+ earn )r+*it and its (eas'red in

relati/e ter(s -ith /ari+'s *act+rs Pr+*itability is an i()+rtant criteria t+ e/al'ate the

+/erall e**iciency +* ban

C+((ittee0 -as set ') in 110 t+ rec+((end *+r brin.in. ab+'t the necessary re*+r(s

in the *inancial sect+r Narasi(ha( C+((ittee a))raised and ac


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In the )+st liberaliDati+n era0 RBI has initiated se/eral (eas'res t+ ens're sa*ety and

s+'ndness +* the Indian ban


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As *inancial inter(ediaries0 ban


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C+nd'ctin. c'rrent acc+'nts *+r his c'st+(ers

Payin. che,'es dra-n +n hi(0 and

C+llectin. che,'es *+r his c'st+(ers

The b+rr+-in.0 raisin. +r ta


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the ban


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sched'led c+((ercial ban

that the )ercenta.e +* the Cash Reser/e Rati+ 4CRR: the Stat't+ry &i,'idity Rati+

4S&R: +* these ban


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branch net-+r0 bein. (aintained at the ;911?1; le/el +*

57> )er cent

IT 5+32

Many +* the States ha/e d+ne -ell in ta= c+llecti+n0 and this is lar.ely d'e t+ 'se +*

in*+r(ati+n techn+l+.y0 he added Acc+rdin. t+ Mr B+se0 the rati+ +* the c+(bined

.r+ss state d+(estic )r+d'ct and ta= c+llecti+n i()r+/ed in the )ast *e- years d'e t+ the

e=tra e**+rts (+'nted by the States ith the .+/ern(ent ai(in. t+ reclai( its )ea< ta=?

"P rati+ +* 11 )er cent s++n0 the Re/en'e Secretary said that b++stin. c+r)+rate ta=

c+llecti+n -as


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L+/ 272-'82/* ,+/04

The &and de/el+)(ent ban tiers na(elyJ State0 Central0 Pri(ary

le/el and they (eet the l+n. ter( credit re,'ire(ents +* the *ar(ers *+r de/el+)(ental

)'r)+ses The state land de/el+)(ent ban


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F5/:*)'/ '( ,+/04

Ban< als+ )er*+r(s the basic ban


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"es)ite this c+((endable )r+.ress seri+'s )r+ble(s ha/e e(er.ed re*lected in a decline

in )r+d'cti/ity and e**iciency and er+si+n +* the )r+*itability +* the ban


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ade,'ate b'siness t+ 2'sti*y their e=istence0 (+st +* the( +)eratin. bel+- the brea


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Nati+naliDed ban576 Pri/ate Sect+r ban9: 88 59 F+rei.n ban;9 4?:67;

It (ay be seen *r+( the Table 7> that in the case +* nati+naliDed ban

they )+sted h'.e l+sses t+ the t'ne +* Rs >576 cr+re In case +* )ri/ate sect+r ban

The F+rei.n ban


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c+ntrib'te in .reater (eas're t+ sti('late .r+-th C+nc+(itantly0 the (+netary )+licy

*ra(e-+r< (ade a )hased shi*t *r+( direct instr'(ents +* (+netary (ana.e(ent t+ an

increasin. reliance +n indirect instr'(ents H+-e/er0 as a))r+)riate (+netary

trans(issi+n cann+t ta


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ins'rance sect+r *+r these instit'ti+ns0 they started (a


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C+n/ertibility cla'se n+ l+n.er +bli.at+ry *+r assistance t+ c+r)+rates sancti+ned by

ter(?lendin. instit'ti+ns

Ca)ital ade,'acy n+r(s e=tended t+ *inancial instit'ti+ns

"FIs s'ch as I"BI and ICICI ha/e entered +ther se.(ents +* *inancial ser/ices s'ch

as c+((ercial ban


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The PSBs acc+'nt *+r the (a2+r share +* ban


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1 State Ban< +* Patiala

;9 State Ban< +* Sa'rashtra

;1 State Ban< +* Tra/anc+re

;; State Ban< +* India

;> Syndicate Ban


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Pr+d'cti/ity is a /ital indicat+r +* ec+n+(ic )er*+r(ance In si()le -+rds0 it is +'t)'t?

in)'t rati+ It is a relati+nshi) bet-een .i/en +'t)'t and the (eans 'sed t+ )r+d'ce it

Ban I/):+*'r !Br+/:> Pr'5:*)7)*&4

41: "e)+sits )er branch

4;: Ad/ance )er branch

4>: B'siness )er branch

47: T+tal inc+(e )er branch

4@: T+tal e=)endit're )er branch

45: B'rden )er branch

48: Net )r+*it )er branch

46: S)read )er branch

Pr'()*+,)-)*

Page ;


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Pr+*itability is a rate e=)ressin. )r+*it as a )ercenta.e +* t+tal assets +r sales +r any +ther

/ariable t+ re)resent the relati+nshi) In *act0 there (ay be /ari+'s di(ensi+ns +*

)r+*itability analysis lar.e n'(ber +* rati+s can be 'sed in +rder t+ (eas're the ban S)read t+ +r9


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O,?2:*)72 '( *>2 *5

T+ identi*y the (eas're t+ be ta


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INDUSTY PROFILE

A. Or)3)/ +/ 272-'82/* '( *>2 )/5*r

The eneral Ban< +* India c+(in. int+ e=istence in 1865 This -as *+ll+-ed by Ban< +*

Hind'stan B+th these ban


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Inde)endence0 and the s+cial0 ind'strial and +ther in*rastr'ct're ha/e de/el+)ed At that

ti(e there -ere /ery s(all ban2 )/5*r

D5r)/3 *>2 W+r3 The )eri+d d'rin. the First +rld ar 4117?116: thr+'.h the end

+* the Sec+nd +rld ar 41>?17@:0 and t-+ years therea*ter 'ntil the inde)endence

+* India -ere challen.in. *+r the Indian ban t+ 116 as indicated in the *+ll+-in. table3

%ears Failed Ban@

117 7; 819 19

Page >>


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11@ 11 @5 @

115 1> ;>1 7

118 85 ;@

116 8 ;9 1

P'*$)/282/2/:2

The )artiti+n +* India in 178 had ad/ersely i()acted the ec+n+(ies +* P'n2ab and est

Ben.al0 and ban


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N+*)'/+-)+*)'/

By the 159s0 the Indian ban


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B+/0 T+02/ F'r *>2 A/+-)4

State Ban< O* India

P'n2ab Nati+nal Ban


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"' A'.'st ;996 -hen State Ban< +*

Sa'rashtra(er.ed -ith SBI0 red'cin. the n'(ber +* ass+ciate state ban


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P'rs'ant t+ the )r+/isi+ns +* the State Ban< +* India Act +* 1@@0 the Reser/e Ban< +*

India0 -hich is Indias central ban0 ;9960 the State Ban< +* Sa'rashtra0+ne +* its ass+ciate

ban


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branches in Cali*+rnia are l+cated in &+s An.eles0 Artesia0 San +se0 Can+.a Par


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P5/?+, N+*)'/+- B+/04

P5/?+, N+*)'/+- B+/04PNB: 4BSE3 @>;7510NSE3PNB: is an Indian *inancial ser/ices

c+()any based inNe- "elhi0 IndiaPNB is the third lar.est ban< in India by assets It

-as *+'nded in 167 and is c'rrently the sec+nd lar.est state?+-ned c+((ercial ban< in

India ahead +*Ban< +* Bar+da-ith ab+'t @999 branches acr+ss 857 cities It ser/es +/er

>8 (illi+n c'st+(ers The ban< has been ran


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T)2-)/2

In 1990 PNB established its *irst branch +'tside &ah+re in Ra-al)indi Branches in

Karachiand Pesha-ar *+ll+-ed The ne=t year0 PNB abs+rbed Bha.-an "ass Ban branches +* Bharat Ban< 4est 17;:J Bharat Ban3 The +/ern(ent +* B'r(a nati+naliDed PNBs branch in Ran.++n

4%an.+n: Se)te(ber 15@3 A*ter the Ind+?Pa< -arthe .+/ern(ent +* Pa: in a resc'e The

ac,'isiti+n added Hind'stans 17; branches t+ PNBs net-+r3 PNB ac,'ired Ne- Ban< +* India0 -hich the OI had nati+naliDed in 169

Page 7;
http://en.wikipedia.org/wiki/Rawalpindihttp://en.wikipedia.org/wiki/Karachihttp://en.wikipedia.org/wiki/Peshawarhttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Partition_of_Indiahttp://en.wikipedia.org/wiki/Burmahttp://en.wikipedia.org/wiki/Yangonhttp://en.wikipedia.org/wiki/Yangonhttp://en.wikipedia.org/wiki/History_of_the_Kashmir_conflicthttp://en.wikipedia.org/wiki/East_Pakistanhttp://en.wikipedia.org/wiki/East_Pakistanhttp://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Rawalpindihttp://en.wikipedia.org/wiki/Karachihttp://en.wikipedia.org/wiki/Peshawarhttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Partition_of_Indiahttp://en.wikipedia.org/wiki/Burmahttp://en.wikipedia.org/wiki/Yangonhttp://en.wikipedia.org/wiki/Yangonhttp://en.wikipedia.org/wiki/History_of_the_Kashmir_conflicthttp://en.wikipedia.org/wiki/East_Pakistanhttp://en.wikipedia.org/wiki/East_Pakistanhttp://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_India


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163 PNB set ') a re)resentati/e +**ice in Al(aty0 KaDa0 PNB t++< +/erNed'n.adi Ban


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In "ece(ber ;91; it si.ned an a.ree(ent -ith #S based li*e Ins'rance c+()any Metli*e

t+ ac,'ire a >9L sta


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c+()anies t+ recei/e an in )rinci)le a))r+/al *r+( the Reser/e Ban< +* India 4RBI: t+

set ') a ban< in the )ri/ate sect+r The Ban< started +)erati+ns as a sched'led

c+((ercial ban< in an'ary 1@ 'nder the RBIs liberalisati+n )+licies

Ti(es Ban< &i(ited 4+-ned by Bennett0 C+le(an C+ Ti(es r+'): -as (er.ed

-ith H"FC Ban< &td0 in ;999 This -as the *irst (er.er +* t-+ )ri/ate ban>

(illi+n *a(ilies +-n a h+(e0 since its ince)ti+n in 188 acr+ss ;799 cities and t+-ns

thr+'.h its net-+r< +* +/er ;@9 +**ices It has internati+nal +**ices in "'bai0 &+nd+n and

Sin.a)+re -ith ser/ice ass+ciates in Sa'di Arabia0 Watar0 K'-ait and O(an t+ assist

NRI!s and PIO!s t+ +-n a h+(e bac< in India As +* "ece(ber ;9960 the t+tal asset siDe

Page 7@


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has cr+ssed (+re than Rs @0999 cr+res incl'din. the (+rt.a.e l+an assets +* (+re than

Rs 6;0699 cr+res The c+r)+rati+n has a de)+sit base +* Rs 180@@1 cr+res0 earnin. the

tr'st +* (+re than 0 990999 de)+sit+rs C'st+(er Ser/ice and satis*acti+n has been the

(ainstay +* the +r.aniDati+n H"FC has set bench(ar'-2+-2 ,+/0)/3 2r7):2

F+r c'st+(ers *r+( +n.+leBl'e?chi) (an'*act'rin. c+()anies in the Indian c+r) t+

s(all (id?siDed c+r)+rates and a.ri?based b'sinesses the Ban< )r+/ides a -ide

ran.e +* c+((ercial and transacti+nal ban


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ban6>8

billi+n F+r the *iscal year ;911?1;0 the ban< has re)+rted net )r+*it +* @15898cr+re

4#S@9 (illi+n:0 ') >15L *r+( the )re/i+'s *iscalOn March 170 ;91> an +nline

(a.aDine na(ed C+bra)+stc+( released /ide+ *++ta.e *r+( O)erati+n Red S)ider

sh+-in. hi.h ran


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H)*'r4

H"FC Ban< -as inc+r)+rated in the year +* 17 by H+'sin. "e/el+)(ent Finance

C+r)+rati+n &i(ited 4H"FC:0 Indias )re(ier h+'sin. *inance c+()any It -as a(+n.

the *irst c+()anies t+ recei/e an in )rinci)le a))r+/al *r+( the Reser/e Ban< +* India

4RBI: t+ set ') a ban< in the )ri/ate sect+r The Ban< c+((enced its +)erati+ns as a

Sched'led C+((ercial Ban< in an'ary 1@ -ith the hel) +* RBIs liberaliDati+n

)+licies In a (ilest+ne transacti+n in the Indian ban


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REVIEW OF LITERATURE

L)*2r+*5r2 R27)2@

C+nsiderable -+r< +* research ta


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V+r2 +/ S)/3>!199&in a th+'.ht )r+/+ !199& in his st'dy ar.'es that ban< )r+*itability is lin


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I/*2r/+- 2*2r)/+/*4

Internal deter(inants +* ban< )er*+r(ance can be de*ined as *act+rs that are

in*l'enced by a ban

t+ a .++d ban< )er*+r(ance0 it is di**ic'lt0 i* n+t i()+ssible0 t+ assess (ana.e(ent

,'ality directly In *act0 it is i()licitly ass'(ed that s'ch a ,'ality -ill be re*lected in

the +)eratin. )er*+r(ance As s'ch0 it is n+t 'nc+((+n t+ e=a(ine a ban

)er*+r(ance in ter(s +* th+se *inancial /ariables *+'nd in th+se *inancial state(ents

O* th+se state(ents0 the balance sheet and inc+(e state(ent are the t-+ )rinci)al

+nes

B+-+/:2 >22*.

In his st'dy +* the deter(inants +* ban


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M)--2r +/ N'5-+ !199&in the USA N+:25r !


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R22+r:> M2*>''-'3

The ROE dec+()+siti+n (+del is )resented in a tree *+r( that -ill c+nsist +* ;9 rati+s0

s)read ') in *i/e sta.es This (+del hel)s t+ identi*y the areas +* ban< +)erati+n that!s

need i()r+/e(ent The rati+s in the sta.e 1 t+ 7 are inte.rated The sta.e @ rati+s are

certain cr'cial *'ncti+nal area +* the ban
http://www.moneycontrol.com/http://www.yahoofinance.com/http://www.googlefinance.com/http://www.moneycontrol.com/http://www.yahoofinance.com/http://www.googlefinance.com/


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ROE PMAUEM

ROE PMAUFLDFL

PM4Pr+*it Mar.in: XEBITT+tal Inc+(e

AU4Asset #tiliDati+n: X T+tal Inc+(e Asset

FL4Financial &e/era.e: X T+tal Asset Net +rth

DFL4"e.ree +* Financial &e/era.e: X PATEBIT

ROE !ROA$I/*2r2* C'* A?5*2/*&F)/+/:)+- L272r+32

here0

I/*2r2* C'* A?5*2/* I/*2r2* E82/2 T'*+- I/:'2

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ANALYSIS OF PROFITIBILITY OF BANKS THROUGH ROA AND

ROE

This )art +* st'dy in/+l/es the calc'lati+n and analysis +* )r+*itability +* ban


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T+,-2 N'.1 R2*5r/ O/ E5)*

B+/0

S.B.I. 91 9; 9;> 9;5 9;8 9;>

P.N.B. 9> 197 1;> 1;6 118 11>

H.D.F.C. 1;@ 11 1;> 1>5 17@ 1;5

Page @5


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FINDINGS

This table sh+-s the analysis +* three ban55L in ;996 t+

hands+(e @7L in ;91;


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;. The )r+*it (ar.in +* PNB H"FC is sh+-in. a )+siti/e .r+-th as c+()ared t+

SBI PNB0s )r+*it (ar.in is 1166L in ;996 t+ 1775L in ;911 hereas H"FC!s

rati+ is 1>1L in ;996 t+ 15;7L in ;91;

#. As )er c+nce)t'al a))r+ach +* PROFIT MARIN0 0 ie 'sin. EBIT in )lace +*

PAT 0ie NET PROFIT it has been +bser/ed that all the ban


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1=. The C+st +* "e)+sits0 +n an a/era.e basis H"FC is a leadin. )er*+r(er +*

99>16L

1;. Fr+( the st'dy -e ha/e *ind that COST OF BORROIN +* H"FC is 9;5@L in

;998 t+ 9188L in ;91;0 as c+()are t+ +ther t+ ban


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+nly The )r+)+rti+n +* t+tal inc+(e as c+ns'(ed by salaries has seen a ne.ati/e

trend0 e=ce)t H"FC ban


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7 These (er.ers ha/e been based +n the need t+ attain a (eanin.*'l balance sheet

siDe and (ar Ai(s t+ ser/e all classes +* the s+ciety *r+( the salaried (iddle class t+

the hi.h inc+(e b'siness class C'st+(ers are cate.+riDed and se.(ented acc+rdin. t+

their re,'ire(ents and needs

7 SBI Ban< )r+/ides )ers+nal l+an at l+- interest rate -hich .++d *+r c'st+(ers

Page 51


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@ The Ban< )rides itsel* -ith the ability t+ )r+/ide di**erentiate )r+d'cts in the cr+-ded

(ar


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> In the )resent st'dy0 +nly the ,'antitati/e as)ects +* )r+d'cti/ity and )r+*itability ha/e

been e=a(ined W'alitati/e as)ects s'ch as (+ti/ati+n +* e()l+yees0 c'st+(er

satis*acti+n0 and i(a.e +* the ban< ha/e n+t been

BIBLIOGRAPHY

WEBSITES

1---.++.lec+in

;---hllc+(

>----i9?177

; $ar.hese0 SK0 Pr+*its and Pr+*itability +* Indian C+((ercial Ban0 )) M17@?1@8

Page 5>
http://www.google.co.in/http://www.hll.com/http://www.wikepedia.com/http://www.google.co.in/http://www.hll.com/http://www.wikepedia.com/


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> A.ed0 $$ and "e/ra20 $0 Pr+*itability and Pr+d'cti/ity +* Ban

7 R+y0 "'r.adas0 Ban< Pr+*itability3 S+cial R+le is n+ Barrier0 Business tandard,

N+/;50 165

@Ch+)ra Kiran0 !ana"in" Profits, Profitability and Productivity in Public ector

Bankin". ABS )'blicati+ns0 alandhar0 168

5 $ashisht0 AK0 Per*+r(ance A))raisal +* C+((ercial Ban

Documents

IMPACT OF BANKING REFORMS IN IT’S PRODUCTIVITY AND PROFITABILITY