STATE BANK EONOMIC NEWSLETTER Volume XXXVIII, No.19, Date 10-05-2004 Economic Research Department, Corporate Centre, Mumbai     India's Best Banks

 

The last decade has witnessed major changes in the Indian financial sector after implementation of banking and other financial sector reforms based on the recommendations made by the Narasimham Committee - I and II.  The banking sector in India underwent several changes in the areas of prudential, regulatory, disclosure and supervisory norms, liberalisation, deregulation of interest rates, competition from new generation private sector and foreign banks. Tracking banks has therefore become a challenging and exciting task. The recent measures announced by the RBI to liberalize access to foreign financial markets for Indian corporates will further increase the pressure of competition. At the same time, there is renewed pressure on banks to attend to the traditionally neglected sectors of the economy. Given this scenario, it is useful to track the performance of banks and evaluate them against professionally acceptable criteria. The financial year 2002-03 marked an important point in the recent evolution of the banking sector when more banks reported better working results.

 

The Financial Express is publishing every year, as a part of their annual exercise, a report on best banks in India.  The report for the year 2003, published recently is different, as services of professionals like Ernst & Young (E&Y) were used in conducting a comprehensive study of the performance of private, public sector Indian banks and foreign banks operating in India. The FE survey has ranked the players within the Indian banking sector ? 27 public sector banks, 21 old private sector banks, 8 new private sector banks (excludes those banks who received licenses in 2003) and 43 foreign banks.  Of the total 295 commercial banks in India as at 31st March 2003, the FE survey has covered 99 commercial banks (94 scheduled commercial banks and 5 non-scheduled commercial banks). 196 Regional Rural Banks have not been included in the survey.     

 

Methodology

 

Ø      Banks were categorized into public sector banks (PSB), old private sector banks (OPSB), new private sector banks (NPSB) and foreign banks (FB).

Ø      Financial information for the year ending March 31,,2002 and March 31, 2003, relating to each of the banks falling into the aforesaid categories was collected from the data available from RBI.  To ensure consistency, only the published information was used.

Ø      Five different major criteria were identified against which Indian banks were ranked. These criteria are: (i) Strength and Soundness, (ii) Growth, (iii) Profitability, (iv) Efficiency/Productivity, and (v) Credit Quality.

Ø      Six sub-criteria were selected within each of the aforesaid major criteria, which would cover the various aspects of the respective criteria. For example, the first major criterion i.e. Strength and Soundness has been judged on the basis of six sub-criteria - (a) capital adequacy (b) core capital (c) credit/deposit ratio (d) borrowings/deposit ratio (e) total assets (f) net-worth.

Ø      Considering the current banking, industrial and over-all economic scenario, pertinent weights were assigned to each of the major criteria and sub-criteria.

Ø      Banks were ranked, category-wise, within each of the aforesaid sub-criteria. These sub-criteria ranks were multiplied with sub-criteria weights and the weighted sub-criteria ranks were carried over to each of the major criteria. The sub-criteria ranks were then multiplied by the major-criteria weights. The resultant weighted major-criteria ranks were aggregated to determine the best banks in each of the four categories.

 

Position of Nationalised Banks

 

The position of nationalised banks as on 31.3.2003 is indicated in the following table.

                                           Nationalised Banks

                                                                                                                         

S.No.	Category	Rank No.1	Rank No.2
1	Strength & Soundness	Canara Bank (10)	Bank of Baroda (1)
2	Growth	Andhra Bank (17)	Vijaya Bank (21)
3.	Profitability	State Bank of Patiala (1)	State Bank of Indore (4)
4.	Efficiency /Productivity	Oriental Bank of Commerce (1)	Corporation Bank (2)
5.	Credit Quality	Corporation Bank (1)	Andhra Bank (2)

(Figures in bracket indicate the position in 2002)

 

 

Toppers in the Five key Parameters

          Rank in 2003 (in bracket  2002)

         

1. Strength & Soundness         Canara Bank                                    1     (10)

2.  Growth                                 Standard Chartered Bank               1     (1)           

3.  Profitability                          Standard Chartered Bank               1     (1)

4.  Efficiency                              Standard Chartered Bank               1     (1)

5. Credit Quality                        Bank of America                             1     (4)

 

Concluding observations

In the first category of "state-run" or public sector banks, the survey has rated State Bank of Patiala and Andhra Bank as the top two.

In the category of best "old" private sector banks, the survey has ranked Jammu Kashmir Bank and Karur Vysya Bank as the best and the second best.

In the category of "new" private sector banks the survey has ranked HDFC Bank at number one and ICICI Bank at number two.

Finally, in the category of foreign banks, the FE survey has ranked Standard Chartered Bank and Citibank as the top two.

 

(The opinions expressed are those of the individual researcher and do not necessarily reflect those of the Bank or its Associates)

Edited by General Manager, Economic Research Department, State Bank of India, Corporate Centre, Mumbai.