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European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 03
March 2019
Available online: https://ejbss.org/ P a g e | 1175
Performance Analysis of Private Sector Banks in India
Aastha Chauhan
ABSTRACT
Private Banks play a significant role in India’s financial landscape. In the 1990s, the
government embarked on a policy of liberalisation, licensing a small number of
private banks. Private sector banks have since then steadily expanded their branch
network, improving their presence. These banks have changed the banking
experience in India by focusing on customers and higher efficiency. In this Paper,
an attempt has been made to conduct a comparative analysis of the performance of
Private Sector Banks. For this purpose, 20 Private Sector Banks have been
chosen. The CAMEL Approach has been used to conduct the performance
appraisal. CAMEL stands for Capital Adequacy, Asset Quality, Management Quality,
Earning Quality and Liquidity. Comparative ranking have been given to the banks
on each of these 5 parameters using two ration each. A final ranking is done on a
basis of the Composite Index calculated at the end. Based on these ranking ,
HDFC Bank has been ranked as the best bank , followed by Yes Bank and Axis
Bank.
INTRODUCTION nationalised. Examples of these banks
are Catholic Syrian Bank, City Union
Private Sector Banks have come to Bank and Karnataka Bank. The banks
play a significant role in the Indian who were given banking licences after
Banking scenario. In 1969, Indian the change in government policy in
Government nationalised all the major 1990s are called New Private Sector
banks in India. However, in the early Banks. These were the New
1990s the Government of India Generation tech-savvy banks, and
changed its policy and adopted the included UTI Bank( later renamed as
policy of liberalisation, since then old Axis Bank) , Global Trust Bank (which
and new private sector banks have re- was merged with Oriental Bank of
emerged. The financial regulators in Commerce), HDFC Bank, IndusInd
India have split the Private Sector Bank and ICICI Bank.The Private
banks into two Groups: Old and New. Sector Banks are those banks where
The banks which existed prior to the majority of the equity or shares are
nationalisation in 1969 but were not held by the private sector and not by
nationalised are called Old Private the government.
Sector Banks. They escaped the This policy of liberalisation, along with
process of nationalisation because they the rapid economic growth of the
were either providing specialised country, revitalised the Indian banking
services or were too small to be
Page 2 of 22
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 03
March 2019
Available online: https://ejbss.org/ P a g e | 1176
sector. This led to tremendous growth Banks is of $15 billion. But value has
of the banking industry. The three major been steadily shifting towards the
players of the Banking sector i.e. The private-sector banks over the years,
Public Sector Banks, the Private Sector whose share of banking sector’s assets
Banks and the Foreign Banks has grown from 21 percent in the past
contributed in this growth. decade to 25 percent now. The
With the relaxation of limits for Foreign remaining 5 percent is with the Foreign
Direct Investment a new stage was set banks . From 2006 to 2016, Private
for the Indian Banking Sector. At Sector Banks have grown much faster
present, in the private sector banks FDI and have generated much more value
of upto 49 percent is allowed without for their shareholders. In the same
the permission of the government, and period their share of market cap
with the government's approval upto 74 increased from about 40 percent to
percent can be invested. The around 70 percent. The retail banking
Government may further relax these in India has been transformed with the
norms in the near future. Raising the expansion of the middle class and with
maximum permissible limit for FDI in its upward mobility. At the same time,
the banking sector could improve over the past few overs there has been
banking services and help meet emergence of digital business models
minimum capital requirements. This in the banking sector and also the
policy will have far reaching effects on competition among banks is being
the banking sector. Banking sector is encouraged. This has been made
completely shook. Till this time bankers possible due to the regulatory push by
were used to the 4-6-4 method of the Government of India and the RBI.
functioning ( borrowing at 4%; lending The RBI has launched new categories
at 6% and leaving for home at 4 P.M.) of banking licenses such as small
The policy of liberalisation changed this finance banks and payment banks. This
and ushered in a new outlook and tech- is done to bring specialisation and cost
savvy methods of working even for the effectiveness in the banking sector and
traditional banks. All this led to a boom also to reach the goal of financial
in the retail banking segment in India. inclusion and provide banking services
People became more demanding, their to the unbanked. It has also become
expectations rose and banks were easier for the foreign banks to enter the
compelled to meet these expectations. Indian Banking market now, since they
Public-sector banks are suffering from can set up wholly owned subsidiaries in
high NPAs and are more exposed to India now. So now the foreign banks
industry sectors than their private- can operate similar to how the Indian- sector counterparts are. The Public banks do without any restrictions on
Sector Banks have deep networks and their branch expansion or on raising
control over 70 percent of banking domestic capital .This has brought
sector’s asset base. From 2009 to more competition and new best
2016, the capital infusions made by the practices and innovative models in the
Government of India into Public Sector sector. According to the RBI data for
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European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 03
March 2019
Available online: https://ejbss.org/ P a g e | 1177
2018, private banks have expanded • To conduct a comparative analysis of
their branch network more aggressively overall performance of Private Sector
than the Public banks in rural areas Banks.
and semi-rural areas. Private sector
Banks have expanded their branches in Data Source
rural areas by more than 27% and in
small towns by more than 18%, The paper has used data from
compared with 0.5% growth rate in secondary source. The data used is
public sector banks. This indicates that collected from the Statistical Tables
while banks are becoming more as Related to Banks in India from the year
more technology savvy themselves and 2010-11 to 2012-13, taken from the
are encouraging digital services digital, official website of the Reserve Bank of
branch banking is not dead and is India. The Report on trend and
being aggressively pursued. progress of banks in India for related
years have also been used.
Organisation Of Paper
Research Methodology
This Paper attempts to conduct a
comparative analysis of 20 Private The CAMEL Approach has been used
Sector Banks from the year 2010-2011 in the paper to do a comparative
to 2012-13 by using CAMEL model. analysis of 20 Private Sector Banks.
(Gilbert et al. 2000). The paper has The CAMEL approach is an
been divided into Four Sections. A brief international rating system that uses 5
introduction about the evolution of Parameters to rank banks. It was first
Banking Sector in India and the Status developed in the 1970s by the U.S.
of Private Sector Banks is followed by a Federal Reserve to provide a
section on the objectives of the Paper convenient way to summarise Bank
and the research methodology and the Performance.
database used. In the next section, Yes Bank and Kotak Mahindra Banks
comparative analysis of Private Sector are included in the study. In 2007, UTI
Banks is done on the basis of 5 Bank was renamed as AXIS Bank.
selected parameters. The last section CAMEL stands for Capital Adequacy,
includes the conclusion along with the Asset Quality, Management Quality,
implications of the findings for the Earning Quality and Liquidity (Media for
Banking sector. Freedom, 2007).
Objectives CAPITAL ADEQUACY
Capital Adequacy is related to whether
• To rank the Private Sector Banks on a bank has enough cushion to take on
the basis of 5 different parameters. a reasonable amount of loss before it
• To rank the Private Sector Banks on becomes insolvent and starts to lose
the basis of the Composite Index depositors’ funds. A high Capital
calculated for each bank. Adequacy across all the banks in the
economy ensure that a nation’s
