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A Study on Financial Performance of Selected Public & Private Sector Banks in India

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Banks form a fundamental component of the financial system and are also active players in financial markets. An efficient banking system capable of mobilizing the savings and channeling them to productive purposes are essential for the development of
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  CASIRJ YEAR [2012] Volume 3 Issue 3 ISSN 2319 –  9202 International Research Journal of Commerce Arts and Science http:www.casirj.com Page 131  A Study on Financial Performance of Selected Public & Private Sector Banks in India Monika Rani, Dr.Harsha Vardhan Jhamb Research Scholar, Department of Commerce, CMJ University, Shillong, Meghalaya, India. Research Guide, Department of Commerce, CMJ University, Shillong, Meghalaya, India.   Monikarani306@yahoo.com Abstract Banks form a fundamental component of the financial system and are also active players in financial markets. An efficient banking system capable of mobilizing the savings and channeling them to productive purposes are essential for the development of any economy. The objective of the study is to analyze and compare the overall financial performance of selected public and private sector banks in India. The study is based on secondary data that has been collected from annual reports of the respective banks, Reserve Bank of India website. This research study covers a period of four years i.e. from financial year 2008-2009 to 2011-2012 A quota sample method is used for to select ten banks i.e. five from public sector and five from private sector has been selected and the criteria is based on highest market capitalization generated by banks during 2011-2012. T Test, mean and graphs are used to analyze the data. Although there was increase in profitability for both sector banks the rate of growth is higher for private sector banks. Public sector banks are lagging in many financial parameters and they are facing many challenges also.  Key Words: Public Sector Banks, Private Sector Banks, Operating Profit, Net Profit  Introduction Public sector banks are the banks in which the government has a major holding. Private sector banks are those banks in which the equity is held by private shareholders, i.e., there is no government shareholding. Public sector banks dominated the Indian banking industry in the initial stages. Financial sector reforms made many changes in banking industry and private sector banks with the help of advanced technology and professionalized management achieved a challenging position thereby causing a great threat to the public sector banks.[1] Review of Literature Banks form a fundamental component of the financial system and are also active players in financial markets. An efficient banking system capable of mobilizing the savings and channeling them to productive purposes are essential for the development of any economy.[2]  CASIRJ YEAR [2012] Volume 3 Issue 3 ISSN 2319 –  9202 International Research Journal of Commerce Arts and Science http:www.casirj.com Page 132 The comparative analysis on performance of new private sector banks and the public sector banks of India during the period 2011-2012 on many key parameters such as the P/E Ratio, Dividend Payout ratio, Return on equity ratio, Capital adequacy ratio, Credit deposit ratio. The above period is chosen since it is very important to know how different banks performed during the recession and inflation duration.[3] The performance of commercial banks in India during the period 2005 to 2009. This period covers the pre-credit crisis and the crisis time period. Specifically, the paper examines the behaviour of profitability, cost of intermediation, efficiency, soundness of the banking system, and industry concentration for public and private sector Indian commercial banks.[4] The development theories emphasize that government ownership helps channelize savings for long- term projects of strategic interest. The „political theorists‟ oppose this view and state that government ownership leads to misallocation of resources and inefficiencies of government enterprises and that there are political motives behind such public ownership. It has long been argued that privatization of firms makes them efficient and perform better. the view that privatization helps improve performance. [5]However, recent studies in transition economies, for example, that post-privatization p erformance of the firms was poor. The RBI stated that “as regards the linkage between ownership and performance, international evidence suggests that ownership has limited impact on economic efficiency.” Studies that support this position include. Against this background, the Indian banking sector provides a particularly interesting setting to examine the impact of privatization on the banking firms. The banking sector in India comprises of domestic banks (privately-owned, partially privatized banks, fully public sector banks) as well as foreign banks. As already stated, in India, the economic reforms started in the early 1990s and the approach of the Government of India towards privatization of banks has been gradual. To begin with, it was proposed to reduce the government stake in the PSBs to 51 percent[6]  CASIRJ YEAR [2012] Volume 3 Issue 3 ISSN 2319 –  9202 International Research Journal of Commerce Arts and Science http:www.casirj.com Page 133 Operating Profit Table: Showing operating profit of selected public and private sector banks From the above table it is observed that total operating profits of selected public sector banks are stable from 2008-12 with Rs. 141.77 crores in 2011-12. The total operating profits of selected private sector banks continually increased from 2011-12 with Rs. 208.61 crores in the financial year 2011-12.[7] Graph: Representing the growth of operating profit of public and private sector banks  CASIRJ YEAR [2012] Volume 3 Issue 3 ISSN 2319 –  9202 International Research Journal of Commerce Arts and Science http:www.casirj.com Page 134 From the above graph it is observed that operating profits of both public and private sector are increasing and operating profits of public banks are higher than the private sector banks.[8] Table: Showing net profit of selected public and private sector banks Graph: Representing the growth of net profit of public and private sector banks[9]  CASIRJ YEAR [2012] Volume 3 Issue 3 ISSN 2319 –  9202 International Research Journal of Commerce Arts and Science http:www.casirj.com Page 135  Net profit per employee„s ratio provides the relationship between the number of employee and net profit. This calculation also provides the average net profit per employee and bank wise also which can easily compare with other banks under study. In SBI productivity by net profit per employee is Rs. 0.05 crores during the year 2008-09. This ratio represented mixed trend during the study period and reached up to level of Rs. 0.07 crores in the year 2011-12. [10] Public Sector Banks  Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held by a government. The shares of these banks are listed on stock exchanges. There are a total of 21 Public Sector Banks alongside 1 state-owned Payments Bank in India. Public Sector Banks before the Economic Liberalization The share of the banking sector held by the public banks continued to grow through the 1980s, and by 1991 the public sector banks accounted for 90% of the banking sector. A year later, in March, 1992, the combined total of branches held by public sector banks was 60,646 across India, and deposits accounted for 1,10,000 crore. The majority of these banks were profitable, with only one out of the 21 public sector banks reporting a loss.[4] The nationalized banks reported a combined loss of ฀ 1160 crores. However, the early 2000s saw a reversal of this trend, such that in 2002-03 a profit of ฀ 7780 crores by the public sector banks: a trend that continued throughout the decade, with a ฀ 16856 crore profits in 2008-2009. Private-Sector Banks The private sector banks in India are banks where the majority of the shares or equity are not held by the government but by private share holders. In 1969 all major banks were nationalized by the Indian government. However, since a change in government policy in the 1990s, old and new private sector banks have re-emerged. The private sector banks are split into two groups by financial regulators in India, old and new. The old private sector banks existed prior to nationalization in 1968 and kept their independence because they were either too small or specialist to be included in nationalization. The new private sector banks are those that have gained their banking license since the change of policy in the 1990s.
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