Interfirm comparison on select private banking companies in india

International Journal of Management (IJM), OF 0976 – 6502(Print), ISSN 0976 –
INTERNATIONAL JOURNAL (2013)MANAGEMENT (IJM) ISSN
6510(Online), Volume 4, Issue 2, March- April

ISSN 0976-6502 (Print)
ISSN 0976-6510 (Online)
Volume 4, Issue 2, March- April (2013), pp. 138-146
IJM
© IAEME: www.iaeme.com/ijm.asp
Journal Impact Factor (2013): 6.9071 (Calculated by GISI) ©IAEME
www.jifactor.com

INTERFIRM COMPARISON ON SELECT PRIVATE BANKING
COMPANIES IN INDIA

Dr.V.Sarangarajan1 Mr.S.Karthik2 Dr.S.A.Lourthuraj3 Dr.R.Ramesh4
1
Director, Christhuraj Institute of Management, Panjappur, Trichy- 620 012
2
Research Scholar, Bharathiar University, Coimbatore – 641 046.
3
Asst.Professor, Jamal Institute of Management, Jamal Mohammed College, Trichy – 20
4
Professor and Head, Chettinad college of Engg.& Tech.,Karur – 639 114

ABSTRACT

Inter-firm Comparison is one of the effective tools of management. It can be applied in any
industry whether manufacturing or service. This paper examines the good and poor
performance of select private banking companies in India with select financial ratios. Data
employed in this study are all secondary in nature. Seven ratios are taken for comparison and
ten private banking companies are chosen for the study. The study has been conducted for a
period of five years from 2007 -2008 to 2011-2012. The research design is based on the
descriptive design technique. In this research paper the authors make use of quartile
Deviation technique and seven ratios which are Net Profit Ratio, Return on Total Assets,
Return on Shareholders fund, Return on Capital Employed, Asset Turnover Ratio, Current
Ratio, and Operating Expenses Ratio. Based on these seven ratios and quartile Deviation
technique the authors suggested that the investors make use of their investments in Karur
Vysya Bank Ltd and City union Bank because the performance of Karur Vysya Bank Ltd and
City Union Bank Ltd are better than other select private banking companies in this study.

Key words: Interfirm comparison, Ratio Analysis, Banking, Financial performance,
Quartile Deviation

I INTRODUCTION

The banking sector is one of the most important instrument of the national
development, occupies a unique place in a nation’s economy. Economic development of the
economy is reflected through the soundness of the banking system (Gaur et al. 2012). The
study of Kumar and Gulati (2008) exhibited that the overall technical inefficiency of Indian
commercial banks was due to both poor input utilization and failure to operate at most

138

International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 –
6510(Online), Volume 4, Issue 2, March- April (2013)

productive scale size. The enhanced profitability and efficiency has become vital for survival
and growth of the banks in the era of globalization and significantly affected by asset quality,
capital adequacy and liquidity of the banks (Manoj 2010). The Indian banking sector has
undergone structural changes during the post liberalization era with the implementation of
prudential norms for income recognisition provisioning and asset classification (Siraj and
Pillani, 2011). Liquidity management is one of the most important functions of a bank. If
funds tapped are not properly utilized, the institution will suffer loss (Sangmi and Nazir,
2010). The empirical results of the research (Raza et al., 2011) explained that a company,
which has better efficiency, it does not mean that always it will show the better effectiveness.
Alam et al. (2011) study concludes that ranking of banks differ as the financial ratio changes.
Biresh K Sahoo and Anandadeep Mandal (2011) examined the Performance of Banks in
India in Post Transition Period and concluded that the positive trend of the reform process is
visible through the increase in technical efficiency over the years of the post transition period.
Ashok Khurana, Kanika Goyal (2011) analyzed the Performance of Public Sector Banks and
concluded that there is a need for increased absorption of enhanced technological capability
by several banks to further argument yield of the banking sector. According to Kosmidou
(2008), capital adequacy can be measured by the equity to total assets ratio. Higher the
capital assets ratio lowers the leverage. Regarding the operating expenses, the total cost of a
bank can be separated into operating cost and other expenses (including taxes, depreciation
etc.). In his study, only operating expenses can be viewed as the outcome of bank
management. Since improved management of the operating expenses will increase efficiency
and therefore raise profits of banks, the ratio of these expenses to total assets is expected to be
negatively related to profitability. Uppal (2009) examined the profitability which is an
important criterion to evaluate the overall efficiency of a bank group. The paper examines the
comparative trends in profitability behaviors of five major bank groups in the post
liberalization and globalization era. The paper offers suggestions on the basis of empirical
results to increase the profitability and measures should be taken to increase the level spread
and curtail the burden. Bakar and Tahir (2009) in their paper used multiple linear regression
technique and simulated neural network techniques for predicting bank performance. ROA
was used as dependent variable of bank performance and seven variables including liquidity,
credit risk, cost to income ratio, size and concentration ratio, were used as independent
variables. Commercial bank holds a large share of economic activities of a country. The
function of the commercial banks has been enhanced in Nepal to sustain the increasing need
of the service sector and the economy in general (Economic Survey, 2008). In this study the
authors aim to find out the good and poor performance of select private banking companies in
India.

II RESEARCH METHODOLOGY

The main aim of the study is to analyze the good and poor performance of select
private banking companies in India with select financial ratios. The study is based on a
random sample of 10 Private Banking Companies. The study has been conducted for a period
of five years from 2007 - 2008 to 2011-2012. The research design is based on the descriptive
design technique. The data collected are all secondary in nature. The Companies chosen as
sample which are Lakshmi Vilas Bank Ltd, Indusind Bank Ltd, South Indian Bank Ltd, ICICI
Bank Ltd, Kotak Mahindra Bank Ltd, Yes Bank Ltd, HDFC Bank Ltd, City Union Bank Ltd,
Axis Bank Ltd, and Karur Vysya Bank Ltd

139


For the purpose of interfirm Comparison the authors has considered these Seven Ratios.

1. Net profit Ratio: (Net Profit / Sales) X 100
2. Return on Total Assets: Net Profit / Total Assets
3. Return on Shareholders Fund: (Net Profit / Shareholders fund) X 100
4. Return on Capital Employed: (Net Profit / Capital Employed) X 100
5. Asset Turnover Ratio: Sales / Total Asset
6. Current Ratio: Current Asset / Current Liabilities
7. Operating Expenses Ratio: (Operating Expenses /Sales) X100

Net profit Ratio: This ratio is an important ratio to judge the profitability of a concern. It
establishes a relationship between net profit and sales and indicates management’s efficiency.
Generally this ratio is expressed in percentage. A firm with a high net margin ratio would be
in advantageous position to survive in the fact of falling prices, rising costs or declining
demand for the product.

Return on Total Assets: ROA for public companies can vary substantially and will be
highly dependent on the industry. This is why when using ROA as a comparative measure, it
is best to compare it against a company's previous ROA numbers or the ROA of a similar
company. This ratio indicates how much net income is generated per rupee of assets. The
higher the Return on Asset indicates more profitable to the bank.

Return on Shareholders Fund: Return on Shareholders Fund is the most important
indicator of a bank’s profitability and growth potential. It is the rate of return to shareholders
or the percentage return on each rupee of equity invested in the bank.

Return on Capital Employed: ROCE is a measure of the returns that a business is
achieving from the capital employed, usually expressed in percentage terms. Capital
employed can be calculated as the difference between total assets and current liabilities. A
higher value of return on capital employed is favorable indicating that the company generates
more earning per rupee of capital employed.

Asset Turnover Ratio: Asset turnover ratio help to measure the effectiveness with which
the company/management uses its assets to generate sales or revenue. These ratios help to
measure the productivity of a company's assets. A high ratio is desirable as compared to a
low ratio since the former is indicative of better operating performance. It also symbolizes
greater shareholder’s wealth.

Current Ratio: The current ratio measures a company's ability to pay short-term debts and
other current liabilities (financial obligations lasting less than one year) by comparing current
assets to current liabilities. The ratio illustrates a company's ability to remain solvent. A
current ratio of one means that book value of current assets is exactly the same as book value
of current liabilities. In general, investors look for a company with a current ratio of 2:1,
meaning current assets twice as large as current liabilities. A current ratio less than one
indicate the company might have problems meeting short-term financial obligations. If the
ratio is too high, the company may not be efficiently using its current assets or short term
financing facilities.

140


Operating Expenses Ratio: It measures the income generated per rupee cost. The lower the
operating cost to Sales ratio, the better the performance of the bank
Statistical Analysis
Using the financial ratios, the study incorporated Quartile deviation as a yard stick to
divide the companies according to its performance. Quartile deviation is a measure of
dispersion based on the upper Quartile and the lower Quartile. Let the upper Quartile and
lower Quartile be ‘H’ and ‘L’ respectively. The difference between the upper and lower
Quartile can be divided by 4 to obtain ‘D’. Finally using D we get measures such as L,
(L+D), (L+2D), (L+3D) and H. The study call (L+D), (L+2D), (L+3D) as Q1, Q2, Q3,
respectively.
Limitations of the study
The study is based on the information available in the financial statements. The
study could not cover all aspect of the working of the companies. For e.g.: The quality of the
products, organization structure. In additions smaller sample and seven ratios have been
employed in this study.

III RESULTS AND DISCUSSION

Table No I clearly states that the Quartile Deviation of Net Profit Margin. Lakshmi
Vilas Bank Ltd is in between the lowest and the first Quartile. Lakshmi Vilas Bank Ltd holds
the lowest Ratio. IndusInd Bank Ltd is in between the first and second quartile. South Indian
Bank Ltd and ICICI Bank Ltd are in between second and third quartile. Kotak Mahindra
Bank Ltd, Yes Bank Ltd, HDFC Bank Ltd, City union Bank Ltd, Axis Bank Ltd and Karur
Vysya Bank Ltd lies in between the third Quartile and highest Ratio. Karur Vysya Bank Ltd
holds the highest Ratio.

TABLE NO I: QUARTILE DEVIATION OF NET PROFIT MARGIN

L Q1 Q2 Q3 H
5.980 8.303 10.625 12.948 15.270

Indusind Bank South Indian Bank Ltd Kotak Mahindra Bank Ltd
Ltd
ICICI Bank Ltd Yes Bank Ltd

*Lakshmi Vilas HDFC Bank Ltd
Bank Ltd
City Union Bank Ltd

Axis Bank Ltd

**Karur Vysya Bank Ltd

Source: Profit & Loss A/c and Balance Sheet of the companies from 2007-2008 to 2011-2012

141


Table No II clearly states that the Quartile Deviation of Return on Total Asset. Lakshmi Vilas
Bank Ltd is in between the lowest and the first Quartile. Lakshmi Vilas Bank Ltd holds the
lowest Ratio. South Indian Bank Ltd is in between the first and second quartile. IndusInd Bank
Ltd and ICICI Bank Ltd are in between second and third quartile. Yes Bank Ltd, Axis Bank Ltd,
HDFC Bank Ltd, Karur Vysya Bank Ltd, City union Bank Ltd and Kotak Mahindra Bank Ltd lies
in between the third Quartile and highest Ratio. Kotak Mahindra Bank Ltd holds the highest
Ratio.

TABLE NO II: QUARTILE DEVIATION OF RETURN ON TOTAL ASSETS

L Q1 Q2 Q3 H
0.57 0.80 1.00 1.20 1.44

Yes Bank Ltd
South Indian IndusInd Bank Ltd
Bank Ltd Axis Bank Ltd
ICICI Bank Ltd
HDFC Bank Ltd
*Lakshmi Vilas Bank Ltd
Karur Vysya Bank Ltd

City Union Bank Ltd

**Kotak Mahindra Bank Ltd

Table No III clearly states that the Quartile Deviation of Return on Shareholders Fund. Lakshmi
Vilas Bank Ltd and Kotak Mahindra Bank Ltd are in between the lowest and the first Quartile.
Lakshmi Vilas Bank Ltd holds the lowest Ratio. IndusInd Bank Ltd is in between the first and
second quartile. HDFC bank Ltd, South Indian Bank Ltd, Axis bank Ltd and Yes Bank Ltd are in
between second and third quartile. Karur Vysya Bank Ltd, City union Bank Ltd and ICICI Bank
Ltd lies in between the third Quartile and highest Ratio. ICICI Bank Ltd holds the highest Ratio.

TABLE NO III: QUARTILE DEVIATION OF RETURN ON SHAREHOLDERS FUND

L Q1 Q2 Q3 H
08.33 10.80 13.30 15.70 18.22

IndusInd Bank HDFC Bank Ltd
Ltd Karur Vysya Bank Ltd
South Indian
* Lakshmi Vilas Bank Ltd Bank Ltd City Union Bank Ltd

Kotak Mahindra Bank Ltd Axis Bank Ltd **ICICI Bank Ltd

Yes Bank Ltd


142


TABLE NO IV: QUARTILE DEVIATION OF RETURN ON CAPITAL EMPLOYED

L Q1 Q2 Q3 H
0.60 0.80 1.10 1.30 1.54

South Indian Bank ICICI Bank Ltd Yes Bank Ltd
Ltd
Axis Bank Ltd
IndusInd Bank Ltd
*Lakshmi Vilas Bank Ltd Karur Vysya Bank Ltd

City Union Bank Ltd

HDFC Bank Ltd

**Kotak Mahindra Bank
Ltd


Table No IV clearly states that the Quartile Deviation of Return on Capital Employed. Lakshmi Vilas
Bank Ltd is in between the lowest and the first Quartile. Lakshmi Vilas Bank Ltd holds the lowest
Ratio. South Indian Bank Ltd and IndusInd Bank Ltd are in between the first and second quartile.
ICICI Bank Ltd is in between second and third quartile. Yes bank Ltd, Axis Bank Ltd, Karur Vysya
Bank Ltd, City Union Bank Ltd, HDFC Bank Ltd and Kotak Mahindra Bank Ltd lies in between the
third Quartile and highest Ratio. Kotak Mahindra Bank Ltd holds the highest Ratio.

Table No V clearly states that the Quartile Deviation of Asset Turnover ratio. South Indian Bank Ltd,
Axis Bank Ltd, Yes Bank Ltd and ICICI Bank Ltd are in between the lowest and the first Quartile.
South Indian Bank Ltd holds the lowest Ratio. Karur Vysya Bank Ltd, HDFC Bank Ltd and Lakshmi
Vilas Bank Ltd are in between the first and second quartile. City Union Bank Ltd and IndusInd Bank
Ltd are in between second and third quartile. Kotak Mahindra Bank Ltd lies in between the third
Quartile and highest Ratio. Kotak Mahindra Bank Ltd holds the highest Ratio.

TABLE NO V: QUARTILE DEVIATION OF TOTAL ASSETS TURNOVER RATIO

L Q1 Q2 Q3 H
.0867 .0920 .0970 .1030 .1080

Karur Vysya City Union Bank **Kotak Mahindra Bank
*South Indian Bank Ltd
Bank Ltd Ltd Ltd
Axis Bank Ltd
HDFC Bank Ltd IndusInd Bank Ltd
Yes Bank Ltd
Lakshmi Vilas
Bank Ltd
ICICI Bank Ltd


143


Table No VI clearly states that the Quartile Deviation of Current Ratio. Kotak Mahindra
Bank Ltd, HDFC Bank Ltd and Yes Bank Ltd are in between the lowest and the first
Quartile. Kotak Mahindra Bank Ltd holds the lowest Ratio. ICICI Bank Ltd is in between the
first and second quartile. Lakshmi Vilas Bank Ltd and IndusInd Bank Ltd are in between
second and third quartile. Axis Bank Ltd, Karur Vysya Bank Ltd, City Union Bank Ltd and
South Indian Bank Ltd are in between the third Quartile and highest Ratio. South Indian Bank
Ltd holds the highest Ratio.

TABLE NO VI: QUARTILE DEVIATION OF CURRENT RATIO

L Q1 Q2 Q3 H
.7587 1.230 1.7020 2.1740 2.6454

* Kotak Mahindra
Bank Ltd Lakshmi Vilas Axis Bank Ltd
ICICI Bank Ltd Bank Ltd
HDFC Bank Ltd Karur Vysya Bank Ltd
IndusInd Bank
Yes Bank Ltd Ltd City Union Bank Ltd

** South Indian Bank Ltd


Table No VII clearly states that the Quartile Deviation of Operating Expenses Ratio. Yes
Bank Ltd, City union Bank Ltd, Karur Vysya Bank Ltd, South Indian Bank Ltd and Lakshmi
Vilas Bank Ltd are in between the lowest and the first Quartile. Yes Bank Ltd holds the
lowest Ratio. ICICI Bank Ltd, IndusInd Bank Ltd and Axis Bank Ltd are in between the first
and second quartile. No Banking companies in between second and third quartile. HDFC
Bank Ltd and Kotak Mahindra Bank Ltd lies in between the third Quartile and highest Ratio.
Kotak Mahindra Bank Ltd holds the highest Ratio.

TABLE NO VII: QUARTILE DEVIATION OF OPERATING EXPENSES RATIO

L Q1 Q2 Q3 H
15.20 19.218 23.235 27.253 31.27

* Yes Bank Ltd HDFC Bank Ltd
ICICI Bank Ltd
City Union Bank Ltd **Kotak Mahindra Bank Ltd
IndusInd Bank Ltd
Karur Vysya Bank Ltd
Axis Bank Ltd
South Indian Bank Ltd

Lakshmi Vilas bank Ltd


144


IV CONCLUSION

Inter-firm Comparison is one of the effective tools of management. It can be applied in
any industry whether manufacturing or service. Interfirm Comparison is used for analyzing good
and poor performance of companies in an industry. In this research the authors have taken ten
private banking companies in India to analyze the good and poor performance with the aid of
financial tools and statistical tools. The authors make use of seven ratios which are Net Profit
Ratio, Return on Total Assets, Return on Shareholders fund, Return on Capital Employed, Asset
Turnover Ratio, Current Ratio, and Operating Expenses Ratio. Based on these seven ratios and
quartile Deviation technique the authors suggested that the investors make use of their investment
in Karur Vysya Bank Ltd and Citi union Bank because the performance of Karur Vysya Bank Ltd
and City Union Bank Ltd are better than other select banking companies in this study.

REFERENCES

1. Ashok Khurana, Kanika Goyal - Performance of Public Sector Banks: An Analysis IJBEMR
Volume 2, Issue 2 (February2011)
2. Alam HM, Raza A, Akram M (2011). A financial performance comparison of public vs private
banks: The case of commercial banking sector of Pakistan. Int. J. Bus. Soc. Sci., 2(11): 56-64.
3. Bakar N, Tahir IM (2009). Applying multiple linear regression and neural network to predict bank
performance. Int. Bus. Res., 2 (4):176-183.
4. Biresh K Sahoo and Anandadeep Mandal(2011) - Examining the Performance of Banks in India:
Post Transition Period, The IUP Journal of Bank Management, 2011, vol. X, issue 2, pages 7-31
5. Economic Survey (2008). Ministry of Finance, Government of Nepal
6. Gaur A., Sukhija S. And Julee M. (2012), Overall Profitability Measurement of Major Private
Sector Banks in India, Paper Presented at HSB Annual Conference in 9-10 Feburary, 2012
7. Ho C, Zhu D (2004). Performance measurement of Taiwan commercial banks. Int. J. Product.
Perform. Manag., 53(5): 425-434.
8. Kosmidou, K 2008, ‘The determinants of banks’ profits in Greece during the period of EU
financial integration’, Managerial Finance, vol. 34, no. 3, pp. 146-159.
9. Kumar S. And Gulati R. (2008), An Examination of Technical, Pure Technical and Scale
Efficiencies of Indian Public Sector Banks using DEA, European Journal of Business and
Economics, 1(2), 33-69.
10. Manoj P. K. (2010), Determinants of Profitability and Efficiency of Old Private Sector Banks in
India with Focus on the Banks in Kerala State, International Research Journal of Finance and
Economics, 47, 7-20.
11. Raza A, Farhan M, Akram M (2011). A comparison of financial performance in investment
banking sector in Pakistan. Int. J. Bus.Soc. Sci., 2(11): 72-81.
12. Sangmi MD, Nazir T (2010). Analyzing financial performance of commercial banks in India:
Application of CAMEL model. Pak. J. Commer. Soc. Sci., 4 (1): 40-55.
13. Siraj K. K. And Pillani P. S. (2011), Asset Quality and Profitability of Indian Scheduled
Commercial Banks during Global Financial Crisis, International Research Journal of Finance and
Economics, 80,55-65.
14. Uppal, R.K. (2009), “Indian Banking – Prime Determinants of Profitability, Emerging Issues and
Future Outlook,” GITAM Journal of Management, Vol.7, No.2, pp. 78-106.
15. H.Vasanthakumari and Dr. S. Sheela Rani, “Customer Selection of Banks – A Biographic
Segmentation” International Journal of Management (IJM), Volume 2, Issue 2, 2011, pp. 13
- 19, ISSN Print: 0976-6502, ISSN Online: 0976-6510.

145


16. Dr.V.Sarangarajan, Dr.A.Ananth and Dr.S.A.Lourthuraj, “Financial Performance Efficiency of
Select Cement Companies in Tamil Nadu”, International Journal of Advanced Research in
Management (IJARM), Volume 4, Issue 1, 2013, pp. 34 - 44, ISSN Print: 0976 - 6324, ISSN
Online: 0976 - 6332.
17. Ms.S.Sujatha, Ms.K.Santhana Lakshmi, Mr.Martin Selvakumar.M and Dr.N.Santhosh Kumar,
“Effectiveness of Training and Development Among Employees in Private Banks (With
Reference To Chennai City)”, International Journal of Management (IJM), Volume 4, Issue 2,
2013, pp. 118 - 124, ISSN Print: 0976-6502, ISSN Online: 0976-6510.
18. Dr. N. Shani and V. AnandKumar, “A Study on Job Characteristics and Internal Work Motivation
Among Icici Bank Employees”, International Journal of Management (IJM), Volume 2, Issue 2,
2011, pp. 56 - 65, ISSN Print: 0976-6502, ISSN Online: 0976-6510.
19. N.Mallika and Dr.M.Ramesh, “Job Satisfaction in Banking: A Study of Private and Public Sector
Banks”, International Journal of Management (IJM), Volume 1, Issue 1, 2010, pp. 111 - 129,
ISSN Print: 0976-6502, ISSN Online: 0976-6510.
20. Dr. N. Shani, V. AnandKumar and P.DivyaPriya, “A Study on Role of Internal Work Motivation
and its Outcomes of Among Icici Bank Employees”, International Journal of Management (IJM),
Volume 2, Issue 2, 2011, pp. 66 - 74, ISSN Print: 0976-6502, ISSN Online: 0976-6510.

APPENDIX
Financial Ratios

Return
Return on
Net on Sharehol Operating Total Assets Return on
Name of Profit Total der’s Expenses Turnover Current Capital
the Bank Ratio Asset Fund Ratio Ratio Ratio Employed
HDFC Bank
Ltd 14.55% 1.38% 13.31% 28.53% 0.0945 0.9403 1.53%
ICICI Bank
Ltd 12.68% 1.16% 18.22% 19.44% 0.0918 1.5718 1.23%
Axis Bank
Ltd 15.26% 1.35% 14.50% 22.87% 0.0884 2.2096 1.40%
Karur
Vysya
Bank Ltd 15.27% 1.42% 15.89% 16.14% 0.0931 2.2384 1.46%
City Union
Bank Ltd 14.55% 1.43% 16.85% 15.21% 0.0981 2.5999 1.48%
Yes Bank
Ltd 14.21% 1.29% 15.62% 15.20% 0.0905 1.0382 1.37%
Kotak
Mahindra
Bank Ltd 13.32% 1.44% 10.15% 31.27% 0.1080 0.7587 1.54%
Lakshmi
Vilas bank
Ltd 5.98% 0.57% 08.33% 18.74% 0.0957 1.8449 0.60%
South
Indian Bank
Ltd 10.79% 0.94% 13.79% 17.19% 0.0867 2.6454 0.96%
IndusInd
Bank Ltd 10.33% 1.03% 12.09% 21.51% 0.0997 2.0633 1.07%

146

Interfirm comparison on select private banking companies in india

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (19)

En vedette

En vedette (9)

Similaire à Interfirm comparison on select private banking companies in india

Similaire à Interfirm comparison on select private banking companies in india (20)

Plus de IAEME Publication

Plus de IAEME Publication (20)

Dernier

Dernier (20)

Interfirm comparison on select private banking companies in india