Project Title

“’Analysis of Profitability of banks:

Comparative Study of Private and
Public Sector Bank’’

Content

1
Topics Page No

 List of Tables ……………………………………. 4

 List of Abbrevation …………………………………….... 5

CHAPTER 1
I. INTRODUCTION …………………………………………. 11
1.1 Bank …………………………………….......... 12
1.2 Public Sector Bank ………………………………………… 13
1.3 Private Sector Bank ………………………………………. 13
1.4 Difference between Public and Private Sector Bank……………. 13
1.5 Profit ………………………………………… 14
1.6 Objective of the Study ………………………………………… 15
1.7 Scope of the Study ………………………………………… 16
1.8 Expected Contribution ………………………………………… 16
1.9 Limition of the Study ………………………………………… 16

CHAPTER 2

II. LITERATURE REVIEW …………………………………………... 18

2.1 Existing Research on similar areas ……………………………….. 18
2.2 Research Gap ……………………………………………. 25

CHAPTER 3

III. INDUSTRY PROFILE …………………………………………….. 27

3.1 Introduction to Banking …. …………………………………….. 27
3.2 Banking on India …………………………………………… 28
3.3 History of Banking in India ……………………………………….. 28
3.4 Adoptation of Banking Infrastructure……………………………… 33
3.5 Expansion of Commercial Bank …………………………………... 34
3.6 Types of Bank ………………………………………. 35
3.7 Function of Commercial Bank……………………………………. 39
3.8 Public Sector Bank ……………………………………. .. 39
3.9 SBI ……………………………………… 41
3.10 HDFC ………………………………………. 44

CHAPTER 4

IV. RESEARCH METHODOLOGY ……………………………………. 46

4.1 Research Approach ……………………………………. 46
2
 4.2 Research Design ……………………………………. 47
4.3 Data Sources ……………………………………. 47
4.4 Data Collection Method ……………………………………. 48
4.5 Data Analysis …………………………………….. 48

CHAPTER 5

V. ANALYSIS AND FINDINGS ……………………………………. 50

5.1 Gross Profit Margin …………………………………….. 50
5.2 Net Intrest Margin ……………………………………. 51
5.3 Return On Equity ……………………………………. 52

CHAPTER 6

VI. SUGGESTION AND COCLUSION……………………………….. 55

*BIBLIOGRAPHY …………………………………….. 56

List of Tables

3
Table No Table Name Page No

Table 1 List of Banks which fails between year 1915 – 1918 30

Table 2 Branches and ATMs of Scheduled Commercial Banks as on March 2005 34

Table 3 Gross Profit Margin of SBI and HDFC between 2012- 2016 50

Table 4 GPM t-test: Paired two samples for mean 50

Table 5 Net Interest Margin of SBI and HDFC between 2012- 2016 51

Table 6 NIM t-test: Paired two samples for means 52

Table 7 Return on Equity of SBI and HDFC between 2012- 2016 52

Table 8 ROE t-test: Paired two samples for means 53

List of Abbreviations
4
 Titles Page No

1. Certificate of Deposits (CD) 12

2. Individual Retirement Accountant (IRA) 12
3. Automated Teller Machine (ATM) 12
4. Public Sector Bank (PSBs) 13
5. Industrial Development Bank Of India (IDBI) 13
6. Punjab National Bank (PNB) 13
7. Cost of goods Sold ( CGS) 14
8. Salaries , General and Administrative Cost (SG and A) 15
9. Reserve Bank of India (RBI) 31
10. Unit Trust Of India (UTI) 32
11. Electronic Funds Transfer (EFT) 33
12. Business Facilitators (BFs) 35
13. Business Correspondents (BCs) 35
14. Public Call Office (PCO) 35
15. Ultra Small Business (USB) 36
16. National Payment Corporation of India (NPCI) 36
17. Unstructured Supplementary Service Data (USSD) 36
18. Regional Rural Banks (RRBs) 36
19. Cash Reserve Ratio (CRR) 37
20. Statutory Liquid Ration (SLR) 37

Acknowledgement

5
 I take this opportunity to render my deep sense of gratitude to my faculty guide,
Dr.VivekanandPandey ,Dean at ‘’Amity Global Business School’’for his constant and
valuable guidance in the truest sense throughout the course of the work. I am also very
much grateful to Professor Kishore Bhattacharya for his encouragement and support
from the initial to the final level enabled me to develop an understanding of the topic.
Every time I had a problem, I would rush to him for his advice, and he would never ever
let me down. His timely suggestions helped me to circumvent all sorts of hurdles that I
had to face throughout my work. I am deeply indebted for his motivation and guidance. I
would also like to extend my sense of gratitude to Professor Rohit Kumar for his
constant motivation and inspiration. Thanks go out to all our friends as they have always
been around to provide useful suggestions, companionship and created a peaceful
research environment. I wish to acknowledge the continuous support and blessings of my
parents which made this work possible. Although they were physically far away from me,
their immense faith and wish is gratefully acknowledged. Finally I believe this research
experience will greatly benefit my career in the future.

(Student Signature)

Declaration

6
I declare that the presented thesis represents largely my own ideas and work in my own words.
Where others ideas or words have been included, I have adequately cited and listed in the
reference materials. The thesis has been prepared without resorting to plagiarism. I have adhered
to all principles of academic honesty and integrity. No falsified or fabricated data have been
presented in the thesis.

The work was done under the guidance of Professor Dr. VivekanandPandey, Dean at Amity
Global Business School

(Candidate Name’s and Signature)

In my capacity as supervisor of the candidate’s thesis, I certify that the above statements are true
to the best of my knowledge.

[Guide’s Name and Signature]

Date:

7
Certificate Page

This is to certify that the Dissertation entitled’Analysis of Profitability of banks: Comprative

Study of Private and Public Sector Bank’’is a bonafide record of independent research work
done by “Amrita Rani’’ , Enrollment no ‘’A31406414002’’ under my supervision and submitted
to Amity University in partial fulfillment for the award of the Degree of BACHELOR OF
BUSINESS ADMINISTARTION.

[Guide’s Name and Signature]

Date:

8
CHAPTER -1

9
Abstract
Banks are backbone of any economy. With the debut of multinational private sector banks,
banking sector is facing stiff competition and a thirst to enhance their service quality in order to
gain a competitive edge over their customers. Public sector banks are facing stiff challenges from
the private sector banks and are under tremendous pressure to cope up with the facilities
provided by the multinational banks. While public sector banks have an advantage of perception
and strong rural network private sector banks have better services and amenities. Our study was
aimed at comparing public sector and private sector on the criteria of Profitability analysis of
both the sectors bank

Profitability is the primary goal of all business ventures. Without profitability the business will
not survive in the long run. So measuring current and past profitability and projecting future
profitability is very important. Profitability is measured with income and expenses. The ability to
earn a profit. Infact, efficiency of business is measured in terms of profits. Profitability ratios are
calculated to measure the efficiency of a business.

I. Introduction
The bank of any country play very important role in the economic development of
country. Finance is regarded as the oxygen of trade and industry. The development of
banks in the country and development through banks in the country have placed India
amongst the top 5 fastest growing economics of the world. Whole of the world is looking
towards India as prospective dominant player in the world's markets. The banks today
have touched the life of every citizen. Whether he has to keep his money at midnight
from the bank, to keep is valuable safe; to book the tickets for rail and air journeys; to
pay insurance premium, telephone bills,electricity bills; to purchase/sale securities from
capital market, to take loan for business, for education, for house or for consumer items,
everywhere the bank is present. Basically the banks can be divided into two sectors-
commercial banks and co-operative banks. Commercial banks, which have national
network and provide a host of services are further divided into 2 sectors- Public sector
banks and private sector banks. Public sector banks are fully controlled by government
(i.e. central government) and private sector banks have private ownership.

The present research is conducted on the profitability of both the sectors of bank one is
SBI from the Public Sector Bank and other one is HDFC form Public Sector Bank

The following nine variables have been selected to analysis the profitability of selected
banks
 Bank
 Profit
 Public Sector Bank

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  Private Sector Bank
 Difference between Public and Private Sector Bank

1.1 Bank
A bank is a financial institution that accepts deposits from the public and creates credit.
Lending activities can be performed either directly or indirectly through capital markets.
Due to their importance in the financial stability of a country, banks are highly
regulated in most countries. Most nations have institutionalized a system known
as fractional reserve banking under which banks hold liquid assets equal to only a portion
of their current liabilities. In addition to other regulations intended to ensure liquidity,
banks are generally subject to minimum capital requirements based on an international
set of capital standards, known as the Basel Accords.

Range of activities
Activities undertaken by banks include personal banking, corporate banking, investment
banking, private banking, transaction banking, insurance, consumer finance, foreign
exchange trading, commodity trading, trading in equities, futures and options
trading and money market trading.

Products

Retail banking
 Savings account
 Recurring deposit account
 Fixed deposit account
 Money market account
 Certificate of deposit (CD)
 Individual retirement account (IRA)
 Credit card
 Debit card
 Mortgage
 Mutual fund
 Personal loan
 Time deposits
 ATM card
 Current accounts
 Cheque books
 Automated Teller Machine (ATM)

Business (or commercial/investment) banking

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 Business loan
 Capital raising (equity / debt / hybrids)
 Revolving credit
 Risk management (foreign exchange (FX)), interest rates, commodities, derivatives)
 Term loan
 Cash management services (lock box, remote deposit capture, merchant processing)
 Credit services

1.2 Public Sector Bank

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 27 PSBs in India [21 Nationalized banks + 6 State bank group (SBI + 5
associates)
In 2011, IDBI bank and in 2014 BharatiyaMahila Bank were nationalized with a
minimum capital of Rs 500 crore.
Nationalized banks are public sector banks. In nationalized banks the government
controls the bank. Some examples are SBI, PNB, etc. However, the government keeps
reducing the stake in PSU banks as and when they sell shares. So to that extent that can
also become minority shareholders in these banks.

1.3 Private Sector Bank

The private-sector banks in India represent part of the indian banking sector that is made
up of both private and public sector banks. The "private-sector banks" are banks where
greater parts of state or equity are held by the private shareholders and not by
government.
Banking in India has been dominated by public sector banks since the 1969 when all
major banks were nationalised by the Indian government. However, since liberalisation in
government banking policy in the 1990s, old and new private sector banks have re-
emerged. They have grown faster & bigger over the two decades since liberalisation
using the latest technology, providing contemporary innovations and monetary tools and
techniques.
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 the nationalisation in 1969 and kept
their independence because they were either too small or specialist to be included in
nationalisation. The new private sector banks are those that have gained their banking
license since the liberalisation in the 1990s.

1.4 Differences between a Private and Public Sector Bank

• Shareholders

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 o In a public sector bank more than fifty percentage of the stake is held by the
Government.
o In a private sector majority of the stake owned to private shareholders.
• Interest Rate
o Deposit interest Rates offered by public sector banks are almost the same when
compared to private sector banks.
o In case of loans, interest rates are marginally lower.
• Fees & Service
o Private Sector Banks have made names in providing better service, however, they
charge for the extra services provided by them.
o Public sector banks fees and charges are less such as on balance maintenance . A
lot of public sector banks are still picking up in the service.
• Customer Base
o Mostly public sector accounts are opened for government employees for their
salaries, fixed deposits, lockers etc.
o Whereas private sector bank in India target company employees,for their salary
accounts, credit cards and net banking.

1.5 Profit
Profit is a financial benefit that is realized when the amount of revenue gained from a
business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any
profit that is gained goes to the business's owners, who may or may not decide to spend it
on the business
Profit is the money a business makes after accounting for all expenses. Regardless of
whether the business is a couple of kids running a lemonade stand or a publicly
traded multinational company, consistently earning profit is every company's goal. As a
result, much of business performance is based on profitability in its various forms. Some
analysts are interested in top-line profitability, whereas others are interested in
profitability before expenses, such as taxes and interest, and still others are only
concerned with profitability after all expenses have been paid.
There are three major types of profit that analysts analyze: gross profit, operating profit
and net profit. Each type of profit gives the analyst more information about the
company's performance, especially when compared against other time periods and
industry competitors. All three levels of profitability can be found on the income
statement.

Gross Profit
The first level of profitably is gross profit. Gross profit is sales minus the cost of goods
sold. Sales is the first line item on the income statement and the cost of goods sold, also
referred to as CGS, is generally listed just below it. For example, if company A has
$100,000 in sales and a CGS of $60,000, it means the gross profit is $100,000 minus

13
 $60,000, which is $40,000. Divide gross profit by sales for the gross profit margin, which
is $40,000 divided by $100,000, or 40%.

Operating Profit
The second level of profitability is operating profit. Operating profit is calculated by
deducting operating expenses from gross profit. Gross profit looks at profitability after
direct expenses, and operating profit looks at profitability after operating expenses. These
are things like salaries, general and administrative costs, also referred to as SG&A. If
company A has $20,000 in operating expenses, the operating profit is $40,000 minus
$20,000, equaling $20,000. Divide operating profit by sales for the operating profit
margin, which is 20%.

Net Profit
The third level of profitably is net profit. Net profit is the income left over after all
expenses, includes taxes and interest, have been paid. If interest is $5,000 and taxes are
another $5,000, net profit is calculated by deducting both of these from operating profit.
In this example the answer is $20,000 minus $5,000, minus $5,000, which equals
$10,000. Divide net profit by sales for net profit margin, which is 10%.

Profit in Banks
The bank profits from the difference between the level of interest it pays for deposits and
other sources of funds, and the level of interest it charges in its lending activities. This
difference is referred to as the spread between highly the cost of funds and the loan
interest rate

How Banks Earn their Money

Banks are businesses: they need to make money and they do this in a number of different
ways.
Commercial and retails banks raise funds by lending money at a higher rate of interest
than they borrow it. This money is borrowed from other banks or from customers who
deposit money with them. They also charge customers fees for services to do with
managing their accounts, and earn money from bank charges levied on overdrafts which
exceed agreed limits.
Investment banks earn fees from providing advice to large organisations coming to the
City to issue stocks and shares, and for underwriting these issues, as well as trading
securities on the financial markets.

1.6 Objective of Study

 To study the profitability of banks.

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 To make a comparison of profitability between SBI (Public Sector Bank) and HDFC
(Private Sector Bank).
 To enable the investors to make investments decision on the basis of Risk & Return.

1.7 Scope of the Study

Profit is the essential variable in every organization for the effective utilization of funds
as well as for the efficient management of funds. The profit influences the managerial
decisions regarding the investment policies and in financial decisions. Scope of the study
is based on the Financial Statements for the accounting years 2011-2012 to 2016-2017.
This covers only few two banks one from private sector Bank and another from public
sector Bank. This study is based on the available information supplied by the respective
Banks. This study covers only selected accounting ratios which are estimators of
profitability.

1.8 Expected Contribution

It is expected that the study will help the financial investor to analyze the performance of
the stated banks. It will also state the information regarding the basis of revenue of both
the banks.

1.9 Limitation of the Study

Following are the main limitations of the study.
 The secondary data was taken from the annual reports of the SBI and HDFC
Bank. It may be possible that the data shown in the annual reports may be window
dressed which does not show the actual position of the banks
 The company personnel do not reveal the trade secrets and some confidential
financial information.
 The study records restricted to a period of 5 years.
 Ratio analysis has its own limitations.
 Although the time duration of the project is not up to the extent, the collection of
full-fledged data could not be achieved.

15
CHAPTER -2

16
II. Literature Review
2.1 Existing Research on similar areas

A literature review provides an overview and a critical evaluation of a body of literature

relating to a research topic or a research problem. It analyses a body of literature in order
to classify it by themes or categories, rather than simply discussing individual works one
after the other.
A literature review often forms part of a larger research project such as within a thesis, or
it may be an independent written work, such as a synthesis written paper.

PURPOSE OF A LITERATURE REVIEW -

A literature review situates our topic in relation to previous researches and illuminates a
spot for our research. It accomplishes several goals –
 Provides background for topic using previous research.
 Shows we are familiar with previous, relevant research.
 Evaluates the depth and breadth of the research with regards to our topic.
 Determines relating questions or aspects of our topic in need of research.
The researcher and economists have recognized that the measurement of profitability in
banking is necessary to improve the financial soundness of banks. A large number of
studies have been conducted in the field of operation and financial performance of banks.
A brief review of some of these studies has been presented

i. Chidambram R. M and Alamelu (1994) in their study entitled, “Profitability in

Banks,a matter of survival”, pointed out the problem of declining profit margins in
the Indian Public Sector Banks as compared to their private sector counterparts. It
was observed that in spite of similar social obligations; almost all the private sector
banks have been registering both – high profits and high growth rate with respect to
deposits, advances and reserves as compared to the public sector banks. Regional
orientation, better customer services, proper monitoring of advances and appropriate
marketing strategies are the secrets behind the success of public of the private sector
banks.
ii. Das A.(1997) in his paper on “Technical allocation and Scale Efficiency of the Public
Sector Banks in India” The study found that there is decline in overall efficiency due
to fall in technical efficiency which was not offset by an improvement in allocative
efficiency. However, it is pointed out that the deterioration in technical efficiency was
mainly on account of few nationalized banks.
iii. Deb and Kalpada (1998) in their study entitled, “Indian Banking since
Independence”, studied the growth of banking in India covering the period from
1966-1987. The analysis revealed that the structure of the banking system changed
considerable over the years. It was further pointed out that the quantitative growth of

17
 the public sector banks was no doubt significant in some of the areas, but qualitative
improvement, by and large lacked in desired standards. In spite of substantial increase
in deposit mobilization, their share in national income continued to be very low. It
was concluded that the public sector banks were neither guided by the consideration
of returns nor were they very much concerned with developmental strategies.
iv. S. and Verma, S. (1999) determined the factors influencing the profitability of public
sector banks in India by making use of ratio of net profits as percentage of working
funds. They concluded that spread and burden play a major role in determining the
profitability of commercial banks.
v. Chandan, C.L. and Rajput, P.K.(2002) measured the performance of bank on basis
on the basis of profitability analysis
vi. Sangami M. (2002) in his study has suggested that the position of operating cost can
be improved with the introduction of high level technology as well as by
improvement the per employee productivity.
vii. Qamar, F (2003) in his paper examined commercial banks in terms of endowment
factors, risk factors, revenue diversification, profitability and efficiency parameters
viii. Chawla,A.S.(2006) made an attempt to analyze the emerging trends in profits and
profitability of four banks, two each from public sector and private sector banks.
ix. Sanjay J. Bhayani(2006) in his study, “Performance of New India Private Banks: A
Comparative Study”, analyzed the performance of new private sector banks with the
help of CAMEL model. The study covered 4 leading private sector banks-
ICICI,HDFC, UTI and IDBI for a period of 5 years from 2000-01 to 2004-05.It is
revealed that the aggregate performance of IDBI Bank is best among all the banks,
followed by UTI.
x. Uppal, R.K. and Kaur, R. (2007) emphasized that cost should be properly managed
to improve the profitability of banks because the net profits were affected by the
increase or decrease in operating cost.
xi. Chowdari Prasad and K.S. SrinivasaRao (2004) in their paper, “Private Sector
Banking in India- A SWOT Analysis” studied the performance of all private sector
banks. As per the criteria selected like efficiency, financial 29 strength, profitability
and size of scale, it is revealed that the private sector banks are in position to offer
cost-effective, efficient products and services to their customers using technology,
best utilization of human resources along with professional management and
corporate governance principles,
xii. PrashantaAthma (2000), in his Ph D research submitted at Usmania University
Hyderabad, “Performance of Public Sector Banks – A Case Study of State Bank of
Hyderabad, made an attempt to evaluate the performance of Public Sector
Commercial Banks with special emphasis on State Bank of Hyderabad. The period of
the study for evaluation of performance is from 1980 to 1993-94, a little more than a
decade. In this study, Athma outlined the Growth and Progress of Commercial

18
 Banking in India and. analyzed the trends in deposits, various components of profits
of SBH, examined the trends in Asset structure, evaluated the level of customer
satisfaction and compared the performance of SBH with other PSBs, Associate Banks
of SBI and SBI. Statistical techniques like Ratios, Percentages, Compound Annual
rate of growth and averages are computed for the purpose of meaningful comparison
and analysis. The major findings of this study are that since nationalization, the
progress of banking in India has been very impressive. All three types of Deposits
have continuously grown during the study period, though the rate of growth was
highest in fixed deposits. A comparison of SBH performance in respect of resource
mobilization with other banks showed that the average growth of deposits of SBH is
higher than any other bank group. Profits of SBH showed an increasing trend
indicating a more than proportionate increase in spread than in burden. Finally,
majority of the customers have given a very positive opinion about the various
statements relating to counter service offered by SBH.
xiii. Zacharias Thomas(1997)Ph D Thesis, „Performance effectiveness of
Nationalized Bank- A Case Study of Syndicate Bank’, submitted to Kochin
University (1997), Thesis studied the performance effectiveness of Nationalized Bank
by taking Syndicate Bank as case study in his Ph.D thesis. 30 Thomas has examined
various aspects like growth and development of banking industry, achievements of
Syndicate Bank in relation to capital adequacy, quality of assets, Profitability, Social
Banking, Growth, Productivity, Customer Service and also made a comparative
analysis of 'the performance effectiveness of Syndicate Bank in relation to
Nationalized bank. A period of ten years from 1984 to 1993-94 is taken for the study.
This study is undertaken to review and analyze the performance effectiveness of
Syndicate Bank and other Nationalized banks in India using an Economic
Managerial- Efficiency Evaluation Model (EMEE Model) developed by researcher.
Thomas in this study found that Syndicate Bank got 5th Position in Capital adequacy
and quality of assets, 15th in Profitability, 14th Position in Social Banking, 8th in
Growth, 7th in Productivity and 15th position in Customer Service among the
nationalized banks. Further, he found that five nationalized banks showed low health
performance, seven low priority performance and eleven low efficiency performance
in comparison with Syndicate Bank.
xiv. Singh R (2003), in his paper Profitability management in banks under
deregulate environment, IBA bulletin, No25, has analyzed profitability
management of banks under the deregulated environment with some financial
parameters of the major four bank groups i.e. public sector banks, old private sector
banks, new private sector banks and foreign banks, profitability has declined in the
deregulated environment. He emphasized to make the banking sector competitive in
the deregulated environment. They should prefer non interest income sources.

19
 xv. Singla HK (2008), in his paper,‟ financial performance of banks in India,‟ in
ICFAI Journal of Bank Management No 7, has examined that how financial
management plays a crucial role in the growth of banking. It is concerned with
examining the profitability position of the selected sixteen banks of banker index for
a period of six years (2001-06). The study reveals that the profitability position was
reasonable during the period of study when 31 compared with the previous years.
Strong capital position and balance sheet place, Banks in better position to deal with
and absorb the economic constant over a period of time,
xvi. The focal point of the study made by Das and UdaykumarLal (2002), in his book
Banking Reforms in Lead Bank Scheme, (Deep and Deep Publication, new Delhi)
was the critical evaluation of the lead bank scheme in the light of banking sector
reforms. Das in this book observed that high level of NPAs, large number of un-
remunerative branches, low productivity, overstaff and archaic methods of operations
have affected the profitability of public sector banks. Das sincerely felt that the whole
banking sector in India is to be revolutionized to cope with the changing dimensions
of the satellite one world. Further, he felt that the backward areas should be given
more funds for investment in priority sectors and more and more people should be
brought under its coverage and the procedures of extending credit should be
simplified and there should be least hassle cost.
xvii. Subramanian and Swami (1994) in their paper, Comparative performance of
public sector banks in India” Prjanan, Vol. XXII, have analyzed and compared the
efficiency in six public sector banks, four private sector and three foreign banks for
the year 1996-97. Operational efficiency is calculated in terms of total business and
salary expenditure per employee. The analysis revealed that higher per employee
salary level need not result in poor efficiency and business per employee efficiency
co-efficient was also calculated. Among the PSBs, Bank of Baroda registered the high
efficiency and operating profit per employee. Among the private sector banks Indus
Bank followed by Citibank Registered highest and second highest operating profit per
employee respectively. However, among the Nationalized Banks there existed wide
variations in efficiency,
xviii. SBI Research Department in 2000, through its paper “Performance analysis of
27 Public sector banks” published in SBI monthly review performance, Vol
XXXIX, was prepared by Economic Research Department of State Bank of India,
is to analyze the Performance of the 27 Public Sector Banks for the year 1999-2000
vis-a-vis the preceding year. Selecting four different categories of indicators-Business
Performance, Efficiency, Vulnerability and labor productivity indicators, carried out
the analysis. Altogether, 39 indicators were selected for this purpose. For the purpose
of analysis, 27 PSBs disaggregated into four groups, namely, the SBI, ABs (7), the
SBGs (8), the NBs (19). During 1999-2000, the PSBs exhibited better show in terms
of several parameters studied above. Nevertheless, the problems of NPAs and capital

20
 adequacy remain to be taken care of. Researchers in this paper opinioned that greater
operational flexibility and functional autonomy should be given to PSBs especially to
strengthen their capital base. Further, they felt that since net interest margin will
continue to remain compressed in a deregulated interest rate regime, a lot of effect
would have to be made to mitigate this through generation of non-interest income. As
far as NPAs are concerned, they believe' that, the outdated laws and regulations that
pose hindrance to banks in getting back their dues need to be suitably amended.
xix. In a paper published in the Financial Express in 2004, titled “India‟s Best
Banks” has been doing for several years through its annual exercise to evaluate and
rate Indian banks. They claim that this survey is a comprehensive one, which
evaluates the performance of private, public, Indian, and foreign Banks operating in
India. With the objective of making the comparison more meaningful, Banks were
categorized into Public Sector Banks, New Private Sector Banks and Foreign Banks.
Financial information for the year ending March 31st, 2002 and March 31, 2003
relating to each of the banks falling into the aforesaid categories was collected from
the data available from RBI. Five major criteria were identified against which the 33
banks were ranked. 'These criteria are (1) Strength and soundness (ii) Growth, (iii)
Profitability, (iv) Efficiency/Productivity, and (v) Credit quality. Considering the
current banking, industrial and over-all economic scenario, pertinent weights were
assigned to each of the major criteria. In the first category of "State-Run" or Public
Sector Banks, State Bank of Patiala and Andhra Bank is the top two. In the category
of best old private sector banks, the magazine ranks the Jammu and Kashmir Bank
and KarurVysya Bank as the first best and second best. In the category of 'New'
Private Banks, HDFC as number one and ICICI Bank at number two. Finally, in the
category of Foreign Banks, the magazine ranks Standard Chartered Bank and Citi
Bank at the top two slots.
xx. With an intention to honor excellence, Outlook Money (2004), titled “The best in
the business cover story”, (March 2004), has announcing annual awards for the best
performers in the personal finance universe. In the best bank award category, the
magazine selected Corporation Bank among public sector banks and HDFC
Bank among private sector banks and presented outlook money award 2004 to
these two banks. A rigorous selection process was devised in consultation with
Earnest and Young. The short listed contenders were mailed questionnaires seeking
information on operational aspects like Number of Branches, Number of ATMs,
Deposits, NPAs, CAR, Return on Assets. They have taken two categories of Banks
Public and Private Sector. All Public Sector Banks (except SB!, nominated for Hall of
Fame Award), and Private Banks with deposit base of more than Rs. 2,000 Cr as on
31 March 2003 were selected. The jury-A.K. Purwar, Anu Aga, Shitin Desai, Uma
Shashikanth and SandipanDebo-assigned weights to various parameters and choose
the winner for 2004.

21
 xxi. Ram Mohan TT(2003) , in his paper „Long run performance of public and
private sector bank stocks” Vol 37, has made an attempt to compare the three
categories of banks-Public, Private and Foreign-using Physical quantities of inputs
and outputs, and comparing the revenue maximization 34 efficiency of banks during
1992-2000. The findings show that PSBs performed significantly better than private
sector banks but not differently from foreign banks. The conclusion points to a
convergence in performance between public and private sector banks in the post-
reform era, using financial measures of performance.
xxii. The objective of SheebaKapil‟s (2007) paper is to review and analyze the current
financial health of the Indian Public Sector Commercial Banks in the light of banking
reforms and predict the future and scope of the same. The viability of the 27 public
sector banks has been analyzed on the basis of offsite supervisory exam model i.e.,
CAMEL Model (C for capital adequacy, A for Asset quality, E for Earnings and L for
Liquidity). These four components of each bank have been analyzed and rated on a
scale to judge the composite rating of the same. The paper finds that the off-site
supervisory exam model (CAMEL) has' rated majority of PSBs as non-viable and
they require immediate attention and government support. After 19 years of economic
and banking reforms, the Indian Banking Sector has still miles to go. Low
Profitability, Liquidity, Capital adequacy and high none'-performing assets will
definitely make the majority of Indian PSBs a bad bargain in near future.
xxiii. Singla (2008) examines that how financial management plays a crucial role
industrialists growth of banking. It is concerned with examining the profitability
position of the selected sixteen banks of banker index for a period of six years (2001-
06). The study reveals that the profitability position was reasonable during the period
of study when compared with the previous years. Strong capital position and balance
sheet place. Banks are in better position to deal with and absorb the economic
constant over a period of time.
xxiv. Nair KNC (2006) in his paper „Banking and Technology to meet 21st Century
challenges‟, published in Bank net India, has discusses the future challenges of
technology in banking. The author also point out how IT 35 posses a bright future in
rural banking, but is neglected as it is traditionally considered unviable in the rural
segment. A successful bank has to be nimble and agile enough to respond to the new
market paradigm and ineffectively controlling risks. Innovation will be the key
extending the banking services to the untapped vast potential at the bottom of the
pyramid.
xxv. Shroff FT (2007) in his paper, Modern Banking Technology, - Bank net
Publications has given a summary of how Indian banking system has evolved over
the year. The paper discusses some issues face by these systems. The author also
gives examples of comparable banking system for other countries and the lesson
learnt. Indian banking is at the threshold of the paradigm shift. The application of

22
 technology and product innovations is bringing about structure change in the Indian
banking system.
xxvi. Shroff (2007) gives a summary of how Indian banking system has evolved over the
year. The paper discusses some issues face by these systems. The author also gives
examples of comparable banking system for other countries and the lesson learnt.
Indian banking is at the threshold of the paradigm shift. The application of technology
and product innovations is bringing about structure change in the Indian banking
system.
xxvii. Kumar (2006) studied the bank nationalization in India marked a paradigm
shift in the focus of banking as it was intended to shift the focus from class banking
to mass banking. Internationally also efforts are being made to study causes of
financial inclusion and designing strategies to ensure financial inclusion of the poor
disadvantaged. The banks also need to redesign their business strategies to
incorporate specific plans to promote financial inclusion of low income group treating
it both a business opportunity as well as a corporate social responsibilities. Financial
inclusion can emerge as commercial profitable business.
xxviii. Laxman, Deen and Badiger (2008) examined that banking industry is
undergoing a paradigm shift in scope, content, structure, functions and
governance. Their very characters, 57 composition, contour and chemistry is
changing. The information and communication technology revolution is radically and
perceptibly changing the operational environment of the banks.
xxix. Madhavankutty (2007) concludes the banking system in India has attained enough
maturity and is ready to address prudential management practices as comprehensively
as possible, which an integral part of policy is making. Banking in India is poised to
enter yet another phase of reforms once the door opens further to foreign
players in 2009. This requires further improvement in technology management,
human resource management and the ability to foresee rapid changes in the financial
landscape and adopt quickly. At present, there is a huge hiatus between the top
management earnings of state owned banks and private, as well as foreign banks.
Banks have to lay down sound risk management strategies and internal capital
adequacy assessment committees to ensure that they do not diverge from the
prudential requirements.
xxx. Subbaroo PS (2007), in his paper Changing Paradigm in Indian BankingGyan
Management, has concluded that the Indian banking system has undergone
transformation itself from domestic banking to international banking. However, the
system requires a combination of new technologies, well regulated risk and credit
appraisal, treasury management, product diversification, internal control, external
regulations and professional as well as skilled human resource to achieve the heights
of the international excellence to play its role critically in meeting the global
challenge. This paper mainly concentrates on the major trends that change the

23
 banking industry world over, viz. consolidation of players through mergers and
acquisitions globalization of players, development of new technology, universal
banking and human resource in banking, profitability, rural banking and risk
management. Banks will have to gear up to meet stringent prudential capital
adequacy norms under Basel I and II, the free trade agreements. Banks will also have
to cope with challenges posed by technological innovations in banking.
xxxi. Af-Tamini and Iabnoun (2006) compares service quality and bank performance
between national and foreign banks in the UAE. Also the paper compares the
importance of the dimensions of the instrument between the two sets of the banks.
The financial performance is compared using the of a Whitney non-parametric test.
The results of this study will serve as a benchmark for UAE bankers from the 800
questionnaires, 480 responses were received.
xxxii. Uppal and Kaur (2007) analysis the efficiency of all the bank groups in the post
banking sector reforms era. Time period of study is related to second post banking
sector reforms (1999-2000 to 2004-05). The paper concludes that the efficiency of all
the bank groups has increased in the second post banking sector reforms period but
these banking sector reforms are more beneficial for new private sector banks and
foreign banks. This paper also suggests some measures for the improvement of
efficiency of Indian nationalized banks. The sample of the study in Indian banking
industry which comprises five different ownership groups and the ratio method is
used to calculate the efficiency of different bank groups. New private sector banks are
compelling with foreign banks for continuous improvement in their performance.

2.2 Research Gap

As in previous research papers comparison of public and private sector bank are made
based on mostly financial performance of the two banks.
As profit for a bank is one of the most important factor which determines the
financial status of the bank hence in this paper the major concern is on the analysis of
the profitability of the two major banks of both the public and private sector bank.
The data that has been used in this report is taken from the time period of last 5 years,
undertakes also latest assessment year i.e 2016-2017.

24
CHAPTER-3

25
III. Industry Profile

3.1 Introduction to Banking

Bank is defined in many ways by various authors in the book son economics and
commerce. It is very difficult to define a bank; because a bank performs multifarious
functions may be defined in many ways according to their functions. The evolution of
different types of banks, each specializing in a particular field, gives emphasis on each
and every kind of bank. A general and comprehensive definition to cover all types of
banking institutions would be unscientific and probably impossible. Each type of bank
should have its own definition, explaining its specialized functions. Legislators have
understood this difficulty and that is why the bill of exchange Act 1882 (England) defines
“A bank includes a body of persons, whether incorporated or not, who carry on the
business of banking”
From this definition it is clear to us that any institution, which performs the various
banking functions, may be termed as bank. But in practice it is found that many banking
functions wary from time to time and country to country. It is not possible on the part of a
single bank to perform all the banking functions at a time. So there originated numbers of
specialized banks with the objective of performing one or more functions. As for
example, Central Bank, Commercial bank, Industrial Bank, Agricultural Bank, Co-
operative Bank etc., are seen in the practical field.
Dr. Herbert L. Hart has defined a banker as
“A banker is one who in the ordinary course of business honours cheques drawn upon
him by persons for whom he receives money on current account”
According to Sir John Paget
“No one and nobody corporate and otherwise can be a banker who does not
 take deposit accounts
 take current accounts
 issue and pay cheques drawn upon him
 collect cheques crossed and uncrossed for his customers”
Hilton banking commission defines bank or banker in the following words:
“Every person, firm or company using in the description or its title, bank or banker or
banking and accepting deposits of money subject to withdrawal by cheque, draft or
order”
In view of the above definitions, a simple and short definition can be given as
“Bank is an institution, which deals in money and credit”
According to this precise definition a bank accepts deposits from public and makes
advances and loans to them. In practice bank receives deposits of money in savings and
current accounts at lower rate of interest or profit and gives on credit to needy persons
and businessmen at a higher rate of interest or profit. It also transfers money for the

26
clients from one city or country to another and also performs various other agency
services for earnings.

3.2 Banking in India

Banking in India is the modern sense originated in the last decades of the 18th century.
The first banks were Bank of Hindustan (1770-1829) and The General Bank of India,
established 1786 and since defunct.
The largest bank, and the oldest still in existence, is the State Bank of India, which
originated in the Bank of Calcutta in June 1806, which almost immediately became
the Bank of Bengal. This was one of the three presidency banks, the other two being
the Bank of Bombay and the Bank of Madras, all three of which were established under
charters from the British East India Company. The three banks merged in 1921 to form
the Imperial Bank of India, which, upon India's independence, became the State in 1955.
For many years the presidency banks acted as quasi-central banks, as did their successors,
until the Reserve Bank of India was established in 1935.
In 1969 the Indian government nationalized all the major banks that it did not already
own and these have remained under government ownership. They are run under a
structure know as 'profit-making public sector undertaking' (PSU) and are allowed to
compete and operate as commercial banks. The Indian banking sector is made up of four
types of banks, as well as the PSUs and the state banks; they have been joined since the
1990s by new private commercial banks and a number of foreign banks.
Banking in India was generally fairly mature in terms of supply, product range and reach-
even though reach in rural India and to the poor still remains a challenge. The
government has developed initiatives to address this through the State Bank of India
expanding its branch network and through the National Bank for Agriculture and Rural
Development with things like microfinance.
Indian Banking Industry currently employees 1,175,149 employees and has a total of
109,811 branches in India and 171 branches abroad and manages an aggregate deposit
of 67504.54 billion (US$1.1 trillion or €820 billion) and bank credit of 52604.59
billion (US$880 billion or €640 billion). The net profit of the banks operating in India
was 1027.51 billion (US$17 billion or €12 billion) against a turnover of 9148.59
billion (US$150 billion or €110 billion) for the fiscal year 2012-13.

3.3 History of banking in India

In ancient India there is evidence of loans from the Vedic period (beginning 1750
BC). Later during the Maurya dynasty (321 to 185 BC), an instrument called adesha was
in use, which was an order on a banker desiring him to pay the money of the note to a
third person, which corresponds to the definition of a bill of exchange as we understand it
today. During the Buddhist period, there was considerable use of these instruments.
Merchants in large towns gave letters of credit to one another.

27
Colonial era
During the period of British rule merchants established the Union Bank of Calcutta in
1829, first as a private joint stock association, then partnership. Its proprietors were the
owners of the earlier Commercial Bank and the Calcutta Bank, who by mutual consent
created Union Bank to replace these two banks. In 1840 it established an agency at
Singapore, and closed the one at Mirzapore that it had opened in the previous year. Also
in 1840 the Bank revealed that it had been the subject of a fraud by the bank's accountant.
Union Bank was incorporated in 1845 but failed in 1848, having been insolvent for some
time and having used new money from depositors to pay its dividends.
The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint
Stock bank in India, it was not the first though. That honour belongs to the Bank of
Upper India, which was established in 1863, and which survived until 1913, when it
failed, with some of its assets and liabilities being transferred to the Alliance Bank of
Shimla.
Foreign banks too started to appear, particularly in Calcutta, in the 1860s.
The Comptoird'Escompte de Paris opened a branch in Calcutta in 1860, and another
in Bombay in 1862; branches in Madras and Pondicherry, then a French possession,
followed. HSBC established itself in Bengal in 1869. Calcutta was the most active
trading port in India, mainly due to the trade of the British Empire, and so became a
banking centre.
The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in
1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established
in Lahore in 1895, which has survived to the present and is now one of the largest banks
in India.
Around the turn of the 20th Century, the Indian economy was passing through a relative
period of stability. Around five decades had elapsed since the Indian Mutiny, and the
social, industrial and other infrastructure had improved. Indians had established small
banks, most of which served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also some exchange
banks and a number of Indian joint stock banks. All these banks operated in different
segments of the economy. The exchange banks, mostly owned by Europeans,
concentrated on financing foreign trade. Indian joint stock banks were generally under
capitalized and lacked the experience and maturity to compete with the presidency and
exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it
seems we are behind the times. We are like some old fashioned sailing ship, divided by
solid wooden bulkheads into separate and cumbersome compartments."
The period between 1906 and 1911, saw the establishment of banks inspired by
the Swadeshi movement. The Swadeshi movement inspired local businessmen and
political figures to found banks of and for the Indian community. A number of banks

28
established then have survived to the present such as Bank of India, Corporation
Bank, Indian Bank,Bank of Baroda, Canara Bank and Central Bank of India.
The fervour of Swadeshi movement lead to establishing of many private banks
in Dakshina Kannada and Udupi district which were unified earlier and known by the
name South Canara ( South Kanara ) district. Four nationalised banks started in this
district and also a leading private sector bank. Hence undivided Dakshina Kannada
district is known as "Cradle of Indian Banking".
During the First World War (1914–1918) through the end of the Second World
War (1939–1945), and two years thereafter until the independence of India were
challenging for Indian banking. The years of the First World War were turbulent, and it
took its toll with banks simply collapsing despite the Indian economy gaining indirect
boost due to war-related economic activities. At least 94 banks in India failed between
1913 and 1918 as indicated in the following table:

Number of Authorised Paid-up

Years banks Capital Capital
that failed ( Lakhs) ( Lakhs)

1913 12 274 35

1914 42 710 109

1915 11 56 5

1916 13 231 4

1917 9 76 25

1
1918 7 209

Table 1
Post-Independence
The partition of India in 1947 adversely impacted the economies of Punjab and West
Bengal, paralysing banking activities for months. India's independence marked the end of
a regime of the Laissez-faire for the Indian banking. The Government of India initiated
measures to play an active role in the economic life of the nation, and the Industrial
Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This
resulted into greater involvement of the state in different segments of the economy
including banking and finance.
29
The major steps to regulate banking included:
The Reserve Bank of India, India's central banking authority, was established in April
1935, but was nationalised on 1 January 1949 under the terms of the Reserve Bank of
India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).
In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of
India (RBI) "to regulate, control, and inspect the banks in India".
The Banking Regulation Act also provided that no new bank or branch of an existing
bank could be opened without a license from the RBI, and no two banks could have
common directors.

Nationalization in the 1960s

Despite the provisions, control and regulations of the Reserve Bank of India, banks in
India except the State Bank of India (SBI), continued to be owned and operated by
private persons. By the 1960s, the Indian banking industry had become an important tool
to facilitate the development of the Indian economy. At the same time, it had emerged as
a large employer, and a debate had ensued about the nationalization of the banking
industry. Indira Gandhi, the then Prime Minister of India, expressed the intention of
the Government of India in the annual conference of the All India Congress Meeting in a
paper entitled "Stray thoughts on Bank Nationalization."[7] The meeting received the
paper with enthusiasm.
Thereafter, her move was swift and sudden. The Government of India issued an
ordinance ('Banking Companies (Acquisition and Transfer of Undertakings) Ordinance,
1969') and nationalised the 14 largest commercial banks with effect from the midnight of
19 July 1969. These banks contained 85 percent of bank deposits in the country.
Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of
political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed
the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received
the presidential approval on 9 August 1969.
A second dose of nationalisation of 6 more commercial banks followed in 1980. The
stated reason for the nationalisation was to give the government more control of credit
delivery. With the second dose of nationalisation, the Government of India controlled
around 91% of the banking business of India. Later on, in the year 1993, the government
merged New Bank of India with Punjab National Bank. It was the only merger between
nationalised banks and resulted in the reduction of the number of nationalised banks from
20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%,
closer to the average growth rate of the Indian economy.

Liberalization in the 1990s

In the early 1990s, the then government embarked on a policy of liberalization, licensing
a small number of private banks. These came to be known as New Generation tech-savvy

30
banks, and included Global Trust Bank (the first of such new generation banks to be set
up), which later amalgamated with Oriental Bank of Commerce, UTI Bank (since
renamed Axis), ICICI Bank and HDFC Bank. This move, along with the rapid growth in
the economy of India, revitalised the banking sector in India, which has seen rapid
growth with strong contribution from all the three sectors of banks, namely, government
banks, private banks and foreign banks.
The next stage for the Indian banking has been set up with the proposed relaxation in the
norms for foreign direct investment, where all foreign investors in banks may be given
voting rights which could exceed the present cap of 10% at present. It has gone up to
74% with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this time,
were used to the 4–6–4 method (borrow at 4%; lend at 6%; go home at 4) of functioning.
The new wave ushered in a modern outlook and tech-savvy methods of working for
traditional banks. All this led to the retail boom in India. People demanded more from
their banks and received more.
Current period
All banks which are included in the Second Schedule to the Reserve Bank of India Act,
1934 are Scheduled Banks. These banks comprise Scheduled Commercial Banks and
Scheduled Co-operative Banks. Scheduled Commercial Banks in India are categorised
into five different groups according to their ownership and/or nature of operation. These
bank groups are:
 State Bank of India and its Associates
 Nationalised Banks
 Private Sector Banks
 Foreign Banks
 Regional Rural Banks.
In the bank group-wise classification, IDBI Bank Ltd. is included in Nationalised Banks.
Scheduled Co-operative Banks consist of Scheduled State Co-operative Banks and
Scheduled Urban Cooperative Banks.
By 2010, banking in India was generally fairly mature in terms of supply, product range
and reach-even though reach in rural India still remains a challenge for the private sector
and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are
considered to have clean, strong and transparent balance sheets relative to other banks in
comparable economies in its region. The Reserve Bank of India is an autonomous body,
with minimal pressure from the government.
With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail
banking, mortgages and investment services are expected to be strong. One may also
expect M&As, takeovers, and asset sales.

31
In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake
in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor
has been allowed to hold more than 5% in a private sector bank since the RBI announced
norms in 2005 that any stake exceeding 5% in the private sector banks would need to be
vetted by them.
In recent years critics have charged that the non-government owned banks are too
aggressive in their loan recovery efforts in connexion with housing, vehicle and personal
loans. There are press reports that the banks' loan recovery efforts have driven defaulting
borrowers to suicide.

3.4 Adoption of banking technology

The IT revolution has had a great impact on the Indian banking system. The use of
computers has led to the introduction of online banking in India. The use of computers in
the banking sector in India has increased many fold after the economic liberalisation of
1991 as the country's banking sector has been exposed to the world's market. Indian
banks were finding it difficult to compete with the international banks in terms of
customer service, without the use of information technology.
The RBI set up a number of committees to define and co-ordinate banking technology.
These have included:
In 1984 was formed the Committee on Mechanisation in the Banking Industry
(1984) whose chairman was Dr. C Rangarajan, Deputy Governor, Reserve Bank of India.
The major recommendations of this committee were introducing MICR technology in all
the banks in the metropolises in India. This provided for the use of standardized cheque
forms and encoders.
In 1988, the RBI set up the Committee on Computerisation in Banks (1988) headed by
Dr. C Rangarajan. It emphasized that settlement operation must be computerized in
the clearing houses of RBI
in Bhubaneshwar, Guwahati, Jaipur, Patna and Thiruvananthapuram. It further stated that
there should be National Clearing of inter-city cheques at
Kolkata, Mumbai, Delhi, Chennai and MICR should be made operational. It also focused
on computerisation of branches and increasing connectivity among branches through
computers. It also suggested modalities for implementing on-line banking. The
committee submitted its reports in 1989 and computerisation began from 1993 with the
settlement between IBA and bank employees' associations.
In 1994, the Committee on Technology Issues relating to Payment systems, Cheque
Clearing and Securities Settlement in the Banking Industry (1994) was set up under
Chairman W S Saraf. It emphasized Electronic Funds Transfer (EFT) system, with the
BANKNET communications network as its carrier. It also said that MICR clearing
should be set up in all branches of all those banks with more than 100 branches.

32
In 1995, the Committee for proposing Legislation on Electronic Funds Transfer and other
Electronic Payments (1995) again emphasized EFT system.
Total numbers of ATMs installed in India by various banks as on end June 2012 is
99,218. The New Private Sector Banks in India are having the largest numbers of ATMs,
which is followed by off-site ATMs belonging to SBI and its subsidiaries and then by
Nationalised banks and Foreign banks. While on site is highest for the Nationalised banks
of India.

Branches and ATMs of Scheduled Commercial Banks as on end March 2005

Number Off- Total

On-site
Bank type of site ATMs
ATMs
branches ATMs
Nationalised 4,772
33,627 3,205 1,567
banks
State Bank of 5,220
13,661 1,548 3,672
India
Old private 1,241
4,511 800 441
sector banks
New private 5,612
1,685 1,883 3,729
sector banks
Foreign 800
242 218 582
banks

TOTAL 53,726 7,654 9,409 17,645

Table 2

3.5 Expansion of Banking Infrastructure

As per Census 2011, 58.7% households are availing banking services in the country.
There are 102,343 branches of Scheduled Commercial Banks (SCBs) in the country, out
of which 37,953 (37%) bank branches are in the rural areas and 27,219 (26%) in semi-
urban areas, constituting 63% of the total numbers of branches in semi-urban and rural
areas of the country. However, a significant proportion of the households, especially in
rural areas, are still outside the formal fold of the banking system. To extend the reach of
banking to those outside the formal banking system, Government and Reserve Bank of
India (RBI) are taking various initiatives from time to time some of which are
enumerated below:

33
Opening of Bank Branches: Government had issued detailed strategy and guidelines on
Financial Inclusion in October 2011, advising banks to open branches in all habitations of
5,000 or more population in under-banked districts and 10,000 or more population in
other districts. Out of 3,925 such identified villages/habitations, branches have been
opened in 3,402 villages/habitations (including 2,121 Ultra Small Branches) by end of
April, 2013.
Each household to have at least one bank account: Banks have been advised to ensure
service area bank in rural areas and banks assigned the responsibility in specific wards in
urban area to ensure that every household has at least one bank account.
Business Correspondent Model: With the objective of ensuring greater financial inclusion
and increasing the outreach of the banking sector, banks were permitted by RBI in 2006
to use the services of intermediaries in providing financial and banking services through
the use of Business Facilitators (BFs) and Business Correspondents (BCs). Business
correspondents are retail agents engaged by banks for providing banking services at
locations other than a bank branch/ATM. BCs and the BC Agents (BCAs) represent the
bank concerned and enable a bank to expand its outreach and offer limited range of
banking services at low cost, particularly where setting up a brick and mortar branch is
not viable. BCs as agents of the banks, thus, are an integral part of the business strategy
for achieving greater financial inclusion. Banks had been permitted to engage
individuals/entities as BC like retired bank employees, retired teachers, retired
government employees, ex-servicemen, individual owners of kirana/medical/fair price
shops, individual Public Call Office (PCO) operators, agents of Small Savings Schemes
of Government of India, insurance companies, etc. Further, since September 2010, RBI
had permitted banks to engage "for profit" companies registered under the Indian
Companies Act, 1956, excluding Non-Banking Financial Companies (NBFCs), as BCs in
addition to individuals/entities permitted earlier. According to the data maintained by
RBI, as in December, 2012, there were over 152,000 BCs deployed by Banks. During
2012-13, over 183.8 million transactions valued at 165 billion (US$2.8 billion) had been
undertaken by BCs till December 2012.
Swabhimaan Campaign: Under "Swabhimaan" - the Financial Inclusion Campaign
launched in February 2011, banks had provided banking facilities by March, 2012 to over
74,000 habitations having population in excess of 2000 using various models and
technologies including branchless banking through Business Correspondents Agents
(BCAs). Further, in terms of Finance Minister's Budget Speech 2012-13, the
"Swabhimaan" campaign has been extended to habitations with population of more than
1,000 in North and to habitations which have crossed population of 1,600 as per census
2001. About 40,000 such habitations have been identified to be covered under the
extended "Swabhimaan" campaign.
Setting up of Ultra Small Branches (USBs): Considering the need for close supervision
and mentoring of the Business Correspondent Agents (BCAs) by the respective banks

34
and to ensure that a range of banking services are available to the residents of such
villages, Ultra Small Branches (USBs) are being set up in all villages covered through
BCAs under Financial Inclusion. A USB would comprise of a small area of 100 sq ft
(9.3 m2) - 200 sq ft (19 m2) where the officer designated by the bank would be available
with a laptop on pre-determined days. While the cash services would be offered by the
BCAs, the bank officer would offer other services, undertake field verification and follow
up on the banking transactions. The periodicity and duration of visits can be
progressively enhanced depending upon business potential in the area. A total of over
50,000 USBs have been set up in the country by March, 2013.
Banking Facilities in Unbanked Blocks: All the 129 unbanked blocks (91 in North East
States and 38 in other States) identified in the country in July 2009, had been provided
with banking facilities by March 2012, either through Brick Mortar Branch or Business
Correspondents or Mobile van. As a next step it has been advised to cover all those
blocks with BCA and Ultra Small Branch which have so far been covered by mobile van
only.
USSD Based Mobile Banking: National Payments Corporation of India (NPCI) worked
upon a "Common USSD Platform" for all banks and telcos who wish to offer the facility
of Mobile Banking using Unstructured Supplementary Service Data (USSD) based
Mobile Banking. The Department helped NPCI to get a common USSD Code *99# for
all telcos. More than 20 banks have joined the National Uniform USSD Platform (NUUP)
of NPCI and the product has been launched by NPCI with BSNL and MTNL. Other
telcos are likely to join in the near future. USSD based Mobile Banking offers basic
Banking facilities like Money Transfer, Bill Payments, Balance Enquiries, Merchant
Payments etc. on a simple GSM based Mobile phone, without the need to download
application on a phone as required at present in the IMPS based Mobile Banking.

Steps taken by Reserve Bank of India (RBI) to strengthen the Banking

Infrastructure
RBI has permitted domestic Scheduled Commercial Banks (excluding RRBs) to open
branches in tier 2 to tier 6 cities (with population up to 99,999 as per census 2001)
without the need to take permission from RBI in each case, subject to reporting.
RBI has also permitted SCBs (excluding RRBs) to open branches in rural, semi-urban
and urban centres in North Eastern States and Sikkim without having the need to take
permission from RBI in each case, subject to reporting.
Regional Rural Banks (RRBs) are also allowed to open branches in Tier 2 to Tier 6
centres (with population up to 99,999 as per Census 2001) without the need to take
permission from RBI in each case, subject to reporting, provided they fulfill the
following conditions, as per the latest inspection report:
CRAR of at least 9%;
Net NPA less than 5%;

35
 No default in CRR / SLR for the last year;
Net profit in the last financial year;
CBS compliant.
Domestic SCBs have been advised that while preparing their Annual Branch Expansion
Plan (ABEP), they should allocate at least 25% of the total number of branches proposed
to be opened during the year in unbanked Tier 5 and Tier 6 centres i.e. (population up to
9,999) centres which do not have a brick and mortar structure of any SCB for customer
based banking transactions.
RRBs have also been advised to allocate at least 25% of the total number of branches
proposed to be opened during a year in unbanked rural (Tier 5 and Tier 6) Centres).
New private sector banks are required to ensure that at least 25% of their total branches
are in semi-urban and rural centres on an ongoing basis.

3.6 Types of Banks

 Central bank
 Development Bank
 Investment Bank
 Cooperative Credit Bank
 Regional Rural Bank
 Non Banking Financial Companies

Central Bank
The money market that acts as the central monetary authority of the country, serving as
the government bank as well as the bankers’ bank is known as a central bank of the
country. The main functions of central bank of a country are functions of note issue,
bankers to government, banker’s bank etc.The RBI as the central bank of the country is
the centre of the Indian financial and monetary system. It has been guiding, monitoring,
and regulating, controlling, and promoting destiny of the IFS. It is quite young compared
with such central banks as the Bank of England, Risks bank of Sweden, and the Federal
Reserve Board of the U.S.

Main Functions of The Reserve bank of India

As the central banking authority of India, the reserve Bank of India performs the
following traditional functions of the central bank:
 It provides currency and operates the clearing system for the government and banks.
 It formulates and implements monetary and credit policies.
 It functions as the government’s and banker’s bank
 It supervises the operations of credit institutions.
 It regulates foreign exchange transactions.
 It moderates the fluctuations in the exchange value of the rupee.

36
 In addition to the traditional functions of the central banking authority, the Reserve bank
of India performs several functions aimed at developing the Indian financial system:
 It seeks to integrate the unorganized financial sector with the organized financial sector.
 It encourages the extension of the commercial banking system in the rural areas.
 It influences the allocation of credit.
 It promotes the development of new institutions.

Development Banks
A development bank may be defined as a financial institution concerned with providing
all types of financial assistance to business units in the form of loans, underwriting,
investment and guarantee operations and promotional activities-economic development in
general and industrial development in particular.A development bank is basically a term
lending institution. It is a multipurpose financial institution with a broad development
outlook. The concept of development banks in a post independence phenomenon in India.
With the end of II World War there was an urgent need for speed industrial development
in India. The usual agencies that provided finance for large industries were inadequate.
So the govt. of India came forward to set-up a series of financial institution to provide
funds to industries. The industrial finance corporation of India, the first development
bank was established in 1948. Subsequently many other institutions were set-up. Ex.
IDBI, IFCI, SIDBI etc.

Investment Banks
Financial intermediaries that acquire the savings of people and direct these funds into the
business enterprises seeking capital for the acquisition of plant and equipment and for
holding inventories are called ‘investment banks’.
Features:-Long term financing, Security, merchandiser, Security middlemen, Insurer,
Underwriter
Functions: - Capital formation, Underwriting, Purchase of securities, Selling of securities,
Advisory services, Acting as dealer.

Cooperative Banking Sector

These banks play a vital role in mobilizing savings and stimulating agricultural
investment. Co-operative credit institutions account for the second largest proportion of
44.6% of total institutional credit of Rs.3854000 corer to agricultural and allied activities
in the rural sector in 1998 to 99.
Types of Co-operative Banking sector
The co-operative sector is very much useful for rural people. The co-operative banking
sector is divided into the following categories.
State co-operative Banks

37
Central co-operative banks
Primary Agriculture Credit Societies

Non Banking Finance companies

According to RBI it means financial institutions which is a company and a non banking
institution and which has as its principal business the receiving of deposits under any
schemes or arrangement or in any other manner or lending in any manner.

Merchant Banks
Institution that render wide range of services such as the management of customer’s
securities, portfolio management, counseling, insurance, etc are called ‘Merchant Banks’.
Functions: - Sponsoring issues, Loan syndication, Servicing of issues, Portfolio,
management, arranging fixed deposits, helps in merger& acquisition.

Commercial Banks
Commercial banks comprising public sector banks, foreign banks, and private sector
banks represent the most important financial intermediary in the Indian financial system.
The changes in banking structure and control have resulted due to wider geographical
spread and deeper penetration of rural areas, higher mobilization of deposits, reallocation
of bank credit to priority activities, and lower operational autonomy for a bank
management.
The largest commercial Banks in India, (SBI), was set up in 1955 when the Imperial
Bank was nationalized and merged with some banks of the princely states. In 1969, in
one fell swoop, the fourteen largest privately – owned commercial banks were
nationalized. Subsequently, several other privately – owned commercial banks were
nationalized. As a result of these actions, public sector commercial banks, dominate the
commercial banking scene in the country.

3.7 Functions of commercial banks

Saving mobilization
Special loans
Bills discount
Credit creation
Agencies function
General utility function

3.8 Public Sector Banks

State Bank of India .
17 out of 20 nationalized banks except Andhra Bank , Bank of Maharashtra and
Bharatiya Mahila Bank.

38
Regional rural banks, Assam Grameen Vikas Bank, sponsored by United Bank of India

Regional rural Bank

They are oriented towards meeting the needs of the weaker section of the rural population
consisting of small and marginal farmers, agricultural laborer and small entrepreneurs.
These banks were set up after the nationalization of banks in 1969.
REGIONAL RURAL BANKS ACT, 1976 ACT NO. 21 OF 1976 [9th February, 1976.]
An Act to provide for the incorporation, regulation and winding up of Regional Rural
Banks with a view to developing the rural economy by providing, for the purpose of
development of agriculture, trade, commerce, industry and other productive activities in
the rural areas, credit and other facilities, particularly to the small and marginal farmers,
agricultural laborers, artisans and small entrepreneurs, and for matters connected
therewith and incidental thereto.

Definition of Public Sector Bank

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 PSBs in India..
The private-sector banks in India represent part of the Indian banking sector that is made
up of both private and public sector banks. The "private-sector banks" are banks where
greater parts of stake or equity are held by the private shareholders and not by
government.
Banking in India has been dominated by public sector banks since the 1969 when all
major banks were nationalised by the Indian government. However since liberalisation in
government banking policy in 1990s, old and new private sector banks have re-emerged.
They have grown faster and bigger over the two decades since liberalisation using the
latest technology, providing contemporary innovations and monetary tools and
techniques
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 the nationalisation in 1969 and kept
their independence because they were either too small or specialist to be included in
nationalisation. The new private sector banks are those that have gained their banking
license since the liberalisation in the 1990s.

Emergence of Public Sector Banks

The Central Government entered the banking business with the nationalization of the
Imperial Bank Of India in 1955. A 60% stake was taken by the Reserve Bank of
India and the new bank was named as the State Bank of India. The seven other state
banks became the subsidiaries of the new bank when nationalised on 19 July 1960. The
next major nationalisation of banks took place in 1969 when the government of India,

39
 under prime minister Indira Gandhi, nationalised an additional 14 major banks. The total
deposits in the banks nationalised in 1969 amounted to 50 crores. This move increased
the presence of nationalised banks in India, with 84% of the total branches coming under
government control.
The next round of nationalisation took place in April 1980. The government nationalised
six banks. The total deposits of these banks amounted to around 200 crores. This move
led to a further increase in the number of branches in the market, increasing to 91% of the
total branch network of the country. The objectives behind nationalisation where:
To break the ownership and control of banks by a few business families,
To prevent the concentration of wealth and economic power,
To mobilize savings from masses from all parts of the country,
To cater to the needs of the priority sectors.....

List of some PSU Banks in India

 Allahabad Bank
 Bank of Baroda
 Bank of India
 Canara Bank
 Central Bank of India
 Corporation Bank
 Dena Bank
 IDBI Bank
 Indian Bank
 Indian Overseas Bank
 Oriental Bank of Commerce
 Punjab National Bank
 Punjab & Sind Bank
 Syndicate Bank
 UCO Bank
 Union Bank of India
 United Bank of India
 Vijaya Bank

3.9 State Bank of India

State Bank of India (SBI) is an Indian multinational, public sector banking and financial
services company. It is a government-owned corporation with its headquarters
in Mumbai, Maharashtra. As of 2016-17, it had assets of ₹30.72 trillion (US$460 billion)

40
and more than 14,000 branches, including 191 foreign offices spread across 36 countries,
making it the largest banking and financial services company in India by assets. The
company is ranked 232nd on the Fortune Global 500 list of the world's biggest
corporations as of 2016.
The bank traces its ancestry to British India, through the Imperial Bank of India, to the
founding, in 1806, of the Bank of Calcutta, making it the oldest commercial bank in
the Indian subcontinent. Bank of Madras merged into the other two "presidency banks" in
British India, Bank of Calcutta and Bank of Bombay, to form the Imperial Bank of India,
which in turn became the State Bank of India in 1955. Government of India owned the
Imperial Bank of India in 1955, with Reserve Bank of India (India's Central Bank) taking
a 60% stake, and renamed it the State Bank of India. In 2008, the government took over
the stake held by the Reserve Bank of India.
State Bank of India is a banking behemoth and has 20% market share in deposits and
loans among Indian commercial banks.

History

The roots of the State Bank of India lie in the first decade of the 19th century, when
the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806.
The Bank of Bengal was one of three Presidency banks, the other two being the Bank of
Bombay (incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July
1843). All three Presidency banks were incorporated as joint stock companies and were
the result of royal charters. These three banks received the exclusive right to issue paper
currency till 1861 when, with the Paper Currency Act, the right was taken over by the
Government of India. The Presidency banks amalgamated on 27 January 1921, and the
re-organised banking entity took as its name Imperial Bank of India. The Imperial Bank
of India remained a joint stock company but without Government participation.
Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of
India, which is India's central bank, acquired a controlling interest in the Imperial Bank
of India. On 1 July 1955, the imperial Bank of India became the State Bank of India. In
2008, the Government of India acquired the Reserve Bank of India's stake in SBI so as to
remove any conflict of interest because the RBI is the country's banking regulatory
authority.
In 1959, the government passed the State Bank of India (Subsidiary Banks) Act. This
made SBI subsidiaries of eight that had belonged to princely states prior to their
nationalization and operatonal takeover between September 1959 and October 1960,
which made eight state banks associates of SBI. This acquisition was in tune with the first
Five Year Plan, which prioritised the development of rural India. The government
integrated these banks into the State Bank of India system to expand its rural outreach. In
1963 SBI merged State Bank of Jaipur (est. 1943) and State Bank of Bikaner (est.1944).

41
SBI has acquired local banks in rescues. The first was the Bank of Bihar (est. 1911),
which SBI acquired in 1969, together with its 28 branches. The next year SBI acquired
National Bank of Lahore (est. 1942), which had 24 branches. Five years later, in 1975,
SBI acquired Krishnaram Baldeo Bank, which had been established in 1916 in Gwalior
State, under the patronage of Maharaja Madho RaoScindia. The bank had been the Dukan
Pichadi, a small moneylender, owned by the Maharaja. The new bank's first manager was
Jall N. Broacha, a Parsi. In 1985, SBI acquired the Bank of Cochin in Kerala, which had
120 branches. SBI was the acquirer as its affiliate, the State Bank of Travancore, already
had an extensive network in Kerala.
The new logo of the SBI was introduced on 1 October 1971 and was designed by Shekhar
Kammat at National Institute of Design. Though it may seem that the logo might have
been greatly inspired from the Kankaria Lake, Ahmedabad. in Gujarat, Mr. Kamat had
mentioned that it was mainly the shape of the cash counters at that time that inspired him
and not the lake in later interviews. .
SBI logo was thought to have been inspired by Kankaria Lake, Ahmedabad.
There has been a proposal to merge all the associate banks into SBI to create a "mega
bank" and streamline the group's operations.
The first step towards unification occurred on 13 August 2008 when State Bank of
Saurashtra merged with SBI, reducing the number of associate state banks from seven to
six. On 19 June 2009, the SBI board approved the absorption of State Bank of Indore.
SBI holds 98.3% in State Bank of Indore. (Individuals who held the shares prior to its
takeover by the government hold the balance of 1.7%.)
The acquisition of State Bank of Indore added 470 branches to SBI's existing network of
branches. Also, following the acquisition, SBI's total assets will approach ₹10 trillion.
The total assets of SBI and the State Bank of Indore were ₹9,981,190 million as of March
2009. The process of merging of State Bank of Indore was completed by April 2010, and
the SBI Indore branches started functioning as SBI branches on 26 August 2010.
On 7 October 2014, Arundhati Bhattacharya became the first woman to be appointed
Chairman of the bank.[13] Mrs. Bhattacharya is given extension of 2 years of service for
merging all 5 associates of SBI with itself . With effect from April 1,2017 ; all the
branches of Asosciates Banks viz State Bank of Patiala , State Bank of Hyderabad , State
Bank of Bikaner & Jaipur , State Bank of Mysore and State Bank of Travancore , will
function as branches of STATE BANK OF INDIA ( SBI). This consolidation will take 8-
12 weeks for merging data with SBI .

Employess

SBI is one of the largest employers in the country having 222,033 employees as on 31
March 2014, out of which there were 45,132 female employees (20%) and 2,610 (1%)
employees with disabilities. On the same date, SBI had 42,744 Schedule Caste (19%) and

42
17,243 Schedule Tribe (8%) employees. The percentage of Officers, Assistants and Sub-
staff was 36%, 46% and 18% respectively on the same date Hiring drive: 1,776
Assistants and 1,394 Officers joined the Bank in FY 2013-14, for expansion of the branch
network and to mitigate staff shortage, particularly at rural and semi-urban branches. Staff
productivity: As per its Annual Report for FY 2013-14, each employee contributed net
profit of INR 485,000.

3.10 HDFC Bank

HDFC Bank Limited is an Indian banking and financial services company headquartered
in Mumbai, Maharashtra. It has 90,421 employees and has a presence in Bahrain, Hong
Kong and Dubai. HDFC Bank is India’s second-largest private sector lender by assets. It
is the largest bank in India by market capitalization as of February 2016. It was ranked
69th in 2016 BrandZTM Top 100 Most Valuable Global Brands.

History
In 1994 HDFC Bank was incorporated, with its registered office in Mumbai, India. Its
first corporate office and a full service branch at Sandoz House, Worli was inaugurated
by the then Union Finance Minister, Manmohan Singh.
As of December 31, 2016, the Bank’s distribution network was at 4,555 branches and
12,087 ATMs across 2,597 cities / towns .

Products and services

Market leader in e-commerce, HDFC Bank provides a series of digital offerings like - 10
second personal loan, Chillr, PayZapp, SME Bank, Watch Banking, 30-Minute Auto
Loan, 15-minute Two-Wheeler Loan, e-payment gateways, Digital Wallet, etc.
HDFC Bank provides a number of products and services which includes Wholesale
banking, Retail banking, Treasury, Auto (car) Loans, Two Wheeler Loans, Personal
loans, Loan Against Property and Credit Cards.
The latest entry in the league is 'Project AI', under which HDFC Bank, over the next few
weeks, would deploy robots at select bank branches. These robots will offer options such
as cash withdrawal or deposit, forex, fixed deposits and demat services displaying on the
screen to persons coming into the branch.

Acquisitions
HDFC Bank merged with Times Bank in February 2000. This was the first merger of two
private banks in the New Generation Private Sector Banks category. In 2008, Centurion
Bank was acquired by HDFC Bank. HDFC Bank Board approved the acquisition of
CBoP for 95.1 billion INR in one of the largest mergers in the financial sector in India.

43
CHAPTER-4

44
IV. Research Methodology
Research is an art of scientific investigation. In other words research is a scientific and
systematic search for pertinent information on a specific topic. The logic behind taking
research methodology into consideration is that one can have knowledge regarding the
method and procedure adopted for achievements of objective of the project. With the
adoption of this others can also evaluate the results too.
The methodology adopted for studying the objective of the project was analyzing the
bank Balance Sheet and Profit and Loss a/c. So keeping in view the nature of requirement
of the study to collect all the relevant information regarding the comparison of public
sector banks and the private sector banks.
Secondary data has been collected through the various magazines and newspaper and by
surfing on internet and also by visiting the websites of Indian Banking Association as
well as official websites of SBI and HDFC bank

4.1 Research Approach

The approach adopted by qualitative researchers tends to be inductive which means
that they develop a theory or look for a pattern of meaning on the basis of the data
that they have collected.The approach to data collection and analysis is methodical
but allows for greater flexibility than in quantitative research.
The Approch adopted for studying the objective of the project is both qualititaveand
quantitativereasearch

Quantative Research:Quantitative research is the systematic empirical investigation of

observable phenomena via statistical, mathematical or computational techniques. The
objective of quantitative research is to develop and employ mathematical
models, theories and/or hypotheses pertaining to phenomena. The process
of measurement is central to quantitative research because it provides the
fundamental connection between empirical observation and mathematical expression
of quantitative relationships. Quantitative data is any data that is in numerical form
such as statistics, percentages, etc. The researcher analyzes the data with the help
of statistics. The researcher is hoping the numbers will yield an unbiased result that
can be generalized to some larger population.

Qualitative Research:Qualitative research is designed to reveal a target audience’s

range of behavior and the perceptions that drive it with reference to specific topics or
issues. It uses in-depth studies of small groups of people to guide and support the
construction of hypotheses. The results of qualitative research are descriptive rather
than predictive.
Qualitative research methods originated in the social and behavioral sciences:
sociology, anthropology and psychology. Today, qualitative methods in the field of

45
 marketing research include in-depth interviews with individuals, group discussions
(from two to ten participants is typical); diary and journal exercises; and in-context
observations. Sessions may be conducted in person, by telephone, via
videoconferencing and via the Internet

4.2 Research Design

A research design is the set of methods and procedures used in collecting and
analyzing measures of the variables specificed in the research problem research study.
The design of a study defines the study type (descriptive, correlational, semi-
experimental, experimental, review, meta-analytic) and sub-type (e.g., descriptive-
longitudinal case study), research problem, hypotheses, independent and dependent
variables, experimental design, and, if applicable, data collection methods and a
statistical analysis plan. Research design is the framework that has been created to
find answers to research questions.
Descriptive Research has been use in this project for research purpose.

Descriptive Research:

Descriptive research is a study designed to depict the participants in an accurate

way. More simply put, descriptive research is all about describing people who
take part in the study.
There are three ways a researcher can go about doing a descriptive research
project, and they are:
Observational, defined as a method of viewing and recording the participants
Case study, defined as an in-depth study of an individual or group of individuals
Survey, defined as a brief interview or discussion with an individual about a
specific topic.

4.3 Data Sources

Data was collected by using two main methods i.e. primary data and secondary data.
Primary Data – Primary data is the data which is used or collected for the first time
and it is not used by anyone in the past. There are number of sources of primary data
from which the information can be collected. We took the following resources for our
research.
Secondary Data -Secondary data refers to data that was collected by someone other
than the user. Common sources of secondary data for social science include censuses,
information collected by government departments, organisational records and data
that was originally collected for other research purposes.Primary data, by contrast, are
collected by the investigator conducting the research.
Secondary data analysis can save time that would otherwise be spent collecting data
and, particularly in the case of quantitative data, can provide larger and higher-

46
 quality databases that would be unfeasible for any individual researcher to collect on
their own. In addition, analysts of social and economic change consider secondary
data essential, since it is impossible to conduct a new survey that can adequately
capture past change and/or developments. However, secondary data analysis can be
less useful in marketing research, as data may be outdated or inaccurate.
The major data source applied in this project is secondary data.

4.4 Data Collection Methods: As the data been used is secondary data hence data has
been collected from the different websites i.e Official Website of HDFC and SBI
bank and other financial result websites like Money Control and Equity Master.

4.5 Data Analysis: The main tool used for data analysis is t- test.
T-Test: A t-test is an analysis of two populations means through the use of statistical
examination; a t-test with two samples is commonly used with small sample sizes,
testing the difference between the samples when the variances of two normal
distributions are not known.
A t-test looks at the t-statistic, the t-distribution and degrees of freedom to determine
the probability of difference between populations; the test statistic in the test is known
as the t-statistic. To conduct a test with three or more variables, an analysis of
variance (ANOVA) must be used.

47
CHAPTER-5

48
V. Analysis and Findings

5.1 Gross Profit Margin: Gross profit margin is a financial metric used to assess a
company's financial health and business model by revealing the proportion of money
left over from revenues after accounting for the cost of goods sold (COGS). Gross
profit margin, also known as gross margin, is calculated by dividing gross profit by
revenues. Also known as "gross margin."
Calculated as:

GPM(2011-12To 2017-16)
Year HDFC SBI

Mar’16 17.8 2.3

Mar’15 17.4 0.8

Mar’14 15.6 2.2

Mar’13 12.9 5

Mar’12 12.7 7.5

Table 3

Gross Profit Margin

t-Test: Paired Two
Sample for Means

SBI
HDFC
3.56
Mean 15.28
7.163
Variance 5.817
5
Observations 5
-
Pearson Correlation 0.892872177

49
 Hypothesized Mean
Difference 0
df 4
t Stat 5.293800108
P(T<=t) one-tail 0.003056373
t Critical one-tail 2.131846786
P(T<=t) two-tail 0.006112747
t Critical two-tail 2.776445105
Table 4
The above mentioned table is based on the data on t-test which has been calculated in
Excel sheet.

Result:From the above table it can be concluded that

 Mean value of HDFC is more then SBI.
 Value of t-test is less than 0.5 hence it can be said that data is statsictically
significant.
5.2 Net Intrest Margin: Net interest margin is a performance metric that examines how
successful a firm's investment decisions are compared to its debt situations. A
negative value denotes that the firm did not make an optimal decision, because
interest expenses were greater than the amount of returns generated by investments.
It is calculated as:

NPM(2016-17 to 2012-11)
Year HDFC SBI

Mar’16 4.2 2.8

Mar’15 4.1 2.9

Mar’14 4 2.9

Mar’13 4.2 3

Mar’12 4.1 3.3

Table 5

Net Interest Margin

t-Test: Paired Two Sample for

50
Means

HDFC SBI
Mean 4.12 2.98
Variance 0.007 0.037
Observations 5 5
-
Pearson Correlation 0.124273953
Hypothesized Mean Difference 0
Df 4
t Stat 11.63507628
P(T<=t) one-tail 0.000155939
t Critical one-tail 2.131846786
P(T<=t) two-tail 0.000311878
t Critical two-tail 2.776445105
Table 6
Result:From the above table it can be concluded that
 Mean value for net intrest margin of HDFC is more then SBI.
 Value of t-test is less than 0.5 hence it can be said that data is statsictically
significant.

5.3 Return On Equity: Return on equity (ROE) is the amount of net income returned as
a percentage of shareholders equity. Return on equity measures a corporation's
profitability by revealing how much profit a company generates with the money
shareholders have invested.
ROE is expressed as a percentage and calculated as:
Return on Equity = Net Income/Shareholder's Equity

Return On Equity (2011-12 to 2016-17)

Year HDFC SBI

Mar’16 16.91 6.89

Mar’15 16.47 10.2

Mar’14 19.5 9.2

Mar’13 18.57 14.26

Mar’12 17.26 13.94

51
 Table7

Return on Equity
t-Test: Paired Two Sample for
Means

Variable
Variable 1 2
Mean 17.742 10.898
Variance 1.57967 9.99782
Observations 5 5
Pearson Correlation 0.160724274
Hypothesized Mean Difference 0
Df 4
t Stat 4.768433805
P(T<=t) one-tail 0.004425119
t Critical one-tail 2.131846786
P(T<=t) two-tail 0.008850237
t Critical two-tail 2.776445105
Table 8
Result:From the above table it can be concluded that
 Mean value of HDFC for return on equity is more then SBI.
 Value of t-test is less than 0.5 hence it can be said that data is statsictically
significant.

52
CHAPTER -6

53
VI. Suggestion and Conclusion
From the above data we can conclude that Public Sector Bank are more profitable
than Public Sector Bank.
As the result has been taken from the finanial statement of the bank which shows
that gross profit margin of HDFC bank is more than SBI bank.
In almost every parameter, private banks are doing better than their peers in the
public sector and their market share has been growing. The two stated bank is the
biggest bank in both the sector which is a reflection of their sector. While
comparing both the bank we can summerised that ROE,NIM and GPM of HDFC
is more than SBI.Thus, Private sector bank are more profitable than Public Sector
Bank.

Suggestion:

 As far as possible the public sector bank should reduce the documentation process while
providing loan.
 Public Sector Bank should be flexible in providing interest of the deposited money.
 Quick services should be provided by the public sector bank so that more market share
can be captured by them

54
Bibliography

Website Cited
i. http://www.investopedia.com/terms/p/profit.asp
ii. http://www.risksandrewards.org.uk/background_banks_151.html
iii. https://en.wikipedia.org/wiki/Bank
iv. https://en.wikipedia.org/wiki/Public_sector_banks_in_India
v. http://www.goodreturns.in/classroom/2015/04/difference-between-public-sector-private-
sector-banks/examples-of-private-and-public-sector-banks-pf7455-347748.html
vi. https://en.wikipedia.org/wiki/Private-sector_banks_in_India
vii. https://en.wikipedia.org/wiki/HDFC_Bank
viii. https://en.wikipedia.org/wiki/State_Bank_of_India
ix. http://www.qrca.org/?page=whatisqualresearc
x. https://en.wikipedia.org/wiki/Quantitative_research
xi. https://en.wikipedia.org/wiki/Research_design
xii. https://www.equitymaster.com/research-it/company-info/detailed-financial-
information.asp?symbol=hdbk&name=HDFC-BANK-Detailed-Financial-Data
xiii. http://www.moneycontrol.com/financials/hdfcbank/ratios/HDF01
xiv. http://www.moneycontrol.com/financials/statebankindia/ratios/SBI
xv. https://www.equitymaster.com/research-it/company-info/detailed-financial-
information.asp?symbol=sbi&name=SBI-Detailed-Financial-Data

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