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1 Efficiency of Private Sector Banks Performance Comparison Between Old and New Generation Private Sector Banks Binish Varghese M. 1*, Suman Chakraborty 1 1 Faculty of Management and Commerce, M.S. Ramaiah University of Applied Sciences, Bengaluru *Contact Author binish793@gmail.com Abstract Financial Performance is the yardstick for the Measurement of the efficiency of banks in the banking sector both in the present and future. Review of literature for performance of banks can be measured using interest spread, deposits, loans, return on assets, nonfinancial ratios. This study attempts to analyse empirical and scholarly research findings along with the respective findings. Selection of contemporary research papers has been identified based on its relevancy to the topic. Around twenty six papers downloaded from various electronic databases and from various peer reviewed journals in the area of financial performance of banks during are used. Review of selected papers suggest significant gap for measuring the efficiency of private sector banks by comparing the performance of new and old generation private sector banks.this assemblage of reviewed research papers will be useful for the academia and industry to measure how well the new generation private sector banks are performing compared with old private sector banks. Keywords: Non-Performing Assets, Net profit, Capital Adequacy, CAMEL, Profitability, ROA 1. INTRODUCTION A banks performance depends on many factors such as their financial performance or its profit earned or their profitability etc. Profit earned and profitability both are completely two different aspects, profit earned is a short term view where the profit earned for the current or previous financial year of a bank is measured. While profitability is more of a long term prospective in the view of a bank as it not just considering the profit earned by the banks but it also see how well they are doing in terms of performance, interest spread, their customer satisfaction etc., everything affects profitability. Definition of Financial per has been assessed by considering variables, viz. branches, deposits, advances, investments, spread, burden, business, operating profits, non-performing assets, cost of deposits, cost of borrowings, cost of funds, return on advances, return on investments, return on funds, net profit, spread, burden and operating expenses and sartorial deployment of private sector banks in Kerala - A comparative study. Kerala: Mahatma Gandhi University). Here in this paper the efficiency of private sector banks can be understood by measuring different parameters such as Capital adequacy, Asset quality, Management efficiency, Earning quality and Liquidity using ratios. Indian banking sector has grown largely in size and is one of the major factors contributing to the economic growth of the country. Due to the market to customer oriented market, has also resulted in the change of banking approach from conventional banking to convenience banking or in other words from mass banking to class banking. Some of the latest trends introduced in the banking sector are e-cheques, E-Fund Transfer (EFT), Electronic Clearing Services (ECS), Automated Teller Machine (ATM), Electronic Data Interchange (EDI), Real Time Gross Settlement (RTGS), Tele-Banking, National Electronic Funds Transfer (NEFT), mobile banking, internet banking etc. Digitalisation of India was one of the most important trends which were brought into the country. It was brought by Modi government by demonetisation of Rs 500 and Rs 1000 from India in November 2016, through which the government tried to bring various economic activities under digital infrastructure. The other reasons behind demonetisation were to fight inflation, corruption and crime such as counterfeiting, tax evasion etc. and also to facilitate online trade. Likewise another major change in banking sector will be driven by the enactment of Goods and Services Tax (GST). The GST is another major initiative brought by Modi government which will come into existence from 1st of July The GST is expected to have major impact on the service sector such as banks of the Indian economy. 2. PURPOSE OF THE RESEARCH The purpose of this paper is to understand the efficiency of private sector banks in the Indian banking sector. Here the performance of new generation private banks is compared with old generation private sector banks using the CAMEL model. Under the CAMEL model different aspects of the banks such as capital adequacy, asset quality, RUAS JMC 6 Vol 03, Issue 02

2 management efficiency, earnings quality and liquidity are measured using different ratios. Even though the old generation private sector banks have been established long before the new generation private sector banks, they are not performing as good as the new private sector banks. The thesis of the research is to prove that new generation private banks are performing better than the old generation private sector banks. 3. OBJECTIVE OF THE STUDY This research work is carried out for attaining below mentioned objectives: To identify various factors influencing performance of banks as documented in existing surveyed literatures To review previous empirical findings on the performance of banking companies using CAMEL model To review the empirical findings on the comparison of performance between different categories of banking companies To identify the gap in the existing scholarly work and suggest future scope of research work in the area of improvement 4. METHODOLOGY OF THE STUDY The purpose of this paper is to understand the current literature of twenty six scholarly and peer reviewed scholarly work from reputed indexed journals between pertaining to efficiency of banks like profitability, capital adequacy, financials etc. which affects the performance and investigates the impact of factors affecting financial well-being or efficiency of banks. Out of the 26 papers, two of them are foreign research papers and 24 of them are Indian papers selected from highly indexed journals, google scholar, Ebsco database etc. Four research papers are based on the profitability and productivity of the banks, where the performance of the banks are interpreted using profitability of the banks. Nine of the research papers measures the financial efficiency of the banks using different factors such as interest spread, advances, deposits, net profit, ROA etc. The next category of research papers are based on CAMEL model, where five research papers are studied and has helped in deciding the variables used in the current study. Then another five research papers are reviewed where the performance of the banks is measured using the NPA (Net Performing Assets) of the bank. And finally three more papers are reviewed based on the capital adequacy of the banks. Therefore this study is designed to bring about the conceptual and theoretical mapping of the literature relating to efficiency of the banks with respect to the mapping of the factors affecting financial performance. 5. REVIEW OF LITERATURE 5.1 Research Papers Based on Measurement of Profitability and Productivity Under this section research paper which is based on the analysis of productivity or profitability of the banks are taken into consideration. There are different parameters affecting the performance of the banks here, such as deposits, credit given to customers etc. An empirical analysis of selected public and private sector banks in India, based on their profitability and productivity was studied in [1]. The after effects of liberalization and globalization on profitability and productivity of Indian banks during the period to is also studied here. Interest spread was found to be the major factor affecting profitability. During the study the high positive correlation between productivity and profitability shows the efficiency of the banks in utilizing their resources. The profitability and productivity of public, private and foreign banks are compared [2]. It was found that the only parameter for measuring performance of the banks from the shareholders point of view is more profitability. The outcome of the comparison was that the private and foreign banks are more profitable compared to public sector banks. The authors conclude by suggesting that in order to gain more competitive advantage over private and foreign banks, public sector banks should try to introduce more services to the customer. The profitability of the banks using different ratios was measured to analyse the financial performance of the banks [3]. Author grouped the ratios into three types, viz. Costing Ratio, Returns / Yield Ratio and Spread Ratios. It is suggested that this analysis can be used for making strategic decisions and to take necessary corrective actions, as these ratios can be used to understand the strength and weakness of the different banks. Summary: Here profitability of the banks have been used to measure the performance of the banks. 5.2 Research Papers Based on Analysis of Financial Performance of Banks In this section research papers selected are based on the measurement of the financial performance of the banks. There are different parameters affecting the financial performance of the banks, such as operational efficiency, asset management, interest income, ROA etc. RUAS JMC 7 Vol 03, Issue 02

3 Seven public sector and private banks performance were evaluated for the year [4]. They have used eleven ratios in the study to analysis the financial performance, efficiency and operating performance of the selected banks. The end result was Axis Bank had been the first in overall performance, followed by HDFC Bank, Punjab National bank, IDBI, Bank of India, SBI and ICICI respectively. The performance of public as well as private sector banks in India were studied [5]. The study shows many number of private banks have emerged in India and why the number of commercialization of banks in India is increasing. The paper also compares the performance of different private and public sector banks and also gives the reasons and suggestions for the performance. The financial performance of public and private sector banks was analysedby grouping the banks based on their financial characteristics [6]. The results of the study showed the public sector banks are performing better than the private sector banks. The results of study showed that the financial performance of banking companies in India is strongly affected by the asset management, operational efficiency, and interest income size of the banks using the regression analysis. Summary: In the above paper the financial performances of the banks have been measured using different parameters such as interest spread, NOI, ROA etc. 5.3 Research Papers which Measure the Performance of Banks using CAMEL Model The research papers selected under this section use CAMEL model for the analysing the financial efficiency of the banks. The variable taken into consideration here are capital adequacy, asset quality, management quality, earning ability and the liquidity of the banks Regulators in 1980 used to use CAMEL analysis to find out the inadequately capitalized bank and to help them enhance their capital [7]. Using a measure of regulatory pressure that is based on publicly available information, it was understood that the inadequately capitalized banks responded to shareholders demands for increasing capital. The efficiency of public sector banks as compared with private sector banks using the CAMEL and Data Envelopment Analysis approaches was studied [8]. The study conducted was based on market cap of 12 public and private sector banks for over a period of twelve years ( ) and it was found out that private sector banks are performing better than the public sector banks. The financial position and performance of private sector bank using the CAMEL model was conducted on six private sector banks for a time period of five years i.e., from [9].The analysis was conducted based on the statistical information such as total assets, net profit and market capitalization of the banks. Summary: CAMEL is one the model which has been used to measure the performance of banks in the above papers. 5.4 Research Papers which Measure the Performance of Banks using NPA Under this section the research papers selected are measuring the financial performance of the banks using their Non-Performing Assets. Also different are studied here. The problems of NPA in SBI and its associate banks were analysed [10]. The study tries to analyse the trends of NPA using averages, standard deviation and co-efficient of variation method. The research is done on five banks which are the state bank of Bikaner and Jaipur, the state bank of Hyderabad, the state bank of Mysore, the state bank of Patiala and the state bank of Travancore. The parameters used for the study are deposits, advances, interest income, operating profit, net profit, ROA etc. To find the reasons for the Indian banks, the author analyses the public, private and foreign banks using parameters such as banks credits, NPA, GDP etc. [11]. The final results from the analysis showed that public sector corporate lending as they are unable to pay back the principle amount as well as the interest panel data was modeled to find out the performance using NPA [12]. The three popular methods of panel data analysis included the fixed effects model, constant coefficient model and the random effects model. The performance was measured for 45 Indian banks which include 19 private sector banks and 26 public sector banks. The variables used for measurement are credit growth, priority sector advances (PSA), operating inefficiency, restructured debt, advance to sensitive sectors (ES), trade balance, GDP growth etc. The results show that the impacts of NPA on bad assets of public sector banks are more than the private sector banks. Summary: Growing NPA is one of the concerns which have to be resolved by most of the banks in the Indian banking sector. Of which public sector performance of the banks. RUAS JMC 8 Vol 03, Issue 02

4 5.5 Research Papers which Measure the Capital Adequacy of the Banks In this section study is done based on the capital adequacy of the selected banks. Efficiency of the banks is measured using the ROA or the capital employed by the banks. The capital adequacy is measured and suggestions are made by the authors to reinforce the capital ratios of banks [13]. The author highlighted that capital adequacy is the key for rating companies while rating the banks fixed deposits, certified of deposits and bonds. The profitability of few selected public and private sector banks was compared using statistical methods such as mean, standard deviation and ANOVA model [14]. From the analysis it was found that the return on capital employed for public sector banks are less compared to private sector banks. The suggestion made to public sector banks was to use their capital employed more efficiently to yield more return to perform better than private sector banks. Josefssonanalyses whether the Indian banks are solvent and are able to meet the capital adequacy requirements given by the RBI [15]. The solvency of the banks can be known if the net worth of banks is positive, by measuring the gap between assets and liabilities, excluding their reserves and capital. Summary: Return on capital employed is one of the factors which can be used to measure the performance of the banks. Capital adequacy is one of the parameters which affect the profitability of banks 6. FINDINGS OF THE REVIEW OF LITERATURE AND GAPS IDENTIFIED The findings of the review of literature have been presented below: All the ratios defined under the CAMEL model have selected from different research papers Net profit, Interest spread, ROA etc. are some of the factors affecting the performance of the banks The private and foreign sector banks have been performing well than the public sector banks Most of the study is based on the comparison of private sector banks with other sector bank such as public or foreign sector banks; no study has been done comparing the new and old generation private sector banks Most of the analysis is done based on the parameters such as profitability, capital adequacy, liquidity, ROA, interest spread etc. From reviewing the above literatures we can conclude that no research has been done comparing the performance of old generation private banks and new generation private banks in the contemporary era of This dissertation focuses on measuring the efficiency of new and old generation private for a time period of 7 years using the CAMEL model. The thesis of the current research is to prove that new generation private banks are more efficient or performing better than old generation private banks. 7. REFERENCES [1] Gopal, M., and Dev, S. (2006), Public Sector and Private Sector Banks in The ICFAI Journal of Bank Management, 5(4), [2] Mittal. M, Aruna and Productivity in Indian Banks: A AIMS International, 1(2), [3] Effective Tool for Performance Analysis in PNB Monthly Review, November, pp [4] Jha, D.K., and Sarangi, D.S. (2011), International Journal of Research in Commerce and Management, 2(1), [5] Comparison of Private Sector Banks with the Public Sec International Journal of Emerging Research in Management &Technology, Research Article, ISSN: ; 3(2). [6] Ramachandran Azhagaiah, Performance of Private Sector and Public Sector Banks in India: An Empirical International Centre for Business Research 2012; 1(1). Link: icbr.net/ [7] evaluate regulator effectiveness at Journal of Financial Services Research, Volume 9, Number 2, 2005, pp [8] Aswini Kumar Mishra, JigarGadhia N, Bibhu PrashadKar, Biswabas Patra, Shivi Sound and Efficient than Public Sector Res. J. Recent Science.ISSN ; 2(4): [9] Karthikeyan P, financial soundness among selected private sector bank in India by using CAMEL IJMRR. 2014; 4(4) No-2/ RUAS JMC 9 Vol 03, Issue 02

5 [10] Approach to Management of NPAs in Associate Banks with Special Reference to S Journal of Institute of Public Enterprise. Jul-Dec2016, Vol. 39 Issue 3/4, p p, ISSN: [11] Problem of NPAs: Some Facts Relating to UP Journal of Bank Management. Feb2017, Vol. 146 Issue 1, p p. ISSN: [12] SatpathyAshis, Behera Samir Ranjan, Digal. Sabat Kumar, 2015, Macroeconomic Factors Affecting the NPAs in the Indian Banking System: An Empirical Journal of Bank Management. Feb2015, Vol. 14 Issue 1, p p, ISSN: [13] Commercial Banks: A study in Indian GITAM Journal of Management, Vol.2, No.2, 2004, pp [14] Profitability Analysis of Banks in India Paripex Indian Journal of Research, 3(12). [15] Presentation at an IMF Conference at Istanbul, July RUAS JMC 10 Vol 03, Issue 02