Chapter V THE FINANCIAL PERFORMANCE OF ANDHRA BANK AND ICICI BANK IN PRE AND POST E-BANKING ERA

Chapter V THE FINANCIAL PERFORMANCE OF ANDHRA BANK AND ICICI BANK IN PRE AND POST E-BANKING ERA 5.0 Introduction In the beginning of 90 s, there were so many deficiencies were prevailing in the Indian economy, particularly in the financial sector in general and in the banking sector in particular. The financial system has to play a crucial role in mobilization of funds and their allocation to the most productive use to fulfill its role in economic growth. The financial service industry needs to operate on the basis of operational flexibility and functional autonomy with a view to enhance efficiency, productivity and profitability 351. Despite the impressive quantitative achievements, several distortions have crept into Indian financial system in respect of allocation of resources, productivity and profitability has suffered and portfolio has deteriorated, work technology is outdated and transaction costs have mounted. Keeping in mind all the above said distortions in the economic, financial and banking sectors, the government of India and the RBI thought it was necessary to introduce reforms in the financial and banking sector. The financial sector reforms were introduced in the country covering banking, insurance and capital market were the core aspect needed to be improved. But as the financial sector, therefore the banking sector reforms formed the core of objective for improving efficiency, productivity and 351 The Banking Sector in India: Emerging Issues and Challenges, Report on currency and Finance, Reserve Bank of India, Volume -1, 2006-08. 188

profitability of banks. These reforms were introduced in two phases in 1991-1997 352. The banking sector reforms have brought in major changes with the improvement in efficiency of the banks. The first phase of reforms (Narasimhan Committee-I) brought out structural changes and improved the overall performance of banks. The second phase reforms were recommended by the Narasimham Committee II to make the banks capable to compete successfully in the changing environment. Under the regime of banking sector reforms, IT Act of 1999 gave new dimensions to the Indian banking sector. IT has created transformation in banking structure, business process, work culture and human resource development. It has affected the productivity, profitability and efficiency of the banks to a large extent 353. For decades, it has been a matter of debate whether Technology 354 provides better financial results. Till date there is no conclusive evidence that spending on IT improves financial performance. The present chapter attempts to link banking technology with the financial productivity and profitability of Andhra Bank & ICICI banks The chapter analyzes the performance of Andhra Bank & ICICI Banks in terms of productivity and profitability in the pre and post e-banking period. 5.1 Road Ahead: Turnaround Success Strategy: Productivity and profitability are interrelated. Though productivity is not the sole factor, it is an important factor influencing profitability. The key to increase profitability 352 Uppal.R.K, Banking Sector Reforms: Policy Implications and Fresh Outlook, Information Management and Business Review Vol. 2, No. 2, pp.55-64, Feb 2011. 353 Dr. Dhiraj Sharma, & Dr. R.K Uppal, IT-Productivity Paradox in Banks A Study of India Banks in Hyper IT Era, IJBEMR Volume 1, Issue 1 (2010) ISSN-2229-4848. 354 The term Technology has many definitions. Technology or Information Technology refers to the knowledge of using tools and machines to do tasks efficiently. For the purpose of present study Technology/ Information Technology refers to the use of computers and other electronic equipments to store and send information (Cambridge Learner's Dictionary, 2004. 189

is increased productivity. Public sector banks have not been as profitable as the other banks primarily because of two reasons--low Productivity and High Burden ratio. Since the process of liberalization and reform of the financial in the financial sector were introduced in 1991, banking sector has undergone major transformation.. As per the IBA report "Banking Industry Vision 2010" there would be greater presence of international players in the Indian. The key to success in the competitive environment is increased productivity and profitability. Indian banks especially the public sector banks and the old private sector banks are lagging far behind their competitors in terms of both productivity and profitability with the exception of the State bank of India and its associates. The other public sector banks and old private sector banks need to go for the major transformation program for increase their productivity and profitability 355. To overcome these drawbacks private banks should chalk out a program to increase productivity. The underlying objectives of the reform will make the banking system more competitive, productive and profitable. Reduces overstaffing Forge strategic alliance with the rural regional banks to open up rural branches and Increased use of technology for improved products and services for the same Development and implementation of nationwide standards for smart cards including instructions on interoperability. 190

Change in the guidelines covering smart card issue: along with the development of the above mentioned standards, the guidelines too must be modified keeping in mind the rural and in some senses a remote market segment. Eligibility of clients: Banks should be allowed to issue smart cards to customers without a bank account or a history of savings and credit servicing. Such measures allow banks to reach out to the poorest of customers who in a majority of cases would have no banking history. Written reports and receipts: though banks should attempt to provide receipts of transactions to its customers, such a condition should not be a compulsion on the bank especially when the bank is attempting to service large number of rural clients. Allowing appointment of third parties for banking: Banks can collaborate with third parties acting as agents to expand their outreach exponentially and provide doorstep banking to the rural population 356. Indian public sector banks have a unique advantage over their competition in terms of their branch network and the large customer base, but it is the use of technology that will enable PSBs to build on their strengths. No doubt, technology is taking place but this speed is quite slow in Indian banking industry particularly, in public sector banks 357. The future outlook demands heavy investment in information technology. Foreign banks and the new private sector banks have embraced technology right from 356 Amitabh Verma, Lecturer, Birla Institute of Technology, Ranchi, The impact of technology on productivity and profitability of Indian banks in post liberalization period, Foundation for Organisational Research & Education, www.thefreelibrary.com. Jul, 2009. 357 Uppal.R.K, E-Delivery channels in Banks - A Fresh outlook, Researchers Word, International Refereed Research Journal www..researchersworlld..com,vol. II, Issue 1,January 2011. 191

their inception and they have better adapted themselves to the changes in technology. Where as the public sector banks and old private banks have been slow in keeping pace with the changing technology, which is regarded as one of the major reason affecting their profitability and productivity. However, the future of banking will be one in which customers can address most of their needs through self-directed means and the key differentiator will be how effective a bank is in getting its customers online and deriving measurable value from this presence. One can sum up the whole Internet banking scenario with the adage, "For while winners may not see massive gains, the losers will fade from view as their ability to compete is eroded with every mouse click. 358 5.2 Database To calculate the financial performance of this analysis, The data has been collected from Money control.com, financial ratios from the Annual Reports of Andhra Bank & ICICI Bank from 1999-2000 to 2009-2010, RBI Annual Reports, Statistical tables relating to India Economy 1999-2000 to 2009-2010, RBI Trend & Progress Report, Profile of Banks 1999-2000 to 2009-2010, Performance Highlights of Indian Banks Association IBA-Mumbai 1999-2000 to 2009-2010. A number of websites of both Indian and foreign universities and academic institutes were also browsed to gather more information for the present study. 5.3 Methodology 358 Amitabh Verma, Lecturer, Birla Institute of Technology, Ranchi, The impact of technology on productivity and profitability of Indian banks in post liberalization period, Foundation for Organisational Research & Education, www.thefreelibrary.com. Jul, 2009. 192

The study is an analysis of financial performance of the Andhra Bank & ICICI Bank. By classifying the banks on the basis of different financial values of the selected banks the performance can be measured. The study of financial performance of banks has been carried out from the year 1999 to the year 2010. Time period has been divided deliberately into two parts i.e. pre e-banking period and post e-banking period. Pre e-banking period ranges between 1999-2000 to 2001-2002 and the Post e-banking period ranges between 2002-2003 to 2009-2010. The period from the years 1999-2000 to 2001-2002 has been taken as India s Pretechnology Induction Era while Post technology Induction Era has been considered to be effectively started from 2002 onwards. During the period 1999-2000 to 2001-2002, the technological applications in the Indian banking sector were not very developed and mature. Moreover, new private sector banks started entering the Indian banking industry in a big way from the year 1999. The technological boost only came after the implementation of IT Act. The Indian government gave its assent to the act in October 2000 but the Information Technology Act which is a comprehensive legislation for IT applications in the business, became effective only after 2002. The Act has brought the structure, legal validity and authenticity for transacting and making payments online. Hence, the period after 2002 has been termed as Post Technology Induction Era. Another reason for assuming such period as Post Technology Induction Era is that in India E- banking and Internet banking services started in full-swing only 2002 onwards. The performance of a bank can be measured by a number of indicators. Productivity and profitability are the most important and reliable indicators of the capacity 193

of a bank to increase its size and earnings. For measuring the profitability and productivity of selected banks, the present study employs two methods viz., ratio analysis and Profitability gap. To compare the performance of selected banks in pre and post e-banking period, ratio analysis method is used. The following ratios are analyzed to examine the performance of the selected banks with respect to profitability and productivity. 5.3.1 Profitability Analysis Three sets of ratios have been employed for assessing the profitability of commercial banks; viz. spread ratio, burden ratios and profitability ratios. 1. Spread ratios Spread which is the difference between interests earned (on loans and advances) and interest paid (on deposits and borrowings) by the banks a major rate in determining the profitability of banks. A. Interest earned as a percentage of Total assets B. Interest paid as a percentage of Total assets C. Spread as a percentage of Total assets 2. Burden Ratios Burden is defined as the difference between non- interest expenditure and non interest expenditure and non-interest income of the banks. A. Non interest expenditure as a percentage of Total assets 194

B. Non interest income as a percentage of Total assets C. Burden as a percentage of Total assets 3. Profitability Ratios Profitability is a ratio of earnings to the funds used. It stands for profits deflated by the size of the unit and indicates the efficiency with which a bank deploys its total resources of maximize its profit. A. Net Profit as a percentage of Total income B. Net Profit as a percentage of Total deposits C. Net Profit as a percentage of Total assets 5.3.2 Productivity Analysis The present study also analyses the productivity of various bank groups on the following basis. 1. Employee Productivity: A. Deposits per employee B. Credit per employee C. Total expenditure per employee D. Total earning per employee 2. Branch productivity: A. Deposits per branch B. Credit per branch C. Total expenditure per branch D. Total earning per branch 5.4 Data Analysis 195

For analysis of data two important statistical tools viz. mean and T-test has been used to arrive at conclusions in scientific way. 5.5 Profitability Analysis: Profitability of banks is governed by several factors, some of them endogenous, some exogenous to the system and yet structural 359. The profitability, which is an important criteria to measure the performance of banks in addition to productivity, financial and operational efficiency, has come under pressure because of changing environment of banking 360. An efficient management of banking operations aimed at ensuring growth in profits and efficiency requires up-to-date knowledge of all those factors on which the bank is profit depends. The profitability of Indian banks have increased since the second generation banking reforms and among the several bank groups. In this section we have presented an analysis of profitability in Andhra Bank and ICICI Bank during pre & post e-banking period. The mean gap between two periods that is pre and post e-banking period has been calculated of each parameter. The selected indicators are as follows: The profitability shows the average of following ratios. 1. Spread ratios 2. Burden ratios 3. Profitability ratios 359 V.B. Angadi and V John Devraj, Productivity and Profitability of Banks in India, Economic and Political Weekly Vol.18, no.48, Nov 26, 1983. 360 B.S.Badola and Richa verma, Determinants of Profitability of Banks in India A Multivariate Analysis, Delhi Business Review X Vol. 7, No. 2, July - December 2006. 196

5.5.1 Spread Ratios: In this section we have presented the following spread ratios. A. Interest earned as a percentage of Total Assets B. Interest paid as a percentage of Total Assets C. Spread as a percentage of Total Assets 5.5.1.a Ratio of Interest Earned as a Percentage of Total Assets (IE %TAs) This ratio is an indicator of the rate at which a commercial bank earns income by lending the funds to the public. The higher ratio is an indicator of efficient management of banks total assets. As evident from the table 5.5.1.a. in the case of Andhra Bank, the interest earned as a per cent of TAs was 10.24 percentage in pre-e-banking period came down to 8.05 per cent in post e-banking period. There is decrease of 2.18 per cent mean gap between post e-banking period and pre e-banking period. The t-test exhibits significant difference in the mean of two periods at 0.1 per cent level of significance. In the case of the ICICI Bank, a mean gap of 0.82 per cent is evident between the two periods. The mean of post e- banking period has become 7.56 per cent which was 6.74 per cent in pre-e-banking period. The t-test exhibits insignificant difference in the means of two periods. On the whole, it can be concluded that in Indian banking due to decline in interest rates, the mean of the said ratio declined between pre-e-banking period and post e- banking period. As regards interest earned there is a significant difference between pre e- banking and post e-banking period in the Andhra Bank where as it is not significant in the ICICI Bank. 197

Table - 5.5.1.a.: Interest Earned as a Percentage of Total Assets (IE %TAs) Rs. Crores IE%TAs Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 10.24 6.74 Post e-banking (x 2 ) 8.05 7.56 Mean Gap 2.18 0.82 S.E 0.52 1.04 t-value 4.17 0.79 LOS ** NS Note: x 1 = mean of Pre-e-banking, x 2 = mean of Post-e-banking, S.E: Standard Error LOS: Level of Significance, NS - Not Significant, Source: Money control.com, financial ratios of Andhra Bank & ICICI Bank 1999-2000 to 2009-2010.RBI Annual Reports, Statistical tables relating to India 1999-2000 to 2009-2010. RBI Trend & Progress Report, Profile of Banks 1999-2000 to 2009-2010. Performance Highlights, IBA, Mumbai 1999-2010. ** Mean is Significant at the 0.01 level (1-tailed) 12 10 8 6 4 Pre e-banking Post e-banking 2 0 Andhra Bank ICICI Bank Source: Table 5.5.1.a. 198

5.5.1.b Ratio of Interest Paid as a Percentage of Total Assets: Interest expended to total assets ratios shows the rate at which a private bank incurs expenditure by borrowing funds. Interest expenses by bank refers to fund bases expenditure which consists of interest paid on total deposit (time deposit plus saving deposit plus demand deposit ) and interest paid on external borrowings (debt). As evident from the table 5.5.1.b. in the case of Andhra Bank, Due to reduction in interest rates in public sector banks the profit of banks decreases because of which, the mean of post e- banking period become 4.66 per cent which was 6.72 per cent in pre-ebanking period. There is decrease of 2.07 per cent mean gap between post e- banking period and pre-e-banking period and is significant at.01 per cent level of significance. In the case of ICICI Bank the mean in pre-e-banking period was 3.75 per cent and in post e- banking period is 5.28. The mean gap of profitability in ICICI Bank is 1.53 per cent is evident between the two periods. The t-test shows an insignificant difference in the means of both periods. As far as interest paid as percentage of total assets is concerned there is no significant difference in Andhra Bank when compared to ICICI Bank. So this reflects again the confidence of the people in the public sector banks. The public sector banks are forced to reduce the ratio of interest paid, to avoid unforeseen risks of the market and high accumulation of NPAs. ICICI Bank, it is interesting to find that the bank has increased the ratio of interest payable, which may be due to large amount of business with less number of branches. 199

Table - 5.5.1.b.: Interest Paid as a Percentage of Total Assets (IP % TAs) Average IP%TAs Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 6.72 3.75 Post e-banking (x 2 ) 4.66 5.28 Mean Gap 2.07 1.53 S.E 0.49 0.98 t-value 4.23 1.57 LOS ** NS Note: S.E: Standard Error, LOS: Level of Significance. NS - Not Significant, Source: same as table 5.5.1.a. ** Mean is Significant at the 0.01 level (1-tailed) 7 6 5 4 3 2 1 0 Andhra Bank ICICI Bank Pre e-banking Post e-banking Source: Table 5.5.1.b 200

5.5.1.c Spread as a Percentage of Total Assets (S%TAs) Spread which is the difference between interest earned (on loans and advances) and interest paid (on deposits and borrowings) by the banks plays a major rate in determining the profitability of banks. As evident from the table 5.5.1.c. in the case of Andhra Bank, the spread as a percentage of total assets was 2.86 per cent in pre-e-banking period and 3.05 per cent in post e-banking period. The gap between two periods is increased by 0.19 per cent. Therefore the t-test exhibits insignificant difference in the means of two periods. In the case of the ICICI Bank, the spread as percentage of total assets was1.82 per cent in pre e- banking period and 1.92 per cent in post e-banking period. The gap between two periods is.01 per cent which is almost negligible. The t-test exhibits insignificant difference in the means of two periods. Comparatively the mean gap of both banks shows increase this may be due to more interest earned on loans and advances determining profitability of banks. Thus Andhra Bank is more in profits than ICICI Bank. 201

Table 5.5.1.c. : Spread as a Percentage of Total Assets (S%TAs) S%TAs Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 2.86 1.82 Post e-banking (x 2 ) 3.05 1.92 Mean Gap 0.19 0.10 S.E 0.28 0.32 t-value 0.67 0.34 LOS NS NS Note: S.E: Standard Error, LOS: Level of Significance. NS - Not Significant, Source: same as table 5.5.1.a. 3.5 3 2.5 2 1.5 1 0.5 0 Andhra Bank ICICI Bank Pre e-banking Post e-banking Source: Table 5.5.1.c. 202

5.5.2 Burden ratio: Burden is defined as the difference between non- interest expenditure and non interest expenditure and non-interest income of the banks. A. Non interest expenditure as a percentage of Total assets B. Non interest income as a percentage of Total assets C. Burden as a percentage of Total assets 5.5.2.a Non - Interest Expenditure as a Percentage of Total Assets Non interest expenditure of a bank represents manpower expenses, establishment charges and other contingent expenses. As evident from the table 5.5.2.a. in the case of Andhra Bank, the non interest expenditure as a percentage of total assets is 3.14 per cent in pre e-banking period which decreased to 3.07 per cent in post-e-banking period. There is a little mean gap 0.07 per cent between two periods. The t-test shows an insignificant difference in the means of two periods. In the case of the ICICI Bank, the non-interest expenditure as a percentage of total assets is 1.81 per cent in pre e-banking period which increased to 2.94 per cent in post e-banking period. The mean gap is 1.13 per cent. The t-test exhibits significant difference in the mean of two periods at.01 per cent level of significance. Comparatively the burden on Andhra Bank is less compared to ICICI. This may due to decrease in manpower expenses in Andhra Bank as there is decrease in no. of employees where as in ICICI bank there may be increase in ratio due to of expansion of premises. 203

Table 5.5.2.a : Non - Interest Expenditure as a Percentage of Total Assets (NIE%TAs) NIE%TAs Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 3.14 1.81 Post e-banking (x 2 ) 3.07 2.94 Mean Gap 0.07 1.13 S.E 0.40 0.31 t-value 0.18 3.59 LOS NS ** Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant, Source: same as table 5.5.1.a. ** Mean is Significant at the 0.01 level (1-tailed) 3.5 3 2.5 2 1.5 1 0.5 0 Andhra Bank ICICI Bank Pre e-banking Post e-banking Source: Table 5.5.2.a. 204

5.5.2.b Non - Interest Income as a Percentage of Total Assets (NII % TAs) Non interest income of banks represents income earned by way of commission, brokerage service charges and other miscellaneous receipts. As evident from the table 5.5.2.b. in the case of Andhra Bank the mean in pre-e-banking period was 1.31 per cent which has increased to 1.60 per cent in post e-banking period. The mean gap in pre and post e-banking period is 0.29 per cent. The t-test shows insignificance. In the case of the ICICI Bank the mean in pre e-banking period was 1.09 per cent which increased to 2.23 per cent in post e-banking period. The mean gap in pre and post e-banking periods is 1.14 per cent. The t-test shows insignificant difference in both periods at.01 per cent level of significance. Comparatively the mean gap is higher in ICICI Bank (1.14 per cent) when compared to Andhra Bank (0.29 per cent). The difference of non interest income between pre and post e-banking in both banks can be attributed to services charges, commissions, brokerage service charges and other miscellaneous receipts. This shows more efficiency of ICICI Bank when compared to Andhra Bank. 205

Table 5.5.2.b: Non - Interest Income as a Percentage of Total Assets (NII % TAs) NII%TAs Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 1.31 1.09 Post e-banking (x 2 ) 1.60 2.23 Mean Gap 0.29 1.14 S.E 0.42 0.26 t-value 0.71 4.41 LOS NS ** Note: S.E: Standard Error, LOS: Level of Significance. NS - Not Significant, Source: same as table 5.5.1.a. ** Mean is Significant at 0.01 level (1-tailed) 2.5 2 1.5 1 0.5 Pre e-banking Post e-banking 0 Andhra Bank ICICI Bank Source: Table 5.5.2.b. 206

5.5.2.c Burden as a Percentage of Total Assets (B%TAs) Burden is defined as the differences between non-interest expenditure and noninterest income of the banks As evident from the table 5.5.2.c. in the case of Andhra Bank the mean was 1.83 per cent in pre e-banking banking period which decreased to 1.46 per cent in post e-banking period. The mean gap is 0.37 per cent between the two periods. The t-test exhibits significant difference in the means of two periods at.01 per cent level of significance. In the case of the ICICI Bank the burden as a percentage of total assets is same 0.71 per cent in pre-e-banking period and in post e-banking period. There is no mean gap in pre and post e-baking period. The t-test shows an insignificant difference in the means of two periods. The mean gap in both banks shows a profitable position. This may be attributed to decrease in non interest expenditure and increase in non interest income. 207

Table 5.5.2.c. : Burden as a Percentage of Total Assets (B%TAs) B%TAs Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 1.83 0.71 Post e-banking (x 2 ) 1.46 0.71 Mean Gap 0.37 0.01 S.E 0.14 0.27 t-value 2.60 0.02 LOS ** NS Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant, Source: same as table 5.5.1.a. ** Mean is significant at 0.01 level (1-tailed) 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Andhra Bank ICICI Bank Pre e-banking Post e-banking Source: Table 5.5.2.c. 208

5.5.3 Profitability Ratios Profitability is a ratio of earnings to the funds used. It stands for profits deflated by the size of the unit and indicates the efficiency with which a bank deploys its total resources of maximize its profit. A. Net Profit as a percentage of Total income B. Net Profit as a percentage of Total deposits C. Net Profit as a percentage of Total assets 5.5.3.a Net Profit as a percentage of Total Income (NP%TI) Net profit implies the balance of profit as per profit & loss account. This ratio indicates the efficiency with which a bank deploys its total assets in order to increase its profitability and serves as an index to the degree of asset utilization by banks. As evident from the table 6.22.1 in the case of Andhra Bank the mean was 7.23 per cent in pre e- banking period which increased to 15.15 per cent in post-e-banking period. There is a mean gap of 7.92 per cent and it is significant at.01 per cent level of significance. In the case of the ICICI Bank the mean was 7.58 per cent in the pre e-banking period which increased to 11.86 per cent in post e- banking. The mean gap between pre and post e- banking period is 4.27 per cent. The t-test exhibits insignificant difference in the means of two periods. Comparatively the net profit as a percentage of total income has doubled in Andhra Bank when compared to ICICI Bank. This may be due to efficiency of Andhra Bank in deploying its total assets as a result there is increase in profitability. Andhra bank shows more efficiency when compared to ICICI bank. 209

Table 5.5.3.a.: Net Profit as a percentage of Total Income (NP%TI) NP%TI Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 7.23 7.58 Post e-banking (x 2 ) 15.15 11.86 Mean Gap 7.92 4.27 S.E 1.89 2.29 t-value 4.20 1.87 LOS ** NS Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant, Source: same as table 5.5.1.a ** Mean is significant at 0.01 level(1-tailed) 16 14 12 10 8 6 4 2 0 Andhra Bank ICICI Bank Pre e-banking Post e-banking Source: Table 5.5.3.a. 210

5.5.3.b Net Profit as a percentage of Total Deposits (NP% TD) As evident from the table 6.22.1 in the case of Andhra Bank, the net profit as a percentage of total deposits was only 0.86 per cent in pre-e-banking period which increased to 1.62 per cent in post e-banking period. The mean gap is 0.76 per cent between the pre and post e-banking period. The t-test shows significant difference in the means of two periods at.01 per cent level of significance. In the case of the ICICI Bank the mean in pre-e-banking period was 0.98 per cent which increased to 1.90 per cent in post e-banking period. The mean gap is 0.92 per cent between two means. The t-test exhibits significant difference in the means of two periods at.01 per cent level of significance. Comparatively ICICI bank s Net profit as a per cent of total deposits shows a better profitable ratio when compared to Andhra Bank. This may be attributed to high net profits and lowering of total deposits. 211

Table 5.5.3.b.: Net Profit as a percentage of Total Deposits (NP% TD) \ NP%TD Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 0.86 0.98 Post e-banking (x 2 ) 1.62 1.90 Mean Gap 0.76 0.92 S.E 0.30 0.25 t-value 2.59 3.75 LOS ** ** Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant, Source: same as table 5.5.1.a. ** Mean is significant at 0.01 level (1-tailed) 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Andhra Bank ICICI Bank Pre e-banking Post e-banking Source: Table 5.5.3.b. 212

5.5.3.c Net Profit as a Percentage of Total Assets (NP % TAs) As evident from the table 5.5.3.c. in the case of Andhra Bank the net profit as per cent of total assets was 0.77 per cent in pre-e-banking period which increased to 1.39 per cent in post e-banking period. The mean gap is 0.62 per cent between the two periods. The t-test exhibits significant difference in the means of two periods at.05 per cent level of significance. In the case of the ICICI Bank the mean in pre e-banking period was 0.66per cent which increased to 1.08 per cent in post e-banking period. The mean gap in two periods is 0.42per cent. Comparatively, the mean gap is higher in Andhra Bank than ICICI Bank. This may be due to improved efficiency of Andhra bank which resulted in increase of profits. Thus it can be concluded that in the ongoing analysis of average profitability gap between public and private sector bank indicates that there is a little change in profitability of ICICI Bank. But there is paradigm shift in profitability of Andhra Bank. 213

Table 5.5.3.c.: Net Profit as a Percentage of Total Assets (NP % TAs) NP%TAs Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 0.77 0.66 Post e-banking (x 2 ) 1.39 1.08 Mean Gap 0.62 0.42 S.E 0.24 0.14 t-value 2.53 3.09 LOS * NS Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant Source: same as table 5.5..1.a. * Mean is significant at 0.05 level (2-tailed) 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Andhra Bank ICICI Bank Pre e-banking Post e-banking Source: Table 5.5.3.c. 214

5.6 Productivity Analysis Productivity is a ratio of input and output 361. When we talk of productivity, we enter into the area of employee efficiency, branch efficiency which has definite bearing on the profitability. If the funds are used efficiently due to higher productivity of personnel it will definitely lead to higher profitability. Therefore, the most important aspect of organizational profitability management is its productivity. The present section analyzes the Employee Productivity, Branch Productivity. The present study also analyses the productivity of various bank groups on the following basis. 5.6.1 Employee Productivity: A. Deposits per employee B. Credit per employee C. Total expenditure per employee D. Total earning per employee 5.6.1.a Deposit per employee (D/E) As evident from the table 5.6.1.a. in the case of Andhra Bank, the average of deposits per employee was only 1.25 per cent during pre-e-banking period but they have become almost three times in post e-banking period 3.05 per cent. The gap between pre and post e-banking period is 1.80 per cent. The t-test shows significant change in means of two periods in deposits per employee at.05 per cent level of significance. 361 T T Ram Mohan and Subhash C. Ray, Productivity and efficiency at public and private sector banks in India,Document 1462007490.7004358.pdf. 215

In the case of the ICICI Bank, the average of D/E which was 4.10 per cent in pre e-banking period. Now in post e-banking period there is a tremendous change of 5.77 per cent which follows a gap of 1.67 per cent. There is a significant change between the means of two periods in deposits per employee at.01per cent level of significance. The mean gap of Andhra Bank is higher than ICICI Bank. This may be attributed to training and development given to employees which further helped in bring out the quality in them, secondly increased rates of interest payable attracted more deposits. 216

Table 5.6.1.a.: Deposit per employee (D/E) D/E Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 1.25 4.10 Post e-banking (x 2 ) 3.05 5.77 Mean Gap 1.80 1.67 S.E 0.80 0.53 t-value 2.26 3.16 LOS * ** Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant Source: same as table 5.5.1.a. * Mean is significant at 0.05 level (2-tailed) ** Mean is significant at 0.01 level (1-tailed) 6 5 4 3 2 Pre e-banking Post e-banking 1 0 Andhra Bank ICICI Bank Source: Table 5.6.1.a. 217

5.6.1.b Credit per Employee (C/E) As evident from the table 5.6.1.b. in the case of Andhra Bank, the average of credit per employee was only 0.76 per cent during pre-e-banking period but there is a tremendous increase in post e-banking which has become 1.77 per cent. The gap between pre and post e-banking period is very large, i.e. 1.02 per cent. The t-test shows insignificant difference in means of two periods. In the case of the ICICI Bank, the average of C/E is very high in pre-e-banking i.e. 6.08 per cent but it reduced to 5.35 per cent in post e-banking period with a mean gap of 0.73 per cent between the two periods. The t-test exhibits insignificant difference in means of two periods. The mean gap of Credit per Employee in Andhra Bank is 1.02 per cent which is two times of ICICI Bank, it may be due to increased credit port folios and also increase in Non- performing assets. With regards to credit per employee there is no significant difference between pre and post e-banking period in both banks. 218

Table 5.6.1.b.: Credit per Employee (C/E) C/E Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 0.76 6.08 Post e-banking (x 2 ) 1.77 5.35 Mean Gap 1.02 0.73 S.E 0.64 0.38 t-value 1.58 1.91 LOS NS NS Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant Source: same as table 5.5.1.a. 7 6 5 4 3 2 Pre e-banking Post e-banking 1 0 Andhra Bank ICICI Bank Source: Table 5.6.1.b 219

5.6.1.c Total Expenditure per Employee (TEXP/E) As evident from the table 5.6.1.c in the case of Andhra Bank, the average of total expenditure per employee was 0.16 per cent in pre-e-banking period but increased to 0.47 per cent in post e-banking period. The mean gap between pre and post e-banking period is 0.31per cent. The t-test shows insignificant change in means of two periods. In the case of the ICICI Bank, the mean during pre-e-banking period was 0.32 per cent and it increases up to 0.81 per cent in post e-banking period. There is a minor mean gap of only 0.49 per cent between pre and post e-banking period. The t-test shows significant change in means of two periods at.01 per cent level of significance. Comparatively in Andhra Bank the total expenditure per employee during pre and post e-banking period is less than ICICI bank. This may be due to increased in Training and development programmes, attractive incentive packages to employees to motivate them. 220

Table 5.6.1.c: Total Expenditure per Employee (TEXP/E) TEXP/E Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 0.16 0.32 Post e-banking (x 2 ) 0.47 0.81 Mean Gap 0.31 0.49 S.E 0.34 0.09 t-value 0.92 5.42 LOS NS ** Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant Source: same as table 5.5.1.a ** Mean is significant at 0.01 level (1-tailed) 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Andhra Bank ICICI Bank Pre e-banking Post e-banking Source: Table 5.6.1.c 221

5.6.1.d Total Earning per Employee (TE/E) As evident from the table 5.6..1.d. in the case of Andhra Bank, the total earning of employee was only 0.18 per cent during pre-e-banking period which is increased to 0.31 per cent in post e-banking period the mean gap between the two periods is 0.13 per cent which follows an insignificant change according to t-test. In the case of the ICICI Bank, the total earning of employee of pre-e-banking period was 0.35per cent which increased to 0.92 per cent in post e-banking period. The mean gap is 0.57 per cent between pre & post e-banking. The t-test shows significant change in means of two periods at 0.01 per cent level of significance. Comparatively the mean gap of total earning per employee in ICICI Bank is four times that of Andhra Bank. This may be attributed to increased motivation levels of employees. 222

Table 5.6.1.d.: Total Earning per Employee (TE/E) TE/E Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 0.18 0.35 Post e-banking (x 2 ) 0.31 0.92 Mean Gap 0.13 0.57 S.E 0.07 0.09 t-value 1.90 6.32 LOS NS ** Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant Source: same as table 5.5.1.a. ** Mean is significant at 0.01 level (1-tailed) 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Andhra Bank ICICI Bank Pre e-banking Post e-banking Source: Table 5.6.1.d. 223

5.6.2 Branch Productivity 5.6.2.a Deposits per Branch (D/B) As evident from the table 5.6.2.a. in the case of Andhra Bank, during the pre e- banking period the average of branch productivity in deposits is 17.24 per cent which increased to 30.78 per cent in post e-banking period. The mean gap between the mean of two periods is 13.54 per cent. The t-test exhibits significant difference in the two means at.01 level of significance. In the case of the ICICI Bank, the branch productivity in deposits is 8.37 per cent in pre e-banking period which increased to 194.10 per cent in the post e-banking period. The mean gap is 104.73 per cent. The t-test shows significant difference between two means at.05 per cent level of significance. The mean gap of ICICI Bank in pre and post e-banking period is higher than Andhra Bank. This can be attributed to less number of branches in ICICI bank when compared to Andhra Bank. 224

Table 5.6.2.a: Deposits per Branch (D/B) Average D/B Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 17.24 89.37 Post e-banking (x 2 ) 30.78 194.10 Mean Gap 13.54 104.73 S.E 6.25 44.68 t-value 2.17 2.34 LOS * * Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant Source: same as table 5.5.1.a. *Mean is significant at 0.05 level (2-tailed) 200 180 160 140 120 100 80 60 40 20 0 Andhra Bank ICICI Bank Pre e-banking Post e-banking Source: Table 5.6..2.a. 225

5.6.2.b Credit per Branch (C/B) As evident from the table 5.6..2.b. in the case of Andhra Bank, the mean in credit per branch productivity was 9.03 per cent in pre-e-banking period but increase to 20.69 per cent in post e-banking period. The mean gap is 11.66 per cent between two periods. The t-test exhibits a significant gap in two means at.05 per cent level of significance. In the case of the ICICI Bank, the average branch productivity in credit in pre e- banking period is 131.01 per cent which increased to 177.86 per cent in post e-banking. The mean gap between the means of two periods is 46.85 per cent. The t-test shows insignificant difference between two means. Comparatively the mean gap between the two banks ICICI Bank is higher than Andhra Bank. This may be due to increased credit portfolios. 226

Table 5.6..2.b.: Credit per Branch (C/B) C/B Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 9.03 131.01 Post e-banking (x 2 ) 20.69 177.86 Mean Gap 11.66 46.85 S.E 5.33 34.92 t-value 2.19 1.34 LOS * NS Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant Source: same as table 5.5.1.a. *Mean is significant at 0.05 level (2-tailed) 180 160 140 120 100 80 60 40 20 0 Andhra Bank ICICI Bank Pre e-banking Post e-banking Source: Table 5.6.2.b 227

5.6.2.c Total Expenditure per Branch (TEXP/B) As evident from the table 5.6.2.c. in the case of Andhra Bank, the average of total expenditure per branch in Andhra bank was 1.99 per cent in pre e-banking period which increased to 2.72 per cent in post e-banking period. The mean gap between two periods is 0.73 per cent. In the case of the ICICI Bank, the average branch productivity in terms of total expenditure in pre e-banking period was 6.89 per cent which increased to 26.26 per cent in post e-banking period. The mean gap between two periods is 19.37 per cent. The t- test exhibits significant difference in the means of two periods at.01 per cent level of significance. The mean gap between pre and post e-banking period of Andhra Bank is less than ICICI Bank. This may be due to huge cost of computerization, training and advertisements and other related expenditure. 228

Table 5.6.2.c : Total Expenditure per Branch (TEXP/B) TEXP/B Average Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 1.99 6.89 Post e-banking (x 2 ) 2.72 26.26 Mean Gap 0.73 19.37 S.E 0.47 3.67 t-value 1.54 5.28 LOS NS ** Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant Source: same as table 5.5.1.a. ** Mean is significant at 0.01 level (1-tailed) 30 25 20 15 10 Pre e-banking Post e-banking 5 0 Andhra Bank ICICI Bank Source: Table 5.6.2.c. 229

5.6.2.d Total Earning per Branch (TE/B) As evident from the table 5.6.2.d. in the case of Andhra Bank, the average branch productivity in terms of total earning is 2.18 per cent in pre e-banking period which increased to 3.18 per cent in pre-e-banking period. The mean gap is 1.00 per cent between these two periods. The t-test shows significant difference between the means of two periods at.05 level of significance. In the case of the ICICI Bank, the bank indicates a mean gap of 29.75 per cent in pre-e-banking period which decreased to 22.12 per cent in post e- banking period. The gap between post e-banking period and pre-e-banking period is 7.63 per cent. The t-test shows significant difference between means of two periods at.05 per cent level of significance. The mean gap of total earnings per branch in Andhra Bank is higher than ICICI Bank during the period of pre and post e-banking period. This can be attributed to increased earning in various branches due to technological upgradation in bank. 230

Table 5.6.2.d.: Total Earning per Branch (TE/B) Average TE/B Andhra Bank ICICI Bank Pre-e-banking (x 1 ) 2.18 29.75 Post e-banking (x 2 ) 3.08 22.12 Mean Gap 1.00 7.63 S.E 0.51 3.96 t-value 1.99 5.59 LOS * * Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant Source: same as table 5.5.1.a. * Mean is Significant at the 0.05 level (2-tailed) 30 25 20 15 10 Pre e-banking Post e-banking 5 0 Andhra Bank ICICI Bank Source: Table 5.6.2.d. 231

5.7 Conclusion: The following is the summary of the conclusions drawn in this chapter. 1. As regards spread ratios in interest earned, interest paid on total assets, there is an increase from pre e-banking period due to decline in interest rates. Here the Andhra bank is more efficient than ICICI Bank. 2. With regards to burden ratios on non interest expenses, non interest income, burden on total assets, the efficiency of post e-banking period is higher than pre e- banking period in ICICI Bank when compared to Andhra Bank. 3. With regards to profitability ratios there is a huge improvement in net profit on total income in Andhra Bank and ICICI Bank. Here the Andhra bank is more efficient than ICICI Bank. The efficiency of post e-banking period in net profit on total deposits is increases horizontally in Andhra Bank and ICICI Bank. The efficiency of Andhra Bank in net profit on total assets has been increasing in post e-banking period than ICICI Bank. 4. A paradigm shift in the profitability of both banks in pre and post e-banking period exhibits that the parameters like I/E, I/P, Spread on total assets, Net profit as % of - total income, total deposits, (except total assets) have the mean gap on the top in Andhra Bank. The mean gap in burden ratios on total assets is the highest in ICICI Bank. 5. From the employee productivity, the deposit per employee efficiency of ICICI Bank is more than Andhra Bank. Compared to Andhra Bank the credit per employee of ICICI Bank is very high in pre e-banking period, it is almost equal in 232

post e-banking period. And the total expenditure per employee is high in ICICI Bank than Andhra Bank. The total earnings per employee between two banks, ICICI Bank is more efficient in post e-banking period than pre e-banking period. Employee productivity in parameters like D/E, C/E is higher in Andhra Bank, but in TEXP/E, TE/E is high in ICICI Bank. 6. After analyzing the branch productivity, the efficiency in deposit per employee, credit per employee, total expenditure per employee, total earning per employee D/B, C/B, TEXP/B, TE/B is very high in ICICI Bank than Andhra Bank. The mean gap in operational productivity on total assets is the highest in Andhra Bank (except NII on TA). The analysis concluded that transformation is taking place almost in all categories of the banks. This transformation will be helpful to cope with new economic and financial policies of the banks. IT is playing a crucial role to create the drastic changes in the banking industry particularly in the new private sector and foreign banks. The private banks take a big share of cake; public sector banks are still lagging behind due to various financial parameters. The immense opportunities are also available for the public sector banks if they change / modify and adapt to new policies to combat the recent challenges. It can be concluded that mere introduction of IT alone is not sufficient to bring necessary performance improvement and to get the competitive edge. Efficient people are required to use new technological tools. Thus, IT management is a challenge in future banking scenario. 233

Most customers are of the view that liberalization has played a crucial role in the development of the Indian banking industry by making banking more efficient and customer friendly. Private Banks are tech savvy and have compelled nationalized banks to think of new schemes and innovative ideas to retain their loyal customers. Youngsters who began banking in the flexible hour ATM (All Time Money) era, find the bouquet of services, particularly convenient banking options more appealing which are being offered by private banks. To attract young generation public sector banks are also catching up fast 362. The recent global financial crisis has taught several lessons to the world banking system. The worst suffers are the so called more developed/industry like India, has least impact of the financial crisis. This is a blessing in disguise. The Indian banking system has never deviated from the fundamental principles of banking according to Dr.Y.V. Reddy, the Former Governor, Reserve Bank of India. However, the performances of Indian banks whether private or public have to respond to the globalization process and rise to the international standards. To achieve this Indian banking system must introduce technology enabled services to the customers (both individuals as well as firms). 362 Tripti Nath, Nationalised banks Fare Well with Third Generation customers in Banking Sector in India, Yojana A Development Monthly, February, 2010. 234