INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH AND REVIEW PERFORMANCE APPRAISAL OF NEW PRIVATESECTOR BANKS IN INDIA Nishit V. Davda* 1 1 PhD Scholar, R.K.College of Business Management, Rajkot Bhavnagar Highway ABSTRACT Kasturbadham, Gujarat With the ongoing nationalization process of banking industry in India, the efficiency of banking has become of utmost importance. Private sector banking in India has been mushrooming ever since the process of nationalization has started. But still the major drawback of these private sector banking is related to the growing concern of the increasing Non Performing Assets i.e the irrecoverable part of the loan. The RBI has issued strict guidelines in this respect, and the banks are directed to follow this with special focus. This paper focuses on how banking in India can be improved based on the existing profitability criteria of banks, what measures can banks take to reduce their NPAs, how can technological innovations in banking provide good results, and over and above how banking as a sector can harness the growth and productivity of the service sector in India. It also focuses on the profitability tools that are applied to the banking sector to track their efficiency. Keywords: Nationalization, productivity, profitability, Non performing Assets, mushrooming. INTRODUCTION Banking sector play a very useful, important and dynamic role in the economic life of every country. Today, banking has become the part of economic life. It is very important of modern trade and commerce as it mobilizes the dormant capital of the country for productive purpose. The generation private sector banks were established with new standards with new technology and with good efficiency. These banks have also given tough and healthy competition to the public sector banks. These banks play a dominant role in the country s financial system. A historic decision is taken by Indian government in 1969 to nationalize 14 biggest private sector banks. And also after a few more years some banks were nationalized. The service standard of the public sector banks goes on decreases. Their profitability also goes on downwards trend and the work efficiency of the staff of public sector banks became suspect. We can say that NPA (Non Performing Assets) of public sector banks started to rise. RBI (RESERVE BANK OF INDIA) has categorized private sector bank in to two main group old private sector and new private sector banks. There are 25 total private sector banks in India. There are 18 Old Private Sector Banks and 7 new private sector banks formed by RBI. With the financial depression, the position of banks has very much important in our economy. From the different macroeconomic models, banks have been found to be a part of the supply *Corresponding Author www.ijmrr.com 1392
side of the economy. In this study, we shall deal with the role of banks in the context of the Indian economy. SIGNIFICANCE OF THE STUDY After bank nationalization process was over, some new issues became contextual that the service standards and profitability of public sector banks began to decline. Then also Non performing assets of public sector banks started to rise. The government had to make a drastic change or reforms in the financial sector. These allowed the coming up new private sector banks with good structural change with new standards with latest technology. RBI was given permission to start a new private sector banks as per the recommendation of Narasimham committee. These private sector bank give healthy competition to the public sector banks. Any company, any person or any investor who would like to be rational and scientific in his investment activity has to get and evaluate a lot of information about past performance and the expected future performance of the banks, hence the present study of new private sector banks, attempts to analyze the profitability position of the sample banks. This study help to find out the result of good profitability of new private bank, how it works on latest technology and use the modern way of working style. And what is the impact of their activity on our economy and on costumer? This study aims at searching out major problems and prospects of the sample bank and what are its strategy to compete with the other sector bank. Concept: Performance Appraisal Performance appraisal is a close and a critical study of various measures observed in the operation of business organization. The concept performance appraisal is purely a developmental tool. It is not merely the end product or final assessment. It is important as the whole process of appraisal. The learning opportunity for the appraiser and the appraise starts with setting of the tasks and targets. It manifests in the whole gamul of appraisal procedure such as self appraisal, appraisal interviews, final appraisal, grading and developmental planning etc. The concept of human body is similar to the concept and case of business organization. Human body requires medical check up and examination for maintaining fitness to body. Similarly, the performance of a business organization has got to be assessed periodically. REVIEW OF LITERATURE A literature review is a critical and in depth evaluation of previous research. And it is part of the scientific process. A literature review is a kind of text that aims to review the current knowledge which includes substantive findings and also it includes theoretical as well as methodological contribution to a particular topic. Author : DR.M.DHANABHAKYAM; M.KAVITHA Title : FINANCIAL PERFORMANCE OF SELECTED PUBLIC SECTOR BANKS IN INDIA Publisher : International Journal of Multidisciplinary Research Copyright 2012 Published by IJMRR. All rights reserved 1393
Year : January 2012 Methodology : To accomplish the objectives of the study, secondary data were used. Abstract : Dr. M. Dhanabhakyam and M. Kavitha has written this articles with the objective to enlighten and establishment of public sector banks and to analyze the financial position of selected public sector banks. The study covers a period from 2001 to 2010. In this study they used Ratio analysis, Correlation and regression as a tools and techniques. Author : DR. BIMAL ANJUM; RAJESHTIWARI Title : ROLE OF PRIVATE SECTOR BANKS FOR FINANCIAL INCLUSION Publisher : International Journal of Multidisciplinary Research Year : January 2012 Methodology : To accomplish the objectives of the study, secondary data were used. Abstract : The article explores the geographical distribution of private sector banks in India and its impact on financial inclusion. The article evaluates the correlation of number of private bank branches with economic freedom and ratio of development expenditure of states to gross state domestic product. Author : KAJAL CHAUDHARY AND MONIKA SHARMA Title : Performance of Indian Public Sector Banks and Private Sector Banks: A Comparative Study Publisher : Int. Journal of Innovation, Management and Technology Year : June 2011 Methodology : To accomplish the objectives of the study, secondary data were used. Abstract : Kajal chaudhary and Monika Sharma in this article they tried to compare the performance of public and private banks of India and also tried to find our trends in NPA Level. They have used statistical tools for projection of trend. This paper is an attempt to analyze how efficiently Public and Private sector banks have been managing NPA. Author : SOURABH SHARMA & VISHAL VYAS Title : THE INFLUENCE OF COMPUTERIZATION IN PUBLIC & Publisher : SMS VARANASI Year : June 2011 Methodology : PRIVATE SEC. BANKS. A COMPARATIVE STUDY Descriptive research methodology has been used to accomplish this research. Copyright 2012 Published by IJMRR. All rights reserved 1394
Abstract: Sourabh sharma & vishal vyas s paper is a survey of public and private bank employee s responses toward computerization of banking services. The objective of this analysis is to measure the employees s awareness, perception, and the level of satisfaction with regard to IT Services offered by the Indian public and private sector banks in the Jaipur city. NEED AND OBJECTIVES OF THE STUDY Any person who would like to take investment decision and for that he requires to take lot of information about the past performance and the expected future performance of the companies, industries and the economy as a whole, the present study attempts to analyze the profitability position of the sample companies. Some of the objectives of conducting the study are as follows: To evaluate the financial performance of new private sector banks with different ratios. To take investment decisions cautiously after studying risks involved in the same. To analyze the profitability position of the sample banks. To acquire practical exposure of financial analysis of a sample banks. HYPOTHESIS This specific hypothesis is tested at appropriate time while analyzing and interpreting the results. The following hypotheses have been taken to put on test: H0: There would be no significant difference in (EPS) of all the sampled banks during period of study. H1: There would be significant difference in (EPS) of all the sampled banks during period of study. H0: There would be no significant difference in Net Profit Margin (NPM) of all the sampled banks during period of study. H1: There would be significant difference in Net Profit Margin (NPM) of all the sampled banks during period of study. H0: There would be no significant difference in Dividend per share (DPS) of all the sampled banks during period of study. H1: There would be significant difference in Dividend per share (DPS) of all the sampled banks during period of study. METHODOLOGY The present study adopts an analytical and descriptive research design. The data of the sample companies for a period of ten years 2007 to 2011 has been collected from the annual reports and the balance sheet published by the companies and the websites of the banks. Copyright 2012 Published by IJMRR. All rights reserved 1395
A finite sample size of seven banks listed on the National Stock Exchange (NSE) has been selected for the purpose of the study. The variables used in the analysis of the data are Earning Per Share, Net Profit Margin and Dividend Per Share. SAMPLE DESIGN Sampling Technique: The present study will be in the nature of empirical study. There are total 25 private sector banks in India out of it I have taken only 7 new private sector banks in my study. This study will be based on secondary data collected through various web sites, periodicals bulletins and audited financial report of private bank. Sample Size: In this study 7 new private sector Banks will be taken. [1] HOUSING DEVELOPMENT FINANCE CORPORATION LTD. (HDFC) [2] AXIS BANK [3] INDUSTRIAL CREDIT AND INVESTMENT CORPO. OF INDIA (ICICI) [4] YES BANK [5] KOTAK MAHINDRA BANK [6] INDUSIND BANK [7] DEVELOPMENT CREDIT BANK (DCB) TIME PERIOD OF THE STUDY: The study has been conducted from 2007-08 to 2011-12 DATA COLLECTION: Financial statements are the raw data collected from various websites such as www.capitaline.com, www. moneycontrol.com, www.rbi.org and other Banks websites. TOOLS USED FOR ANALYSIS Ratio analysis: Ratios have been calculated for the past five years for the purpose of analysis. Ratios being designed are named as Earning per Share, Net Profit Margin. FINANCIAL ANALYSIS This section of study embodies the calculation and analysis of selected variables taken into reflection for the study purpose. The ratios are being calculated by the aid of raw data available on the concerned website. The raw data encompasses yearly results and balance sheet of the sample companies. After calculation of ratios, analysis individual ratio is being done. The ratios being calculated for the purpose of analysis of financial performance are: Earning Per Share (EPS) Net Profit Margin (NPM) Dividend Per Share (DPS) Copyright 2012 Published by IJMRR. All rights reserved 1396
EARNING PER SHARE (EPS) Earning per share is the measure of a company s ability to generate after tax profits per share held by the investors. Earning per share is generally considered to be the single most important variable in determining a share's price. This ratio is computed with the help of the following formula as expressed in rupee terms: Earning after tax and preferred dividends -------------------------------------------------- Total number of equity shares outstanding The earning per share position of the sample companies is summarized in below table and discussed. Earning Per Share YEAR ICICI HDFC AXIS KOTAK INDUSIND YES BANK DCB 2007-08 37.37 44.87 29.94 8.53 2.35 6.76 1.92 2008-09 33.76 52.77 50.57 7.99 4.18 10.23-5.05 2009-10 36.10 64.42 62.06 16.12 8.53 14.06-3.92 2010-11 44.73 84.40 82.54 11.10 12.39 20.95 1.07 2011-12 56.09 22.02 102.67 14.56 17.17 27.68 2.29 Average 41.61 53.696 65.55 11.66 8.924 15.918-0.738 (Source:- www.moneycontrol.com) As shown in above table, the EPS of ICICI, HDFC, AXIS, KOTAK INDUSIND BANK AND YES BANK AND DCB mostly showed an increasing trend. The EPS of AXIS AND HDFC is substantially higher than that of ICICI, KOTAK INDUSIND BANK AND YES BANK AND DCB during the last FIVE years i.e 2008 to 2012. On an average AXIX BANK has generated eps of Rs. 65.55, highest among all, followed by ICICI (41.61), HDFC (53.696), KOTAK (11.66), INDUSIND BANK (9.924) and then YES BANK (15.918). And the lowest among the SEVEN sample Banks is DCB (-.0738). The analysis reveals that AXIS is the most efficient bank in the terms of generating earning per share. NET PROFIT MARGIN (NPM) Net profit margin indicates how much a company is able to earn after accounting for all the direct and indirect expenses to every rupee of revenue. Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. This ratio is calculated by using the following formula and is expressed in percentage terms. Net profit ------------- X 100 Net sales Copyright 2012 Published by IJMRR. All rights reserved 1397
The net profit margin position of the sample companies is depicted in below table and discussed. NET PROFIT MARGIN (NPM) YEAR ICICI HDFC AXIS KOTAK INDUSIND YES BANK DCB 2007-08 10.51 12.82 12.22 10.37 3.45 12.01 5.29 2008-09 9.74 11.35 13.31 8.35 5.29 12.35-11.63 2009-10 12.17 14.76 16.10 15.23 10.63 16.3-13.88 2010-11 15.91 16.09 17.20 17.19 13.43 15.56 3.31 2011-12 16.14 15.93 15.51 15.39 12.59 13.66 6.7 Average 12.894 14.19 14.868 13.306 9.078 13.976-10.21 The above table reveals that AXIS Bank outperformed than other banks in terms of net profit margin. Also, there is stagnation in the NPM position of DCB Bank. On an aggregate basis, the mean NPM of AXIS Bank is 14.868%, the highest, followed by ICICI, HDFC, KOTAK, INDUSIND, YES BANK and DCB BANK IS -10.21% the lowest among the four sample bank. Thus, it can be conclude that AXIS Bank is the most efficient bank in controlling operating expenses in comparison with remaining selected private sector banks. DIVIDEND PER SHARE (DPS) The the sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued. DPS can be calculated by using the following formula: D - Sum of dividends over a period (usually 1 year) SD - Special, one time dividends S - Shares outstanding for the period DIVIDEND PER SHARE (DPS) YEAR ICICI HDFC AXIS KOTAK INDUSIND YES BANK DCB 2007-08 11 8.5 6.75 0.6 - - 2008-09 11 10 10.75 1.2 - - 2009-10 12 12 12.85 1.8 1.5-2010-11 14 16.5 14 0.5 2.0 2.5-2011-12 16.5 4.3 16 0.6 2.2 4 - Average 12.9 10.26 11.6 0.69 1.56 1.6 - Copyright 2012 Published by IJMRR. All rights reserved 1398
The above table reveals that ICICI Bank gives out highest no. of DPS than other banks in sampled banks. And among all bank DCB has not started to give any dividend for the last five years. AXIS and HDFC bank has also given DPS higher than remaining bank. Which shows that on view point of customer ICICI, AXIS and HDFC is attractive bank paying good DPS. CONCLUSION The first basic objective of any investor is the return or yield on investments. The fundamental analysis helps in developing an insight into the economic performance of above selected seven banks. For every investor analysis of economic performance and financial performance is very vital in taking investment decisions. Thus, the present study has been conducted to study and examine the economic performance and financial performance of the seven major private sector banks in India that is ICICI, HDFC, AXIS, INDUSIND, KOTAK YES BANK AND DCB BANK. The study reveals that AIXS BANK has performed better in terms of Earning per Share and in terms of net profit margin than ICICI, AXIS, KOTAK INDUSIND BANK YES BANK AND DCB BANK during the last 5 years i.e 2008 to 2012. The study also reveals that after ICICI Bank has performed outstanding in terms of Dividend per share than remaining all selected banks. REFERENCES 1. Sangmi M. Analyzing Financial Performance of Commercial Banks in India: Application of CAMEL Model, 2010. 2. Vyas V. The Influence Of Computerization In Public & Private Sec. Banks. A Comparative Study, 2011. 3. Ramani VK. A Comparative Study of Financial Performance Of Indian Banking Sector In Post Reform Period, 2011. 4. Kothari CR. Research Methods & techniques, 1995,Wishwa Prakason, New Delhi. 5. Bradley JF. Administrative financial Mgmt. published by Himalaya Publishing House. 2005. 6. Hirt GA, Block SB. Foundations of Financial Management, 1997. 7. Gupta SK, Sharma RK. Financial Management Theory & Practice, Published by Kalyani Publishing House, 5th Edition. 2006. 8. Mahajan M. Indian banking system. Nirali prakashan. 2005; 2.1 2.2. www. capitaline.com www. moneycontrol.com Copyright 2012 Published by IJMRR. All rights reserved 1399