One of the policy issues underlying the retail banking industry is the financial capability of the borrower to service debt and responsible lending, for the general risk that the banking institutions face is the credit risk which adversely affects its revenues. In general, defaulters are unable to repay the loan or even delay payment for a longer period of time and/or are not able to fulfill other requirements of the loan contract. There are instances wherein certain banks extended loans worth several millions to defunct firms despite their negative credit ratings. Overall, in India, presently the banking system is bogged down by gross NPAs to the tune of 4 lakh cr—90% of which belong to the public sector. It is essential to formulate models and identify factors that assess the creditworthiness of the potential borrowers prior to sanctioning the loan. In the paper, “Categorizing the Variables Influencing the Creditworthiness of Bank Borrowers: Some Survey Evidence for Ethiopia”, the authors, A S Kannan and S Sudalaimuthu, categorize and label the variables which might highly influence the borrower’s creditworthiness. The principal component analysis carried out on the responses received from a questionnaire-based survey of officials in Ethiopian commercial banks yielded three factors: borrower’s status and performance, borrower’s personality and relationship with branch and collateral quality. The study is significant as it breaks new ground in Ethiopian commercial bank lending.

United Bank of India (UBI) reported highest NPAs (about 10.8%) among listed banks during Q3 of the 2013-14 fiscal. The bank managed to show a turnaround in Q4 with a quarterly net profit of 470 cr. However, the RBI-appointed forensic audit by Deloitte found serious lapses in the NPA detection system of the bank. It is yet to be established whether this oversight on the part of the bank was deliberate or unintentional. Nevertheless, what matters most is the profitability of the banking system. Based on the database from various sources, the author, Roshni Das, in her paper, “United Bank of India: A Strategic Analysis Using the VRIO Method”, presents a detailed qualitative, strategic and financial examination of the events and structures that led to UBI’s huge accumulation of financial losses. The paper comes up with workable recommendations using Resource-Based View (RBV) as theoretical framework to rejuvenate UBI and make it a viable business again.

Apart from the qualitative analysis of banks for improving their performance, it is also important to analyze the performance of individual banks as well as a group of banks to understand the operating efficiency of the Indian banking system as a whole. In the next paper, “A Comparative Analysis of the Operating Efficiency of Indian Scheduled Commercial Banks”, its author, Yashpal Singh, presents a comparison of the performance of scheduled commercial banks—public sector, private sector and foreign banks—in terms of efficiency over the period 2007-15. The analysis reveals that the cost of fund of all scheduled commercial banks is significantly different. Among the scheduled commercial banks operating in India, the foreign banks have outperformed all others, followed by private sector banks.

Continuing in the same line, the next paper, “Productivity and Efficiency of Public Sector Banks in India After the Global Financial Crisis”, by Manoj Kumar Das and Subhamitra Patra, analyzes the performance of 26 Public Sector Banks (PSBs) in India—including seven banks of SBI Group and 19 nationalized banks—for the period 2008-14. The study based on Data Envelopment Analysis (DEA) and Malmquist index measuring the technical efficiency, productivity and scale of operation, indicates that there is a wide variation of productivity and efficiency change among PSBs, and a few PSBs are suffering from deterioration of efficiency, which requires special policy approach to improve upon it. State Bank of India emerged as the technologically most efficient, while Indian Bank has been considered to be both technologically and technically least efficient in comparison to others.

Moving on, the research note, “Investors’ Perception Towards Equity Share Investment: A Study with Reference to Mangalore City, Karnataka”, by Vishal Pinto, presents the investors, opinion about investing in equity shares. Based on a sampling study of 200 respondents limited to Mangalore city, the study concludes that the respondents prefer infrastructure and pharmaceutical sectors for equity investment.

-- S V Srirama Rao
Consulting Editor