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Examining the Performance of Banks
in India: Post Transition Period
-- Biresh K Sahoo and Anandadeep Mandal
This paper evaluates the performance of the Indian banking sector during the post transition period
(1997-2005). The productive performance, scale elasticity, efficiency and capacity utilization parameters are calculated
using Data Envelopment Analysis (DEA). The empirical results calibrated through these models are analytic on
several fronts. The positive trend of the reform process is visible through the increase in technical efficiency over
the years of the post transition period. The cost efficiency parameters state that the nationalized banks are yet
to exercise their cost minimizing principles compared to the other banks. Finally, the empirical findings show
a significant difference between the technology and the market-based hypothesis. These results are in line with
the distinction between economies of scale and the returns to scale.
© 2011 IUP. All Rights Reserved.
Credit Risk Management of Loan Portfolios by Indian Banks:
Some Empirical Evidence
-- Jayanta Kishore Nandi and Navin Kumar Choudhary
The basic functions of most of the banks are the acceptance of deposits from public and lending funds to
public, corporate, etc. This business of lending has brought trouble to individual banks as well as to the entire
banking system, thus giving rise to credit risk, which is the risk of default. The present paper is designed to develop
an internal credit rating model for banks which improves their current predictive power of financial risk factors.
It also studies how banks assess the creditworthiness of their borrowers and how can they identify the
potential defaulters so as to improve their credit evaluation.
To achieve the above-mentioned objective, a research has been conducted considering the data for the last
six years. Altman Z-Score model is used to arrive at an equation of the Z-Score, which helps the banks to
predict future defaulters and take necessary action accordingly. The model, which has been developed, is an
application of multivariate discriminant analysis in credit risk modeling.
© 2011 IUP. All Rights Reserved.
Relative Importance of Profitability Drivers
of Indian Banks: A Preference Decomposition Approach
-- P K Viswanathan, M Ranganatham and G Balasubramanian
The Asset Liability Management (ALM) process in a bank is multidimensional in nature. The best possible
trade off solution for profitability will have to strike an appropriate balance among the key drivers viz.,
advances, investments, deposits and other income (non-interest income), while simultaneously taking care of the
regulatory and other constraints. The objective of this paper is to estimate, in a robust manner, the relative importance
of advances, investments, deposits and other income in predicting profits.
A comparative assessment is made of the two methods: Ordinary Least Square (OLS) and Robust
Regression based on Least Absolute Deviation (LAD) in order to select the one that is appropriate in this situation. The
results show that the robust regression outperforms OLS in terms of predictive accuracy, particularly in the
context characterized by outliers and non-normal distribution with longer tails. Elasticity coefficients have been
computed using the estimated slopes of the robust regression as inputs for arriving at the percentage relative importance
of each driver of profitability. For this study, data filtering for inconsistencies warranted exclusion of some
banks. Secondly, the focus is mainly on predictive accuracy and not hypothesis testing where OLS may still prove to
be more useful. These are the two limitations of the study.
© 2011 IUP. All Rights Reserved.
Benchmarking Performance
of Public Sector Banks in India
-- Bhagirathi Nayak and C Nahak
The paper analyzes the performance of public sector banks in India during the
post-liberalization period. There has been a significant improvement in the performance of public sector
banks after reform measures. The paper has used various accounting ratios pertaining to profitability, financial
efficiency, operational efficiency and financial soundness to build performance index for banks. Principal Component
Analysis method has been used to construct index and rank performance of banks over the last 10 years.
Twenty-two parameters pertaining to operational and financial efficiency of banks have been considered to
construct the performance index for public sector banks. Altman
Z-Score of solvency analysis has been applied to banking sector with suitable financial, operational and other
efficiency ratios. Logit model is used to construct the Altman
Z-Score for public sector banks in India. The logit model is found to be robust as per its predictability of
financial health of the public sector banks. It is found that reform measures have impacted positively in enhancing the
stability and soundness of the public sector banks in India. The analysis has found that State Bank of India continues to be
the number one bank in India and there is competition between Punjab National Bank, Canara Bank, Bank of India
and Bank of Baroda for the number two place in different years.
© 2011 IUP. All Rights Reserved.
Service Quality of Indian Bank
in Thanjavur District:
Evidence from Survey Data
-- E Mubarak Ali, G S David Sam Jaykumar and P L Senthil
`Quality Services' is the key to win global competition. It influences customer value and customer
satisfaction which in turn leads to customer loyalty. Customer perceptions of service quality have greater potential to
make correct decisions and to deliver true value services to customers. This paper identifies the critical quality
dimensions of banking services based on the quality scale proposed by Parasuraman et al. (1991a and 1991b). The
paper investigates the five different service quality dimensions and presents the results.
© 2011 IUP. All Rights Reserved.
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