Chapter 2

Literature Review

The measurement of bank performance particularly commercial banks is well researched and has

received increased attention over the past years. There have been a large number of empirical

studies on commercial bank performance around the world. The previous studies in this area of

researches are briefly reviewed. It also includes the opinions expressed by various authors in

leading articles, journals, books etc. This research study is based on comparative analysis of

financial performance of SBI and ICICI bank. Some of the review concerned with the topic

discussed in below:

Pasiouras (2007) used DBA to analyze the technical, allocative and cost efficiency of 16 Greek

cooperative banks over the period 2000 to 2004. Following intermediation approach, fixed

assets, deposits and number employees were considered as inputs of the banks while loans, liquid

assets and investments were considered as outputs of the banks. Estimated yearly average cost

efficiency score for cooperative banks ranged from 0.802 to 0.836 in their study. According to

them, major source of cost inefficiency was allocative inefficiency present in banks. After the

estimation of efficiency, they used tobil model to find out the influence of the internal and

external factors on its efficiency. From estimated tobil model, among bank specific variables,

they found positive impact of equity to assets, number of ATMs, loans to assets and assets of the

bank on the estimated efficiency of banks.

Bhayani (2007) in their paper entitled “Role of Transaction Cost in the Financial Performance of

Cooperative Banks” have attempted to investigate how the proportion of transformation cost is

higher than that of transaction cost in the banks under study. Transaction cost plays an important

role in the profitability of banks. Therefore, if the management of co-operative banks tries to

reduce the transaction cost, it will improve their banks profitability.

Sinha (2009) in their paper entitled “Bank Ownership and Deposit Mobilization: A Non-

parametric Approach” compare the performance of 40 Indian commercial banks using Window

Analysis, considering deposit mobilizations as the output indicator. The results obtained from the

study indicate that mean technical efficiency of the in-samples banks exhibited a declining trend

for the period. The decline in mean technical efficiency was due to a greater divergence in

performance compared to the frontier. Among the insamples banks, the private sector banks

performed better than the public sector banks.

Shobana (2010) in her paper entitled “Operational Efficiency of Public Sector Banks in India-a

Non-Parametric Model” focuses on the operational efficiency of public sector banks in India

using a non-parametric model, which measures the efficiency as a ratio of output index to an

index of input used. The findings reveal that out of 27 public sector banks in India, only nine

banks had achieved high level of efficiency in its operations.

Sangmi and Nazir (2010) stated that sound financial health of a bank is the guarantee not only

to its depositors but is equally significant for the shareholders, employees and whole economy as

well. As a sequel to this maxim, efforts have been made from time to time, to measure the

financial position of each bank and manage it efficiently and effectively. In this paper, an effort

has been made to evaluate the financial performance of the two major banks operating in

northern India .This evaluation has been done by using CAMEL Parameters, the latest model of

financial analysis. Through this model, it is highlighted that the position of the banks under study

is sound and satisfactory so far as their capital adequacy, asset quality, Management capability

and liquidity is concerned.

Chaudhary and Sharma (2011) performed comparative analysis of services of public sector

banks and private sector banks and stated that the increased competition and information

technologies reduce processing costs, the erosion of product and geographic boundaries, and less

restrictive governmental regulations have all played a major role for public sector banks in India

to forcefully compete with private and foreign banks.

Prasad and Chari (2011) conducted a study to evaluate financial performance of public and

private sector banks in India. In this study they compared financial performance of top four

banks in India viz., SBI, PNB, ICICI and HDFC and concluded that on overall basis HDFC rated

top most position.

Das and Drine (2011) attempted to explore the efficiency levels and the performance of the

Indian banking sector in the context of financial liberalization and found that there have been

significant changes in the performance of the banking sector in India. The relative importance of

the public sector banks has been declining with the emergence of the domestic private sector

banks and more foreign banks. The assets, deposit and the credit share shows that the share of

public sector has been declining and the share of the private banks has been increasing, which

implies that there has been a declining concentration and increasing competition. The foreign

banks are found to be the more profitable in comparison to the domestic private and the public

sector banks. The public sector banks are found to be the most efficient banks followed by the

domestic private sector and foreign banks.

Singh and Tandon (2012) affirmed that banking Sector plays an important role in economic

development of a country. The banking system of India is featured by a large network of bank

branches, serving many kinds of financial services of the people. The State Bank of India,

popularly known as SBI is one of the leading bank of public sector in India. ICICI Bank is

second largest and leading bank of private sector in India. The present study is conducted to

compare the financial performance of SBI and ICICI Bank on the basis of ratios such as credit

deposit, net profit margin etc. The period of study taken is from the year 2007-08 to 2011-12.

The study found that SBI is performing well and financially sound than ICICI Bank but in

context of deposits and expenditure ICICI bank has better managing efficiency than SBI.
Chaudhary and Singh (2012) analyzed the impact of the financial reforms on the soundness of

Indian Banking through its impact on the asset quality. The study identified the key players as

risk management, NPA levels, effective cost management and financial inclusion.

Kavitha (2012) the major objective of the study is to analyze the financial performance of the

selected public sector banks. Financial performance of the selected public sector banks were

analyzed for the period of ten years with the help of the following tools and techniques, Ratio

Analysis, Correlation, Regression. The result reveals that public sector banks have performed

well on the sources of growth rate and financial efficiency during the study period. The old

private sector banks and new private sector banks play a vital role in marketing of new type of

deposits and advances schemes.

Koundal (2012) in his paper titled ‘Performance of Indian Banks in Indian Financial System

concludes that concludes that although various reforms have produced favorable effects on

commercial banks in India and because of this transformation is taking place almost in all

categories of the banks. It has also realized that the profitability of the public sector banks

appears to have started improving but despite this, the foreign and private sector banks take a big

share of cake. Our public sector banks are still lagging behind regarding the various financial

parameters in comparison with other banks. It is also true that presently, they are facing many

internal and external challenges, which are hindering their performance. Hence, there is a need to

consider the above listed challenges for another reform to improve the performance of the banks

particularly of public sector banks to meet the requirement of new and open competitive

environment.
Mishra and Pandey (2013) in their paper “customer satisfaction –A comparison of public and

private sector banks of India in which research is done to compare public and private sector

banks of India by evaluating their customer satisfaction. This research is mainly based on

primary data which has been collected through a well-structured questionnaire (adapted from

three different studies). The questionnaire has been distributed to 350 different respondents on

different chosen locations. This paper makes a useful contribution as there are very low number

of studies has been conducted in India on such areas like price, technology, reliability, customer

service, location and infrastructure. Their finding says that most of people prefer to deal with

public sector banks due to safety and reliability factors.

Roy and Kumar (2013) in their research paper titled ‘An analysis of Financial Performance of

Indian Commercial Banks’ studied the various financial aspects of banks in India. The present

study was done to examine the importance of financial performance of the commercial banks

during the period of 2000 to 2011. The study applied key profitability ratios for assessing the

financial performance of the commercial banks. Financial stability of the banks plays a crucial

role in the growth of the banks. To accomplish this objective a regression analysis between

Earnings before interest and tax and different factors affecting banks profitability was done. The

study reveals that the during the period Return on Assets which indicates how efficiently the

company is using its total assets shows an increasing trends in the last five year from 2007 to

2011. Return on Net Worth shows an increasing trend from 2007 onwards with very poor

performance in 2006. The Capital adequacy ratio has strong negative relation with Net Assets to

RONW ratio and NPA to net assets ratios.

Rajeskar (2014) examined the level of distress with the help of Altman Z-Score model and CA-

Score model. In this paper researcher analyze the bankruptcy of navratna enterprises in India.

Out of the 14 navratna companies 8 companies were found financially weak for some years.

Lai (2014) conducted a study on the impact of 2008 global financial crises on public listed

construction companies. A sample of 32 public listed companies is taken out of 60000

construction companies. Altman Z-Score was used in present study for analysis. The study

elucidate that financial crises has direct impact on profitability.

Devi (2017) in their paper entitled “A Study on the Financial Comparison between SBI and

ICICI with reference to Chennai Annanagar Branch” examined the performance of the banks

from 2012-2017. Operating ratio, debt equity ratio were taken as the variables. It was examine

that operating profit ratio of SBI was better than ICICI.

Habib (2017) compares the banking sector of SBI and ICICI. Researchers divide the entire

banking system into four groups and use the financial statement of banks from period 2012-

2016. The results of research show that private banks are better than all other types of banks.

Jha and Hui (2017) conducted research on the banking industry of SBI. They use data from

2010-2014 for research and apply financial ratio based on the CAMEL model. The results of the

study indicate that performance of private banks is significantly efficient then public banks of

India.