14 Chapter 5

CHAPTER: 5
PRODUCTIVITY OF INDIAN BANKING INDUSTRY
5.1 INTRODUCTION
5.2 MEANING OF PRODUCTIVITY OF BANK
5.3 MEANING OF PROFITABILITY OF BANK
5.4 ANALYSIS OF PRODUCTIVITY OF BANKS:
5.4.1 Introduction
5.4.2 Analysis of the Data:
A] Labour Productivity:
1. Deposit per Employee
2. Advances per Employee
3. Business per Employee
4. Net Profit per Employee
5. Working Fund per Employee
B] Branch Productivity:
1. Deposit per Branch
2. Advances per Branch
3. Business per Branch
4. Net Profit per Branch
5. Working Fund per Branch
C] Capital Productivity:
1. Interest Income per unit Capital
2. Interest Expenses to per unit Capital
3. Business per unit of Capital
4. Net Profit to per unit of Capital
5. Spread Ratio
5.5 ANALYSIS OF PROFITABILITY OF BANKS:
1. Interest Earned Ratio
2. Interest Paid Ratio
3. Non-Interest Income Ratio
4. Other Operating Expenses Ratio
5. Spread Ratio
6. Burden Ratio
7. Profitability Ratio
5.6 CONCLUSION
REFERENCES
182
CHAPTER: 5
PRODUCTIVITY OF INDIAN BANKING INDUSTRY
5.1 INTRODUCTION:
Banking institution are critical financial intermediaries for economic

growth. Bank is a financial institution that acts as a payment agent for customers,
borrows, and lends money. Since the process of liberalization and reform of the
financial sector were set in motion in 1991, banking has undergone significant
changes. The underlying objectives if these were to make the system more
competitive, efficient and profitable. The banking system plays an important role
in economy by channeling funds from those who have excess funds to those who
have productive needs for those funds. Financial system is the most important
institutional and functional vehicle for economic transformation of any country.
Banking section is reckoned as a hub and barometer of the financial system.
The present analytical study related to critical evaluation the productivity of

selected public sector and private sector banking. It also includes analysis of
labour productivity, branch productivity and capital productivity. Analysis and
Interpretation of data is the heart of any research process. After collection of the
data, it should be analyzed and interpret according to the research plan. The
term analysis refers to the computation of certain measures along with searching
for patterns of relationship that exist among data-group.141 Analysis may be
categorized as descriptive analysis and inferential analysis. Analysis may be
further classified as correlation analysis, causal analysis and multivariate
analysis. According to C. William Emory, in one sense, interpretation is
141
C.R. Kothari, Research Methodology, Methods & Techniques New Age International
Publishers, New Delhi, Second Revised Edition -2004, Reprint 2010, P. 122.
183
concerned with relationships within the collected data, partially overlapping
analysis. Interpretation also extends beyond the data of the study to include the
results of other research, theory and hypothesis.142
In the present research study researcher includes the analysis of

productivity and profitability of the selected public sector banks and private sector
banks of India. The selected Public Sector Banks are Bank of Baroda, Bank of
India, Central Bank of India, Dena Bank, Punjab National Bank, Union Bank of
India and State Bank of India. The selected Private Sector Banks are Axis Bank,
Development Credit Bank, HDFC Bank, ICICI Bank, IndusInd Bank, Kotak
Mahindra Bank and Yes Bank. The present study has been used mainly on data
from secondary sources. Mean, various ratios and student –„F‟ test have been
used for analysis, interpretation and testing the hypothesis.
5.2 MEANING OF PRODUCTIVITY OF BANK:

Productivity is fundamental to progress throughout the world. It is at the
heart of economic growth and development, improvements in standards of living
and quality of life. Productivity is a vital indicator of economic performance of an
economic system. The concept of productivity can be best described in terms of
a factor with well-ordered components, and that of components Labour, Capital
Management, Technology Management, and Process Management. For most of
the banks, the concept of maximizing productivity is maximizing each of the
components separately. The concept of productivity analysis in banking sector
may give misleading results, if not used carefully. The basic definition of
productivity is:
Productivity = Total Output/Total Input
142
C. William Emory, Business Research Methods, p. 336.
184
Productivity is defined as number of transactions and the number of loans
and deposit accounts per hour per employee. As the productivity means the ratio
of output to input for a specific production system. Rising productivity implies
either more output is produced for the same amount of input or that less input are
required to produce the same amount of output. Productivity is affected by ma n
power, mechanization, system and the procedures, costing of operations,
customer services and various external aspects.
Productivity is defined as the relationship between physical output of one

or more of the associated physical inputs used in production. When single input
is used to measure productivity, it is called „factor productivity‟ and when all
factors are combined together for the purpose, it is known as „total factor
productivity.‟143
The level of productivity can be improved by the up gradation of the levels

of performance and sound planning through implementation. Productivity of a
bank can be improved by reducing the cost of disinter mediation and by raising
the spread that is deploying capital in the most effective way. The study has
focused on how public sector banks and private sector banks can improve
productivity by managing some of the important elements related to capital,
technology, process, organization issues, and labour in a better way.
Productivity helps firms, industries and nations to achieve sustainable

competitive advantage. Industry is a thrust area for countries in their quest for
competitiveness. It must be noted that banks which have maintained the
momentum of continuous growth, and profitability showed better ratio of
manpower effectiveness. Each element has crucial sub-components, which
serve as building blocks for productivity. The Government policies effectively
support competitiveness if they are structures around productivity driven reform
143
Kopleman, Richard E., Managing Productivity Organizations. McGraw Hill Book Company,
New Delhi, 1986, p.3.
185
mechanism, cost deflating tariff structure and technology and industry vision. 144
Productivity can be measured by many ways like:
1) Productivity of Branches
2) Productivity of Capital
3) Productivity of Labour
4) Productivity of Raw Material
5) Profitability
Thus, attitudinal change, adaptability and openness to new ideas,

techniques and technology by executives at all levels are the first prerequisite of
success of any programme, be it long range planning or a programme of
productivity improvement.145
5.3 MEANING OF PROFITABILITY OF BANK:

Profitability depicts the relationship of the absolute amount of profit with
various other factors. Profitability is a relative concept, which is quite useful in
decision-making. Another main issue here is profit planning, which consists of
various steps to be taken to improve the profitability of the bank. The word
“Profitability” is composed of two words viz. „Profit and Ability‟. The terms „Ability‟
showed the power of the business firm to earn profits. The term „Ability‟ is also
referred to as “earning power” or “Operating Performance” of the concerned
investment. It can be remarked that „Profitability‟ is helpful in providing a useful
basic for measuring tool in point of view performance and overall efficiency for
Indian banking. Profitability is the most important and reliable indicator as it gives
a broad indication of the ability of a bank to raise its income level. The basic
definition of productivity is:
144
C.B. Rao, “Productivity and Competitiveness: A Model for Developing Economics,” ASCI
Journal of Management, Vol.23, No.2. March 1994.
145
Vasant Desai, Principles of Bank Management, (1991), Himalaya Publishing House.
186
Profitability = Operating Income/Operating Assets
Profit is the very reason for the continued existence of every commercial
organization. The rate of profitability and volume of profits are therefore, rightfully
considered as indicators of efficiency in the deployment of resources of banks.146
Profitability indicates earning capacity of the banks. It highlights the

managerial competency of the banks. It also portrays work culture, operating
efficiency of the bank.147
A number of factors affect profitability of banks. Some of these are

endogenous, some are exogenous and yet structural. The profitability analysis of
commercial banks used to be a frustrating experience as the financial statements
of banks concealed much and revealed less. However, now a day, after
liberalization under pressure from regulatory agencies and the public, the trend
has changed. So now, the profitability analysis of commercial banks means
something. The financial statements of commercial banks are now prepared
keeping in mind are the various changes, so they reveal each aspect.
The present trend of low and declining profitability can be arrested and
reversed if the remedial measures are tried in right direction to ease the pressure
on profitability.148 Profitability ratios are the most important and appropriate
indicators for the evaluation of the financial performance of a bank. Profitability
ratios serve as an important measurement of the efficiency with which the
operations of the banks are going on. In case of banking industry income, assets,
deposits and working funds can be used as measures for finding out profitability.
146
V. T. Godse, Productivity in Banks – Concept and Measurements, Papers presented at Bank
Economists met. Madras, 1984, p.298.
147
Dasgupta, Devajyoti, “Profitability of Indian Public Sector Banks in the light of Liberalization of
Indian Economy – An Overview,” The Management Accountant, Sept. 2001.
148
Bhubal, Subhash B., “Bank Profitability note worth the candle,” Indian Banking Today and
Tomorrow, Feb.1991.
187
5.4 ANALYSIS OF PRODUCTIVITY OF BANKS:
Productivity analysis is very helpful parameter to measure the financial

performance of any bank. Researcher has selected some ratios for analysis of
productivity for selected banks under the study.
5.4.1 Introduction:
The study uses Ratio analysis to compare productivity of selected public

sector banks and private sector banks. Ratio analysis is a powerful tool of
financial analysis. Ratios represent the relationship between two or more
variables. The productivity ratios of banks are worked out by relating the total
deposits, total advances and the total business (Deposit + Advances) of the
banks to the total number of employee and number of branches. The banking
industry is a service industry, where human skills are very important for achieving
high productivity levels. Productivity is a ratio of input and output the efficiency of
employee influence profitability and if the funds were used efficiently with the
help of higher productivity of personnel then it would lead to higher profitability.
The measurement of productivity in a manufacturing industry is influenced

by the combined output of labour, management, technology can be measured in
quantitative term in case of a service industry like bank some additional factors
like the trend and inter relationship in the key economic, commercial, political,
and social issues must be considered. To measure the productivity of bank it
needs more comprehensive and multi-dimensional approach. The level of
productivity can be improved by the up gradation of the levels of performance
and sound planning through implementation. Productivity is defined as the ratio
of output to input for a specific production system. Rising productivity implies
either more output is produced for the same amount of input or that less input is
required to produce the same amount of output.149 It is difficult to set fix
parameters for bank productivity since their operations are also directives and
various other socioeconomic compulsions.
149
Indian Banking 2010 IBA Bulletin, Special issue -2004, P. 99.
188
5.4.2 Analysis of the Data:
Productivity is one of the factor affecting the profitability among others like
expansion of banks‟ operation in the areas characterized by deployment of funds
is non-profitable coupled with higher overhead expenses, increase in sickness in
industrial units. Higher the productivity results in proportionately lower in the
establishment cost. Lower productivity increases relative operational cost and
often becomes the cause of losses as intermediary returns are directly related to
the productivity. To analysis the productivity of Public Sector Banks and Private
Sector Banks we have considered labour productivity branch productivity and
capital productivity during the period of 2005-‟06 to 2009-‟10.
A] LABOUR PRODUCTIVITY:
In our study, we have used Deposit per employee, Advances per

employee, Business per employee, Net Profit per employee and Working Fund
per Employee to measure the labour productivity ratio of selected banks. Public
Sector Banks have more number of employees than the Private Sector Banks,
but when we compare per employee productivity ratios again the ratio for the
Public Sector Banks are lower placed to Private Sector Banks.
[1] Deposit per Employee:
This ratio has been computed by dividing the amount of total deposits by
the number of employees in the bank. This ratio is an indicator of degree of
employee„s productivity of banks. A high ratio indicates better productivity of
employees in banks and low ratio indicates lower productivity. This ratio has
been calculated as follow.
Total Deposit
Formula: Deposit per Employee = -------------------------- x 100
No. of Employee
Where, employees means total employees that is inclusive of employees

based overseas as at the end of the year.
189
TABLE – 5.1: DEPOSIT PER EMPLOYEE RATIO (Rs. in Crore)
YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 2.42 3.28 4.13 5.22 6.19 4.25
BANK OF INDIA 2.23 2.89 3.69 4.72 5.79 3.86
CENTRAL BANK OF INDIA 1.53 1.87 2.94 3.69 4.65 2.94
DENA BANK 2.33 2.74 3.41 4.36 4.88 3.54
PUNJAB NATIONAL BANK 2.04 2.41 2.97 3.6 4.38 3.08
UNION BANK OF INDIA 2.91 3.28 4.04 5.04 6.12 4.28
STATE BANK OF INDIA 1.87 2.27 3 3.6 4.01 2.95
Average 2.19 2.68 3.45 4.32 5.15 3.56
PRIVATE SECTOR BANKS
AXIS BANK 5.59 6.29 5.95 5.69 6.53 6.01
DEVE. CREDIT BANK 2.44 2.58 2.72 2.33 3.11 2.64
HDFC BANK 4.65 3.18 2.66 2.71 3.23 3.29
ICICI BANK 6.5 6.92 6.01 6.31 6.26 6.40
INDUSIND BANK 10.26 6.75 6.64 5.2 4.96 6.76
KOTAK MAHINDRA BANK 1.82 2.04 1.81 1.9 2.71 2.06
YES BANK 4.64 3.36 4.21 6.05 8.83 5.42
Average 5.13 4.45 4.29 4.31 5.09 4.65
(Source: Computed from Data Collected from Annual Report of Respective Banks 2005-06 to 2009-10).
CHART- 5.1: DEPOSIT PER EMPLOYEE AVERAGE RATIO (Rs. in Crore) 6.76
6.4
7
6.01
BOB / AXIS
5.42
6
BOI / DCB
4.65
4.28
4.25
5 CBI / HDFC
3.86
3.56
3.54
3.29
3.08
4 DB / ICICI
2.95
2.94
2.64
3 PNB / INDU.
2.06
2 UBI / KOTAK
1 SBI / YES
AVERAGE
0
PUBLIC SECTOR BANKS NEW PRIVATE SECTOR BANKS
Looking into the deposit per employee ratio (Table-5.1 & Chart-5.1), we
can see that overall deposit per employee is more than 1.31 times higher in new
Private Sector Banks under study as compared to Public Sector Banks under
190
study. The average deposit per employee for Public Sector Banks under study is
3.56 percent and for Private Sector Bank under study it is 4.65 percent. The new
Private Sector Banks are very comfortably placed as compared to the Public
Sector Banks.
F-TEST [ONE-WAY ANOVA]:
Ho: “There is no significance difference in deposit per employee of banks under

study”
ANOVA TABLE
Sources of 5% F-limit
S.S. d. f. M.S. F-ratio
Variation [from the F table]
Between Sample 22.78 [5-1] = 4 5.70 1.81 F[4,65] = 2.5130
Within Sample 204.52 [70-5] = 65 3.15
Total 227.30 [70-1] = 69
The above table shows that the calculated value of F is 1.81 which is less
than the table value of 2.5130 at 5% level with d. f. being v1 = 4 and v2 = 65.
Hence, the null- hypothesis is accepted. It indicates that difference between
groups and within groups in deposit per employee of banks is not significant and
we concluded that the deposits per employee of banks trends are uniform during
the period of study.
[2] Advances per Employee:

This ratio has been computed by dividing the amount of total advances by
the number of employees in the bank. This ratio is an indicator of degree of
employee„s productivity of banks. A high ratio indicates better productivity of
employees in banks and low ratio indicates lower productivity. This ratio has
Total Advances
Formula: Advances per Employee = --------------------------x 100
No. of Employee
191
TABLE – 5.2: ADVANCES PER EMPLYEE RATIO (Rs. in Crore)
YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 1.55 2.27 2.9 3.91 4.49 3.02
BANK OF INDIA 1.54 2.05 2.79 3.55 4.25 2.84
DENA BANK 1.4 1.81 2.31 2.92 3.37 2.36
STATE BANK OF INDIA 1.29 1.75 2.33 2.63 3.15 2.23
Average 1.43 1.87 2.47 3.08 3.70 2.51
AXIS BANK 3.11 3.95 4.05 3.95 4.82 3.98
DEVE. CREDIT BANK 1.46 1.64 1.82 1.69 2.17 1.76
HDFC BANK 2.92 2.19 1.67 1.88 2.43 2.22
ICICI BANK 5.76 5.88 5.55 6.31 5.62 5.82
INDUSIND BANK 6.37 4.24 4.46 3.71 3.82 4.52
YES BANK 3.84 2.57 2.99 4.64 7.31 4.27
Average 3.60 3.21 3.18 3.46 4.08 3.51
CHART- 5.2: ADVANCES PER EMPLYEE AVERAGE RATIO (Rs. in Crore)

5.82
6
BOB / AXIS
4.52
4.27
5 BOI / DCB
3.98
3.51
4 CBI / HDFC
3.04
3.02
2.84
DB / ICICI
2.51
2.36
2.23
2.22
3
2.2
1.98
PNB / INDU.
1.88
1.76
2 UBI / KOTAK
SBI / YES
1
AVERAGE
0
Looking into the advances per employee ratio (Table-5.2 & Chart-5.2),
we can see that overall advances per employee is more than 1.40 times higher in
new Private Sector Banks under study as compared to Public Sector Banks
under study. The average advance per employee for Public Sector Banks under
study is 2.51 percent and for Private Sector Bank under study it is 3.51 percent.
192
The new Private Sector Banks are very comfortably placed as compared to the
Public Sector Banks.
Ho: “There is no significance difference in advances per employee of banks

under study”
ANOVA TABLE
Between Sample 17.90 [5-1] = 4 4.475 0.2821 F[4,65] = 2.5130
Within Sample 1031.20 [70-5] =65 15.865
Total 1049.10 [70-1] =69
The above table shows that the calculated value of F is 0.2821 which is
less than the table value of 2.5130 at 5% level with d. f. being v1 = 4 and v2 = 65.
groups and within groups in advances per employee of banks is not significant
and we concluded that the advances per employee of banks trends are uniform
during the period of study.
[3] Total Business per Employee:

This ratio is one of the best indicators for the measurement of productivity
of bank. This ratio is one of the best indicators for the measurement of
productivity of bank. This ratio is an indicator of degree of employee„s
productivity of banks. A high ratio indicates better productivity of employees in
banks and low ratio indicates lower productivity. This ratio has been calculated
as follow.
Total Deposit + Total Advances

Formula: Total Business per Employee = ------------------------------------------- x 100
No. of Employee
Where, Total Business = Deposits + Advances of the Bank
193
TABLE – 5.3: TOTAL BUSINESS PER EMPLYEE RATIO (Rs. in Crore)
YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 3.96 5.48 7.04 9.13 10.68 7.26
BANK OF INDIA 3.77 4.94 6.48 8.28 10.04 6.70
DENA BANK 3.73 4.54 5.72 7.28 8.25 5.90
Average 3.60 4.47 5.70 7.33 8.76 5.97
AXIS BANK 8.7 10.24 9.99 9.65 11.35 9.99
DEVE. CREDIT BANK 3.9 4.22 4.54 4.08 5.18 4.38
HDFC BANK 7.58 5.37 4.33 4.59 5.65 5.50
ICICI BANK 12.26 12.8 11.55 12.62 11.88 12.22
INDUSIND BANK 16.63 10.99 11.1 8.91 8.78 11.28
YES BANK 8.48 5.93 7.2 10.69 16.15 9.69
Average 8.73 7.66 7.46 7.78 9.15 8.16
CHART- 5.3: TOTAL BUSINESS PER EMPLYEE AVE. RATIO (Rs. in Crore)
12.22
14 BOB / AXIS
11.28
12 BOI / DCB
9.99
9.69
10 CBI / HDFC
8.16
7.26
7.17
DB / ICICI
6.7
8
5.97
5.9
5.28
5.5
5.06
PNB / INDU.
4.43
4.38
6
4.04
4 UBI / KOTAK
SBI / YES
2
AVERAGE
0
Looking into the total business per employee ratio (Table-5.3 & Chart-5.3),
we can see that overall business (Deposit + Advances) per employee is more
than 1.37 times higher in new Private Sector Banks under study as compared to
Public Sector Banks under study. The average business per employee for Public
194
Sector Banks under study is 5.97 percent and for Private Sector Bank under
study it is 8.16 percent. The new Private Sector Banks are very comfortably
placed as compared to the Public Sector Banks.
Ho: “There is no significance difference in business per employee of banks under

study”
ANOVA TABLE
Between Sample 82.097 [5-1] = 4 20.524 2.096 F[4,65] = 2.5130
Within Sample 636.481 [70-5] = 65 9.792
Total 718.578 [70-1] = 69
The above table shows that the calculated value of F is 2.096 which is less
than the table value of 2.5130 at 5% level with d. f. being v1 = 4 and v2 = 65.
groups and within groups in business per employee of banks is not significant
and we concluded that the business per employee of banks trends is uniform
[4] Net Profit per Employee:

This ratio has been computed by dividing the amount of total amount of net
profits by the number of employees in the bank. This ratio indicates net profit per
employee, which is main Indicator for productivity. This ratio shows how
efficiently employee working in the market high ratio indicates better productivity
and lower ratio indicator lower productivity. This ratio has been calculated as
follow.
Net Profit
Formula: Net Profit per Employee =--------------------------- x 100
No. of Employee
195
TABLE – 5.4: NET PROFIT PER EMPLOYEE RATIO (Rs. in Crore)
YEAR
2005-06 2006-07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 0.0271 0.027 0.039 0.0605 0.0785 0.0464
BANK OF INDIA 0.0166 0.0271 0.0495 0.0749 0.0439 0.0424
DENA BANK 0.0092 0.02 0.0361 0.0428 0.0486 0.0313
Average 0.0188 0.0240 0.0382 0.0506 0.0558 0.0375
AXIS BANK 0.7737 0.0705 0.0727 0.088 0.1162 0.2242
DEVE. CREDIT BANK -0.067 0.0042 0.015 -0.045 -0.049 -0.029
HDFC BANK 0.0931 0.0644 0.042 0.0426 0.0568 0.0598
ICICI BANK 0.1001 0.0933 0.1022 0.1086 0.1248 0.1058
INDUSIND BANK 0.0252 0.0261 0.0262 0.0349 0.0651 0.0355
YES BANK 0.0882 0.0386 0.0635 0.1138 0.1575 0.0923
Average 0.1494 0.0462 0.0506 0.0537 0.0764 0.0753
CHART- 5.4: NET PROFIT PER EMPLOYEE AVERAGE RATIO (Rs. in Crore)
0.2242
0.25
BOB / AXIS
0.2
BOI / DCB
0.1058
0.0923
0.15
0.0753
CBI / HDFC
0.0598
0.0501
0.0464
0.0424
0.0419
0.0378
0.0375
0.0355
0.0346
0.1
0.0313
DB / ICICI
0.0157
0.05 PNB / INDU.

UBI / KOTAK
0
SBI / YES
-0.0285
-0.05
AVERAGE
Looking into the Net Profit per employee ratio (Table-5.4 & Chart-5.4), we
can see that overall Net Profit per employee ratio is more than 2 times higher in
under study. The average Net Profit per employee ratio for Public Sector Banks
under study is 0.0375 percent and for Private Sector Bank under study it is
196
0.0753 percent. The new Private Sector Banks are very comfortably placed as
compared to the Public Sector Banks.

Ho: “There is no significance difference in Net Profit per employee of banks
under study”
ANOVA TABLE
Between Sample 0.0207 [5-1] = 4 0.005175 0.5723 F[4,65] = 2.5130
Within Sample 0.5877 [70-5] = 65 0.009042
Total 0.6084 [70-1] = 69
The above table shows that the calculated value of F is 0.5723 which is so
groups and within groups in Net Profit per employee of banks is not significant
and we concluded that the Net Profit per employee of banks trends is uniform
[5] Working Fund per Employee:

This ratio shows the relationship between Working Funds and Employees
of the bank. This ratio is based on working Funds and Contingent Liability of the
bank. It is best indicator for the measurement of productivity of the bank. A low
ratio indicates lower and high ratio indicates better productivity of the bank. This
ratio has been calculated as follow.
Working Fund
Formula: Working Fund per Employee = ---------------------- x 100
No. of Employee
Where, Working Funds = total resources or total assets
197
TABLE – 5.5: WORKING FUND PER EMPLYEE RATIO (Rs. in Crore)
YEAR
2005-„06 2006-07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 2.92 3.76 4.88 6.17 7.14 4.97
BANK OF INDIA 2.66 3.41 4.4 5.62 6.93 4.60
DENA BANK 2.61 3.11 3.88 4.9 5.47 3.99
Average 2.614 3.154 4.124 5.087 6.039 4.20
AXIS BANK 7.59 7.34 7.43 7.16 8.35 7.57
DEVE. CREDIT BANK 2.93 3 3.39 3.06 3.86 3.25
HDFC BANK 6.13 4.25 3.52 3.48 4.29 4.33
ICICI BANK 9.9 10.34 9.83 10.96 11.27 10.46
INDUSIND BANK 12.05 8 8.11 6.5 6.57 8.25
YES BANK 6.64 4.55 5.39 8.57 12 7.43
Average 6.867 5.881 5.829 6.174 7.227 6.40
CHART- 5.5: WORKING FUND PER EMPLYEE AVE. RATIO (Rs. in Crore)
10.46
12 BOB / AXIS
10 BOI / DCB
8.25
7.57
7.43
8 CBI / HDFC
6.4
5.03
4.97
DB / ICICI
4.33
6
4.6
3.99
3.87
4.2
3.65
3.48
3.25
3.3
4 PNB / INDU.
2 UBI / KOTAK
SBI / YES
0
PUBLIC SECTOR BANKS NEW PRIVATE SECTOR BANKS AVERAGE
Looking into the Working Fund per Employee ratio (Table-5.5 & Chart-
5.5), we can see that overall Working Fund per Employee ratio is more than 1.52
times higher in new Private Sector Banks under study as compared to Public
Sector Banks under study. The average Working Fund per Employee ratio for
Public Sector Banks under study is 4.20 percent and for Private Sector Bank
198
under study it is 6.40 percent. The new Private Sector Banks are very
comfortably placed as compared to the Public Sector Banks.

Ho: “There is no significance difference in Working Fund per Employee of banks
under study”
ANOVA TABLE
Between Sample 40.812 [5-1] = 4 10.2030 1.6457 F[4,65] = 2.5130
Within Sample 402.990 [70-5] = 65 6.1998
Total 443.802 [70-1] = 69
groups and within groups in Working Fund per Employee of banks is not
significant and we concluded that the Working Fund per Employee of banks
trends is uniform during the period of study.
B] BRANCH PRODUCTIVITY:
The parameters like deposit per branch, advances per branch business per
branch, net profit per branch and working fund per branch are used of branch
productivity of selected Public Sector Banks and Private Sector Banks. It is true
that the Public Sector Banks have a large network of branches and have their
presence in the rural and semi urban areas. The Private Sector Banks do not
have branches in both rural and semi urban areas; but when we compare per
branch productivity ratios for the Public Sector Banks are much lower placed to
Private Sector Banks.
199
[1] Deposit per Branch:
This ratio has been computed by dividing the amount of total deposits by
the number of branches in the bank. A high ratio indicates better productivity and
law ratio indicates lower productivity. This ratio has been calculated as follow.
Total Deposit
Formula: Deposit per Branch =------------------------- x 100
No. of Branches
TABLE – 5.6: DEPOSIT PER BRANCH RATIO (Rs. in Crore)

YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 34.15 45.06 52.44 64.69 76.57 54.58
BANK OF INDIA 35.82 43.99 52.03 62.24 71 53.02
DENA BANK 21.05 24.4 29.26 36.36 41.98 30.61
Average 31.42 36.84 43.38 52.53 58.96 44.63
AXIS BANK 89.14 104.79 130.59 140.57 136.52 120.32
DEVE. CREDIT BANK 45.94 62.42 78.89 57.37 58.38 60.60
HDFC BANK 108.34 99.85 132.42 101.42 97.61 107.93
ICICI BANK 268.87 305.31 195.7 151.84 116.03 207.55
INDUSIND BANK 109.54 103.79 105.76 121.48 127.19 113.55
YES BANK 415.77 205.51 113.46 131.46 178.66 208.97
Average 162.66 140.92 121.30 110.89 115.76 130.31
CHART- 5.6: DEPOSIT PER BRANCH AVERAGE RATIO (Rs. in Crore)

208.97
207.55
250
BOB / AXIS
200 BOI / DCB
130.31
120.32
113.55
CBI / HDFC
107.93
150
93.21
DB / ICICI
PNB / INDU.
54.58
54.14
53.02
100
60.6
46.61
44.63
40.92
32.52
30.61
UBI / KOTAK
50
SBI / YES
0 AVERAGE
200
Looking into the deposit per branch ratio (Table-5.6 & Chart-5.6) we can
see that overall deposit per branch in Public Sector Banks under study is not
satisfactory as compared with Private Sector Banks under study. The average
deposit per branch for Public Sector Banks under study is 44.63 percent and for
Private Sector Bank under study it is 130.31 percent, which is 2.92 times more
than the Public Sector Banks under study. The new Private Sector Banks are
very comfortably placed as compared to the Public Sector Banks.

Ho: “There is no significance difference in deposit per branch of banks under
study”
ANOVA TABLE
Between Sample 2142.30 [5-1] = 4 535.57 0.1099 F[4,65] = 2.5130
Within Sample 316625.81 [70-5] = 65 4871.17
Total 318768.11 [70-1] = 69
groups and within groups in deposit per branch of banks is not significant and we
concluded that the deposit per branch of banks trend is uniform during the period
of study.
[2] Advances per Branch:

This ratio has been computed by dividing the amount of total advances by
the number of branches in the bank. A high ratio indicates better productivity and
law ratio indicates lower productivity. This ratio has been calculated as follow.
Total Advances
Formula: Advances per Branches = ----------------------- x 100
No. of Branches
201
TABLE – 5.7: ADVANCES PER BRANCH RATIO (Rs. in Crore)
YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 21.84 30.17 36.81 48.41 55.6 38.57
BANK OF INDIA 24.86 31.17 39.36 46.89 52.07 38.87
DENA BANK 12.68 16.13 19.85 24.39 28.99 20.41
Average 20.59 25.88 31.30 37.84 42.69 31.66
AXIS BANK 49.59 65.73 88.91 97.67 100.81 80.54
DEVE. CREDIT BANK 27.46 36.42 52.84 40.42 42.19 39.87
HDFC BANK 68.08 68.63 83.35 70.23 73.37 72.73
ICICI BANK 238.05 259.42 180.64 151.82 104.08 186.80
INDUSIND BANK 67.96 65.2 71.09 86.65 97.86 77.75
YES BANK 343.87 157.24 80.6 100.84 147.95 166.10
Average 127.53 108.10 92.11 89.18 92.81 101.95
CHART- 5.7: ADVANCES PER BRANCH AVERAGE RATIO (Rs. in Crore)

186.8
200
166.1
180 BOB / AXIS

160 BOI / DCB
101.95
140
CBI / HDFC
89.82
120
80.54
77.75
72.73
100 DB / ICICI
80
40.81
39.87
38.87
38.57
PNB / INDU.
33.14
31.66
29.14
60
20.68
20.41
40 UBI / KOTAK
20
SBI / YES
0
Looking into the advances per branch ratio (Table-5.7 & Chart-5.7), we
can see that overall advances per branch in Public Sector Banks under study are
not satisfactory as compared with Private Sector Banks under study. The
average advance per branch for Public Sector Banks under study during study
202
period is 31.66 percent while the average of Private Sector Bank under study
during the study period is 101.95 percent advance per branch, which is 3.22
times more than the Public Sector Banks under study. The new Private Sector
Banks are very comfortably placed as compared to the Public Sector Banks.
Ho: “There is no significance difference in advances per branch of banks under

study”
ANOVA TABLE
Between Sample 1265.05 [5-1] = 4 316.26 0.0860 F[4,65] = 2.5130
Within Sample 239154.20 [70-5] = 65 3679.30
Total 240419.25 [70-1] = 69
groups and within groups in advances per branch of banks is not significant and
we concluded that the advances per branch of banks trends are uniform during
the period of study.
[3] Total Business per Branch:

This ratio is one of the best indicators for the measurement of productivity
of bank. This ratio indicates the relationship between Business and no of
Branches of the Bank. A high ratio indicates better productivity and law ratio
indicates lower productivity. This ratio has been calculated as follow.
Total Deposit + Total Advances

Formula: Total Business per Branches = -------------------------------------------- x 100
No. of Branches
203
TABLE -5.8: TOTAL BUSINESS PER BRANCH RATIO (Rs. in Crore)
YEAR
2005-„06 2006-07 2007-08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 55.99 75.23 89.25 112.86 132.17 93.1
BANK OF INDIA 60.68 75.16 91.39 109.13 123.07 91.89
DENA BANK 33.73 40.53 49.11 60.75 70.98 51.02
Average 51.93 62.72 74.68 90.39 101.65 76.27
AXIS BANK 138.73 170.52 219.5 238.24 237.34 200.87
DEVE. CREDIT BANK 73.4 96.9 131.73 97.79 100.57 100.08
HDFC BANK 176.42 168.48 215.77 171.66 170.98 180.66
ICICI BANK 506.92 564.74 376.34 303.66 220.11 394.35
INDUSIND BANK 177.5 168.99 176.85 208.14 225.05 191.31
YES BANK 759.64 362.75 194.06 232.3 326.61 375.07
Average 290.18 248.74 213.41 200.07 208.57 232.20
CHART- 5.8: TOTAL BUSINESS PER BRANCH AVE. RATIO (Rs. in Crore)
375.07
394.35
400 BOB / AXIS
350 BOI / DCB

232.2
300 CBI / HDFC

200.87
191.31
183.04
180.66
250 DB / ICICI
200 PNB / INDU.
100.08
94.94
91.89
79.74
150
93.1
76.27
69.95
UBI / KOTAK
53.27
51.02
100
SBI / YES
50
AVERAGE
0
Looking into the total business per branch ratio (Table-5.8 & Chart-5.8),
we can see that overall business (Deposit + Advances) per branch is more than
3.04 times higher in new Private Sector Banks under study as compared to
204
Public Sector Banks under study. The average business per branch for Public
Sector Banks under study it is 76.27 percent and for Private Sector Bank under
study it is 232.20 percent. The new Private Sector Banks are very comfortably
Ho: “There is no significance difference in business per branch of banks under

study”
ANOVA TABLE
Between Sample 6591.13 [5-1] = 4 1647.78 0.0973 F[4,65] = 2.5130
Within Sample 1100701.25 [70-5] = 65 16933.87
Total 1107292.38 [70-1] = 69
groups and within groups in business per branch of banks is not significant and
we concluded that the business per branch of banks trends is uniform during the
period of study.
[4] Net Profit per Branch:

This ratio has been computed by dividing the amount of total Net Profit by
the number of branches in the bank. This ratio indicates net profit per branches,
which is main Indicator for productivity. This ratio shows how efficiently branches
working in the market high ratio indicates better productivity and lower ratio
indicator lower productivity. This ratio has been calculated as follow.
Net Profit
Formula: Net Profit per Branch = ------------------------ x 100
No. of Branches
205
TABLE -5.9: NET PROFIT PER BRANCH RATIO (Rs. in Crore)
YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 0.38 0.37 0.5 0.75 0.97 0.594
BANK OF INDIA 0.27 0.41 0.7 0.99 0.54 0.582
DENA BANK 0.08 0.18 0.31 0.36 0.42 0.270
Average 0.2817 0.3357 0.4886 0.6343 0.6471 0.478
AXIS BANK 1.08 1.18 1.62 2.18 2.43 1.698
DEVE. CREDIT BANK -1.25 0.1 0.43 -1.1 -0.98 -0.56
HDFC BANK 2.17 2.02 2.09 1.59 1.72 1.918
ICICI BANK 4.14 4.12 3.33 2.61 2.31 3.302
INDUSIND BANK 0.27 0.4 0.42 0.82 1.67 0.716
YES BANK 7.91 2.36 1.71 2.47 3.19 3.528
Average 2.3057 1.6457 1.6071 1.4057 1.7986 1.753
CHART- 5.9: NET PROFIT PER BRANCH AVERAGE RATIO (Rs. in Crore)
3.528
3.302
4 BOB / AXIS
3.5
BOI / DCB
3
1.918
CBI / HDFC
1.753
1.698
1.667
2.5
2 DB / ICICI
0.716
1.5
0.632
0.594
0.582
0.552
PNB / INDU.
0.478
0.54
0.172
1
0.27
UBI / KOTAK
0.5
SBI / YES
0
-0.5 PUBLIC SECTOR BANKS NEW PRIVATE SECTOR BANKS AVERAGE
-0.56
-1
Looking into the Net Profit per Branch ratio (Table-5.9 & Chart-5.9), we
can see that overall Net Profit per Branch ratio is more than 3.67 times higher in
under study. The average Net Profit per Branch ratio for Public Sector Banks
under study is 0.4775 percent and for Private Sector Bank under study it is
206
Ho: “There is no significance difference in Net Profit per Branch of banks under
study”
ANOVA TABLE
Between Sample 1.016 [5-1] = 4 0.2539 0.1337 F[4,65] = 2.5130
Within Sample 123.454 [70-5] = 65 1.8993
Total 124.470 [70-1] = 69
groups and within groups in business per Branch of banks is not significant and
we concluded that the business per Branch of banks trends is uniform during the
period of study.
[5] Working Fund per Branch:

This ratio has been computed by dividing the amount of Working Funds by
the number of branches in the bank. This ratio shows the relationship between
Working Funds and branches of the bank. It is best indicator for the
measurement of productivity of the bank. A low ratio indicates lower and high
ratio indicates better productivity of the bank. This ratio has been calculated as
follow.
Working Fund
Formula: Working Fund per Branches =-------------------------- x 100
No. of Branches
207
TABLE – 5.10: WORKING FUND PER BRANCH RATIO (Rs. in Crore)
YEAR
2005-„06 2006-07 2007-08 2008-09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 41.34 51.64 61.95 76.46 88.41 63.96
BANK OF INDIA 42.82 51.98 62.03 73.98 84.97 63.16
DENA BANK 23.66 27.71 33.31 40.93 47.09 34.54
Average 37.78 43.92 52.26 62.51 69.77 53.25
AXIS BANK 110.51 130.58 163.31 176.91 174.54 151.17
DEVE. CREDIT BANK 55.03 73.09 98.41 74.29 76.71 75.51
HDFC BANK 142.73 133.39 175 130.16 129.71 142.20
ICICI BANK 409.43 456.5 320.09 263.77 208.73 331.70
INDUSIND BANK 128.63 123.1 129.23 151.73 168.43 140.22
YES BANK 594.65 277.59 145.15 186.19 242.55 289.23
Average 228.22 197.70 170.04 159.34 164.43 183.94
CHART- 5.10: WORKING FUND PER BRANCH AVE. RATIO (Rs. in Crore)
331.7
289.23
350 BOB / AXIS
300 BOI / DCB

183.94
250 CBI / HDFC
157.59
151.17
140.22
DB / ICICI
142.2
200
150 PNB / INDU.

75.51
70.96
63.96
63.16
54.88
53.25
UBI / KOTAK
48.56
100
36.68
34.54
SBI / YES
50
AVERAGE
0
Looking into the Working Fund per Branch ratio (Table-5.10 & Chart-5.10),
we can see that overall Working Fund per Branch ratio is more than 3.45 times
higher in new Private Sector Banks under study as compared to Public Sector
Banks under study. The average Working Fund per Branch ratio for Public Sector
Banks under study is 53.25 percent and for Private Sector Bank under study it is
208
Ho: “There is no significance difference in Working Fund per Branch of banks

under study”
ANOVA TABLE
Between Sample 4605.78 [5-1] = 4 1151.45 0.1021 F[4,65] = 2.5130
Within Sample 733342.07 [70-5] = 65 11282.19
Total 737947.85 [70-1] = 69
groups and within groups in Working Fund per Branch of banks is not significant
and we concluded that the Working Fund per Branch of banks trends is uniform
C] CAPITAL PRODUCTIVITY:
The study uses Ratio analysis to compare capital productivity of selected

Banks. Ratio analysis is a powerful tool of financial analysis. Ratios represent the
relationship between two or more variables. To analysis the capital productivity of
Public Sector Banks and Private Sector Banks we have considered [1] Interest
Income per unit Capital [2] Interest Expenses to per unit Capital [3] Business per
unit of Capital [4] Net Profit to per unit of Capital and [5] Spread Ratio during the
period of 2005-‟06 to 2009-‟10. The ratios used for measuring capital productivity
of the selected banks have been considered for the purposes of the analysis are
as following:
209
[1] Interest Income to per unit of Capital:
Interest income per unit of capital ratio has been computed by dividing the
amount of interest income by the working funds in the selected banks. This ratio
reveals how much interest income earned as compared to working fund. This
ratio deals with the major income of interest in banks. But only the interest
income is not important, how it compares to the working funds is also important.
If the ratio is high, the operational efficiency will be good. The total of discount,
interest income from loans and advances, interest income from investments,
Interest income from balance with RBI and other interest inflows. This ratio has
Interest Income
Formula: Interest Income to per unit of Capital = -------------------------x 100
Working Fund
Where, Working Funds are total resources (Total assets or Total liabilities) of
a bank as on a particular date. Total resources include capital, reserves and
surplus, deposits, borrowings, other liabilities and provisions. A higher working
fund shows a bank„s total resources strength.
TABLE – 5.11: INTEREST INCOME P. U. OF CAPITAL RATIO (Rs. in Crore)

YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 6.26 6.44 6.58 6.64 6 6.38
BANK OF INDIA 6.26 6.48 6.91 7.25 6.5 6.68
DENA BANK 6.63 6.74 7.01 7.11 6.96 6.89
Average 6.68 6.80 6.93 7.13 6.69 6.85
AXIS BANK 5.81 6.23 6.39 7.34 6.44 6.44
DEVE. CREDIT BANK 7.41 6.59 7.58 10.86 7.49 7.99
HDFC BANK 6.09 7.55 7.6 8.91 7.27 7.48
ICICI BANK 5.48 6.67 7.7 8.2 7.07 7.02
INDUSIND BANK 6.74 7.17 8.25 8.36 7.65 7.63
YES BANK 4.57 5.29 7.72 8.75 6.51 6.57
Average 6.13 6.61 7.74 9.01 7.30 7.36
210
CHART- 5.11: INTEREST INCOME P. U. OF CAPITAL AVE. RATIO (Rs. in Crore)
8.39
7.99
9
7.63
7.48
7.36
7.19
7.12
7.02
BOB / AXIS
6.89
6.87
6.85
6.81
8
6.68
6.57
6.44
6.38
7 BOI / DCB
6 CBI / HDFC
5
DB / ICICI
4
PNB / INDU.
3
2 UBI / KOTAK
1 SBI / YES
0 AVERAGE
Looking into the interest income to per unit of capital ratio (Table-5.11 &
Chart-5.11) we can see that overall interest income to per unit of capital ratio is
more than 1.07 times higher in new private sector banks under study as
compared to public sector banks under study. The average interest income to per
unit of capital ratio for public sector banks under study is 6.85 percent and for
private Sector Bank under study it is 7.36 percent. The five year industry average
of interest income per unit of capital is 7.11. As against this the new private
sector banks Kotak Mahindra Bank had the highest average percentage of
interest income per unit of capital, followed by Development Credit bank,
IndusInd Bank and HDFC Bank shows greater efficiency. Axis Bank on the other
hand has the least percentage of interest income per unit of capital, which is very
far away from banking industry average. The public sector banks Punjab National
Bank had the highest average percentage of interest income per unit of capital,
followed by Union Bank of India shows greater efficiency. Bank of Baroda on the
other hand has the least percentage of interest income per unit of capital, which
is very far away from banking industry average.
The present study shows that Kotak Mahindra Bank Development Credit
bank, IndusInd Bank, HDFC Bank Punjab National Bank and Union Bank of India
211
have the highest ratios among the sample. This might be because their interest
income is good compared with their capital employed whereas the other banks
have low ratio of their low interest income during the period compared with their
huge capital investment. The new Private Sector Banks are very comfortably
Ho: “There is no significance difference in Interest Income to per unit of Capital

ratio of banks under study”
ANOVA TABLE
Between Sample 23 [5-1] = 4 5.75 7.8638 F[4,65] = 2.5130
Within Sample 47.53 [70-5] = 65 0.7312
Total 70.53 [70-1] = 69
more than the table value of 2.5130 [Calculated value > Table value] at 5% level
with d. f. being v1 = 4 and v2 = 65. Hence, the null- hypothesis is rejected. It
indicates that difference between groups and within groups in Interest Income to
per unit of Capital ratio of banks is significant and we concluded that the Interest
Income to per unit of Capital ratio of banks trends are not uniform during the
period of study.
[2] Interest Expenses to per unit of Capital:
Interest Expenses to per unit of Capital ratio has been computed by

dividing the amount of Interest Expenses by the Working Fund in the selected
banks. The ratio of Interest Expenses to Working Fund shows the percentage of
interest expenses to working funds. Interest Expenses includes interest paid on
deposits, Interest Expensed on RBI or Inter Bank Borrowing. If the interest
expense to working fund ratio is high then the profitability of the bank will reduce.
212
Interest expenses should not high than the Interest Income. This ratio has been
calculated as follow.
Interest Expenses
Formula: Interest Expenses to per unit of Capital = -------------------------- x 100
Working Fund
TABLE – 5.12: INTEREST EXPENSES P. U. CAPITAL RATIO (Rs. in Crore)

YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 3.42 3.79 4.4 4.38 3.87 3.97
BANK OF INDIA 3.92 4.05 4.54 4.81 4.41 4.35
DENA BANK 3.91 4.02 4.7 4.92 5.05 4.52
Average 3.81 4.03 4.61 4.88 4.58 4.38
AXIS BANK 3.64 4.09 4.03 4.84 3.67 4.05
DEVE. CREDIT BANK 5.4 4.32 5.12 7.54 5.17 5.51
HDFC BANK 2.62 3.48 3.67 4.86 3.5 3.63
ICICI BANK 3.82 4.75 5.87 5.99 4.84 5.05
INDUSIND BANK 4.95 5.87 6.79 6.7 5.15 5.89
YES BANK 2.52 3.75 5.74 6.52 4.35 4.58
Average 3.75 4.25 5.12 5.98 4.34 4.69
CHART-5.12: INTEREST EXPENSES P.U. OF CAPITAL AVEREGE RATIO

(Rs. in Crore)
5.89
5.51
6 BOB / AXIS
5.05
4.69
4.64
4.58
4.52
4.7
BOI / DCB
4.38
4.35
4.32
4.17
5
4.12
4.05
3.97
3.63
CBI / HDFC
4
DB / ICICI
3
PNB / INDU.
2 UBI / KOTAK
1 SBI / YES
AVERAGE
0
213
Looking into the Interest Expenses to per unit of Capital ratio (Table-5.12
& Chart-5.12) we can see that overall Interest Expenses to per unit of Capital
ratio is more than 1.07 times higher in new Private Sector Banks under study as
compared to Public Sector Banks under study. The average Interest Expenses to
per unit of Capital ratio for Public Sector Banks under study is 4.38 percent and
for Private Sector Bank under study it is 4.69 percent. The five year industry
average of interest expense per unit of capital is 4.54. As against this the new
private sector banks IndusInd bank, DCB, ICICI bank and Yes bank are unable to
manage interest expense compared to per unit capital, whereas HDFC bank,
Axis Bank and Kotak Mahindra Bank held lower percentage of interest expense
ratio as compared to the industry average shows greater profitability. As against
this the public sector banks CBI and UBI are unable to manage interest expense
compared to per unit capital, whereas BOB, PNB, SBI and BOI held lower
percentage of interest expense ratio as compared to the industry average shows
greater profitability. As per the present study HDFC Bank, BOB, Axis Bank, KMB
and PNB have good position in achieving this ratio compared with other sample.
The Public Sector Banks are very comfortably placed as compared to the New
Ho: “There is no significance difference in Interest Expenses to per unit of

Capital ratio of banks under study”
ANOVA TABLE
Sources of S.S. d. f. M.S. F-ratio 5% F-limit

Between Sample 22.83 [5-1] = 4 5.7075 10.0431 F[4,65] = 2.5130
Within Sample 36.94 [70-5] = 65 0.5683
Total 59.77 [70-1] = 69
214
indicates that difference between groups and within groups in Interest Expenses
to per unit of Capital ratio of banks is significant and we concluded that the
Interest Expenses to per unit of Capital ratio of banks trends are not uniform
[3] Business to per unit of Capital:
Business to per unit of capital ratio is the most common productivity

indicator used by banks. This ratio does not reflect fully the wide range of
services provided by the banks. This ratio has been computed by dividing the
amount of total business by the working funds in the selected banks. The ratio of
business per unit of capital shows the percentage of business to working funds.
Business includes deposits and advances affect to the profitability of the bank. If
the business per unit of capital ratio is high, then it indicates the higher
profitability. This ratio has been calculated as follow.
Business
Formula: Business to per unit of Capital = --------------------- x 100
Working Fund
Where, Business = Deposit + Advances of the bank
TABLE 5.13: BUSINESS P. U. OF CAPITAL (Rs. in Crore)

YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 135.44 145.68 144.06 147.92 149.5 144.52
BANK OF INDIA 141.71 144.61 147.34 147.5 144.84 145.20
DENA BANK 142.6 146.24 147.42 148.43 150.74 147.09
Average 137.95 143.85 143.75 145.37 146.15 143.41
AXIS BANK 125.53 130.58 134.41 134.67 135.98 132.23
DEVE. CREDIT BANK 133.39 134.43 133.87 133.28 134.39 133.87
HDFC BANK 123.61 126.31 123.29 131.88 131.82 127.38
ICICI BANK 123.81 123.71 117.57 115.12 105.45 117.13
INDUSIND BANK 137.99 137.28 136.85 137.18 133.62 136.58
YES BANK 127.73 130.68 133.69 124.77 134.66 130.31
Average 128.43 127.58 127.52 127.04 127.89 127.69
(Source: Computed from Data Collected from Annual Report of Respective Banks 2005-06 to 2009-10)
215
CHART-5.13: BUSINESS P. U. OF CAPITAL AVERAGE RATIO (Rs. in Crore)
147.09
144.95
144.52
143.52
143.41
145.2
136.58
133.87
133.62
132.23
145
130.31
127.69
127.38
160 BOB / AXIS
117.13
116.33
140 BOI / DCB
120 CBI / HDFC
100
DB / ICICI
80
PNB / INDU.
60
UBI / KOTAK
40
SBI / YES
20
AVERAGE
0
Looking into the Business per Unit of Capital ratio (Table-5.13 & Chart-
5.13) we can see that overall Business per Unit of Capital ratio is more than 1.12
times higher in Public Sector Banks under study as compared to New Private
Sector Banks under study. The average Business per Unit of Capital ratio for
Public Sector Banks under study is 143.41 percent and for Private Sector Bank
under study it is 127.69 percent. The five years industry‟s average of business
per unit of capital ratio is 135.55. As against this, the public sector banks SBI
could not able to manage its business according to per unit of capital compared
with other sample units, whereas Dena bank held a much higher percentage of
business per unit of capital, followed by BOI, CBI, UBI and BOB shows greater
efficiency. As against this, the new private sector banks except IndusInd Bank
could not able to manage its business according to per unit of capital. Dena
Bank, BOI, CBI, UBI and BOB and IndusInd Bank have the highest ratio among
the selected samples. The Public Sector Banks are very comfortably placed as
compared to the New Private Sector Banks.
Ho: “There is no significance difference in Business per Unit of Capital ratio of

banks under study.
216
ANOVA TABLE
Between Sample 114.69 [5-1] = 4 28.6725 0.2184 F[4,65] = 2.5130
Within Sample 8535.17 [70-5] = 65 131.3103
Total 8649.86 [70-1] = 69
Hence, the Ho is accepted. It indicates that difference between groups and within
groups in Business P.U. of Capital ratio of banks is not significant and we
concluded that the Business P.U of Capital ratio of banks trends are uniform
[4] Net Profit to per unit of Capital:

Net profit to p. u. of capital ratio has been computed by dividing the
amount of Net Profit by the WF in the selected banks. This ratio reveals how
much Net Profit earned as compared to working capital. If the ratio is high, then
the operational efficiency will be good. This ratio has been calculated as follow.
Net Profit
Formula: Net Profit per unit of Capital = --------------------- x 100
Working Fund
TABLE – 5.14: NET PROFIT TO PER UNIT OF CAPITAL RATIO (Rs. in Crore)
YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 0.93 0.72 0.8 0.98 1.1 0.91
BANK OF INDIA 0.62 0.79 1.12 1.33 0.63 0.90
DENA BANK 0.35 0.64 0.93 0.87 0.89 0.74
Average 0.70 0.75 0.91 0.98 0.92 0.85
AXIS BANK 0.98 0.9 0.98 1.23 1.39 1.10
DEVE. CREDIT BANK -2.27 0.14 0.44 -1.48 -1.28 -0.89
HDFC BANK 1.52 1.52 1.19 1.22 1.33 1.36
ICICI BANK 1.01 0.9 1.04 0.99 1.11 1.01
INDUSIND BANK 0.21 0.33 0.32 0.53 0.99 0.48
YES BANK 1.33 0.85 1.18 1.33 1.31 1.20
Average 0.56 0.76 0.88 0.68 0.91 0.76
217
TABLE–5.14: NET PROFIT P. U. OF CAPITAL AVE. RATIO (Rs. in Crore)
1.36
1.5
1.2
1.11
1.07
BOB / AXIS
1.1
1.01
0.97
0.91
0.89
0.85
0.9
0.76
0.74
1 BOI / DCB
0.48
0.46
CBI / HDFC
0.5 DB / ICICI
PNB / INDU.
0
PUBLIC SECTOR BANKS NEW PRIVATE SECTOR BANKS UBI / KOTAK
-0.5 SBI / YES
AVERAGE
-1
-0.89
Looking into the Net Profit to per unit of Capital ratio (Table-5.14 & Chart-
5.14) we can see that overall Net Profit to per unit of Capital ratio is more than
1.12 times higher in Public Sector Banks under study as compared to New
Private Sector Banks under study. The average Net Profit to per unit of Capital
ratio for Public Sector Banks under study is 0.85 percent and for Private Sector
Bank under study it is 0.76 percent. The five years industry‟s average of Net
Profit to per unit of Capital ratio is 0.81. As against this the public sector banks
Punjab National Bank, had the highest average percentage of Net Profit to per
unit of Capital ratio and followed by Union Bank of India, Bank of Baroda, Bank of
India and State Bank of India shows greater efficiency. Central Bank of India and
Dena Bank on the other hand has the least percentage of Net Profit to per unit of
Capital ratio, which is very far away from banking industry average. As against
this the new private sector banks HDFC Bank had the highest average
percentage of Net Profit to per unit of Capital ratio and followed by Yes Bank,
Axis Bank, Kotak Mahindra Bank and ICICI bank shows greater efficiency.
Development Credit bank and IndusInd Bank on the other hand have the least
percentage of Net Profit to per unit of Capital ratio, which is very far away from
banking industry average. HDFC Bank, Yes Bank, Punjab National Bank, Axis
Bank, Kotak Mahindra Bank and ICICI bank have the highest ratio among the
218
sample which shows their operating efficiency as well as their managerial ability.
The Public Sector Banks are very comfortably placed as compared to the New
Ho: “There is no significance difference in Net Profit to per unit of Capital ratio of
banks under study”
ANOVA TABLE
Between Sample 0.7579 [5-1] = 4 0.1895 0.4722 F[4,65] = 2.5130
Within Sample 26.2037 [70-5] = 65 0.4013
Total 26.9616 [70-1] = 69
less than the table value of 2.5130 at 5% level with d. f. being v 1 = 4 and v2 = 65.
groups and within groups in Net Profit to per unit of Capital ratio of banks is not
significant and we concluded that the Net Profit to per unit of Capital ratio of
banks trends are uniform during the period of study.
[5] Spread Ratio:
Spread to per unit of capital ratio has been computed by dividing the
amount of Spread by the Working Fund in the selected banks. Spread is the
difference between interest earned and interest paid by the bank. It is difference
between the incomes earned by deployment of funds and the cost of funds.
Spread plays an important role in determining the profitability of the banks. The
banks can meet their administrative, operating and miscellaneous expenses by
the amount of spread. Profitability performance of banks is analyzed through
analysis of spread. This ratio has been calculated as follow.
219
Spread
Formula: Spread to per unit of Capital = --------------------- x 100
Working Fund
Where, Spread= Interest Earned – Interest Expense
TABLE – 5.15: SPREAD TO P. U. OF CAPITAL RATIO (Rs. in Crore)

YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 2.84 2.65 2.18 2.26 2.13 2.41
BANK OF INDIA 2.34 2.43 2.37 2.44 2.09 2.33
DENA BANK 2.72 2.72 2.31 2.19 1.91 2.37
Average 2.88 2.77 2.32 2.25 2.11 2.47
AXIS BANK 2.17 2.14 2.36 2.5 2.77 2.39
DEVE. CREDIT BANK 2.01 2.27 2.46 3.32 2.32 2.48
HDFC BANK 3.47 4.07 3.93 4.05 3.77 3.86
ICICI BANK 1.66 1.92 1.83 2.21 2.23 1.97
INDUSIND BANK 1.79 1.3 1.46 1.66 2.5 1.74
YES BANK 2.05 1.54 1.98 2.23 2.16 1.99
Average 2.38 2.36 2.62 3.04 2.96 2.67
CHART-5.15: SPREAD P. U. OF CAPITAL AVERAGE RATIO (Rs. in Crore)

4.27
4.5
3.86
4 BOB / AXIS
3.02
3.5 BOI / DCB

2.67
2.55
2.48
2.48
2.47
2.41
2.39
2.37
3 CBI / HDFC
2.33
2.11
1.99
1.97
2.5 DB / ICICI
1.74
2 PNB / INDU.
1.5
UBI / KOTAK
1
SBI / YES
0.5
AVERAGE
0
220
Looking into the spread ratio (Table-5.15 & Chart-5.15) we can see that
overall spread ratio is more than 1.08 times higher in new Private Sector Banks
under study as compared to Public Sector Banks under study. The average
spread ratio for Public Sector Banks under study is 2.47 percent and for Private
Sector Bank under study it is 2.67 percent.
The five years industry‟s average of Spread to per unit of Capital ratio is
2.57. As against this the new private sector banks Kotak Mahindra Bank had the
highest average percentage of Spread to per unit of Capital ratio and followed by
HDFC bank shows greater efficiency. IndusInd Bank, ICICI Bank and Yes Bank
on the other hand have the least percentage of Spread to per unit of Capital ratio,
which is very far away from banking industry average. As against this the public
sector banks Punjab National Bank, had the highest average percentage of
Spread to per unit of Capital ratio and followed by State Bank of India shows
greater efficiency. Central Bank of India and Bank of India on the other hand has
the least percentage of Spread to per unit of Capital ratio, which is far away from
banking industry average.
Here, Kotak Mahindra Bank and HDFC bank which is the major player of
the private sector banks, shows the highest rate proving its profitability. Hence,
the new Private Sector Banks are very comfortably placed as compared to the
Public Sector Banks.
Ho: “There is no significance difference in spread ratio of banks under study”
ANOVA TABLE
Between Sample 0.2736 [5-1] = 4 0.0684 0.1034 F[4,65] = 2.5130
Within Sample 43.0064 [70-5] = 65 0.6616
Total 43.28 [70-1] = 69
221
Hence, the null- hypothesis is accepted means there is no significant difference
in years. It indicates that difference between groups and within groups in spread
ratio of banks is not significant and we concluded that the spread ratio of banks
5.5 ANALYSIS OF PROFITABILITY OF BANKS:

The study uses ratio analysis to compare profitability of public sector
banks and private sector banks. Ratio analysis is a powerful tool of financial
analysis. Ratios represent the relationship between two or more variables. In
financial analysis ratios are generally used as benchmarks for evaluating a firm‟s
position or performance. The absolute values may not provide us meaningful
values until and unless they are related to some other relevant information.
Ratios help to summarize large data to draw qualitative judgments about the
firm‟s performance.150 Profitability Ratio is a class of financial metrics that is used
to assess a business's ability to generate earnings as compared to its expenses
and other relevant costs incurred during a specific period.
This section documents the analytical framework in which the profitability

of banking institutions is determined. Profitability is an important criterion to
evaluate the overall efficiency of a concern. Profitability can be defined as the
ratio of output to input for a specific production system. Profitability is the ability
of a given investment to earn return from its use. Profitability in banks is
measured by relating profit to working fund/ total assets/ income/ deposit etc.151
Banks are being commercial organization and like any such organization, all of
150
Pandey, I. M, Financial Management, 2002, Vikas Publishing House Pvt. Ltd, New Delhi, 109.
151
Seshadri, J. H. “An Economic Analysis of Profitability in Commercial Banks, Prajnan, July-
1980, IX, 215.
222
their activities should be directed towards earning profit. To analysis the
profitability of public sector banks and private sector banks we have considered
profitability ratio during the period of 2005-‟06 to 2009-‟10. There is some debate
about whether profitability measures are appropriate indicators of performance of
public sector enterprises who are required to produce socio-economic outputs
that cannot be reflected in the balance sheet. This is relevant especially for the
public sector banks in India whose objectives have been more social than
economic. However, the policy makers laid emphasis on profitability as an
important benchmark through which the performance of public sector banks is to
be judged in the post reform era.152 In the market oriented economy some public
sector banks have gone in for partial privatization and are already listed in the
stock market and more banks are likely to approach the capital market to
mobilize additional funds. The improved profitability is the only key parameter for
evaluating performance from the shareholders point of view. Now it is up to the
bank management to decide how to strike a trade-off between social and
commercial banking in order to improve market holdings and services and play
the role of government‟s agent at the same time.
To analysis the profitability of Public Sector Banks and Private Sector

Banks we have considered profitability ratios during the period of 2005-‟06 to
2009-‟10. The results of profitability ratio analysis are given in Table 1 to 8.
[1] Interest Earned:

Interest earned ratio has been computed by dividing the amount of total
interest earned by the volume of business in the selected banks. This ratio
reveals how much interest earned as compared to volume of business. This ratio
deals with the major income of interest in banks. If the ratio is high, the
operational efficiency will be good. This ratio has been calculated as follow.
152
Sarkar J, Sarkar S, and Bhaumik S. K, “Does Ownership always Matter? - Evidence from the
Indian Banking Industry” Journal of Comparative Economics, 1998, 26, 262-281.
223
Total interest earned
Formula: Interest Earned Ratio (R) = -------------------------------- x 100
Volume of Business
Where, Volume of Business = Advances + Deposits
TABLE – 5.16: INTEREST EARNED RATIO (Rs. in Crore)

YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 4.62 4.42 4.57 4.49 4.01 4.42
BANK OF INDIA 4.42 4.48 4.69 4.91 4.49 4.60
DENA BANK 4.65 4.61 4.76 4.79 4.62 4.69
UNION BANK OF INDIA 4.6 5 5.3 5.05 4.6 4.91
Average 4.85 4.73 4.83 4.90 4.58 4.78
AXIS BANK 4.63 4.77 4.76 5.45 4.74 4.87
DEVE. CREDIT BANK 5.55 4.9 5.66 8.15 5.57 5.96
HDFC BANK 4.93 5.98 6.16 6.76 5.52 5.87
ICICI BANK 4.43 5.39 6.55 7.12 6.71 6.04
INDUSIND BANK 4.89 5.22 6.03 6.1 5.73 5.59
YES BANK 3.58 4.05 5.77 7.01 4.84 5.05
Average 4.77 5.21 6.12 7.16 5.77 5.81
CHART- 5.16: INTEREST EARNED AVERAGE RATIO (Rs. in Crore)

7.25
8 BOB / AXIS
6.04
5.96
5.87
5.81
7
5.59
BOI / DCB
5.14
5.05
4.91
4.87
6
4.78
4.69
4.42
4.7
4.6
5 CBI / HDFC
4 DB / ICICI
3 PNB / INDU.
2
UBI / KOTAK
1
0 SBI / YES
224
Looking into the interest earned ratio (Table-5.16 & Chart-5.16) we can see
that overall interest earned ratio is more than 1.22 times higher in new private
sector banks under study as compared to public sector banks under study. The
average interest earned ratio for public sector banks under study is 4.78 percent
and for private sector bank under study it is 5.81 percent. The new private sector
banks are very comfortably placed as compared to the public sector banks.
Ho: “There is no significance difference in interest earned ratio of banks under

study”
ANOVA TABLE
Between Sample 12.939 [5-1] = 4 3.2348 3.5211 F[4,65] = 2.5130
Within Sample 59.715 [70-5] = 65 0.9187
Total 72.654 [70-1] = 69
The above table shows that the calculated value of F is 3.5211which is

indicates that difference between groups and within groups in interest earned
ratio of banks is significant and we concluded that the interest earned ratio of
banks trends are not uniform during the period of study.
[2] Interest Paid:

Interest paid ratio has been computed by dividing the amount of total
interest paid by the volume of business in the selected banks. The ratio of
interest paid to volume of business shows the percentage of interest paid to
volume of business. Interest paid includes interest on deposits, Interest
Expensed on RBI or Inter Bank Borrowing. If the interest paid to volume of
business ratio is high then the profitability of the bank will reduce. Interest paid
225
should not high than the Interest Income. This ratio has been calculated as
follow.
Total Interest Paid

Formula: Interest Paid Ratio (P) =------------------------------- x 100
Volume of Business
TABLE – 5.17: INTEREST PAID RATIO (Rs. in Crore)

YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 2.52 2.6 3.05 2.96 2.59 2.74
BANK OF INDIA 2.76 2.8 3.08 3.26 3.04 2.99
DENA BANK 2.74 2.75 3.19 3.31 3.35 3.07
Average 2.76 2.80 3.21 3.35 3.14 3.05
AXIS BANK 2.9 3.13 3 3.59 2.7 3.06
DEVE. CREDIT BANK 4.05 3.21 3.82 5.66 3.85 4.12
HDFC BANK 2.12 2.76 2.98 3.69 2.66 2.84
ICICI BANK 3.08 3.84 5 5.2 4.59 4.34
INDUSIND BANK 3.59 4.28 4.96 4.88 3.85 4.31
YES BANK 1.97 2.87 4.29 5.22 3.23 3.52
Average 2.91 3.33 4.02 4.72 3.43 3.68
CHART- 5.17: INTEREST PAID AVERAGE RATIO (Rs. in Crore)

4.34
4.31
4.12
4.5 BOB / AXIS

3.68
3.57
3.52
4
3.24
3.23
BOI / DCB
3.07
3.06
3.2
3.05
2.99
2.89
3.5
2.84
2.74
CBI / HDFC
3
2.5 DB / ICICI
2 PNB / INDU.
1.5
UBI / KOTAK
1
0.5 SBI / YES
0 AVERAGE
226
Looking into the interest paid ratio (Table-5.17 & Chart-5.17) we can see
that the interest paid ratio of private sector banks are little more than the public
sector banks under study. The average interest paid ratio for public sector banks
under study is 3.05 percent and for private sector bank under study it is 3.68
percent, which is 1.21 times more than the public sector banks under study. This
is a case of tactful management through which the private sector banks were
able to fetch huge funds on the basis of attractive interest rates.
Ho: “There is no significance difference in interest paid ratio of banks under

study
ANOVA TABLE
Between Sample 12.48 [5-1] = 4 3.12 7.2923 F[4,65] = 2.5130
Within Sample 27.81 [70-5] = 65 0.4279
Total 40.29 [70-1] = 69
indicates that difference between groups and within groups in interest paid ratio
of banks is significant and we concluded that the interest paid ratio of banks
trends are not uniform during the period of study.
[3] Non-Interest Income:

Non-Interest Income ratio has been computed by dividing the Total
Income–Interest Income by the volume of business in the selected banks. This
ratio reveals how much non-interest income as compared to volume of business.
If the ratio is high, the operational efficiency will be good. This ratio has been
calculated as follow.
227
Total Income–Interest Income
Formula: Non-Interest Income Ratio (N) =-------------------------------------------x 100
Volume of Business
TABLE – 5.18: N0N- INTEREST INCOME RATIO (Rs. in Crore)

YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 0.78 0.66 0.79 0.82 0.67 0.74
BANK OF INDIA 0.74 0.76 0.8 0.92 0.66 0.78
DENA BANK 1.21 0.92 0.84 0.6 0.68 0.85
Average 0.81 0.69 0.76 0.75 0.74 0.75
AXIS BANK 1.14 1.03 1.19 1.46 1.61 1.29
DEVE. CREDIT BANK 1.61 1.61 1.72 1.52 1.3 1.55
HDFC BANK 1.34 1.31 1.34 1.44 1.3 1.35
ICICI BANK 1.62 1.63 1.89 1.86 1.9 1.78
INDUSIND BANK 0.57 0.99 0.93 1.2 1.17 0.97
YES BANK 1.88 1.38 1.59 1.52 1.17 1.51
Average 1.43 1.32 1.38 1.36 1.34 1.36
CHART- 5.18: N0N- INTEREST INCOME AVERAGE RATIO (Rs. in Crore)

1.78
1.55
1.8
1.51
BOB / AXIS
1.36
1.35
1.6
1.29
1.4 BOI / DCB

1.11
1.02
0.97
1.2 CBI / HDFC

0.85
0.78
0.75
1
0.74
0.73
DB / ICICI
0.61
0.8
0.52
0.6 PNB / INDU.
0.4 UBI / KOTAK

0.2
SBI / YES
0
Looking into the non-interest income ratio (Table-5.18 & Chart-5.18) we

can see that non–interest income of private sector banks is higher as compared
228
to public sector banks under study. The average non–interest income ratio for
public sector banks under study is 0.75 percent and for private sector bank under
study it is 1.36 percent, which is 1.81 times more than the public sector banks
under study. The new private sector banks are very comfortably placed as
compared to the public sector banks because private sector banks are offering
more and more fees based services to their different customer categories. There
is a pressing need for introducing more services to the customer by the public
sector banks to have an advantage of competitive over private sector banks.
Ho: “There is no significance difference in non-interest income ratio of banks

under study”
ANOVA TABLE
Between Sample 0.0903 [5-1] = 4 0.02258 0.1172 F[4,65] = 2.5130
Within Sample 12.5250 [70-5] = 65 0.19269
Total 12.6153 [70-1] = 69
less than the table value of 2.5130 [Calculated value < Table value] at 5% level
with d. f. being v1 = 4 and v2 = 65. Hence, the null- hypothesis is accepted. It
indicates that difference between groups and within groups in non-interest
income ratio of banks is not significant and we concluded that the non-interest
income ratio of banks trends is uniform during the period of study.
[4] Other Operating Expense:
Other operating expenses ratio has been computed by dividing the
amount of total expenses–interest expenses by the volume of business in the
selected banks. The ratio of other operating expenses to volume of business
shows the percentage of other operating expenses to volume of business. This
ratio has been calculated as follow.
229
Formula:
Total Expenses–Interest Expenses
Other Operating Expenses Ratio (O) = -----------------------------------------------x100
Volume of Business
TABLE – 5.19: OTHER OPERATING EXPENSES RATIO (Rs. in Crore)

YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 2.19 1.99 1.75 1.68 1.37 1.80
BANK OF INDIA 1.96 1.89 1.65 1.67 1.67 1.77
DENA BANK 2.88 2.34 1.78 1.49 1.36 1.97
Average 2.39 2.10 1.74 1.63 1.56 1.89
AXIS BANK 2.09 1.98 2.22 2.4 2.62 2.26
DEVE. CREDIT BANK 4.82 3.2 3.23 5.12 3.97 4.07
HDFC BANK 2.91 3.33 3.56 3.58 3.15 3.31
ICICI BANK 2.15 2.46 2.56 2.91 2.97 2.61
INDUSIND BANK 1.72 1.7 1.77 2.02 2.31 1.90
YES BANK 2.44 1.91 2.19 2.25 1.81 2.12
Average 2.83 2.61 2.77 3.23 2.95 2.88
CHART- 5.19: OTHER OPERATING EXPENSES AVE. RATIO (Rs. in Crore)

4.07
3.88
4.5 BOB / AXIS

4
3.31
BOI / DCB
2.88
3.5
2.61
3 CBI / HDFC
2.27
2.26
2.12
2.07
1.97
1.89
2.5
1.77
1.9
DB / ICICI
1.66
1.66
1.8
2
PNB / INDU.
1.5
1 UBI / KOTAK
0.5
SBI / YES
0
Looking into the other operating expense ratio (Table-5.19 & Chart-5.19)
we can see that overall other operating expense ratio is more than 1.52 times
higher in new private sector banks under study as compared to public sector
230
banks under study. The average other operating expense ratio for public sector
banks under study is 1.89 percent and for private sector bank under study it is
2.88 percent. The new private sector banks are very comfortably placed as
compared to the public sector banks.
Ho: “There is no significance difference in other operating expense ratio of banks

under study”
ANOVA TABLE
Between Sample 1.196 [5-1] = 4 0.2990 0.3885 F[4,65] = 2.5130
Within Sample 50.032 [70-5] = 65 0.7697
Total 51.228 [70-1] = 69
indicates that difference between groups and within groups in other operating
expense ratio of banks is not significant and we concluded that the other
operating expense ratio of banks trends is uniform during the period of study.
[5] Spread Ratio:

Spread represents the difference between the interest earned and the
interest paid by the banks. Spread plays a major role in determining the
profitability of the banks. It is the net amount available to the banks for meeting
their expenses. In order to analyze the profitability performance of commercial
banks, it becomes imperative to study the magnitude of this spread, its
components i.e. interest, and interest paid in relation to total working funds of
banks. This ratio has been calculated as follow.
231
Formula: Spread Ratio (S) = Interest Earned Ratio – Interest Paid Ratio (R-P)
TABLE – 5.20: SPREAD RATIO (Rs. in Crore)

YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 2.1 1.82 1.52 1.53 1.42 1.68
BANK OF INDIA 1.66 1.68 1.61 1.65 1.45 1.61
DENA BANK 1.91 1.86 1.57 1.48 1.27 1.62
Average 2.09 1.93 1.62 1.55 1.45 1.73
AXIS BANK 1.73 1.64 1.76 1.86 2.04 1.81
DEVE. CREDIT BANK 1.5 1.69 1.84 2.49 1.72 1.85
HDFC BANK 2.81 3.22 3.18 3.07 2.86 3.03
ICICI BANK 1.35 1.55 1.55 1.92 2.12 1.70
INDUSIND BANK 1.3 0.94 1.07 1.22 1.88 1.28
YES BANK 1.61 1.18 1.48 1.79 1.61 1.53
Average 1.86 1.89 2.10 2.44 2.34 2.13
CHART- 5.20: SPREAD AVERAGE RATIO (Rs. in Crore)

3.69
4
BOB / AXIS
3.03
3.5
BOI / DCB
3
2.13
CBI / HDFC
2.11
2.5
1.91
1.85
1.81
1.73
1.71
1.68
1.62
1.61
1.7
DB / ICICI
1.53
1.46
2
1.28
1.5 PNB / INDU.

1 UBI / KOTAK
0.5 SBI / YES
0
AVERAGE
Looking into the spread ratio (Table-5.20 & Chart-5.20), we can see that
the spread ratio of private sector banks are more than the public sector banks
under study. The average spread ratio for public sector banks under study is 1.73
232
percent and for private sector bank under study it is 2.13 percent, which is 1.23
times more than the public sector banks under study. Due to increasing
competition from the entry of new private sector banks and deregulation of the
interest rates, the spread goes on declining. The new private sector banks are
very comfortably placed as compared to the public sector banks.
Ho: “There is no significance difference in spread ratio of banks under study”
ANOVA TABLE
Between Sample 0.179 [5-1] = 4 0.04475 0.0837 F[4,65] = 2.5130
Within Sample 34.756 [70-5] = 65 0.53471
Total 34.935 [70-1] = 69
indicates that difference between groups and within groups in spread ratio of
banks is not significant and we concluded that the spread ratio of banks trends is
uniform during the period of study.
[6] Burden Ratio:

Burden represents the difference between the other operating expenses
ratio and the non–interest income by the banks. Non-interest income and spread
constitutes a pool to cover manpower and other banking expenses. Burden
affects the profitability of the banks. This ratio has been calculated as follow.
233
Formula:
Burden Ratio (B) = Other Operating Expenses Ratio – Non–Interest Income

Ratio (O-N)
TABLE – 5.21: BURDEN RATIO (Rs. in Crore)

YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 1.41 1.33 0.96 0.86 0.7 1.05
BANK OF INDIA 1.22 1.13 0.85 0.75 1.01 0.99
DENA BANK 1.67 1.42 0.94 0.89 0.68 1.12
Average 1.58 1.41 0.99 0.88 0.82 1.14
AXIS BANK 0.95 0.95 1.03 0.94 1.01 0.98
DEVE. CREDIT BANK 3.21 1.59 1.51 3.6 2.67 2.52
HDFC BANK 1.57 2.02 2.22 2.14 1.85 1.96
ICICI BANK 0.53 0.83 0.67 1.05 1.07 0.83
INDUSIND BANK 1.15 0.71 0.84 0.82 1.14 0.93
YES BANK 0.56 0.53 0.6 0.73 0.64 0.61
Average 1.40 1.28 1.40 1.88 1.61 1.51
CHART- 5.21: BURDEN AVERAGE RATIO (Rs. in Crore)

2.77
3 BOB / AXIS
2.52
2.5 BOI / DCB

1.96
2 CBI / HDFC
1.51
1.34
1.25
DB / ICICI
1.15
1.14
1.12
1.5
1.05
1.05
0.99
0.98
0.93
0.83
PNB / INDU.
0.61
1
UBI / KOTAK
0.5
SBI / YES
0
AVERAGE
234
Looking into the burden ratio (Table-5.21 & Chart-5.21), we can see that
overall burden ratio is more than 1.32 times higher in new private sector banks
under study as compared to public sector banks under study. The average
burden ratio for public sector banks under study is 1.14 percent and for private
sector bank under study it is 1.51 percent. To improve the profitability, it is
necessary to manage the burden of the banks.

Ho: “There is no significance difference in burden ratio of banks under study”
ANOVA TABLE
Between Sample 0.837 [5-1] = 4 0.20925 0.3786 F[4,65] = 2.5130
Within Sample 35.924 [70-5] = 65 0.55268
Total 36.761 [70-1] = 69
indicates that difference between groups and within groups in burden ratio of
banks is not significant and we concluded that the burden ratio of banks trends is
uniform during the period of study.
[7] Profitability Ratio:

The profitability is the most important indicator of overall financial
performance. The level of efficiency, productivity, and cost effectiveness is
reflected through the bank‟s profit figure. In short, the profit of a bank can be
considered as a composite index of the bank‟s performance in its various areas
of operation.153 The profitability ratio is worked out as follows:
153
Angadi and Devraj, “Productivity and Profitability of Banks in India”, Economic and Political
Weekly, November 1983, 18 [48].
235
Formula: Profitability Ratio = Spread Ratio – Burden Ratio [S-B].
TABLE – 5.22: PROFITABILITY RATIO (Rs. in Crore)

YEAR
2005-„06 2006-„07 2007-„08 2008-„09 2009-„10 Ave.
BANKS
PUBLIC SECTOR BANKS
BANK OF BARODA 0.69 0.49 0.56 0.67 0.72 0.63
BANK OF INDIA 0.44 0.55 0.76 0.9 0.44 0.62
DENA BANK 0.24 0.44 0.63 0.59 0.59 0.50
Average 0.51 0.52 0.63 0.67 0.63 0.59
AXIS BANK 0.78 0.69 0.73 0.92 1.03 0.83
DEVE. CREDIT BANK -1.71 0.1 0.33 -1.11 -0.95 -0.67
HDFC BANK 1.24 1.2 0.96 0.93 1.01 1.07
ICICI BANK 0.82 0.72 0.88 0.87 1.05 0.87
INDUSIND BANK 0.15 0.23 0.23 0.4 0.74 0.35
YES BANK 1.05 0.65 0.88 1.06 0.97 0.92
Average 0.46 0.60 0.70 0.56 0.73 0.61
CHART- 5.22: PROFITABILITY AVERAGE RATIOS (Rs. in Crore)

1.07
1.2
0.92
0.91
0.87
0.83
BOB / AXIS
0.77
1
0.67
0.66
0.63
0.62
0.61
0.59
0.8 BOI / DCB

0.5
0.35
0.6
0.31
CBI / HDFC
0.4
DB / ICICI
0.2
PNB / INDU.
0
-0.2 PUBLIC SECTOR BANKS NEW PRIVATE SECTOR BANKS UBI / KOTAK
-0.4 SBI / YES
-0.6 AVERAGE
-0.67
-0.8
Looking into the profitability ratio (Table-5.22 & Chart-5.22) we can see
that overall profitability ratio is more than 1.03 times higher in new private sector
banks under study as compared to public sector banks under study. The average
236
profitability ratio for public sector banks under study is 0.59 percent and for
private sector bank under study it is 0.61 percent. Profitability of private sector
banks is higher as compared to public sector banks. As profitability is a
dependent factor, it is affected by many other independent variables. Because
the HDFC Bank, Kotak Mahindra bank and Yes bank have good position to
control these factors, which affects the profitability, so they deserve to earn
maximum. The new private sector banks are very comfortably placed as
compared to the public sector banks.
CHART-5.23 PROFITABILITY OF BANKS (As at March end)
CHART: PROFITABILITY OF BANKS
PUBLIC SECTOR BANKS PRIVATE SECTOR BANKS

0.8
0.7
AVERAGE RATIO %
0.6
0.5
0.4
0.3
0.2
0.1
0
2006 2007 2008 2009 2010
YEAR

Ho: “There is no significance difference in profitability ratio of banks under study”
ANOVA TABLE
Between Sample 0.35 [5-1] = 4 0.0878 0.3679 F[4,65] = 2.5130
Within Sample 15.50 [70-5] = 65 0.2385
Total 15.85 [70-1] = 69
237
indicates that difference between groups and within groups in profitability ratio of
banks is not significant and we concluded that the profitability ratio of banks
5.6 CONCLUSION:
Since the process of liberalization and reform of the financial sector were
introduced in 1991, banking sector has under gone major transformation. The
underlying objectives of the reform were to make the banking system more
competitive, productive and profitability. Business and profit growth of any
organization depends upon the men and machine. While men are dynamic,
machine is static. The efficiency and productivity of employee may influence the
business, and if the funds are used efficiently with the help of, higher productivity
of personnel, then it will lead to higher profitability. If employees lack the requisite
banking culture and fail to project the image of the bank in a proper way, then
productivity is bound to suffer. Therefore, banks should adopt means of
increasing interest income by granting qualitative advances and widening their
credit portfolio and increase other income. The manpower of branches should be
deployed in a proper way. The key to success in the competitive environment is
increased productivity.
To conclude, it can be said that Indian Private Sector Banks productivity is

much higher than that of Public Sector Banks. The performance in Private Sector
Banks regarding productivity per employee and per branch shows excellent
result during the study period. The productivity related to employee and per
branch was not remarkable in Public Sector Banks. The capital productivity in
New Private Sector Banks regarding interest earned per unit of capital and
spread per unit of capital shows excellent result during the study period. The
capital productivity related to interest expenses per unit of capital, Business per
238
unit of capital and net profit per unit of capital was remarkable in Public Sector
Banks.
It is clear from the above analysis that the public sector banks are less
profitable than the private sector banks in terms of overall profitability but their
profitability is improving over the last 5 years. 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 public sector
banks to build on their strengths. Competition in India‟s banking system could be
increased though consolidation of the smaller public sector banks. Despite this,
the public sector banks are making full effort in increasing its profitability position
day by day.
The key to success in the competitive environment is increased

productivity and profitability. Productivity and profitability are interrelated. Though
productivity is not the sole factor, it is an important factor influencing profitability.
Public sector banks have not been as profitable as the private sector banks
primarily because of two reasons – Low Productivity and High Burden ratio.
Public sector banks have nationalized to taking care of many traditionally
neglected areas of operations in the banking sector such as rural branches,
agricultural loans at concessional rates, priority sector loans, etc. These
exercises, being partially of a development nature, are bound to be less
profitable, at least in the initial stages. This dose not, however, means that there
should be any profit motive at all. To improve productivity in the emerging
competitive environment, bank should work towards transforming branches from
transaction dispenses to relationship centers. The Public Sector Banks in
particular can improve their productivity by managing some of the important
elements in a rational way. There is a need to make some practical strategies for
the Public Sector Banks to make them as much competitive as new Private
Sector.
239
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242

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CHAPTER: 5

PRODUCTIVITY OF INDIAN BANKING INDUSTRY

PRODUCTIVITY OF INDIAN BANKING INDUSTRY

Banking institution are critical financial intermediaries for economic

The present analytical study related to critical evaluation the productivity of

In the present research study researcher includes the analysis of

5.2 MEANING OF PRODUCTIVITY OF BANK:

Productivity = Total Output/Total Input

Productivity is defined as the relationship between physical output of one

The level of productivity can be improved by the up gradation of the levels

Productivity helps firms, industries and nations to achieve sustainable

4) Productivity of Raw Material

Thus, attitudinal change, adaptability and openness to new ideas,

5.3 MEANING OF PROFITABILITY OF BANK:

Profitability indicates earning capacity of the banks. It highlights the

A number of factors affect profitability of banks. Some of these are

Productivity analysis is very helpful parameter to measure the financial

The study uses Ratio analysis to compare productivity of selected public

The measurement of productivity in a manufacturing industry is influenced

In our study, we have used Deposit per employee, Advances per

Where, employees means total employees that is inclusive of employees

F-TEST [ONE-WAY ANOVA]:

Ho: “There is no significance difference in deposit per employee of banks under

[2] Advances per Employee:

CHART- 5.2: ADVANCES PER EMPLYEE AVERAGE RATIO (Rs. in Crore)

F-TEST [ONE-WAY ANOVA]:

Ho: “There is no significance difference in advances per employee of banks

[3] Total Business per Employee:

Total Deposit + Total Advances

F-TEST [ONE-WAY ANOVA]:

Ho: “There is no significance difference in business per employee of banks under

[4] Net Profit per Employee:

0.05 PNB / INDU.

F-TEST [ONE-WAY ANOVA]:

[5] Working Fund per Employee:

Where, Working Funds = total resources or total assets

F-TEST [ONE-WAY ANOVA]:

TABLE – 5.6: DEPOSIT PER BRANCH RATIO (Rs. in Crore)

CHART- 5.6: DEPOSIT PER BRANCH AVERAGE RATIO (Rs. in Crore)

F-TEST [ONE-WAY ANOVA]:

[2] Advances per Branch:

CHART- 5.7: ADVANCES PER BRANCH AVERAGE RATIO (Rs. in Crore)

180 BOB / AXIS

F-TEST [ONE-WAY ANOVA]:

Ho: “There is no significance difference in advances per branch of banks under

[3] Total Business per Branch:

Total Deposit + Total Advances

400 BOB / AXIS

350 BOI / DCB

300 CBI / HDFC

F-TEST [ONE-WAY ANOVA]:

Ho: “There is no significance difference in business per branch of banks under

[4] Net Profit per Branch:

F-TEST [ONE-WAY ANOVA]:

[5] Working Fund per Branch:

300 BOI / DCB

150 PNB / INDU.

F-TEST [ONE-WAY ANOVA]:

Ho: “There is no significance difference in Working Fund per Branch of banks

The study uses Ratio analysis to compare capital productivity of selected

TABLE – 5.11: INTEREST INCOME P. U. OF CAPITAL RATIO (Rs. in Crore)

F-TEST [ONE-WAY ANOVA]:

Ho: “There is no significance difference in Interest Income to per unit of Capital