An Analytical Study on Trends and Progress of Indian banking Industry

Banking business has done wonders for the world economy. The intensifying competitive environment in the banking sector forcing the banks to focus in their operations. The profile of the banks plays an important role in the performance of the banks and measuring the relative profile of bank group wise has gained academic attentions over the years. Various parameters have been used to determine the profile of the banks. Evaluating the profile of the commercial banks is important to depositors, owners, potential investors, managers and of course, regulators.


Introduction
It has been around one and half decade since financial sector reforms were initiated in India. As banks are the major segment of the financial sector in India, reform measures are primarily aimed at improving the performance of the banking sector. An efficient banking system has significant positive externalities, which increases the efficiency of economic transaction in general. The first deals with the history part since the dawn of banking system in India. Government took major step in the 1969 to put the banking sector into systems and it nationalized 14 private banks in the mentioned year. This has been elaborated in Nationalization Banks in India. The last but not the least explains about the scheduled and unscheduled banks in India. Section 42 (6) (a) of RBI Act 1934 lays down the condition of scheduled commercial banks It is believed that private ownership helps to improve efficiency and performance of bank and accordingly, the Indian government started diluting its equity in PSBs from early 1990s in a phased manner. The privatization of Indian banks really helped to improve their efficiency and performance. Liberalization and Globalization ushered in by the government in the early 90s have thrown open many challenges to the Indian financial sector. Banks, amongst other things, were set on a path to align their accounting standards with the International standards and by global players. They had to have a fresh look into their balance sheet and analyze them critically. In this background, this article is designed to give an outline of profile of ban group wise in Indian banking industry. Banks that employ IT solutions are perceived to be 'futuristic' and proactive players capable of meeting the multifarious requirements of the large customer's base. Private Banks have been fast on the uptake and are reorienting their strategies using the internet as a medium The Indian banking has finally worked up to the competitive dynamics of the 'new' Indian market and is addressing the relevant issues to take on the multifarious challenges of globalization. Dipasha Sharma, Anil K Sharma, Mukesh K Barua in their study discussed that both the frontier approaches, parametric and non-parametric, are gaining an edge over the traditional financial performance measures. In the non-parametric approach, data envelopment analysis (DEA) is widely applied to measure a bank's efficiency and productivity [1].
Siraj and Sudarsanan Pillai, in their paper determined that asset quality and efficiency of bank is highly correlated. Against this backdrop, this paper investigates the growth of selected NPA variables and compares it with banking performance indicators [2]. Variables that impact NPA of banks is assessed and based on its growth rate, inference is generated. The analysis focused on identifying relative efficiency of different bank groups in managing their NPA.
Singh analysed the profitability management of banks under the deregulated environment with some financial parameters of the major four bank groups i.e. public sector banks, old private sector banks, new private sector banks and foreign banks, He emphasized to make the banking sector competitive in deregulated environment and prefer non-interest income sources [3].
Souza, in his study evaluated the performance of public sector banks, private sector banks and foreign banks during the period 1990-1991 to 1999-2000. The efficiency of the banking system was measured in terms of spread/working fund ratio and turnover/employees ratio [4]. Kannan and Aditya Narain made an attempt to identify the factors influencing spreads of scheduled commercial banks in India and concluded that nonperforming asset effect bank spread.
Centric to the ratio analysis, these studies have customized and blended financial ratios in a model form to examine and predict the financial health. Similarly, comparative performance, recovery performance, cost reduction, productivity and efficiency are vital areas which have been considered by various analysts. With inquisitiveness the present study has been undertaken with specific objectives as envisaged in the objectives of the study [5].

Data collection and sources of data
The study is based on secondary data collected from the select bank records and other secondary sources like research papers, review papers, published papers of related Banks,. Banks' websites, periodicals, Bank's publications, newspapers etc. A list of the related articles from various journals is also used to develop the basic idea about the particular topic. This paper uses the Compound Annual Growth Rate (CAGR) Method and Ranking method to analyse the profile of banks. The study covers for the period of 8 years data from 2005-06 to 2012-13.

Data analysis and interpretation
Customer deposit is a major part of total liabilities of any bank and it is a major source of fund for banks. Since deposit is the main concern for any bank therefore it becomes important to examine the deposit of each bank groups in India. Customer deposits provide funds for investment and financing. Growth in customer deposits is a positive indicator of banking growth. Bank group-wise, public sector banks accounted for the largest CAGR (56.19 per cent) in total deposits followed by private sector banks (54.57 per cent). Foreign banks showed the lowest CAGR (49.77 Percent). High levels of public deposit ensured that most of the banks had a comfortable liquidity profile.
It is observed from the Table 1 that the scheduled commercial bank offices in the country showed CAGR of 6.12%, over a period of eight years and for this growth the major contribution is observed from the growth in the new private sector banks. It is also observed from the Table 2 that there is a continuous increase in number of offices in scheduled commercial banks and this is as a result of continuous increase in number of offices of all bank group wise that is in case of public sector banks, private sector banks and foreign banks.
Capital adequacy ratio is a measure of a bank's financial health and it measures the performance of a bank's capital. It reflects the soundness of a financial institution. It is expressed as a percentage of a bank's risk weighted credit exposures. This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. A Bank shall maintain a minimum ratio between its total regulatory capital (the numerator) and the aggregate of its risk weighted on balance sheet assets and risk weighted off-balance sheet assets less approved deduction. The Ratio is provided by equity plus reserves over total assets. It is shown in the Table 3 that the CAGR of foreign banks is 4.04% as compared to public sector banks and private sector banks where it is 0.21 and 3.88 respectively. The Capital to Risk weighted Assets Ratio (CRAR) profile of SCBs remains comfortable and much above the minimum regulatory requirements of 9%. The decline in the capitalization level of the nationalized banks, is attributable largely to strong credit growth.
Total operating expenses includes staff costs, general and administrative Expenses. A lower Operating Expense (OE) shows better control and highlights higher earnings. Operating Expense (OE) differentiates between low efficiency and high efficiency bank. Table 4 shows, Bank Group wise operating expenses. In case of private sectors banks the operating expenses increased significantly over the period of eight years i.e. from 2006-2013 and overall there was an increase by 50.29%.   Table 6 Reflects that the new private sectors are maintaining high net worth CAGR as compared to other banks which has been followed by the Foreign banks CAGR. The public sector banks showed the lowest CAGR i.e. 56.24. The analyses shows that during the period of eight years study the bank group wise has resulted in a continuous increase in net worth.     Table 7 is displaying the data related to return on assets (ROA) of public, private, and foreign banks during the period of 2006-2013. The ROA is a functional indicator of bank's profitability. ROA reflects bank's management ability to utilize the bank's financial and real investment resources to generate profits. This ratio is used to know the earning capacity of profit of a bank by using its assets and can be calculated as the after tax net profit percentage to total assets. Here, private banks have high ROA than public and foreign banks, which means they are using their assets efficiently. It refits the efficiency with which banks deploy their assets. Table 8 is showing the data related to investment of Scheduled Commercial banks during the period of 2006-2013. This is one of the important segments of total assets which are used for different areas.

It is observed from
Here, foreign banks have the high investment than private banks and public banks which mean foreign banks make more investment than private banks and public banks from their assets in other areas. Table 9 is depicting the data regarding advances of bank group wise during the period of 2006-2013. Here, Nationalised banks have high Advances which mean that Nationalised banks grant more advances than private and foreign banks. The above analysis reveals that all most all the bank group wise increased their advances every year from 2006 to 2013 except the foreign bank has decreased its advances in the year 2010 as compared to 2009.
Comparison of bank group wise performance in terms of NPA reflects the profitability of loan portfolios of banks since less NPA contributes to higher interest income.    ratio is used to know the asset quality, which is based on loan portfolio. Here, public sector banks have high ratio than other banks which means the asset quality of public banks is poor among other scheduled commercial banks. The nationalized banks are more exposed to high potential losses in case of defaults.
The above given Table 11 shows the new private sector banks CAGR is high as compared to other bank group. In the above analysis it is noticed in all bank group wise the interest income during the period of study is gradually increasing, except in the year 2010 the private sector a foreign banks has shown a declining figure. In case of private sector banks the declining figure is due to decrease in case of new private sector.   It has been observed from the above Table 14 that almost all the banks had shown a declining trend in case of wages as percentage to total expenses, except the New Private Sector banks. There are many fluctuations in the above trend, in case of Nationalised banks, SBI and Associate and old private sector banks there was a continuous declining If we look at 8 years historical performance of different types of players in the banking industry, foreign banks has grown its business per employee by the highest rate CAGR i.e. 10.82%. There was a continuous increase in the trend of business per employee during the period of study in case of public sector banks and Foreign banks, but when it comes to private sector banks there was a fall in the year 2009 and this is as a result of fall in new private sector bank (Table 16).
It is revealed from the above facts that the foreign banks are at number position in case of profit per employee as compared to other two players in the banking industry i.e. public and private sector banks.

5.
As far as interest income is concerned, private banks are ahead in the race by reporting 61.93% growth, followed by pubic banks (58.7%) and then by foreign banks (55.61%).
6. Foreign banks have the highest business per employee as well as profit per employee.
7. The NPA of public sector bank was also significantly higher than that of private and foreign banks, which indicates the asset quality of public banks is comparatively poor.

Recommendations
Based on the findings of study the following are few suggestions to the Indian banking Industry, which helps them to improve their performance and efficiency and make them fit to compete in this competitive global scenario.

1.
As the ROA i.e. Return on assets is the parameter that indicates the efficiency of banks management in utilization of its assets, it is advised that the public sector banks should take care regarding this parameter in general, and in particular it is in the case of nationalized banks where there is a need for improvement.

2.
In case of cost of funds there is a need for both public sector banks and private sector banks to work upon this parameter because it shows on the higher side when it is compared to the foreign banks.
3. Having high ratio 11 th of Non Performing Asset i.e., NPA is a sign of poor asset quality and in this study it is noticed that there is a high NPA in public sector banks as compared to private sector banks and foreign banks, and this high NPA's in public sector banks is due to high NPAs in nationalized bank, so there is a need for nationalized banks to focus on this parameter in particular and public sector banks in general, as the simple reason is that the asset quality effects the performance of the banks 4. In case of business per employee the private sector banks are at the back end when it is compared with the other bank groups in the study, this point out that there is a need for private sector banks to look into this matter.
5. When we take profit per employee into consideration, the foreign banks are at front position so it is an indication to both the bank groups i.e. public sector and private sector to try to with stand with the foreign banks in the global scenario.