comapre public and private sector bank
TRANSCRIPT
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Compare the performance of public sector and private sector bank[Type the document subtitle]
1/18/2010IBSNishikant
11 | P a g e
A report
On
Compare the performance of public sector and private sector bank
By
Nishikant Naveen
(08BS0002041)
Submitted To
Faculty guide:
Prof. M.L. Gopichander
IBS Hyderabad
DECLARATION
I, Nishikant Naveen hereby declare that this project report entitled
‘compare the performance of public sector and private sector
bank’ is submitted by me for partial fulfillment of the M.B.A. program
from IBS Hyderabad. This report is exclusively prepared by me under
the guidance of Prof. ML GOPICHANDER, Faculty IBS. This project
report has not been submitted to any other institution or published
anywhere before.
DATE: SIGNATURE
Certificate of Completion of Management Research Project.
This is to certify that Nishikant naveen has successfully completed
Management Research Project on ‘compare the performance of public
sector and private sector bank’, under the supervision of Prof.ML
GOPICHANDER, Faculty IBS.
_________________________ Prof.ML GOPICHANDER,
Faculty IBS
Acknowledgement
“Sit down before fact as a little child, prepared to give up every conceived notion, follow humbly wherever and whatever abysses nature leads, or you will learn nothing.” -Thomas Huxley
No task is single man’s effort. Any job in this world however trivial or tough
cannot be accomplished without the assistance of others. An assignment puts the
knowledge and experience of an individual to litmus test. There is always a sense
of gratitude that one likes to express towards the persons who helped to change an
effort in a success. This is an opportunity to express my indebtedness to people
who have helped me to accomplish this task.
I deem it a proud privilege to extend my greatest sense of gratitude to my guide
Prof. ML GOPICHANDER for the keen interest, inspiring guidance, continuous
encouragement, valuable suggestions and constructive criticism throughout the
pursuance of this report. His valuable remarks have made me improve my project a
great deal. Without his guidance and support this project would not have been half
as good.
My sincere thanks are due for him for his valuable support in helping me to gain
this opportunity of being associated with such a meaningful project.
I also express my profound gratitude to IBS, Hyderabad for giving the
opportunity to work on the project and broaden my knowledge base and explore
new horizons.
-Nishikant Naveen
Abstract
Without a sound and effective banking system in India it cannot have a healthy economy.
The banking system of India should not only be hassle free but it should be able to meet new
challenges posed by the technology and any other external and internal factors. The Indian
banking scene has changed drastically with the private sector making inroads in an area
hitherto dominated by large public sector banks. Growing disinvestment is likely to impact
the banking industry as well. In my study I compare the performance of two leading private
sector bank (ICICI bank & YES bank) and two public sector bank (PNB & DENA bank). I
compare these banks on the basis of profitability, products and services they offered, their
working culture, adoptability to new technology and innovation in their technique to enhance
their productivity and efficiency. To find their profitability I study the bank’s financial
statement and measure their ROA, capital adequacy ratio, profit margin analysis and
nonperforming assets which is widely used to assess the performance of banks. Comparison
of the net interest income (NII) and net interest margin (NIM) of these banks with their
previous year performance as well as other player to judge the financial health of the bank. I
also studied the various products & services offered by these banks and how much
customized are they in their offering to increase the customer satisfaction as well as retaining
the customer. I compare the performance of private bank and PSBs in implementing the
CRM and business technology to generate the new business avenue.
With the introduction of private sector bank and innovation of new technology, Indian
banking sector sees major changes in their working culture and they continuously adopted
new technology to improve their efficiency and productivity. The old PSBs employee started
to change their robust attitude against the private sector banks to maintain the customer
relation. The effect can easily be seen on the continuously increasing net profit per employee
of PSBs and their efficiency to reduce the operational cost. To survive in the situation, banks
are forced to adopt various marketing techniques and approaches. Thus, marketing has
become imperative for all banks including those in the public sector.
Today the banks are taking the banking services to the common man this helps them to
develop new technology for survival and to reduce cut throat competition.
Objective of the project:
Compare the performance of the public sector and private sector banks on the basis of their
profitability, products and services they offered, their working culture, adoptability to new
technology and innovation in their technique to enhance their productivity and efficiency.
Methodology
Primary data collected by visiting various branches.
Secondary data is collected from various published journals and from Internet.
Financial statement like P\L account and balance sheet will be analyzed.
Limitations of the Study
Inaccuracy of data: As it is not possible to check the authenticity of data available on the
net and journals, so it may be possible that the result which I interpret on the basis of my
secondary data may not be able to generate the best possible result due to inaccuracy of
data.
The cultural dimension of public sector and private sector bank is distinct, so precise
comparison is difficult procedure.
Description of project in brief
The new millennium has brought with it challenges and opportunities in various fields of
economic activities including banking. Indian banking which was operated in a highly
comfortable environment till the beginning of 1990s has been pushed into the choppy water of
intense competition. The modern banking activity is marked by itineraries into un-chartered
horizons mingled with risks and heavy competition. Immediately after nationalization, the Public
Sector banks spread their branches to remote areas at a rapid pace Their main objective was to
act on behalf of the government to fulfill economic obligations towards the common man. They
acted over enthusiastically in penetrating into far-flung and remote corners of the country. The
social responsibility that was entrusted upon the Public sector Banks digresses them from the
profit motive. On the other hand private and foreign banks did not make such moves. Instead,
they pursued profit making as the objective of their operation.
Growing expectations of the customer’s drive business strategies for the banks, thereby causing
changes in the bank’s operations. Switching over from plain products and services to offering
tailor made products to individual customers, advisory services availability of preferred delivery
channels; demonstrate how the banks have been fine tuning their business strategies towards
achieving customer centricity and convenience. A steadily growing balance sheet, higher pace of
credit expansion, rising profitability and productivity comparable to banks in developed markets,
lower incidence of non-performing assets and focus on financial inclusion have contributed to
making Indian banking vibrant and robust. Despite the current global financial meltdown sector,
the Indian banking sector is considered to be among the most stable.
My project study the performance of two public sector banks (Punjab national bank & Dena
bank) and two private sector banks (ICICI bank & yes bank) in current market scenario. I
compare the performance of the public sector and private sector banks on the basis of their
profitability, products and services they offered, their working culture, adoptability to new
technology and innovation in their technique to enhance their productivity and efficiency. I deal
with them one by one and their reaction to their current market situation.
Profitability
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. 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.
In my project I tried to find out financial condition of the banks and compare it with the previous
year as well I try to analyze it with the market trends. As we know that the whole industry was
affected by the global recession although the impact was minimal in India. The Indian banking
industry is experiencing rapid growth in terms of business, technology, products range and
customer service. Competition has been a key driver in generating growth and profitability as
also innovations in product design and distribution. The banking universe consisting of a wide
variety of players from diverse ownerships, from state to private to foreign is leading to the
development of a vibrant and growing banking industry that is focused apart from adapting the
best practices and global standards.
To understand how well bank is doing, we need to start by looking at a bank’s income statement,
the description of the source of income and expenses that affect the bank’s profitability. For this
I analyze the net income of the bank after tax.
Profit after tax Figures are in Rs Crores.
Year 2007 2008 2009
ICICI bank 3110.22 4157.73 3758.13
YES BANK 94.37 200.02 303.84
PNB BANK 1540 2049 3091
DENA BANK 202 363 423
By analyzing the table we found that ICICI bank which maintains its leading position among the
private sector banks with PAT of 3758 cr. for the FY09. However PAT for this year was less as
compared to 4158 cr. for FY08 due to the higher effective tax rate on account of lower
proportion of income taxable as dividends and capital gains. YES bank shows very high growth
rate in last 3 financial years. The reason for this high growth is their niche market strategy which
promotes the sunrise industry. They also maintain the industry’s lowest NPA & very cost
efficient with highest employee benefit ratio.
Punjab National Bank is the second largest PSU bank, but is fast catching up with its private
sector peers. Its 3 yr performance is commendable. Despite of the slowdown in FY09 PNB
shows higher growth rate because of reducing NPA and good management. Public sector bank
also benefitted because of the fear among the common people about financial condition of some
leading private sector banks. Dena bank with low assets size has registered a net profit of 423 cr.
for the FY09. But against a net profit growth of 79% in fiscal 2008, Dena Bank’s net profit
growth declined to 18% in fiscal 2009. This was quite unlike many PSBs, and hints at possible
problems specific to Dena Bank.
Return on total assets
Measures return on average total assets (ROA)) are widely used to assess the performance of
banks. Bank regulator and analyst have used ROA to assess industry performance and forecast
trends in market structure- as inputs in statistical models to predict bank failure and mergers- and
for a variety of other purpose where a measure of profitability is desired.
Year 2007 2008 2009
ICICI bank 1.09 1.12 0.98
YES BANK 1.44 1.54 1.60
PNB BANK 1.03 1.15 1.39
DENA BANK 0.71 1.06 1.02
For a bank the top RoA is in the range 1.2 to 1.4 which is considered very well. ICICI bank has
shown deteriorating RoA in financial year 2009. This is mainly because of deteriorating asset
quality and increase in nonperforming assets. Yes bank continuously shows higher return on
assets over the three year and it is highest among the private sector bank. The reason for this is
greater efficiency and lower nonperforming assets.
Public sector bank also shows good RoA. For Punjab national bank profitability metrics like
Return on Assets and Return on Equity are on par with private sector peers. RoA are good at
around the 1.39% and RoE is around 19% which is one of the best in industry. And this ratio is
achieved without very high financial leverage which is commendable.
Current Ratio
Financial ratio used to test a company's liquidity by deriving the proportion of current assets
available to cover current liabilities. The concept behind this ratio is to ascertain whether a
company's short-term assets (cash, cash equivalents, marketable securities, receivables and
inventory) are readily available to pay off its short-term liabilities (notes payable, current portion
of term debt, payables, accrued expenses and taxes).
Current ratio = Current Assets
Current Liabilities
Year 2007 2008 2009
ICICI bank 0.61 0.72 0.78
YES BANK 0.30 0.51 0.45
PNB BANK 0.39 0.29 0.27
DENA BANK 0.35 0.35 0.26
Profit Margin Analysis
Profit margin analysis uses the percentage calculation to provide a comprehensive measure of a
company's profitability on a historical basis and in comparison to peer companies and industry
benchmarks.
Basically, it is the amount of profit (at the gross, operating, pretax or net income level) generated
by the company as a percent of the sales generated. The objective of margin analysis is to detect
consistency or positive/negative trends in a company's earnings. Positive profit margin analysis
translates into positive investment quality. To a large degree, it is the quality, and growth, of a
company's earnings that drive its stock price.
Year 2007 2008 2009
ICICI bank 11.41 12.99 12.36
YES BANK 16.81 16.33 18.81
PNB BANK 17.80 20.67 20.93
DENA BANK 1.80 5.92 8.40
Here we found that except ICICI bank almost all bank shows the reasonable increase in gross
profit margin. Reason for the decline is reduction in profit for the ICICI bank. Although PNB
also shows very minimal increase in gross profit margin this is because of the expansion strategy
adopted by Punjab national bank. DENA bank has shown good gross profit margin ratio which
increase by 41.89% in FY09.
Ratios for evaluating operating performance
Operating Profit Margin
By subtracting selling, general and administrative (SG&A), or operating, expenses from a
company's gross profit number, we get operating income. Management has much more control
over operating expenses than its cost of sales outlays.
Thus, investors need to scrutinize the operating profit margin carefully. Positive and negative
trends in this ratio are, for the most part, directly attributable to management decisions.
A company's operating income figure is often the preferred metric (deemed to be more reliable)
of investment analysts, versus its net income figure, for making inter-company comparisons and
financial projections.
Year 2007 2008 2009
ICICI bank Operating profit 5874.41 7960.68 8925.23
Operating profit margin 13.33 14.45 14.13
YES BANK Operating profit 172.43 350.08 527.65
Operating profit margin 18.31 17.54 20.06
PNB BANK Operating profit 3617 4006 5744
Operating profit margin 19.41 21.74 21.80
DENA BANK Operating profit 635 686 726
Operating profit margin 3.24 6.93 9.13
Figures are in Rs Crores
Almost all the banks show better operating profit and operating profit margin in last few years.
This is mainly because of increase in efficiency as well as better utilization of technology.
Increase in ICICI banks operating profit because ICICI use marketing agents, called direct
marketing agents or associates, for sourcing automobile loans. It incurred direct marketing
agency expenses of Rs. 15.24 billion on the retail asset portfolio in fiscal 2007 compared to Rs.
11.77 billion in fiscal 2006. The growth in direct marketing expenses was commensurate with
growth in business volumes.
Net interest margin (NIM)
For banks, interest expenses are their main costs (similar to manufacturing cost for companies)
and interest income is their main revenue source. The difference between interest income and
expense is known as net interest income. It is the income, which the bank earns from its core
business of lending. Net interest margin is the net interest income earned by the bank on its
average earning assets. These assets comprises of advances, investments, balance with the RBI
and money at call.
Net Interest Margin = Interest income – Interest expenses
Average earning asset
Year 2007 2008 2009
ICICI bank 2.19 2.20 2.40
YES BANK 2.79 2.74 2.9
PNB BANK 3.85 3.58 3.62
DENA BANK 2.79 2.74 3.1
There is an increase in net interest margin by 21 basis points to 2.4% in fiscal 2009 compared to
2.2% in fiscal 2008 and 2007. Net interest margin of ICICI bank is expected to continue to be
lower than other banks in India until it increase the proportion of low-cost deposits and retail
deposits in our total funding. The net interest margin is also impacted by the relatively lower net
interest margin earned by its overseas branches. Net Interest margins have been generally
consistent, around the 3 percent mark. FY08 has shown NIMs coming down to 2.74 percent - the
only parameter where a leading bank like HDFC Bank (NIM over 4%) beats Yes Bank
handsomely.
For Punjab national bank Net Interest Margins have been stable around the 3.5 -4 %mark. This is
better than the leading SBI which is around 3% mark but lower than the HDFC. Dena bank also
shows good net interest margin of around 3% over the year.
Net interest income
Net Interest Income (NII) is a financial measure for banks, calculated by the amount of money
the bank receives from interest on assets (commercial loan, personal mortgage etc) minus the
amount of money bank pays out for interest on liabilities (personal bank account etc).
Year 2007 2008 2009
ICICI bank 6326.83 8327.98 9763.46
YES BANK 171.35 336.72 511.2
PNB BANK 5306.29 5701.60 7030.9
DENA BANK 855.36 892.91 1064.43
Figures are in Rs Crores
Here we found that net interest income of all bank increases. Net interest income arouse because
of better margin management. The reason for increase in ICICI bank net interest income is
increase in non retail advances and decrease in cost of funds. PNB & DENA bank also registered
a growth of 28% & 23% in fiscal year 2009.
Capital adequacy ratio
A bank's capital ratio is the ratio of qualifying capital to risk adjusted (or weighted) assets. The
RBI has set the minimum capital adequacy ratio at 10% as on March 2002 for all banks. A ratio
below the minimum indicates that the bank is not adequately capitalized to expand its operations.
The ratio ensures that the bank do not expand their business without having adequate capital.
Capital adequacy ratio BASEL-1
Year 2007 2008 2009
ICICI bank 11.69 14.92 15.92
YES BANK 13.6 13.6 12.59
PNB BANK 12.29 12.96 12.59
DENA BANK 11.52 11.09 10.73
Banks are subject to the capital adequacy norms stipulated by the RBI guidelines on Basel II
which became applicable to ICICI bank with effect from year-end fiscal 2008. Prior to year-end
fiscal 2008, banks were subject to the capital adequacy norms as stipulated by the RBI guidelines
on Basel I.ICICI bank maintain the very healthy capital adequacy ratio of 15.92% which is much
above the mandatory 9%. YES bank with a capital adequacy ratio of around 13% is comfortably
capitalized for growth. Punjab National Bank also excels on Capital Adequacy Ratio (CAR) –
perhaps the only parameter where many Indian banks fall short, much like their global
counterparts. While many Indian Banks are struggling to keep their heads above the floor-levels
of 9-12%, PNB’s CAR is at a very comfortable 14%. Although all the banks shows healthy
capital adequacy ratio except the DENA bank which is just above the UCO bank who has the
lowest capital adequacy ratio. However private sector bank has better capital adequacy ratio than
the public sector bank.
Nonperforming Assets ratio
The Bank classifies its advances (loans and debentures in the nature of an advance) into
performing and nonperforming loans (NPL) in accordance with the extant RBI guidelines. A
NPA is defined as a loan or an advance where:
i) Interest and/or installment of principal remain overdue for more than 90 days in respect of a
term loan. Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on
the due date fixed by the Bank;
ii) The account remains ‘out of order’ in respect of an overdraft/cash credit (OD/CC) facility
continuously for 90 days.
iii) A bill purchased/discounted by the Bank remains overdue for a period of more than 90 days;
iv) interest and/or installment of principal in respect of an agricultural loan remains overdue for
two crop seasons for short duration crops and one crop season for long duration crops.
The net non-performing assets to loans (advances) ratio are used as a measure of the overall
quality of the bank’s loan book. Net NPAs are calculated by reducing cumulative balance of
provisions outstanding at a period end from gross NPAs. Higher ratio reflects rising bad quality
of loans.
Year 2007 2008 2009
ICICI bank 1.02 1.55 2.09
YES BANK - 0.09 0.33
PNB BANK 0.76 0.64 0.17
DENA BANK 1.99 0.94 1.09
In 2008, ICICI BANK has increase in non-performing assets was due to higher level of non-
performing assets in the retail portfolio due to change in the portfolio mix towards non-
collateralized loans and seasoning of the loan portfolio and increase in non-performing loans in
rural segment. In 2009, the increase in retail non-performing assets was primarily on account of
seasoning of the secured loan portfolio, relatively higher losses on unsecured portfolio and the
adverse macro-economic environment. YES bank has the lowest net nonperforming asset ratio
among the private sector bank. However ICICI bank has higher NPA because of their aggressive
marketing.
Punjab national bank continuously improves their nonperforming asset ratio which falls to 0.17
which is lowest in industry. DENA bank net NPA is around 1% continuously which is a big
concern for the bank. To reduce the growing NPA bank has organized 949 recovery camp during
the year. Public sector bank has better NPA than private sector bank because of better asset
quality.
Products and services
Banks in India have traditionally offered mass banking products. Most common deposit products
being Savings Bank, Current Account, Term deposit Account and lending products being Cash
Credit and Term Loans. Due to Reserve Bank of India guidelines, Banks have had little to do
besides accepting deposits at rates fixed by Reserve Bank of India and lend amount arrived by
the formula stipulated by Reserve Bank of India at rates prescribed by the latter.
In view of several developments in the 1990s, the entire banking products structure has
undergone a major change. As part of the economic reforms, banking industry has been
deregulated and made competitive. New players have added to the competition. IT revolution has
made it possible to provide ease and flexibility in operations to customers. Rapid strides in
information technology have, in fact, redefined the role and structure of banking in India.
Further, due to exposure to global trends after Information explosion led by Internet, customers -
both Individuals and Corporate - are now demanding better services with more products from
their banks. Financial market has turned into a buyer's market. Banks are also changing with time
and are trying to become one-stop financial supermarkets. Market focus is shifting from mass
banking products to class banking with introduction of value added and customized products.
ICICI BANK
ICICI bank which is leading private sector bank provides variety of customized products for all
their retail and corporate customers. For introducing new products and services or pulling out
obsolete ones from the market, bank has proper system of business intelligence. By setting up a
formalized system of receiving continuous feedback from customers, helps bank to develop a
highly innovative product or service capable of creating a better brand for itself. ICICI Bank is
partnering Indian industry at every level. From customizing innovative solutions for global
Indian corporate to supporting indigenous R&D. ICICI bank also provides various tailor made
product for the SMEs and NRIs.
ICICI Bank offers a host of products and services to its clients, which include Deposits, Loans,
Cards, Investments, Insurance, Demat, NRI Services and Online Services etc.
Deposits
ICICI BANK offers wide variety of deposit products to suit your requirements i.e.
Convenience of networked branches/ ATMs and facility of e-channels like internet and mobile
banking.
Following deposits are offered:
Savings Account
Advantage Deposit
Special Savings Account
Life Plus Senior Citizens Savings Account
Fixed Deposits
Security Deposits
Recurring Deposits
Tax-Saver Fixed Deposit
Young Stars Savings Account
Child Education Plan
Bank@Campus
Salary Account
Advantage Woman Savings Account
EEFC Account
Resident Foreign Currency (Domestic) Account
Privilege Banking
No Frills Account
Rural Savings Account
People's Savings Account
Self Help Group Accounts
Outward Remittance
Freedom Savings Account
Family Banking
Loans
ICICI Bank offers following loan facilities:
Home Loans
Loan Against Property
Personal Loans
Car Loans
Two Wheeler Loans
Commercial Vehicle Loans
Loans Against Securities
Loan Against Gold Ornaments
Pre-approved Loans
Cards
ICICI Bank offers a variety of cards to suit your different transactional needs. One can use these
cards for shopping, traveling or any other type of payments. These cards are of many types and
used for different purpose.
Consumer Cards
o Credit Cards
o Travel Cards
o Debit Cards
Commercial Cards
o Corporate Cards
o Prepaid Cards
o Purchase Cards
o Distribution Cards
o Business Cards
Merchant Services
Investments
Along with the cards and deposits ICICI provides online investments. With the help of online
investment one can manage his finances by investing in following schemes of ICICI:-
ICICI Bank Tax Saving Bonds
Mutual Funds
Government of India Bonds
Initial Public Offers (IPO) by Corporate
Foreign Exchange Services
ICICI Bank Pure Gold
Senior Citizens Savings Scheme, 2004
Insurance
ICICI Bank offers various types of insurance. Customers can choose from the following:
Home Insurance
o Health Insurance
o Health Advantage Plus
o Family Floater
o Personal Accident
Travel Insurance
o Individual Overseas Travel Insurance
o Student Medical Insurance
Motor Insurance
o Car Insurance
o Two Wheeler Insurance
Life Insurance
o ICICI Pru LifeTime Gold
o ICICI Pru LifeState RP
NRI Services
Following services are offered to the NRIs:
Money Transfer
Bank Accounts
Investments
Home Loans
Insurance
Loans Against FD
YES BANK
Yes bank is offering a suit of banking products and financial services which include corporate
and institutional banking, financial markets, investment banking, business and transactional
banking, retail and private banking business across the country. YES BANK has a wide range of
products and services that are classified under the following categories:
Infrastructure Banking Unit (IBU): This Unit provides a full range of advisory and credit
linked products to clients with a special focus on the infrastructure sector. We meet the financing
needs of clients operating in the Power, Telecom, Mining, Oil & Gas, Transportation and Wind
Energy segments. We assist our clients to obtain funding for projects and also offer end-to-end
advisory services from the planning stage to financial closure.
Structured & Project Finance Unit (SP&F): The SP&F unit offers structured and project
finance expertise to non-infrastructure clients. The areas of specialization include:
a. Securitization - We provide solutions that offer companies access to strategic sources of
funding by converting assets with probable and predictable cash flows into a source of
capital. This alters the risk profile of the corporate, provides the necessary liquidity and
offers investors an opportunity to gain higher yields while taking acceptable risks.
b. Structured Liability Products - The SP&F Group, in conjunction with the Debt Capital
Markets Group, offers liability products to a range of financial and retail clients in
packaging, structuring and placing ABS, MBS, CLOs and CDOs to generate cost-
efficient liabilities for our clients.
c. Debt Syndication - We provide debt solutions from local and international markets to
both private and public sector institutions. Our strong relations with Borrowers, other
banks and Institutional investors help our clients to fulfill their desired financing
requirements
d. Leverage Finance - This encompasses the origination, structuring, underwriting and
participation through Funding in Leveraged Finance transactions, including leveraged
Buy-Outs, Take-over and General Acquisition Finance
e. Asset & Tax based structures - Comprehensive solutions to provide tax benefits,
finance for physical assets and advisory services for leases
Financial Restructuring Unit (FRU): This Unit provides specialized advisory services on
financial restructuring, with expertise in the area of stressed assets. We offer our clients expert
advice and creative product solutions to overcome balance sheet and financing constraints. The
team also assists financially distressed companies in the creation and implementation of
comprehensive financial restructuring packages.
One of the key attributes of YES BANK is the incorporation of knowledge banking in the
delivery of services. This concept calls for customer-centric approach and knowledge-based
financial solutions. Thus, customer gets exposed to lesser risk and s/he can enjoy better rewards
on investments.
PUNJAB NATIONAL BANK
Considered the second largest public sector bank in India, Punjab National Bank completely
justifies the tagline ‘…the name you can bank upon!’ PNB classify its products and services in
personal banking, social banking and corporate banking. PNB has specialist savings and deposits
products for senior citizens and minors. Products and services available under social banking
segment are focused on strengthening rural infrastructure. PNB has set up specialist agricultural
business cells to offer consultancy services to farmers. Low-interest lending products are also
available for the rural population. For corporate customers PNB offers products, such as cash
management, export-import finance and loan against future lease rentals, for corporate
customers. Completed in November 2008, 4 months ahead of schedule, the bank implemented
industry-leading Finacle core banking solution from Infosys across its operations running a
flexible and scalable database platform from Oracle and innovative and cost-effective Sun
SPARC enterprise servers from Sun Microsystems. Some of the PNB products are:
Savings Fund Account - Total Freedom Salary Account, PNB Prudent Sweep, PNB Vidyarthi
SF Account, PNB Mitra SF
Account Current Account - PNB Vaibhav, PNB Gaurav, PNB Smart Roamer
Fixed Deposit Schemes - Spectrum Fixed Deposit Scheme, Anupam Account, Mahabachat
Schemes, Multi Benefit Deposit
Scheme credit scheme – Flexible housing loan, car finance, personal loan, credit cards.
Social banking - mahila udyam nidhi, scheme krishi card, PNB farmers welfare trust
Corporate banking- gold card scheme for exporters, EXIM finance
Business sector – PNB karigar credit card, PNB kushal udhami, PNB pragati udhami, PNB
vikash udham
DENA BANK
Dena Bank is a public sector bank with its major operational area is in Gujarat. The bank offers
a range of products and services, while specializing in home and personal loan products. It is the
pioneer banking institution to introduce minor savings schemes, credit cards for the rural
population and a customer rating system for banking services. The bank procured a loan from
World Bank for technology upgrades and training to develop its modern banking infrastructure.
In Personal banking Dena Bank has a basket of deposit schemes and loan plans for individual
customers. Exclusive deposit schemes include Dena Savifix, Dena Samruddhi and Dena
Freedom. Loan schemes include Dena Niwas Housing Finance, Dena Vidya Laxmi Educational
and Dena Suvidha loans. In Priority banking Dena priority banking services are meant for small
and medium industries, as well as agriculturists. Some of the exclusive priority banking products
includes Dena Shakti Scheme, Dena Laghu Udyami Card Scheme and Dena Swarozgar Credit
Card Scheme.While Corporate banking offers term finance, working capital finance and export
credit products to corporate clients. The bank has specific finance schemes to meet the individual
requirements of different industrial sectors, such as real estate, hotels and educational
institutions. Dena IndiaRemit services allow non-resident Indians (NRIs) to transfer money to
India. Online services such as bill payment, tax submission and e-shopping are also available
with the bank. Dena customers also have access to the bank’s mobile and phone banking
services.
Innovative technique to increase efficiency and productivity
The ongoing process of economic reforms has completely changed the operational environment
for the whole banking industry in the country. A new era of financial intermediation in the
deregulated market, has opened up new vistas of business for banks and also thrown up many
challenges. Banks are now required to cope with stiff competition in business and also the
stringent and complex regulatory norms regarding capital adequacy and provisioning. To survive
in the situation, banks are forced to adopt various marketing techniques and approaches. Thus,
marketing has become imperative for all banks including those in the public sector.
Today the banks taking the banking services to the common man, this helps them to innovate
new technology for survival and to reduce cut throat competition. Banks deploy techniques like
market segmentation and market research. Today various bank adopted cross selling approach to
increase their profitability. Banks have realized that a very effective way of exploiting their retail
banking initiatives is cross selling. This is all the more so, since banks are sharing customer
repayment track record databases, making cross selling far less risky than before. Banks can,
therefore, safely cross sell not just products offered by their group companies, but also those of
other banks, insurance companies and NBFCs with whom they have correspondent banking or
other forms of alliances. Especially PSB are selling the third party products as most of the banks
are selling the LIC insurance product to its customer. However Private sector and foreign banks
were using technology and computerized system since its beginning while PSBs were not. So
they found difficulty in managing all these things. Many of Indian PSBs ignored technological
change and had lost market share to foreign banks and new private banks. Technology helps in
having a huge branch network easily and also it reduces the operational cost this may b clarified
by an example as:-
Operational cost per transaction of an account via different type is-
Via computers on counter- 40 Rs.
Via ATM - 16-17 Rs.
Via online - 46 paise
So it is cleared that manually/direct transaction cost comes very high and electronically and
online it is very low. So that’s why public sector banks should improve their working system and
should make it totally online but challenge is before PSBs
The users can do variety of work using your online banking pin code. The bankers benefit
equally from the online banking facilities. Besides offering their users the convenience of
banking, the online banking system means significant cost savings for the bankers themselves.
With such an automatic system in place, the bankers need not to hire employees specialized in
handling paper work and teller interactions. This reduces the bankers’ operating costs
considerably, translating into significant cost savings over the long-term.
ICICI BANK
ICICI bank considered as the true champion of innovative technique to increase productivity and
efficiency. It brings about the various strategies adopted by ICICI Bank, the leading private
sector bank, to position itself as the strongest bank. ICICI bank is synonymous with the spread of
retail financing in India and it has emerged as a champion of marketing in the entire banking
industry. A wide range of innovative products in retail segment were introduced, which enabled
ICICI bank to capture the largest market share in retail and consumer financing. A variety of
delivery channels of its own, through its subsidiaries and affiliates in the areas of investment
banking, life and non-venture capital and asset management have been tapped in this pursuit. The
bank targeted the cash rich segment comprising NRIs and PIO by offering innovative and tailor
made products. ICICI bank is the first bank to offer a wide network of ATMs through which
50% of the Bank’s business passes. It also offers novel services through internet banking, for
which the e-cheque facility is one example. The bank is a pioneer in mobile ATMs, which are
future potential branches. ICICI bank has mastered the art of cross selling as a strategic tool of
marketing. The bank has built up strong brand image through constant branding efforts. All these
achievements of ICICI bank can be attributed to the state of the art technology it uses.
ICICI bank successfully launches its e- transfer technology. This is a direct debit facility using
automated clearing houses which allow the customers to transfer money online from the comfort
of their home. There is no need of visiting any branch and eliminates the hassle of paper work
transfers are a click away. The service can be used to credit any ICICI Bank, a Non ICICI Bank
account or issue a Demand draft. ICICI Bank has various way through which its NRI account
holding customers can transfer money and thereby has made the process of the same quicker,
convenient and easy. ICICI Bank offers a host of online as well as walk-in options to transfer
money to India. ICICI bank successfully implemented RTGS and ETF technology in almost all
their branches for quicker transfer of money.
YES BANK
YES bank is late entrant in the banking sector. The strategy they adopted is primarily of focusing
on corporate banking. They adopted various modern technologies to improve their expertise in
various field as it is rightly said by their tagline ‘experience our expertise’. Yes Bank has
invested in the best IT systems and practices in order to make its technology platform a strategic
business tool for building a competitive advantage. The bank has outsourced a significant part of
its technology, infrastructure and hardware requirements, which has enabled the bank to achieve
high standards of customer service at comparatively lower cost structures. Yes Bank has invested
in several state-of-the-art technology initiatives and successfully implemented them. Since
inception, Yes Bank has pursued outsourcing aggressively as part of its strategy. The philosophy
of the bank has been to engage with select partner companies — who are acknowledged leaders
in their products or businesses — in developing specific solutions for Yes Bank that are
differentiators in the marketplace. To achieve this goal, Yes Bank has aligned with partners such
as IBM for hardware, Microsoft and Oracle for environmental software (O/s and Database
products), iFlex, Murex, FundTech (formerly CashTech), Nucleus, CMC Limited and Winsoft
for core applications and several others for point solutions. To manage IT operations and also
lend infrastructure as well as application support, Yes Bank has also entered into a long-term
total outsourcing arrangement with Wipro Limited. Some of the new technique adopted by the
yes bank to improve their efficiency and productivity are as follows. This also helps the bank to
be a hard competitor for the existing player and helps to establish it as one of the fastest growing
bank.
“Two Factor Authentication” security process where customers need to include a
second transaction password, which is sent as an instant SMS on their mobile phone
to complete the fund transfer.
“YES Touch — Phone Banking” launched in 2008 integrates voice, email, chat and
video in partnership with CISCO, Scansoft for speech-recognition and Servion Global
for system integration and implementation. This is the first and only implementation
of speech enabled contact centre in the BFSI segment in Asia.
WiFi and RFID enabled branch of the future in New Delhi, which provides an
unparalleled and innovative banking service as never before.
Yes Bank introduced “Money Monitor” — a first-of-its-kind financial aggregation
tool on the Internet in India in 2008. It provides seamless information of your
financial health by aggregating data from over 11,000 financial and related sites
across the world into Yes Bank Internet Banking, thereby giving you a single view
across their own and family accounts. It was launched in partnership with YODLEE.
Single PIN access for all channels, including Internet Banking, ATM and Debit
Cards.
“Mobile Payments” — Person 2 Person payments in partnership with OBOPAY.
Mobile platform agnostic solutions. This can work on SMS, GPRS (Java enabled),
WAP, platforms — Available 24 x 7.
Online Mutual Funds platform — ‘MFONLINE’ enables customers to purchase and
sell mutual funds over the internet on a daily basis. The product not only provides
Marked to Market (MTM) updates but also tracks dividend performance and the
Internal Rate of Return (IRR) of each transaction, within the consolidated portfolio
thereby tracking the growth and progress of the portfolio.
Pay utility bills to over 115 billers across India and make donations to various
religious and charitable institutions
Real time payments to various e-brokerage accounts
Foreign exchange trading for corporate clients.
Yes Bank has adopted a knowledge-driven approach to offer financial solutions, which go
beyond the traditional realm of banking. The belief that Indian banking is over-branched — and
with an under-serviced banking environment-motivated yes bank to conceive the dream of
offering Indian consumers a bank that will epitomize the best in service quality and be a
benchmark of service excellence. Currently Yes Bank has tied up with First Data for an
innovative ATM deployment programme. First Data will leverage its extensive ATM capabilities
to support Yes Bank in identifying new ATM locations predominantly in the Yes Bank branch
servicing areas and delivering installation and field management services including 24x7
monitoring and vendor management. This initiative reinforces Yes Bank’s strategy of expanding
its ATM network in high-density consumer locations such as shopping areas and in high street
business locations. This will surely help yes bank to improve their efficiency and productivity.
However, Public sector banks have long been chastised as the black sheep of the financial sector.
But while a lot of experts might deride these institutions for their non-performing assets and
lower productivity, at the end of the day, public sector banks have far happier customers
compared to their counterparts in the private sector. To counter the private sector banks, public
sector banks started to adopt new technology. One of the basic obstacles which public sector
bank has to face is that they grow first and now they have to adopt the new technology. But with
the globalization and opening up of the economy banking sector has changed a lot. . While
deregulation has opened up new vistas for banks to augment revenues, it has entailed greater
competition and consequently greater risks. Demand for new products, particularly derivatives,
has required banks to diversify their product mix and also effect rapid changes in their processes
and operations in order to remain competitive in the globalised environment.
PUNJAB NATIONAL BANK
Punjab national bank has gone through the major changes to be the second largest bank in public
sector. A giant leap in this direction was that PNB planned a major organizational restructuring
exercise involving redesigning of branches, providing alternate channels, emphasizing a lean
structure and technical up gradation. The redesigning of branches focused more on core
functions including sales and marketing. The focus on providing alternate channels of customer
service was increased to provide more free time to branch staff, so that they could concentrate on
sales and marketing. To keep pace with the tech savvy private sector and foreign banks, PNB
began a massive technology up gradation program. The bank embarked upon core banking
solution at all its branches that afford ‘anywhere banking’, apart from many other competitive
advantages. PNB also carried out various marketing initiatives to enhance its reach. This case
thus provides insights into the various strategies and initiatives on the part of Punjab national
bank to become the market leader. Recently PNB become the 100% core banking implemented
public sector bank through Finacle Universal Banking solution from Infosys. PNB has also
initiated multi-lingual touch screens to address the local banking issues, as well as ATMs for
blind individuals. The bank's technology-backed operations also facilitate e-payment initiatives
of the Central government through Internet banking, including the collection of tax, fee and duty.
The bank has earned around Rs. 1,000 crore in profits during the last quarter of 2008. Its IT
spend is more than Rs. 600 crore and that includes core banking solution. Within the budget and
timeframe, PNB has already trained its staff with necessary education in order to handle
technology-driven tools. However PNB has implementing VRS technique to get rid of unskilled
labor and to increase their efficiency. As we see that the net profit per employee of PNB has
increased drastically in last few years. The net profit per employee of PNB in 2007 was 2.68lac
which increased to 3.66lac in 2008 and reached to 5.64lac in 2009 which is one of the fastest
growths in industry. However this is much lower than other private sector player as in ICICI
bank net profit per employee in FY09 was 11lac and in YES bank it was 11.38lac. PNB has also
focused on SMEs and other rising industry to improve their productivity. They now implemented
CRM technique and provide the customized services to their client. Now most of the city
branches are RTGS enabled and they also opened the 8 to 8 branches in particular area according
to the need of the customer. PNB has established call centre to help their customers. These call
centers help the bank to successfully implement the CRM.
DENA BANK
Dena Bank’s principal activity is to provide commercial banking and other related services. The
Company also provides in merchant banking, asset management and other related services. Dena
bank is late in adopting the modern technology. But after getting the assistance from the World
Bank, DENA bank looks forward to show their presence in the market. 700 branches of DENA
bank are connected through their own network called denanet, which is through leased line. They
are also moving to connect their branches and provide CBS solution to their customer. In Dena
bank GoI has little over the statutory cap of 51 per cent, which restricts the bank from raising
capital by diluting stake for its expansion plans. Most of the DENA bank branches are located in
Gujarat, one of the most prosperous states in India. However according to Deccan chronicle (23 rd
nov 2009) news government of India planning to merge Dena bank with the Canara bank to
increase banks efficiency and productivity.
Working culture
The working culture of private and public sector banks in India is considered as entirely
different. It is assumed that in private bank one can find courteous employee which are very keen
to help the customer unlike the private sector bank. In private sector bank one can find young
employee who are more technology savvy and helps the bank to reduce the operational cost as
well as maintain the customer satisfaction. This helps the bank to generate more revenue for the
bank. As for example, on an average, a Citibank branch earns a net profit of Rs 18 crore
annually. An average ICICI bank branch earns Rs 4.5 crore, while an average SBI branch earns
just Rs 50 lakh, annually. But on the flip side, RBI latest report shows that the State Bank of
India (SBI) recorded 0.1 “complaints per branch” while the corresponding figure for ICICI was
1.39—more than 10 times that of SBI. Citibank fared far worse: it recorded a whopping 8.59
complaints per branch. These are the complaints registered in RBI grievance cell. But their rich
rake-offs notwithstanding, the profit-complaint ratio of private sector banks is much lower than
their much maligned public sector counterparts SBI’s profit-complaint ratio of 4.1 is much
higher than ICICI and Citibank.
Working culture of various banks can also be defined by the business generated by each
employee & net profit per employee
Business per employee (in crore)
Year 2007 2008 2009
ICICI bank 10.27 10.08 11.54
YES BANK 5.30 6.83 9.88
PNB BANK 4.07 5.05 6.55
DENA BANK 4.58 5.59 7.14
Profit per employee (in lakh)
Year 2007 2008 2009
ICICI bank 9.00 10.00 11.00
YES BANK 3.86 6.35 11.38
PNB BANK 2.68 3.66 5.64
DENA BANK 1.99 3.61 4.28
However business generated by each employee as well as net profit by each employee is much
higher in private sector bank than in public sector bank. As for example the business generated
by each employee of ICICI bank and YES bank in FY09 is 11.54cr and 9.88cr respectively and
the net profit per employee for ICICI bank is 11lac and for yes bank it is 11.38lac. While for
public sector bank business generated by each employee of PNB and DENA bank in FY09 is
6.55cr and 7.14cr respectively and the net profit per employee for PNB is only 5.64lac and for
DENA bank it is only 4.28lac.This shows the efficient work culture of private sector bank.
Although with the innovation of new technology the banks starts to spend huge sum of their
money in training and development of their employee in order to increase the efficiency of their
employee. Usually public sector bank recruit their staff on the basis of all India examination.
And their employees are regarded very prestigiously in our society. While the private sector
banks recruit their employee directly from various management campus or through consultancy.
ICICI bank has currently adopted innovative technique to recruit more talented employee. They
directly recruit the employee from various undergraduate colleges and give them proper training
and develop them to suit their organizational needs. YES bank has adopted more innovative
technique to improve the performance of their employee. In their YES Entrepreneur in Action
program , they allows ONE YES BANKER to take time off to pursue his / her goals for a year
during which time they will focus on a project of their choice. Also YES – Professional
Entrepreneurship Program (Y-PEP is designed around the concept of Talent Development. It
aims to ensure the presence of an experienced, dynamic, energetic and driven team of
professionals in Middle/Upper Management to implement various strategic initiatives of the
Bank. This helps the bank to improve their work culture drastically and it also produce excellent
result as net profit per employee has increased from 6.38 lakh in FY08 to 11.38lac in FY09. Yes
bank has the maximum profit per employee in the industry.
SWOT ANALYSIS
PRIVATE SECTOR BANKS
A. STENGTHS
1. All these private banks have professional, dedicated and well- trained manpower.
2. Efficiency is maintained at the highest level.
3. The new private banks have commenced with strong financials and with a clean slate i.e.
without having to pursue NPAs.
4. Almost all these Banks have complied with Capital Adequacy Requirements.
5. Most of these banks are fully computerized and techno-savvy.
B.WEAKNESSES
1. Both old and new private banks are operating in a limited.
2. Although highly networked, the number of branches is limited.
3. The employee turnover appears to be on higher side.
4. There is dissimilarity between old and new private banks by virtue of their age,
functional area, products and services, etc.
C. OPPORTUNITIES
1. Being in the private sector, these banks enjoy high level of autonomy facilitating them
for faster decision making.
2. To face stiff competition, they can innovative new products and services and achieve
high customer satisfaction.
3. With full computerization, they can offer cost-effective services like ATMs, Electronic
Fund Transfer, etc.
D. THREATS
1. Expansion of foreign banks poses severe competition.
2. Dominant Public sector banks which are recharged with a high market share will over-
shadow the Private Sector Banks.
PUBLIC SECTOR BANKS
A. STRENGTHS
1. Wide distribution network: Excellent penetration in the country with huge customer
base.
2. Government owned: This gives an edge over the private banks in terms of customer
security.
3. Low transition costs: This attracts small customers.
B. WEAKNESSES
1. The existing hierarchical management structure of the bank, although strength in some
respects, is a barrier to change.
2. High gross NPAs.
3. Modernization: Public sector banks lags in respect to private players in terms of
modernization of its processes, infrastructure, centralization etc.
C. OPPORTUNITIES
1. Increasing trade and business relations and a large number of expatriate populations
offers a great opportunity to expand on foreign soil.
D. THREATS
1. Advent of MNC banks: large numbers of banks are mushrooming in the Indian market
due to the friendly policies adopted by the government. This can increase the level of
competition and prove a potential threat for the market share of public sector banks.
2. Consumer expectations have increased many folds in last few years and the banks have
not been responsive enough to meet them on time.
3. Private sector banks have venturing into the rural and semi-urban sector, which used to
be the bastion of public sector banks.
References
www.pnbindia.com
www.denaban.com
www.icicibank.com
www.yesbank.in
www.rbi.org.in
www.iba.org.in
www.economywatch.com
Deccan chronicle
Business today
Economic times
