Ownership Effects on Performance of Indian Banks

OWNERSHIP EFFECTS ON PERFORMANCE OF INDIAN BANKS

Namrata Menon               

BBS 3F B

Shaheed Sukhdev College of Business Studies

University of Delhi

College Roll No- 8173                                             

Exam Roll No- 90093

ACKNOWLEDGEMENT

In pursuit of the degree of Bachelor of Business Studies, the final project is a critical component of the entire program course. As part of a student of Shaheed Sukhdev College of Business Studies, University Of Delhi, I got an opportunity to gain invaluable experience under the guidance of Mrs. Rohini Singh for completion of my final graduation project. Her continuous support and valuable in hand experience provided me with the conceptual understanding and practical approach needed to work efficiently for this project. Sincere thanks to all the staff members and the entire praiseworthy faculty of CBS.

The present work is an effort to throw some light on “Ownership Effects on the Performance of Banks in India”. The work would not have possibly come to the present shape without the able guidance, supervision and help of a number of people, especially my friends and family. I convey my heartfelt affection to all those people who supported during the course, for contributing tremendously in completing my Research Report. I hope this report, reflecting my learning in the past fifteen weeks, is as beneficial to the readers as it has been to me.

Sincerely thanking you all.

NAMRATA MENON

Bachelor of Business Studies (Batch of 2012)

Shaheed Sukhdev College of Business Studies

CERTIFICATE OF AUTHENTICITY

This is to certify that this project, being submitted by me for the fulfillment of the degree of Bachelor of Business Studies with Specialization in Finance, Shaheed Sukhdev College of Business Studies University of Delhi is an authentic record and original piece of work. It has not been copied or plagiarized from any source what so ever and has not been submitted earlier to any other institution earlier.

All efforts in this endeavor have been personally made by me and any similarity to any past or present work is purely coincidental.

Place: New Delhi

Date: 16th April, 2012

NAMRATA MENON

BBS 3F B

Shaheed Sukhdev College of Business Studies

University of Delhi

College Roll no- 8173

Examination Roll no- 90093

Contact no: - +91 9891092927

E-mail id- nam.menon.23@gmail.com

Table of Contents

ACKNOWLEDGEMENT        2

CERTIFICATE OF AUTHENTICITY        3

INTRODUCTION        5

LITERATURE SURVEY        7

SCOPE and METHODOLOGY        9

Scope of work-        9

Methodology -        9

T-Test Model        9

Correlation Model        9

Multiple Regression Model        10

Data and Variables        12

CONCLUSION        41

BIBLIOGRAPHY        42

APPENDIX        43

INTRODUCTION

The Indian financial sector underwent a significant structural transformation since the initiation of the financial liberalization since 1991. The Indian financial sector comprises a large network of commercial banks, financial institutions, stock exchanges and a wide range of financial instruments.

During 2007, the global economy, after a sustained period of expansion entered into a phase of downturn on account of the global financial crisis. It witnessed changing of strategies by different banks to adapt to the evolving competitive environment. The shift from traditional banking to profit banking, e-banking, mobile banking, implementation of prudential norms pertaining to capital adequacy, income recognition asset classification and provisioning, exposure norms etc have given rise to increased competition and thrown greater challenges in the banking sector. At the same time, the reduced regulatory controls, higher caps on foreign investment, and introduction of newer products and services facilitated by better technology and skill-sets have also opened up a host of opportunities for the banks to diversify its activities. The long-run impact of these changes in the Indian banking sector will be dependent upon how best a bank is able to adapt itself to and leverage maximum benefit out of this changing environment.

Performance in terms of profitability has become even more important for Indian Banks after the banking sector reforms. Bank performance has been analyzed by researchers on the basis of external and internal variables. However, the scope of this project remains restricted to the internal variables mainly the nature of ownership, size, asset quality, profitability, etc.

Analysts also believed that banks' net interest margin, the difference between interest income and interest expense as a proportion of assets, will decline sharply with rising interest rates. That was because banks were heavily dependent on short-term deposits. Deposit costs were expected to go up but banks it was thought that banks won’t be able to pass on these to borrowers.

Overall, the main reason was that banks will see high loan growth with the net interest margin being maintained or decreasing narrowly. Revenues will be boosted by fee income. Non-performing assets will continue to decline or at least will not increase. Intermediation costs will decline as banks continue to scale up. All this translated into robust profit growth.

In this paper, I have analyzed the effect of ownership on the performance of banks in India in this deregulated regime. It aims to analyze if public sector (including & excluding SBI and its Associates) and private sector banks differ significantly in terms of profitability, asset quality, operating efficiency, etc.- which sector is better-off and why?