FE-E&Y Best Banks: Methodology Overview

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: 1. Banks were categorized into public sector banks (‘PSB’), old private sector banks (‘OPSB’), new private sector banks (‘NPSB’) and foreign banks (‘FB’). With the objective of making the comparison more meaningful, banks with five branches or less, either as at March 31, 2005 or March 31, 2006; new banks set up during 2005-2006; and banks that ceased to exist in India during 2005-2006; were not considered for the rankings.

2. Financial information for the year ending March 31, 2005 and March 31, 2006, relating to each of the banks falling into the aforesaid categories was collected from the data available from Reserve Bank of India and Indian Bank’s Association (website, publications, etc.) To ensure consistency, only the published information was used.

3. Five different major criteria were identified against which the Indian were to ranked. These criteria are: (i) Strength and Soundness, (ii) Growth, (iii) Profitability, (iv) Efficiency/Productivity, and (v) Credit Quality. Considering the current banking, industrial and over-all economic scenario, pertinent weights were assigned to each of the major criterion. The rationale for selecting each of the criteria and assignment of their respective weights is discussed in above-mentioned article.

4. Six sub-criterion were selected within each of the aforesaid major criteria, which would cover the various aspects within the aforesaid criteria. Considering the current banking, industrial and over-all economic scenario, pertinent weights were assigned to each of the sub-criterion. These sub-criteria and their respective weights (in brackets) are:

(i) Growth (in %) (1.00)

(a) Increase in Total Assets (0.10)

(b) Deposits Growth (0.20)

(c) Advances Growth (0.20)

(d) Net Interest Income (‘NII’) Growth (0.10)

(e) Net Profits Growth (0.20)

(f) Networth Growth (0.20)

(ii) Credit Quality (in %) (1.03)

(a) Increase in Gross Non-Performing

Assets (‘GNPA’) (0.10)

(b) Net Non-Performing Assets (‘NNPA’)/

Total Assets (0.15)

(c) NNPA/Networth (0.15)

(d) GNPA/ Gross Advances (0.20)

(e) Increase in GNPA/Increase in Gross

Advances (0.20)

(f) Increase in NNPA/Increase in Net Advances (0.20)

(iii) Strength and Soundness (1.13)

(a) Capital Adequacy (0.15)

(b) Core Capital (0.15)

(c) Credit/Deposit Ratio (0.17)

(d) Borrowings/Deposit Ratio (0.17)

(e) Total Assets (0.16)

(f) Networth (0.20)

(iv) Profitability (in %) (1.23)

(a) Return on Assets (0.20)

(b) Yield on Advances (0.10)

(c)Cost of Deposits (0.20)

(d)Return on Networth (0.20)

(e)Cost/Income Ratio (0.20)

(f) Return on Investments (0.10)

(v) Efficiency/ Productivity (1.33)

(a) Business per Employee (0.20)

(b) Profit per Employee (0.20)

(c) Spread/Total Assets (in %) (0.20)

(d) Commission & Fees/Total Assets (in %) (0.10)