FE-E&Y India’s Best Banks: The fine print

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1. Banks were categorised 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 on March 31, 2006 or March 31, 2007; banks with total assets less than Rs 4,000 crore (approximately $1 billion), and banks that ceased to exist in India during 2006-2007; were not considered for the rankings.

2. Financial information for the year ending March 31, 2006 and March 31, 2007, relating to each of the banks falling into the aforesaid categories was collected from the data available from the Reserve Bank of India. To ensure consistency, only the published information was used.

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

4. Six sub-criteria were selected within each of the aforesaid major criteria, which would cover 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) Strength and Soundness (0.10)

(a) Core Capital (0.10)

(b) Capital Adequacy (0.15)

(c) Credit/(Deposit+Borrowing) Ratio (0.15)

(d) Borrowings/Deposit Ratio (0.20)

(e) Total Assets (0.20)

(f) Net worth (0.20)

(ii) Credit Quality (0.15)

(a) Increase in Gross Non-Performing Assets (‘GNPA’) (0.10)

(b) Net Non-Performing Assets (‘NNPA’)/Total Assets (0.15)

(c) NNPA/Net worth (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) Growth (0.20)

(a) Increase in Net worth (0.10)

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

(c) Total Assets Growth (0.15)

(d) Advances Growth (0.20)

(e) Net Profits Growth (0.20)

(f) Deposits Growth (0.25)

(iv) Efficiency (0.25)

(a) Profit per Branch (0.10)

(b) Non-Interest Income/Total Assets (in %) (0.10)

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

(d) Profit per Employee (0.20)

(e) Business per Employee (0.20)

(f) Operating Expenses/Total Assets (in %) (0.20)

(v) Profitability (0.30)

(a) Return on Investments (0.10)

(b) Yield on Advances (0.10)

(c) Return on Assets (0.20)

(d) Return on Net worth (0.20)

(e) Cost/Income Ratio (0.20)

(f) Cost of Deposits (0.20)