We have used three major denominators to assess the efficiency of the banks - the ratio of profits to business, profits to income ratio and ratio of profit to capital. Profitability as measured in terms of capital reflects the ability of a bank to maximise its return on capital. But it does not reveal clearly the relative efficiency of a bank in respect of mobilisation and deployment of funds. Thus, in order to examine the relative significance of business, income and expenses in influencing profitability, the ratio of profits to business and the ratio of profits to income were considered. Our study reveals that the Corporation Bank is more efficient than the other 26 public sectors banks as it scores over the other 26 banks on two of the three denominations.

If we compare the toppers in the three denominations, we find that Corporation Bank scores over State Bank of Hyderabad in two respects. The ratio of profits to business in the case of Corporation Bank was 1.02 per cent as against 0.70 per cent in State Bank of Hyderabad. Corporation Bank recorded higher ratio of profits to income with 12.35 per cent as against 7.88 per cent in State Bank of Hyderabad.

On the basis of third parameter - the ratio of profits to capital - State Bank of Hyderabad was ahead with 22.48 per cent as against 19.70 per cent in Corporation Bank.

There were many developments relating to banks' profitability during 1998-99, of which some exerted a favourable influence while many others would have put further strains.

The interest rates on deposits were further deregulated. The banks were given freedom to offer interest rates on term deposits of maturity above 15 days and also to offer differential interest rates on term deposits of Rs 15 lakh and above.

With the objective of providing adequate degree of flexibility to the banks in efficiently managing their asset and liability portfolios, comprehensive guidelines on setting up of ALM System were issued by the Reserve Bank of India.

In the latest Monetary and Credit Policy, the foreign banks and the new private sector banks are expected to be the principal beneficiaries of decision by the RBI to cut the Cash Reserve Ratio (CRR).

The CRR maintained by the scheduled commercial banks is being reduced by one percentage point from the present level of 10 per cent to 9 per cent in two installments, the first, effected from November 6, 1999, and the next, effected from November 20, 1999.

Table 1 and 2 give the performance indicators and profitability ratios of 27 public sector banks for two years ie, 1997-98 and 1998-99. It may be observed that the average ratio of profits to business of the 27 public sector banks have significantly declined from 0.63 per cent in 1997-98 to 0.35 per cent in 1998-99. The net profit to income ratio have also declined from 7.36 per cent in 1997-98 to 4.13 per cent in 1998-99.

The ratio of net profit and capital (net worth) decreased from 12.22 per cent in 1997-98 to 7.78 per cent in 1998-99. The table also shows that on the basis of the ratio of profits to business, the first five ranks in 1998-99 were held (in descending order) by Corporation Bank (1.02 per cent), Oriental Bank of Commerce (0.94 per cent), State Bank of B&J (0.79 per cent), State Bank of Patiala (0.74 per cent) and State Bank of Hyderabad (0.70 per cent).

In 1997-98, the first five ranks were held by State Bank of Saurashtra (1.25 per cent), Corporation Bank (1.22 per cent), State Bank of Patiala (1.21 per cent), Oriental Bank of Commerce (1.08 per cent) and Punjab National Bank (0.93 per cent). Three banks - Corporation Bank, Oriental Bank of Commerce and State Bank of Patiala - were common to the list of the top five in both years.

Fourteen of the 27 public sector banks improved their rank in 1998-99 over 1997-98, three banks maintained their position and 10 banks dropped a few rungs.

When we considered the average ratio of profits to business of 27 public sector banks in 1998-99, we found that 17 banks have exceeded the average ratio of profits to business of 27 public sector banks. The minimum ratio of profits to business was witnessed in the case of United Bank of India (0.08 per cent) during the year 1998-99.

On the basis of profits to income ratio in 1998-99, the first five ranks were held by Corporation Bank (12.35 per cent), Oriental Bank of Commerce (11.25 per cent), State Bank of Patiala (8.80 per cent), State Bank of B&J (8.15 per cent) and State Bank of Hyderabad (7.88 per cent). In 1997-98, the first five ranks were held by Corporation Bank (14.24 per cent), State Bank of Patiala (13.78 per cent), Oriental Bank of Commerce (13.15 per cent), State Bank of Saurashtra (13.11 per cent) and Punjab National Bank (10.31 per cent). Three banks were common to the list of the top five in both years.

Thirteen of the 27 public sector banks have improved their ranks on the basis of the ratio of profits to income during 1998-99 over the level of 1997-98. Five banks maintained their positions. Nine other banks dropped places in 1998-99. On the other hand, only 17 banks have exceeded the average ratio of profits to income of 27 public sector banks (4.13 per cent) during 1998-99. The lowest ratio of profits to income was recorded in the case of United Bank of India.

The most important denominator for assessing the efficiency of a bank is the return on capital (net worth) ie, the ratio of profits to net worth. Bank's capital includes paid-up capital and reserve fund and other reserves. On the basis of return on capital, the first five ranks in 1998-99 were held by State Bank of Hyderabad (22.48 per cent), State Bank of B&J (21.91 per cent), Syndicate Bank (20.42 per cent), Corporation Bank (19.66 per cent) and Punjab National Bank (19.28 per cent).

In 1997-98, the top five were Punjab National Bank (28.86 per cent), State Bank of B&J (26.29 per cent), State Bank of Patiala (25.24 per cent), State Bank of Hyderabad (24.95 per cent) and State Bank of Mysore (23.22 per cent). Three banks namely Punjab National Bank, State Bank of Hyderabad and State Bank of B&J are common in both the list of top five. Nine banks improved their ranks in 1998-99 over that in 1997-98. Five others maintained their positions in both years and 13 banks dropped a few rungs in 1998-99.

On the other hand, 20 of the 27 public sector banks have exceeded the average ratio of profits to capital (7.78 per cent) during 1998-99.

From the above analysis, one can conclude that in 1998-99, Corporation Bank captured the first rank in terms of profits to business ratio and in terms of profits to income ratio. But on the basis of return on capital, it secured the fourth rank.

During 1998-99, the Corporation Bank registered excellent working results. The net profit of the bank amounted to Rs 192.03 crore as against Rs 166.87 crore last year, ie, up by Rs 25.16 crore (15.08 per cent). The bank is very well-placed in the matter of capital adequacy. As at the end of March 1999, the capital adequacy ratio of the bank stood at 13.2 per cent.