Corpn Bank beats PSU banks in efficiency

Pradip Kumar Dey
FE Research Bureau

CORPORATION Bank is the most efficient public sector bank in the country having scored over 26 other public sector banks in two (first in profit/business ratio and profit/income ratio) of the three denominators that this study has employed to determine the efficiency of public sector banks based on the published figures for 2000-01. The profitability ratios of the bank in terms of business (deposits plus advances),income and capital (net worth) are 1.04 per cent, 12.48 per cent and 19.43 per cent respectively.

We have used three major denominators to assess the efficiency of the banks-the ratio of profits to business, profits to income 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 sector 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 Indore in two respects. The ratio of profits to business in the case of Corporation Bank was 1.04 per cent as against 0.63 per cent in State Bank of Indore. Corporation Bank recorded higher ratio of profits to income with 12.48 per cent as against 7.32 per cent in State Bank of Indore.

On the basis of third parameter-the ratio of profits to capital-State Bank of Indore was ahead with 20.58 per cent as against 19.43 per cent in Corporation Bank. There were many developments relating to banks’ profitability during 2000-01, of which some exerted a favourable influence while many others would have put further strains.

During the fiscal 2000-2001, RBI had announced a number of measures in banking sector reforms and development of the money market and Government securities market. Some of the important measures included final guidelines for banks’ entry into insurance business, freedom to banks to operate different PLRs for different maturities, norms regarding entry of new banks in the private sector and guidelines relating to take-out finance. The table gives the profitability ratios of 27 public sector banks for two years ie 1999-00 and 2000-01. It may be observed that the average ratio of profits to business of the 27 public sector banks have significantly declined from 0.47 per cent in 1999-00 to 0.34 per cent in 2000-01. The net profit to income ratio have also declined from 5.58 per cent in 1999-00 to 4.16 per cent in 2000-01. The ratio of net profit and capital decreased from 12.69 per cent in 1999-00 to 9.87 per cent in 2000-01. The table also shows that on the basis of the ratio of profits to business, the first five ranks in 2000-01 were held (in descending order) by Corporation Bank, State Bank of Patiala, State Bank of Hyderabad, State Bank of B&J and State Bank of Indore.

In 1999-00,the first five ranks were held by Corporation Bank, State Bank of Saurashtra, State Bank of B&J, Oriental Bank of Commerce and State Bank of Patiala. Three banks-Corporation Bank, State Bank of B&J 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 2000-01 over 1999-00,two banks maintained their position and 11 banks dropped a few rungs. When we considered the average ratio of profits to business of 27 public sector banks in 2000-01, we found that 12 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 Central Bank of India during the year 2000-01.

On the basis of profits to income ratio in 2000-01, the first five ranks were held by Corporation Bank, State Bank of Patiala, State Bank of Hyderabad, Syndicate Bank and State Bank of Indore.In 1999-00,the first five ranks were held by Corporation Bank, State Bank of Saurashtra, Oriental Bank of Commerce, State Bank of Patiala and State Bank of B&J. Two 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 2000-01 over the level of 1999-00. Three banks maintained their positions. Eleven other banks dropped places in 2000-01. On the other hand, only 14 banks have exceeded the average ratio of profits to income of 27 public sector banks during 2000-01.

The most important denominator for assessing the efficiency of a bank is the return on capital ie.the ratio of profits to net worth. On the basis of return on capital, the first five ranks in 2000-01 were held by State Bank of Indore, State Bank of Hyderabad, Corporation Bank, Syndicate Bank and State Bank of Travancore.

In 1999-00,the top five were State Bank of B&J, Andhra Bank, State Bank of Hyderabad, Syndicate Bank and Corporation Bank. Three banks namely Corporation Bank, State Bank of Hyderabad and Syndicate Bank are common in both the list of top five. Thirteen banks improved their ranks in 2000-01 over that in 1999-00. Three others maintained their positions in both years and 11 banks dropped a few rungs in 2000-01. On the other hand, fourteen of the 27 public sector banks have exceeded the average ratio of profits to capital during 2000-01.

From the above analysis, one can conclude that in 2000-01, 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 third rank. During 2000-01, the Corporation Bank registered excellent working results.The net profit of the bank amounted to Rs 261.84 crore as against Rs 232.44 crore last year, ie up by Rs 29.4 crore (12.65 per cent).The net NPA ratio of Corporation Bank stood at 1.98 per cent as on 31, March 2001, which is one of the lowest among the public sector banks.