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Subject: Rural Banking and Finance Management × Author: Devika Mangsatabam × Author: KAU × End date: 2009 × Start date: 2000 × Thesis Type: M.Sc ×
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    ThesisItemOpen Access
    Comparative analysis of the performance of Kerala based banks
    (Department of Rural Banking and Finance Management, College of Co-operation, Banking and Management, Vellanikkara, 2002) Devika Mangsatabam; KAU; Molly Joseph
    The study entitled "A COMPARATIVE ANALYSIS OF THE PERFORMANCE OF KERALA BASED BANKS" was conducted with the following objectives . . i) To analyse the performance of Kerala based public, private and co-operative sector banks. ii) To compare the relative efficiency of these banks and iii) To examine the role of these banks in agricultural lending. The study was conducted in six out of the 10 Kerala based banks comprising of the State Bank of Tranvancore (SBT) and South Malabar Gramin Bank (SMBG) in the public sector, South Indian Bank (SIB), Dhanalakshmi Bank (DB) and Catholic Syrian Bank (CSB) in the private sector, and Kerala State Co- operative Bank (KSCB) in the co-operative sector. The study was conducted for a period of six years from 1994-95 to 1999-00 using mainly secondary data made available from the Annual Reports of the banks concerned. The first and second objectives of analysing the performance of Kerala based public private and co-operative sector banks and comparison of the relative efficiency of these banks have been done by using three models viz., Return On Equity (ROE) Decomposition Analysis, Weighted Productivity Index and Market Share Concept. For -- assessing the efficiency of each bank using the Market Share Concept, data were collected from all the 10 banks. Data pertaining to agricultural lending were also collected from the concerned banks' head office for analysing the third objective. Based on the above indicators, individual performance of the banks were assessed and a Composite Index was developed to rank these banks. The study has revealed that CD ratio has been declining for all the Kerala based banks except SMGB. For all these banks, the rate of increase in advances has not been as high as that of deposits which might be due to diversion of deposits by banks like investment in government and other approved securities, shares and debentures. The analysis of the profitability and productivity of Kerala based banks on the basis of ROE Decomposition Analysis has revealed that KSCB'is the only bank which could not achieve the 16-20 per cent internationally accepted ROE and one per cent ROA. SMGB has performed well showing a continuous increase in ROE and ROA except in 1996-97 when these values were negative due to implementation of NPA norms. When compared to the national average, it was found that the performance of all the Kerala based banks except KSCB was better with respect to the three indicators viz., ROE, ROA and Equity Multiplier (EM). The Profit Margin (PM) of the Kerala based banks except for SMGB has been lower than the industry average which might be due to the fact that their income has been adversely affected by the high interest expended on deposits. The study has also revealed that interest expended on deposits for SMGB has been very low when compared to the other Kerala. based banks since the Bank had other sources of funds like refinance from sponsoring bank and other institutions. The percentage share of Provisions and Contingencies (P&C) to the total revenue has been found to be very low in the case of KSCB and S.rvlGB pointing to the lower NPAs in these two banks. Among the Kerala based banks, only SMGB could achieve the internationally accepted criteria of having a Net Interest Margin (NIM) of three per cent and above. However, the burden of this particular bank has been observed to be very high since its non-interest income is negligible. Analysis based on the Weighted Productivity Index (WPi) has revealed that KSCB achieved the highest performance in Employee Productivity (EPi), while SMGB had the lowest I Employee Productivity (EPi). The low staff productivity of SMGB might be due to drastic increase in wage bill as the implementation of the Award of the National Industrial Tribunal (NIT) gave pay parity in RRBs. The high Capital Productivity (CPi) of SMGB may be attributed to an increase in interest income and reduction in NPAs. The~e has been a general decline in CPi of the private sector banks - DB, SIB and CSB due to the higher provisioning for NP As. The market share of the branches, staff, non-deposit working funds and advances of the six Kerala based banks to the total of 10 banks has declined during the period of study. This may be attributed to the increase in the share of other Kerala based banks not included in the study like Federal Bank, Lord Krishna Bank and N edungadi Bank. The market share of SBT in branches, deposits, non- wage operating expenses and interest spread has declined consistently during the study period reflecting its declining prominence as the premier bank in the State. In the estimation of the efficiency level of Kerala based banks on Market Share Concept, it has been found that KSCB obtained the highest score followed by SBT and DB. SMGB, which had performed well in the other two models, performed the lowest as per this model. This may be attributed to the high share of branches and staff among its inputs factors. Besides fluctuation in output factors like non-interest income and the negative net profits in the 1996-97 have adversely affected its performance. Although the introduction of financial sector reforms has led to decline in priority sector lending in general, the liberalisation of the term 'priority sector' since 1997 has enabled banks to achieve the target of 40 per cent. The actual disbursement of credit to priority by Kerala based banks has never crossed the target of 40 per cent except in the case of SMGB. SMGB is the only bank, which has been increasing its percentage share of lending to the priority sector and agriculture in spite of its increased lending to the Non-Target Group over the years. The computation of the Composite Index to assess the overall performance of Kerala based banks has revealed that SMGB obtained the highest score followed by KSCB. The lower performance of SBT and private sector banks may be attributed to lower ROE, EPi, CPi, and ultimately WPi, lower efficiency based on market share and low share of agricultural advances to total advances. ~