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Chapter No .1-Introduction 1.1 Introduction The Stalwart of Indian Financial community nodded their heads sagaciously when Prime Minister Mr.Manmohan Singh said in his speech “If there is one aspect in which we can confidently assert that India is ahead of China it is the robustness and soundness of banking system”. Indian banks have been rated higher than Chinese banks by the international rating agency Standards & Poor’s. In fact economic development is a continuous process. The success of economic development depends essentially on the extent of mobilization of resources and investment and on the operational efficiency and economic discipline displayed by the various segments of the economy. Banks play a positive role in the economic development of a country as they not only accept and deploy large funds in a fiduciary capacity but also leverage such funds through credit creation. A commercial bank is a financial intermediary which accepts deposits of money from the public and lends them with a view to make profits. A post office may accept deposits but it cannot be called a bank because it does not perform the other essential function of a bank, i.e. lending money. The banking system forms the core of the financial sector of an economy. The role of commercial banks is particularly important in underdeveloped countries. Through mobilization of resources and their better allocation, commercial banks play an important role in the development process of underdeveloped countries. A commercial bank accepts deposits which are of various types like current, savings, securing and fixed deposits. It grants credit in various forms such as loans and advances, discounting of bills and investment in open market securities. It renders investment services such as underwriters and bankers for its issue of securities to the public. Further, by offering attractive saving schemes and ensuring safety of deposits, commercial banks encourages willingness to save among the people. By reaching out to people in rural areas, they help convert idle savings into effective ones. Commercial banks improve the allocation of resources by K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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lending money to priority sectors of the economy. These banks provide a meeting ground for the savers and the investors. Savers may not invest either because of inadequate savings and lack of risk taking spirit.

1.1 An Overall view 1.1.1Classification of Commercial Banks in India

1.1.2 Pre-Independence History of Commercial Banks in India The Bank of Bengal (1806), Bank of Madras (1843) and Bank of Bombay (1814) were the presidency banks which were initially confined to discounting of bills or other negotiable private securities, keeping cash accounts, receiving deposits, and issuing and circulating cash notes. There were no legally recognized commercial banks with special right within India other than the Presidency banks. With the passing of the Paper Currency Act, 1861, the right K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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to issue currency notes by the Presidency banks was abolished and the same function was entrusted to the Government. In 1921, the three Presidency banks and their branches were merged to form the Imperial Bank of India, which acquired the role of a commercial bank, a bankers’ bank and a banker to the government. A banking crisis that occurred during 1913 revealed weaknesses of the banking system such as the maintenance of an undue proportion of cash and other liquid assets, the grant of large unsecured advances to the directors of banks and to the companies in which the directors were interested. The issue of failures of banks was investigated in detail by the Indian Central Banking Enquiry Committee (1929-31), the terms of reference of which included "the regulation of banking with a view to protecting the interest of the public".' The Report of the Indian Central Banking Enquiry Committee emphasized the need for enacting a special Bank Act, covering the, organization, management, audit and liquidation of banks. The authoritative recommendations of the Committee have been an important landmark in the history of banking reforms in India. 1.1.3 Regulation and Supervision During the initial phase of commercial banking developments in India, banks were regulated and governed by the East India Company's Government, the Royal Charter and the Government of India. The law relating to companies was enacted in a comprehensive form in the Companies Act, 1913, which was made applicable to banking companies as well. The decades of 1930s and 1940s had witnessed proliferation of banks, which were not regulated and supervised statutorily in a comprehensive manner. As a sequel, several banks failed. The supervisory powers conferred initially in 1940 vested with the RBI to inspect banking companies on a restricted scale in consultation with the Government of India. The purpose of these inspections was limited to satisfy the RBI regarding the eligibility for a license, opening of branches, amalgamation, and compliance of the directives issued by it. With the prior consent of banking companies concerned, the RBI undertook to inspect their books and accounts with a view to determining the real or exchangeable value of their paid-up capital and reserves for the purpose of considering their eligibility for inclusion in the Second Schedule to the Reserve Bank K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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of India Act. Specific powers to inspect banking companies were granted to the RBI by the Banking Companies (Inspection) Ordinance, 1946. The Ordinance made the prior consent of a banking company unnecessary for it inspection and also widened the objective of the inspection. Further, in order to protect the interests of the depositors and develop the banking system on sound lines, the regulation and supervision of the banking system was entrusted to the RBI by enacting the Banking Regulation Act, 1949. The Banking Regulation Act has been modified continuously in response to financial developments and there have been 33 amendments to the original Act so far.

1.1.3 Post-Independence Developments in Commercial Banking 1.1.4 Pre-Nationalization Period: The year 1969 was indeed a landmark in the history of commercial banking in India. In July of that year, the government nationalized 14 major commercial banks of the country. In April 1980, Government again nationalized 6 more commercial banks. In 1951, when the First Five Year Plan (1951-56) was launched, the development of rural India was accorded the highest priority. The All India Rural Credit Survey Committee recommended the creation of a State-partnered and State-sponsored banks by taking over the Imperial Bank of India and integrating with it, the former State owned or State-associated banks. Accordingly, an Act was passed in the Parliament in May 1955 and the State Bank of India was constituted on July 1, 1955. Later, the State Bank of India (Subsidiary Banks) Act was passed in 1959 enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries. During the pre-nationalization period, the industrial sector claimed the lion's share in Bank credit. Within the industry, the large-scale sector cornered the bulk of credit and the share of small-scale industries was marginal. There were many reasons for the dominance of large industrial companies in the banking sector. Firstly, many commercial banks were under the ownership/control of big industrial houses Secondly, through common directors (called interlocking of directorship); many commercial banks were connected with industrial and business houses, facilitating the flow of credit to large industries. Thirdly, the established industrial houses could obtain industrial licenses easily and on that K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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basis, appropriate long- term bank credit. A disturbing feature of the prenationalization banking policy was the negligible share of agricultural sector in bank credit. This share hovered around 2 per cent of total commercial bank credit. The privately-owned commercial banks were neither interested nor geared to meet the risky and small credit requirements of the farmers. Similarly, the share of other non-industrial sectors in bank credit was also low. .Since the commercial banks were under the control of big industrialists, the lendable funds of the banks were sometimes used to finance socially undesirable activities like hoarding of essential commodities.

1.1.5 Post-Nationalization Period As already noted, leading commercial banks of the country were nationalized in 1969 with the following objectives in view. 1. To break the ownership and control of banks by a few business families. 2. To prevent concentration of wealth and economic power. 3. To mobilize savings of the masses from every nook and corner of the country. 4. To pay greater attention to the credit needs of the priority sectors like agriculture and small industries. The post-nationalization period witnessed a remarkable expansion in the banking and financial system. The biggest achievement of nationalization was the reallocation of sectoral credit in favor of agriculture, small industries and exports which formed the core of the priority sector. Nationalization of commercial banks was a mixed blessing. After nationalization there was a shift of emphasis from industry to agriculture. The country witnessed rapid expansion in bank branches, even in rural areas. Branch expansion programme led to mobilization of savings from all parts of the country. Nationalized bank were able to pay attention to the credit needs of weaker sections, artisans and self employed. However, bank nationalization created its own problems like excessive bureaucratization, red-tapism and disruptive tactics of trade unions of bank employees.

1.1.6 Banking Sector Reforms since 1991

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Until the early 1990s, the banking sector suffered from lack of competition, low capital base, Low productivity and high intermediation cost. Commenting on the performance of the nationalized banks, the Reserve Bank of India observed, "After the nationalization of large banks in 1969 and 1980, the Government-owned banks have dominated the banking sector. The role of technology was minimal and the quality of service was not given adequate importance. Banks also did not follow proper risk management systems and the prudential standards were weak. All these resulted in poor asset quality and low profitability." The key objective of reforms in the banking sector in India has been to enhance the stability and efficiency of banks. To achieve this objective, various reform measures were initiated that could be categorized broadly into three main groups: (a) enabling measures, (b) strengthening measures and (c) institutional measures. Enabling measures were designed to create an environment where banks could Respond optimally to market signals on the basis of commercial considerations.Salient among these included reduction in statutory preemptions so as to release greater funds for commercial lending, interest rate deregulation to enable price discovery, granting of operational autonomy to banks and liberalization of the entry norms for financial intermediaries. The strengthening measures aimed at reducing the vulnerability of banks in the face of fluctuations in the economic environment. These included, inter alia, capital adequacy, income recognition, asset classification and provisioning norms, exposure norms, improved levels of transparency, and disclosure standards. Institutional framework conducive to development of banks needs

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to be developed. Salient among these include reforms in the legal framework pertaining to banks and creation of new institutions. It was in this backdrop, that wide-ranging banking sector reforms in India were introduced as an integral part of the economic reforms initiated in the early 1990s. Reforms in the commercial banking sector had two distinct phases. The first phase of reforms implemented subsequent to the release of the Report of the Committee on Financial System (Chairman: M. Narasimham), 1992 (or Narasimham Committee) focused mainly on enabling and strengthening measures. The Committee was guided by the fundamental assumption that the resources of the banks come from the general public and held by the banks in trust. These resources have to be deployed for maximum benefit of their owners, i.e. the depositors. This assumption automatically implies that even the Government has no business to endanger the solvency, health and efficiency of the nationalized banks. According to the Committee, the poor financial shape and low efficiency of public sector banks was due to: (a) extensive degree of central direction of their operations, particularly in terms of investment, credit allocation and branch expansion and (b) excessive political interference, resulting into failure of commercial banks to operate on the basis of their commercial judgment and in the framework of internal economy. Despite opposition from trade unions and some political parties, the Government accepted all the major recommendations of the Committee some of which have already been implemented. Further, the second phase of reforms, implemented subsequent to the recommendations of the Committee on Banking Sector Reforms (Chairman: M. Narasimham), 1998 (or Narasimham Committee II) placed greater emphasis on structural measures

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and improvement in standards of disclosure and levels of transparency in order to align the Indian standards with international best practices. Banking sector reforms since 1991 have included, among others, the following: 1. Granting operational autonomy to banks. 2. Liberalization of entry norms for banks. 3. Reduction in statutory pre-emptions so as to release greater funds for commercial lending. 4. Deregulation of interest rates. 5. Relaxation in investment norms for banks. 6. Easing of restrictions in respect of banks' foreign currency investments. 7. Withdrawal of reserve requirements on inter-bank borrowings. Thus, financial repression has eased substantially with the deregulation of interest rates and substantial removal of credit allocation. Regulation and Supervision of Commercial Banks The health of the financial sector is a matter of public policy concern in view of its critical contribution to economic performance. Financial regulation and supervision assumes importance in ensuring that the financial system operates along sound lines. There has been a long tradition of regulating financial systems by central banks in several countries. The regulation and supervision of banks are key elements of a financial safety net as banks are often found at the centre of financial crises. The primary justification for financial regulation by authorities is to prevent systemic risk, avoid financial crises and protect depositors' interest and reduce asymmetry of information between depositors and banks. As the costs of financial crises were perceived to be very high, the authorities realised that they should be avoided at all costs. As a result, banks came to be regulated everywhere. Besides, financial regulation attempts to enhance the efficiency of the financial system and to achieve a broad range of social objectives. Going by the experience in several countries, effective regulation is in the interests of all concerned, though it cannot be based on a “one size-fits-all” approach. However, it is important to bear in mind that while financial institutions do benefit from an appropriate regulatory regime, there is not much evidence that K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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the existence of a regulatory jurisdiction makes institutions stronger and less prone to shocks. There is neither a unique theoretical model, nor just on practical approach to the regulation and supervision of a financial system. The existence of different types of regulatory models of the financial system makes the ideal choice a difficult exercise. The RBI, under the Banking Regulation Act, 1949 is required to satisfy itself, by inspecting the accounts books and methods of operation of the banking company, before granting a license. This provision helps to ensure that the banking company is in a position to pay its depositors in full as their claims accrue and that its affairs are not conducted to the detriment of its creditors. The regulatory and supervisory approaches were modified as and when deemed necessary. The focus of the RBI's role as a regulator and supervisor has shifted gradually from micro regulation of banks' day to day activities to macro supervision with a view to ensuring that the regulations are adhered to in an environment where banks' management are given freedom to take all commercial decisions based on their own judgment. The nationalization of 14 major commercial banks on July 19, 1969 was a turning point in the Indian banking system. The focus of regulation was reoriented to meet the objectives of the nationalization of banks. In the context of the wider role assigned to banks following the nationalization, a reorientation of the system of bank inspections was called for. The objectives as per the re-orientation of bank inspections were the evaluation of the overall performance of each bank in different aspects. The massive expansion of the banking system had resulted in certain stresses and strains. With wider geographical coverage, lines of supervision and control weakened, the RBI appointed a Working Group on inspection of banks in December 1981 to review the system of inspection of commercial banks in the public and the private sectors and to suggest improvements/modifications. Following the recommendation of the Working Group, the Annual Appraisal of inspection of public sector banks was dispensed with, with effect from January 1985; a system of Annual Financial Review was introduced to be conducted subsequent to the annual audit of the banks. Issues such as review of internal control systems at bank branches of boards of nationalized bank and increasing the capital systems at bank in the context of growing international exposure K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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Indian banks were given importance. A review of existing system of inspection of banks was attempted.

1.1.7 Post-Liberalization (1991 onwards) The decade of the 1990s was a watershed in the history of the Indian financial system in general and the banking system in particular. Notwithstanding the remarkable progress made by the Indian banking system in achieving social goals during the 1980s, it experienced certain problems that led to decline in efficiency and productivity and erosion of profitability. Factors such as directed investment and directed credit programmes affected the operational efficiency of the banking system. The quality of loan portfolio also deteriorated. The functional efficiency was affected due to overstaffing, inadequate progress in inducting technology and weaknesses in internal organizational structure of the banks. These factors necessitated urgent reforms in the financial system. Accordingly, a Committee on the Financial System (Chairman: M. Narasimham) was constituted in 1991 to look into various issues related to banking with a view to initiating wide ranging financial sector reforms. Following the Report of the Narasimham Committee, the RBI adopted a comprehensive approach on the reforms of the financial sector. The Department of Supervision (DoS), now called Department of Banking Supervision (DBS) was set up within the RBI in 1993 to strengthen the institutional framework. A high powered Board for Financial Supervision (BFS), comprising the Governor of RBI as Chairman, one of the Deputy Governors as Vice-Chairman and four Directors of the Central Board of the RBI as members was constituted in November 1994. Measures such as deregulation of interest rates, reduction of statutory preemption such as CRR and SLR, and provision of operational autonomy to the banks were taken to straighten the banks. Further, various prudential measures that conformed to the global best practices were also implemented. One of the major objectives of banking sector reforms has been to enhance efficiency and productivity through enhanced competition. Following the Narasirnham Committee's recommendations, guidelines to facilitate entry of the private K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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sector banks was issued in 1993 to foster greater competition with a view to achieve higher productivity and efficiency of the banking system. Working Group to Review the System of On-site Supervision over Banks (Chairman: S. Padmanabhan), 1995 Over the years, the regulatory and supervisory polices in India have transformed significantly - in tandem with the global developments and the changing pace of the Indian financial system. Apart from on-site inspections, the RBI has adopted three other supervisory approaches, viz. offsite monitoring, internal control system in banks and use of external auditors. A review of the RBI's inspection system was undertaken by this Working Group. The Group, while reemphasizing the primacy of on-site inspections, recommended switching over to a system of ongoing supervision. It recommended a strategy of periodical full-scope on-site examinations supplemented by an in-house off-site monitoring system and linked exercises in between two statutory examinations. The Working Group recommended orienting supervision for enforcement of Correction of deviations. It was decided that the periodic and full scope statutory examinations should concentrate on following core areas of assessment. 1. Financial condition and performance. 2. Management and operating condition. 3. Compliance. Summary assessment 'in line', with the internationally adopted capital adequacy, asset quality, management, earnings, liquidity and system, (CAMELS) rating 'model with systems and controls added to it for Indian banks and for foreign banks on CACS model (capital adequacy, asset quality, compliance, systems and controls). Subsequently, examination of liquidity was added to make the model as CALCS. The periodic statutory examinations were to be supplemented by four types of regular and cyclical on-site assessments, viz. targeted appraisals, targeted appraisals at control sites-commissioned audits and monitoring visits. The

Off-site

Monitoring

and

Surveillance

(OSMOS)

system

was

operationalised in 1995 as a part of crisis management framework for early warning system and as a trigger for on-site inspections of vulnerable institutions. The banks were required to increase the level of utilization of the K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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INFINET for regulatory-cum-supervisory reporting. To identify areas requiring urgent supervisory action and initiate timely action, the time limit has been reduced for submitting returns across all categories of banks since June 2005. 1.1.8 Modernization of Banking Regulation and Supervision: The RBI has been focusing and encouraging market discipline and ensuring good governance with an emphasis on fit and proper management and diversified ownership in more recent times. Banks are encouraged to diversify and offer more varieties of products and services in addition to the conventional products. Computerization of banking has received high importance in recent years due to technological advancement that are taking place in the financial systems world over. The direction towards 100 per cent computerization has resulted in renewed vigor in the banks towards fulfilment of this requirement, which could provide better customer service, internal control and effective management. The financial sector technology vision document released by the RBI in May 2005 elucidates its thrust areas by providing generic information on various standards and approaches, audit and requisite focus on business continuity plans. Considering the complexities of banking business and emerging product innovations with complex risk profiles, the RBI initiated measures to implement Risk Based Supervision (RBS) approach to the supervision. The RBS process has been recently revisited by revising the risk profiling templates and introducing a new rating framework. This revision is likely to make the RBS process more risk-sensitive, objective and user friendly, In November 2004, the RBI revised the guidelines on 'Know Your Customer' (KYC) principles in line with the recommendations made by the Financial Action Task Force (FATF) on standards for Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT). Financial sector reforms, introduced in the early 1990s in a gradual and sequenced manner, were directed at the removal of various deficiencies from which the system was suffering. The basic objectives of reforms were to make the system more stable and efficient so that it could contribute in accelerating the growth process. K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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In response to reforms, the Indian banking sector has undergone radical transformation during the 1990s. Reforms have altered the organizational structure, ownership pattern and domain of operations of institutions and infused competition in the financial sector. The competition has forced the institutions to reposition themselves in order to survive and grow. The extensive progress in technology has enabled markets to graduate from outdated systems to modern market design, thus, bringing about a significant reduction in the speed of execution trades and transaction costs. With the increasing integration of various segments of financial markets, the distinctions between banks and other financial intermediaries are also getting increasingly blurred. Another important aspect of reforms in the financial sector has been the increased participation of financial institutions, especially banks, in the capital market. These factors have led to increased inter-linkages across financial institutions and markets. While increased inter-linkages are expected to lead to increased efficiency in the resource allocation process and the effectiveness of monetary policy, they also increase the risk of contagion from one segment to another with implications for overall financial stability. This would call for appropriate policy responses during times of crisis. Increased inter-linkages also raise the issue of appropriate supervisory framework. Banking sector reforms in India are grounded in the belief that competitive efficiency in the real sectors of the economy will not realize its full potential unless the banking sector was reformed as well. Thus, the principal objective of banking sector reforms was to improve the allocation efficiency of resources and accelerate the growth process of the real sector by removing structural deficiencies affecting the performance of banks. In India, while the banking system continues to play a predominant role, it is significant to note that, as a result of various reform measures, the relative significance of financial markets has increased. This augurs well for the overall stability of the financial system. The East Asian crisis has also underlined the need for a balanced financial system wherein financial markets also play an important role in providing necessary liquidity, especially during times of crisis. Banking system also requires liquidity in times of stress, which only deep and liquid financial markets can provide. The main thrust of this K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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study is to examine the performance of banking sector in liberalization era and comparing the performances of private sector and public sector banks in India.

1.1.9 Performance Of Private Sector And Public Sector Banks The banking scenario in India has already gained the momentum, with the domestic and international banks gathering pace. All the banks in India have shifted their focus to ‘cost’ determined by revenue minus profit. This means that all the resources should be used efficiently to improve the productivity and ensure a win-win situation. To survive in the long run, it is essential to focus on cost saving. Previously, banks focused on the 'revenue' model which is equal to cost plus profit. After the introduction of banking reforms, banks shifted their approach to the 'profit' model, which means that banks aimed at profit maximization, therefore, there is the need to discuss this issue in detail. Thus, this Chapter analyses the individual performance of private sector and public sector banks undertaken for the study.

Performance of Private Sector Banks The existence and success of banks depend on their ability to meet the various needs and wants of the customers. The new millennium has brought with it challenges as well as opportunities in various fields of economic activities including banking. Private Banks have played a major role in the development of the Indian banking Sector. Private sector Banks undertaken for the study are: Axis Bank ltd, HDFC Bank Ltd., ICICI Bank Ltd. To analyze the profitability of the bank multiple statistics is applied which helps to examine the relationship between various variables. The profitability of the bank is considered dependent on the returns liquidity, asset and capital adequacy of the banks. The profitability is analysed from year 2014-2015 to 2017-2018. The various independent variables taken are: returns, assets, liquidity and capital adequacy.

AXIS BANK

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Axis Bank- a private bank- began its operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd.

HDFC Bank The Housing Development Finance Corporation Ltd (HDFC Ltd) aims at furthering home ownership by providing long term finance to the household sector. It also provides housing finance consultancy services to various international agencies like The World Bank, Asian Development Bank, United States' Agency for International Development etc FII's hold more than 60 % of HDFC's equity, Indian Public holds less than 15 % and the rest is being held by banks and others.

ICICI BANK ICICI Bank was promoted by the erstwhile Industrial Credit Investment Corporation of India Limited (ICICI Ltd.) and the erstwhile Shipping Credit and Investment Corporation of India Limited (SCICI Ltd.) by an initial capital contribution in the proportion of 75:25 respectively. Pursuant to the merger of SCICI into ICICI, the bank became the wholly owned subsidiary of the latter. ICICI reduced its stake in the bank through a public offering of shares in 1998. Its American Depository Receipts (ADRs) were listed on the New York Stock Exchange (NYSE) in 1999-2000. On 3 May 2002, ICICI merged with ICICI Bank. Two more companies - ICICI Personal Financial Services and ICIC Capital Services (subsidiaries of ICICI) were brought under the merged entity.

Performance of Public Sector Banks The public sector banks hold a fine numeral of total assets of the banking industry. Since liberalization, the government has approved significant banking reforms. While some of these relate to nationalized banks like encouraging mergers, reducing government interference and increasing profitability and K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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competitiveness; other reforms have opened up the banking and insurance sectors to private and foreign players. Public sector banks make up the largest category of banks in the Indian banking system. The Public Sector banks undertaken for the study are: Bank of India, State Bank of India, Bank of Maharashtra. Bank of India Bank of India was founded on September 7, 1906 by a group of eminent businessmen from Mumbai. In July 1969 Bank of India was nationalized along with 13 other banks. Presently, Bank of India has 2609 branches in India spread over all countries with 93 specialized branches. Bank of India was the first Indian Bank to open a branch outside the country, at London, in 1946, and also the first to open a branch in Europe, Paris in 1974. The Bank has sizable presence abroad, with a network of 23 branches (including three representative offices) at key banking and financial centers viz. London, New York, Paris, Tokyo, Hong-Kong, and Singapore.

State Bank Of India SBI was constituted through an Act of Parliament on 8 May 1955, after the Reserve Bank of India acquired a controlling stake in the Imperial Bank of India, which then came to be known as State Bank of India. During the process of nationalization, the private ownership was retained, though on a minority basis. The State Bank of India (Subsidiary Banks) Act was passed in 1959, enabling State Bank of India to take over eight former State-associated banks as its subsidiaries. Bank of Maharashtra Bank of Maharashtra is an Indian bank based in the city of Pune. The bank got nationalized by the Government of India in the year 1969. With a total number of 1421 branches located all over India as of April 2009. The Bank is a Government of India undertaking and carries on all types of banking business.

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Chapter No .2- Review Of Literature Ahluwalia, Montek S (01) (2002) conducted a study on “Economic Reforms in India since 1991: Has Gradualism worked?” This study deals with the impact of gradualist economic reforms in India on the policy environment from 1991 to 2001. India was a latecomer to economic reforms, embarking on the process of earnest only in 1991, in the wake of an exceptionally serve balance of payment crisis. India's economic performance in the post-reform period has many positive features. Opinions on the causes of India's growth deceleration vary. Fiscal profligacy was seen to have caused India's balance of payments crisis in 1991, and a reduction in the fiscal deficit was therefore an urgent priority at the start of the reforms. The trends cast serious doubts on India's ability to achieve higher rates of growth in future. The central government's effort must be directed primarily toward improving revenues, because performance in this area has deteriorated significantly in the post-reform period. There is also no room to reduce central government subsidies, which are known to be highly distortionary and poorly targeted, and to introduce rational user charges for services such as passenger traffic on the railways, the postal system and university education. Reforms in industrial and trade policy were a central focus of much of India's reform effort in the early stage. Arun,T.G,Turner,J. D(02)(2002) studied “Financial Sector Reforms in Developing Countries: The Indian Experience” This study is based on the premise that the success/failure of financial sector reforms depends heavily on country specific factors and makes an attempt to examine these factors in the Indian context. The financial sector reforms analyzed in this paper include the deregulation of interest rates, increasing competition and foreign ownership, and the introduction of financial supervision. It is argued that an economic rationale for a gradualist approach to financial reform is that it is stability enhancing. Furthermore, it is suggested that India’s complex political economy has resulted in a gradual approach to reform, and this approach has been successful along the dimension of banking stability

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Banerjee Abhijit & Duflo Esther (03)(2004) conducted a study on “what do banks (not) do?”)The main objective of this study was to analyze the NPA status in banking industry. In this study the author analyzed that NPAs are indeed a serious problem for banks in India and it is easy to see why a bank might hesitate to lend if the loan has a high risk of going bad. NPA’s is not what the banks do but what they do not do. A lot of the NPAs probably come about because bankers systematically fail to pull the plug when it is still possible to get out with their capital intact. Further they analyzed reducing public control of the banks is probably one way to get to this, though there is no guarantee that this would change things a the firms are starved of credit, even though there is nothing to stop them to borrow some more from a private lender. This might mean that the private banks have inherited theculture of the public banks, in which case-changing control will not help. In many ways the banking system in India, including the regulatory apparatus, remains a product of the planning years. It seems to be a system that was conceived for a world where people were expected to do what they were told, and things happened to as they were meant to. The real challenge, whether public control remains or not, is to create a banking system for a world where investors take risk and sometimes fail, where bankers need to take initiative and use their judgment. We need incentives for bankers that reward success but make allowances for bad luck, and which at the same time guard against the temptation to be irresponsible or corrupt. Bhadury Proff Subrato (06)(2007) conducted study on “Commercial banking in India new challenges and opportunities after liberalization” This study reveals that in the financial sector, liberalization and technological breakthrough has initiated a restructuring in our banking sector, which is exactly opposite to our structuring norm. Looked at from the administrative angle our banking sector four tier network head office, zonal office, regional office, and branch office. However, computerization, LAN, interconnectivity, email and IT revolution have brought the regional and branch offices closer and many banks started restructuring even going back to 3 tier structures thus making them cost effective and technologically upgraded. Considered globalization and competition, this repositioning was `extremely necessary.

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Board John Sutcliffe, Ziemba Charles, William T.(07)(2003) conducted study on “Applying Operations ResearchTechniques to Financial Markets” In this study OR techniques are applied to non portfolio problems in financial markets, such as the equity, debt, and foreign exchange markets and the corresponding derivatives markets. Finance problems are an excellent application area for OR researchers. OR techniques are used to value financial instruments, identify market imperfections, design securities, regulate markets, evaluate and control risks, model strategic problems, and understand the functioning of financial markets. Mathematical programming is probably the most widely applied OR technique, but Monte Carlo simulation methods are of increasing importance. With the improvements in the real time availability of data and the power of computers, the role of OR techniques in financial markets can only increase. Chhikara Dr. Sudesh

(10)(2007)

conducted study on “ Causes and Impact

of Non Performing Assets in Public Sector Banks : A state level Analysis” This paper examines the reasons of NPA’s in selected public sector banks in the state of Haryana. It also examines the impact of NPAs on profitability and other financial parameters. Lending is always accompanied by the credit risk arising out of the borrowers default in repaying the money. A banker should therefore manage his loan in a safe manner. This may include development comprehensive credit appraisal and monitoring system, introduction of credit audit system and also establishment of the system to tackle potential problem of recovering loans well in time. Brown Craig O. and Dinc I. Serdar (08) (2005 ) conducted study on “The Politics of Bank Failures: Evidence from Emerging Markets” This paper studies large private banks in 21 major emerging markets in the 1990s. It first demonstrates that bank failures are very common in these countries: about 25 percent of these banks failed during the seven-year sample period. The study also shows that political concerns play a significant role in delaying government interventions to failing banks. Failing banks are much less likely to be taken over by the government or to lose theirlicenses before elections than after. This result is robust to controlling for macroeconomic and bankspecific factors, a new party in power, early elections, outstanding loans from the IMF, as well as country-specific, time-independent factors. This finding K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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implies that much of the within-country clustering in emerging market bank failures is directly due to political concerns. Chen Ping, Yang Hailiang ,Yin George (11) (2008) conducted study on”Markowitz's mean-variance asset-liability management with regime switching: A continuous-time model” This paper analyzed an asset-liability management (ALM) problem under a continuous-time Markov regimeswitching model. By adopting the techniques of Zhou, X.Y., Yin, G. Markowitz's meanvariance portfolio selection with regime switching: A continuous-time model. SIAM J., they investigated the feasibility, obtain the optimal strategy, delineate the efficient frontier, and establish the associated mutual fund theorem. Chipalkatti Niranjan , Rishi Meenakshi (12)(2007) conducted study on “Do Indian banks understate their bad loans?” In this study banking secto reforms in India and the adoption of capital adequacy norms based on the Basel Capital Accord prompt Indian banks to understate their bad loans are analyzed. This paper addresses this question by investigating whether Indian banks under provide for loan loss provisions and understate their gross nonperforming assets in order to boost earnings and capital adequacy ratios. The paper examines the behaviour of Indian banks in the context of tighter regulatory standards that became effective after 1999. The results show that "weak" Indian banks - defined by low profitability and low capital ratios camouflaged the magnitude of their gross nonperforming assets in the post1999 period. Based on this the paper concludes that the true nature of India's bad loan problem may be more serious than alluded to in recent studies. Chakrabarti Rajesh and Chawla Gaurav(13)(2005) conducted study on “Bank Efficiency in India since the Reforms: An Assessment” In this study the authors have studied the performance and efficiency of commercial banks is key elements of the efficiency and efficacy of a country’s financial sector. Public sector banks are still not entirely free from the old bureaucratic mode of functioning and constrained by certain” developmental” lending objectives are often thought to be lagging behind in the race to efficiency. The authors have applied increasingly popular methodology of data Envelopment Analysis to evaluate the relative efficiency of Indian Banks during the 1990-2002 period. Further the study analyzed the banking sector on the basis of “value” o K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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profitability, the foreign banks have been considered more efficient than all other bank groups followed by INDIAN private banks. Deolalkar G.H (14) “The Indian Banking Sector On the road to progress” In this study the author has discussed the role of RBI in the banking sectorwhether commercial, cooperative or rural. Further he discussed the NonPerforming Asset problem in the Indian banking. About 70 percent of gross NPA are locked up in Hard-core doubtful and loss assets, accumulated over years. Most of these are backed by securities and therefore recoverable. NPAs in Indian Banks as a percentage of total assets are quite low. Derviz Alexis and Podpiera Jiri (15) “Predicting Bank CAMEL ad S&P ratings: The Caste of Czech Republic” This study had the objective of identifying the determinants of commercial bank rating in the Czech Republic. They investigated changes in the external Standard and Poor’s (S&P) long term rating and the CAMELS rating used by the banking supervisory body of Czech National Bank. The sample of banks covers the ‘large banks” group, specifically the three biggest commercial banks of the country: Demirgüç-Kunt Asli and Detragiache Enrica(16)(1998 )conducted study on “The Determinants of Banking Crises: Evidence from Developed and Developing Countries” The main goal of the study is to identify the features of the economic environment that tend to breed banking sector fragility and, ultimately, lead to systemic banking crises. Das, Abhima, Ghosh, Saibal(17)(2006) conducted study on “Financial Deregulation and Efficiency: An Empirical Analysis of Indian Banks during the Post Reform Period.”This study investigates the performance of Indian commercial banking sector during the post reform period 1992–2002. Several efficiency estimates of individual banks are evaluated using nonparametric Data Envelopment Analysis (DEA). Dhar V Ganga and Reddy G Nares(18) (2007) conducted study o “Mergers and acquisitions in the Banking Sector- an Empirical Analysis” The prime objective of this study is to analyze the growth and performance of the sample banks during pre and post merger periods. Based on the study it was observed that the performance of the merged banks in respect to the growth of total assets, revenue, profits, investments and deposit witnessed a K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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significant increase. ICICI bank has achieved the growth rate in all respects, excepts for deposits, among the sample banks. The study also highlights that SBI, BOB and UBI have greater consistency in their performance, reflecting lower risk faced by them. As against this Centurion Bank, HDFC bank and ICICI bank have faced greater inconsistency and higher risk, thus pointing out that the public sector merged banks have shown better performance, with greater consistency and lower risk as compared to private sector banks in India. Detemple Jérôme , Rindisbache Marcel R(19)(2008) conducted study on “Dynamic asset liability management with tolerance for limited shortfalls” In this study a dynamic asset allocation problem in the presence of liabilities is considered. The fund manager has von Neumann-Morgenstern preferences with terminal utility function defined over the excess of liquid wealth over a minimum liability coverage tolerated and intermediate utility function defined over dividends, the excess of expenditures over liability cash flows. Preferences incorporate a parameter controlling the tolerance for a shortfall in the funding ratio at the terminal date. The optimal asset allocation rule is derived and its sensitivity with respect to the parameters of the model is analyzed. Frierson, Robert DeV (20)(2007) conducted study on “Orders Issued under section 4 of the Bank holding Company Act” The study finds out that National City Corp. has submitted an application to the U.S. Federal Reserve Board to acquire Harbor Federal Savings company and Appraisal Analysis Inc. and merge with Harbor Florida Bancshares company in Cleveland, Ohio. The Board has considered the comments and all the factors of the proposal after the filing and publication of notice of the proposal. The application was approved because the companies comply with the Bank Holding Company Act. Fotios Pasiourasa and Gaganisb Chrysovalantis(21) (2007)conducted study on “Financial Characteristics of Banks Involved in Acquisitions: Evidence from Asia” This study examines the financial characteristics of 52 targets and 47 acquirers that were involved in acquisitions in the Asian commercial banking sector over the period 1998 to 2004 and a control sample of non-merged banks K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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matched by country and year. Three logistic regression models are estimated to determine the factors that influence the probability of being involved in an acquisition either as a target or as an acquirer. The results indicate that more asset risky portfolios increase this probability. Higher liquidity also increases the probability of being acquired. The probability of being involved in an acquisition as acquirer also increases with size and cost efficiency. Finally, more profitable banks are more likely to be involved in acquisitions as acquirers rather than as targets. When we partition our sample in two subperiods we find that only the higher loan loss provisions of targets and the higher size of acquirers remain robust over time. Fangging Wang (22) (2008) conducted study on “Regulations Aside, Credit Crunch spells Danger for Asian Firms” The study discusses th impact of credit crisis in 2008 on Asian firms. It cites the effect of the Lehman Brothers' bankruptcy on local securities firms in Korea. It mentions that the problem of delinquencies in U.S. subprime mortgages spread to other segments of the credit markets and inflicted severe mark-to-market losses on many financial institutions. A research report by Morgan Stanley revealed that Bank of East Asia and India's ICICI Bank and Axis Bank have faced the greatest exposure to the credit crisis Ghosal, Pallabi(23)(2008) conducted study on “The Road Ahead for NBFCs becoming Banks after Basel II Norms: The Indian Scenario” This study discusses the process of regulations regarding non-banking finance company in India. It mentions that finance companies need to establish themselves as banking institution before becoming a Basel II compliant. Finance companies that are not related to banking are operating under unorganized segments of the economy. However, the author mentions that finance companies have rich customer relations understanding. Compared banks, these financial institutions need to maintain a higher capital adequacy ratio than most banks. Ghosh, Saibal, Abhiman (24) (2006) conducted study on “Financial Deregulation and Efficiency: An Empirical Analysis of Indian Banks during the Post Reform period” The study investigates the performance of Indian commercial banking sector during the post reform period 1992–2002. Several efficiency estimates of individual banks are evaluated using K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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nonparametric Data Envelopment Analysis (DEA). Three different approaches viz., intermediation approach, value-added approach and operating approach have been employed to differentiate how efficiency scores vary with changes in inputs and outputs. The analysis links the variation in calculated efficiencies to a set of variables, i.e., bank size, ownership, capital adequacy ratio, nonperforming loans and management quality. The findings of the study suggest that medium-sized public sector banks performed reasonably Gupta V , Jain P K(25)(2004) conducted study on” Liability Management in Commercial Banks in India: A Comparative Study of Bank Groups in Liberalized-Era” This study examines the liability structure of 68 commercial banks operating in India for eight consecutive years, 1992-2000. Handa,Jagdish Shubha Rahman Khan(26)(2008) conducted study on” Financial Development and Economic Growth: A Symbiotic Relationship” This study evaluates the plausibility of financial development as a tool to boost economic growth, using time series data on a cross-section of thirteen countries at different stages of development. Using annual data from 1960 to 2002, it conducts stationarity tests on the variables, followed by co-integration analysis among the banking and non-banking financial variables and GDP. Hwa Ng Kah , Rösch Christoph G , Zagst Rudi(27)(2008) conducted study on “Asset Liability Management in Financial Planning” The authors study several models that manage, in an integrated fashion, the asset and liability needs of an individual investor. The models are tested using the typical assets of household portfolios, including real estate in the case of both stochastic and deterministic liabilities. The majority of the investment models suggest that one should invest heavily in real estate, which conforms to the empirical research on the composition of household portfolios. The performance results indicate that the models perform better for stochastic liabilities due to the fact that assets and liabilities share common risk factors. Jham,ViIi I.,Khan, Kaleem Mohd (30)(2008) conducted study on “Determinants of Performance in Retail Banking: Perspectives of Customer Satisfaction and Relationship Marketing” This study explores the satisfaction variables within the banking industry. The key findings of an empirical research are based on the data collected from 555 customers. Systematic methodology, including design and validation of questionnaire K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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factor analysis and regression analysis were utilized to enhance reliability of the findings. The study reinforces that customer satisfaction is linked with performance of the banks. The authors demonstrate how adaptation of satisfaction variables can lead to better performance. Kunjukunju Dr.Benson(32) “ Reforms In Banking Sector and Their Impact in Banking Services” In this study it has been discussed that the strategies followed by the Indian Banks are still far from adequate and have not obtained the expected results. The systematic planning and introduction of customer oriented and customized products and services by the Indian Banks will help them to compete and succeed in the contemporary competitive banking environment. In a competitive business environment in order to retain and widen the customer base, the banks should initiate steps to better personal contacts with their customers. The banks must concentrate on enhancing quality of its personnel and try to develop it further. Lastavica, John.(33)(1983) conducted study on “Three Rudiments for Asset/Liability Managers” This study indicates that as bankers shift their portfolios of liabilities and assets in an environment of changing interest rates, they must understand 3 basic concepts - gap, maturity matrix, and implicit rate forecast. The funding gap is the difference between assets and liabilities that will mature up to a specific point in time. The key factors in gap analysis are the future course of interest rates and whether the gap is positive or negative. As interest rates are rising, a positive gap generally should be created. Assets are reprised higher at a faster rate than are liabilities. The maturity matrix is a special gap report by which one can compare the relative volume of assets and liabilities at various maturity levels and identify where gaps exist. Based on the forecast for interest rates and the slope of the yield curve, one can determine the most profitable maturities and refunding to be made on specific assets and liabilities _ Lafayett (34) (1997 conducted study on “Banking on change.” The stud focuses on the banking reforms implemented by the government of India. Nationalization of major domestic banks; Factors that limited the viability of state-owned banks; Removal of the interest rate structure; Allocation of resources to re-capitalize some banks. INSET: Foreign banks in India K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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_ Mahesh H.P. Meenakshi Rajeev(35) (2009) conducted study on “Producing Financial Services: An Eficiency Analysis of Indian Commercial Banks” The present study attempts to examine the changes in the productive efficiency of Indian commercial banks after the financial sector reforms initiated in 1992. Using stochastic frontier technique we estimate bank specific deposit, advance efficiencies for the period 1985-2004. Our results show that deregulation has significant impacts on all three types of efficiency measures. While deposit and investment efficiencies have improved, advance efficiency has declined marginally. Public sector banks as a group ranks first in all the three efficiency measures showing that, as opposed to the general perception, these banks are doing better than their private counterparts. Private Banks however have shown marked improvement during the post-liberalization period in terms of all three types of efficiency measures Nachane, D. M.Ghosh, Saibal (37)(2004) conducted study on “Credit Rating and Bank Behaviour in India: Possible Implications of the New Basel Accord” The paper examines the impact of credit rating on capital adequacy ratios of Indian state owned banks using quarterly data for the period 1997 to 2002. To this end, a multinomial log it model with multi credit rating indicators as dependent variable is estimated. The variables that can impinge upon capital adequacy ratio have been used as explanatory variables. Two separate models — one for long-term credit rating and another for short-term credit rating — have been estimated. The paper concludes that, both for shortterm as well as for long-term ratings, capital adequacy ratios are an important factor impinging on credit rating of Indian state-owned banks. _ Ozkan-Gunay,E.Nur,Tektas, Arzu(38)(2006) conducted study on “Efficiency Analysis of the Turkish Banking Sector in Pre-Crisis and Crisis Period: A DEA Approach” The study concludes that structural weaknesses and recent crises increased the fragility of the Turkish banking system. Consequently, 25% of the domestic commercial banks were taken by SDIF between 1997 and 2001. This study assesses the technical efficiency of non public commercial banks between 1990 and 2001 following the DEA model The study reports a declining trend in the number of efficient banks and the mean efficiency of bank subgroups. It analyzes sensitivity to the output K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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variables and depicts consistency between the model proposals and supervisory agent decisions. Thus the DEA model can be a tool to detect and improve the sources of inefficiency by bank management and supervisory agents _ Patil Dr. P.B. and Thakkar P.N.(39)(2007) conducted study on “Impact of Disinvestment on Banking and Insurance Sectors” This study finds out that banking sector has been progressing thanks to the growing economy and many stabilized micro- economic fundamentals. However profitability is the main priority for the private sector and hence, it does not concentrate on the socio economic development of the country. Today the paradigm of “universal banking” is fast catching up. Banks are striving to be universal service providers, both for the whole sale and the retail customers. Several Indian financial institutions are emulating international players like citigroup, Bank of America, HSBC etc. for becoming the universal banks. Adopting the new paradigm are newly started private sectors banks like HDFC, ICICI, UTI etc. currently they account 4.1% share of the domestic market but their impact is tremendous. These banks occupy a niche between state owned and foreign banks. _ Pal Ved, Bishnoi N.K(40)(2009) conducted study on “Productivity Analysis of commercial Banks in India” This study explain the productivity growth of the Indian Banking Sector using panel data 63 commercial banks from 1996-2005. Data envelopment analysis to calculate and decompose the Mallmquest index of total factor productivity growth into technical chang change in technical efficiency and change in scale efficiency. It allows the identification of the sources of productivity growth which is crucial for policy formation. The study reveals that overall productivity growth is the result of technical progress accompanied by stagnating and negative growth rate in the other components of total factor productivity. _ Rao Dr. Nageshwar and Tiwari Dr. Shefali(41)(2009) conducted study on “Efficiency indicators of commercial banks in liberalized environment in India” This paper discusses about the globalization and capital market growth, combined with a shift of focus from interest income to more stable fee income, are placing bank’s lending and deposit businesses under increasing pressure. Banks are paying more attention to their cash trade and treasury businesses. K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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Thus banks are concentrating more on micro and macro factors of efficiency. Falling interest rates, a pickup in demand for loans, chiefly in retail sector and good spreads in treasury transactions caused a substantial face lift to all players in the banking sector. All top rated banks have succeeded in reducing their NPA’s by around 65 percent to 100 percent. The growth in business is also an impressive 24-41 percent. The study enables to identify efficiency factors affecting the banks individually as well as an industry. Prediction of future performance would be more accurate and hence reliable. _ Raju D.N.M.(42) (2009) conducted study on “ Evaluation of the performance of State Bank of India with special reference to Non – Performing Assets (NPAs)” The study reveals that magnitude of NPA has a direct impact on the bank’s profitability as legally they are not allowed to book income and on same time banks are forced to make provision on such assets as per RBI guidelines. The focus of the study is evaluating the financial and operating performance of State Bank of India in the light of changing conditions emerging out of the implementation of financial sector reforms. Another aspect covered in depth is the changing picture of nonperforming assets (NPAs) of the bank. The operations of SBI from the five regional offices of the SBI- Vijayawada zone and the consolidated position of the zone, segment wise for an eleven period, the studying brings out a number of suggestions for improving the performance of SBI; strengthening the recovery position of NPAs, prevention and reduction of NPAs. _ Rao,Nageshwar,Tiwari, Shefali(43)(2008) conducted study on “Study of Factors Affecting Efficiency of Public Sector Banks.” According to this study banking industry in India is all poised for a major leap in coming years. The year 2004 witnessed some major positive changes in this industry. Falling interest rates, a pickup in demand for loans, chiefly in retail sector and good spreads in treasury transactions caused a substantial face lift to all players in the banking sector. All top rated banks have succeeded in reducing their NPA's by around 65% to 100%. The growth in business is also an impressive 2441%. But, one thing that is sending alarm signals is that stronger banks are becoming stronger and weaker ones are in the process of being wiped off. This calls for an in depth study of efficiency in the public sector banks, the factors responsible for success and failure of banks. The present study aims at finding K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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answers to similar questions and reveals efficiency determinants amongst public sector banks in India. This study has evaluated the factors affecting the efficiency of public sector banks using twenty-three variables, employing product moment correlation. Schiller John E (48)(2008) conducted study on “Trustee Liability: A Litigator's Perspective” The study objectives that the position of trustee brings with it a host of grounds for liability. This study provides the reader with a reality-based example of how a family attorney serving as trustee can find himself in trouble when, under his watch, the assets of the trust substantially diminish. This example is designed to provide the reader with a rudimentary understanding of the basic rules that govern the management of trust assets. Srivatsa H.S, Srinivasan R.(51)(2009) conducted study on “New Age Youth Banking Behavior an Explorative Study in the Indian Banking Sector” This study finds out that the banking scenario in India has witnessed a rapid growth coupled with intense competition. This sector has witnessed rapid Deployments, intense price wars almost leading to commoditization of the sector, product innovations, public sector losing their market share to private banks and ultimately an intense to win over the customers. The study deploys the use of psychographics to study the Indian retail banking customers. This study is a result of the research conducted by in the state of Karnataka in India and is empirical by nature. _ Sanjeev, Gunjan M.(52)(2006) conducted study on “Does Banks' Size Matter in India?”This study has evaluated the efficiency of the public sector banks operating in India for a period of five years (1997-2001) using the Data Envelopment Analysis (DEA). Further, it is investigated if there exists any relationship between the efficiency and size of the banks. The results of the study suggest that no conclusive relationship can be established between the efficiency and size of the banks. Toby,

Adolphus

J.(60)(2006)conducted

study

on

“Methodological

Approach to the Study of X-Efficiencies and Scale Economies in Banking: Are Smaller Banks more Efficient than Larger Banks?” This paper surveys the parametric and nonparametric approaches adopted in estimating xK.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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efficiencies and scale economies in banking. Specifically, the traditional stochastic cost frontier and Data Envelopment Analysis (DEA) methodologies, including recent refinements incorporating the profit efficiency frontier and a profitability test are also extensively reviewed. Recent empirical studies covering the late 1990s and early 2000s, and countries other than the U.S. are also reviewed and compared with the findings of earlier studies (1980s and early 1990s). The results are still mixed, suggesting more questions than answers. To a large extent the empirical evidence seems to support the view that smaller banks are more efficient than larger banks in mos countries. The exceptional cases of cost efficiencies reaped by larger banks may be simply due to sheer size and market power. The pursuit of consolidation and deregulation of the banking system should therefore be implemented with caution, particularly in developing banking systems. Economic Political Weekly Research Foundation (61)(2007) conducted study on “A Shift in Profile of Bank Lending” This paper focuses on professed diversification taking place household have continued to use bank deposit as major preferred avenue for financial saving. In recent years asset liability profile of banks has moved towards longer maturities. Term deposits are increasing and lending is also of the longer duration variety. But this does not mean banks are filling the gap created by the exit of development finance institutions: the share of personal long term loans in total term lending has sharply risen and that of industry has fallen. While within lending to industry the share of term loans has increased, this is a statistical artifact, more the result of companies shifting to non bank source for working capital. Banks have begun to offer higher rates of interest for longer maturities and the government following pressures from banks has also extended fiscal concessions for long maturity deposit. More radical changes are occurring in the distribution of bank loans as between medium term and long term loans on the one hand and cash credit, overdrafts and various other forms of short duration loans on the other. It may appear that banks may have found an answer to the vacuum created by the absence of development finance institutions (DFI).

Chapter No .3- Research Methodology K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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Data Collection: This study is based on secondary data. The required data for this study were collected from the various sources like Reports on Currency and Finance (annual reports), Monthly RBI bulletins, published by RBI, Govt. of India, Reports published by National Institute of Bank Management, Annual reports of various banks, publications and notifications of RBI, Reports published by Indian Bank Association (IBA), Reports of Credit Rating Agencies like S&P, CRISIL, ICRA, Reports of various consulting firms like Arthur Anderson, Price Warehouse, etc. The time series data were collected from 2015-2016 to 2017-2018u. The performance analyses for this study were based on 20 banks. The study covers both Public Sector and Private sector Banks in India sinc liberalization. The banks were selected on the basis of categorization of Paid up Capital after liberalization. CRITERIA PAID UP CAPITAL > Rs. 500 CRORE PAID UP CAPITAL Rs.100 CRORE- Rs. 500 CRORE PAID UP CAPITAL < 100 CRORE

SIZE LARGE MEDIUM SMALL

The performances of following 6 banks have been analyzed: Private sector Banks are: Axis Bank, HDFC Bank Ltd., ICICI Bank Ltd, Public Sector Banks are: Bank of India, State Bank of India, Bank of Maharashtra 1.4.2 Analytical Tools Used: The analytical methods used for this study are the financial ratios calculated which are further computed for individual banks and comparative analysis of the private sector banks and public sector banks. For computing individual banks performance multiple regression analysis has been used. The Durbin Watson test is applied to overcome the concern of autocorrelation. For comparative analysis independent t-test is performed. The details of the various statistical tools are described as follows: 1.4.2.1 Ratio Analysis This section deals mainly with the analytical tools employed for the analysis

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of collected data. Different ratios like capital adequacy ratio, liquidity ratio, profitability ratio, asset utilization ratio, return ratios.

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1.4.2.2 Performance of Private sector and Public Sector Banks The multiple regression analysis is calculated by using SPSS software and statistically can be defined in following manner: profitability is considered as dependent variable and the various independent variables are returns, assets, liquidity and capital adequacy.

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1.4.2.3 Comparative analysis of Private sector and Public Sector Banks The formula for the independent t-test is

1.5 Importance It is evident from the study that the nationalization of 14 major commercial banks in 1969 was a turning point in the Indian banking system. The focus of regulation was reoriented to meet the objectives of the nationalization of banks. Notwithstanding the remarkable progress made by the Indian banking system in achieving social goals during the 1980s, it experienced certain problems that led to decline in efficiency and productivity and erosion of profitability. In India, while the banking system continues to play a predominant role, it is significant to note that, as a result of various reform measures, the relative significance of financial markets has increased radical K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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transformation, this assures well for the overall stability of the financial system. Banking in the glare of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. The massive expansion of the banking system had resulted in certain stresses and strains. With wider geographical coverage, lines of supervision and control weakened. Further, the decade of the 1990s was a turning point in the history of the Indian financial system in general and the banking system in particular. In response to reforms, the Indian banking sector has undergone extreme changes since 1990s. The phase of liberalization bought certain reforms that altered the organizational structure, ownership pattern and domain of operations of institutions and infused competition in the financial sector. The competition has forced the institutions to reposition themselves in order to survive and grow. Aim of this study is to analyse the performance of banking sector since liberalization. Many private sector banks entered Indian domain which further helped in channelising the saving of the investors effectively. Along with individual banks performance analysis a comparative analysis of public sector and private sector banks will facilitate in judging the performance of banking sector in India. The study is conducted by using financial ratio as a tool to analyze the individual performance of the banks undertaken for the study as well as to study the comparative analysis of the public sector and private sector banks. The ratios are helpful in deciding the efficiency of banks not only of past trend but as well helps in predicting the likely performance in future. The analysis of individual banks will further be of assistance to the management of the banks for planning financial strategies for attaining financial performance and exploring further opportunities. 1.2 Objectives The main objectives of the study are as follows: · To examine the performance of Indian banking sector in liberalization era. · To make the comparison of the performances of public sector and private sector banks in India since liberalization era. 1.6 Limitations All the economic / scientific studies are faced with various limitations and the study is no exception to the phenomenon. The various limitations of the study are: K.K.H.A. Art S.M.G.L Commerce S.T.H.J. Science Senior College Chandwad

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1. At various stages the basic objective of the study suffered due to inadequacy of time series data from related agencies. There has also been problem of sufficient homogeneous data from different sources, for example, the time series used for variables like profitability, liquidity, capital adequacy, assets and return. The averages are used at certain occasions; therefore, the estimated regression coefficients may deviate from the true ones. 2. Above all since it is a Ph.D. project, the research did face some problems of resources like time and money.

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