Comparative Study on Performance of Public Sector Banks and Private Sector Banks

About performance analysis of public sector banks and Private Sector Banks

1. PRESENTED BY N PARAMESH 22031E0042 UNDER THE GUIDANCE OF Mrs. SANTHOSHI KUMARI UNIVERSITY COLLEGE OF MANAGEMENT HYDERABAD - JNTUH A COMPARATIVE STUDY ON PERFORMANCE OF PUBLIC SECTOR BANKS AND PRIVATE SECTOR BANKS A PROJECT REPORT ON

2. RESEARCH METHODOLOGY Research Design Type of Study : Descriptive and analytical. Approach : Quantitative Approach Research Objectives To study the financial performance of selected banks from public and private sector during 2019-2024. To identify the parameters in which public sector banks are performing better/poor compare to private sector banks. To identify the factors (reasons) responsible for better/poor financial performance of private/public sector banks.

3. Data Collection: The study is based on secondary data. Source of data Annual reports of banks. Publications from central banks and financial regulatory authorities. Financial databases (e.g., Moneycontrol , Bloomberg). Research papers, articles, and case studies. Sampling: Sample Size: Ten banks are selected for the comparative study based on Market Capitalization. Banks with highest Market Capitalization were selected, five from both public sector banks and private sector banks.

4. Sampling Technique: Purposive sampling which is also known as judgmental or selective sampling. Banks selected for the study: Public Sector Banks Private Sector Banks 1 State Bank of India HDFC Bank 2 Punjab National Bank ICICI Bank 3 Bank of Baroda Axis Bank 4 Indian Overseas Bank Kotak Mahindra Bank 5 Canara Bank IndusInd Bank

5. Data Analysis Quantitative Analysis: Ratios considered for measuring financial performance through CAMEL are as follows: Statistical Tools: Mean Rank T-test Capital Adequacy (C) Asset Quality (A) Management Efficiency (M) Earning Ability (E) Liquidity (L) Capital Adequacy Ratio Net NPA To Total Assets Operating expense To Total Assets Return o Assets Credit-Deposit Ratio Debt-Equity Ratio Net NPA To Total Advances Interest Expense To Total Deposits Return on Equity Liquid Assets To Total Assets Advance To Total Assets   Net Profit Per Employee    

6. Limitations: The study included only a small number of banks (10 banks). This limited sample size may not represent the entire banking sector The banks selected for the study may not be a representative sample. The study might included only well-performing banks, which could skew the results. The study focuses on only CAMEL model of performance analysis. The study is quantitative and it does not considered qualitative factors such as management quality, corporate governance, and customer service, which are crucial for comprehensive performance assessment.

7. Data Analysis Capital Adequacy Capital adequacy is assumed to be a crucial reflector of the financial soundness of a bank. It reflects whether the bank has sufficient capital to bear unexpected losses in the future and bank leverages. Table-Capital adequacy and group ranking of selected banks for 2019-2024 Interpretation : Above is an average ranking based on the three metrics, indicating the overall performance of each bank. Kotak Mahindra Bank ranks the best overall due to its strong CAR, reasonable Debt-Equity Ratio, and good Advance to Total Assets ratio. State Bank of India ranks the lowest overall primarily due to its low CAR and high Debt-Equity Ratio . Kotak Mahindra Bank, HDFC Bank, and ICICI Bank are well-capitalized compared to others. HDFC Bank and IndusInd Bank have the highest proportion of advances in their total assets, indicating strong lending activities. Banks CAR Debt-Equity Ratio Advance To Total Assets Group Rank Average Rank Average Rank Average Rank Average Rank State Bank of India 13.936 10 1.5116667 9 0.57499 8 9 10 Punjab National Bank 14.886 8 0.77 3 0.569109 9 6.666667 8 Bank of Baroda 15.336 6 1.095 5 0.622159 5 5.333333 5 Indian Overseas Bank 14.65 9 0.5155 1 0.519522 10 6.666667 8 Canara Bank 14.938 7 0.8273333 4 0.596983 7 6 7 HDFC Bank 18.516 2 1.2468333 7 0.658967 1 3.333333 2 ICICI Bank 17.924 3 1.1871667 6 0.612874 6 5 3 Kotak Mahindra Bank 21.038 1 0.7223333 2 0.627207 4 2.333333 1 Axis Bank 17.892 4 1.7316667 10 0.627577 3 5.666667 6 IndusInd Bank 16.572 5 1.3781667 8 0.637454 2 5 3

8. Table--Year wise average of ratios under Capital Adequacy for public and the private banks. Table – T-Test of Capital Adequacy H0​ : The null hypothesis states that there is no significant difference between the means of the two variables . Ha : The alternative hypothesis states that there is a significant difference between the means of the two variables. Conclusion: Since the absolute value of the t Stat (-9.353206505) is much greater than the t Critical two-tail value (2.570581836), and the P(T<=t) two-tail value (0.000235359) is much less than 0.05, we reject the null hypothesis for the two-tailed test. This indicates that there is a significant difference between the means of Variable 1 and Variable 2. YEAR PUBLIC PRIVATE 2024 5.9158871 6.7383429 2023 5.79467812 6.9544401 2022 5.31648967 6.9926643 2021 5.21816 6.613598 2020 4.84659233 6.270105 2019 4.44243167 6.2802813 t-Test: Paired Two Sample for Means   Variable 1 Variable 2 Mean 5.25570648 6.64157195 Variance 0.3120447 0.09996362 Observations 6 6 Pearson Correlation 0.79347988 Hypothesized Mean Difference df 5 t Stat -9.3532065 P(T<=t) one-tail 0.00011768 t Critical one-tail 2.01504837 P(T<=t) two-tail 0.00023536 t Critical two-tail 2.57058184  

9. Overall Composite Raking Of selected Banks based on CAMEL Interpretation: Private Sector Banks (e.g., Kotak Mahindra Bank, HDFC Bank) generally perform better in this evaluation, reflecting stronger management practices, higher asset quality, and better earning ability. Public Sector Banks (e.g., State Bank of India, Indian Overseas Bank) tend to lag in these metrics, suggesting potential areas for improvement in management efficiency and asset quality Banks Capital Adequacy (C) Asset Quality (A) Management Efficiency (M) Earning Ability (E) Liquidity (L) Average Rank State Bank of India 9 10 3.66 5.5 8 7.232 9 Punjab National Bank 6.66 9 4.33 9 5.5 6.898 8 Bank of Baroda 5.33 6.5 4 7.5 4.5 5.566 5 Indian Overseas Bank 6.66 6 8 10 5.5 7.232 9 Canara Bank 6 8 6 7.5 6.5 6.8 7 HDFC Bank 3.33 1 4.33 1.5 7 3.432 2 ICICI Bank 5 5.5 4 3.5 3 4.2 3 Kotak Mahindra Bank 2.33 2 5.66 1.5 5 3.298 1 Axis Bank 5.66 4 7.33 5.5 6 5.698 6 IndusInd Bank 5 3 7.66 3.5 4 4.632 4

10. Based on composite ranking the averages of the 5 parameters are taken for public and private sector banks T-Test based on overall CAMEL H0​ : There is no significant difference between the means of the two variables Ha​ : There is a significant difference between the means of the two variables. CONCLUSION: Since the t Stat (2.354730115) is less than the t Critical two-tail value (2.776445105) and the P(T<=t) two-tail value (0.078110827) is greater than 0.05, we fail to reject the null hypothesis for the two-tailed test. This indicates that there is not enough evidence to conclude a significant difference between the means of Variable 1 and Variable 2 in both directions.   C A M E L PUBLIC 6.73 7.9 5.198 7.9 6 PRIVATE 4.264 3.1 5.796 3.1 5 t-Test: Paired Two Sample for Means   Variable 1 Variable 2 Mean 6.7456 4.252 Variance 1.4041268 1.399448 Observations 5 5 Pearson Correlation -0.99999754 Hypothesized Mean Difference df 4 t Stat 2.354730115 P(T<=t) one-tail 0.039055414 t Critical one-tail 2.131846786 P(T<=t) two-tail 0.078110827 t Critical two-tail 2.776445105