Nationalised banks form an important category in the banking space as they account for almost half of the total assets of the banking system.

Recently, the banks declared their third quarter (Q3) results for the financial year 2012-13. Net profits of nationalised banks dropped 22 per cent in the quarter ended December 2012. Slowdown in economic growth, high interest rates and stringent provisioning norms had affected their performance as a group.

How have the individual banks fared in the challenging macro environment? We attempt to decipher the relative performance of different banks in the nationalised bank category by ranking their performance across five dimensions — business growth, asset quality, efficiency, pricing power and above all profitability. While business growth captures the composite deposit and advances portfolio of the bank, the remaining four are captured through Gross NPA as percentage of gross assets, Cost to Income ratio, NIM and RoA respectively.

Time dimensions

The rankings have been made by considering the individual bank performance in three possible time dimensions associated with quarterly data. First, on a year-on-year basis. Second, on a sequential basis. And, third, on a year-to-date basis. Depending on the evolution of performance in the successive quarters, the performance across the three dimensions may convey a different picture for different banks on different parameters.

Hence, one way to judge performance on the growth dimension will be to rank the different banks giving equal weight to performance across all the three time dimensions. The ranking obtained from this method is labelled as ranking on the basis of ‘growth’.

However, growth by definition depends on the starting point or the base. For instance, a bank which to begin with had very low operating efficiency has much larger scope to improve than a bank which had relatively much higher operating efficiency.

Ignoring the base effect may lead to erroneous assessment of a bank’s relative performance. Thus, a realistic assessment of performance must take the base effect in account. Thus, a further refinement of the rankings can be made by not only considering the ranking based on ‘growth’ but also the rankings based on ‘levels’ of different performance indicators.

We can compute an overall rank of a bank which is the average of rankings based on ‘growth’ and rankings based on the ‘levels’. This refined way of ranking can be labelled as rankings based on ‘growth and level’. It would be worthwhile to point out that the ‘growth and level’ method of ranking suggested here is more holistic as it not only considers growth performance across the three time dimensions but also the level effect. We have, however, reported ranking of banks on the basis of ‘growth’ and ‘growth and level’ to bring out the differences.

Comparable rankings

Further, to make the rankings comparable across banks, we have performed the calculations for ranking separately for the large and small banks. For the purpose of elucidation, let’s consider the ranking based on ‘growth’ and ‘growth and level’ for PNB in the large bank category. If we consider ranking based on ‘growth’ encompassing the three time dimensions, PNB ranks third on the performance indicators RoA, NIM and Cost to Income, fifth on the Business indicator and sixth on the GNPA indicator.

Like PNB, all the other five banks in the large category are ranked across the five performance indicators. The ranking of the average of the ranks across the five indicators, lends PNB the fifth overall rank in the large bank category on the basis of ‘growth’.

However, if we rank the performance as on March 2012 on each of the indicators and include it along with the performance across the three time dimensions of the concerned indicator to derive the ranks, we get the ranking on the basis of ‘growth and level’.

Considering both the ‘growth and level’, we find PNB ranks first on the RoA, NIM and Cost to Income, third on the Business front and fifth on the NPA front. The ranking of the average of the ranks across the five dimensions on ‘growth and level’ leads to first overall rank for PNB on the basis of ‘growth and level’.

What do the ranks suggest? First, Central Bank of India in the large banks category and Bank of Maharashtra within the small bank category turn to be the best on the basis of ‘growth’.

Second, when ranking is based on ‘growth and level’, PNB and Corporation Bank in the large and small category, respectively, occupy the top most position. Third, Central Bank of India in the large bank category and United Bank of India in the small bank category occupy the bottom rank on the basis of ‘growth and level’.

Having ranked the banks in each category on the basis of ‘growth’ and combined ‘growth and level’, we look into banks that have improved their rankings in the quarter ended December 2013 compared to December 2012.

Improved rankings

We find, Bank of India, Union Bank of India and the Punjab National Bank in the large bank category and UCO Bank, Syndicate Bank, Corporation Bank, Dena Bank, Bank of Maharashtra and Punjab and Sind Bank in the small category have improved their rankings based on ‘growth and level’. There was no change in the rank of Central Bank of India in the large category and Vijaya Bank in the small category on the basis of ‘growth and level’.

The ranks have brought out the relative strength and weakness of different banks across different performance indicators and can serve as a guiding tool for organising their activities.

(The author is Professor in Economics and Associate Dean, Xavier Institute of Management, Bhubaneswar. Views expressed are personal)

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