The financial year 2008-09 was many things to many people—difficult, a rude bolt from the blue, a lesson in moderation and a reminder that yesterday’s masterstroke can abruptly transform into evident folly. What 2008-09 wasn’t for sure is predictable. And that’s reflected in the rankings of the 16th BT-KPMG Best Banks study. New winners across categories, old warhorses who’ve enjoyed the limelight for years but who’ve since been humbled, and those perceived to be laggards and epitomes of inefficiency climbing to the top of the list.
Let’s start with the overall winner—Axis Bank, a steady performer over the years, which had clinched the runner’s up position in the previous study. Consistency has always been Axis’ key— it’s also emerged the most consistent performer over the past three years—but for it to get to the top of the heap is doubtless creditable in a challenging environment. The recipe? A focus on a strong retail deposit franchise. That Axis wasn’t so big on retail lending—not yet at least—worked in its favour in a year in which unsecured loans burnt huge holes in bank balance sheets.
Axis has replaced Bank of India (BoI), which appears to have become a victim of its own success. The public sector bank (PSB) slipped to the second spot, perhaps paying for its aggressive hunt for growth of its loan book in the previous years. The pain has spilled over into the current fiscal, with the deterioration in asset quality likely to continue for one or two more quarters.
But if you think BoI is an indicator of mayhem in the PSB pack, that’s not quite the case. In fact, the state-owned brigade pretty much did the star turn in the BT-KPMG study, with three of them vaulting into the top six. Along with BoI, that would mean four of the banks in the top six—and six in the top 10—are PSBs. The star of the show clearly is Punjab National Bank (PNB), which had K.C. Chakrabarty, the current Deputy Governor of the Reserve Bank of India, as its Chief for two years till this June. A sound performance across sectors—agricultural, middle enterprise and retail— aided in no small amount by its low cost of funds helped PNB leap from #18 last year to #3. The other state-owned majors that made a move up include Bank of Baroda (from #13 to #4), Indian Bank (from #8 to #6) and Corporation Bank (from #10 to #8).
If PSBs were the surprise stars, the hitherto-perceivedto-be savvy foreign banks took a beating, with Citibank, HSBC and StanChart being the marquee names that took a tumble. In fact, PSBs could have well gained at the expense of the foreign pack. As the subprime crisis gained ground and the global banking system begin to collapse, nervous depositors back home decided to take their money out of the foreign banks and unload it into the “safer” vaults of the government-owned banks.
Does that mean the Indian banking system is on safer ground than its global counterparts? Capital adequacy ratios and the asset quality of the top league might indicate that Indian banks are better placed, but as a team of KPMG analysts warns: Whilst collapses a la Lehman Brothers and government-funded bailouts (like at Citi and Royal Bank of Scotland) were not seen at home, India’s aggressive targets for economic growth could take a hit if some systemic corrections are not made.
Finally, perhaps the only predicable element about the latest BT Best Banks study is that YES Bank has for the second year in a row emerged numero uno in the mid-sized banks category (those with a balance sheet size of Rs 24,000 crore or less, and 10 or more branches). Before you embark on the various stories and the tables in this package that analyses Indian banking in a year of uncertainty, we will leave you with one note of finality: YES Bank will not be #1 for a third year in a row in the midsized category. And that’s not because of any fundamental inadequacies. Rather, as you read this, YES Bank’s balance sheet size would have crossed the Rs 24,000-crore mark—it was at Rs 22,900 crore in 2008-09—and in the next BT-KPMG study it will have to take on the big boys to find its place in the sun.