As in the recent years, the BT-KPMG survey methodology has been modified to address some of the questions that came from the banking community. We also met up with a few of the financial sector regulators, who gave invaluable inputs towards making this survey more holistic in form and content.
The changes in the survey methodology have been in the grouping of banks based on the size of their balance sheets as well as the parameters used. We have grouped the banks into four main categories as against three categories in the previous years. This was done with a view to give due recognition to the fact that the industry has grown at a certain base level.
On the parameters, in addition to an analysis of the performance for the last financial year, we decided to gauge the performance over last four years. The Data: The data for the study was based on the published annual reports of banks and RBI reports. All the figures used were as reported for the financial year 2006-07, 2005-06, 2004-05 and 2003-04.
The Universe: The ranking covers 77 scheduled commercial banks that had provided their annual reports at the time of conducting the study.
Some banks have been excluded from the study.
Sangli Bank has been excluded from the survey on account of its merger with ICICI Bank which came into effect on January 22, 2007.
Bharat Overseas Bank and Lord Krishna Bank have also been excluded from the study due to their acquisition by Indian Overseas Bank and Federal Bank, respectively. Bank of Ceylon been excluded due to non-availability of data.
In the case of YES Bank, we have taken 2-Year CAGR instead of 3-Year CAGR (in case of Growth Parameters) as the bank commenced activities in India only in November 2004.
In certain foreign banks, due to zero NPAs, the NPA coverage has been graded at 100 per cent thereby according them the highest rank in this category.
For the purposes of computing 3-Year CAGR for JPMorgan Chase Bank, the initial value has been taken as one despite the bank having nil loans and advances in 2003-04.
The Ranking Parameters:
The BT-KPMG ranking study consists of three broad categories:
These were further subdivided into 26 parameters as explained below:
Growth in deposits: From 2005-06 to 2006-07.
Growth in loans and advances: From 2005-06 to 2006-07.
Growth in feeiIncome: Growth in Fee Income (Income from Commissions, Exchange, Brokerage + Miscellaneous Income) from 2005-06 to 2006-07.
Growth in operating profit: From 2005-06 to 2006-07.
Absolute increase in market share of Deposits: Basis points increase in market share of deposits (market share-total deposits of all banks forming a part of the survey) from 2005-06 to 2006-07.
Absolute increase in market share of CASA: Basis points increase in market share of CASA (market share-total CASA of all banks forming a part of the survey) from 2005-06 to 2006-07. CASACurrent Account Savings Account.
There were other 3-year growth parameters such as deposits, loans & advances, and operating profit that were considered.
Quality of assets
Total NPA growth ratio: Additions to Gross Non-Performing Assets during the year expressed as percentage of the average net advances.
NPA coverage: NPA Provisions as at year end expressed as a percentage of Gross NPA at year-end.
Net NPAs/ Net advances: The Gross NPAs net of provisions expressed as a percentage of net advances.
Productivity and efficiency
Cost to income ratio: Operating expenditure expressed as a percentage of operating income.
Cost to average asset ratio: Operating expenditure expressed as a percentage of average assets.
Operating profit per employee: Operating profit divided by the total number of employees.
Absolute increase in return on assets: Basis points increase in return on assets (net profit over total assets) from 2005-06 to 2006-07.
Percentage increase in ratio of Operating Profit to Total Income: Growth in ratio of operating profit to total income from 2005-06 to 2006-07.
Quality of earnings
Return on assets: The ratio of net profit to total assets for the FY 2006-07.
Fee income to total income: Fee income includes commission, exchange brokerage, plus profit on exchange and miscellaneous income, expressed as a percentage of total income.
Return on capital employed: Reported net profit divided by the average net worth of the bank.
Net Interest Income to Average working funds: Interest earnings as a percentage of AWF (total average assets of the bank less average of other liabilities).
Capital Adequacy: The capital-to-risk weighted assets ratio, as published by the bank for 2006-07.
The banks were grouped into sets based on their balance sheet size and number of branches in order to create a comparable pool. Each set has been ranked independently. There are four sets of banks:
Rank: The composite rank for each bank was arrived at by combining its ranks on each of the 26 parameters, using a weight for each parameter. To compute a bank’s total score, it was assigned a score for each of the 26 parameters, based on its ranks on the parameter. For example, a bank in “Set A” with a rank of 1 earned a score of 35 (as there are 35 banks in the comparison set), a rank of 2 earned a score of 34 and so on, down to the rank of 35, which earned a score of 1. The score under each parameter was then multiplied by the weightage assigned to that parameter. The results were aggregated to compute each bank’s total score, which gave us the final ranks.
The KPMG Team comprised: Sanjay Aggarwal, Head - Financial Services; Ravi Trivedy, Executive Director, Advisory Services; Manoj Kumar Vijai, Executive Director, Audit ; Apurva Mehta, Associate Director, Advisory Services; Amit Wagh, Associate Director, Advisory Services; Divya Arora, Executive, Financial Services; Nishita Jain, Analyst, Financial Services; Parvez Lalani, Analyst, Markets Group; Tarini Fernandes, Analyst, Markets Group; Enrica Colaco, Analyst, Markets Group.