After a huddle lasting well over one and a half hours at Business Today's Mumbai office, the four member jury for Indias Best Banks study put their stamp of approval on five awards based on purely qualitative factors. The BT-KPMG study, based on quantitative analysis over decades, had a jury for the second year in a row. Indeed, the eminent jury came from diverse backgrounds. M.D. Mallya , former chairman and managing director of Bank of Baroda, represented banks. Alok Agarwal, Chief Financial Officer at Reliance Industries brought in the voice of the industry, which works very closely with banks. Vimal Bhandari, MD & CEO, Indostar Capital Finance, who had previously worked for infrastructure financing institution IL&FS , provided his insights as a financial services expert. Ramaswamy Venkatachalam, MD (India & South Asia) at FIS, an outfit which works with banks in the realm of technology, brought the inside view on scalability of technological innovations. The jury was handed over the comprehensive docket covering the qualitative analysis in advance. The five qualitative awards this year are for Overall Bank of the Year (for both public and private sector banks), Banker of the Year, Digital Banking and Financial Inclusion.
For Overall Bank of the Year, the top five banks, based on quantitative analysis in the large and mid-sized banks categories, were put before the jury. The order of rankings for large banks was HDFC Bank, ICICI Bank, Axis Bank, State Bank of India (SBI) and Punjab National Bank (PNB). The top mid-size banks were (in order of rankings) Yes Bank, IndusInd Bank, Kotak Bank, Andhra Bank and Indian Bank. The jury, in its wisdom, decided to create a separate category for the public sector banks (PSBs) because of their nature of ownership and financial inclusion objectives. "Putting PSBs and private bank together is not an apple to apple comparison," it commented. SBI and HDFC Bank were the winners in their respective categories. While it was easy to pick a winner amongst the private banks, the jury had a hard time zeroing in on the winner in the PSB category. They spent a lot of time in analysing the top PSBs, especially with regard to new initiatives, NPA management and, profitability. The top three contenders were SBI, PNB and Bank of Baroda. SBI eventually emerged as the winner amongst the PSBs.
Arundhati Bhattacharya, Aditya Puri, Romesh Sobti and Vishwavir Ahuja emerged as the top choices for the Banker of the Year - a jury award created this year. SBI's Bhattacharya emerged as the winner for transforming the largest bank in the country, especially in the sphere of digitisation, HR reforms and NPA management. "There are no parallels," said the jury.
For financial inclusion, the jury was unanimous in its praise of the newest bank in the market - Bandhan Bank. This bank has carved out a successful model for financial inclusion as a majority of its branches are in rural and semi-urban areas. In fact, the bank has successfully morphed its MFI model into a bank and it lends to the bottom of the pyramid. It was relatively easier to pick the Digital Bank award winner. Axis Bank made it to the top for initiatives such as one click access to relationship manager, instant personal loan, etc.
The various jury members shared invaluable insights about the banking businesses in the meeting. Mallya, who is on the board of SBI as a shareholder director, brought in insights about PSBs and financial inclusion. Agarwal, who manages the treasury of the largest private sector conglomerate, analysed each number on size and scale parameters For more on the outcome of the jury discussions, turn to 'The Rankings -Jury Awards'.
For the rankings based on pure financial performance, the data was taken from published annual reports of the banks for the period 2012/13 to 2015/16. The survey covers 59 scheduled commercial banks that had annual reports published in public domain or provided their annual reports at the time of conducting the survey prior to October 31, 2016.
Banks which have a balance sheet size of less than `5,000 crore as on March 31, 2016 have not been considered for the survey. Further, scheduled commercial banks whose financial statements were not available to us or banks which have not completed four years of operations in India as on March 31, 2016 or which have merged with other banks, did not form part of the survey.
The three broad ranking parameters - divided into 28 sub-parameters - are as follows:
There are five sub-parameters in this category. They are: growth over 2014/15 in deposits, alongside three-year Compounded Annual Growth Rate (CAGR) of total deposits; growth over 2014/15 in loans and advances, alongside three-year CAGR in loans and advances; growth over 2014/15 in fee income (commissions, exchange, brokerage plus miscellaneous income), alongside three-year CAGR in fee income; growth over 2014/15 in operating profit, alongside three-year CAGR in operating profit; and absolute increase in market share of deposits and of Current Account Savings Account (CASA) balances.
There are three sub-parameters in this category, which include size of total deposits, size of operating profit and size of balance sheet for 2015/16.
There are four overarching sub-parameters in this category, each with further sub-divisions.
Quality of Assets
Total NPA growth ratio: additions to NPAs during the year as a percentage of average net advances; Provision coverage: provisions for NPA as a percentage of gross NPA closing balance; Net NPAs as a ratio of net advances: gross NPAs net of provisions expressed as a percentage of net advances; Restructured assets as a ratio of total average loans and advances; outstanding restructured assets as a percentage of outstanding loans and advances as on March 31.
For the purpose of determining the rankings based on the provision coverage ratio parameter, banks with zero non-performing assets (NPAs) are assigned the highest rank on that parameter.
Productivity and efficiency
Cost to income ratio: operating expenditure as a percentage of operating income; cost to average asset ratio: operating expenditure as a percentage of average assets; absolute increase in return on assets: basis points increase in return on assets (net profit over total average assets) from 2014/15 to 2015/16; percentage increase in ratio of operating profit to total income from 2014/15 to 2015/16.
Quality of earnings
Return on assets: ratio of net profit to total assets for FY 2015/16; fee income as a percentage of total income; return on capital employed: reported net profit divided by average net worth; net interest margin: total interest income minus total interest expenses as a percentage of average Interest earning assets.
Capital adequacy ratio: capital-to-risk weighted assets ratio for 2015/16; tier-I capital: total of equity capital and disclosed reserves.
For each bank a score is assigned to all the 28 sub-parameters, based on its rank on the parameters. The score under each parameter is then multiplied by the parameters weight to arrive at the final score for a bank. The results are aggregated to arrive at the final rankings based on the total score.
Changes observed from previous years survey
Banks not considered for the 2015/16 survey:
In total, seven banks that were included in 2014/15 survey were not considered for the survey in 2015/16 for reasons mentioned below:
Rabobank International, Abu Dhabi Commercial Bank Ltd., First Rand Bank Ltd, Bank of Bahrain & Kuwait BSC: Balance sheet size was less than Rs 5,000 crore, hence they were not considered as per survey methodology.
The Royal Bank of Scotland N.V.: The bank is in the process of selling off its assets and winding up operations in India.
State Bank of Hyderabad and State Bank of Patiala: Non-availability of complete financials for 2015/16.
New Banks added in the 2015/16 survey:
Tamilnad Mercantile Bank was included in 2016 survey for the first time as its annual reports are available in public domain for this period. These were not available at the time of the previous years' survey. ~