Business Today

The Ranking Process

     Print Edition: Dec 9, 2012

The data used for the rankings was based on published annual reports of banks and the Reserve Bank of India's Profile of Banks, 2011/2012. The period covered is 2008/09 to 2011/12 .

The ranking looks at 67 scheduled commercial banks that provided their annual reports at the time of conducting the study. The scheduled commercial banks for which financial statements were not available to us or have not completed four years of operations, did not qualify for the study.

For banks having zero non-performing assets (NPAs), the provision coverage ratio was considered to be 100 per cent, thus assigning them the highest rank in that category.

Three broad parameters were divided into 28 subparameters as against 27 earlier. The new parameter - Restructured Assets - has been introduced to cover the rising cases of debt restructuring.

GROWTH:
Over 2010/11, in deposits, loans and advances, fee income (commissions, exchange, brokerage plus miscellaneous income), operating profit, absolute market share of deposits, absolute market share of current account savings account (CASA); three-year compound annual growth rate (CAGR) of total deposits, loans and advances, fee income, and operating profit.



SIZE:

Total deposits, operating profit and balance sheet size for financial year 2011/12.


STRENGTH:


Quality of Assets:
India's Best Banks 2012
Total NPA growth ratio: Additions to NPAs during the year expressed as a percentage of average net advances; NPA coverage: provisions for NPA expressed as a percentage of gross NPA closing balance; Net NPAs/Net Advances: gross NPAs net of provisions expressed as a percentage of net advances; Restructured Assets/Total Average Loans and Advances: standard restructured assets expressed as a percentage of total average loans and 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 total employees; Absolute Increase in Return on Assets: basis points increase in return on assets (net profit over total assets) from 2010/11 to 2011/12; Percentage increase in ratio of operating profit to total income from 2010/11 to 2011/12

Quality of Earnings:
Return on Assets: ratio of net profit to total assets for 2011/12; Fee income as a percentage of total income; Return on Capital Employed: reported net profit divided by average net worth; Net interest income as a percentage of average working funds.

Capital Adequacy:
Capital Adequacy Ratio: Capital-to-risk weighted assets ratio for FY 2011/12; Tier-I Capital: total of equity capital and disclosed reserves.


THE PROCESS:

Banks were grouped into four sets. The balance sheet size has been increased, from Rs 50,000 crore to Rs 1,00,000 crore for large and mid-sized banks and Rs 10,000 crore from Rs 3,000 crore for small and very small banks, to reflect the banks' growing assets base.

Set A: 24 banks with balance sheet size greater than or equal to Rs 1,00,000 crore;
Set B: 26 banks with balance sheet size less than Rs 1,00,000 crore and more than 10 branches;
Set C1: Six banks with balance sheet size more than or equal to Rs 10,000 crore and 10 or fewer branches;
Set C2: 11 banks with balance sheet size less than Rs 10,000 crore and less than 10 branches.

To compute a bank's total score, it was assigned a score for each of the 28 parameters, based on its ranks on the parameters. The score under each parameter was multiplied by the parameter's weightage. The results were aggregated to arrive at the total score.

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