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How we ranked the banks

The data for the study was based on the published annual reports of banks and RBI. All the figures used were as reported for the financial year 2007-08, 2006-07, 2005-06, 2004-05 and 2003-04.

Print Edition: December 28, 2008

The Data: The data for the study was based on the published annual reports of banks and RBI.

All the figures used were as reported for the financial year 2007-08, 2006-07, 2005-06, 2004-05 and 2003-04.

The Universe: The ranking covers 67 scheduled commercial banks that had provided their annual reports at the time of conducting the study.

Banks excluded from the study were:

  • Bank International Indonesia, Nainital Bank, Catholic Syrian Bank, City Union Bank, TamilNad Mercantile Bank, Ratnakar Bank, United Bank of India (on account of not receiving the annual report at all, or not receiving before completion of survey).

  • American Express: Owing to its acquisition by Standard Chartered in FY08, its financial statement is not comparable with the number for previous years.

  • Centurion Bank of Punjab: Owing to its merger with HDFC Bank during the relevant financial year.

  • Shinhan Bank and Bank of Ceylon have been excluded due to non-availability of data for previous years.

In certain foreign banks, due to the zero NPAs, the NPA coverage has been graded at 100 per cent, thereby according them the highest rank in this category

The ranking parameters:
The BT-KPMG ranking study consists of three broad categories:

  • Growth
  • Size
  • Strength

These were further subdivided into 26 parameters as explained below.

Growth
1. Growth in deposits: Growth in Deposits from FY 2006-07 to FY 2007-08.

2. Growth in loans and advances: Growth in Loans and Advances from FY 2006-07 to FY 2007-08.

3. Growth in fee income: Growth in Fee Income (Income from Commissions, Exchange, Brokerage

+ Miscellaneous Income) from FY 2006-07 to FY 2007-08.

4. Growth in operating profit: Growth in Operating Profit from FY 2006-07 to FY 2007-08.

5. 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 FY 2006-07 to FY 2007-08.

6. Absolute increase in market share of CASA (Current Account Savings Account): Basis points increase in market share of CASA (market share/total CASA of all banks forming a part of the survey) from FY 2006-07 to FY 2007-08.

7. 3-year CAGR of total deposits: Compounded Annual Growth Rate of Total Deposits from FY 2004-05 to FY 2007-08.

8. 3-year CAGR of loans and advances: Compounded Annual Growth Rate of Loans and Advances from FY 2004-05 to FY 2007-08.

9. 3-year CAGR of fee income: Compounded Annual Growth Rate of Fee Income (Income from Commissions, Exchange, Brokerage + Miscellaneous Income) from FY 2004-05 to FY 2007-08.

10. 3-year CAGR of operating profit: Compounded Annual Growth Rate of Operating Profit from FY 2004-05 to FY 2007-08.

Size

11. Deposits: Total deposits as at end of FY 2007-08.

12. Operating profit: Operating Profit as at end of FY 2007-08.

13. Balance sheet size: Balance Sheet Size as at end of FY 2007-08.

Strength

Quality of assets
14. Total NPA growth ratio: Additions to Non-Performing Assets during the year expressed as percentage of the average net advances.

15. NPA coverage: The provisions for NPA expressed as a percentage of Gross NPA closing balance.

16. Net NPAs/ Net advances: The Gross NPAs net of provisions expressed as a percentage of net advances.

Productivity and efficiency
17. Cost to income ratio: Operating expenditure expressed as a percentage of operating income.

18. Cost to average asset ratio: Operating expenditure expressed as a percentage of average assets.

19. Operating profit per employee: Operating profit divided by the total number of employees.

20. Absolute increase in return on assets: Basis points increase in return on assets (net profit over total assets) from FY 2006-07 to FY 2007-08.

21. Percentage increase in ratio of operating profit to total income: Growth in ratio of operating profit to total income from FY 2006-07 to FY 2007-08.

Quality of earnings
22. Return on assets: The ratio of net profit to total assets for the FY 2007-08.

23. 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.

24. Return on capital employed: Reported net profit divided by the average net worth of the bank.

25. Net Interest Income to Average working funds: Interest earnings expressed as a percentage of AWF (Total average assets of the bank less average of other liabilities).

Capital adequacy
26. Capital Adequacy: The capitalto-risk weighted assets ratio, as published by the bank for FY 2007-08.

The process
We have grouped the banks into sets based on their balance sheet size and number of branches in order to have a comparable pool. Each set has been ranked independently.

There are four sets of banks:

  • Set A: 37 Banks with balance sheet size > Rs 24,000 crore

  • Set B: 10 Banks with balance sheet size <= Rs 24,000 crore and branches > 10

  • Set C: 8 Banks with balance sheet size >= Rs 3,000 crore and branches <=10

  • Set D: 12 Banks with balance sheet size < Rs 3,000 crore and branches <=10

Rank: The composite rank of a bank was calculated using BT-KPMG’s methodology. The rank of each bank in FY 2006-07 on the individual parameter has also been presented. 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. The computation: 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 37 (as there are 37 banks in the comparison set), a rank of 2 earned a score of 36 and so on, down to the rank of 37, 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, on the basis of which the final ranks were assigned.

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