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Chapter – V

THE FINANCIAL PERFORMANCE OF ANDHRA BANK ANDICICI BANK IN PRE AND POST E-BANKING ERA

5.0 Introduction

In the beginning of 90’s, there were so many deficiencies were prevailing in the

Indian economy, particularly in the financial sector in general and in the banking sector

in particular. The financial system has to play a crucial role in mobilization of funds and

their allocation to the most productive use to fulfill its role in economic growth. The

financial service industry needs to operate on the basis of operational flexibility and

functional autonomy with a view to enhance efficiency, productivity and profitability351

.

Despite the impressive quantitative achievements, several distortions have crept into

Indian financial system in respect of allocation of resources, productivity and profitability

has suffered and portfolio has deteriorated, work technology is outdated and transaction

costs have mounted.

Keeping in mind all the above said distortions in the economic, financial and

banking sectors, the government of India and the RBI thought it was necessary to

introduce reforms in the financial and banking sector. The financial sector reforms were

introduced in the country covering banking, insurance and capital market were the core

aspect needed to be improved. But as the financial sector, therefore the banking sector

reforms formed the core of objective for improving efficiency, productivity and

351 The Banking Sector in India: Emerging Issues and Challenges, Report on currency and Finance, Reserve

Bank of India, Volume -1, 2006-08.

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profitability of banks. These reforms were introduced in two phases in 1991-1997352.

The banking sector reforms have brought in major changes with the improvement in

efficiency of the banks. The first phase of reforms (Narasimhan Committee-I) brought

out structural changes and improved the overall performance of banks. The second phase

reforms were recommended by the Narasimham Committee – II to make the banks

capable to compete successfully in the changing environment.

Under the regime of banking sector reforms, IT Act of 1999 gave new dimensions

to the Indian banking sector. IT has created transformation in banking structure, business

process, work culture and human resource development. It has affected the productivity,

profitability and efficiency of the banks to a large extent353

. For decades, it has been a

matter of debate whether Technology354

provides better financial results. Till date there is

no conclusive evidence that spending on IT improves financial performance. The present

chapter attempts to link banking technology with the financial productivity and

profitability of Andhra Bank & ICICI banks The chapter analyzes the performance of

Andhra Bank & ICICI Banks in terms of productivity and profitability in the pre and post

e-banking period.

5.1 Road Ahead: Turnaround Success Strategy:

Productivity and profitability are interrelated. Though productivity is not the sole

factor, it is an important factor influencing profitability. The key to increase profitability

352 Uppal.R.K, Banking Sector Reforms: Policy Implications and Fresh Outlook, Information Management

and Business Review Vol. 2, No. 2, pp.55-64, Feb 2011.353 Dr. Dhiraj Sharma, & Dr. R.K Uppal, “IT-Pr!"#$i%i$ Para!' i( )a(*+ S$"! I(!ia

)a(*+ i( /p0r IT ra, I)R l"m0 1, I++"0 1 62717 ISS-2229-4848. 354 Th0 $0rm Technology ha+ ma( !0i(i$i(+. T0#h(l: r I(rma$i( T0#h(l: r00r+ $

$h0 *(;l0!:0 "+i(: $l+ a(! ma#hi(0+ $ ! $a+*+ 0i#i0($l. <r $h0 p"rp+0 pr0+0($+$"! T0#h(l:= I(rma$i( T0#h(l: r00r+ $ $h0 "+0 #mp"$0r+ a(! $h0r 0l0#$r(i#0>"ipm0($+ $ +$r0 a(! +0(! i(rma$i( 6?am@ri!:0 A0ar(0rB+ Di#$i(ar, 2774.

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is increased productivity. Public sector banks have not been as profitable as the other

banks primarily because of two reasons--Low Productivity and High Burden ratio. Since

the process of liberalization and reform of the financial in the financial sector were

introduced in 1991, banking sector has undergone major transformation.. As per the IBA

report "Banking Industry Vision 2010" there would be greater presence of international

players in the Indian. The key to success in the competitive environment is increased

productivity and profitability. Indian banks especially the public sector banks and the old

private sector banks are lagging far behind their competitors in terms of both productivity

and profitability with the exception of the State bank of India and its associates. The other

public sector banks and old private sector banks need to go for the major transformation

program for increase their productivity and profitability355

. To overcome these drawbacks

private banks should chalk out a program to increase productivity.

The underlying objectives of the reform will make the banking system more

competitive, productive and profitable.

• Reduces overstaffing

• Forge strategic alliance with the rural regional banks to open up rural branches

and

• Increased use of technology for improved products and services for the same

Development and implementation of nationwide standards for smart cards

including instructions on interoperability.

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• Change in the guidelines covering smart card issue: along with the

development of the above mentioned standards, the guidelines too must be

modified keeping in mind the rural and in some senses a remote market segment.

• Eligibility of clients: Banks should be allowed to issue smart cards to customers

without a bank account or a history of savings and credit servicing. Such

measures allow banks to reach out to the poorest of customers who in a majority

of cases would have no banking history.

•

Written reports and receipts: though banks should attempt to provide receipts

of transactions to its customers, such a condition should not be a compulsion on

the bank especially when the bank is attempting to service large number of rural

clients.

• Allowing appointment of third parties for banking: Banks can collaborate with

third parties acting as agents to expand their outreach exponentially and provide

doorstep banking to the rural population356

.

Indian public sector banks have a unique advantage over their competition in

terms of their branch network and the large customer base, but it is the use of technology

that will enable PSBs to build on their strengths. No doubt, technology is taking place

but this speed is quite slow in Indian banking industry particularly, in public sector

banks357

. The future outlook demands heavy investment in information technology.

Foreign banks and the new private sector banks have embraced technology right from

356 Amitabh Verma, Lecturer, Birla Institute of Technology, Ranchi, The impact of technology on

productivity and profitability of Indian banks in post liberalization period, Foundation for Organisational

Research & Education, www.thefreelibrary.com. Jul, 2009.357

Uppal.R.K, “E-Delivery channels in Banks - A Fresh outlook”, Researchers Word, International

Refereed Research Journal www..researchersworlld..com,Vol.– II, Issue –1,January 2011.

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their inception and they have better adapted themselves to the changes in technology.

Where as the public sector banks and old private banks have been slow in keeping pace

with the changing technology, which is regarded as one of the major reason affecting

their profitability and productivity. However, the future of banking will be one in which

customers can address most of their needs through self-directed means and the key

differentiator will be how effective a bank is in getting its customers online and deriving

measurable value from this presence. One can sum up the whole Internet banking

scenario with the adage, "For while winners may not see massive gains, the losers will

fade from view as their ability to compete is eroded with every mouse click. 358

5.2 Database

To calculate the financial performance of this analysis, The data has been

collected from Money control.com, financial ratios from the Annual Reports of Andhra

Bank & ICICI Bank from 1999-2000 to 2009-2010, RBI Annual Reports, Statistical

tables relating to India Economy 1999-2000 to 2009-2010, RBI Trend & Progress Report,

Profile of Banks 1999-2000 to 2009-2010, Performance Highlights of Indian Banks

Association IBA-Mumbai 1999-2000 to 2009-2010. A number of websites of both Indian

and foreign universities and academic institutes were also browsed to gather more

information for the present study.

5.3 Methodology

358 Amitabh Verma, Lecturer, Birla Institute of Technology, Ranchi, The impact of technology on

productivity and profitability of Indian banks in post liberalization period, Foundation for Organisational

Research & Education, www.thefreelibrary.com. Jul, 2009.

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The study is an analysis of financial performance of the Andhra Bank &

ICICI Bank. By classifying the banks on the basis of different financial values of the

selected banks the performance can be measured. The study of financial performance of

banks has been carried out from the year 1999 to the year 2010.

Time period has been divided deliberately into two parts i.e. pre e-banking period

and post e-banking period. Pre e-banking period ranges between 1999-2000 to 2001-2002

and the Post e-banking period ranges between 2002-2003 to 2009-2010.

The period from the years 1999-2000 to 2001-2002 has been taken as India‟s Pre-

technology Induction Era while Post technology Induction Era has been considered to be

effectively started from 2002 onwards. During the period 1999-2000 to 2001-2002, the

technological applications in the Indian banking sector were not very developed and

mature. Moreover, new private sector banks started entering the Indian banking industry

in a big way from the year 1999. The technological boost only came after the

implementation of IT Act. The Indian government gave its assent to the act in October

2000 but the Information Technology Act which is a comprehensive legislation for IT

applications in the business, became effective only after 2002. The Act has brought the

structure, legal validity and authenticity for transacting and making payments online.

Hence, the period after 2002 has been termed as Post Technology Induction Era. Another

reason for assuming such period as Post Technology Induction Era is that in India E-

banking and Internet banking services started in full-swing only 2002 onwards.

The performance of a bank can be measured by a number of indicators.

Productivity and profitability are the most important and reliable indicators of the capacity

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of a bank to increase its size and earnings. For measuring the profitability and

productivity of selected banks, the present study employs two methods viz., ratio analysis

and Profitability gap.

To compare the performance of selected banks in pre and post e-banking period,

ratio analysis method is used. The following ratios are analyzed to examine the

performance of the selected banks with respect to profitability and productivity.

5.3.1 Profitability Analysis

Three sets of ratios have been employed for assessing the profitability of

commercial banks; viz. spread ratio, burden ratios and profitability ratios.

1. Spread ratios

Spread which is the difference between interests earned (on loans and advances) and

interest paid (on deposits and borrowings) by the banks a major rate in determining the

profitability of banks.

A. Interest earned as a percentage of Total assets

B. Interest paid as a percentage of Total assets

C.

Spread as a percentage of Total assets

2.

Burden Ratios

Burden is defined as the difference between non- interest expenditure and non –

interest expenditure and non-interest income of the banks.

A. Non – interest expenditure as a percentage of Total assets

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B. Non – interest income as a percentage of Total assets

C. Burden as a percentage of Total assets

3. Profitability Ratios

Profitability is a ratio of earnings to the funds used. It stands for profits deflated

by the size of the unit and indicates the efficiency with which a bank deploys its total

resources of maximize its profit.

A.

Net Profit as a percentage of Total income

B.

Net Profit as a percentage of Total deposits

C. Net Profit as a percentage of Total assets

5.3.2 Productivity Analysis

The present study also analyses the productivity of various bank groups on

the following basis.

1. Employee Productivity:

A. Deposits per employee

B. Credit per employee

C.

Total expenditure per employee

D. Total earning per employee

2. Branch productivity:

A.

Deposits per branch

B.

Credit per branch

C. Total expenditure per branch

D. Total earning per branch

5.4 Data Analysis

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For analysis of data two important statistical tools viz. mean and T-test has been

used to arrive at conclusions in scientific way.

5.5 Profitability Analysis:

Profitability of banks is governed by several factors, some of them endogenous,

some exogenous to the system and yet structural359

. The profitability, which is an

important criteria to measure the performance of banks in addition to productivity,

financial and operational efficiency, has come under pressure because of changing

environment of banking360

. An efficient management of banking operations aimed at

ensuring growth in profits and efficiency requires up-to-date knowledge of all those

factors on which the bank is profit depends. The profitability of Indian banks have

increased since the second generation banking reforms and among the several bank

groups.

In this section we have presented an analysis of profitability in Andhra Bank and

ICICI Bank during pre & post e-banking period. The mean gap between two periods

that is pre and post e-banking period has been calculated of each parameter. The selected

indicators are as follows:

The profitability shows the average of following ratios.

1. Spread ratios

2. Burden ratios

3. Profitability ratios

359 V.B. Angadi and V John Devraj, “Productivity and Profitability of Banks in India”, Economic and

Political Weekly Vol.18, no.48, Nov 26, 1983.360

B.S.Badola and Richa verma, “Determinants of Profitability of Banks in India – A Multivariate

Analysis”, Delhi Business Review X Vol. 7, No. 2, July - December 2006.

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5.5.1 Spread Ratios:

In this section we have presented the following spread ratios.

A. Interest earned as a percentage of Total Assets

B. Interest paid as a percentage of Total Assets

C. Spread as a percentage of Total Assets

5.5.1.a Ratio of Interest Earned as a Percentage of Total Assets (IE %TAs)

This ratio is an indicator of the rate at which a commercial bank earns income by lending

the funds to the public. The higher ratio is an indicator of efficient management of banks’

total assets.

As evident from the table 5.5.1.a. in the case of Andhra Bank, the interest earned as a

per cent of TAs was 10.24 percentage in pre-e-banking period came down to 8.05 per

cent in post e-banking period. There is decrease of 2.18 per cent mean gap between post

e-banking period and pre e-banking period. The t-test exhibits significant difference in

the mean of two periods at 0.1 per cent level of significance.

In the case of the ICICI Bank, a mean gap of 0.82 per cent is evident between the

two periods. The mean of post e- banking period has become 7.56 per cent which was

6.74 per cent in pre-e-banking period. The t-test exhibits insignificant difference in the

means of two periods.

On the whole, it can be concluded that in Indian banking due to decline in interest

rates, the mean of the said ratio declined between pre-e-banking period and post e-

banking period. As regards interest earned there is a significant difference between pre e-

banking and post e-banking period in the Andhra Bank where as it is not significant in the

ICICI Bank.

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Table - 5.5.1.a.: Interest Earned as a Percentage of Total Assets (IE %TAs)

Rs. Crores

Note: x1 = mean of Pre-e-banking, x2 = mean of Post-e-banking, S.E: Standard Error

LOS: Level of Significance, NS - Not Significant,Source: Money control.com, financial ratios of Andhra Bank & ICICI Bank 1999-2000 to 2009-2010.RBI

Annual Reports, Statistical tables relating to India 1999-2000 to 2009-2010.

RBI Trend & Progress Report, Profile of Banks 1999-2000 to 2009-2010.

Performance Highlights, IBA, Mumbai 1999-2010.

** Mean is Significant at the 0.01 level (1-tailed)

/

2

%

+

1/

12

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking

Source: Table – 5.5.1.a.

AverageIE%TAs

Andhra Bank ICICI Bank

Pre-e-banking (x1) 10.24 6.74

Post e-banking (x2) 8.05 7.56

Mean Gap 2.18 0.82

S.E 0.52 1.04

t-value 4.17 0.79

LOS ** NS

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5.5.1.b Ratio of Interest Paid as a Percentage of Total Assets:

Interest expended to total assets ratios shows the rate at which a private bank

incurs expenditure by borrowing funds. Interest expenses by bank refers to fund bases

expenditure which consists of interest paid on total deposit (time deposit plus saving

deposit plus demand deposit ) and interest paid on external borrowings (debt).

As evident from the table 5.5.1.b. in the case of Andhra Bank, Due to reduction

in interest rates in public sector banks the profit of banks decreases because of which, the

mean of post e- banking period become 4.66 per cent which was 6.72 per cent in pre-e-

banking period. There is decrease of 2.07 per cent mean gap between post e- banking

period and pre-e-banking period and is significant at .01 per cent level of significance.

In the case of ICICI Bank the mean in pre-e-banking period was 3.75 per cent and

in post e- banking period is 5.28. The mean gap of profitability in ICICI Bank is 1.53 per

cent is evident between the two periods. The t-test shows an insignificant difference in

the means of both periods.

As far as interest paid as percentage of total assets is concerned there is no

significant difference in Andhra Bank when compared to ICICI Bank. So this reflects

again the confidence of the people in the public sector banks. The public sector banks are

forced to reduce the ratio of interest paid, to avoid unforeseen risks of the market and

high accumulation of NPAs. ICICI Bank, it is interesting to find that the bank has

increased the ratio of interest payable, which may be due to large amount of business

with less number of branches.

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Table - 5.5.1.b.: Interest Paid as a Percentage of Total Assets (IP % TAs)

Note: S.E: Standard Error, LOS: Level of Significance. NS - Not Significant,

Source: same as table 5.5.1.a.** Mean is Significant at the 0.01 level (1-tailed)

/

1

2

3

5

%

*

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking

Source: Table – 5.5.1.b

Average IP%TAsAndhra Bank ICICI Bank



Mean Gap 2.07 1.53

S.E 0.49 0.98

t-value 4.23 1.57

LOS ** NS

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5.5.1.c Spread as a Percentage of Total Assets (S%TAs)

Spread which is the difference between interest earned (on loans and advances)

and interest paid (on deposits and borrowings) by the banks plays a major rate in

determining the profitability of banks.

As evident from the table 5.5.1.c. in the case of Andhra Bank, the spread as a

percentage of total assets was 2.86 per cent in pre-e-banking period and 3.05 per cent in

post e-banking period. The gap between two periods is increased by 0.19 per cent.

Therefore the t-test exhibits insignificant difference in the means of two periods.

In the case of the ICICI Bank, the spread as percentage of total assets was1.82

per cent in pre e- banking period and 1.92 per cent in post e-banking period. The gap

between two periods is .01 per cent which is almost negligible. The t-test exhibits

insignificant difference in the means of two periods.

Comparatively the mean gap of both banks shows increase this may be due to

more interest earned on loans and advances determining profitability of banks. Thus

Andhra Bank is more in profits than ICICI Bank.

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Table 5.5.1.c. : Spread as a Percentage of Total Assets (S%TAs)

Note: S.E: Standard Error, LOS: Level of Significance. NS - Not Significant,

Source: same as table 5.5.1.a.

/

/.5

1

1.5

2

2.5

3

3.5

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking

Source: Table – 5.5.1.c.

AverageS%TAs




Mean Gap 0.19 0.10

S.E 0.28 0.32

t-value 0.67 0.34

LOS NS NS

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5.5.2 Burden ratio:

Burden is defined as the difference between non- interest expenditure and non –interest

expenditure and non-interest income of the banks.

A.

Non – interest expenditure as a percentage of Total assets

B.

Non – interest income as a percentage of Total assets

C.

Burden as a percentage of Total assets

5.5.2.a Non - Interest Expenditure as a Percentage of Total Assets

Non interest expenditure of a bank represents manpower expenses, establishment charges

and other contingent expenses.

As evident from the table 5.5.2.a. in the case of Andhra Bank, the non interest

expenditure as a percentage of total assets is 3.14 per cent in pre e-banking period which

decreased to 3.07 per cent in post-e-banking period. There is a little mean gap 0.07 per

cent between two periods. The t-test shows an insignificant difference in the means of

two periods.

In the case of the ICICI Bank, the non-interest expenditure as a percentage of

total assets is 1.81 per cent in pre e-banking period which increased to 2.94 per cent in

post e-banking period. The mean gap is 1.13 per cent. The t-test exhibits significant

difference in the mean of two periods at .01 per cent level of significance.

Comparatively the burden on Andhra Bank is less compared to ICICI. This may

due to decrease in manpower expenses in Andhra Bank as there is decrease in no. of

employees where as in ICICI bank there may be increase in ratio due to of expansion of

premises.

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Table 5.5.2.a : Non - Interest Expenditure as a Percentage of Total Assets

(NIE%TAs)

Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant,


** Mean is Significant at the 0.01 level (1-tailed)

/

/.5

1

1.5

2

2.5

3

3.5

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking


Average

NIE%TAs




Mean Gap 0.07 1.13

S.E 0.40 0.31

t-value 0.18 3.59

LOS NS **

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5.5.2.b Non - Interest Income as a Percentage of Total Assets (NII % TAs)

Non interest income of banks represents income earned by way of commission,

brokerage service charges and other miscellaneous receipts.

As evident from the table 5.5.2.b. in the case of Andhra Bank the mean in pre-e-banking

period was 1.31 per cent which has increased to 1.60 per cent in post e-banking period.

The mean gap in pre and post e-banking period is 0.29 per cent. The t-test shows

insignificance.

In the case of the ICICI Bank the mean in pre e-banking period was 1.09 per cent

which increased to 2.23 per cent in post e-banking period. The mean gap in pre and post

e-banking periods is 1.14 per cent. The t-test shows insignificant difference in both

periods at .01 per cent level of significance.

Comparatively the mean gap is higher in ICICI Bank (1.14 per cent) when

compared to Andhra Bank (0.29 per cent). The difference of non interest income

between pre and post e-banking in both banks can be attributed to services charges,

commissions, brokerage service charges and other miscellaneous receipts. This shows

more efficiency of ICICI Bank when compared to Andhra Bank.

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Table 5.5.2.b: Non - Interest Income as a Percentage of Total Assets (NII % TAs)

Note: S.E: Standard Error, LOS: Level of Significance. NS - Not Significant, Source: same as table 5.5.1.a.

** Mean is Significant at 0.01 level (1-tailed)

/

/.5

1

1.5

2

2.5

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking

Source: Table – 5.5.2.b.

Average

NII%TAs




Mean Gap 0.29 1.14

S.E 0.42 0.26

t-value 0.71 4.41

LOS NS **

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5.5.2.c Burden as a Percentage of Total Assets (B%TAs)

Burden is defined as the differences between non-interest expenditure and non-

interest income of the banks

As evident from the table 5.5.2.c. in the case of Andhra Bank the mean was 1.83 per

cent in pre e-banking banking period which decreased to 1.46 per cent in post e-banking

period. The mean gap is 0.37 per cent between the two periods. The t-test exhibits

significant difference in the means of two periods at .01 per cent level of significance.

In the case of the ICICI Bank the burden as a percentage of total assets is same

0.71 per cent in pre-e-banking period and in post e-banking period. There is no mean gap

in pre and post e-baking period. The t-test shows an insignificant difference in the means

of two periods.

The mean gap in both banks shows a profitable position. This may be attributed to

decrease in non interest expenditure and increase in non interest income.

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Table 5.5.2.c. : Burden as a Percentage of Total Assets (B%TAs)



** Mean is significant at 0.01 level (1-tailed)

/

/.2

/.

/.%

/.+

1

1.2

1.

1.%

1.+

2

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking


Average

B%TAs




Mean Gap 0.37 0.01

S.E 0.14 0.27

t-value 2.60 0.02

LOS ** NS

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5.5.3 Profitability Ratios

Profitability is a ratio of earnings to the funds used. It stands for profits deflated

by the size of the unit and indicates the efficiency with which a bank deploys its total

resources of maximize its profit.

A. Net Profit as a percentage of Total income

B. Net Profit as a percentage of Total deposits

C. Net Profit as a percentage of Total assets

5.5.3.a Net Profit as a percentage of Total Income (NP%TI)

Net profit implies the balance of profit as per profit & loss account. This ratio indicates

the efficiency with which a bank deploys its total assets in order to increase its

profitability and serves as an index to the degree of asset utilization by banks.

As evident from the table 6.22.1 in the case of Andhra Bank the mean was 7.23

per cent in pre e- banking period which increased to 15.15 per cent in post-e-banking

period. There is a mean gap of 7.92 per cent and it is significant at .01 per cent level of

significance.

In the case of the ICICI Bank the mean was 7.58 per cent in the pre e-banking

period which increased to 11.86 per cent in post e- banking. The mean gap between pre

and post e- banking period is 4.27 per cent. The t-test exhibits insignificant difference in

the means of two periods.

Comparatively the net profit as a percentage of total income has doubled in

Andhra Bank when compared to ICICI Bank. This may be due to efficiency of Andhra

Bank in deploying its total assets as a result there is increase in profitability. Andhra bank

shows more efficiency when compared to ICICI bank.

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Table – 5.5.3.a.: Net Profit as a percentage of Total Income (NP%TI)


Source: same as table 5.5.1.a

** Mean is significant at 0.01 level(1-tailed)

/

2

%

+

1/

12

1

1%

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking


Average

NP%TI




Mean Gap 7.92 4.27

S.E 1.89 2.29

t-value 4.20 1.87

LOS ** NS

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5.5.3.b Net Profit as a percentage of Total Deposits (NP% TD)

As evident from the table 6.22.1 in the case of Andhra Bank, the net profit as a

percentage of total deposits was only 0.86 per cent in pre-e-banking period which

increased to 1.62 per cent in post e-banking period. The mean gap is 0.76 per cent

between the pre and post e-banking period. The t-test shows significant difference in the

means of two periods at .01 per cent level of significance.

In the case of the ICICI Bank the mean in pre-e-banking period was 0.98 per

cent which increased to 1.90 per cent in post e-banking period. The mean gap is 0.92 per

cent between two means. The t-test exhibits significant difference in the means of two

periods at .01 per cent level of significance.

Comparatively ICICI bank’s Net profit as a per cent of total deposits shows a

better profitable ratio when compared to Andhra Bank. This may be attributed to high net

profits and lowering of total deposits.

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Table 5.5.3.b.: Net Profit as a percentage of Total Deposits (NP% TD)

\




/

/.2

/.

/.%

/.+1

1.2

1.

1.%

1.+

2

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking

Source: Table – 5.5.3.b.

Average

NP%TD




Mean Gap 0.76 0.92

S.E 0.30 0.25

t-value 2.59 3.75

LOS ** **

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5.5.3.c Net Profit as a Percentage of Total Assets (NP % TAs)

As evident from the table 5.5.3.c. in the case of Andhra Bank the net profit as

per cent of total assets was 0.77 per cent in pre-e-banking period which increased to 1.39

per cent in post e-banking period. The mean gap is 0.62 per cent between the two periods.

The t-test exhibits significant difference in the means of two periods at .05 per cent level

of significance.

In the case of the ICICI Bank the mean in pre e-banking period was 0.66per cent

which increased to 1.08 per cent in post e-banking period. The mean gap in two periods

is 0.42per cent.

Comparatively, the mean gap is higher in Andhra Bank than ICICI Bank. This may

be due to improved efficiency of Andhra bank which resulted in increase of profits.

Thus it can be concluded that in the ongoing analysis of average profitability gap

between public and private sector bank indicates that there is a little change in

profitability of ICICI Bank. But there is paradigm shift in profitability of Andhra Bank.

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Table 5.5.3.c.: Net Profit as a Percentage of Total Assets (NP % TAs)

Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant

Source: same as table 5.5..1.a.

* Mean is significant at 0.05 level (2-tailed)

/

/.2

/.

/.%

/.+

1

1.2

1.

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking


Average

NP%TAs




Mean Gap 0.62 0.42

S.E 0.24 0.14

t-value 2.53 3.09

LOS * NS

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5.6 Productivity Analysis

Productivity is a ratio of input and output361

. When we talk of productivity, we

enter into the area of employee efficiency, branch efficiency which has definite bearing

on the profitability. If the funds are used efficiently due to higher productivity of

personnel it will definitely lead to higher profitability. Therefore, the most important

aspect of organizational profitability management is its productivity.

The present section analyzes the Employee Productivity, Branch Productivity. The

present study also analyses the productivity of various bank groups on the following basis.

5.6.1 Employee Productivity:

A. Deposits per employee

B. Credit per employee

C.

Total expenditure per employee

D.

Total earning per employee

5.6.1.a Deposit per employee (D/E)

As evident from the table 5.6.1.a. in the case of Andhra Bank, the average of deposits

per employee was only 1.25 per cent during pre-e-banking period but they have become

almost three – times in post e-banking period 3.05 per cent. The gap between pre and

post e-banking period is 1.80 per cent. The t-test shows significant change in means of

two periods in deposits per employee at .05 per cent level of significance.

361 T T Ram Mohan and Subhash C. Ray, Productivity and efficiency at public and private sector banks in

India,Document 1462007490.7004358.pdf.

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In the case of the ICICI Bank, the average of D/E which was 4.10 per cent in pre

e-banking period. Now in post e-banking period there is a tremendous change of 5.77 per

cent which follows a gap of 1.67 per cent. There is a significant change between the

means of two periods in deposits per employee at .01per cent level of significance.

The mean gap of Andhra Bank is higher than ICICI Bank. This may be

attributed to training and development given to employees which further helped in bring

out the quality in them, secondly increased rates of interest payable attracted more

deposits.

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Table 5.6.1.a.: Deposit per employee (D/E)


Source: same as table 5.5.1.a.* Mean is significant at 0.05 level (2-tailed)


/

1

2

3

5

%

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking

Source: Table –5.6.1.a.

Average

D/E




Mean Gap 1.80 1.67

S.E 0.80 0.53

t-value 2.26 3.16

LOS * **

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5.6.1.b Credit per Employee (C/E)

As evident from the table 5.6.1.b. in the case of Andhra Bank, the average of

credit per employee was only 0.76 per cent during pre-e-banking period but there is a

tremendous increase in post e-banking which has become 1.77 per cent. The gap

between pre and post e-banking period is very large, i.e. 1.02 per cent. The t-test shows

insignificant difference in means of two periods.

In the case of the ICICI Bank, the average of C/E is very high in pre-e-banking

i.e. 6.08 per cent but it reduced to 5.35 per cent in post e-banking period with a mean gap

of 0.73 per cent between the two periods. The t-test exhibits insignificant difference in

means of two periods.

The mean gap of Credit per Employee in Andhra Bank is 1.02 per cent which is

two times of ICICI Bank, it may be due to increased credit port folios and also increase in

Non- performing assets. With regards to credit per employee there is no significant

difference between pre and post e-banking period in both banks.

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Table – 5.6.1.b.: Credit per Employee (C/E)

Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant Source: same as table 5.5.1.a.

/

1

2

3

5

%

*

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking


AverageC/E




Mean Gap 1.02 0.73

S.E 0.64 0.38

t-value 1.58 1.91

LOS NS NS

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5.6.1.c Total Expenditure per Employee (TEXP/E)

As evident from the table 5.6.1.c in the case of Andhra Bank, the average of

total expenditure per employee was 0.16 per cent in pre-e-banking period but increased to

0.47 per cent in post e-banking period. The mean gap between pre and post e-banking

period is 0.31per cent. The t-test shows insignificant change in means of two periods.

In the case of the ICICI Bank, the mean during pre-e-banking period was 0.32

per cent and it increases up to 0.81 per cent in post e-banking period. There is a minor

mean gap of only 0.49 per cent between pre and post e-banking period. The t-test shows

significant change in means of two periods at .01 per cent level of significance.

Comparatively in Andhra Bank the total expenditure per employee during pre and

post e-banking period is less than ICICI bank. This may be due to increased in Training

and development programmes, attractive incentive packages to employees to motivate

them.

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221

Table 5.6.1.c: Total Expenditure per Employee (TEXP/E)


Source: same as table 5.5.1.a


/

/.1/.2

/.3

/.

/.5

/.%

/.*

/.+

/.

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking

Source: Table – 5.6.1.c

AverageTEXP/E




Mean Gap 0.31 0.49

S.E 0.34 0.09

t-value 0.92 5.42

LOS NS **

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5.6.1.d Total Earning per Employee (TE/E)

As evident from the table 5.6..1.d. in the case of Andhra Bank, the total earning

of employee was only 0.18 per cent during pre-e-banking period which is increased to

0.31 per cent in post e-banking period the mean gap between the two periods is 0.13 per

cent which follows an insignificant change according to t-test.

In the case of the ICICI Bank, the total earning of employee of pre-e-banking

period was 0.35per cent which increased to 0.92 per cent in post e-banking period. The

mean gap is 0.57 per cent between pre & post e-banking. The t-test shows significant

change in means of two periods at 0.01 per cent level of significance.

Comparatively the mean gap of total earning per employee in ICICI Bank is four

times that of Andhra Bank. This may be attributed to increased motivation levels of

employees.

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Table 5.6.1.d.: Total Earning per Employee (TE/E)




/

/.1

/.2

/.3

/.

/.5

/.%

/.*

/.+

/.

1

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking

Source: Table – 5.6.1.d.

Average

TE/E




Mean Gap 0.13 0.57

S.E 0.07 0.09

t-value 1.90 6.32

LOS NS **

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5.6.2 Branch Productivity

5.6.2.a Deposits per Branch (D/B)

As evident from the table 5.6.2.a. in the case of Andhra Bank, during the pre e-

banking period the average of branch productivity in deposits is 17.24 per cent which

increased to 30.78 per cent in post e-banking period. The mean gap between the mean of

two periods is 13.54 per cent. The t-test exhibits significant difference in the two means

at .01 level of significance. In the case of the ICICI Bank, the branch productivity in

deposits is 8.37 per cent in pre e-banking period which increased to 194.10 per cent in the

post e-banking period. The mean gap is 104.73 per cent. The t-test shows significant

difference between two means at .05 per cent level of significance.

The mean gap of ICICI Bank in pre and post e-banking period is higher than

Andhra Bank. This can be attributed to less number of branches in ICICI bank when

compared to Andhra Bank.

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Table 5.6.2.a: Deposits per Branch (D/B)



*Mean is significant at 0.05 level (2-tailed)

/

2/

/

%/

+/

1//12/

1/

1%/

1+/

2//

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking

Source: Table – 5.6..2.a.

AverageD/B




Mean Gap 13.54 104.73

S.E 6.25 44.68

t-value 2.17 2.34

LOS * *

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226

5.6.2.b Credit per Branch (C/B)

As evident from the table 5.6..2.b. in the case of Andhra Bank, the mean in credit per

branch productivity was 9.03 per cent in pre-e-banking period but increase to 20.69 per

cent in post e-banking period. The mean gap is 11.66 per cent between two periods. The

t-test exhibits a significant gap in two means at .05 per cent level of significance.

In the case of the ICICI Bank, the average branch productivity in credit in pre e-

banking period is 131.01 per cent which increased to 177.86 per cent in post e-banking.

The mean gap between the means of two periods is 46.85 per cent. The t-test shows

insignificant difference between two means.

Comparatively the mean gap between the two banks ICICI Bank is higher than

Andhra Bank. This may be due to increased credit portfolios.

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227

Table 5.6..2.b.: Credit per Branch (C/B)



*Mean is significant at 0.05 level (2-tailed)

/

2/

/

%/

+/

1//

12/

1/

1%/

1+/

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking


AverageC/B




Mean Gap 11.66 46.85

S.E 5.33 34.92

t-value 2.19 1.34

LOS * NS

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5.6.2.c Total Expenditure per Branch (TEXP/B)

As evident from the table 5.6.2.c. in the case of Andhra Bank, the average of total

expenditure per branch in Andhra bank was 1.99 per cent in pre e-banking period which

increased to 2.72 per cent in post e-banking period. The mean gap between two periods

is 0.73 per cent.

In the case of the ICICI Bank, the average branch productivity in terms of total

expenditure in pre e-banking period was 6.89 per cent which increased to 26.26 per cent

in post e-banking period. The mean gap between two periods is 19.37 per cent. The t-

test exhibits significant difference in the means of two periods at .01 per cent level of

significance.

The mean gap between pre and post e-banking period of Andhra Bank is less than

ICICI Bank. This may be due to huge cost of computerization, training and

advertisements and other related expenditure.

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Table 5.6.2.c : Total Expenditure per Branch (TEXP/B)




/

5

1/

15

2/

25

3/

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking


Average

TEXP/B




Mean Gap 0.73 19.37

S.E 0.47 3.67

t-value 1.54 5.28

LOS NS **

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5.6.2.d Total Earning per Branch (TE/B)

As evident from the table 5.6.2.d. in the case of Andhra Bank, the average

branch productivity in terms of total earning is 2.18 per cent in pre e-banking period

which increased to 3.18 per cent in pre-e-banking period. The mean gap is 1.00 per cent

between these two periods. The t-test shows significant difference between the means of

two periods at.05 level of significance.

In the case of the ICICI Bank, the bank indicates a mean gap of 29.75 per cent in

pre-e-banking period which decreased to 22.12 per cent in post e- banking period. The

gap between post e-banking period and pre-e-banking period is 7.63 per cent. The t-test

shows significant difference between means of two periods at .05 per cent level of

significance.

The mean gap of total earnings per branch in Andhra Bank is higher than ICICI

Bank during the period of pre and post e-banking period. This can be attributed to

increased earning in various branches due to technological upgradation in bank.

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231

Table 5.6.2.d.: Total Earning per Branch (TE/B)

Note: S.E: Standard Error, LOS: Level of Significance, NS - Not Significant Source: same as table – 5.5.1.a.

* Mean is Significant at the 0.05 level (2-tailed)

/

5

1/

15

2/

25

3/

Andhra

Bank

(!(!( Bank

0re e-banking

0ost e-banking

Source: Table – 5.6.2.d.

AverageTE/B




Mean Gap 1.00 7.63

S.E 0.51 3.96

t-value 1.99 5.59

LOS * *

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5.7 Conclusion:

The following is the summary of the conclusions drawn in this chapter.

1. As regards spread ratios in interest earned, interest paid on total assets, there is

an increase from pre e-banking period due to decline in interest rates. Here the

Andhra bank is more efficient than ICICI Bank.

2. With regards to burden ratios on non interest expenses, non interest income,

burden on total assets, the efficiency of post e-banking period is higher than pre e-

banking period in ICICI Bank when compared to Andhra Bank.

3.

With regards to profitability ratios there is a huge improvement in net profit on

total income in Andhra Bank and ICICI Bank. Here the Andhra bank is more

efficient than ICICI Bank. The efficiency of post e-banking period in net profit on

total deposits is increases horizontally in Andhra Bank and ICICI Bank. The

efficiency of Andhra Bank in net profit on total assets has been increasing in post

e-banking period than ICICI Bank.

4. A paradigm shift in the profitability of both banks in pre and post e-banking

period exhibits that the parameters like I/E, I/P, Spread on total assets, Net profit

as % of - total income, total deposits, (except total assets) have the mean gap on

the top in Andhra Bank. The mean gap in burden ratios on total assets is the

highest in ICICI Bank.

5. From the employee productivity, the deposit per employee efficiency of ICICI

Bank is more than Andhra Bank. Compared to Andhra Bank the credit per

employee of ICICI Bank is very high in pre e-banking period, it is almost equal in

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233

post e-banking period. And the total expenditure per employee is high in ICICI

Bank than Andhra Bank. The total earnings per employee between two banks,

ICICI Bank is more efficient in post e-banking period than pre e-banking period.

Employee productivity in parameters like D/E, C/E is higher in Andhra Bank, but

in TEXP/E, TE/E is high in ICICI Bank.

6. After analyzing the branch productivity, the efficiency in deposit per employee,

credit per employee, total expenditure per employee, total earning per employee

D/B, C/B, TEXP/B, TE/B is very high in ICICI Bank than Andhra Bank. The

mean gap in operational productivity on total assets is the highest in Andhra Bank

(except NII on TA).

The analysis concluded that transformation is taking place almost in all categories

of the banks. This transformation will be helpful to cope with new economic and

financial policies of the banks. IT is playing a crucial role to create the drastic changes

in the banking industry particularly in the new private sector and foreign banks. The

private banks take a big share of cake; public sector banks are still lagging behind due to

various financial parameters. The immense opportunities are also available for the public

sector banks if they change / modify and adapt to new policies to combat the recent

challenges. It can be concluded that mere introduction of IT alone is not sufficient to

bring necessary performance improvement and to get the competitive edge. Efficient

people are required to use new technological tools. Thus, IT management is a challenge

in future banking scenario.

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Most customers are of the view that liberalization has played a crucial role in the

development of the Indian banking industry by making banking more efficient and

customer friendly. Private Banks are tech savvy and have compelled nationalized banks

to think of new schemes and innovative ideas to retain their loyal customers. Youngsters

who began banking in the flexible – hour ATM (All Time Money) era, find the bouquet

of services, particularly convenient banking options more appealing which are being

offered by private banks. To attract young generation public sector banks are also

catching up fast362.

The recent global financial crisis has taught several lessons to the world banking

system. The worst suffers are the so called more developed/industry like India, has least

impact of the financial crisis. This is a blessing in disguise. The Indian banking system

has never deviated from the fundamental principles of banking according to Dr.Y.V.

Reddy, the Former Governor, Reserve Bank of India. However, the performances of

Indian banks whether private or public have to respond to the globalization process and

rise to the international standards. To achieve this Indian banking system must introduce

technology enabled services to the customers (both individuals as well as firms).

362 Tripti Nath, “Nationalised banks Fare Well with Third Generation customers” in “Banking Sector in

India”, Yojana A Development Monthly, February, 2010.

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