1
Do Banks are financially Viable? A Study of
Indian Commercial Banks*
Abstract
The present study addresses the problem of financial viability in Indian
commercial banks. Financial viability means the ability of the bank to survive
successfully in the market. The study has analyzed the financial viability of 47 Indian
commercial banks for the period of 2005-06 to 2010-11by measuring the actual and
minimum sufficiency level of different financial viability indicators (IMF, 2006). The study
found that public sector banks are highly financially viable as comparison to the old and
new private sector banks. Further study recommends the immediate steps by banking
authority to cope up with financial non viability especially in private sector banking in
India.
Keywords: Commercial Banks, Financial Viability, Financial Performance,
Economic Crisis
I Introduction
Banks are sensitive to economic shocks and sudden changes in the economic
activity make them prone to failure not only during the periods of crisis, but on later
years also (Hutchison & McDill, 1999). Large number of banks failed in the world during
crises of 2008, only in U.S. 252 large and small banks lost their existence with the total
assets of US $ 159 billion (BIS, 2009). Insolvency of several banks in the world
economy has shown its impact on the different country’s economy separately and adds
to the crisis in general. It has made the banking sector vulnerable and resulted in to
remarkable changes which are apparent to be uncertain in nature.
The recent crisis has shown the weakness of the global banking industry. Now
the bank regulators are compelled to devise and transform the banking structure in such
a way so that they can survive smoothly even in the period of financial turmoil. Financial
viability in case of banks is defined as the ability of the bank to generate sufficient
incomes to meet operating payments, debt commitments and also to allow growth while
maintaining service levels. Evaluation of financial viability is becoming crucial condition
for maintaining sufficient level of financial viability for the sustainable development,
solvency and low probability of bankruptcy.
As per the report on trends and progress of the banks in India (RBI, 2012),
developed countries like U.S., U. K have return on assets below 1 percent while it is
above than 1 percent in emerging and developing economies during the crisis period.
Indian commercial banks also have 1 percent return on equity during 2008-09 to 2010*Not to be quoted or publish in any form without permission of author
2
11. Despite the financial crisis, Indian banks are financially healthy and performing
soundly. Indian banking industry stayed somewhat insulated largely due to RBI’s
proactive step to check reckless lending to the housing sector by stipulated of stringent
credit assessment, higher provisioning for standard assets and higher margin
requirement (Ganapure and Gaikwad, 2011). But still this global melt down has posed a
challenge to Indian commercial banks to ensure their smooth functioning. Therefore,
keeping the importance of financial viability, the present study is an attempt in evaluate
the financial viability of Indian commercial banks.
The paper has been organized into six sections. Section I gives a brief
introduction of the paper. Section II scans the relevant literature on the banking sector.
Section III outlines the objectives and section IV elaborates the methodology adapted to
analyze the issue. In section V the data analysis is carried out, results are discussed
and inferences drawn. Lastly section VI concludes the paper.
II Review of Literature
Various studies are available on banking industry in India and abroad. Some of
the relevant studies are reviewed as under: Financial viability of the banks is related to the consistent performance of the
banks that ensures the long term survival of the banks. Before the financial sector
reforms Indian banks were not operationally competent and commercially fragile
(Sangami and Nazir, 2010). Poor recovery of loans, growing operating expenditures and
low volume of business were the main hurdles for the viability of Indian banks in rural
areas (Satish and Gopalkrishan, 1997 and Pati, 2002). Basu (2003) assessed the
causes of bank failures in India and found that high credit risk caused banks to collapse
especially when borrowers default on loans. Reserve Bank of India made several efforts
to improve the survival ability of the Indian banks. Performance of public sector banks
had not improved in response to deregulation measures as compared to private sector
banks as revealed by the study of Kumbhakar and Sarkar (2003). A Close relationship
is observed between the size, efficiency and soundness of the banks (Das and Ghosh,
2006 and Kumar and Gulati, 2008).
Casu et al (2010) examined ownership and cost-efficiency relationship of Indian
banks during the financial sector reforms. The study found that deregulation and reregulation had increased the competition and cost technology process. Barros et al
(2010) analyzed the factors affecting the performance of the banks with a sample of
1384 EU commercial banks to determine the characteristics of best and worst bank.
The study found that smaller banks with high loan intensity had higher probability of
best performance. Lace and Koleda (2012) concluded that lack of financial viability and
low potential for sustainable development is the major reason of bankruptcy for Latvian
service companies. Singh and Makkar (2013) identified the major financial health
*Not to be quoted or publish in any form without permission of author
3
indicators of Indian banking industry which significantly affected their performance. The
study concluded that Indian banks are financially healthy and sound. But Confederation
of Indian Industry (2013) in its survey on 15 Indian banks pointed out that banks are
expected to face increased pressure on their financial health owing to stricter regulatory
requirement as per Basel III.
In the light of reviewed literature, it is found that no attempt has been made to
analyze the financial viability of commercial banks. There is dearth of viability studies
especially in Indian context. So there exists a literature gap that needs to be fulfilled.
The present study is an attempt in this direction through evaluating the financial viability
of Indian commercial banks.
III Objectives
1) To measure and evaluate the financial viability indicators for the Indian
commercial banks.
2) To compare the financial viability of different group of commercial banks in India.
On the basis of above objectives following hypothesis has been outlined:
H0:
There is no significant difference in the financial viability indicators (debt equity
ratio, return on equity, return on assets, return on business and interest coverage
ratio) of different groups of commercial banks in India.
IV Research Methodology of the Study
The study is analytical in nature and based on secondary data. The data is
collected from RBI publications, annual reports of different banks and from the websites
of different banks. The sample of the study comprises of 47 Indian commercial banks
including 26 public sector banks and 21 private sector banks. The study is carried out
for the period of 6 years (2005-06 to 2010-11). The most frequently used indicators of
financial viability are debt to equity ratio, profitability (return on equity, return on assets
and return on sales/business) and interest coverage ratio(Table 1). Financial viability of
commercial banks is measured by calculating the actual and permissibale value of
above mention financial indicators of banks. (IMF, 2006) The comparison of actual
value of financial viability indicators with the permissible value of financial viability
indicators enables a bank to evaluate the risk of loss of solvency.
The permissible values of financial viability indicators provide such general level
of financial viability that is minimal but sufficient for operating a bank without the risk of
bankruptcy (Table 2). The degree of sufficiency of financial viability is determined
through the ratios of actual value of indicators to the permissible value of indicators. The
actual sufficiency level of banks financial viability indicators reveals the economic
conditions of the bank. It indicates the financial position of the bank as there may be
*Not to be quoted or publish in any form without permission of author
4
lack of development funds in the bank, its insolvency and bankruptcy but surplus
viability may hinder the development, burdening a bank with excessive cash and
reserves at hand.
The reserve or lack of financial viability is calculated through the difference of
actual sufficiency level of the indicators and the minimum sufficiency level (i.e. equal to
100). If the actual sufficiency value of financial viability indicators is more than the
minimum sufficiency values, then there is surplus of financial viability in the bank. The
bank is financially strong and capable of carrying out its operations independently. If
the actual sufficiency value of financial viability indicators is equal to the minimum
sufficiency value then the financial viability of the bank is 100 percent sufficient. The
bank has to maintain this level of its indicators to make it financial viable otherwise there
may be serious problems on the existence of the bank.
If the actual sufficiency value of financial viability indicators is lower than the
minimum sufficiency value then the bank is at the risk of loss of financial viability and
prone to bankruptcy. Further Uni-variate ANOVA is used to compare the financial
viability indicators of different bank groups of India. It will help to assess the soundest
and healthiest bank group among the different bank groups of India.
V Results and Discussion
Financial viability indicators help to assess the performance of the commercial
banks on each dimension. Therefore, the results and findings of the study are discussed
as follow:
5.1 Financial Viability Indicators of Indian Commercial Banks
The strength and weakness of Indian commercial banks as measured through
financial viability indicators is as follows:
(Insert Table 3)
Debt-Equity Ratio (DE): This ratio indicates the proportion of external funds and the
internal funds used in the bank. It indicates the leverage capacity of the bank how
efficiently bank is substituting the different sources of finance. Debt equity ratio is found
more or less around 5 percent for state bank group and nationalized bank group while
debt equity ratio of both new and old private sector banks lies between a wide range of
5 to 20 percent. There are some banks in private sector group those have used the
maximum of debt along with equity as they has highest debt-equity ratio i.e. 19.22
percent by Ratnakar Bank followed by Jammu & Kashmir bank (17.92 percent) and SBI
Comm. and Int. bank (17.91 percent). Therefore these banks are required to reduce
their D-E ratio to reduce the risk involved in their capital structure as high dependency
on debt enhance the riskiness of banks.
*Not to be quoted or publish in any form without permission of author
5
Return on Equity (ROE): ROE indicates the efficiency of the bank in utilizing the
shareholders fund. This ratio reveals the earning capacity of the bank in terms of
shareholders fund. Table 3 reveals that Syndicate bank (34.83 percent) has the highest
ROE followed by Punjab and Sind Bank (24.33 percent) and Dena Bank (23.67
percent). State Bank of India (14.42 percent) stood at 28th position as compare to 47
Indian commercial banks in terms of ROE. Development credit bank is not utilizing the
shareholders fund efficiently as it has negative returns on equity (-11.34 percent).
Return on Assets (ROA): It measures the profitability of bank which a bank earns
through efficiently utilizing its assets. Higher the ratio good it is for the sound financial
health of the bank. Laxmi Vilas bank (15.15 percent) has earned highest return on their
assets followed by Karur Vyas bank (14.72 percent). SBI and Development Credit Bank
have earned same returns on their assets i.e. 6.19 percent. ICICI bank (0.11 percent)
not efficiently utilized its assets as it has lowest ROA followed by HDFC bank (0.82
percent).
Return on Business (ROB): ROB reveals the efficiency of the bank in earning profits
through its business. Here business of the bank means sum of its advances and
deposits. Table 3 shows that Laxmi Vilas bank (10.28 percent) has gained highest
return over its business followed by Karur Vyas bank (9.82 percent) and SBI
international bank (6.04 percent). State bank of India and State Bank of Mysore are
enjoying same amount of return (i.e. 4.61 percent). While banks namely ICICI bank
(0.10 percent), HDFC bank (0.63 percent) and ING Vysya bank (0.88 percent) has
suffering from lowest return.
Interest Coverage Ratio (INT): Interest coverage ratio indicates the ability of the bank
to pay its interest charges. It reveals the capacity of the bank to pay interest charges as
well as its total amount of the loans. SBI international and commercial bank (3.13
percent) has highest interest coverage ratio followed by Karur Vyas bank (2.93 percent).
SBI bank has 1.45 percent debt service coverage ratio. ICICI bank has lowest capacity
to pay interest charges as it has minimum ratio (0.024 percent) among the 47 Indian
commercial banks followed by South Indian bank (0.045 percent) and HDFC bank
(0.223 percent).
5.2 Financial Viability of Different Groups of Commercial Banks in India
Financial viability indicators as shown in table 3 indicate the performance of the
bank on individual parameter over the study period. In this section the financial viability
of different groups of commercial banks in India is evaluated on the basis their actual
sufficiency level and minimum sufficiency level (Refers to Methodology section). Actual
sufficiency level of different financial viability indicators of bank is compared with their
*Not to be quoted or publish in any form without permission of author
6
minimum sufficiency level (i.e. equal to 100) and then reserve or lack of financial
viability is measured. The results are discussed as follow:
Financial Viability of State Bank Group
Table 4 depict that state bank of group has reserve of financial viability in its all
financial viability indicators except the return on business. This indicates that the state
bank group is efficiently utilizing its shareholders funds and assets as indicated by the
positive balance of ROE and ROA. Interest coverage capability of the state bank group
(39.35) is also positive which indicates the ability of this group in payment of its interest
obligations in time.
Financial Viability of Nationalized Bank Group
More or less the financial viability indicators of nationalized banks group are also
behaving like the indicators of state bank group as shown in table 5. The table reveals
that nationalized bank group found financial viable in its all indicator except the return
on business.
Further the table shows that debt equity ratio of nationalized bank group (150.94) is
highest as compared to the other bank groups. This group also has excess reserve of
return on equity (315.91) and also has higher returns on assets (10.63) as compared to
the state bank group.
Financial Viability of New and Old Private Sector Bank Group
The table 6 exhibits the financial viability of new private sector banks. Table
reveals that this group banks are neither financially sound nor viable as most of the
indicators of financial viability are have negative value. The actual sufficiency value is
found more than to minimum sufficiency value for these banks only in two indicators i.e.,
ROE & ROA.
Old private sector bank group is also lacking on the parameters of financial
viability as shown in table 7. The table shows this most of the indicators of financial
viability of this group banks has negative return value. The findings clearly indicate the
need of immediate steps by the banking authority to cope up with this non viable
situation of new and old private sector banks.
5.3 Comparison of Financial Viability Indicators of Different Bank Groups
To compare the financial viability indicators of different bank groups Uni-variate
ANOVA (analysis of variance) is used and results are shown in table 8. Table reveals
that there is a significant difference in the debt equity ratio (0.001) of four groups of
commercial banks in India. On comparing the debt equity ratio, it is found that standard
deviation is highest in old private sector bank group (4.968) followed by new private
sector bank group (2.001). Due to high deviation of debt equity ratio from its mean value
both the bank group has negative balance in this financial viability indicator. Table 8
indicates that there is a significant difference in the return on equity (0.010), return on
*Not to be quoted or publish in any form without permission of author
7
assets (0.037) and return on business (0.078). Nationalized bank group is effectively
utilizing the shareholders funds as it has highest return on equity ratio (16.758) followed
by state bank group (15.106).
The low standard deviation of state bank group (3.021) among the entire bank
groups indicates the consistency in its return on equity funds. State bank group is
effectively utilizing their assets as this group has highest ROA (0.066) followed by
nationalized bank group (0.063) and old private bank group (0.063). Return on
business is maximum in old private sector bank group (0.052) followed by state bank
group (0.046). New private bank group is required to improve the profitability as it has
lowest returns on equity, return on assets and return on business as compared to the
other bank groups. The study found a significant difference in the interest coverage ratio
(0.032) of different bank groups of India. Old private sector bank group has highest debt
service capability (1.655) followed by state bank group (1.393).
On the overall basis there is a significant different in the financial viability
indicators (debt equity ratio, return on equity, return on assets, return on business and
interest coverage ratio) of different group of banks in India. So the null hypothesis is
rejected at 5 percent level of significance for debt equity ratio, return on equity, return on
assets and interest coverage ratio while it is rejected at 10 percent level of significance
for return on business.
VI Conclusion
The study concluded that public sector banks are sounder and more financially
viable in comparison to the private sector banks. New private sector banks and old
private sector banks are required to improve their performance on debt equity ratio,
profitability and interest coverage ratio to become financial viable completely. In India,
the central bank (RBI) follow strict regulations such as CRR, SLR, NPA provisioning to
control the banking operations that’s why Indian banks are escaped from the rigorous
adverse effect of the US financial crisis. But due to this recent financial crisis, the
regulatory environment for the banking sector has been changed drastically not only in
India but also across the world. Basel III capital requirements are expected to have the
utmost impact on the profitability of the Indian banks followed by the revised guidelines
on the priority sector lending. The stricter regulatory policy environment is critical to
ensure that banks remain financially viable and operate more efficiently.
Evaluation of financial viability indicators would help the banks to timely monitor
and manage the level of financial viability. It would be an efficient tool for controlling the
solvency level, estimating the risk of economic failure and selecting the best possible
alternatives for operating the banks proficiently. The results would help the bank
regulators to determine the required level of changes in the indicators that affect the
financial viability of the banks in order to attain sustainable growth. Bank regulators are
*Not to be quoted or publish in any form without permission of author
8
also suggested to timely take corrective action apart from RBI efforts to accumulate
their banks from becoming financially unviable. It would help the Indian commercial
banks to opt for an effective financial strategy intended at the long term survival of these
banks.
References
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Barros C.P., Ferreira C. and Williams J. (2007), “Analyzing The Determinants of
Performance of Best and Worst European Banks: A Mixed Logit Approach”,
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Basu S. (2003). “Why Do Banks Fail?”, International Review of Applied Economics,
Vol.- 17(3), pp. 231-248.
Confederation of Indian Industry (2013), “Assets Quality Pressures, Strict Regulatory
Norms Set to Hit Bank’s Profitability: Survey”, Business Standard, March 18,
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Das A. And Ghosh S. (2006), “Financial Deregulation and Efficiency: An Empirical
Analysis of Indian Banks During The Post Reform Period”, Review of Financial
Economics, Vol.- 15, pp.193-221.
Ganapure R. D. and Gaikwad R. D. (2011), “Global Recession and its Impact on Indian
Banking”, Journal of Social Science, Vol.-1(II), pp.30-36.
Hutchison & McDill (1999), “Are All Banking Crisis Alike? The Japanese Experience in
International Comparison”, Journal of the Japanese and International Economies,
Vol. – 13, pp. 155-180.
IMF (2006), “Financial Soundness Indicators: Compilation Guide”, accessed on 19
January,
2013
available
on
http://www.imf.org/external/pubs/ft/fsi/guide/2006/index.html
Kumar S. And Gulati R. (2008), “An Examination of Technical, Pure Technical and
Scale Efficiencies of Indian Public Sector Banks using DEA”, European Journal
of Business and Economics, Vol.-1(2), pp.33-69.
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Kumbahkar S.C. and Sarkar S (2003), “Deregulation, Ownership and Productivity
Growth in the Banking Industry: Evidence from India”, Journal of Money, Credit
and Banking, Vol. -35, pp.403-424.
Lace N. and Koleda N. (2012), “Aggregate Assessment of A Company’s Financial
Viability”, Paper presented at 7th International Scientific Conference on Business
and Management 2012, May 10-11, 2012, Vilnius Lithuania, pp. 101-107.
Pati A. P. (2002), “A Study on the Viability of RRBs as Rural Financial Institutions in the
Liberalized Environment”, Globalized and Development Dilemma, Vol. -15, pp.
247-263.
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Publications, March, 2010.
Reserve Bank of India (2010), “Statistical Tables Relating to Banks”, RBI Publications,
Various Issues.
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2011-12”, RBI Publications, June, 2012.
Sangmi S. and Nazir M. (2010), “Analyzing Financial Performance of Commercial
Banks in India: Application of CAMEL Model” Pakistan Journal of Commerce and
Social Science, Vol.-4(1), pp40-55.
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Political Weekly, Vol. - 32(42), pp. 2711-2716.
Singh S. and Makkar A. (2013), “Evaluating the Financial Health Indicators Affecting
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Appendix
Sr. Factor
No.
Table 1: Indicators of Financial Viability
Indicators
Calculation of Description
Indicator
*Not to be quoted or publish in any form without permission of author
10
1
Assets
Management
2
Capital
Management
a) Debt-Equity
Ratio
Debt/Equity
It indicates the exposure
of the bank to distress as
well as its ability of the
bank to pay off its debts.
b) Interest
EBIT/Interest
It assesses the ability of
Coverage
Expenses
the bank to process the
Ratio
loan. It indicates if interest
payments
can
be
serviced and the debt (i.e.
principal amount) repaid.
c) Profitability of Net
Profitability
ratios
Equity
Income/Equity
evaluate the adequacy of
bank’s revenue to meet
d) Profitability of Net
its operational costs while
Assets
Income/Assets
ensuring the bank has
e) Profitability of Net
Business
Income/Business sufficient surplus of profits
for debt repayment and
growth of the bank.
Source: IMF (2006)
Sr.
No.
1
Table 2:
Indicator
Permissible values of Financial Viability
Permissible value Economic Description
Debt-Equity Ratio
SL/SC
2
Profitability
Equity
of (R+Ds)/SC
3
Profitability
Assets
Profitability
Business
of R/AD
4
5
of (R+Ds)/C
SL-Sufficiency level of liabilities
SC- Sufficiency level of own capital
SL=Total assets-long term assets
SC=Long term assets-ProvisionsLong term liabilities
R= Interests
D= Short term liabilities
SC= Sufficiency level of own capital
R= Interests
AD= All liabilities
R= Interests
D= Short term liabilities
C=Expenditure of bank
Interest Coverage 1
Ratio
Source: Koleda and Lace (2010)
*Not to be quoted or publish in any form without permission of author
11
Table 3:
Financial Viability Indicators of Indian Commercial Banks
Sr. No. Name of Bank
DE
ROE
ROA
ROB
State Bank Group (SBG)
1
State Bank of India
5.92
14.42
0.0619
0.0461
2
State Bank of Bikaner and Jaipur 4.73
17.51
0.0678
0.0450
3
State Bank of Hyderabad
4.79
20.20
0.0672
0.0484
4
State Bank of Mysore
5.30
18.88
0.0676
0.0461
5
State Bank of Patiala
4.94
15.23
0.0689
0.0482
6
State Bank of Travancore
4.42
22.40
0.0683
0.0465
Nationalized Bank Group (NBG)
7
Allahabad Bank
6.11
17.09
0.0666
0.0455
8
Andhra Bank
5.94
18.78
0.0653
0.0444
9
Bank of Baroda
6.01
15.54
0.0569
0.0391
10
Bank of India
5.10
16.84
0.0611
0.0420
11
Bank of Maharashtra
4.45
12.65
0.0604
0.0415
12
Canara Bank
5.75
17.52
0.0669
0.0452
13
Central Bank of India
4.54
10.68
0.0592
0.0430
14
Cooperation Bank
6.27
13.19
0.0635
0.0452
15
Dena Bank
4.77
23.67
0.0633
0.0426
16
IDBI Bank
6.25
7.17
0.0672
0.0601
17
Indian Bank
7.31
17.80
0.0688
0.0481
18
Indian Overseas Bank
5.31
22.04
0.0662
0.0462
19
Oriental Bank of Commerce
7.03
9.62
0.0690
0.0469
20
Punjab and Sind Bank
5.83
24.33
0.0631
0.0442
21
Punjab National Bank
6.11
12.19
0.0634
0.0439
22
Syndicate Bank
4.18
34.83
0.0625
0.0418
23
UCO Bank
3.78
12.96
0.0635
0.0433
24
Union Bank of India
5.38
14.42
0.0647
0.0444
25
United Bank of India
5.29
22.48
0.0600
0.0425
26
Vijaya Bank
5.01
11.37
0.0660
0.0498
New Private Sector Bank Group (NPG)
27
Axis Bank
7.30
15.74
0.0629
0.0473
28
Development Credit Bank
7.91
-11.34
0.0619
0.0463
29
HDFC Bank
8.29
15.42
0.0082
0.0063
30
ICICI Bank
11.46
9.57
0.0011
0.0010
31
Indusind Bank
6.24
9.01
0.0232
0.0172
32
Kotak Mahindra Bank
11.45
10.29
0.0652
0.0564
33
Yes Bank
8.44
15.03
0.0671
0.0512
Old Private Sector Bank Group (OPG)
34
Catholic Syrian Bank
5.02
5.89
0.0602
0.0410
35
City Union Bank
7.11
19.27
0.0773
0.0518
*Not to be quoted or publish in any form without permission of author
INT
1.452
1.386
1.395
1.418
1.339
1.370
1.399
1.430
1.456
1.423
1.274
1.380
1.268
1.483
1.405
1.188
1.553
1.404
1.345
1.369
1.536
1.328
1.251
1.411
1.315
1.309
1.594
1.155
0.223
0.024
0.410
1.602
0.827
1.156
1.473
12
36
Dhanalaxmi Bank
37
Federal Bank
38
ING Vysya Bank
39
J & K Bank
40
Karnataka Bank
41
Karur Vyas Bank
42
Laxmi Vilas Bank
43
Nanital Bank
44
Ratnakar Bank
45
SBI Comm. and Int. Bank
46
South Indian Bank
47
Tamilnad Mercantile Bank
Source: Authors’ Calculation
5.36
9.32
6.13
17.92
7.25
8.38
6.39
8.04
19.22
17.91
5.98
9.52
9.41
13.31
8.80
12.37
13.70
17.62
7.46
16.07
3.89
6.53
13.65
15.62
0.0568
0.0522
0.0119
0.0710
0.0729
0.1472
0.1515
0.0638
0.0534
0.0597
0.0666
0.0805
0.0390
0.0366
0.0088
0.0495
0.0513
0.0982
0.1028
0.0477
0.0426
0.0604
0.0445
0.0555
1.193
1.096
0.267
1.570
1.310
2.933
2.757
1.582
2.272
3.133
0.045
2.383
Table 4:
Reserve or Lack of Financial Viability of State Bank Group
Financial
Permissible
Actual
Minimum
Reserve/Lack of
Viability
Values
Sufficiency
Sufficiency
Financial Viability
Indicators
Value
Level
Debt-Equity Ratio
0.67
128.01
100
28.01
Return on Equity
0.86
232.70
100
132.70
Return on Assets
0.067
110.34
100
10.34
Return on
0.62
7.60
100
-92.40
Business
Interest Coverage
1.00
139.35
100
39.35
Ratio
Source: Authors’ Calculation
Table 5:
Reserve or Lack of Financial Viability of Nationalized Bank Group
Financial
Permissible
Actual
Minimum
Reserve/Lack of
Viability
Values
Sufficiency
Sufficiency
Financial Viability
Indicators
Value
Level
Debt-Equity Ratio
2.91
250.94
100
150.94
Return on Equity
4.69
415.91
100
315.91
Return on Assets
0.063
110.63
100
10.63
Return on
0.63
7.10
100
-92.90
Business
Interest Coverage
1.00
137.64
100
37.64
Ratio
Source: Authors’ Calculation
Table 6:
Financial
Reserve or Lack of Financial Viability of New Private Sector Bank Group
Permissible
Actual
Minimum
Reserve/Lack of
*Not to be quoted or publish in any form without permission of author
13
Viability
Values
Indicators
Debt-Equity Ratio
1.49
Return on Equity
2.29
Return on Assets
0.041
Return on
0.66
Business
Interest Coverage
1.00
Ratio
Source: Authors’ Calculation
Sufficiency
Value
-354.77
370.47
178.43
7.06
83.36
Sufficiency
Level
100
100
100
100
Financial Viability
100
-454.77
178.43
78.43
-92.94
-16.64
Table 7:
Reserve or Lack of Financial Viability of Old Private Sector Bank Group
Financial
Permissible
Actual
Minimum
Reserve/Lack of
Viability
Values
Sufficiency
Sufficiency
Financial Viability
Indicators
Value
Level
Debt-Equity Ratio
1.57
25.04
100
-75.04
Return on Equity
2.84
-701.66
100
-801.66
Return on Assets
0.073
103.24
100
3.24
Return on
0.67
8.47
100
-91.53
Business
Interest Coverage
1.00
165.50
100
65.50
Ratio
Source: Authors’ Calculation
Table 8: Comparison of Financial Viability Indicators of Different Bank Groups
Financial Viability
Bank
Mean
Std.
F-value
Sign.
Indicators
Groups
Dev.
Debt-Equity Ratio
SBG
5.016
0.527
7.031
0.001*
NBG
5.521
0.914
NPG
8.727
2.001
OPG
9.539
4.968
Return on Equity
SBG
15.106
3.021
4.269
0.010*
NBG
16.758
6.402
NPG
9.102
9.474
OPG
11.685
4.729
Return on Assets
SBG
0.066
0.002
3.082
0.037*
NBG
0.063
0.003
NPG
0.041
0.036
OPG
0.063
0.024
Return on Business
SBG
0.046
0.001
2.429
0.078**
NBG
0.044
0.004
NPG
0.032
0.023
OPG
0.052
0.016
Interest Coverage Ratio
SBG
1.393
0.038
3.212
0.032*
NBG
1.376
0.093
NPG
0.833
0.642
OPG
1.655
0.936
Source: Authors’ Calculation
*Not to be quoted or publish in any form without permission of author
14
Note: * Significance at 5%, ** Significance at 10% Level of Significance.
*Not to be quoted or publish in any form without permission of author