Project on Comparison of Public and Private Sector Banking

Genesis The banking sector has been undergoing a complex, but comprehensive phase of  restructuring since 1991, with a view to make it sound, efficient, and at the same time it isforging its links firmly with the real sector for promotion of savings, investment and  growth. Although a complete turnaround in banking sector performance is not expected till thecompletion of reforms, signs of improvement are visible in some indicators under theCAMELS framework. Under this bank is required to enhance capital adequacy, strengthenasset quality, improve management, increase earnings and reduce sensitivity to variousfinancial risks.The almost simultaneous nature of these developments makes it difficult todisentangle the positive impact of reform measures. In 1994, the RBI established the Board of Financial Supervision, which operates as a unit of  the RBI. The entire supervisory mechanism was realigned to suit the changing needs of astrong and stable financial system. The supervisory ju risdiction of the BFS was slowlyextended to the entire financial system barring the capital market institutions and theinsurance sector. Its mandate is to strengthen supervision of the financial system byintegrating oversight of the activities of financial services firms.The BFS has alsoestablished a sub-committee to routinely examine auditing practices, quality, and coverage. In 1995, RBI had set up a working group under the chairmanship of Shri S. Padmanabhan toreview the banking supervision system. The Committee gave certain recommendations and  based on such suggestions a rating system for domestic and foreign banks based on theinternational CAMELS model combining financial management and sensitivity to marketrisks element was introduced for the inspection cycle commencing from July 1998.Itrecommended that the banks should be rated on a five point scale (A to E) based on the linesof international CAMELS rating model. CAMELS rating model measures the relativesoundness of a bank . bj ectives of the Pro j ect Study ?To study the Financial Performance of the b anks.? y To study the strength of using CAMELS framework as a tool of Performanceevaluation for Commercial banks y To describe the CAMELS model of ranking banking institutions, so as to analyze  the  performance of various bank. R ationaleIn the recent years the financial system especially the banks have undergone numerouschanges in the form of reforms, regulations & norms. The attempt here is to see how variousratios have been used and interpreted to reveal a bank ¶s performance and how this particular  model encompasses a wide range of parameters making it a widely used and accepted modelin today ¶s scenario. Data Collection y Primary Data : Primary data was collected  from the Banks ¶ balance sheets and profitand loss statements. y Secondary Data : Secondary data on the subject was collected from ICFAI journals,Banks ¶ annual reports and RBIM ethodologyAs long as the methodology is co ncerned, we have made use of a framework calledCAMELS FRAMEWORK. There are so many models of evaluating the performance of the  banks, but I have chosen the CAMELS Model for this purpose. I have gone through several  books, journals and websites and found it the best model because it measures the  performance of the banks from each parameter i. e. Capital, Assets, Management, Earnings,Liquidity and Sensitivity to  Market risks. CAMELS evaluate banks on  the following six parameters : -? Capital Adequacy (CRAR)? Asset Quality (GNPA)? Management Soundness (MGNT)?Earnings & profitability (ROA)? Liquidity (LQD)? Sensitivity to Market  Risks (? ) websitDuring an on-site bank exam, supervisors gather private information, such as details on  problem loans, with which to evaluate a bank's financial condition and to monitor itscompliance with laws and regulatory policies. A key product of such an exam is asupervisory rating of the bank's overall condition, commonly referred to as a CAMELSrating. The acronym â€Å"CAMEL† refers to the five components of a bank's condition that areassessed : Capital adequacy, Asset quality, Management, Earnings, and Liquidity.A sixthcomponent, a bank's Sensitivity to market risk was added in 1997; hence the acronym waschanged to CAMELSAMELS is basically a ratio-based model for evaluating the performance of banks. Variousratios forming this model are explained below : Capital base of financial institutions facilitates depositors in forming their risk perceptionabout the institutions. Also, it is the key parameter for financial managers to maintainadequate levels of capitalization. The most widely used indicator of capital adequacy iscapital to risk-weighted assets ratio (CRWA).According to Bank Supervision RegulationCommittee (The Basle Committee) of Bank for International Settlements, a minimum 9  percent CRWA is required. Thus, it is useful to track capital-adequacy ratios that take intoaccount the most important financial risks? foreign exchange, credit, and interest raterisks? by assigning risk weightings to the institution ¶s assets. A sound capital basestrengthens confidence of depositors. This ratio is used to protect depositors and promote thestability and efficiency of financial systems around the world. Capital R isk Adequacy R atio:CRAR is a ratio of Capital Fund to Risk Weighted Assets. Reserve Bank of India prescribesBanks to maintain a minimum Capital to risk-weighted Assets Ratio (CRAR) of 9 % withregard to credit risk, market risk and operational risk on an ongoing basis, as against 8 %  prescribed in Basel documents. Component-wise Capital Adequacy of ScheduledCommercial Banks (As at end- M arch) Capital to R isk W eighted Assets R atio- Bank Group-wise Total capital includes tier-I capital and Tier-II capital. Tier-I capital includes paid up equitycapital, free reserves, intangible assets etc.Tier-II capital includes long term unsecuredloans, loss reserves, hybrid debt ca pital instruments etc. The higher the CRAR, the stronger  is considered a bank, as  it ensures high safety against bankruptcy. Asset quality determines the robustness of financial institutions against loss of value in theassets. The deteriorating value of assets, being prime source of banking problems, directly  pour into other areas, as losses are eventually written off against capital, which ultimately  jeopardizes the earning capacity of the institution. With this backdrop, the asset quality isgauged n relation to the level and severity of non-performing assets, adequacy of  Ã‚  provisions, recoveries, distribution of assets etc. Popular indicators include non-performingloans to advances, loan default to total advances, and recoveries to loan default ratios. One of the indicators for asset quality is the ratio of non-performing loans to total loans(GNPA). The gross non-performing loans to gross advances ratio is more indicative of thequality of credit decisions made by bankers. Higher GNPA is indicative of poor creditdecision-making. N PA: N on-Performing Assets:Advances are classified into performing and non-performing advances (NPAs) as per RBIguidelines. NPAs are further classified into sub-standard, doubtful and loss assets based onthe criteria stipulated by RBI. An asset, including a leased asset, becomes non-performingwhen it ceases to  generate income for the Bank. An NPA is a loan or an advance where : 1. Interest and/or installment of principal remains overdue for a period of more than 90days in respect of a term loan;2. The account remains â€Å"out-of-order† in respect of an Overdraft or Cash Credit(OD/CC);3.The bill remains overdue for  a period of more than  90 days in case of bills purchasedand discounted;4. A loan granted for short duration crops will be treated as an NPA if the installmentsof principal or interest thereon remain overdue  for two crop seasons; and5. A loan granted for long duration crops will be treat ed as an NPA if the installmentsof principal or interest thereon remain overdue  for one crop season. The Bank classifies an account as an NPA only if the interest imposed during any quarter isnot fully repaid within 90 days from the end of the relevant quarter. This is a key to thestability of the banking sector.There should be no hesitation in stating that Indian bankshave done a remarkable job in containment of non-performing loans (NPL) considering theoverhang issues and overall difficult environment. For 2008, the net NPL ratio for the Indianscheduled commercial banks at 2. 9 per cent is ample testimony to the impressive efforts  being made by our banking system. In fact, recovery management is also linked to the  banks ¶ interest margins. The cost and recovery management supported by enabling legalframework hold the key to future health and competitiveness of the Indian banks.No doubt,improving recovery-management in India is an area requiring expeditious and effective actions in legal, institutional and judicial processes. Management of financial institution is generally evaluated in terms of capital adequacy,asset quality, earnings and profitability, liquidity and risk sensitivity ratings. In addition,  performance evaluation includes compliance with set norms, ability to plan and react tochanging circumstances, technical competence, leadership and administrative ability. Ineffect, management rating is just an amalgam of performance in the above-mentioned areas.Sound management is one of the most important factors behind financial institutions ¶Ã‚  performance. Indicators of quality of management, however, are primarily applicable toindividual institutions, and cannot be easily aggregated across the sector. Furthermore, giventhe qualitative nature of management, it is difficult to judge its soundness just by looking atfinancial accounts of the banks. Nevertheless, total expenditure to total income and operating expense to total expense helps in gauging the management quality of the banking institutions.Sound management is key to  bank performance but is difficult to measure. It is primarily a qualitative factor applicable toindividual institutions. Several indicators, however, can jointly serve? as, for instance,efficiency measures do-as an indicator of management  soundness. The ratio of non-interest expenditures to total assets (MGNT) can be one of the measures toassess the working of the management. . This variable, which includes a variety of expenses,such as payroll, workers compensation and training investment, reflects the management  policy stance. E fficiencyR atios demonstrate how efficiently the company uses its assets and howefficiently the company manages its operations. Indicates the relationship between assets and revenue. ? Companies with low profit margins tend to have high asset turnover, those with high  profit margins have low asset turnover – it indicates pricing strategy. ? This rati o is more useful for growth companies to check if in fact they are growingrevenue in proportion to sales. Asset Turnover Analysis: This ratio is useful to determine the amount of sales that are generated from each rupee of  assets.As noted above, companies with low profit margins tend to have high asset turnover,those with high profit margins have low asset turnover. Earnings and profitability, the prime source of increase in capital base, is examined withregards to interest rate policies and adequacy of provisioning. In addition, it also helps tosupport present and future operations of the institutions. The single best indicator used togauge earning is the Return on Assets (ROA), which is net income after taxes to total assetratio. Strong earnings and profitability profile of banks reflects the ability to support present andfuture operations.More specifically, this determines the capacity to  absorb losses, finance itsexpansion, pay dividends to its shareholders, and build up a n adequate level of capital. Being front line of defense against erosion of capital base from losses, the need for highearnings and profitability can hardly be overemphasized. Although different indicators areused to serve the purpose, the best and most widely used indicator is Return on Assets(ROA). However, for in-depth analysis, another indicator Net Interest Margins (NIM) is alsoused. Chronically unprofitable financial institutions risk insolvency.Compared with mostother indicators, trends in profitability can be more difficult to interpret-for instance,unusually high profitability can reflect excessive risk taking. R O A- R eturn on Assets: An indicator of how  profitable a company is relative to its total assets. ROA gives an  idea asto how efficient management is at using its assets to generate earnings. Calculated bydividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as â€Å"return on investment†. ROA tells what earnings were generated from invested capital (assets).ROA for publiccompanies can vary substantially and will be highly dependent on the industry. This is why when using ROA as a comparative measure, it is best to compare it against a company's  previous ROA numbers or the  ROA of a similar company. The assets of the company are comprised of both debt and equity. Both of these types of  financing are used to fund the operations of the company. The ROA figure gives investorsan idea of how effectively the company is converting the money it has to invest into netincome. The higher the ROA number, the better, because the company is earning moremoney on less investment.For example, if one company has a net income of $1 million andtotal assets of $5 million, its ROA is 20%; however, if another company earns the sameamount but has total assets of $10 million, it has an ROA of 10%. Based on this example,the first company is better at converting its investment into profit. When you really think  about it, management's most important job is to make wise choices in allocating itsresources. Anybody can make a profit by throwing a ton of money at a problem, but veryfew managers excel at  making large profits with little investment. R eturn on Assets and R eturn on E quity of SCBs- Bank Group-wiseAn adequate liquidity position refers to a situation, where institution can obtain sufficientfunds, either by increasing liabilities or by converting its assets quickly at a reasonable cost. It is, therefore, generally assessed in terms of overall assets and liability management, asmismatching gives rise to liquidity risk. Efficient fund management refers to a situationwhere a spread between rate sensitive assets (RSA) and rate sensitive liabilities (RSL) ismaintained. The most commonly used tool to evaluate interest rate exposure is the Gap  between RSA and RSL,  while liquidity is gauged by liquid to total asset ratio.Initially solvent financial institutions may be driven toward closure by poor management of  short-term liquidity. Indicators should cover funding sources and capture large maturitymismatches. The term liquidity is used in various ways, all relating to availability of, accessto, or convertibility into cash. ? An institution is said to have liquidity if it can easily meet its needs for cash either  Ã‚  because it has cash on  hand or can otherwise raise or borrow cash. ? A market is said to be liquid if the instruments it trades can easily be bought or soldin quantity with little impact on market prices. ?An asset is said to be liquid if the  market for that asset is liquid. The common theme in all three contexts is cash. A corporation is liquid if it has ready accessto cash. A market is liquid if participants can easily convert positions into cash? or  conversely. An asset is liquid if it can easily be converted to cash. The liquidity of aninstitution depends on : y the institution's short-term need for cash; y cash on hand; y available lines of credit; y the liquidity of the  institution's assets; y The institution's reputation in the marketplace? how willing will counterparty is totransact trades with or lend to the  institution?The liquidity of a market is often measured as the size of its bid-ask spread, but this is animperfect metric at best. More generally, Kyle (1985) identifies three components of marketliquidity : ? Tightness is the bid-ask spread; ? Depth is the volume of transactions necessary to  move prices; ? Resiliency is the speed with which prices return to equilibrium following a largetrade. Examples of assets that tend to be liquid include foreign exchange; stocks traded in theStock Exchange or recently issued Treasury bonds. Assets that are often illiquid includelimited partnerships, thinly traded bonds or real estate.Cash maintained by the banks and balances with central bank, to total asset ratio (LQD) isan indicator of bank's liquidity. In general, banks with a larger volume of liquid assets are  perceived safe, since these assets would allow  banks to meet unexpected  withdrawals. Credit deposit ratio is a tool used to study the liquidity position of the bank. It is calculated  by dividing the cash held in different forms by total deposit. A high ratio shows that there ismore amounts of liquid cash with the bank to met its clients cash withdrawals. It refers to the risk that changes  in market conditions could adversely impact earnings and/or  capital.Market Risk encompasses exposures associated with changes in interest rates, foreignexchange rates, commodity prices, equity prices, etc. While all of these items are important,the primary risk in most banks is interest rate risk (IRR), which will be the focus of thismodule. The diversified nature of bank operations makes them vulnerable to various kindsof financial risks. Sensitivity analysis reflects institution ¶s exposure to interest rate risk,foreign exchange volatility and equity price risks (these risks are summed in market risk). Risk sensitivity is mostly evaluated in terms of management ¶s ability to monitor and controlmarket risk.Banks are increasingly involved in diversified operations, all of which are subject to marketrisk, particularly in the setting of interest rates and the carrying out of foreign exchangetransactions. In countries that allow banks to make trades in stock markets or commodityexchanges, there is also a  need to monitor indicators of equity and commodity price risk. Sensitivity to Market Risk is a recent addition to the ratings parameters and reflects thedegree to which changes in interest rates, exchange rates, commodity prices and equity  prices can affect earnings and  hence the bank ¶s capital. It  is measured by Beta (? . 1. ? ;1, depicts that changes in the firm are less than the changes in the market. LessSensitive2. ? =1, depicts that there is equivalent change in the firm with the changes i n themarket Equally Sensitive. 3. ? ;1, depicts that changes in the firm are more than the changes in the market. Highly Sensitive. The Bank The word bank means an organization where people and business can invest or borrowmoney; change it to foreign currency etc. According to Halsbury ? A Banker is an individual,Partnership or Corporation whose sole pre-dominant business is banking, that is the receiptof money on current or deposit ccount, and the payment of cheque drawn and the collectionof cheque paid in by a customer.  ¶Ã‚ ¶ The O rigin and Use of Banks The Word  µBank ¶ is derived from the Italian word  µBanko ¶ signifying a bench, which waserected in the market-place, where it was customary to exchange money. The Lombard Jewswere the first to practice this exchange business, the first bench having been established inItaly A. D. 808. Some authorities assert that the Lombard merchants commenced the  business of money-dealing, employing bills of exchange as remittance s, about the beginningof the thirteenth century.About the middle of the twelfth century it became evident, as the advantage of coinedmoney was gradually acknowledged, that there must be some controlling power, somecorporation which would undertake to keep the coins that were to bear the royal stamp up toa certain standard of value; as, independently of the  µsweating ¶ which invention may place tothe credit of the ingenuity of the Lombard merchants- all coins will, by wear or abrasion,  become thinner, and consequently less valuable; and it is of the last importance, not only for  the credit of a country, but for the easier regulation of commercial transactions, that themetallic currency be kept as nearly as possible up to the legal standard. Much unnecessarytrouble and annoyance has been caused formerly by negligence in this respect. The gradualmerging of the business of a goldsmith into a bank appears to have been the way in which  banking, as we now understand the term, was introduced into England; and it was not untillong after the establishment of banks in other countries-for state purposes, the regulation of  the coinage, etc. that any large or similar institution was introduced into England.It is onlywithin the last twenty years that printed cheques have  been in use in that establishment. Firstcommercial bank was Bank of Venice which was established in 1157  in Italy. Banking sector, the world over, is known for the adoption of multidimensional strategiesfrom time to time with varying degrees of success. Banks are very important for the smoothfunctioning of financial markets as they serve as repositories of vital financial informationand can potentially alleviate the problems created by information asymmetries. From acentral bank ¶s perspective, such high-quality disclosures help the early detection of  Ã‚  problems faced by banks in the market and reduce the severity of market disruptions.Consequently, the RBI as part and parcel of the financial sector deregulation, attempted toenhance the transparency of the annual reports of Indian banks by, among other things,introducing stricter income recognition and asset classification rules, enhancing the capitaladequacy norms, and by requiring a number of additional disclosures sought by investors tomake better cash flow and risk assessments. [Source : RBI Website] BAS EL – II ACC O R D Bank capital framework sponsored by the world's central banks designed to promoteuniformity, make regulatory capital more risk sensitive, and promote enhanced risk  management among large, internationally active banking organizations. The InternationalCapital Accord, as it is called, will be fully effective by January 2008 for banks active ininternational markets. Other banks can choose to â€Å"opt in,† or they can continue to follow theminimum capital guidelines in the original Basel Accord, finalized in 1988.The revisedaccord (Basel II) completely overhauls the 1988 Basel Accord and is based on threemutually supporting concepts, or  Ã¢â‚¬Å"pillars,† of capital adequacy. The first of these pillars is anexplicitly defined regulatory capital requirement, a minimum capital-to-asset ratio equal toat least 8% of risk-weighted assets. Second, bank supervisory agencies, such as theComptroller of the Currency, have authority to adjust capital levels for individual banksabove the 9% minimum when necessary. The third supporting pillar calls upon marketdiscipline to supplement reviews by banking agencies. Basel II is the second of the Basel Accords, which are recommendations on banking lawsand regulations issued by the Basel Committee on Banking Supervision.The purpose of  Basel II, which was initially published in June 2004, is to create an international standardthat banking regulators can use when creating regulations about how much capital banksneed to put aside to guard against the types of financial and operational risks banks face. Advocat es of Basel II believe that such an international standard can help protect theinternational financial system from the types of problems that might arise should a major  Ã‚  bank or a  series of banks collapse. In practice, Basel II attempts to accomplish this by settingup rigorous risk and capital management requirements designed to ensure that a bank holdscapital reserves appropriate to the risk the bank exposes itself to through its lending andinvestment practices. [Source : RBI Website] The final version aims at: 1.Ensuring that capital allocation is more risk sensitive;2. Separating operational risk from credit risk, and quantifying both;3. Attempting to align economic and regulatory capital more closely to reduce thescope for regulatory arbitrage. While the final accord has largely addressed the regulatory arbitrage issue, there are stillareas where regulatory capital requirements will diverge from the economic. Basel II has largely left unchanged the question of how to ac tually define bank capital,which diverges from accounting equity in important respects. The Basel I definition, asmodified up to the present, remains in place. The Accord in operation Basel II uses a â€Å"three pillars† concept y inimum capital requirements (addressing risk), y supervisory review and y market discipline  ± to promote greater stability in the financial system. The Basel I accord dealt with only parts of each of these pillars. For example : with respectto the first Basel II pillar, only one risk, credit risk, was dealt with in a simple manner whilemarket risk was an afterthought; operational risk was not  dealt with at all. The First Pillar The first pillar deals with maintenance of regulatory capital calculated for three major  components of risk that a bank faces : credit risk, operational risk and market risk. Other  risks are not considered fully quantifiable at this stage.The credit risk component can be calculated in three different ways of varyi ng degree of  sophistication, namely standardized approach, Foundation IRB and Advanced IRB. IRBstands for â€Å"Internal Rating-Based Approach†. For operational risk, there are three different approaches – basic indicator approach,standardized approach and advanced measurement approach. For market risk the preferredapproach is VaR (value at  risk). As the Basel II recommendations are phased in by the banking industry it will move fromstandardized requirements to more refined and specific requirements that have beendeveloped for each risk category by each individual bank. The upside for banks that dodevelop their own bespoke risk measurement systems is that they will be rewarded with  potentially lower risk capital requirements.In future there will be closer links between theconcepts of economic profit and regulatory capital. Credit Risk can be calculated by using one of three approaches : 1. Standardized Approach2. Foundation IRB (Internal Ratings Based) Approac h3. Advanced IRB ApproachThe standardized approach sets out specific risk weights for certain types of credit risk. Thestandard risk weight categories are used under Basel 1 and are 0% for short termgovernment bonds, 20% for exposures to OECD Banks, 50% for residential mortgages and 100% weighting on commercial loans. A new 150% rating comes in for borrowers with poor  credit ratings. The minimum capital requirement (the percentage of risk weighted assets to  be held as capital) has remains at  8%.For those Banks that decide to adopt the standardized ratings approach they will be forced torely on the ratings generated by external agencies. Certain Banks are developing the IRBapproach as a result. The Second Pillar The second pillar deals with the regulatory response to the first pillar, giving regulatorsmuch improved ‘tools' over those available to them under Basel I. It also provides aframework for dealing with all the other risks a bank may face, such as systemic risk,   pension risk, concentration risk, strategic risk, reputation risk, liquidity risk and legal risk,which the accord combines under the title of residual risk. It gives banks a power to reviewtheir risk management  system. The Third Pillar The third pillar greatly increases the disclosures that the bank must make.This is designedto allow the market to have a better picture of the overall risk position of the bank and toallow the counterparties of the bank to price and deal appropriately. The new Basel Accordhas its foundation on three mutually reinforcing pillars that allow banks and bank  supervisors to evaluate properly the various risks that banks face and realign regulatorycapital more closely with underlying risks. The first pillar is compatible with the credit risk,market risk and operational risk. The regulatory capital will be focused on these three risks. The second pillar gives the bank responsibility to exercise the best ways to manage the risk  specific to that ba nk. Concurrently, it also casts responsibility on the supervisors to reviewand validate banks ¶ risk measurement models.The third pillar on market discipline is usedto leverage the influence that other market players can bring. This is aimed at improving thetransparency in banks and  improves reporting. State Bank of India is the largest banking and financial services company in India, by almostevery parameter – revenues, profits, assets, market capitalization, etc. The bank traces itsancestry to British India, through the Imperial Bank of India, to the founding in 1806 of theBank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. TheGovernment of India nationalized the Imperial Bank of India in 1955, with the ReserveBank of India taking a 60% stake, and renamed it the State Bank of India.In 2008, theGovernment took over the  stake held by the Reserve Bank of India. SBI provides a range of banking products through its vast network of branches in India andoverseas, including products aimed at NRIs. The State Bank Group, with over 16,000  branches, has the largest banking branch network in India. With an asset base of $260 billionand $195 billion in deposits, it is a regional banking behemoth. It has a market share amongIndian commercial banks of about 20% in deposits and advances, and SBI accounts for  almost one-fifth of the nation's loans. The total assets of the Bank increased by 9. 23% fromRs. 9,64,432. 08 crores at the end of March 2009 to Rs. 10,53,413. 3 crores as at end March2010. The Bank ¶s aggregate liabilities (excluding capital and reserves) rose by 8. 93% fromRs. 9,06,484. 38 crores on 31st March 2009 to Rs. 9,87,464. 53 crores on 31st March 2010. K ey performance I ndicators [Source : Annual Report, 2009-10]SBI has tried to reduce over-staffing by computerizing operations and â€Å"golden handshake†schemes that led to a flight of its best and brightest managers. These managers took theretiremen t allowances and then went on to become senior managers in new private sector ICICI Bank (formerly Industrial Credit and Investment Corporation of India) is a major  Ã‚  banking and financial services organization in India.It is the 4th largest bank in India andthe largest private sector bank in India by market capitalization. The bank also has a network  of 1,700+ branches (as on 31 March 2010) and about 4,721 ATMs in India and presence in19 countries, as well as some 24 million customers (at the end of July 2007). ICICI Bank isalso the largest issuer of credit cards in India. ICICI Bank's shares are listed on the stock  exchanges at Kolkata and Vadodara, Mumbai and the National Stock Exchange of IndiaLimited; its ADRs trade on the New  York Stock Exchange (NYSE). [Source : Annual Report, 2009-10]The Bank is expanding in overseas markets and has the largest international balance sheetamong Indian banks.ICICI Bank now has wholly-owned subsidiaries, branches andrepresentative s offices in 19 countries, including an offshore unit in Mumbai. This includeswholly owned subsidiaries in Canada, Russia and the UK (the subsidiary through which theHi SAVE savings brand is operated), offshore banking units in Bahrain and Singapore, anadvisory branch in Dubai, branches in Belgium, Hong Kong and Sri Lanka, andrepresentative offices in Bangladesh, China, Malaysia, Indonesia, South Africa, Thailand,the United Arab Emirates and USA. Overseas, the Bank is targeting the NRI (Non- ResidentIndian) population in particular. History HDFC Bank was incorporated in the year of 1994 by Housing Development FinanceCorporation Limited (HDFC), India's premier housing finance company.It was among thefirst companies to receive an ‘in principle' approval from the Reserve Bank of India (RBI) toset up a bank in the private sector. The Bank commenced its operations as a ScheduledCommercial Bank in January 1995 with the help of RBI's liberalization policies. In a milestone transactio n in the Indian banking industry, Times Bank Limited (promoted byBennett, Coleman & Co. / Times Group) was merged with HDFC Bank Ltd. , in 2000. Thiswas the first merger of two private banks in India. As per the scheme of amalgamationapproved by the shareholders of both banks and the Reserve Bank of India, shareholders of  Times Bank received 1  share of HDFC Bank for every 5. 75  shares of Times Bank. In 2008 HDFC Bank acquired Centurion Bank of Pun j a b aking its total branches to morethan 1,000. The amalgamated bank emerged with a strong deposit base of around Rs. 1,22,000 crore and net advances of around Rs. 89,000 crore. The balance sheet size of thecombined entity is over Rs. 1,63,000 crore. The amalgamation added significant value toHDFC Bank in terms of increased branch network, geographic reach, and customer base,and a bigger pool of skilled manpower   Capital Adequacy [Source : Annual Report, 2009-10] The Industrial Development Bank of India Limited commonly known by its acronym IDBIis one of India's leading public sector banks and 4th largest Bank in overall ratings. RBIcategorized IDBI as an â€Å"other public sector bank†.It was established in 1964 by an Act of  Parliament to provide credit and other facilities for the development of the fledgling Indianindustry. It is currently 10th largest development bank in the world in terms of reach with1210 ATMs, 720 branches and 486 centers. Some of the institutions built by IDBI are the National Stock Exchange of India (NSE), the  National Securities Depository Services Ltd (NSDL), the Stock Holding Corporation of  India (SHCIL), the Credit Analysis ; Research Ltd, the Export-Import Bank of India (EximBank), the Small Industries Development bank of India(SIDBI), the EntrepreneurshipDevelopment Institute of India, and IDBI BANK, which today is owned by the IndianGovernment, though for a brief period it was a private scheduled bank.The IndustrialDevelopment Bank of India (IDBI) was est ablished on July 1, 1964 under an Act of  Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16 February 1976,the ownership of IDBI was transferred to the Government of India and it was made the  principal financial institution for coordinating the activities of institutions engaged infinancing, promoting and developing industry in the country. Although Governmentshareholding in the Bank came down below 100% following IDBI ¶s public issue in July1995, the former continues to  be the major shareholder (current shareholding : 52. 3%). During the four decades of its existence, IDBI has been instrumental not only in establishinga well-developed, diversified and efficient ndustrial and institutional structure but alsoadding a qualitative dimension to the process of industrial development in the country. IDBIhas played a pioneering role in fulfilling its mission of promoting industrial growth throughfinancing of medium and long-term projects, in consonance wi th national plans and  priorities. Over the years, IDBI has enlarged its basket of products and services, coveringalmost the entire spectrum of industrial activities, including manufacturing and services. IDBI provides financial assistance, both in rupee and foreign currencies, for green-field  projects as also for expansion, modernization and diversification purposes.In the wake of  financial sector reforms unveiled by the government since 1992, IDBI evolved an array of  fund and fee-based services with a view to providing an integrated solution to meet theentire demand of financial and corporate advisory requirements of its clients Axis Bank, formally UTI Bank, is a financial services firm that had begun operations in1994, after the Government of India allowed new private banks to be established. The Bank  was promoted jointly by the Administrator of the Specified Undertaking of the Unit Trust of  India (UTI-I), Life Insurance Corporation of India (LIC), General Insura nce CorporationLtd. , National Insurance Company Ltd. The New India Assurance Company, The OrientalInsurance Corporation and United India Insurance Company UTI-I holds a special positionin the Indian capital markets and has promoted many leading financial institutions in thecountry. The bank changed its name to Axis Bank in April 2007 to avoid confusion withother unrelated entities with similar name. After the Retirement of Mr. P. J. Nayak, Shikha Sharma was named as the bank's managingdirector and CEO on 20 April 2009. As on the year ended March 31, 2009 the Bank had atotal income of Rs 13,745. 04 crore (US$ 2. 93 billion) and a net profit of Rs. 1,812. 93 crore(US$ 386. 15 million). On February 24, 2010, Axis Bank announced the launch of ‘AXISCALL ; PAY on atom', a unique mobile payments solution using Axis Bank debit cards.Axis Bank is the first bank in the country to provide a secure debit card-based paymentservice over IVR. Axis Bank is one of the Big Four Banks of India, along with ICICI Bank,State Bank of India and HDFC Bank Branch Network At the end of March 2009, the Bank  has a very wide network of more than 835 branch offices and Extension Counters. Totalnumber of ATMs went up to 3595. The Bank has loans now (as of June 2007) account for asmuch as 70 per cent of the bank ¶s total loan book of Rs 2,00,000 crore. In the case of AxisBank, retail loans have declined from 30 per cent of the total loan book of Rs 25,800 crorein June 2006 to around 23 per cent of loan book of Rs. 41,280 crore (as of June 2007).Evenover a longer period,  while the overall asset growth for  Axis Bank has been quite high and has matched that of the other banks, retail exposuresgrew at a slower pace. The bank, though, appears to have insulated such pressures. Interestmargins, while they have declined from the 3. 15 per cent seen in 2003-04, are still hoveringclose to the 3 per cent mark. Axis Bank, formally UTI Bank, is a financial services firm that had begun op erations in1994, after the Government of India allowed new private banks to be established. The Bank  was promoted jointly by the Administrator of the Specified Undertaking of the Unit Trust of  India (UTI-I), Life Insurance Corporation of India (LIC), General Insurance CorporationLtd. , National Insurance Company Ltd. The New India Assurance Company, The OrientalInsurance Corporation and United India Insurance Company UTI-I holds a special positionin the Indian capital markets and has promoted many leading financial institutions in thecountry. The bank changed its name to Axis Bank in April 2007 to avoid confusion withother unrelated entities with similar name. After the Retirement of Mr. P. J. Nayak, Shikha Sharma was named as the bank's managingdirector and CEO on 20 April 2009. As on the year ended March 31, 2009 the Bank had atotal income of Rs 13,745. 04 crore (US$ 2. 93 billion) and a net profit of Rs. 1,812. 93 crore(US$ 386. 15 million). On February 24, 2010, Axis Bank announced the launch of ‘AXISCALL & PAY on atom', a unique mobile payments solution using Axis Bank debit cards.Axis Bank is the first bank in the country to provide a secure debit card-based paymentservice over IVR. Axis Bank is one of the Big Four Banks of India, along with ICICI Bank,State Bank of India and HDFC Bank Branch Network At the end of March 2009, the Bank  has a very wide network of more than 835 branch offices and Extension Counters. Totalnumber of ATMs went up to 3595. The Bank has loans now (as of June 2007) account for asmuch as 70 per cent of the bank ¶s total loan book of Rs 2,00,000 crore. In the case of AxisBank, retail loans have declined from 30 per cent of the total loan book of Rs 25,800 crorein June 2006 to around 23 per cent of loan book of Rs. 41,280 crore (as of June 2007).Evenover a longer period,  while the overall asset growth for  Axis Bank has been quite high and has matched that of the other banks, retail exposuresgrew at a slower pa ce. The bank, though, appears to have insulated such pressures. Interestmargins, while they have declined from the 3. 15 per cent seen in 2003-04, are still hoveringclose to the 3 per cent mark. Reserve Bank of India prescribes Banks to maintain a minimum Capital to risk weightedAssets Ratio (CRAR) of 9 percent with regard to credit risk, market risk and operational risk  on an ongoing basis, as against 8 percent prescribed in Basel Documents. Capital adequacyratio of the ICICI Bank was well above the industry average of 13. 97% t. CAR of HDFC  bank is below the ratio of ICICI bank.HDFC Bank ¶s total Capital Adequacy stood at15. 26% as of March 31, 2010. The Bank adopted the Basel 2 framework as of March 31,2009 and the CAR computed as per Basel 2 guidelines stands higher against the regulatoryminimum of 9. 0%. HDFC CAR is gradually increased over the last 5 year and the capital adequacy ratio of  Axis bank is the increasing by every 2 year. SBI has maintained its CAR around in the rangeof 11 % to 14 %. But IDBI should reconsider their business as its CAR is falling YOY (year  on year). Higher the ratio the banks are in a comfortable position to absorb losses. So ICICIand HDFC are the strong one to absorb their loses. Gross N PA:Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBIguidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made by  banks. It consists of all the non standard  assets like as substandard, doubtful, and loss assets. It can be calculated  with the help of following ratio : SBI maintained its GNPA to 3% which is very good sign of performances as SBI is thelargest lender in INDIA. HDFC ¶s GNPA is quite good as it is low with compared to ICICIand SBI but in 2008-09 GNPA rises. The reason may be economic crises. AXIS bank haslowest GNPA which shown its management ability. ICICI has the highest GNPA in bankingindustry and rising YOY (year on  year). N et N PA:Net NPAs are those type of NPAs in which the bank has deducted the provision regarding  NPAs. Net NPA shows the actual burden of banks. Since in India, bank balance sheetscontain a huge amount of NPAs and the process of recovery and write off of loans is verytime consuming, the provisions the banks have to make against the NPAs according to thecentral bank guidelines, are quite significant. That is why the difference between gross andnet NPA is quite high. It can be calculated by following : AXIS Bank has least Net NPA and ICICI has highest NNPA among group. HDFC shown itsmanagement quality as it maintained its NNPA YOY (year on year). SBI has to keep NNPA  below. IDBI has successful to control NNPA YOY.