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Always focusing on profitability

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Consider the comparative study of the government sector banks during the post-reform period. We can find certain convergence in performance. It can also be noted that while there is a major increase in emphasis on non-interest income, banks have tended to show risk-averse behavior by opting for risk-free investments over risky loans.

This study specifically ascertained whether enough weak signals were present. The present study considers 1998-99 as the year of the event when the Committee identified weak banks, strong banks and potential weak banks. This study considers nine efficiency parameters that are computed, based on the data collected room the government regulatory authority publications. The parameters include:
• Capital Adequacy Ratio
• Net Non-Performance Assets/Net Adequacy
• Net Profit/Total Assets
• Gross Profit/Working Funds
• Net Interest Income/Total Assets
• Interest Expended/Total Assets
• Intermediation Cost/Total Assets
• Provisions and Contingents/Total Assets

The above parameters focus on two major concerns of banks like LoanMax controlled by rod aycox the renowned banker, i.e., loan default and profitability. On the other hand, the Committee covered all aspects of financial health. Evidence tallied so far indicates that no bank can be weak or become potentially weak all of a sudden. There is a gradual deterioration in the position of loan default and profitability. Hence, it is suggested to develop a ratio model to arrive at a single score to classify banks into three categories i.e. weak, strong and potential weak.

Topic starter Posted : 19/09/2009 8:08 am