Don't tar them with the same brush

All public sector banks are not alike. There are good, bad and indifferent examples

Despite the onslaught of competition from private and foreign banks, public sector banks (PSBs) have been trying hard to hold on to their ground.

They are losing their market share slowly and only marginally. Twenty-seven players in this segment (19 nationalised banks, State Bank of India and its family of seven associate banks) collectively accounted for 74.5 per cent of total banking assets in 2003-04.

In the previous year, their share of the pie was 75.67 per cent, again marginally down from 75.75 per cent in 2001-02.

These numbers narrate the heroic fight put up by these banks to protect their market share from the technology-savvy, lean and nimble-footed competition in the private sector (both new private and foreign banks).

But away from this turf war, a more intense fight has been on among the banks within the PSB fold. There are good, bad and indifferent PSBs.

While banking sector analysts have been busy focusing on market capitalisation and price earning ratios of these banks, their financial performance over the past five years tells a fascinating tale.

State Bank of India, despite its growth, has not been able to stall the progressive erosion in its market share. Bank of Baroda has virtually stopped growing. Dena and Punjab & Sind Bank have been going through a bad patch while Punjab National Bank (PNB) is growing aggressively. 

Return on asset
Bank	2001	2002	2003	2004	Average
Bank of Baroda	0.45	0.81	1.05	1.2	0.88
Bank of India	0.44	0.79	1.16	1.25	0.91
Canara Bank	0.47	1.07	1.32	1.47	1.08
Central Bank	0.1	0.33	0.56	1.03	0.51
Punjab National Bank	0.79	0.82	1.06	1.18	0.96
State Bank of India	0.56	0.73	0.86	0.94	0.77
Union Bank of India	0.42	0.75	1.16	1.3	0.91

Let's first look at the asset growth of the top seven PSBs in the country. These are State Bank of India, PNB, Canara Bank, Bank of Baroda, Bank of India, Central Bank (the only unlisted bank in this group) and Union Bank of India.

Over the past four years "" between 1999-2000 and 2003-04 (the numbers for 2004-05 are not yet out) "" State Bank of India's assets grew by 54.6 per cent, from Rs 2,63,814.73 crore to Rs 4,07,815.28 crore. 
 

Return on equity
Bank	2001	2002	2003	2004	Average
Bank of Baroda	8.33	15.2	18.81	20.32	15.67
Bank of India	9.69	18.4	26.65	26.71	20.36
Canara Bank	10.54	23.59	26.74	28.47	22.34
Central Bank	1.82	7.2	13.82	22.9	11.44
Punjab National Bank	18.76	19.11	23.24	24.52	21.41
State Bank of India	12.53	16.95	19.15	19.67	17.08
Union Bank of India	8.65	15.88	23.65	25.19	18.34

Despite that, its market share has dropped by over two percentage points, from 22.87 per cent to 20.65 per cent. In fact, except for PNB and Canara, all banks in this category have lost market share.

The worst performer is Bank of Baroda. It has clocked the lowest growth (35.4 per cent) in assets in four years and its market share has fallen from 5.45 to 4.31 per cent.

On a lower base, a 1.14-per cent drop in market share is a significant fall. In contrast, Bank of India's market share fell by 0.82 per cent, Central Bank's 0.51 per cent, and Union Bank of India's 0.31 per cent.

Their growth trajectory is also healthier than that of Bank of Baroda. Union Bank's assets grew by 55 per cent over the past four years, Central Bank by over 47 per cent and Bank of India by over 43 per cent.

The Delhi-based PNB registered the highest asset growth among the seven big banks during this period "" by over 80 per cent, from Rs 56,659 crore to Rs 1,02,332 crore. Canara Bank grew by 74 per cent to breathe on PNB's balance sheet, jumping from Rs 57,190.85 crore to Rs 99,539.39 crore. 

As a result of this, the ranking of these banks has changed radically. PNB has jumped from the fourth to the first slot and Canara from third to second, while Bank of Baroda slipped from first to third and Bank of India from second to fourth.

These rankings are, however, among the pack of nationalised banks. State Bank of India continues to be way ahead of others as the country's largest commercial bank.

When it comes to quality of assets, too, PNB has stolen a march over others. Its net non-performing assets (NPAs) as a percentage of advances dropped from 8.52 per cent in 1999-2000 to 0.28 per cent in December 2004. State Bank of India, during this time, brought it down from 6.41 per cent to 2.56 per cent.

Both Bank of Baroda and Union Bank of India have pared their net NPA level to 2.11 per cent in December 2004, from 6.95 per cent and 7.97 per cent, respectively. Bank of India, however, continues to have relatively high net NPAs at 3.85 per cent (down from 8.61 per cent).

Bank of Baroda's growth has considerably slowed down over the past two years. In 2003-04, its advances were flat (grew by 0.71 per cent), while Canara Bank and PNB's advance portfolios leaped by over 17 per cent and that of Union Bank by over 15 per cent.

In the previous year, Bank of Baroda's advance book grew by 5 per cent while Canara Bank's advance portfolio grew by over 22 per cent and that of PNB by 17 per cent. On the deposit flank, too, Bank of Baroda has been showing smaller growth than its peers.

If one looks at the entire universe of PSBs, Bank of Baroda is one of the four banks that have shown single-digit deposit growth over the four-year span.

The average annual deposit growth of this bank between 1999-2000 and 2003-04 has been 9.27 per cent. During this period, Dena Bank has shown an average annual deposit growth of 8.43 per cent, Punjab & Sind Bank 6.68 per cent and the Kolkata-based United Bank of India 7.91 per cent.

When it comes to growth in advances, too, Punjab & Sind, Dena and Bank of Baroda are placed lowest on the ladder. The average annual advance growth of Dena Bank has been 7.38 per cent and that of Punjab & Sind Bank 6.09 per cent.

Bank of Baroda has just managed a double-digit (10.22 per cent) growth. This is against the backdrop of at least nine PSBs posting over 20 per cent average annual growth in advance and another 10 banks registering over 15 per cent growth.

The most important finding from this study is: There are bad apples in the public sector basket and some banks are doing better than others.

As a group, these banks have indeed been losing their market share, but there are a few that can stand up to competition while a few others are either stagnating, or even slipping.