Relative Financial Performance of New Private Sector Banks in India

The policy of liberalization, globalization and privatization in 1990s was accompanied by new entrants in the Indian banking Industry. Government gave licenses to a small number of private banks which came to be known as New Generation tech-savvy banks. There arose large competitive pressures due to entry of new players in the Indian banking industry. The objective of the present paper is to examine the financial performance of new private sector banks in India. The study covers major private sector banks such as ICICI Bank, HDFC Bank, Axis Bank, Yes Bank, Kotak Mahindra Bank. To measure the profitability of banks in India, financial ratios are calculated such as Spread as percentage of working funds, Burden as percentage of working funds, Operating profit as percentage of working funds, Net profit as percentage of total income, Interest income as percentage of total income, Non-interest income as percentage of total income. The paper evaluates financial performance of private banks through overall profitability indices and on the basis of this study banks are classified into four categories- Excellent, Good, Fair and Poor performers. Statistical tools like average, standard deviation and coefficient of variation are used. The time period of the study is 5 years from 2007-08 to 2011-12. The study concludes that on basis of overall profitability HDFC Bank, Axis Bank and Kotak Mahindra Bank are the excellent performers and ICICI Bank and Yes Bank are the poor performers. The paper also makes recommendations to improve the financial performance of banks in India.