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The study entitled "A COMPARATIVE ANALYSIS OF
THE PERFORMANCE OF KERALA BASED BANKS" was conducted
with the following objectives .
.
i) To analyse the performance of Kerala based public, private
and co-operative sector banks.
ii) To compare the relative efficiency of these banks and
iii) To examine the role of these banks in agricultural lending.
The study was conducted in six out of the 10 Kerala
based banks comprising of the State Bank of Tranvancore (SBT)
and South Malabar Gramin Bank (SMBG) in the public sector,
South Indian Bank (SIB), Dhanalakshmi Bank (DB) and Catholic
Syrian Bank (CSB) in the private sector, and Kerala State Co-
operative Bank (KSCB) in the co-operative sector.
The study was conducted for a period of six years from
1994-95 to 1999-00 using mainly secondary data made available
from the Annual Reports of the banks concerned. The first and
second objectives of analysing the performance of Kerala based
public private and co-operative sector banks and comparison of the
relative efficiency of these banks have been done by using three
models viz., Return On Equity (ROE) Decomposition Analysis,
Weighted Productivity Index and Market Share Concept. For


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assessing the efficiency of each bank using the Market Share
Concept, data were collected from all the 10 banks. Data
pertaining to agricultural lending were also collected from the
concerned banks' head office for analysing the third objective.
Based on the above indicators, individual performance of the banks
were assessed and a Composite Index was developed to rank these
banks.
The study has revealed that CD ratio has been
declining for all the Kerala based banks except SMGB. For all
these banks, the rate of increase in advances has not been as high
as that of deposits which might be due to diversion of deposits by
banks like investment in government and other approved
securities, shares and debentures.
The analysis of the profitability and productivity of
Kerala based banks on the basis of ROE Decomposition Analysis
has revealed that KSCB'is the only bank which could not achieve
the 16-20 per cent internationally accepted ROE and one per cent
ROA. SMGB has performed well showing a continuous increase in
ROE and ROA except in 1996-97 when these values were negative
due to implementation of NPA norms.
When compared to the national average, it was found
that the performance of all the Kerala based banks except KSCB

was better with respect to the three indicators viz., ROE, ROA and
Equity Multiplier (EM).
The Profit Margin (PM) of the Kerala based banks
except for SMGB has been lower than the industry average which
might be due to the fact that their income has been adversely
affected by the high interest expended on deposits.
The study has also revealed that interest expended on
deposits for SMGB has been very low when compared to the other
Kerala. based banks since the Bank had other sources of funds like
refinance from sponsoring bank and other institutions. The
percentage share of Provisions and Contingencies (P&C) to the
total revenue has been found to be very low in the case of KSCB
and S.rvlGB pointing to the lower NPAs in these two banks.
Among the Kerala based banks, only SMGB could
achieve the internationally accepted criteria of having a Net
Interest Margin (NIM) of three per cent and above. However, the
burden of this particular bank has been observed to be very high
since its non-interest income is negligible.
Analysis based on the Weighted Productivity Index
(WPi) has revealed that KSCB achieved the highest performance in
Employee Productivity (EPi), while SMGB had the lowest


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Employee Productivity (EPi). The low staff productivity of SMGB
might be due to drastic increase in wage bill as the implementation
of the Award of the National Industrial Tribunal (NIT) gave pay
parity in RRBs.
The high Capital Productivity (CPi) of SMGB may be
attributed to an increase in interest income and reduction in
NPAs. The~e has been a general decline in CPi of the private sector
banks - DB, SIB and CSB due to the higher provisioning for NP As.
The market share of the branches, staff, non-deposit
working funds and advances of the six Kerala based banks to the
total of 10 banks has declined during the period of study. This may
be attributed to the increase in the share of other Kerala based
banks not included in the study like Federal Bank, Lord Krishna
Bank and N edungadi Bank.
The market share of SBT in branches, deposits, non-
wage operating expenses and interest spread has declined
consistently during the study period reflecting its declining
prominence as the premier bank in the State.
In the estimation of the efficiency level of Kerala based
banks on Market Share Concept, it has been found that KSCB
obtained the highest score followed by SBT and DB. SMGB, which


had performed well in the other two models, performed the lowest
as per this model. This may be attributed to the high share of
branches and staff among its inputs factors. Besides fluctuation in
output factors like non-interest income and the negative net
profits in the 1996-97 have adversely affected its performance.
Although the introduction of financial sector reforms
has led to decline in priority sector lending in general, the
liberalisation of the term 'priority sector' since 1997 has enabled
banks to achieve the target of 40 per cent. The actual
disbursement of credit to priority by Kerala based banks has never
crossed the target of 40 per cent except in the case of SMGB.
SMGB is the only bank, which has been increasing its
percentage share of lending to the priority sector and agriculture
in spite of its increased lending to the Non-Target Group over the
years.
The computation of the Composite Index to assess the
overall performance of Kerala based banks has revealed that
SMGB obtained the highest score followed by KSCB. The lower
performance of SBT and private sector banks may be attributed to
lower ROE, EPi, CPi, and ultimately WPi, lower efficiency based
on market share and low share of agricultural advances to total
advances. ~