Benchmarking Performance of Public Sector Banks in India

The paper analyzes the performance of public sector banks in India during the post-liberalization period. There has been a significant improvement in the performance of public sector banks after reform measures. The paper has used various accounting ratios pertaining to profitability, financial efficiency, operational efficiency and financial soundness to build performance index for banks. Principal Component Analysis method has been used to construct index and rank performance of banks over the last 10 years. Twenty-two parameters pertaining to operational and financial efficiency of banks have been considered to construct the performance index for public sector banks. Altman Z-Score of solvency analysis has been applied to banking sector with suitable financial, operational and other efficiency ratios. Logit model is used to construct the Altman Z-Score for public sector banks in India. The logit model is found to be robust as per its predictability of financial health of the public sector banks. It is found that reform measures have impacted positively in enhancing the stability and soundness of the public sector banks in India. The analysis has found that State Bank of India continues to be the number one bank in India and there is competition between Punjab National Bank, Canara Bank, Bank of India and Bank of Baroda for the number two place in different years.