How India's banking sector is staging a strong comeback

There were eight awards that the jury had to decide on. Two bank awards—Best Enterprise Resilience in Banks and Best Intellectual Property Protection and Management—were not put up before the jury because of a lack of adequate nominations.

The category of innovation had one of the highest responses ever, with 49 nominations. This year, there was also a shift in innovation initiatives from retail to MSMEs. Knowledge partner KPMG disclosed that they are advising Bank of Baroda on their digital transformation plan, where fintech initiatives are also a part. They have been involved with this programme for the past 30 months.

During a two-hour-long jury meeting over a working lunch, the members deliberated about the top candidates from the lens of influence they had on the financial system, client convenience, and future scaleability. Recognising the role played by public sector banks, which work under numerous constraints, the jury decided to give a special award to the country’s largest bank, SBI, for “consistent transformation”. The jury was also unanimous in conferring the Lifetime Achievement Award to Arundhati Bhattacharya, former chairman of SBI; she is currently Chairperson & CEO of Salesforce India. Both ICICI Bank and HDFC Bank were strong competitors for the Bank of the Year award, and thus there was a lot of debate. The former was finally chosen due to the operational turnaround and stability of operations under MD & CEO Sandeep Bakhshi.

QUANTITATIVE AWARDS

For rankings based on pure financial performance, data was taken from published annual reports of banks from FY19 to FY22. This year’s survey covered 47 scheduled commercial banks that had published their annual reports or provided their annual reports at the time of conducting the survey prior to October 31, 2022. Scheduled commercial banks (except in case of Indian small finance banks) with a balance sheet size of less than Rs 5,000 crore, and foreign banks with a balance sheet size of less than Rs 25,000 crore as on March 31, 2022, were not considered. Also scheduled commercial banks whose financial statements were not available with us or which had not completed four years in India as on March 31, 2022, or were involved in mergers in the last three years or were under liquidation were not covered.

The ranking process

The banks were categorised as ‘Indian banks’ (both public and private banks), ‘foreign banks’ (branches of foreign banks operating in India) and ‘Indian small finance banks’. Indian banks were further classified based on balance sheet size as on March 31, 2022.

Group I Banks with a balance sheet size of more than or equal to Rs 3 lakh crore

Group II Banks with a balance sheet size of more than Rs 1 lakh crore but less than Rs 3 lakh crore

Group III Banks with a balance sheet size of less than or equal to Rs 1 lakh crore

Group IV Foreign banks with a balance sheet size of more than or equal to Rs 25,000 crore

Group V Indian small finance banks

Ranking parameters

The banks were judged on three parameters—growth, size and strength—divided into 34 sub parameters:

Growth: There were 10 sub-parameters under this category: growth over FY21 in total deposits, alongside three-year (two-year for Bank of Baroda and IDFC First Bank) compounded annual growth rate (CAGR) of total deposits; growth over FY21 in loans and advances, with three-year (two-year for Bank of Baroda and IDFC First Bank) CAGR in loans and advances; growth over FY21 in fee income (commission, exchange and brokerage income plus miscellaneous income), with three-year (two-year for Bank of Baroda and IDFC First Bank) CAGR in fee income; growth over FY21 inoperating profit, alongside three-year (two-year for Bank of Baroda and IDFC First Bank) CAGR in operating profit; and absolute increase in market share of deposits and of current account savings account balances.

Size: This had three sub-parameters: size of total deposits, size of operating profits and size of balance sheet as of March 31, 2022.

Strength: This had four overarching sub-parameters, each with further sub divisions:

Quality of assets: Total NPA growth ratio: additions to NPAs during the year as a percentage of average net loans and advances (that is, average of closing balance of FY21 and FY22); NPA coverage: provisioning for NPAs as a percentage of gross NPA closing balance as of March 31, 2022; net NPAs as a ratio of net advances: gross NPAs’ closing balance as a net of provisioning as of March 31, 2022, as percentage of net advances; divergence in gross NPAs: difference between gross NPAs as per Reserve Bank of India (RBI) rules and reported by the bank as a percentage of addition to NPAs; divergence in provisioning for NPAs: difference in provision for NPAs as per RBI rules and those reported by the bank as a percentage of reported profit before provisions and contingencies; deposits of 20 largest depositors as a percentage of total deposits; advances to 20 largest borrowers as a percentage of total advances; exposure to 20 largest borrowers/customers as a percentage of total exposure.

For rankings based on divergence in gross NPAs and divergence in provisioning for NPAs, banks with divergence of less than 15 per cent and 10 per cent, respectively, were assigned the highest rank. Further, for determining rankings based on the provision coverage ratio parameter, banks with zero NPAs and banks with a provision coverage ratio of 100 per cent were assigned the highest rank.

Productivity and efficiency: Cost to income ratio: operating expenditure as a percentage of operating income; cost to average asset ratio: operating expenditure as a percentage of average total assets (that is, average of closing balance of FY21 and FY22); absolute increase in return on assets: basis points increase in return on assets (net profit over total assets) from FY21 to FY22; percentage increase in the ratio of operating profit to total income from FY21 to FY22; profit per employee.

Quality of earnings:Return on assets: ratio of net profit to average total assets (that is, average of closing balance of FY21 and FY22); fee income as a percentage of total income; return on capital employed: reported net profit divided by average net worth (that is, average of closing balance of FY21 and FY22); net interest margin: total interest income minus total interest expenses as a percentage of average interest earning assets; penalties imposed by RBI during the year.

Capital adequacy and liquidity coverage:Capital adequacy ratio: capital to risk weighted assets ratio for FY22; Tier I capital: total of equity capital and disclosed reserves; liquidity coverage ratio: ratio of high-quality liquid assets (HQLA) to total net cash outflows over the following 30 calendar days.

Final scoring and rating

Each bank was assigned a score for each of the 34 sub-parameters based on its rank on those parameters. The score under each parameter was then multiplied by the parameter’s weight to arrive at the final score. The results were then aggregated to arrive at the final rankings based on the total score. In all, 44 banks were not considered for the survey due to mergers, amalgamations, liquidation, non-availability of annual reports in public domain for FY22, and balance sheet size of less than Rs 5,000 crore (except in case of Indian small finance banks and foreign banks with a balance sheet size of less than Rs 25,000 crore).

QUALITATIVE AWARDS

Three ‘qualitative awards’ recognised the initiatives and strategies undertaken by banks in the areas of innovation, fintech, talent and workforce; based on self-nomination responses to the survey by banks.

Best Bank in Innovation award: Banks had to describe their innovation initiatives across the four critical focus areas of customer experience, business model, service delivery and digital adoption. Every initiative was evaluated and ranked based on four key parameters viz. area of impact, adoption level by the bank, impact created by the initiative and uniqueness of the solution.

Best Bank in Fintech Initiative award: Banks were asked to describe their fintech initiatives, which were evaluated and ranked based on four key parameters viz. area of impact, adoption level by the bank, impact created by the initiative and the uniqueness of the solution.

Best Bank in Talent & Workforce award: All participating banks were evaluated on interventions across four critical focus areas under talent and workforce management, innovation in talent management and digitalisation, initiatives around diversity and inclusion, employee experience and well-being and the future of the workforce. These four areas were further evaluated on uniqueness of idea, breadth of initiative, implementation evidence and impact achieved.

QUALITATIVE AWARDS

(Payments and value added services segments)

There were two qualitative award categories—payments and value added services.

The key parameters considered to evaluate fintech players were company health (for example, years of operation, revenue generated per employee), business maturity (equity raised, profitability metrics), funding maturity, business volumes of the company, differentiation (basis business models, product features, IP and technology, key focus and solutions) and adoption levels across different customer segments and geographies; along with current industrial partnerships.