Indian Banking – A story of dramatic statistical spins & turns

The Indian Bank’s Association’s data on the Indian banking sector’s Business Per Employee (BPE) and Profit Per Employee (PPE) between 2012-2014 throws open some interesting patterns. The data compares the performance of 13 major PSBs against 7 new private sector banks on BPE and PPE. Let’s look at the insights by the indicators.

Business Per Employee

Here, the PSBs outperforms the private banks comprehensively. With an average BPE of INR 12.61 Cr (2012), INR 14.03 Cr (2013), and INR15.11 Cr (2014) the PSBs were way ahead of their private peers with INR 9 Cr (2012), INR 9.54 Cr (2013), and INR 9.29 Cr (2014). In a nutshell for the PSB’s the BPE’s average growth between 2012-2014 stood at INR 13.92 Cr in comparison to INR 9.28 Cr for their private peers. Interestingly, 31% of PSBs saw a steady growth in BPE in the three-year period in comparison to 29% of Private banks. IDBI ruled the roost with a jaw-dropping average BPE growth of INR 24.72 Cr!

Profit Per Employee

The story spins dramatically here. The Private banks with an average growth in PPE in the 3 yr period of INR 11.60 lakhs leads the PSBs with INR 7.11 lakhs. Yes Bank beats the entire industry with a staggering INR 20.63 lakhs average PPE between 2012-2014. What’s particularly interesting here is Yes Bank’s PPE is 4x greater than SBI’s PPE of INR 5.54 lakhs! And almost double than the PSB PPE leader IDBI’s INR 10.72 lakhs! Moreover, ICICI which saw its BPE grew at an below average figure of INR 7.3 Cr posted fantastic PPE average of INR 13 lakhs, which is the third best after Yes Bank’s INR 20.63 lakhs and Axis Bank’s INR 14.66 lakhs. With just 29% of PSBs seeing a growth in PPE in comparison to 43% of Private banks their inability to extract more profit per employee was vividly exposed!

Moving the needle

While the data shows that the PSBs at least outsmarted their Private brethren in BPE but the backdrop behind the numbers tells a different story. As a matter of fact couple of interesting developments drove that growth. The first was the 2009 credit crunch which forced the Private banks to become ultra conservative. Bracket together the ambiguity that had enveloped the Private banks world over led most corporate houses and people to do business with PSBs. Secondly, a lot of PSB retired after 2010 which improved the BPE figures noticeably.

If we minus these factors the PSBs literally failed on both the parameters. What could be the reason for it? Is it because they shoulder the burden of various unsustainable govt requests for priority lending? Or the lack of skilled manpower, inadequate training and absence of technological efficiency is hitting the bottom line? Should the govt outsource the training of key risk management systems and specialized functions like credit appraisals, project financing, and firm valuation to specialized training institutions?