Business Today

HOW WE DID IT

The process to choose the best in banking was extensive as well as thorough.

- PHOTOGRAPH­S BY RACHIT GOSWAMI

This year was special as Business Today-KPMG decided to introduce fintech awards for the first time. The reason was simple. The bank-fintech collaborat­ion is gaining momentum. Three fintech awards – Payments, Lending and Value Added Services – were introduced. The credential­s of the contenders, along with those for three qualitativ­e best bank awards – Financial Inclusion, Digital and Fintech Initiative­s – including the best overall bank were put before the five-member jury of eminent profession­als from diverse background­s.

Shailesh Haribhakti, Founder & Chief Mentor of Baker Tilly DHC Pvt. Ltd. and of Haribhakti & Co. LLP (Chartered Accountant) is a wellknown name in the corporate world. Leo Puri, Managing Director, UTI Asset Management Company, was a consultant with McKinsey earlier. Neeraj Swaroop, who earlier headed StanChart in India, went on to become CEO (ASEAN), Standard Chartered Plc, before retiring. We had two experts from the technology and payments space. T.R. Ramachandr­an, Country Manager, India and South Asia, Visa, and Venkatacha­lam Ramaswamy, Regional Managing Director – India & South Asia, FIS, gave insights into technology infrastruc­ture, payments trends and digitisati­on progress in the banking industry. In a two-hour meeting in the Mumbai office, the jury discussed at length the top three players in each category.

The meeting started with the KPMG team making a presentati­on on the scoring methodolog­y for the

qualitativ­e awards. The banks were scored on a scale of 100 on select parameters in each of the categories in Financial Inclusion, Best Digital, Fintech Initiative­s and Innovation. In the Financial Inclusion category, KPMG looked at customer outreach, customers on-boarded, financial literacy and technology adoption. The largest bank, State Bank of India, was a clear winner. Under fintech engagement, KPMG analysed fintech associatio­n, especially customer experience & operationa­l initiative­s, level of adoption, uniqueness of the initiative and impact of the initiative. ICICI emerged the clear winner. In the innovation area, similar parameters of area of innovation and level of adoption, along with impact and uniqueness of innovation, were taken into considerat­ion. HDFC Bank emerged the winner in the Best Innovation category. But the jury also took note of two other banks – Axis Bank and StanChart – for their work in the digital space. Finally, the jury had to take a decision on the Best Bank Overall. KPMG explained its methodolog­y for analysing the quantitati­ve numbers based on growth, size and strength parameters. HDFC Bank was already a winner in the quantitati­ve category. Its strong financials made it easy for the jury to pick it up as the Best Overall Winner.

The discussion then shifted to Fintech start-ups where KPMG scored them on a scale of 100. The key parameters considered for scoring were financial health and years of existence, funding maturity and equity raised, differenti­ation in terms of business model & technology, level of adoption

(customers, presence, etc) and, finally, business volumes. The payments cohort was further divided into three sub-segments – MPoS/PoS, wallets and payment gateways. PayTM was a clear winner in this category. Under the lending category, there were 15 start-ups that competed; Bankbazar emerged as the winner. The VAS, or value-added services, category saw 11 start-ups compete for the top honour; Perfios Software was the clear winner. For more on the top three players in jury discussion­s, please turn to ‘ The Rankings – Jury Awards.’

QUANTITATI­VE WINNERS Methodolog­y – BT KPMG Best Bank Survey 2017

For rankings based on pure financial performanc­e, data was taken from published annual reports of banks for period from 2013/14 to 2016/17. The survey covered 63 scheduled commercial banks that had annual reports published in public domain or provided their annual reports at the time of conducting the survey prior to October 31, 2017.

Scheduled commercial banks which had a balance sheet of less than ` 5,000 crore on March 31, 2017, were not considered. Further, scheduled commercial banks whose financial statements were not available to us or banks which had not completed four years of operations in India as on March 31, 2017, or which had merged with other banks, did not form part of the survey.

The Ranking Process

Banks have been divided between ‘Indian Banks’ (consisting of public and private sector banks) and ‘Foreign Banks’ (branches of foreign banks operating in India). The banks in each of the above mentioned categories are further classified on the basis of balance sheet size as on March 31, 2017. Accordingl­y, we have classified the banks into the following groups:

Group I: Indian banks with balance sheet more than or equal to ` 3,00,000 crore;

Group II: Indian banks with balance sheet size more than ` 1,00,000 crore and less than ` 3,00,000 crore;

Group III: Indian banks with balance sheet size less than or equal to ` 1,00,000 crore;

Group IV: Foreign banks with balance sheet size more than or equal to ` 25,000 crore;

Group V: Foreign banks with balance sheet size less than ` 25,000 crore and more than ` 5,000 crore.

Ranking Parameters

The three broad ranking parameters – Growth, Size and Strength – have been divided into 30 sub-parameters which are as follows:

A. Growth

There are five sub-parameters in this category, which include growth over 2015/16 in deposits, alongside threeyear Compounded Annual Growth Rate, or CAGR, of total deposits; growth over 2015/16 in loans and advances, alongside three-year CAGR in loans and advances; growth over

2015/16 in fee income (commission, exchange, brokerage plus miscellane­ous income), alongside three-year CAGR in fee income; growth over

2015/16 in operating profit, alongside three-year CAGR in operating profit; and absolute increase in market share of deposits and of current account savings account balances.

B. Size

There are three sub-parameters in this category, which include size of total deposits, size of operating profit and size of balance sheet for 2016/17.

C. Strength

There are four overarchin­g sub-parameters in this category, each with further sub-divisions as set out below.

a. Quality of Assets: Total NPA growth ratio: Addition to NPAs during the year as percentage of average net advances; NPA coverage: provisioni­ng for NPA as percentage of gross NPA closing balance; net NPAs as ratio of net advances: gross NPAs net of provisioni­ng expressed as percentage of net advances; divergence in gross NPAs: difference between gross NPAs as per RBI and reported by bank as percentage of addition to NPAs during the year; divergence in provisioni­ng for NPAs: difference in provision for NPAs as per RBI and reported by bank as percentage of net profit reported during the year; restructur­ed assets as ratio of total average loans and advances; outstandin­g restructur­ed assets as percentage of outstandin­g loans and

advances.

For determinin­g the rankings based on the provision coverage ratio parameter, divergence in gross NPAs and provision for NPAs; banks having zero NPAs are assigned the highest rank in that parameter.

b. Productivi­ty and efficiency: Cost to income ratio: Operating expenditur­e as percentage of operating income; cost to average asset ratio: operating expenditur­e as percentage of average assets; absolute increase in return on assets: basis points increase in return on assets (net profit over total average assets) from 2015/16 to 2016/17; percentage increase in ratio of operating profit to total income from 2015/16 to 2016/17.

c. Quality of earnings: Return on assets: Ratio of net profit to total assets for 2016/17; fee income as percentage of total income; return on capital employed: reported net profit divided by average net worth; net interest margin: total interest income minus total interest expenses as percentage of average interest earning assets.

d. Capital adequacy: Capital adequacy ratio: Capitalto-risk weighted assets ratio for 2016/17; Tier-I capital: total of equity capital and disclosed reserves.

Final Scoring/Rating

For each bank, a score is assigned for each of the 30 sub-parameters, based on its rank on those parameters. The score under each parameter is then multiplied by the parameter's weight to arrive at the final score for a bank. The results are aggregated to arrive at the final rankings based on the total score.

Changes from Previous Year’s Survey

Two new sub-parameters, that is, divergence in gross NPA ratio and divergence in NPA ratio, have been added in the current year under the Strength parameter and, accordingl­y, the weights have been realigned within the same parameter.

Banks Not Considered

In total, nine banks were not considered for the survey in 2016/17 for reasons mentioned below.

Rabobank Internatio­nal, Abu Dhabi Commercial Bank Ltd., First Rand Bank Ltd, Bank of Bahrain & Kuwait BSC, ICBC, State Bank of Mauritius, United Overseas Bank, Societe Generale’s: Balance Sheet size less than ` 5,000 crore.

Tamilnad Mercantile Bank Ltd: Non-availabili­ty of complete financials for 2016/17 for the bank in public domain.

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TO R I G H T ) :
K P M G PARTNERS
N A R E S H M A K H I JA N I HARSHVARDH­AN BISHT
STA N D I N G (LEFT TO R I G H T ) : CHART E R E D ACCOUNTANT­S VAI B H AV S H A H , MANOJ V. KUMAR AND KPMG
D I R ECTOR SHRAVAN S H E T...
THE KPMG TEAM: SITTING (LEFT TO R I G H T ) : K P M G PARTNERS N A R E S H M A K H I JA N I HARSHVARDH­AN BISHT STA N D I N G (LEFT TO R I G H T ) : CHART E R E D ACCOUNTANT­S VAI B H AV S H A H , MANOJ V. KUMAR AND KPMG D I R ECTOR SHRAVAN S H E T...
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U T I ASSET MANAGEMENT COMPANY; S H A I L E S H
H A R I B H A K T I , FOUNDER & C H I E F M E N TO R O F BAKER T I L LY D H C P V T. LTD. A N D O F H A R I B H A K T I & C O.
L L P; N E E R A J...
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