Some Indian banks\u2014both state-run as well as private\u2014have started screaming from the rooftops about how well they have been doing.
\nCanara Bank\u2019s total business has crossed Rs.6 trillion and that of Indian Overseas Bank has crossed Rs.3.5 trillion.
\nThe total business figure for Oriental Bank of Commerce is Rs.3 trillion; Dena Bank Rs.1.5 trillion; Federal Bank Ltd Rs.1 trillion and South Indian Bank Ltd Rs.75,000 crore.
\nThey have all been splashing their ads across national dailies for the past few weeks. And, there are too many zeros in their ads to make them look impressive and cover the breadth of a paper, across columns. So, instead of saying Canara Bank\u2019s total business has crossed Rs.6 trillion, or Rs.6 lakh crore, the ad copy prefers to use the figure\u2014Rs.6,00,000,00,00,000. This possibly demonstrates better the scale of the bank\u2019s achievement.
\nIn a slowing economy, growth of business is indeed credible and these banks\u2019 obsession for zeroes could perhaps be traced back to the fact that the concept of zero is India\u2019s contribution to the world of mathematics. (Well, who has not heard of Indian mathematician and astronomer Aryabhata?) But what is more intriguing is the banks\u2019 obsession for so-called \u201ctotal business\u201d.
\nWhat is total business? It is deposits mobilized from the public plus loans given to borrowers. Banks raise money from the public in the form of deposits and this, along with capital, reserves and money borrowed from the market, support their loan and investment growth. While money thus raised\u2014both from depositors as well as borrowings from other sources, including other banks\u2014is a bank\u2019s liability, loans and investments are assets. The ideal way of demonstrating a bank\u2019s growth is growth in assets and not \u201ctotal business\u201d\u2014a metric no bank uses in any part of the globe except India.
\nWhy don\u2019t banks add investments, too, to show the bulge of their total business? It could be because of the fact that historically, investments in government bonds are statutory (as part of the statutory liquidity ratio, or SLR) and, hence, banks do not take pride in this business.
\nThe concept of total business is baseless. Whom do the banks want to impress by their total business\u2014the consumers, owners or investors? The consumers do not care about the scale of business; they are concerned about the quality and reach of service. The owner and the investors are probably more interested in knowing the financial ratios such as return on assets, return on equity, price-to-book value or, say, bad assets as a percentage of loans and net interest margin (NIM)\u2014the spread between a bank\u2019s cost of deposits and earnings from loans. These metrics demonstrate the efficiency of a bank.
\nIt will be nice to see a bank claiming to be a zero-NPA (non-performing assets) bank, or the bank with the highest NIM, instead of playing with so many zeroes and talking about meaningless total business. If they want to focus on scale, total assets are a better parameter. Incidentally, the total assets of the entire Indian banking system are less than those held by each of the four largest Chinese banks.<\/p>\n","protected":false},"excerpt":{"rendered":"
Some Indian banks\u2014both state-run as well as private\u2014have started screaming from the rooftops about how well they have been doing. Canara Bank\u2019s total business has…<\/p>\n","protected":false},"author":1,"featured_media":1776,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-1303","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"acf":[],"_links":{"self":[{"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/posts\/1303","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/comments?post=1303"}],"version-history":[{"count":1,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/posts\/1303\/revisions"}],"predecessor-version":[{"id":1305,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/posts\/1303\/revisions\/1305"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/media\/1776"}],"wp:attachment":[{"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/media?parent=1303"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/categories?post=1303"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/tags?post=1303"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}