Return on Assets- India's Public Sector Banks : Is the regulator hesitant?

The X-Inefficiency ...

"The Reserve Bank has specified certain regulatory trigger points, as a part of prompt corrective action (PCA) Framework, in terms of three parameters, i.e. capital to risk weighted assets ratio (CRAR), net non-performing assets (NPA) and Return on Assets (RoA), for initiation of certain structured and discretionary actions in respect of banks hitting such trigger points.    The trigger points along with structured and discretionary actions that could be taken by the Reserve Bank are described below:

ROA less than 0.25% - restrictions on accessing/renewing costly deposits and CDs, entering into new lines of business, bank’s borrowings from inter-bank market, making dividend payments and expanding its staff; steps to increase fee-based income; contain administrative expenses; special drive to reduce NPAs and contain generation of fresh NPAs; and restrictions on incurring any capital expenditure other than for technological upgradation and for some emergency situations."

(Return on Assets (ROA) is a profitability ratio which indicates the net income  generated on total assets. It is to be computed by dividing net income by average total assets.)

Bank	June 2015	Mar 2015	Dec 2014	Sep 2014
Allahabad	0.27	0.37	0.21	0.29
Andhra	0.45	0.42	0.25	0.38
Baroda	0.60	0.35	0.83	0.49
BOI	0.08	-0.03	0.11	0.49
Canara	0.36	0.50	0.66	0.55
Central	0.28	0.24	0.27	0,21
Corporation	0.38	0.08	0.28	0.29
Dena	0.05	0.18	0.25	0.17
IDBI	0.16	0.65	0.13	0.15
Indian	0.43	0.44	0.60	0.69
IOB	0.02	0.05	-0.72	-0.35
Maharashtra	0.16	0.32	0.35	0.33
OBC	0.46	-0.32	0.04	0.55
PNB	0.46	0.20	1.00	0.53
PSB	0.18	-0.30	0.25	0.49
Syndicate	0.42	0.58	0.44	0.50
UCO	0.43	0.35	0.90	0.48
Union	0.55	0.47	0.34	0.42
United	0.17	0.35	0.22	0.21
Vijaya	0.41	0.28	0.11	0.43
D-SIBs
SBI	0.72	0.76	0.62	0.67
ICICI Bank	1.91	1.92	1.90	1.82

Source. Various Websites

 Note: ICICI Bank is in the private sector. 

Views expressed here are academic. The blog bears no risk or responsibility. The blog recommends no investment strategy.