The banking and financial services industry (BFSI) was in robust health in 2022-23. This is the backdrop in which the Business Today-KPMG jury met to pick the winners in the banking and non-banking financial companies (NBFCs) categories for 2022-23. It covered quantitative metrics as well as qualitative inputs to assess the performance.
The exercise took about six months, with KPMG, the knowledge partner, ensuring robust evaluations. This year’s survey marked a significant addition of large NBFCs. KPMG reached out to more than 50 banks, 100 NBFCs, and fintech companies.
A high-powered jury, led by Anand Sinha, former Deputy Governor of the Reserve Bank of India; and comprising NSE MD & CEO Ashishkumar Chauhan; Pallav Mohapatra, MD & CEO of asset reconstruction company ARCIL; Rajiv Kaul, Executive Vice Chairman & CEO of business services company CMS Info Systems; Ranu Vohra, Co-founder & Executive Vice Chairman of financial services firm Avendus; and N.S. Kannan, former ED of ICICI Bank.
Discussions for the Bank of the Year award proved challenging, with HDFC Bank and ICICI Bank emerging as front-runners. After carefully considering the strengths and challenges both lenders faced, the jury voted for a joint award. But elsewhere, the decision was unanimous. This was in bestowing the Lifetime Achievement Award upon Uday Kotak, Founder and Director of Kotak Mahindra Bank. In all, the jury decided 11 winners in 10 award categories. There are also six winners based on a quantitative study.
QUANTITATIVE AWARDS
For rankings based on financial performance, data was taken from annual reports for FY20 to FY23. The survey covered 53 commercial banks that published annual reports in the public domain or provided them before November 30, 2023. Foreign banks with a balance sheet size of less than Rs 25,000 crore as on March 31, 2023, were not considered. Also not covered were banks that had not completed four years of operations in India as on March 31, 2023, or were involved in mergers in the last three years, or were under liquidation.
The Ranking Process
The banks were divided between ‘Indian banks’ (public and private sector 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, 2023.
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/p>
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 36 subparameters:
Growth: There were 10 subparameters, which included growth over FY22 in total deposits, alongside three-year (two-year
for Canara Bank, Indian Bank, Punjab National Bank, and Union Bank of India) compound annual growth rate (CAGR) of total deposits; growth over FY22 in loans and advances, alongside three-year (two-year for Canara Bank, Indian Bank, PNB, and Union Bank of India) CAGR in loans and advances; growth over FY22 in fee income, alongside three-year (two-year for Canara Bank, Indian Bank, PNB, and Union Bank of India) CAGR in fee income; growth over FY22 in operating profit, alongside three-year CAGR in operating profit; and absolute increase in market share of deposits and CASA balances.
Size: There were three subparameters here, including size of total deposits, operating profit, and size of balance sheet as on March 31, 2023.
Strength: There were four overarching sub-parameters in this category, each with further sub-divisions as set out below:
Quality of assets: : Increase in gross non-performing assets (NPAs): Additions to gross NPAs during the year as a percentage of average net loans and advances (i.e. average of closing balance of FY22 and FY23); NPA coverage: provisioning as on March 31, 2023, for NPAs as percentage of gross NPA closing balance; net NPAs as ratio of net advances: gross NPA closing balance net of provisioning as on March 31, 2023, expressed as a percentage of net advances; gross NPA as a ratio of gross advances: gross NPA closing balance as on March 31, 2023, expressed as a percentage of gross advances; secured net advances to total net advances:secured net advances to total net advances as on March 31, 2023; divergence in gross NPAs: difference between gross NPAs as per 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 reported by the bank as a percentage of reported profit before provisions and contingencies; deposits of the 20 largest depositors as a share of total deposits, advances to the 20 largest borrowers as a percentage of total advances, exposure to the 20 largest borrowers as a percentage of total exposure.
For rankings based on divergence in gross NPAs and provisioning for NPAs, banks that have less than 15% and 10% divergence, respectively, and banks that have no divergence were assigned the highest rank. To determine rankings based on the provision coverage ratio (PCR), banks that had no NPAs and those that had a PCR of 100% were assigned the highest rank.
Productivity and efficiency: Cost to income ratio: Operating expenditure as percentage of operating income; cost to average asset ratio: operating expenditure as a percentage of average total assets (i.e. average of closing balance of FY22 and FY23); absolute increase in return on assets: basis points increase in return on assets (net profit over total assets) from FY22 to FY23; percentage increase YoY in ratio of operating profit to total income; profit per employee.
Quality of earnings:Return on assets: ratio of net profit to average total assets; fee income as a percentage of total income; return on capital employed: reported net profit divided by average net worth (i.e. average of closing balance of FY22 and FY23); NIM: 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 FY23; 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
Banks were assigned a score for each of the 36 sub-parameters based on their rank. That was multiplied by the parameter’s weight to arrive at the final score. The results were aggregated to arrive at the final rankings. In all, 36 banks were not considered in FY23.
QUANTITATIVE AWARDS
(Upper Layer NBFCs)
For rankings based purely on financial performance, data was taken from published annual reports of NBFCs for FY20 to FY23. The survey covered 12 NBFCs out of 15 classified in the upper layer (NBFC-UL) by the RBI. One classified as a core investment company and two involved in mergers in the last three years were not considered.
The ranking process NBFCs were judged on three parameters—Growth, Size and Strength:
Growth: There were six sub-parameters, which included growth over FY22 in loans, alongside three-year CAGR in loans; growth over FY22 in borrowings, alongside three-year CAGR in borrowings and growth over FY22 in operating profit, alongside three-year CAGR in operating profit.
Size: There were two subparameters—size of operating profits and size of balance sheet as on March 31, 2023.
Strength: There were five overarching sub-parameters:
Quality of Assets
Increase in gross stage 3 loans ratio: sdditions to gross stage 3 loans during the year as a percentage of average gross loans (i.e. average of closing balance of FY22 and FY23); PCR: provisioning for stage 3 loans as percentage of gross stage 3 loans as on March 31, 2023; net stage 3 loans as ratio of net loans: gross stage 3 loans closing balance net of provisioning expressed as a percentage of net loans as on March 31, 2023; gross stage 3 loan ratio: gross stage 3 loan balance as a percentage of gross loan balance as on March 31, 2023; impairment on loans to gross loans ratio: impairment on loans debited to the statement of profit and loss, including loans written off as bad debts (net of recoveries) in FY23, as a percentage of gross loan balance as on March 31, 2023; gross stage 2 loan ratio: gross stage 2 loan balance as a percentage of gross loan balance as on March 31, 2023; divergence in gross NPAs: difference between gross NPAs as computed by RBI following RBI regulations and reported by the NBFC as a percentage of addition to NPAs; divergence in provisioning for NPAs: difference in provision for NPAs as computed by RBI and reported by the NBFC as a percentage of reported profit before provisions and contingencies; secured loans to total loans: secured gross loans to total gross loans as on March 31, 2023.
Productivity and efficiency: Cost to income ratio: operating expenditure as percentage of operating income; cost to average asset ratio: operating expenditure as a percentage of average total assets; absolute increase in return on assets: basis points increase YoY in return on assets and YoY percentage increase in ratio of operating profit to total income.
Quality of earnings: Return on assets: ratio of net profit to average total assets; return on capital employed: reported net profit divided by average net worth; NIM: total interest income minus total interest expenses as percentage of average interest earning assets; penalties imposed by regulators; amount involved in frauds as required to be disclosed by the Master Direction - Monitoring of Frauds in NBFCs Directions, 2016 issued by RBI. NBFCs that had not provided fraud disclosure as required were ranked the lowest.
Liability management: Diversified funding mix; debt equity ratio: total of debt securities, deposits, borrowings and subordinated liabilities as a percentage of total equity share capital and other equity as on March 31, 2023.
Capital adequacy and liquidity coverage: Capital adequacy ratio: capital-to-risk weighted assets ratio for FY23; Tier I capital: total of equity capital and disclosed reserves; liquidity coverage ratio: ratio of HQLA to total net cash outflows.
Final Scoring and Rating
For each NBFC, a score was assigned for each of the 31 subparameters, based on rank. The score were multiplied by the parameter’s weight. The results were aggregated to arrive at the final rankings.
QUALITATIVE AWARDS
Three qualitative awards recognised the initiatives and strategies undertaken by banks in innovation, fintech collaboration, talent and workforce.
Best Bank in Innovation award: Banks had to describe their innovation initiatives across the five areas of customer experience, product innovation, business model, service delivery, and digital adoption. Every initiative was evaluated—based on area of impact, uniqueness of solution, adoption, and impact.
Best Bank in Fintech Initiative Award: Banks were asked to describe collaborations with fintech companies.
Best Bank in Talent & Workforce Award: Banks were evaluated across four critical focus areas under talent management and digitalisation; initiatives around diversity, equity, and inclusion; HR analytics, HR tech, automation and HR operating model; and innovation in talent acquisition
QUALITATIVE AWARDS
(Upper Layer NBFCs)
There were two awards:
Best Upper Layer NBFC Innovation award: Introduced to recognise promising initiatives across five areas: customer experience, product innovation, business model, service delivery, and digital adoption.
Best Upper Layer NBFC—Talent and Workforce Award: NBFCs were evaluated across four areas under talent management and digitalisation; initiatives around diversity, equity, and inclusion; HR analytics, HR tech, automation and HR operating model; innovation in talent acquisition.
QUALITATIVE AWARDS
(Payments, lending and value added services segments)
Fintech companies were evaluated under three qualitative award categories: Best in Payments, Best in Value Added Services, and Best in Fintech Lending. The key parameters considered were company health (years of operation, etc); business maturity (equity raised, etc); business volumes; differentiation (business models, etc); and, adoption levels across different customer segments and geographies, along with current industrial partnerships.