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Picking The Winners

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In uncertain times, context is everything. That has never been truer than when putting together the analysis of the Businessworld-PricewaterhouseCoopers Best Banks Survey 2011. Ever since the global credit crisis of 2007, the financial services business, banking in particular, has been buffeted by far-reaching changes.

Granted, Indian banks have been largely insulated from the turmoil that European and American banks have been going through. But as economic growth in India has slowed, Indian banks have been stirred a little.

This Best Banks Survey 2011 covers three years of performance up to March 2011. Our eminent jury members — leading bankers and financiers — were aware that new and hard questions of past success could provide fresh insight into the direction of future performance.

The jury — Y.M. Deosthalee, chairman and managing director of L&T Finance Holdings; B. Sambamurthy, director of Institute for Development and Research in Banking Technology; Ajay Srinivasan, CEO, Aditya Birla Financial Services; and Mihir Doshi, managing director and country head, Credit Suisse Securities India — unanimously picked on an overarching theme: consistency and sustainability. This filter was applied to all the awards. The discussion was lively as the members debated the multitude of ways the idea of sustainability could be applied to the shortlist of award winners; they brought their experience as bankers and financial services professionals to the assessments.

The Methodology Discussion
While debating the shortlist on fastest-growing banks, the panel suggested that the weight given to growth in the scoring be adjusted to include the sustainability factor; one approach, they say, would be to weigh growth with asset quality and the breadth of operations. They suggested that their intuitive assessment of asset quality should be buttressed by a quantitative analysis that included aspects of sustainability.

Members also weighed the growth parameter against the risk assessment process within the banking system. To borrow an analogy from the ancient Greek playwright Euripides, we should judge a tree from its fruit, not its leaves. The consequence of such an approach, the jury suggested, would be to compare banks against best practice examples.

The jury admitted that during FY09-FY11, maintaining consistent results was difficult; in the pursuit of growth in profitability, banks' performance may have been driven by wholesale deposits rather than core demand deposits.

While the growth numbers may have looked impressively large from that choice, the volatility in the underlying source of growth capital may have been ignored. Perhaps the analysis should also look at the degree of variance from the median in the sample to estimate whether the growth seemed a little too good to be true. While the idea of ‘fastest growing bank' may have been a valid one in 2007, "growth for growth's sake is no longer the mantra", was the consensus view.

Jury members also suggested that while scale — as in growth — was a factor in the analysis, size also appeared to tilt the bias in the direction of the bigger banks. They suggested weighting the scoring in a way that would correct the sample for size. The breadth of operations, profitability and long-run growth together should be the arbiter of the shortlist.

This year's jury echoed an observation of last year's jury about the importance of getting the customer's point of view in, through a survey. In particular, assessments of performance for the award of the most socially responsive bank should include customers' views. A similar argument was made for creating better methods for assessing how technology-friendly a bank could be. On the one hand, while technology adoption would help a bank's productivity and efficiency — metrics that the technology survey applied — the customer experience of ease of transactions was not captured.

Deciding The Winners
In naming HDFC Bank the best large bank, the jury said it was hard to argue with the consistent performance over years that HDFC Bank had achieved. Choosing the winner in the mid-size category was harder; after intensive discussion, the jury agreed that the turnaround of IndusInd Bank deserved recognition.

The choice of Karur Vysya Bank (KVB) as the winner in the best small bank category — it is the second year in a row KVB has won this award — is a recognition of the critical importance of consistent performance. Overall, the jury said, the best bank would have to be so over the long haul.

The choice of Bank of Baroda as winner in the fastest growing large bank category was also recognition of the jury's dictum of ‘fast but not furious'. Yes Bank, a repeat winner on this category for the third year was an easy choice: its consistency won the day.

KVB was picked as the fastest growing small bank, a testimony to the quality of its growth. ICICI Bank was another repeat winner as the most tech-friendly bank; the jury members pointed out, the difference between heavy spending and smart spending was that smart spending created the winning streak.

The Banker of the Year was drawn from the all nominees of this year's survey. The jury opined that M.D. Mallya's stewardship of a large public sector bank under difficult conditions made the difference. Punjab National Bank was easily ahead of the pack when it came to the most socially-responsive bank, making the jury's decision rather easy.

As banks ready for complying with Basel III norms and battle an economic slowdown, it seems the theme of sustainability will still be the driving force. To see if that persists, watch this space: same time, next year.

(This story was published in Businessworld Issue Dated 28-11-2011)