balance sheet analysis of dhanlaxmi bank and sib

COMPARATIVE FINANCIAL ANALYSIS

CHAPTER 1

INTRODUCTION


a. The Topic

A COMPARATIVE FINANCIAL ANALYSIS OF SOUTH INDIAN BANK AND DHANLAXMI BANK.

b. Reason for selection of this topic

This topic enables to study in depth about the financial activities of both the banks. Every new generation banks are trying to create their own place in the market. Today banking sector has grown to such a height that it is the one of the most competitive sector in India. This study helps to know about the financial position of both the banks.

c. Reason for the need of the topic for the company. For banks, my topic helps to know their financial position. It is a way by which financial stability and health of a concern can be judged. It also helps to have an idea of the working of a concern. It also helps in forecasting purposes also. For the public, my topic will help to know about the financial position of the bank and also the help in their investment and borrowing decisions.

d. Learning from the study.

I have learned many things from this study. I came to know about the financial statement of a bank, various types of accounts prepared in bank, financial report contents. At the same time I learnt how to interact with the bank officials. This study also helped me to understand the various financial services provided by banks.


CHARTER – 2

ORGANISATION PROFILE


A. Industry Profile

A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers with capital deficits to customers with capital surpluses. Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account.

Banking is generally a highly regulated industry, and government restrictions on financial activities by banks have varied over time and location. The current set of global bank capital standards is called Basel II. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries such as the United States banks are prohibited from owning non-financial companies. In Japan, banks are usually the nexus of a cross-share holding entity known as the keiretsu. In Iceland banks had very light regulation prior to the 2008 collapse.

The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, and has been operating continuously since 1472

Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India which started in 1786, and the Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as


quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial bank, which, upon India's independence, became the State Bank of India.

The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included:

The Reserve Bank of India, India's central banking authority, was nationalized on January 1, 1949 under the terms of the Reserve Bank of India Act, 1948

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India to regulate, control, and inspect the banks in India."

The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The meeting received the paper with enthusiasm.

Thereafter, her move was swift and sudden. The Government of India issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit


delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalized banks from 20 to 19. After this, until the 1990s, the nationalized banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.


B. Company profile

B.1. South Indian bank

South Indian Bank Limited (SIB) is a private sector bank headquartered at Thrissur in Kerala, India. It is headed by Dr.V A Joseph, Managing Director & CEO of the bank. South Indian Bank has 580 branches and 3 extension counters spread across more than 26 states and union territories in India. It has set up 375 ATMs all over India. In the current year 2010-11, the bank is planning to add 60 more branches throughout India which aims in having presence in all the states of India. The current growth plan of the bank is to establish 750 branches, 750 ATMs and 75000 crores of business by the end of financial year 2013. The bank offers major services in various segments of accounts and deposits, loans, mutual funds, insurance, money transfers and other value added services. The bank has been appointed as the largest service provider (point of sale) for the New Pension Scheme (India) launched by the Government of India.

South Indian Bank was formed on the 29th January 1929 by a group of 44 enterprising men, who with a capital of only Rs 22,000.00 joined together at Thrissur city to liberate the business community from the clutches of greedy money lenders. The bank received very good support from the public at large. Initially the growth was slow but steady. The number of branches opened each year testified its stability and popularity. It was included in the second schedule of the Reserve Bank of India and became a scheduled Bank on 7th August 1946. SIB was the first scheduled Bank in the private sector in Kerala to get the license under section 22 of the Banking Regulation Act 1949 from RBI on 17th June 957. The bank gained the confidence and received the patronage of the public in increasing measure over the years and in the 1960s when there was a crisis in the banking industry in Kerala, South Indian Bank took over fifteen other smaller banks.

Vision

To emerge as the most preferred bank in the country in terms of brand, values, principles with core competence in fostering customer aspirations, to build high quality assets leveraging on the strong and vibrant technology platform in pursuit of excellence and customer delight and to become a major contributor to the stable economic growth of the nation.

Mission To provide a secure, agile, dynamic and conducive banking environment to customers with


commitment to values and unshaken confidence, deploying the best technology, standards, processes and procedures where customer convenience is of significant importance and to increase the stakeholders’ value.

Important milestones

First among the private sector banks in Kerala to become a scheduled bank in 1946. First bank in the private sector in India to open a Currency Chest in April 1992. First private sector bank to open a NRI branch in November 1992. First bank in the private sector to start an Industrial Finance Branch in March 1993. First among the private sector banks in Kerala to open an "Overseas Branch" in June

1993. First bank in Kerala to develop in-house, fully integrated branch automation software. First Kerala based bank to implement Core Banking System. Third largest branch network among Private Sector banks in India

Awards

Best Bank in Asset Quality Award- Dun & Bradstreet. No. 1 in Asset Quality- Business Today Ranking of Banks. Best Performer in Asset Quality- Analyst 2008 Survey. Top NPA Manager- ASSOCHAM- ECO Pulse Survey. Best Old Private Sector Bank- Financial Express India's Best Banks 08-09. Best Asian Banking Website- Asian Banking & Finance Magazine, Singapore. Best private sector bank in India in the service quality segment-Outlook Money - CFore

Survey

Special award for excellence in Banking Technology from IDRBT (Institute for Development & Research in Banking Technology) – the technical arm of the Reserve Bank of India as a national level recognition to the excellent contribution made in the area of Information Systems Security Policies and Procedures.


Financial result for the year 2009-10

Total Business: 39125 crores Revenues: 2144.18 crore Profit After Tax: Rs 233.76 crore (20% growth) Stock Market Capitalization: Rs 1,574.75 crore as on Feb 23, 2010.

The bank showed a consistent growth in its earnings and grew over 20% which is higher than the industry average. The bank targeted a business of 36000 crores for the financial year 2009-10, but the growth was so quick that it was achieved before time. Later the target was increased to 38000 crore and that also was exceeded before the quarter end. South Indian Bank is targeting a total business of 48000 crore for the FY 2010-11.


B.2 Dhanlaxmi bank

Dhanlaxmi Bank Ltd is an old private sector bank headquartered in Thrissur city, Kerala, the "Cultural Capital of Kerala". It is headed by Amitabh Chaturvedi, Managing Director and CEO of the bank. The bank is focusing mostly on Southern states like Karnataka, Tamil Nadu, Andhra Pradesh and Kerala. In 2009, bank started a brand transformation initiative which will include changing the logo and related branding treatment across all its customer touch-points.

Dhanlaxmi Bank Ltd was incorporated on 14th November 1927 by a group of enterprising entrepreneurs at Thrissur city, the "Cultural Capital of Kerala" with a capital of Rs 11,000 and 7 employees. It became a Scheduled Commercial Bank in the year 1977. It has today attained national stature with 272 branches and 449 ATMs spread over the states of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra, Gujarat, Delhi, West Bengal, Madhya Pradesh, Punjab, Uttar Pradesh, Rajasthan, Chandigarh, Goa, and Haryana. Current employee strength is around 4400.

The Dhanlaxmi Bank serviced a business of 8,212 crore (US$1.78 billion) as on 31.03.2009 comprising deposits of 4,969 crore (US$1.08 billion) and advances of 3,243 crore (US$703.73 million). The bank made a net profit of 57.45 crore (US$12.47 million) for the year ended 31st March 2009. The Capital Adequacy Ratio of the Bank as on 31.03.2009 was 14.44% (Basel I) and 15.38% (Basel II) and its net worth exceeded 400 crore (US$86.8 million) as on that date. The bank’s business growth rates during the year 2008-09 far exceeded that of the banking industry.

The Dhanlaxmi Bank has deployed technology widely as an instrument for enhancing the quality of customer service. It has introduced Centralized Banking Solution (CBS) on the Flexcube Platform at all its branches for extending anywhere/anytime/anyhow banking to its clientele through multiple delivery channels. The bank has set-up a state-of-the-art Data Centre in Bangalore, to keep the networked system operational round the clock. A Disaster Recovery Centre is also operational at Thrissur for meeting various contingencies.


Vision & Mission

"To become a strong and innovative bank with integrity and social responsibility and to maximize customer satisfaction and the satisfaction of its employees, shareholders and the community."

Achievements

Serviced business worth Rs. 12,155 crores as on 31 March 2010, comprising deposits

worth Rs. 7098 crores and advances worth Rs. 5056 crores.

Earned a net profit of Rs. 23.30 crores for the financial year ended 31st March 2010,

with a capital adequacy ratio of 12.99% (Basel II) during the same period.

Put in place the Real Time Gross Settlement (RTGS) and National Electronic Fund

Transfer (NEFT) systems to facilitate large value payments and settlements online in

real time, on a transaction-by-transaction basis.

Set up NRI Boutiques (Relationship Centers) across nine locations in Kerala and

Tamil Nadu, with plans to open specialized NRI outlets at potential locations with

emphasis on impeccable service levels.

Dispensed Micro Credit among private and public banks in Kerala, the Bank's

outstanding under micro credit was Rs. 270.62 crores at the end of March 2009.

Attained ISO 9001-2000 certification for the Bank's corporate office at Thrissur and

industrial finance branch at Kochi.

Milestones

1927 - Founded on 14 November, 1927, at Thrissur, Kerala

1975 - Set up the first branch outside the home state of Kerala, at Chennai Mount

Road

1977 - Designated as Scheduled Commercial Bank by the Reserve Bank of India

(RBI)


1980 - 100-strong branch network

1986 - Total business of Rs. 100 crores

1996 - First public issue. Total business of Rs. 1,000 crores

2000 - Installed the first ATM

2002 - First Rights Issue

2002 - Platinum Jubilee year

2007 - Total business of Rs. 5,000 crores. 80th Anniversary year

2008- Total business of Rs. 7,500 crores. Second Rights Issue

2009/10- Expanded branch network to 270 branches. Total business surpassed Rs.

12,000 crores


CHAPTER-3

RESEARCH OBJECTIVES AND SCOPE OF RESEARCH PROJECT


a. Problem Definition.

To analyze the financial position of both Dhanlaxmi bank and South Indian bank. And to compare the financial position of both the banks.

b. Objective of research study.

-Primary Objective

To analyze the financial statement of both the banks and have a comparison on basis of the financial ratios.


CHAPTER-4

RESEARCH METHODOLOGY AND LIMITATION


a .Research plan

Preliminary Investigation

I discussed with the managers of both the banks firstly for getting an overall idea regarding the working of the banks. Then I collected all relevant information from the office about the formation, focus, suppliers, different services provided by them, etc. By using all this data I prepared the organization profile. Then I collected information about financial department of each banks and learned its procedures.

Then I had interview with accountants of both bank and collected their knowledge about the financial activities of the banks.

b. Research Design

1. Developing the Research Plan

Initially I studied both the banks as a whole, their financial activities and their financial

reports. Then I developed the ratios of both the banks with the help of their annual report for

the last five years.

1. Data Collection Secondary data The data for my study is collected from banks and their annual reports. Some data regarding

my work is also collected from the website of both the banks.

c. Research Limitations * Time Constraints

* Banks were not willing to provide the complete data required.

* Lack of knowledge about the financial analysis of banks


CHAPTER-5

DATA ANALYSIS, INTERPRETATION AND PRESENTATION


Ratio analysis

Ratio analysis is one of the most powerful tools of financial analysis. A ratio can be defined as the indicated quotient of two mathematical expressions and as the relationship between two or more things.

1. Return on total assets

This ratio is calculated to measure the profit after tax against the amount invested in total assets. It is done to ascertain that whether the assets are properly utilized or not. The higher the ratio, the better it is for the concern.

The ratio is calculated as

The return on total assets = net profit after tax / total assets * 100

Dhanlaxmi bank

Table 5.1

Year Return on total assets 2010 5.9 2009 22.27 2008 13.01 2007 8.7 2006 3.47

Source: Financial reports of various years


Graph 5.1

The graph5.1 shows that return for Dhanlaxmi bank has been very high in 2009. Till 2008, there has been steady increase and in 2009, it was in all time high of 22.27%.

In 2010 there was a decrease in profit by Rs.34.68 crores and also a high increase in the total asset by more than Rs.100 crores. This resulted in a heavy decrease in the return on total asset ratio of the bank. The year 2009 saw a highest return on the total asset due to the increase in profit from Rs.28.46 crores to Rs.57.27 crores. There has also been small increase in assets also. From the year 2006 to 2008 there was a steady increase in the ratio and in all the years there was an increase in profit by around Rs.6 – 7 crores. All these changes in the ratio is caused mainly by the change in the current assets and as a financial institution deals more with current assets, there occurs high fluctuations in this ratio.

South Indian bank

Table 5.2

Year Return on total assets 2010 33.9 2009 37.06 2008 33.52 2007 23.9 2006 11.53


0

5

10

15

20

25

2006 2007 2008 2009 2010

Dhanlaxmi bank

Return on total assets

Year


Graph 5.2

The graph 5.2 shows that the bank has a steady increase in their return on total assets till 2009. But in 2010 this has gone down to 33.9% from 37.06%. This was due to the high increase in total assets than compared to previous years. There was an increase of 164.37 crores in total assets whereas net profit had the same growth rate.

From 2006 to 2009 there was a steady rate in growth f total assets and net profit and also in 2007 the value of total assets. This helped the bank to maintain the steady growth of return throughout these years.

Comparison

While comparing both the banks return on total assets it figured out that both the banks were able to maintain their return from 2006 to 2009. Although the return for Dhanlaxmi bank was lesser than that of the SIB the growth rate of Dhanlaxmi bank was higher than that of SIB’s. In the year 2010 both the bank’s ratio saw a decline but Dhanlaxmi bank faced the lowest ratio in last four years. SIB was able to maintain the ratio at 33.9%, from 37.06%, whereas, Dhanlaxmi bank’s ratio went up to5.9% from 22.27%. This was because the profits of Dhanlaxmi bank saw a decline in the year 2010 and a high increase in the assets also.

0

5

10

15

20

25

30

35

40

2006 2007 2008 2009 2010

South Indian bank

South Indain bank

Year


2. Current ratio

This ratio is also known as working capital ratio. This ratio is the most widely used ratio. It shows the ability of the to cover the current liability with current assets. Generally 2:1 is considered ideal for a concern i.e., current assets should be twice of the current liabilities.

The ratio is calculated as

The current ratio = current assets / current liabilities

Dhanlaxmi bank

Table 5.3

Year Current ratio

2010 0.52

2009 0.58

2008 0.46

2007 0.42

2006 1.01


Graph 5.3

0

0.2

0.4

0.6

0.8

1

1.2

2006 2007 2008 2009 2010

Dhanlaxmi bank

Current ratio

Year


The graph 5.2 shows that Dhanlaxmi bank has not been able maintain the current ratio since 2007 at 2:1. In 2006, the ratio was at 1.01 which means that the value of current asset and current liabilities was equal. But after the ratio has gone down around 0.5. This may result in difficulty in paying of the debts.

In the year 2010, value of current liabilities was almost double of current assets. The current asset was valued at Rs.223.04 crores and current liabilities was valued at Rs.427.78 crores. This resulted in the current ratio of 0.52.

In the year 2009, the current assets were valued at Rs.147.13 crores and current liabilities were valued at Rs 249.78 crores. This resulted in a current ratio of 0.58.

In the years 2008 and 2007, the current ratio was going down. In the year 2008 the current assets were valued at Rs. 116.38 and the current liabilities were valued at Rs.248.33, which was more than twice the current assets.

In the year 2007 also the current liabilities were valued double the current assets were the current assets were valued at Rs.88.63 crores and the current liabilities were valued at Rs.207.62 crores. This resulted in a current ratio of 0.42.

In the year 2006, the bank was able to maintain current assets more than the value of current liabilities. In 2006 the current assets were valued at Rs.182.62 crores and current liabilities were valued at Rs.181.49 crores. This resulted in the highest ratio of all the five years, 1.01.

South Indian bank

Table 5.4

Year Current ratio

2010 0.58

2009 0.38

2008 0.33

2007 0.4

2006 0.46



Graph 5.4

The graph 5.4 shows that the South Indian bank also has a low current ratio. And in 2008 and 2009 it was very low and gone below 0.4 and in 2010 it has achieved an increase to 0.58. Thus it can be figured out that the bank has to face a difficulty in paying off their liabilities and it also reveals that the bank has been trying to increase the value of current assets in the year 2010. The current asset in the year 2009 was valued at Rs. 284.11 crores, which increased to Rs.415.30 crores in the year 2010.

In 2006, the ratio was 0.46 which was very low. The current assets were valued at Rs.284.53 crores and the current liabilities were valued at Rs. 607.19 crores. In the following years the value of current assets was decreased and the current liabilities went on increasing. As a result the current ratio remained low.

During the years 2008 and 2009 the current was at the lowest rate in last 5 years. It was 0.33 and 0.38 in 2008 an 2009 respectively. In both these years the value of current assets was very low. The current assets were valued at Rs.248.55 crores and 284.11 crores. Also the value of the current liabilities was also high. They were valued at Rs.745.24 crores and Rs.730.18 crores in 2008 and 2009 respectively.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2006 2007 2008 2009 2010

South Indian bank

Current ratio

Year


Comparison

From both the graphs it can be figured out that there is a low current ratio in banks. They are not able to maintain the current ratio at the ideal position. There are chances that the bank will have to face difficulty in paying off their liabilities. The current ratios of both the banks show a decrease in the value in the years 2008 and 2007. In 2010 both the banks show an increase than the previous years.


3. Earnings Per Share

This ratio helps in determining the market price of equity shares of the company and in estimating the company’s capacity to pay dividend to its equity shareholders. It is calculated as follows:

Earnings per share = Net profit after interest and tax / number of equity shares

If the EPS increases, there is a possibility that the company may pay more dividend or issue bonus shares. In short market price of the share of the company is affected by all these factors. A comparison of EPS of one company with another company will also help in deciding whether the equity capital is being effectively used or not.

Dhanlaxmi bank

Table 5.5

Year EPS 2010 3.52 2009 8.93 2008 8.9 2007 5.03 2006 2.97


Graph 5.5

0123456789

10

2006 2007 2008 2009 2010

Earnings Per Share

Dhanlaxmi bank

Year


The graph 5.5 shows that there is a steady growth rare in the EPS of Dhanlaxmi bank till the year 2009 and the year 2009 shows the highest for the five years at 8.95. In the year 2010, the EPS of the bank came down to 3.52. This was caused due to the decrease in the profits of the bank. The net profits of the bank came down to Rs.22.59 crores from Rs.57.27 crores in 2010. This resulted in the fall of EPS in 2010.

The fluctuations in the ratio have also occurred due to the increase in the number of equity shares in 2008 from 320.58 lakhs to 641.16 lakhs in the year 2008.

South Indian Bank

Table 5.6

Year EPS 2010 20.68 2009 17.15 2008 16.76 2007 15.23 2006 7.34


Graph 5.6

0

5

10

15

20

25

2006 2007 2008 2009 2010

South Indian Bank

South Indian Bank

Year


The graph 5.6 shows a steady growth in the EPS of SIB in last five years. It has been showing a good EPS due to the high growth rate of the banks profits. The profit of the firm has been increasing from Rs.51.66 crores in 2006 to Rs.233.81 crores in 2010.

In 2006, the EPS was 7.34, which increased in the following years and reached 20.68 in 2010.

This shows that, there is a possibility that the bank may pay more dividend or issue bonus share. It also shows that this situation may exist for the coming year also as there is a continuous rise in the profits of the firm.

Comparison

From the graphs 5.5 and 5.6 it can be figured out that the South Indian Bank has very high EPS than Dhanlaxmi bank. It also reveals that the South Indian Bank has a higher net profit and a higher growth in profit throughout the years. The SIB has issued more equity shares that the Dhanlaxmi bank. The SIB has issued 1103.06 lakhs shares whereas the Dhanlaxmi bank has issued only 641.16 shares. This creates differences in their EPS also.


4. Dividend payout ratio

This ratio indicates as to what proportion of earnings per share has been used for paying dividend and what has been retained for ploughing back. This ratio is very important from the shareholders point of view as it tells him if the company has used whole or substantially the whole of its earnings for paying dividend and retained nothing for future growth and expansion. Generally shareholders look for companies having low payout ratio.

Dhanlaxmi bank

Table 5.7

Year Dividend payout ratio 2010 0.28 2009 0.11 2008 0.23 2007 0.19 2006 0.23


Graph 5.7

The graph 5.5 shows that the bank has been trying to keep its payout ratio at a low level in 2009 but has seen a higher increase in 2010. This result in creating fewer chances in capital appreciation in the price of the share of the bank and the shareholders will not be interested in buying out the shares of the firm as it is using its profits for paying out the dividend and not retaining anything for the future growth and expansion.

0

0.05

0.1

0.15

0.2

0.25

0.3

2006 2007 2008 2009 2010

Dhanlaxmi bank

Dividend payout ratio

Year


In the year 2010 the ratio was 0.28, which has been the highest of last five years. This was mainly caused due to the increase in the dividend per share. This has a good result as per the shareholders point of view. Also there are fewer chances for capital appreciation. The profit of the bank has decreased in 2010(as per their balance sheet), but the payout ratio has gone up. This result in decrease in ploughing back of funds i.e, retained earnings which is not positive in expansion point of view for both bank and the investor.

South Indian bank

Table 5.8

Year Dividend payout ratio 2010 0.19 2009 0.17 2008 0.18 2007 0.16 2006 0.25


Graph 5.8

The graph 5.6 shows that the bank has been able to maintain the payout ratio below 1 since last four years. There was a very high ratio in 2006 but the bank was able to bring it down. This would result in the increase in the price of the shares of the firm in last few years.

0

0.05

0.1

0.15

0.2

0.25

0.3

2006 2007 2008 2009 2010

South Indian bankDividend payout ratio

Year


Comparison

Both the firm has been trying to lower the payout since 2008 but Dhanlaxmi was not successful in doing so. The payout ratio of Dhanlaxmi bank is more in 2010 that that of south Indian bank. This will result in the increase in the price of the share price of south Indian bank. Also the capital appreciation in Dhanlaxmi bank shows a low rate. This may not be ood for the bank and their investors.


5. Debt equity ratio

It is the relationship between borrower’s fund (Debt) and Owner’s Capital (Equity). It is a measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders.

This ratio can be calculated as:

Debt-equity ratio = borrowed fund / owners’ fund

Dhanlaxmi bank

Table 5.9

Year Debt equity ratio 2010 16.13 2009 11.71 2008 20.95 2007 20.95 2006 18.84



Graph 5.9

In the graph 5.7 the bank has been able to maintain its debt equity ratio around 20% for three years from 2006 to 2008. But after that it has been showing a decrease in 2009 and 2010. This shows that the creditors have more claims over the bank in last two years than that of the owners.

The south Indian Bank

Table 5.10

Year Debt equity ratio 2010 15.69 2009 14.07 2008 13.27 2007 16.91 2006 14.95

0

5

10

15

20

25

2006 2007 2008 2008 2010

Dhanlaxmi bank

Debt equity ratio

Year


Graph 5.10

The graph 5.8 shows that the bank has been able to maintain it debt equity ratio around 15% for last five years. This shows the banks efficiency to maintain the creditors along with the owners.

Comparison

On comparing both the banks, it can be figured out that Dhanlaxmi bank has been maintaining a low debt equity ratio and the creditors have a less claim over the bank. In last two years it the bank has been aggressive in financing its growth with debt than south Indian bank. At the same time SIB have been maintain it ratio and has able to attain its financial growth through its debt.

0

5

10

15

20

2006 2007 2008 2009 2010

Debt equity ratioDebt equity ratio

Year


CHAPTER-6 Findings, Suggestions and Conclusions


Findings

Considering both the banks, there is a proper utilization of assets in SIB whereas

Dhanlaxmi bank has failed in doing so.

The payout ratio of Dhanlaxmi bank is more in 2010 that that of south Indian bank.

There is a low current ratio in both the banks.

SIB was able to maintain their return on total assets in last four years whereas

Dhanlaxmi bank’s return has been decreasing.

Both the banks show an increase in their deposits which lead to increase in profits.

The debt equity ratio of Dhanlaxmi bank has been lower than that of SIB in all the

five years.

The Dhanlaxmi bank has been providing more dividend than that of the SIB, inspite

of having less profit which will result in less capital appreciation.


Suggestions

On the basis of the financial analysis of Dhanlaxmi bank ant South Indian bank done, the

following suggestions have been provided to have a better run of the both the banks.

Both the banks have to increase the value of their current assets in order to maintain a

good current ratio. Dhanlaxmi bank has to concentrate on their assets and check whether their assets are

properly utilized or not

The Dhanlaxmi bank has to decrease their dividend per share in order to have a better

level of retained earnings. The Dhanlaxmi bank need to have a control on the use of borrowed funds in order to

have a better control over the management. The Dhanlaxmi bank has to increase their earnings per share in order to have more

satisfy their shareholders by issuing bonus shares or paying dividend.


Conclusions

The financial analysis of the Dhanlaxmi bank and the South Indian bank reveals that both the

banks have become the leading players among the new generation banks. Both the banks

have been established in Kerala and have come from the same background. Both the banks

have a good profit earning capacity and have adopted many new methods to withstand the

competition in the market.

Both the banks have a good equity position and also have been performing well in the field

of modern banking. Both the banks have a low level of transaction than compared to the

other private sector banks but have become the leading banks in the terms of growth in last

few years.

Apart from the positive part of both the banks there are also many short comes for both the

banks. The current ratio of both the banks is very low. This many lead to a condition were the

bank face trouble in paying of the debts.


Appendices


Appendix 1

Balance sheet of south Indian bank Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Sources of funds Owner's fund Equity share capital 113.01 113.01 90.41 70.41 70.41 Share application money 0.57 - - - - Preference share capital - - - - - Reserves & surplus 1,353.64 1,172.59 1,051.81 653.56 570.45

Loan funds Secured loans - - - - - Unsecured loans 23,011.52 18,092.33 15,156.12 12,239.21 9,578.66 Total 24,478.74 19,377.92 16,298.34 12,963.17 10,219.51 Uses of funds Fixed assets Gross block 274.26 241.28 203.82 168.47 156.90 Less : revaluation reserve 18.07 18.41 18.77 - - Less : accumulated depreciation 121.73 104.96 91.07 78.88 67.09 Net block 134.47 117.91 93.99 89.59 89.80 Capital work-in-progress - - - - - Investments 7,155.61 6,075.20 4,572.22 3,430.13 2,739.39

Net current assets Current assets, loans & advances 415.30 284.11 248.55 268.47 284.53 Less : current liabilities & provisions

706.27 730.18 745.24 656.90 607.19

Total net current assets -290.96 -446.06 -496.69 -388.43 -322.66 Miscellaneous expenses not written

- - - - -

Total 6,999.12 5,747.05 4,169.52 3,131.29 2,506.53

Profit loss account Mar '

10 Mar '

09 Mar '

08 Mar '

07 Mar '

06 Income

Operating income 561.05 430.63 327.84 252.62 216.20 Expenses

Material consumed - - - - - Manufacturing expenses - - - - - Personnel expenses 109.08 62.56 47.37 43.71 41.82 Selling expenses 0.59 0.70 0.33 0.64 0.77 Adminstrative expenses 75.32 44.26 38.57 42.65 37.39 Expenses capitalised - - - - -


Cost of sales 184.99 107.53 86.26 86.99 79.98 Operating profit -17.95 36.31 28.07 15.85 9.32 Other recurring income 63.12 57.90 24.55 23.42 16.22 Adjusted PBDIT 45.17 94.21 52.62 39.27 25.54

Financial expenses 394.02 286.80 213.51 149.77 126.89

Depreciation 10.30 7.55 8.06 8.82 7.15

Other write offs - - 4.02 - -

Adjusted PBT 34.86 86.66 40.54 30.45 18.39

Tax charges 5.12 22.62 10.22 11.22 6.05

Adjusted PAT 22.59 57.27 28.46 16.11 9.51

Non recurring items 0.71 0.18 - 0.03 -

Other non cash adjustments

- - - - -

Reported net profit 23.30 57.45 28.46 16.14 9.52

Earnigs before appropriation

23.31 57.46 28.47 16.15 -1.83

Equity dividend 6.41 6.41 6.41 3.21 2.24

Preference dividend - - - - -

Dividend tax 1.09 1.09 1.09 0.45 0.31

Retained earnings 15.81 49.96 20.97 12.49 -4.39


Appendix 2

Balance sheet of Dhanlaxmi bank Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Sources of funds Owner's fund Equity share capital 64.12 64.12 32.06 32.06 32.06 Share application money - - - - - Preference share capital - - - - - Reserves & surplus 375.96 360.36 140.18 115.32 102.34 Loan funds Secured loans - - - - - Unsecured loans 7,098.48 4,968.81 3,608.42 3,087.96 2,532.67 Total 7,538.56 5,393.29 3,780.65 3,235.33 2,667.07 Uses of funds Fixed assets Gross block 134.87 109.93 102.79 96.58 91.60 Less : revaluation reserve - - - - - Less : accumulated depreciation

74.23 63.72 55.71 47.03 38.20

Net block 60.65 46.21 47.08 49.56 53.40 Capital work-in-progress 18.82 - - - - Investments 2,027.79 1,567.36 1,075.06 865.19 709.60 Net current assets Current assets, loans & advances

223.04 147.13 116.38 88.63 182.62

Less : current liabilities & provisions

427.78 249.53 248.33 207.62 181.49

Total net current assets -204.74 -102.40 -131.95 -118.99 1.13 Miscellaneous expenses not written

- - - - -

Total 1,902.53 1,511.17 990.19 795.76 764.13

Profit loss account Mar '

10 Mar '

09 Mar '

08 Mar '

07 Mar '

06 Income

Operating income 2,105.18 1,751.39 1,354.81 1,020.60 784.53 Expenses

Material consumed - - - - - Manufacturing expenses

- - - - -


Personnel expenses 226.32 214.18 146.35 130.14 138.09 Selling expenses 7.65 5.49 3.54 3.64 2.27 Adminstrative expenses

152.57 116.86 98.91 153.49 144.06

Expenses capitalised - - - - - Cost of sales 386.54 336.53 248.79 287.27 284.42

Operating profit 351.21 250.82 190.92 124.24 48.97 Other recurring income

79.98 75.45 67.39 50.98 42.67

Adjusted PBDIT 431.20 326.27 258.31 175.22 91.64

Financial expenses 1,367.43 1,164.04 915.10 609.09 451.14

Depreciation 16.76 13.90 12.19 11.78 12.23

Other write offs - - - - -

Adjusted PBT 414.44 312.37 246.12 163.43 79.42

Tax charges 142.95 90.08 48.12 26.06 28.03

Adjusted PAT 233.81 193.98 151.47 107.22 51.66

Non recurring items -0.05 0.77 0.16 -3.11 -0.76

Other non cash adjustments

- - - - -

Reported net profit 233.76 194.75 151.62 104.12 50.90

Earnigs before appropriation

248.43 203.83 159.82 110.60 50.94

Equity dividend 45.20 33.90 27.12 17.60 12.67 Preference dividend - - - - -

Dividend tax 7.51 5.76 4.61 2.99 1.78

Retained earnings 195.72 164.17 128.08 90.00 36.49


Bibliography

Advanced accounting 2 by S.P.Jain and K.L.Narang. Fundamental of financial accounting by Preeti Singh.

Annual report of both Dhanlaxmi and South Indian bank.

Website – www.sib.co.in , www.dhanbank.com, www.rediff.com www.wikipedia.com

balance sheet analysis of dhanlaxmi bank and sib

Documents

south indian

banking regulation

profit loss

south indian

sales operating

industrial

capital adequacy

scheduled