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Study on Financial Performance Interpretation

Community institute of commerce and management studies Page 1

Chapter-1

INTRODUCTION TO BANK

MEANING OF BANK

A bank is an establishment which makes to individuals such advance of money as

may be required and safely made and to which individuals entrust money when not needed

by them for use.

-Prof Kinlay

ORIGIN OF THE WORD BANK

Opinion is not uniform with regard to the origin of the word bank. According to

some authors, the word bank is derived from BANCUS or BANQUET i.e. bench. The

early bankers, the Jews in Italy transacted their business on benches in the market place,

when a banker failed his bench was broken into pieces by the people which indicated the

bankruptcy of the individual banker. Some other said that the word bank is originally

derived from the Greek word PACK meaning a joint stock fund, which was Italianized

into BANCO when the Germans were masters of a great part of Italy.


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The origin of modern financial institutions can be traced to antiquity, where the

individuals used to accept money in the form of deposit and lend it to people who needed

for meeting their requirements which may be economic or social. As time advanced, the

character of economic transactions also changed. Old order of borrowing and lending

underwent metamorphic changes.

Finance became a powerful instrument for any change. In fact, the innovations in the

field of transport and communication, development of energy and manufacturing have

resulted in innovations in the sphere of banking.

EARLY HISTORY OF BANKING:

Banking dates back to its history right from the middle ages. As early as 2000 B.C,

Babylonians were the earliest of all the people to develop a systematized banking system. It

is said that temples of Babylon were used as banks and as such in temples of Ephesus and

Delphi were famous great banking institutions. The anti religious feelings which developed

after wards led to the collapse of public confidence in depositing money in temples and the

priests ceased to perform the banking business. Whenever peace and solidarity were

threatened the spread of banking also was affected entirely. However, after the revival of


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civilization and with the development of social and economic institutions, money

transactions also were revived.

It was the 12th

century that some banks were established in Venice and Genoa. These

banks were simply receiving deposit and lending money to the people. The origin of modern

banking may be traced to money dealers in Florence who received money in the form of

deposits and lend it to business people. At that time Florence was the centre of money

market in Europe.

MODERN BANKING

Modern Banking as a service institution is a large corporate giant with large

resources and multi-faceted activities. Since, the nationalization of some big commercial

banks in India, there has been a great surge in the banking industry throughout the world

with a growing number of banking offices. The banking business today has become highly

critical and competitive between various classes of banks in offering a greater variety of

services nationally and internationally. With the growth of trade and commerce, banks are

also modernizing operations with a view to satisfy their customers. Modern banking

institutions have resorted to automation by means of introducing computers and other

equipment as well as the wealth of Information Technology (IT).


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The main aim of modernizing banking system is to improve bank operations with a

view to maintain high standards in banking. This involves applications of better

management techniques. In India, class banking has given way to mass banking, thereby

bringing in its fold a large number of customers. Banks are now looked upon as

development agents instead of purveyors of credit to the large industries and big business

companies. The banks apart from providing credit to agriculture, trade industry and

commerce are offering a good number of services to the customers such as making pension

payments to retired government servants and collection of water and electricity bills,

telephone bills, taking buy and sell decisions of behalf of their customers, managing public

issues, etc.

BANKS ARE CLASSIFIED INTO SEVERAL TYPES BASED ON

THEIR FUNCTION

Commercial Banks Investment or Industrial or Exchange Banks Land Development Banks Savings Bank Central Banks


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Co-operative Bank:

Co-operative Banks are promoted to meet the banking requirements of customers not

only in urban areas but also in rural areas. They provide short and medium term loans. They

are more service oriented than profit.

Co-operative Banking in India:

The Co-operative movement was started in India in 1904 with the object of

providing finance to agriculturists for productive and there by receiving them from the

clutches and money lenders. A large number of agriculture credit societies were set up in the

village under the Co-operative Societies Act 1904. Co-operative was included in India

mainly as defensive organization for dealing with problems of rural instrument for achieving

the social objective of the national plan.

The Co-operative Societies Act 1912 contributed to the establishment of Central Co-

operative Bank and State Co-operative Bank to provide refinance to many credit societies,

which could not mobilize funds. By facilitating the formation of central Co-operative

movements made good progress during and after the First World War of 1914-1918 but

during the real depression of 1929-1933, it received the serious setback with the outbreak of

the Second World War of 1939-1945 of the Co-operative credit movements made

considerable progress once again. The number of co-operative credit institutions has


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increased considerably, since then the progress has been maintained. Today an Indian Co-

operative movement has become one of the larger voluntary movements in the world. This

movement has no doubt record impressive progress in various segments of its activities.

Weaker sections have been the focus of attention of Co-operatives. State

Development Co-operative, Finery Societies have helped in providing organized support for

economic development of weaker section. Thanks to keen interest shown by RBI in the Co-

operative credit movement.

Co-operative Banking in Karnataka:

Karnataka had built a tradition and culture for an affective network of Co-operation

in the state origin of Co-operative credit movement in Karnataka can be traced to the

pursuing of first Co-operative Societies at 1904, based on the friendly Societies Act of

England 1874. The urban co-operative society of 18th

October 1904 in Dharwad district was

the first urban bank formed in Bombay-Karnataka area. The Bangalore city Co-operative

credit society was registered on 18th

December 1906. In Karnataka there were 302 Co-

operative banks by placing the state in 3rd

in the country as regrets urban Co-operative

banking movement when the banking regulation Act 1949, was made applicable to urban

Co-operative banks Karnataka is continuing the same bank having 300 working urban banks

in 2002 of this 302 primary co-operative urban banks and 14 are the salary earners.Different


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types of banks are working on par with the nationalized and commercial banks and

functioning by and large, self supplying and not dependent on outside progress.

Origin of urban co-operative banks:

The urban co-operative credit movements had originated in Germany when

Hermans Schultz started such societies for the benefit of artisans in cities. He found the

first urban society in 1850. However after 45 years prof. V.R.Alias Bhausahah, Kavathekar,

made the first experiment in urban credit in the Baroda state, he found Anyone Sahakari

Mandali (1889) for the promotion of thrift and to provide credit to the Maharashtras. The

Madras Presidency had developed indigenous societies in Britain. While western India

preferred mutual aid societies Act 1940, conferred legal status of credit societies and the

first urban Co-operative credit society was registered in 1904 at Conjeevarm in Madras

province. However, the real beginning was after the amendment in 1911, enhancing its

scope of 1920 severely affected an urban society and urban bank. An urban credit society

having Rs. 20000 as working capital and maintaining fluid resources according to a standard

fixed by the registration was designated as a bank in Madras, while in Bombay; an urban

credit society could be styled as an urban up to 1938. If had Rs.5,000/- as working capital.

However, the real growth of urban was only after the extension of the provision of RBI Act

1934 and Banking Regulation Act 1949 to co-operative banks from 1stMarch 1966. These 2


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acts showed the right path of development to urban co-operative banks in poor country.

Since, then urban co-operative banks had 5 steady growths.

Definitions and Meaning of Co-operative Banking:

In the words of Henry Worff Co-operative banking is an agency which is in a

position to deal with the small man on his own terms accepting the security he has and

without drawing on the protecting of the rich.

Devine defines a Co-operative bank mutual society formed, composed and

governed by working proper themselves for encourages regular savings and granting small

loans on easy terms of interest and repayment.


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INTRODUCTION TO SUBJECT

Finance:

In the words of John J. Hampton, the term finance can be defined as the management

of the flows of money through an organization, whether it will be a corporation, school,

bank or government agency.

According to Howard and Upton, finance may be defined as that

administrative area or set of administrative functions in an organization which relates with

the arrangement of each and credit so that the organization may have the means to carry out

the objectives as satisfactorily as possible.

Finance directs the flow of economic activity and facilitates the smooth operation.

Finance provides the required stimulus for continued business operations of all categories.

Finance is essential for expansion, diversification, modernization, establishment, of new

projects and so on. The financial policy of any organization to a greater extent, determines

not only its existence, and survival but also the performance and success of that

organization. Finance is required for investment, purposes as well as to meet substantial

capital expenditure projects.


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Business Finance:

The term business finance is very comprehensive. It implies finances of business

activities. The term, business can be categorized into three groups: commerce, industry

and service. It is a process of raising, providing and managing of all the money to be used in

connection with business activities.

Corporate Finance:

Corporate finance deals with the financial problems of a corporate enterprise. These

problems include the financial aspects of the promotion of new enterprises and their

administration during their early period; the accounting problems connected with the

distinction between capital and income, the administrative problems arising out of growth

and expansion, and finally, the financial adjustments which are necessary to booster up to

rehabilitate a corporation which has run into financial difficulties.

The term corporate finance includes, apart from the financial environment, the

different strategies of financial planning. It includes problems of public deposits, inter-

company loans and investments, organized markets such as the stock exchange, the capital

market, the money market and the bill market. Corporate finance also covers capital

formation and foreign capital and collaborations


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Financial analysis:

Financial analysis is the process of identifying the financial strength and weakness of

the Bank by properly establishing relationships between the items of the balance sheet and

the profit and loss account.

Users of financial analysis:

Trade creditors. Suppliers of long-term debt. Investors. Management.

Financial Statements:

DEFINITION OF FINANCIAL STATEMENTS:

The term financial statements refers to the profit and loss account and balance

sheet prepared by all the businessmen. The profit and losses account is prepared in order to

know results of business operations.


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They are the means to present the Banks financial situation to the users. As these

statements, are used by investors and financial analyst and examine the Banks performance

in order to make investment decisions.

Two basic financial statements are prepared for the purpose of external reporting to

owners, investors and creditors are:

Balance sheet or statement of financial positionProfit and loss account or income statement.

Objectives of Financial Statements

The basic objective of financial statement is to assist in decision-making and some

of the objectives of preparing the financial statement are,

Resources and obligations:- To provide the financial information about economic

resources and obligations of a business enterprise.

Change in net resources:-To provide reliable information about changes in resources

of an enterprise that result from the profit directed activities


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.

Earnings potential:- To provide financial information that assists in estimating the

earnings potential of the enterprise.

There are various methods or techniques used in analyzing and interpreting the

financial statements such as,

Common size financial statement.

Comparative financial statements.

Trend analysis.

Break-even analysis.

Fund flow analysis.

Cash flow analysis.

Ratio analysis.

All these techniques are one of the powerful tools of financial analysis. These methods are

used to review the financial performance of any company. With the help of these techniques


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that financial statements can be analyzed more clearly and decision can be made from such

analysis.

The methods or techniques used for the financial analysis are:

Trend analysis. Ratio analysis.


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Chapter-2

DESIGN OF STUDY

TITLE OF THE STUDY:

THE STUDY ON FINANCIAL PERFORMANCE OF BANGALORE

CITY CO-OPERATIVE BANK LIMITED.

STATEMENT OF THE PROBLEM:

Analysis of financial performance is one of the major requirements for planning.

BCCB being a government enterprise, it is very crucial to analyze its performance because,

it is required by shareholders, bank, management, creditors and employees, government and

financial institutions as they are interested to know the financial soundness of the Bank.


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OBJECTIVES OF THE STUDY:

To understand the financial performance indicators of BCCB. To study financial performance and trends through various key financial indicators. To gain practical knowledge in the areas of finance and accounts. To analyze the actual performance of company in the areas of liquidity, profitability

through financial indicators and compare the present performance with standard norms.


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SCOPE OF THE STUDY:

The study was taken up to know the financial activities in BCCB relating to their businessactivities and performance of the corporation only.

The study is being done to know the financial activities of the corporation and study islimited to BCCB only. Study is being done to ascertain the financial status of the Bank. The

study of financial performance comprise of trend analysis, ratio analysis, and comparative

statement analysis.


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METHODOLOGY AND DATA COLLECTIONS:

Sources of data are classified into two types they are,

Primary data Secondary data

PRIMARY DATA:

Primary data may be described as those data that have been observed by the

researchers for the first time. Primary data are collected from:

General discussions with officers of BCCB. An Unstructured informal interview was followed with high officials of the Bank. Annual reports of BCCB


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SECONDARY DATA:

Secondary data are those data that have been compiled already before conducting the

research. Secondary data may be internal as well as external. Internal data are collected from

the banks records. External data are collected from outside the bank.

The various sources of secondary data are:

Corporations previous records

Various publications and manuals of BCCB Books, magazines and news papers Bank website


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RESEARCH INSTRUMENTS:

The analysis interpretation of the financial statement is used to determine the financial

position and result and operation as well. A number of methods and devices are used to

study the relationship between different statements. The statistical tools adopted for the

study are:

Financial Ratio Trend analysis

METHOD OF STUDY:

Discussion with the management of the bank to get general information about theiractivities in bank.

Study of the classification of items adopted in profit and loss account and balance sheetand the accounting policies of the concern.

Study of the annual reports of 3 years from 2008-2010 for collecting data. Analysis of their adopted techniques and methods available. The study was made to analyze the financial performance with reference to financial

statements like profit and loss account and balance sheet with the help of tables, ratios,


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and graphs. Providing suggestions for improving the methods and procedures followed

by the bank.


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LIMITATIONS OF THE STUDY:

The effort has been made to study completely and as exhaustively as possible.

However the following problems were faced during the study is as follows:

1. The confidentiality of some facts and figures has acted as a limitation,does not include competition from commercial bank, nationalized,

foreign banks for which time was a constraint.

2. The study is based on the data given by the officials and reports of thebank. It was not possible to study day-to-day problems faced by the bank.

3. The comparison and analysis are limited only for the past 3 years.


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Chapter-3

PROFILE OF THE INDUSTRY

BANK PROFILE

The Bangalore City Co-operative bank Limited, started in the year 1905 as a credit Co-

operative Society. Later on in was converted as First Urban Co-operative Bank in the

country wide Registration No.314/cs.encl/4 dated 6/8-4-1907 from the Registrar of co-

operative Societies in Karnataka.

The bank has already celebrated the Silver Jubilee in the year 1932, Golden Jubilee in the

year 1957, Diamond Jubilee in the year 1967 and Platinum Jubilee in the year 1977 and

completed 100 years of Co-operative service to the members, depositors and general

publics and the board has making all arrangements to celebrate the century of the bank in

the month of April 2007.

The bank has successfully running since from its inception as Best Urban Co-

operative Bank and awarded meritorious certificate and rolling shield during the year 1926,

1927 and 1928 from the erstwhile Maharaja of Mysore Sri Sri Sri. Kanteerava

Narasimharaja Wodeyar Bahaddur.


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Recently the bank has also adjudged as best Urban Co-operative Bank by the Government

of Karnataka in the year 2001-02 and 2003-04 and received the meritorious certificate and

rolling shield.

Received award for completion of 100 years of banking service from the Government of

Karnataka in centenary celebration of Co-operative Movement.

Initially bank started with the share capital of 2727/- by 150 members and deposits of Rs.

2265/-

Apart from administrative office the bank has already opened 12 branches in prestigious

locality of Bangalore and now it has applied for 2 additional branches

In order to give better customer service to the members, depositors and general publics the

bank has already computerized its administrative office as well as entire 12 branches of the

bank.

Apart from banking business the bank has generously conducted/donated

Conduct free eye camp to the members and general public with theassistance of Lions Eye Hospital, Bangalore.

Conduct free medical check up to the members and general public.


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The bank is governed by the Veteran Co-operators who are dedicatedin the field of Co-operation.

Shortly the bank is reaching to attain the scheduled Co-operativeBanking status prescribed by the Reserve Bank of India.

Ownership

The bank is completely controlled by the President, Vice president and the Directors. Only

RBI can interfere in the rules and regulations of the bank. The bank consists of a president,

a vice president and 15 directors.

Board of Directors

President - Sri.Avalahalli chandrappa

Vice president - Dr. Devraj T.M

Directors - Sri Dr. T.P Yoga

- Dr. Devraj .T.M- Sri B.K. Ashwata Narayana- Sri Dayashankar G.S. Rajendra- Sri T.D. Dhananjaya- Sri K. Krishnappa- Sri Anjanappa- Sri M. Hanumanayya- Sri N. Thimayya


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- Sri U.P Puranik- Sri k. Krishna Murthy- Sri Basavaraju

Smt. L Bhgyalakshmi

General Manager - Sri. N. Manjunatha

ABOUT FOUNDATION:

Branches structure of the Bangalore City Co-operative Bank Ltd .The following 12 branches

along with one administration office and all the branch have been computerized under the

jurisdiction of Bangalore City Corporation, Bangalore Development Authority and

Bangalore Urban and Peripheral areas .

Notes On Formation, Growth And Achievement Of The Bangalore City

co-operative bank Ltd., Bangalore-18

The twentieth century of the Indian history has seen two people movements, of

which one was the freedom struggle against the British to free the nation from the foreign

rule and the other was the Co-operative movement against capitalists with aim to improve

the economic condition of the poor and economically backward ones. The Co-operative


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movement was started in India with the introduction of Co-operative societies Act, 1907 and

during the initial stages of Co-operative movement, our bank The Bangalore City Co-

operative Bank Ltd,. Bangalore came in to existence as credit Co-operative Society during

the year 1905 and later converted as urban Co-operative Bank on 06-04-1907 as first urban

co-operative bank of the then Mysore province.

The Bangalore City Co-operative Bank Ltd ,.with its main objective of promoting thrift and

saving habit among its member and to free the members from the clutches of money lenders

was formed under the leadership of Sri K Ramaswamaiah ,Head Master ,London Mission

School .

During the year 1907, our bank has mobilized share capital of Rs.2727/-from 150 members

and deposit of Rs.2265/- and also lent Rs.4036/- to its members. The bank has made a profit

of Rs.156/- and declared a dividend of 13.02% in the first year.

Since the date of inception, the bank never had a setback in mobilization of share

capital/deposits and in grant of loans and advances and in its net profit


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The financial growth of the bank is given here under in nutshell

Financial

year ending

No. of

members

Share capital Reserves &

other funds

Deposits Loans &

advances

Net profit

1907 156 2,727 2,265 4,036 156

1917 1110 1,26,922 1,17,318 2,36,725 9,892

1927 1535 1,77,980 4,003 1,15,079 6,06,756 20,737

1937 2545 3,65,277 14,095 17,07,660 17,40,913 42,216

1947 2172 3,51,783 15,223 17,57,738 12,26,099 26,313

1957 3348 3,79,109 21,257 21,00,049 23,13,176 36,187

1967 5360 4,10,266 4,66,337 24,87,795 28,16,749 22,054

1977 5496 8,95,904 9,82,631 37,58,839 48,69,489 1,48,615

1987 13579 44,45,525 33,55,252 5,42,64,904 4,15,38,926 11,53,581

1997 30980 2,76,23,080 44,50,551 53,48,55,407 35,05,87,887 1,18,83,78

2007 39912 11,41,64,541 38,53,63,257 224,43,62,150 150,17,47,820 3,55,49,26

2008 42191 13,94,22,103 41,57,51,667 289,10,54,009 233,67,94,907 4,27,23,78

2009 44518 17,33,63,267 44,98,27,118 378,63,09,868 294,84,43,368 5,17,00,05

2010 45500 20,35,48,167 47,96,00,052 461,29,68,093 326,72,71,284 5,34,00,00

2011 46000 28,71,12,907 54,26,10,058 597,62,10,335 444,12,12,211 7,95,66,28


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Aims:

As per the laws if the bank the following are the aims of the Co-operative Bank;

Accepting the deposits for the purpose of promoting saving habits in the mindsof public and members.

Providing the various types of loan facilities to members and associate members. To open new branches with the permission from the RBI and Registrar of Co-

operative Societies.


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Following are some of the Rules and Regulations provided by the bank for the

benefit of Customers:

Avail nomination facilities at A/C holders including saving bank A/C andcurrent A/C holders.

Bank will exchange mutilated currency notes as per RBI guidelines.

Bank will give standing instruction for the payment of bills, rents, interests,insurance etc

Bank provides required and important guidelines to the locker holders.


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CORPORATE MISSION

To meet the growing aspiration of the customers of the bank in particular andothers in general in the changing environment.

To bring about total customer satisfaction by providing quality service. To promote socio economic development and employment as national and

social objectives.

To meet the economic and career aspirations of the society and employees. Generating the deposits from the customers to increase profit and goodwill.


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IMPORTANT DECLARATION

Bank declares and undertakes:

To provide professional, efficient, courteous, diligent and speedy services onthe matter of retail deposits.

Not to discriminate on the basis of religion, caste, sex, descent or any ofthem.

To be fair and honest in advertisement and marketing of deposit products. To provide customer with accurate and timely disclosure of terms, costs,

rights and liabilities as regard deposit transactions.

If sought, to provide such assistance or advice to customers. To attempt a good faith to resolve any disputes or differences with customers

by setting up complaint redress cells within the organizations.

To comply with all regulatory requirements in good faith. To spread general awareness about potential risks contracting deposits and

encourages customers to take up independent financial advice and not act

only on representation from the bank.


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CHAPTER-4

ANALYSIS AND INTERPRETATION

OPERATIONAL DEFINITION OF CONCEPTS:

Financial Statements:

Financial statements contain summarized information of the Banks financial affairs

organized systematically. These are the means of presenting financial status of the Banks to

the users.

Two basic financial statements prepared for the purpose of external reporting to managers,

investors and creditors are,

Balance sheet Profit and Loss account

It is the most significant financial statement. It indicates the financial conditions or the state

of affairs of a business at a particular moment of time; balance sheet contains information

about resources and obligations of a business entity and about its bankers interest in the

business at a particular point in time.


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Assets:

Assets represent economic resources. These are the valuable possessions owned by the

Bank. These possessions should be capable of being measured in monetary terms. Assets are

the future benefits fixed assets are used in business for more than an accounting period of

one year, while current assets are converted into cash with an accounting period

Liabilities:

Are the amount payable by the Bank to the outsiders liabilities are payable within an

accounting period are called current liabilities and those payable after a year or so are called

long term liabilities.

Revenues:

Revenue is the value of amount supplied to the customers, more specifically; revenue is the

gross inflow of assets or the gross decrease in liabilities that result from a Banks activities

that change bankers equity.


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Expenses:

Expenses occur when assets are consumed or liabilities are increased in order to produce

revenue, more specifically expenses represent a gross decrease in assets or gross increase in

liabilities.

Profit:

The difference between the revenue and expenses

Ratio Analysis:

In financial analysis, ratios as a bench mark for evaluating the financial position and

performance of a Bank. Is a process of identifying the financial strength and weaknesses of

the Bank.

Capital employed:

Is equal to total of fixed assets are reduced by current liabilities.


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Fund:

The term fund can be defined in 3 ways, it may mean cash, and working

capital and financial resources fund flow statement provide an analysis of

changes in the Banks working capital position.

Profit and loss account:

Profit and loss account presents the summary of revenue, expenses and net income (or net

loss) of a Banks profitability.

Financial Ratio Analysis

INTRODUCTION

The most important task of a financial manager is to interpret the financial ratios the ratio

analysis is the most powerful tool in the hands of any product management as it offers

immediately on insight into the working of the corporate enterprises. It is the process of

establishing the financial ratios about the trend in terms of its financials can draw

inferences.


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Meaning

Ratio analysis is a powerful tool of financial analysis a ratio is defined as the indicated

quotient of two mathematical expressions and as the relationship between two or more

things. In financial analysis a ratio is used as a bench mark for evaluating financial positions

and performances of a bank the absolute accounting figures respected in the financial

statement do not provide a meaningful understanding of a performance and position of a

bank. The relationship between two or more accounting figures groups is called a financial

ratio.

Ratio helps to summarize large quantities of financial data and to make qualities judgment

about the banks financial performance

Types of ratios:

Several ratios calculated from the accounting data, can be grouped into various classes

according to financial activity or functions to be evaluated. As stated earlier, the parties

interested in the financial analysis are short and long terms creditors, owners and

management. Short-term creditors main interest in the liquidity position or the short-term

solvency of the bank. Long term creditors on the other hand, are more interested in the bank

profitability and financial conditions.


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Management is interested in evaluating every aspect of the bank performance. They have to

protect the interest of all parties and see that the bank grows profitability. In view of the

requirement of ratios, we may classify them into the following four important categories:

Liquidity ratios Leverage ratios Activity ratios

Profitability ratios

LIQUIDITY RATIO:

Liquidity ratios measure the ability of the firm to meet its current obligation. In the fact,

analysis of liquidity needs the preparation of cash and fund flow statements: but liquidity

ratios, by establishing a relationship between cash and others current assets to current

obligations, provide a quick measure of liquidity. A bank should ensure that it does not

suffer from lack of liquidity, and also that it does not have excess liquidity , will result in a

poor creditworthiness, loss of creditors confidence or even in legal tangles resulting in the

closer of the bank. A very high degree of liquidity is also bad ideal assets earn nothing. The

firms fund will be unnecessarytied up in current asset. Therefore, it is necessary to strike a

proper balance between high liquidity and lack of liquidity.


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The most common ratios that indicate the extent of liquidity or lack of it are: (1) current

ratio and

(2) Quick ratio.

Other ratios include cash ratio, interval measures and net working capital ratio.

Leverage ratio:

Financial leverage refers to the use of debit finance while doubt capital is a chapter source

of financial it is a riskier source of financial leverage ratios help in assessing the risk arising

from the rise of debit capital.

The important leverage ratios are:

Debit Asset Ratio Debit Equity Ratio Intrest Coverage Ratio


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Activity/efficiency/turnover ratio:

Activity ratios are employed to evaluate the efficiency with which the bank managers and

utilize its assets these ratios are also called turnover ratios because they indicates the speed

with which into sales. Activity ratios thus involve a relationship between sale and assets

generally reflect that assets are managed well.

Important activity ratios are:

Inventory turnover ratios Debtors turnover ratio

Fixed assets turnover ratioPROFITABELITY RATIOS:

Profitability reflects the final result of business operations profitability rate on are calculates

operations efficiency of the bank.

Important profitability ratios are:

Gross profit margin ratio Net profit margin ratio


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Return on total asset.

1. Current Ratio

It may be defined as the relationship between current assets and current liabilities. It shows a

banks ability to cover its current liabilities with its current assets. It can be expressed as

follows;

Current ratio = Current assets

Current liabilities

Table showing current ratio

Year Current assets

(Rs)

Current

Liabilities (Rs)

Ratio

2008-09 26,68,70,523 17,98,43,972 1.48

2009-10 31,70,74,391 21,25,71,023 1.49

2010-11 38,04,63,029 21,66,40,367 1.75


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Interpretation Of Current Ratio

A relatively high current ratio is an indicator that the firm is liquid and has ability to pay its

current obligations in time when they become due. On the other hand, relatively low current

ratio represents that the liquidity position of the firm is not good and the firm shall not be

able to pay its current liabilities in time without facing difficulties. The standard current

ratio of the bank for the years 2009, 2010, 2011 is 1.48, 1.49, and 1.75 respectively.

1.3

1.35

1.4

1.45

1.5

1.55

1.6

1.65

1.7

1.75

17,98,43,972 21,25,71,023 21,66,40,367

(Rs) 26,68,70,523 31,70,74,391 38,04,63,029

2008-09 2009-10 2010-11

Ratio


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2.Cash Ratio

Cash is the most liquid asset a financial analysis may examine cash ratio and its equivalent

to current liabilities. Trade investments or marketable securities are equivalent of cash

therefore they may be included in the computation of cash ratio. It can be calculated as

Cash+ Marketable securities

Cash Ratio =

Current Liabilities

Table showing Cash Ratio

Year Cash+Securities

(Rs)

Current

Liabilities

Ratio(%)

2008-09 3,43,68,746 17,98,43,972 0.19

2009-10 3,12,62,897 21,25,71,023 0.14

2010-11 3,35,90,290 21,66,40,367 0.16


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Interpretation of cash ratio:

This ratio indicates the proportion of cash and bank balance. i.e., it shows the ability of

firms to pay its current liabilities by using most liquid asset, cash and bank balance.

Here the cash ratio the bank shows that the bank is holding only little cash to maintain its

day today needs. That is not a bad sign to the banks

0

0.05

0.1

0.15

0.2

17,98,43,972 21,25,71,023 21,66,40,367

(Rs) 3,43,68,746 3,12,62,897 3,35,90,290

2008-09 2009-10 2010-11

0.19

0.140.16

Ratio(%)


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3. DEBT EQUITY RATIO

Debt equity ratio is the ratio, which express the relationship between debit and equity or

relationship between borrowed capital and owners.

Total debt

Debt equity ratio =

Net worth

Table showing debt equity ratio

Year Debt (Rs) Equity (Rs) Ratio (%)

2008-09 259,99,96,639 62,31,90,385 4.17

2009-10 92,90,02,709 70,10,31,633 1.32

2010-11 82,73,41,790 75,25,62,573 1.09


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Interpretation Of Debt Equity Ratio

The debt equity ratio is calculated to measure the extent to which debit financing has been

used in a business. The ratio indicates the proportion claims of owners and the outsiders

against the banks assets.

00.5

11.5

22.5

33.5

44.5

62,31,90,385 70,10,31,633 75,25,62,573

259,99,96,639 92,90,02,709 82,73,41,790

2008-09 2009-10 2010-11

Ratio (%) 4.17 1.32 1.09

debte

quity

ratio

Ratio (%)


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4 TOTAL DEBT RATIO

Debt ratios are used to analysis the long-term solvency of a firm. The firm may be

interested in knowing the interest bearing debt in capital structure. Total debt ratio may,

therefore, compute the debit ratio by following.

Total debt

Total Debt Ratio =

Total debt + net worth

Table showing total debt ratio

Year Total Debt (Rs) Total Debt + Net

worth

Ratio(%)

2008-09 277,98,40,611 340,30,30,996 0.79

2009-10 114,15,73,732 184,26,05,365 0.61

2010-11 82,73,41,790 152,81,73,423 0.54


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Interpretation Of Total- Debt Ratio

From the above analysis we come to know the debit equity ratio has decreased in the years

2011, 2010, compare to 2009. This shows that there is a increase and decrease fluctuation

and the debit is decreased in the bank.

It indicates the percentage of funds being financial through borrowings is decreased and it is

in good condition.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

340,30,30,996 184,26,05,365 152,81,73,423

277,98,40,611 114,15,73,732 82,73,41,790

2008-09 2009-10 2010-11

Ratio(%)

Ratio(%)


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5 Proprietary Ratio Or Equity Ratio

The proprietary ratio relates to the proprietors funds to total assets. It reveals the owners

contribution to the total value of assets. This ratio shows the long term solvency of the firm.

It is calculated by dividing proprietors fund by the total tangible assets.

Shareholders fund

Proprietary Ratio = 100

Total assets

Table Showing Proprietary Ratio

Year Share

Holders Fund

Total Assets Ratio (%)

2008-09 62,31,90,385 624,83,35,122 9.97

2009-10 70,10,31,633 793,07,52,606 8.83

2010-11 75,25,62,573 957,92,34,219 7.85


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Interpretation of Proprietary Ratio

As equity ratio represents the relationship of owners funds to total assets, higher the ratio,

better in long term solvency position of the company. The long term solvency of the bank is

lower with 7.85 in the year 2010-11.

0

2

4

6

8

10

624,83,35,122793,07,52,606

957,92,34,21962,31,90,38570,10,31,633

75,25,62,5732008-092009-10

2010-11

Equity

ratio

Axis Title

Ratio (%)


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Table Showing Absolute Liquid Ratio

Year Cash in hand

and bank

Current

liabilities

Ratio (%)

2008-09 13,44,81,798 17,98,43,972 0.74

2009-10 16,26,36,709 21,25,71,023 0.76

2010-11 20,85,98,232 21,66,40,367 0.96


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Interpretation Of Absolute Liquid Ratio

As ratio represents the relationship between worth of absolute liquid assets and worth of

current liabilities. Even the ratio gives a more meaning full measure of liquidity; it is not in

much use because the idea of keeping large cash balance has been disproved.

7 Return On Capital Employed Ratio

This ratio is an indicator of the earning capacity employed in the business. It is also called as

Overall Profitability Ratio. It is calculated as

Ratio (%), 0.96

0

0.2

0.4

0.6

0.8

1

1.2

17,98,43,972 21,25,71,023 21,66,40,367

13,44,81,798 16,26,36,709 20,85,98,232

2008-09 2009-10 2010-11

absolutel

iquidr

atio

Ratio (%)


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Operating Profit

Return on capital employed = *100

Capital Employed

Table showing Return on capital employed

Year Operating

profit

Capital

employed

Ratio (%)

2008-09 5,17,00,057 63,44,95,854 8.14

2009-10 4,27,23,786 59,96,36,953 7.12

2010-11 7,95,66,288 54,26,10,058 14.66


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Interpretation of Return on Share Capital Employed

This ratio is considered to be the most important because it reflects the overall

efficiency with which capital is used. In the above ratio there is a increase in

the year 2010- 11 as compared to 2009 and 2008, as both indicates decrease in

ratio,

0 5 10 15 20

63,44,95,854

59,96,36,953

54,26,10,058

5,

17,

00,

057

4,

27,

23,

786

7,

95,6

6,

288

2008-09

2009-10

2010-11

Ratio (%)

Ratio (%)


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Interpretation of Return on Share Holders Fund

If the net profit after tax is Rs7,95,66,288, and share holders fund 75,26,62,573

then the ratio will be 10.57

It shows the extent to which profitability objective is being achieved. Higher the ratio, the

better it is.

9.6 9.8 10 10.2 10.4 10.6 10.8

48,28,49,830

53,44,02,390

75,25,62,573

5,

17,

00,

0

57

5,

33,

77,

8

02

7,

95,

66,

2

88

2008-09

2009-10

2010-11

Ratio (%)

Ratio (%)


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9. SOLVENCY RATIO

Solvency ratio is the ratio between the total assets and that total liabilities of the concern this

ratio measures the ability of the concern to meet its total liabilities out of its total assets. It is

expressed as following;

Total assets

Solvency ratio =

Total liabilities

Table Showing Solvency Ratio

Year Total assets Total

liabilities

Ratio (%)

2008-09 624,83,35,122 619,66,35,064 1.00

2009-10 477,92,91,939 473,65,68,152 1.00

2010-11 957,92,34,219 949,96,67,930 1.00


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Interpretation Of Solvency Ratio

From the above we can understand there has been equal in the solvency ratios from 2008-09

to 2011 that means the bank is in normal (good) position.

0 0.2 0.4 0.6 0.8 1

619,66,35,064

473,65,68,152

949,96,67,930

624,

83,3

5,

122

477,

92,

9

1,

939

957,

92,

3

4,

219

2008-09

2009-10

2010-11

Ratio (%)

Ratio (%)


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Interpretation Of Liquidity Ratio

From the above analysis, indicates that there is an increase in ratio from current year to year,

where slight difference in past year 2011 which shows decrease in ratio, which is not good

for bank.

Ratio (%)

2008-09 16,67,57,510

17,98,43,972

2009-10 18,57,00579,

21,25,71,023

2010-11 19,20,37,009

21,66,40,367


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FINDINGS AND SUGGESTION

FINDINGS

Their has been fluctuating trend for a current year liquidity pointing i.e., 0.89% The banks current ratio is satisfactory compared to cash ratio of the bank from past

3 years i.e., 1.48 in 2009, 1.49 in 2010 and 1,75 in 2011.

The total debt ratio of the bank is in good condition without loss. The proprietary ratio of the bank is seen to be slightly decreasing trend in the past 3

years i.e., in 2009 it was increased by 9.97% and in 2010 and 2011 it was increased

by 8.83%, 7.85 respectively.

The returns on share holders fund is increasing in past 3 years. i.e. 10.70% in 2009 ,9.98% in 2010 and 10.57% in 2011.

The banks solvency ratio is in break-even point means where no profit and no loss. The banks ability in creating return on capital employed is satisfactory. It is

increased by 8.14% to 14.66% when comparison made between 2009 to 2011.


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SUGGESTIONS:

The management must achieve the targets by managing both current assets andcurrent liabilities in a proper way. It is suggested that bank should decrease its

liabilities and more concentrate on managing its current assets.

The bank should utilize the cash resource to the optimum; else the liquidity positionwill be affected. It can do well if those resources are utilized effectively.

The banks total assets should be utilized to optimum. It should concentrate moreon utilizing its available assets, so as to avoid expenses.

The bank should maintain its overall profitability position in order to retain currentdeposits.

Fixed assets used for long term of time must be sold off changing with lessdeprecation to increase the value of assets to meet the expected liability.

The bank should put much emphasis on modern advertising media in order toimprove the banks transactions to attract its customers.


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CONCLUSION

The investment and deposits shall be proportionate to loansand advances and the liability of interest payable shall be

reduced which increased net profit.

The bank should see the improvement of balance in cash andwith bank deposit.

To gain competitive edge over the competition in the market,the bank must minimize the default and should be in contact

with the customer to know about their specification.

The bank may introduce new products to complete with otherbank and adopt suitable procedure for obtaining details from

the borrowers in order to facilitate faster disbursement of


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advances and regulatory repayments as done in other banks

before sanctioning credit.

The bank must be more professional in credit collections andallocation.

The mobilization of deposit and investment decision shall bethoroughly analyzed by the financial manager to gain

maximum return with minimum risk.


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