A STUDY ON THE PERFORMANCE OF DEPOSIT SCHEMES IN KARNATAK

BANK LIMITED

CHAPTER – 1

INTRODUCTION

1.1 ABOUT THE INDUSTRY

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 Bank of Hindustan, which started in 1790; both 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 of India, which, upon India's independence, became the State Bank of

India in 1955.

HISTORY OF BANKING

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a

consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still

functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues

stock and requires shareholders to be held liable for the company's debt) It was not the first though. That

honour belongs to the Bank of Upper India, which was established in 1863, and which survived until

1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of

Simla.

When the American Civil War stopped the supply of cotton to Lancashire from

the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure

to speculative ventures, most of the banks opened in India during that period failed. The depositors lost

money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the

exclusive domain of Europeans for next several decades until the beginning of the 20th century.

Foreign banks too started to arrive, particularly in  Calcutta, in the 1860s. The Comptoire

d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches

in Madras and Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869.

Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so

became a banking centre.1

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in

1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in

1895, which has survived to the present and is now one of the largest banks in India. Around the turn of

the 20th Century, the Indian economy was passing through a relative period of stability. Around five

decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had

improved. Indians had established small banks, most of which served particular ethnic and religious

communities.

The presidency banks dominated banking in India but there were also some exchange banks

and a number of Indian joint stock banks. All these banks operated in different segments of the

economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade.

Indian joint stock banks were generally undercapitalized and lacked the experience and maturity to

compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In

respect of banking it seems we are behind the times. We are like some old fashioned sailing ship,

divided by solid wooden bulkheads into separate and cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks inspired by

the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to

found banks of and for the Indian community. A number of banks established then have survived to the

present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara

Bank and Central Bank of India. The fervour of Swadeshi movement lead to establishing of many

private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the

name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a

leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian

Banking". During the First World War (1914–1918) through the end of the Second World War (1939–

1945), and two years thereafter until the independence of India were challenging for Indian banking. 

POST INDEPENDENCE

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:

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The Reserve Bank of India, India's central banking authority, was established in April 1934, but

was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to

Public Ownership) Act, 1948 (RBI, 2005b).[Reference www.rbi.org.in]

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India

(RBI) "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.

NATIONALISATION

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.

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

nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of

around 4%, closer to the average growth rate of the Indian economy.

LIBERLIZATION

In the early 1990s, the then Narasimha 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.

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The new policy shook the Banking sector in India completely. Bankers, till this time, were used

to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. The new wave ushered

in a modern outlook and tech-savvy methods of working for traditional banks. Currently (2010),

banking in India is generally fairly mature in terms of supply, product range and reach-even though

reach in rural India still remains a challenge for the private sector and foreign banks.

ADOPTION OF BANKING TECHONOLGY

The IT revolution had a great impact in the Indian banking system. The use of computers had

led to introduction of online banking in India. The use of the modern innovation and computerisation of

the banking sector of India has increased many folds after the economic liberalisation of 1991 as the

country's banking sector has been exposed to the world's market. The Indian banks were finding it

difficult to compete with the international banks in terms of the customer service without the use of the

information technology and computers.

RESERVE BANK OF INDIA

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Scheduled banks

Co-operative banksCommercial banks

Urban Co-operatives (52)

Old (22)

Regional rural banks (196)

Public Sector banks (27)

State Co-operatives (16)

Other Nationalised banks (19)

Foreign banks (40)

Private Sector banks (30)

New (8) State bank of India and Associate banks (8)

RESERVE BANK OF INDIA

Central bank and supreme monetary authority

Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the

Reserve Bank of India Act, 1934. Though initially RBI was privately owned, it was nationalized in

1949. Its central office is in Mumbai where the Governor of RBI sits.

India has a well developed banking system. Most of the banks in India were founded by Indian

entrepreneurs and visionaries in the pre-independence era to provide financial assistance to traders,

agriculturists and budding Indian industrialists. The origin of banking in India can be traced back to the

last decades of the 18th century.

The role of central banking in India is looked by the Reserve Bank of India, which in 1935

formally took over these responsibilities from the then Imperial Bank of India. Reserve Bank was

nationalized in 1947 and was given broader powers. In 1969, 14 largest commercial banks were

nationalized followed by six next largest in 1980. But with adoption of economic liberalization in 1991,

private banking was again allowed. The commercial banking structure in India consists of: Scheduled

Commercial Banks and Unscheduled Banks. Scheduled commercial Banks constitute those banks,

which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934.

Indian banks can be broadly classified into public sector banks (those banks in which the

Government of India holds a stake), private banks (government does not have a stake in these banks;

they may be publicly listed and traded on stock exchanges) and foreign banks.

India has a strong and vibrant banking sector comprising state-owned banks, private sector

banks, foreign banks, financial institutions and regional banks including cooperative banks, rural banks

and local area banks. In addition there are non-banking financial companies (NBFCs), housing finance

companies, Nidhi companies and chit fund companies which play the role of financial intermediaries.

India is also committed to further open the banking sector for foreign investment in pursuance to its

commitment to the World Trade Organisation (WTO).

As monetary authority of the country, the Reserve Bank of India (RBI) regulates the banking

industry and lays down guidelines for day-to-day functioning of banks within the overall framework of

the Banking Regulation Act, 1949, Foreign Exchange Management Act, 1999 and Foreign Direct

Investment (FDI) policy of the government.

STATE-OWNED BANKS

The Indian banking sector is dominated by 28 state-owned banks which operate through a

network of about 50,000 branches and 13,000 ATMs. The State Bank of India (SBI) in the largest bank

in the country and along with its seven associate banks has an asset base of about Rs. 7,000 billion

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(approximately US$150 billion). The other large public sector banks are Punjab National Bank, Canara

Bank, Bank of Baroda, Bank of India and IDBI Bank.

PUBLIC SECTOR BANKS

The public sector banks have overseas operations with Bank of Baroda topping the list with 51

branches, subsidiaries, joint ventures and representative offices outside India, followed by SBI (45

overseas branches/offices) and Bank of India (26 overseas branches/offices). Indian banks, including

private sector banks, have 171 branches/offices abroad. SBI is present in 29 countries followed by Bank

of Baroda (20 countries) and Bank of India (14 countries).

PRIVATE SECTOR BANKS

Private sector banks India has 29 private sector banks including nine new banks which were

granted licences after the government liberalised the banking sector. Some of the well known private

sector banks are Karnataka Bank, ICICI Bank, HDFC Bank and IndusInd Bank. Yes Bank is the latest

entrant to the private sector banking industry.

In terms of reach the private sector banks with an asset of over Rs 5,700 billion (about

US$124 billion) operate through a network of 6,500 branches and over 7,500 ATMs.

FOREIGN BANKS

Foreign banks have brought latest technology and latest banking practices in India. They have

helped made Indian Banking system more competitive and efficient. Government has come up with a

road map for expansion of foreign banks in India.

Foreign banks As many as 29 foreign banks originating from 19 countries are operating in

India through a network of 258 branches and about 900 ATMs. With total assets of more than Rs 2,000

billion (about 44 billion US dollars) they are present in 40 centres across 19 Indian states and Union

Territories.

Some of the leading international banks that are doing brisk business in India include

Standard Chartered Bank, HSBC Bank, Citibank N.A. and ABN-AMRO Bank.

REGIONAL BANKS

Rural areas in India are served through a network of Regional Rural Banks (RRBs), urban

cooperative banks, rural cooperative credit institutions and local area banks. Many of these banks are

not doing well financially and the government is currently engaged in restructuring and consolidating

them.

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Local area banks were of recent origin and as on March 31, 2006 four such banks were

operating in the country.

NATIONALISED BANKS

Nationalised banks dominate the banking system in India. The history of nationalised banks in

India dates back to mid-20th century, when Imperial Bank of India was nationalised (under the SBI Act

of 1955) and re-christened as State Bank of India (SBI) in July 1955.

FINANCIAL INSTITUTIONS

Financial institutions India has seven major state-owned financial institutions which include

Industrial Development Bank of India (IDBI), Industrial and Financial Corporation of India (IFCI),

Tourism Finance Corporation of India (TFCI), Small Industries Development Bank of India (SIDBI),

National Bank for Agriculture and Rural Development (NABARD) and National Housing Bank (NHB).

These institutions provide term loans and arrange refinance. There are also specialised

institutions like the Power Finance Corporation (PFC), Indian Railway Finance Corporation (IRFC), and

Infrastructure Development Finance Company (IDFC) and state-level financial corporations.

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1.2 ABOUT THE COMPANY

Karnataka Bank Ltd, a premier private sector bank, is a leading 'A' Class Scheduled

Commercial Bank in India. The Bank offers a total value package, a one-stop shop for all the banking

needs. They provide Working Capital Finance, Term Loans and Infrastructure Finance to help the

Business grow. The Bank operates in four business segments, namely treasury, corporate and wholesale

banking, retail banking and other banking operations.

Karnataka Bank Ltd was incorporated on February 18, 1924 as The Karnataka Bank Ltd at

Mangalore in Karnataka. The Bank was established to cater to the banking needs of the South Kanara

Region. In May 23, 1924, the Bank obtained the certificate to commence business. In April 4, 1966,

they received their license to carry on the banking business in India. The Bank was promoted by B R

Vysarayachar and other leading members of the South Kanara Region. Under the table guidance of K S

N Adiga, the second chairman of the Bank who held the post for a period of 21 years, the Bank made

significant progress thereby providing a strong foundation and as a result grew in stature in terms of

number of branches, deposits, advances etc.

In the year 1964, the Bank took over the assets and liabilities of the Chitaldurg Bank Ltd. In

the 1966, they took over the assets and liabilities of the Bank of Karnataka Ltd, Hubli and opened 14

new branches in places where the Bank of Karnataka Ltd was formerly functioned.

In the year 1997, the Bank became an authorized dealer of foreign exchange and established

specialized branches for financing foreign exchange, industry and agriculture, etc. In the year 1989, they

opened a merchant banking division. In the year 1995, the Bank came out with the public cum right

issue aggregating Rs 81 crore.

In the year 2000, they signed a MoU with Infosys Technologies Ltd for implementation of

Finacle, a Core Banking Solution. In the year 2002, they made a pact with Corporation Bank for sharing

ATM's. Also, they made a tie-up with MetLife India for the distribution of insurance products as a

corporate agent. In the year 2003, the Bank took up Corporate Agency for distribution of products of

Bajaj Allianz General Insurance Co Ltd.

The Bank in association with MetLife India launched K-Life a term product designed for

SB/current account holders of the bank. Also, the Bank launched a credit product 'KBL Insta Cash' for

consumption purposes, and 'KBL Vahana Mitra' for the purchase of new vehicles. The Bank along with

Western Union Financial Services made tie-up with Bharat Overseas Bank to provide inbound money

transfer services.

In the year 2004, the Bank launched the 'Gold Card Scheme' for the exporters. In the year

2005, the Bank launched real time gross settlement (RTGS) system under the name of Money Quick.

Also, they inked an agreement with National Financial Switch for ATM connectivity and launched 'no

frills' accounts. 8

In the year 2006, they made a tie up with Franklin Templeton (I) Private Limited for

distribution of their mutual funds. They launched CDSL-DP services at select branches. In the year

2007, the Bank signed MoU with Allahabad Bank, Indian Overseas Bank, Sompo Japan Insurance Inc.

and Dabur Investment Corporation to form a joint venture for undertaking General Insurance business.

During the year 2008-09, the Bank opend 16 branches at Moradabad, New Delhi - Karol

Bagh, Thane, Mumbai - Vile Parle, Bommasandra, Bangalore - Chandra Layout, Bangalore -

Sadashivanagar, Mysore - J P Nagar, Belgaum - Udyambag (Extension Counter upgraded), New Delhi -

East of Kailash, Bangalore -Yelahanka New Town, Pune-Dhankawadi, Doddaballpur, Uppal Kalan,

Bellandur and Hoskote.

The Bank added 30 ATM outlets at various locations. Also, they shifted 15 branches/ offices

to new premises. The Bank won the prestigious Sun and NDTV Green IT award instituted by Sun

Microsystems and NDTV, for use of eco efficient green technologies to run business. During the year

2009-10, the Bank opened 17 branches in Patna, Kanakapura, Tambaram, Vellore, Dhanbad, Kolkata -

Bhowanipore, Naganathapura, Gundlupet, New Delhi - Ashokvihar, Ujjain, Ghaziabad, Kancheepuram,

Chennai - Annanagar (West), Brahmapur, Serillingampally, Durg and Rajarhat - Kolkata. The Bank

added 46 ATM outlets at various locations. Also, they shifted 16 branches/offices to new premises.

In April 2010, the opened their 9th Regional Office at Hyderabad. The Bank bagged 'Special

Award for use of IT for Internal effectiveness' for the year 2009, instituted by Institute for Development

and Research in Banking Technology (IDRBT). As on March 31, 2010, the Bank had 464 branches, 217

ATM outlets, 8 Regional Offices, one International Division, one Data Centre, one Customer Care

Centre, 5 Service branches, 2 Currency Chests, 6 Extension Counters and two Central processing

centers, spread across 20 states and 2 Union Territories. Further, for better ambience and improved

customer service.

In September 2010, the Bank launched a new product exclusively for women, i.e. the new

saving bank account for women named KBL Vanitha to encourage saving habit among the womenfolk

and also to allay the fear of managing their wealth. The Bank plans to increase their total number of

business units to 780, by increasing the total number of branches to 480 and own ATM network to 300

by March 2011.

MISSION

"Our mission is to be a technology savvy, customer centric progressive bank with a national

presence, driven by the highest standards of corporate governance and guided by sound ethical values."

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BRANCHES AND BUSINESS

Karnataka bank has expanded its reach to various parts of India, over the 85 years of its

existence. Today, the bank has a total of 447 branches, spread across 19 states and 2 Union Territories,

with a total business of about Rs. 31248 Crore. The bank presently employs over 4,900 employees and

is answerable to about 71,822 shareholders and over 3.7 million customers. The bank has specialized

branches like Agricultural Development Branch, Overseas Branches, Foreign Exchange Branches,

Specialized SSI Branches, Asset Recovery Management Branches, Currency Chests, Central Processing

Centre spread across the length and breadth of the country.

FACILITIES AND CUSTOMER SERVICE

Karnataka Bank provides a broad range of customized products and services suitable for all

kinds of market, trade and perceived requirements, be it business or personal. It deals in personalized

banking, business banking, money transfer, internet banking and insurance services. The facilities

include borrowing facilities, deposits, optimum returns on surplus funds and helping with smooth

overseas transactions. As a part of personalized banking, Karnataka Bank provides services for high

earning deposits, simple & convenient loans, life insurance, money transfer, utility bill payments and

thus, efficiently keeps a track of your finances.

BOARD OF DIRECTORS

Chairman Ananthakrishna

Managing Director & CEO P Jayarama Bhat

Director

S R Hegde

R V Shastri

U R Bhat

T S Vishwanath

Sitarama Murty M

S V Manjunath

D Harshendra Kumar

H Ramamohan

T R Chandrasekaran

Company Secretary Y V Balachandra

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MULTI BRANCH BANKING

Multi Branch Banking facility is a value added service to our customers taking advantage of

"Core Banking Solution". It is a 'technology driven-anywhere banking' facility and 'at par' facilities for

Savings Bank and Current account with structured schedule of services and charges. Now the customer

can access his account at all branches of the Bank.

The salient features of the scheme are as under:

1.       The concept of 'anywhere' banking is extended to all domestic SB and Current Accounts except

NO Frills Accounts. Even SB-General and Current-General accounts are eligible for MBB facility with

Multicity Cheques.

2.       SB-General (SBGEN),SB-Money Sapphire, SB-Money Platinum, Current A/c General

(CAGEN),CA- Money Pearl, CA - Money Ruby, CA- Money Diamond, CA-Money

Platinum, are MBB accounts with structured free services and Multicity Cheque facility

with cheques payable at par at all Branches.

FACILITIES AVAILABLE UNDER MBB

PAYMENT SERVICES:

Any where Cash withdrawal for self cheques only

Multicity Cheques

Funds Transfer

Funds Transfer through RTGS/NEFT

COLLECTION SERVICES:

Any where Cash Deposit- By self only

Collection of out station cheques

Any where Deposit of cheques for collection

OTHER FACILITIES:

Internet Banking

Mobile Banking (SMS alerts)

Demat Account

'MoneyPlant' Visa International Debit Card

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INTERNET BANKING

Karnataka bank has been introduced Internet Banking facility MoneyClickTM to manage our

finances in the comfort of our home or our office as per our convenience. MoneyClickTM is a Self-

Service Channel, which is available 24 hours a day and 365 days a year in an absolutely simple, friendly

but secured environment. 

In MoneyClickTM, a mere touch of a button or click of a mouse makes you accessible to a

host of Banking Services, called Fingertip Banking. We can carry out your banking transactions safely

and with total confidentiality by enjoying online banking without wasting your time or losing your

peace of mind.

Money ClickTM   – Retail

It offers different online services to our retail/individual customers, like balance enquiry,

requests for Chequebooks, recording stop-payment instructions, balance transfer instructions, account

opening and other forms of traditional banking services. This also offers utility bill payment services to

our valued customers for payment of BSNL Mobile, Electricity, Water bills etc. 

MoneyclickTM   – Corporate

In addition to the above services, our Corporate Customers can avail Trade Finance

Facilities such as Import/ Export Credit facilities, Requests for Forward Contracts, Inland Trade, and

Bank Guarantee etc. Also MoneyclickTM facilitates access control at Corporate User level wherein

various users at different hierarchy levels have varying powers to operate a corporate account.

MoneyClickTM   – Cyber Kids

Children between 12-18 years who are having Account with us are eligible for this special e-

banking facility.

MOBILE BANKING

Karnataka Bank offers Mobile Banking for the convenience of paying for utility bills, mobile

recharge, movie tickets, online purchases, retail shopping and much more at over 15,000 merchants

directly from our mobile.

Karnataka Bank mobile payment service is independent of the handset model and service

providers and works on even the most basic handsets and across all telecom operators (GSM or

CDMA). 

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FEATURES

Mobile payment facility will be an additional facility to our customer for making Payment

through their mobile for the goods purchased by them.

On registration for Mobile Payment solution, the customer will be enabled to make secured

payments directly from their registered mobile phone, authorized by using their ATM PIN.

Customers can use this facility round the clock.

This facility is extended to the users free of cost.

This facility saves time; avoid hassles of travelling, waiting in long queues to make bill payment,

ticket booking etc.

At present the facility will be extended to customers subject to a daily cap of Rs.50, 000/- per

customer for transaction involving purchase of goods/services (as per RBI guidelines).

BENEFITS

EASY:

Works on even the simplest mobile handsets across all operators (GSM or CDMA)

Doesn't require GPRS connectivity, SIM change or application download

SMS & Interactive Voice based transaction platform makes it very easy-to-use

SECURE:

Confidential PIN Based Transaction

PIN entry only through an IVR call where the PIN is transmitted in a DTMF format(Just as the

PIN entry system for tele banking)

No financial details divulged during the transaction process

CONVENIENT:

Transact over-the-counter, online, on the telephone or from just about anywhere

Save time and effort by paying bills from anywhere, anytime

Turn your mobile phone into a debit card

REGISTRATION: 

Existing Debit Card holders (Classic/GOLD) who are above 18years are eligible for mobile

banking facilities. In case existing customers do not have debit cards, they have to first apply for Debit

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Cards and upon receipt of the same they can register for Mobile Payment facility. A customer would be

able to register to use Pay mate services in any one of the following:

DEMAT ACCOUNT

A Bank where it’s Head Office provides the facility of opening and conduct of Accounts

through its branches, a Depository institution extends various services to the investors through its agents

known as Depository Participant. In India, now there are two Depositories. They are CDSL and NSDL.

Participant can be anybody who complies with the eligibility requirements. Participant (DP) can be a

Bank also. All the various functions undertaken and enabled through Demat accounts are referred to as

DP activity. Under the depository system, a demat account holder or holder/owner of securities who is

entitled to all the benefits (such as dividend or interest/bonus or right shares etc), is known as a

Beneficial Owner (BO).

PREREQUISITES OF OPENING A DEMAT ACCOUNT: 

The formalities involved in opening a bank account and a demat account are similar. An

investor desirous of holding his securities in electronic form can open a demat account with a DP of his

choice by completing necessary account opening formalities after furnishing proof of his/her identity,

photograph and proof of address. An agreement with the DP in the prescribed format is to be executed

by paying requisite stamp duty. 

DEMATERIALISATION OF SECURITIES:

After getting the demat account number from the DP, the BO can cause credit of fresh

purchases of securities to his demat account and/or transfer the balances held in demat account held with

other DP to this newly opened demat account. He can also tender the securities held by him/her in

physical form to DP for dematerialization and credit to the demat account. After necessary verification,

DP forwards the physical securities (duly defaced) either to the company or to their duly appointed RTA

(Registrar and Transfer Agent) who, after necessary scrutiny, destroys the certificates in physical form

and authorizes the depository to give corresponding (electronic) credit to the subject demat account.

FREE FACILITIES BY CDSL TO ITS DEMAT ACCOUNT HOLDERS:

The evolution of the Indian capital market has seen several enhancements during the past few

years and this has been a result of innovative use of newer technologies. In the reduced settlement cycle

era, investors require updated demat account information at a much faster pace than ever before. In other

words, the quest for account status information has raised manifold.

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In order to facilitate a CDSL demat account holder to easily adapt to the fast reducing

settlement cycle, CDSL has introduced Internet-enabled services called "easi" and "easiest" to empower

a demat account holder in managing his securities 'anytime-anywhere' in an efficient and convenient

manner, all in a state-of-the-art secure environment. Further to effective risk control mechanism for

monitoring of demat account, CDSL has also introduced "smart" facility.

MONEY PLANT ATM

Karnataka Bank has entered into ATM sharing arrangement with  NPCI-NFS

and CashTree ATM network. The NFS network with NPCI has 66 Member Banks and covers around

86,793 ATMs while CashTree network has 13 member Banks and covers around 7400 ATMs. All Debit

& MoneyplantTM International Visa Debit Card/MoneyplantTM ATM card holding customers of

Karnataka Bank can avail the facility of withdrawal through Banks' MoneyPlantTM ATMs and shared

network ATMs. 

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1.3 ABOUT THE STUDY

One of the important functions of the Bank is to accept deposits from the public for the purpose

of lending. In fact, depositors are the major stakeholders of the Banking System. The depositors and

their interests form the key area of the regulatory framework for banking in India and this has been

enshrined in the Banking Regulation Act, 1949. The Reserve Bank of India is empowered to issue

directives advices on interest rates on deposits and other aspects regarding conduct of deposit accounts

from time to time. With liberalization in the financial system and deregulation of interest rates, banks

are now free to formulate deposit products within the broad guidelines issued by RBI.

This policy document on deposits outlines the guiding principles in respect of formulation of

various deposit products offered by the Bank and terms and conditions governing the conduct of the

account. The document recognises the rights of depositors and aims at dissemination of information

with regard to various aspects of acceptance of deposits from the members of the public, conduct and

operations of various deposits accounts, payment of interest on various deposit accounts, closure of

deposit accounts, method of disposal of deposits of deceased depositors, etc., for the benefit of

customers.

While adopting this policy, the bank reiterates its commitments to individual customers

outlined in 'Code of Banks' Commitment to Customers'.

The various deposit products offered by the Bank can be categorised broadly into the following

types. Definitions of major deposits schemes are as under:

"Demand deposits" means a deposit received by the Bank which is withdrawable on demand.

"Savings deposits" means a form of demand deposit which is subject to restrictions as to the

number of withdrawals as also the amounts of withdrawals permitted by the Bank during any

specified period.

"Term deposit" means a deposit received by the Bank for a fixed period withdrawable only after

the expiry of the fixed period.

"Current Account" means a form of demand deposit wherefrom withdrawals are allowed any

number of times depending upon the balance in the account or up to a particular agreed amount

and will also include other deposit accounts which are neither Savings Deposit nor Term

Deposit.

ACCOUNT OPENING AND OPERATION OF DEPOSIT ACCOUNTS

16

The Bank before opening any deposit account will carry out due diligence as required under

"Know Your Customer" (KYC) guidelines issued by RBI Anti-Money Laundering rules and

regulations and or such other norms or procedures as per the "Know Your Customer"(KYC)

policy of the bank. If the decision to open an account of a prospective depositor requires

clearance at a higher level, reasons for any delay in opening of the account will be informed to

the customer and the final decision of the Bank will be conveyed at the earliest to the customer.

The bank is committed to providing basic banking services to disadvantaged sections of the

society. Banking services will be offered to them through 'no frill' accounts and accounts will be

opened with relaxed customer acceptance norms as per regulatory guidelines.

The account opening forms and other material would be provided to the prospective depositor by

the Bank. The same will contain details of information to be furnished and documents to be

produced for verification and/or for record, it is expected of the Bank official opening the

account, to explain the procedural formalities and provide necessary clarifications sought by the

prospective depositor when he approaches for opening a deposit account.

The regulatory guidelines require banks to categorize customers based on risk perception and

prepare profiles of customers for the purpose of transaction monitoring. Inability or

unwillingness of a prospective customer to provide necessary information/details could result in

the bank not opening an account.

Inability of an existing customer to furnish details required by the bank to fulfil statutory

obligations could also result in closure of the account after due notice(s) is provided to the

customer.

For deposit products like Savings Bank Account and Current Deposit Account, the Bank will

normally stipulate certain minimum balances to be maintained as part of terms and conditions

governing operation of such accounts. Failure to maintain minimum balance in the account will

attract levy of charges as specified by the Bank from time to time. For Saving Bank Account, the

Bank may also place restrictions on number of transactions, cash withdrawals, etc., for a given

period. Similarly, the Bank may specify charges for issue of cheque books, additional statement

of accounts, duplicate passbook, folio charges, etc. All such details, regarding terms and

conditions for operation of the accounts and schedule of charges for various services provided

will be communicated to the prospective depositor while opening the account.

Savings Bank Accounts can be opened by eligible person/ persons and certain organizations/

agencies (as advised by Reserve Bank of India (RBI) from time to time).

Current Accounts can be opened by individuals/partnership firms/ Private and Public Limited

Companies/HUFs/ Specified Associates/Societies/ Trusts, Departments of Authority created by

Government (Central or State), Limited Liability Partnership etc.

17

Term Deposits Accounts can be opened by individuals/partnership firms/ Private and Public

Limited Companies/HUFs/ Specified Associates/Societies/ Trusts, Departments of Authority

created by Government (Central or State), Limited Liability Partnership etc.

The due diligence process, while opening a deposit account will involve satisfying about the

identity of the person, verification of address, satisfying about his occupation and source of

income. Obtaining introduction of the prospective depositor from a person acceptable to the

Bank and obtaining recent photograph of the person/s opening/ operating the account are part of

due diligence process.

In addition to the due diligence requirements under KYC norms, the Bank is required by law to

obtain Permanent Account Number (PAN) or General Index Register (GIR) Number or

alternatively declaration in Form No. 60 or 61 as specified under the Income Tax Act/ Rules.

Deposit accounts can be opened by an individual in his own name (status: known as account in

single name) or by more than one individual in their own names (status: known as Joint

Account). Savings Bank Account can also be opened by a minor jointly with natural guardian or

with mother as the guardian (Status: known as Minor’s Account). Minors above the age of 10

will also be allowed to open and operate saving bank account independently. However no

overdrafts will be granted to these minors.

Operation of Joint Account: The Joint Account opened by more than one individual can be

operated by single individual or by more than one individual jointly. The mandate for operating

the account can be modified with the consent of all joint account holders. The Savings Bank

Account opened by minor jointly with natural guardian/guardian can be operated by natural

guardian only till the minor attains majority.

The term deposit account holders at the time of placing their deposits can give instructions with

regard to closure of deposit account or renewal of deposit for further period on the date of

maturity. In the absence of such mandate, the Bank will seek instructions from the depositor/s as

to the disposal of the deposit by sending intimation before 15 days of the maturity date of term

deposit by post or courier at the last known address of the depositor.

Nomination facility is available on all deposit accounts opened by individuals. Nomination is

also available to a sole proprietary concern account. Nomination can be made in favour of one

individual only.

Nomination so made can be cancelled or changed by the account holder/s any time. While

making nomination, the signature of the account holder/s in the nomination forms (DA1, DA2 &

DA3) need not be attested by witnesses. However, thumb impression of the accountholder/s is

required to be attested by two witnesses.

18

Nomination can be modified by the consent of account holder/s. Nomination can be made in

favour of a minor also. Nomination facility is also available for joint deposit accounts and in

such cases nomination should be made by all depositors jointly.

NRI SERVICES

An Indian citizen or a foreign citizen of Indian origin who stays abroad for

employment/carrying on business or vocation or under circumstances indicating an intention for an

uncertain duration of stay abroad is a Non-Resident Indian (NRI). (Those who stay abroad on business

visit, medical treatment, study or such other purposes which do not indicate an intention to stay there for

an indefinite period will not be considered as NRIs).

An NRI is a person resident outside India who is a citizen of India or is a person of Indian

origin. Under the Foreign Exchange Management Act (FEMA), generally, a person is resident outside

India if he is in India for less than 182 days during the course of the preceding financial year and also

includes any person who stays abroad:

For the purposes of carrying out employment or any business or vocation;

Under circumstances indicating an intention to stay outside India for an uncertain duration;

Any Indian citizen deputed outside India for a temporary period in connection with employment

For education

Bank offers vide range of deposit schemes for Non Resident Indians which includes Non

Resident Rupee account (NR (E) RA), Foreign Currency Non-Resident Account (FCNR), Non-Resident

Ordinary Account (NRO), and Resident Foreign Currency (Domestic) Account (RFCD).

Opening and maintaining of Bank Accounts of Non- Resident Indian is guided by the Foreign

Exchange Management Act-1999 (FEMA) and interest on terms deposits are revised based on LIBOR

rates from time to time.

19

1.3.1 OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE

To study the performance of deposit schemes in Karnataka Bank

SECONDARY OBJECTIVES

1) To evaluate the performance of cash inflow in the form of deposits

2) To analyze the return on investment of deposit schemes

3) To find out the performance of demand deposits, savings bank deposits and term deposits

4) To analyze the efficiency of management

5) To find out the relationship between the deposits and loans

20

1.3.2 SCOPE OF THE STUDY

The present study attempts to obtain a general view of deposit schemes practice in Karnataka

bank. The study to know their increase or decrease of various schemes is also analyzed in order to give a

true and clear picture of its performance. The present study aims at studying deposits of the Karnataka

bank. The study focuses only the views of the bank. But it does include the views of the others who are

directly or indirectly associated with the bank. It is concerned to the administration of assets & liabilities

to analysis the profitability liquidity of the organization with the help of ratios.

21

1.3.3 IMPORTANCE OF THE STUDY

Cash flow statement shows efficiency of a firm in generating cash inflows from its regular

operations.

Return on investment can be used to measure the value of the bank or of a specific investment

that they might make.

Percentage analysis is help to evaluate and compare the deposits.

Ratio analysis is an important technique of financial statement analysis. Accounting ratios are

useful for understanding the financial position of the company. Different users such as investors,

management, bankers and creditors use the ratio to analyze the financial situation of the

company for their decision making purpose.

The effect of correlation is to reduce the range of uncertainty. The prediction based on

correlation analysis is likely to be more variable and near to reality.

22

1.3.4 LIMITATIONS OF THE STUDY

The analysis is based on the secondary data. Hence there is a limitation of doubtful accuracy.

The data collected is limited to 5 years and hence it does not give the whole picture.

As the present business moves from the cash basis to accrual basis, the prepaid and credit

transactions might be represented an increase in working capital and it would be misleading to

equate net income to cash flow because a number of non cash items would affect the net income.

Return of investment does not take into account the time value of money. It does not account for

the variable nature of annual net cash inflows.

The ratios are generally calculated from past financial statements and thus are no indicator of

future.

23

CHAPTER – 2

REVIEW OF LITERATURE

Mr. Joseph (2005) studied the performance of Lead Bank Scheme in Kerala, the mobilisation

of bank deposits in Kerala by commercial Banks. He observed that competition from co-operative and

other institutions was the main obstacles to achieving the deposit mobilisation target. The popularity of

private financial institutions was due to their personal relations with local people. 56.4 percent of the

customers (self employed) surveyed had their first percent dealing with banks for taking loans.

Mr. Laurent (2006) studied the perception of customers on five competing banks in a

medium size city in UK for private deposits. He observed that these five banks differed from each other

as a result of oligopolistic market situation only on seven attributes i.e., friendliness, quality of

service, community spirit, modem facilities, convenience, range of services and ownership. These seven

attributes accounted for 91 percent of the overall differences between the five banks. The study revealed

that on the basis of perception of overall image of the five banks relative to each other, there existed the

different market segments.

K. Avadhani (2007) studied the performance of rural branches of some commercial banks in

order to identify the factors influencing deposit mobilisation in rural areas in different states. He came

out with the opinion that there existed sufficient relationship between the deposits of a rural branch and

its age. The growth of deposits is at a faster rate in the first six years and tapers off subsequently. The

growth rate in deposits of commercial banks cannot be explained in terms of price differentials as co-

operatives offer high rates of interest. Therefore product differentials would offer a better explanation

of the disparate growth rates in deposits.

Mr. Nag and Mr. Shivaswamy (2008) studied the comparative performance of foreign and

Indian banks and observed that there was a distinct preference of bank customers to bank with foreign

banks notwithstanding the fact that foreign banks stipulate relatively high levels of minimum amounts to

be maintained as deposits and charge relatively high interest rates and service costs. In respect of deposit

supplies, their strategy had been to procure from a segmented part of the total supplies of deposits of

24

large size from a relatively small number of depositors. Large accretion of non-resident deposits with

foreign banks was mainly because of the familiarity of the names of foreign banks operating in India to

banks abroad.

Raju (2009) studied the levels of savings and the manner of their distribution among different

physical and financial assets of household sector in Kerala and identified the factors influencing their

savings behaviour. He found that major portions of the savings of households in Kerala were in the form

of financial savings and that too in the form of bank deposits.

Subramanian (2010) analyzed the empirical analysis on dis-intermediation from the household

sectors portfolio preferences point of view based on demand model of five assets including bank

deposits The study revealed that the household sectors preferences between bank deposits and lending

to private corporate sector tended to be in favour of the latter and against the former.

Nalini (2011) studied on the impact of mutual funds on the deposit mobilisation of commercial

banks examined the awareness level and adoption level of mutual funds among household investors in

Thiruvananthapuram district. She found that the advent of mutual funds has brought in expected

changes in the growth of bank deposits and their ownership pattern, but the changes were not of a

significant magnitude.

25

CHAPTER – 3

RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the research problem. It may be

understand as a science of studying as research is done scientifically in this we study various steps that

are generally adopted by a researcher in studying the research problem along with logic behind them.

RESEARCH DESIGN

A Research design is a system of conditions for collection and analysis of data which aims

to provide the precise information. Research is a systematic way of exploring, analysing and

conceptualizing social life in order to extend and verify knowledge to see this research helps to construct

a theory. This method is simply a systematically planned way of doing things to achieve the desired

result.

A Research design of this study is analytical in nature. It is an arrangement of condition of collection

and analysis of data in a proper that aims to combine relevance to the research purpose with economy in

procedure.

DATA DESIGN

Collection of data is the process remuneration together with the proper record of research.

Those data which are already been passed through the statistical process. In this study is based on the

secondary sources. Secondary data is the data that have been already collected by and readily available

from other sources. Such data are cheaper and more quickly obtainable than the primary data and also

may be available when primary data cannot be obtained at all.

It is economical.

It saves efforts and expenses

It helps to make primary data collection more specific since with the help of secondary data, we

are able to make out what are the gaps and deficiencies and what additional information needs to

be collected

It helps to improve the understanding of the problem

26

It provides a basis for comparison for the data that is collected by the researcher

The secondary data for the study is mainly collected through

Annual reports

Circulars

Internet

TOOLS USED FOR ANALYSIS

RETURN OF INVESTMENT:

A performance measure used to evaluate the efficiency of an investment or compare the

efficiency of a number of different investments. To calculate ROI, the return on an investment is divided

by the cost of the investment; the result is expressed as a percentage or a ratio.

Return on investment is a popular metric because it is versatile and simple to use. If an investment does

not have a positive ROI or if there are alternative investment opportunities with a higher ROI, the

investment should not be undertaken.

EBIT

Return of Investment = __________________

Capital Employed

PERCENTAGE ANALYSIS

Percentage analysis consists of reducing a series of related amounts to a series of percentages

of a given base. Two approaches are often used. The first, called horizontal analysis, indicates the

proportionate change in financial statement items over a period of time, such analysis is most helpful in

evaluating trends. Vertical analysis (common-size analysis) is proportional expression of each item on

the financial statements in a given period to a base amount. It analyzes the composition of each of the

financial statements from different years

(a) To detect trends not evident from the comparison of absolute amounts and

(b) To make intercompany comparisons of different sized enterprises.

27

100

PERCENTAGE = __________________ × CURRENT YEAR

BASE YEAR

RATIO ANALYSIS:

Ratio analysis is the process of determining and presenting the relationship of items and

group of items in the statements. According to Batty J. Management Accounting “Ratio can assist

management in its basic functions of forecasting, planning coordination, control and communication”.

It is helpful to know about the liquidity, solvency, capital structure and profitability of an

organization. It is helpful tool to aid in applying judgement, otherwise complex situations.

According to Accountant’s Handbook by Wixon, Kell and Bedford, “a ratio is an expression of the

quantitative relationship between two numbers”. A tool used by individuals to conduct a quantitative

analysis of information in a company's financial statements. Ratios are calculated from current year

numbers and are then compared to previous years, other companies, the industry, or even the economy

to judge the performance of the company. Ratio analysis is predominately used by proponents of

fundamental analysis.

CURRENT RATIO

This ratio explains the relationship between current assets and current liabilities of a

business.

Current Assets

Current Ratio = __________________

Current Liabilities

Current Assets:-‘Current assets’ includes those assets which can be converted into cash with in a year’s

time.

Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment + Debtors (Debtors –

Provision) + Stock(Stock of Finished Goods + Stock of Raw Material + Work in Progress) + Prepaid

Expenses.

28

Current Liabilities: - ‘Current liabilities’ include those liabilities which are repayable in a year’s time.

Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation + Proposed Dividend +

Unclaimed Dividends + Outstanding Expenses + Loans Payable within a Year.

Significance:

According to accounting principles, a current ratio of 2:1 is supposed to be an ideal ratio.

It means that current assets of a business should, at least, be twice of its current liabilities. The

higher ratio indicates the better liquidity position; the firm will be able to pay its current liabilities more

easily. If the ratio is less than 2:1, it indicates lack of liquidity and shortage of working capital.The

biggest drawback of the current ratio is that it is susceptible to “window dressing”. This ratio can be

improved by an equal decrease in both current assets and current liabilities.

RATIO OF CURRENT LIABILITIES TO PROPRIETOR’S FUND:

This ratio explains the relationship between current liabilities and shareholder’s fund of a

business.

Current Liabilities

Ratio of Current Liabilities to Proprietor’s fund = __________________

Shareholder’s fund

Significance:

This ratio should be 33% or more than that. In other words, the proportion of shareholders funds

to total funds should be 33% or more. A higher proprietary ratio is generally treated an indicator of

sound financial position from long-term point of view, because it means that the firm is less dependent

on external sources of finance. If the ratio is low it indicates that long-term loans are less secured and

they face the risk of losing their money.

INTEREST COVERAGE RATIO

This ratio is also termed as ‘Debt Service Ratio’. This ratio is calculated as follows:

29

EBIT

Interest Coverage Ratio = ______________________________________

Fixed Interest Charges

Significance:

This ratio indicates how many times the interest charges are covered by the profits available to

pay interest charges. This ratio measures the margin of safety for long-term lenders. This higher the

ratio, more secure the lenders is in respect of payment of interest regularly.

If profit just equals interest, it is an unsafe position for the lender as well as for the company also, as

nothing will be left for shareholders. An interest coverage ratio of 6 or 7 times is considered appropriate.

DEBT EQUITY RATIO

This ratio expresses the relationship between outsider’s fund and shareholder’s fund.

Outsider’s fund

Debt Equity Ratio = ________________________________________

Shareholder’s fund

Outsider’s Funds: - These refer to long term liabilities which mature after one year. These include

Debentures, Mortgage Loan, Bank Loan, and Loan from Financial institutions and Public Deposits etc.

Shareholder’s Funds: - These include Equity Share Capital, Preference Share Capital, Share Premium,

General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit & Loss Account.

Significance:

This Ratio is calculated to assess the ability of the firm to meet its long term liabilities.

Generally, debt equity ratio of is considered safe. If the debt equity ratio is more than that, it shows a

rather risky financial position from the long-term point of view, as it indicates that more and more funds

invested in the business are provided by long-term lenders. The lower this ratio, the better it is for long-

term lenders because they are more secure in that case. Lower than 2:1 debt equity ratio provides

sufficient protection to long-term lenders.

30

WORKING CAPITAL RATIO

This ratio shows the difference between the current assets and current liabilities.

Working Capital Ratio = Current Assets – Current Liabilities

Significance:

This ratio is of particular importance in non-manufacturing concerns where current assets play

a major role in generating sales. It shows the number of times working capital has been rotated in

producing sales.A high working capital turnover ratio shows efficient use of working capital and quick

turnover of current assets like stock and debtors. A low working capital turnover ratio indicates under-

utilisation of working capital.

CASH FLOW STATEMENT

The cash flow statement is a financial statement that shows how changes in balance sheet

accounts and income affect cash and cash equivalents, and breaks the analysis down to operating,

investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of

cash in and cash out of the business.

The statement captures both the current operating results and the accompanying changes in the

balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term

viability of a company, particularly its ability to pay bills.

The cash flow statement is distinct from the income statement and balance sheet because it

does not include the amount of future incoming and outgoing cash that has been recorded on credit.

Therefore, cash is not the same as net income, which, on the income statement and balance sheet,

includes cash sales and sales made on credit. The money coming into the business is called cash inflow,

and money going out from the business is called cash outflow.

CORRELATION

The correlation is one of the most common and most useful statistics. A correlation is a single

number that describes the degree of relationship between two variables.

31

r=∑ (x−x¿)∑( y− y )

√∑ (x−x) ²√∑ ( y− y) ²¿

CHAPTER – 4

DATA ANALYSIS AND INTERPRETATIONS

4.1 RETURN OF INVESTMENT

A performance measure used to evaluate the efficiency of an investment or compare the

efficiency of a number of different investments. Return on investment is a popular metric because it is

versatile and simple to use. If an investment does not have a positive ROI or if there are alternative

investment opportunities with a higher ROI, the investment should not be undertaken.

EBIT

Return of Investment = __________________

Capital Employed

TABLE 4.1.1

RETURN ON INVESTMENT

(RS.IN CRORES)

YEARS EBIT CAPITAL

EMLOYED

ROI

2007 0.18 1.66 0.11

2008 0.25 1.52 0.16

32

2009 0.27 1.57 0.17

2010 0.17 2.17 0.08

2011 0.21 3.52 0.06

Source: Secondary data

INTERPRETATION:

The above table shows that the performance of return on investment is based on

deposits. The return on investment has been increased up to 2009. In 2010, the earning before in tax

started to decrease, so the return on investment also started to decrease in the year. The highest rate of

return on investment is 0.17 Crores in the year 2009.

CHART 4.1.1

RETURN ON INVESTMENT

2007 2008 2009 2010 20110

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.11

0.160.17

0.0800000000000002

0.0600000000000002

Years

Rs. I

n Cr

ores

33

4.2 PERCENTAGE ANALYSIS

Percentage analysis consists of reducing a series of related amounts to a series of

percentages of a given base. Two approaches are often used. The first, called horizontal analysis,

indicates the proportionate change in financial statement items over a period of time, such analysis is

most helpful in evaluating trends. Vertical analysis (common-size analysis) is proportional expression of

each item on the financial statements in a given period to a base amount. It analyzes the composition of

each of the financial statements from different years

(a) To detect trends not evident from the comparison of absolute amounts and

(b) To make intercompany comparisons of different sized enterprises.

100

PERCENTAGE = __________________ × CURRENT YEAR

BASE YEAR

TABLE 4.2.1

DEMAND DEPOSITS

YEARS AMOUNTS (Rs) PERCENTAGE

2007 10,806,889 100

2008 11,192,915 103.57

2009 11,570,171 107.06

34

2010 17,064,834 157.91

2011 18,560,921 171.75

Source: Secondary data

INTERPRETATION:

The percentage analysis about demand deposits will be presented in the above table. The

year 2007 was taken as the base year for find out the percentage of deposits increased for remaining

years (i.e., 2008 to 2011). The percentage of deposits increased compare to previous years because of

increasing customers year by year.

CHART 4.2.1

DEMAND DEPOSITS

2007 2008 2009 2010 20110

20

40

60

80

100

120

140

160

180

200

100 103.57 107.06

157.91171.75

Years

Perc

enta

ge

35

TABLE 4.2.2

SAVINGS BANK DEPOSITS

YEARS AMOUNTS (Rs) PERCENTAGE

2007 21,998,110 100

2008 26,483,683 120.39

2009 28,994,262 131.80

2010 38,136,801 173.36

2011 49,465,383 224.86

Source: Secondary data

INTERPRETATION:

The above table shows the performance of savings bank deposits for the last five years

with the help of percentage analysis. The year 2007 was taken as the base year for find out the

percentage of deposits increased for remaining years (i.e., 2008 to 2011). The percentage of deposits

increased compare to previous years because of increasing customers year by year.

CHART 4.2.2

SAVINGS BANK DEPOSITS

36

2007 2008 2009 2010 20110

50

100

150

200

250

100120.39

131.8

173.36

224.86

Years

Perc

enta

ge

TABLE 4.2.3

TERM DEPOSITS

YEARS AMOUNTS (Rs) PERCENTAGE

2007 107,569,355 100

2008 132,485,325 123.16

2009 162,768,420 151.31

2010 182,104,853 169.29

2011 205,338,159 190.89

Source: Secondary data

INTERPRETATION:

The above table shows the performance of term deposits for the last five years with the

help of percentage analysis. The year 2007 was taken as the base year for find out the percentage of

deposits increased for remaining years (i.e., 2008 to 2011). The percentage of deposits increased

compare to previous years because of increasing customers year by year.

CHART 4.2.3

TERM DEPOSITS

37

2007 2008 2009 2010 20110

50

100

150

200

250

100

123.16

151.31169.29

190.89

Years

Perc

enta

ge

4.3 RATIO ANALYSIS

Ratio analysis is the process of determining and presenting the relationship of items and

group of items in the statements. According to Batty J. Management Accounting “Ratio can assist

management in its basic functions of forecasting, planning coordination, control and communication”.

4.3.1 CURRENT RATIO

Current Assets

Current Ratio = __________________

Current Liabilities

TABLE

4.3.1 CURRENT RATIO

(RS.IN CRORES)

Years Current Assets Current Liabilities Current Ratio

2007 10.71 4.22 2.53

2008 12.83 4.71 2.72

38

2009 13.27 5.01 2.65

2010 16.24 6.99 2.32

2011 19.33 8.73 2.21

Source: Secondary data

INTERPRETATION:

The current ratio of the company this shows that the current ratio is more than the standard

level 2:1 so they should maintain this for future

CHART 4.3.1

CURRENT RATIO

2007 2008 2009 2010 20110

0.5

1

1.5

2

2.5

3

2.532.72 2.65

2.322.21

Years

Rs.In

Cro

res

39

4.3.2 RATIO OF CURRENT LIABILITIES TO PROPRIETOR’S FUND:

This ratio explains the relationship between current liabilities and shareholder’s fund of a

business.

Current Liabilities

Ratio of Current Liabilities to Proprietor’s fund = __________________

Shareholder’s fund

TABLE 4.3.2

RATIO OF CURRENT LIABILITIES TO PROPRIETOR’S FUND

(RS.IN CRORES)

Years Shareholder’s fund Current Liabilities Ratio of Current

Liabilities to

Proprietors fund

2007 1.24 4.22 3.40

2008 1.38 4.71 3.41

2009 1.57 5.01 3.19

40

2010 1.83 6.99 3.82

2011 2.43 8.73 3.59

Source: Secondary data

INTERPRETATION:

The above table reveals that ratio of current liabilities to Proprietors fund does not

have same level of ratio. In 2008, the ratio has been increased when compare to the previous year. But in

2009, the ratio has decreased. Then again the ratio has started to increase in 2010 and decrease in 2011.

CHART 4.3.2

RATIO OF CURRENT LIABLITIES TO PROPRIETORS FUND

2007 2008 2009 2010 20112.8

3

3.2

3.4

3.6

3.8

4

3.4 3.41

3.19

3.82

3.59

Years

Rs. I

n Cr

ores

41

4.3.3 INTEREST COVERAGE RATIO

This ratio is also termed as ‘Debt Service Ratio’. This ratio is calculated as follows:

EBIT

Interest Coverage Ratio = ______________________________________

Fixed Interest Charges

TABLE 4.3.3

INTEREST COVERAGE RATIO

(RS.IN CRORES)

Years EBIT Fixed Interest

Charges

Interest Coverage

Ratio

2007 0.18 0.83 0.22

2008 0.26 1.10 0.24

2009 0.28 1.44 0.19

2010 0.17 1.71 0.10

42

2011 0.21 1.76 0.12

Source: Secondary data

INTERPRETATION:

The above table reveals that ratio of current liabilities to Proprietors fund does not

have same level of ratio. In 2008, the ratio has been increased when compare to the previous year. But in

2009, the ratio has decreased. Then again the ratio has started to increase in 2010 and decrease in 2011.

CHART 4.3.3

INTEREST COVERAGE RATIO

2007 2008 2009 2010 20110

0.05

0.1

0.15

0.2

0.25

0.3

0.220.24

0.19

0.10.12

Years

Rs. I

n Cr

ores

43

4.3.4 DEBT EQUITY RATIO

This ratio expresses the relationship between outsider’s fund and shareholder’s fund.

Outsider’s fund

Debt Equity Ratio = ________________________________________

Shareholder’s fund

Outsider’s Funds: - These refer to long term liabilities which mature after one year. These include

Debentures, Mortgage Loan, Bank Loan, and Loan from Financial institutions and Public Deposits etc.

Shareholder’s Funds: - These include Equity Share Capital, Preference Share Capital, Share Premium,

General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit & Loss Account.

TABLE 4.3.4

DEBT EQUITY RATIO

(RS.IN CRORES)

Years Outsiders fund Shareholder’s fund Debt Equity Ratio

2007 0.94 1.24 0.76

2008 0.94 1.38 0.68

44

2009 0.96 1.57 0.61

2010 1.47 1.83 0.80

2011 1.93 2.43 0.79

Source: Secondary data

INTERPRETATION:

The above table reveals that interest coverage ratio during the year 2007 was 0.76 and it is

gradually decreasing to 0.68 and 0.61 in the next years. But in 2010, the ratio is increasing to 0.80. And

again the ratio is decreasing to 0.79.

CHART 4.3.4

DEBT EQUITY RATIO

2007 2008 2009 2010 20110

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.90.7600000000000

06

0.68 0.610000000000001

0.8 0.79

Years

Rs. I

n Cr

ores

45

4.3.5 WORKING CAPITAL RATIO

This ratio shows the difference between the current assets and current liabilities.

Working Capital Ratio = Current Assets – Current Liabilities

TABLE 4.3.5

WORKING CAPITAL

(RS.IN CRORES)

Years Current Assets Current Liabilities Working Capital

2007 10.71 4.22 6.49

2008 12.83 4.71 8.12

2009 13.27 5.01 8.26

46

2010 16.24 6.99 9.25

2011 19.33 8.73 10.6

Source: Secondary data

INTERPRETATION:

The above table reveals that working capital has been increasing every year. It shows this

ratio have more value in the future.

CHART 4.3.5

WORKING CAPITAL

2007 2008 2009 2010 20110

2

4

6

8

10

12

6.49

8.12 8.26

9.25

10.6

Years

Rs. I

n Cr

ores

47

4.4 CASH FLOW STATEMENT

TABLE 4.4.1

CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2007

Particulars

Rs

March 31,

2007

Rs

48

A.CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax and extra ordinary items

Adjustments for :

Depreciation on Fixed Assets including

Least Adjustment charges

Provisions and Contingencies

Amortisation of premium on Held to Maturity Investments

Rights Issue Expenses

Operating profit before working capital changes Adjustment

for :

Advances & Other Assets

Investments

Deposits, Borrowings & Other Liabilities

Cash generated from operations

Direct taxes paid

Net cash flow from operating activities (A)

166,081

837,800

107,220

0

-16,552,492

4,509,462

9,484,091

2,730,376

1,111,101

3,841,477

-2,558,939

1,282,538

1,212,431

70,107

Source: Secondary data

INTERPRETATION:

The above table shows the performance of cash inflow and outflow of March 31st 2007,

the total amount of deposits was 9,484,091. It evaluates the cash inflow and outflow is based on

deposits.

TABLE 4.4.2

CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2008

Particulars

Rs

March 31,

2008

Rs

49

A.CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax and extra ordinary items

Adjustments for :

Depreciation on Fixed Assets including

Least Adjustment charges

Provisions and Contingencies

Amortisation of premium on Held to Maturity Investments

Rights Issue Expenses

Operating profit before working capital changes Adjustment

for :

Advances & Other Assets

Investments

Deposits, Borrowings & Other Liabilities

Cash generated from operations

Direct taxes paid

Net cash flow from operating activities (A)

174,558

577,000

103,505

0

-12,493,493

-8,994,232

27,882,669

3,435,443

855,063

4,290,506

6,394,944

10,685,450

1,662,277

9,023,173

Source: Secondary data

INTERPREATION:

The above table shows the performance of cash inflow and outflow of March 31st

2008, the amount of deposits has been increased when compare to March 31st 2007.

TABLE 4.4.3

CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2009

Particulars

Rs

March 31,

2009

Rs

50

A.CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax and extra ordinary items

Adjustments for :

Depreciation on Fixed Assets including

Least Adjustment charges

Provisions and Contingencies

Amortisation of premium on Held to Maturity Investments

Rights Issue Expenses

Operating profit before working capital changes Adjustment

for :

Advances & Other Assets

Investments

Deposits, Borrowings & Other Liabilities

Cash generated from operations

Direct taxes paid

Net cash flow from operating activities (A)

198,281

805,000

119,484

0

-9,192,728

-26,504,345

31,663,643

4,061,484

1,122,765

5,184,249

-4,033,430

1,150,819

1,681,016

-530,197

Source: Secondary data

INTERPRETATION:

The above table shows the performance of cash inflow and outflow of March31st 2009,

the amount of deposits has been increased when compare to March 31st 2008.

TABLE 4.4.4

CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2010

Particulars

Rs

March 31,

2010

R

51

s

A.CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax and extra ordinary items

Adjustments for :

Depreciation on Fixed Assets including

Least Adjustment charges

Provisions and Contingencies

Amortisation of premium on Held to Maturity Investments

Rights Issue Expenses

Operating profit before working capital changes Adjustment

for :

Advances & Other Assets

Investments

Deposits, Borrowings & Other Liabilities

Cash generated from operations

Direct taxes paid

Net cash flow from operating activities (A)

221,451

710,830

288,649

0

-26,628,891

-10,412,005

37,932,753

1,930,483

1,220,930

3,151,413

891,857

4,043,270

1,025,830

3,017,440

Source: Secondary data

INTERPRETATION:

The above table shows the performance of cash inflow and outflow of March31st 2010,

the amount of deposits has been increased when compare to March 31st 2009.

TABLE 4.4.5

CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2011

Particulars

Rs

March 31,

2011

R

52

s

A.CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax and extra ordinary items

Adjustments for :

Depreciation on Fixed Assets including

Least Adjustment charges

Provisions and Contingencies

Amortisation of premium on Held to Maturity Investments

Rights Issue Expenses

Operating profit before working capital changes Adjustment

for :

Advances & Other Assets

Investments

Deposits, Borrowings & Other Liabilities

Cash generated from operations

Direct taxes paid

Net cash flow from operating activities (A)

229,918

1,203,520

71,445

0

-27,235,702

-15,603,686

34,360,220

2,354,458

1,504,883

3,859,341

8,479,168

-4,619,827

1,274,120

-5,893,947

Source: Secondary data

INTERPRETATION:

The above table shows the performance of cash inflow and outflow of March31st 2011,

the amount of deposits has been decreased when compare to March 31st 2010.

TABLE 4.4.6

NET CASH FLOW FROM OPERATING ACTIVITIES

(RS.IN LAKHS)

Years Net Operating activities

53

2007 0.7

2008 90.23

2009 -5.3

2010 30.17

2011 -58.93

Source: Secondary data

INTERPRETATION:

The above table shows the deposits are one of the main factors of net cash flow from

operating activities. The cash inflow is based on the deposits. If the amount of deposits increased, the

net cash flow also increased.

CHART 4.4.1

NET OPERATING ACTIVITIES

2007 2008 2009 2010 2011

-80

-60

-40

-20

0

20

40

60

80

100

0.700000000000001

90.23

-5.3

30.17

-58.93

Years

Rs. I

n La

khs

4.5 CORRELATION

The correlation is one of the most common and most useful statistics. A correlation is a

single number that describes the degree of relationship between two variables.

54

r=∑ (x−x¿)∑( y− y )

√∑ (x−x) ²√∑ ( y− y) ²¿

TABLE 4.5.1

CORRELATION:

(RS.CRORES)

Years Deposits(x) Loans(y)

2007 14 10

2008 17 11

2009 20 12

2010 24 14

2011 27 17

Source: Secondary data

RESULT:

r = 0.98

INTERPRETATION:

The above calculation shows the positive correlation. So there is significant relationship

between two variables.

CHAPTER – 5

FINDINGS AND SUGGESTIONS

55

5.1 FINDINGS

The deposits of Karnataka bank have been increasing every year

The highest net cash flow from operating activities is 90.23 lakhs in the year 2008 and the lowest

net cash flow from operating activities -58.93 lakhs in the year 2011

The percentage analysis helps to identify the percentage of demand deposits, savings bank

deposits and term deposits have been increasing every year

The percentage of savings bank deposits has been doubled in the year 2011

The current ratio of the bank from the year, 2007-2011 is to be above 2:1and it is satisfactory

The highest ratio of current liabilities to proprietor’s fund is 3.82 crores in the year 2010

The lowest interest coverage ratio is 0.10 crores in the year 2010

The highest debt equity ratio is 0.80 crores in the year 2010

The working capital of the bank have been increasing every year, so the bank shall use the

capital effectively

The result of correlation shows positive correlation.

5.2 SUGGESTIONS

56

The deposit schemes are showing an unconstructive sign. So the bank keeps in control for the

future period

The percentage analysis are essentially concerned with the identification of significant

accounting data relationships, which give the decision-maker insights into the financial

performance of a company

Ratio analysis has a major significance in analysing the financial performance of a company over

a period of time.

The bank shall improve their level of cash and bank balances because it is playing a vital role for

additional improvement

The result of correlation shows positive correlation. So there is a good relationship between

deposits and loans in the bank

CONCLUSION

57

The study is made on the topic deposit schemes by using financial tools & with five years data at

Karnataka bank Ltd. This tools used for the study helped in determining the position of the concern

consequently for the past five years. The analysis of financial statements is a process of evaluating the

relationship between component parts of financial statements to obtain a better understanding of the

firm’s position and performance. The bank’s overall financial position is satisfactory. The bank deposit

schemes have been increasing year by year, so the bank gets more growth in every year.

BIBLIOGRAPHY

58

Web sites

www.karnatakabank.com

www.wikipedia.org

www.google.com

Books referred

“Basic Financial Management” – MY Khan & PK Jain

“Financial Management” – Prasanna Chandra

“Financial Accounting” – Jon Ben Hoyle & CJ Skender

Annual reports

Annual report 2006 – 2007

Annual report 2007 – 2008

Annual report 2008 – 2009

Annual report 2009 – 2010

Annual report 2010 – 2011

APPENDIX

KARNATAKA BANK (P) LTD59

MARCH-11 MARCH-10 MARCH-09 MARCH-08 MARCH-07

CAPITAL AND

LIABILITIES

Capital

Reserves and

Surplus

Deposits

Borrowings

Other Liabilities

and Provision

1,882,004

22,408,866

273,364,463

10,863,339

8,411,403

1,339,861

16,987,632

237,306,488

3,416,403

11,301,159

1,215,847

14,454,423

203,332,853

39,728

9,535,209

1,213,533

12,582,500

170,161,923

1,421,955

8,018,267

1,213,533

11,172,744

140,374,354

4,207,383

5,257,148

TOTAL 316,930,075 270,351,543 228,578,060 193,398,178 162,225,162

ASSETS

Cash & balances

with RBI

Balances with

Banks and Money

at Call & Short

Notice

Investments

Advances

Fixed Assets

19,398,055

462,519

115,063,393

173,480,709

1,455,268

17,430,979

624,503

99,920,463

144,356,833

1,480,758

13,649,830

957,539

89,614,883

118,100,450

1,384,876

14,822,059

5,020,429

59,637,087

108,419,746

1,197,731

8,268,237

3,346,911

50,481,644

95,526,799

1,068,216

60

Other Assets 7,070,131 6,538,007 4,870,482 4,301,126 3,533,355

TOTAL 316,930,075 270,351,543 228,578,060 193,398,178 162,225,162

Contingent

Liabilities

90,358,016

9,628,992

101,192,384

10,322,427

100,427,447

9,289,287

69,590,090

7,646,757

34,279,000

6,728,849

61