CHAPTER-V

PERFORMANCE ASSESSMENT OF SIDBI

This chapter is based on the secondary data collected from SIDBI and other

institutions. The analysis is done in two parts. Part A is devoted to evaluate the

functional performance and Part I! is devoted to focus on the financial performance. The

functional performance of SIDhI is evaluated by comparing it with the All India

Financial Institutions. The analysis covers a period of five years from 1997-98 to 2001-

02. The second objective of the study is served in this chapter. Based on this objective

two hypotheses are formulated. They are:

A. Among the Financial Institutions at the national level, SIDBI has a significant

share in industrial financing.

B. There is no difference in the financial performance of SIDBI and other

Development Banks (that 1s IDBI, IFCI, IIBI).

For testing the hypothesis A the following variables are analysed:

1. Assistance disbursed by Financial Institutions at the all India level and

SIDBI.

2. Statewise per c a ~ i t a assistance sanctioned by All India Financial

Institutions and SIIIBI.

3 . Statewise i~ssistance sanctioned by All India Financial Institutions And

SIDBI.

4. Productwise assist;mce sanctioned by All India Financial Institutions

and SIDBI

5. Industxywise assistance sanctioned, by All India Financial

Institutions and SlDBI

6 . Assistance sanctioned by AIFI and SIDBI to infrastructure sector.

7. Purposewise assistance sanctioned. by All India Financial Institutions

and SIDBI

8. Assistance sanctioned and disbursed by AIFIs and SIDBI.

For testing the hypothzsis B a total number of 1 1 ratios are used. The ratios

and their mode of computation art: given below.

Ratios Mode of con~putation

IiIterest Income 1. Interest Income to Total Income xl00

Total Income

2. Non - Interest Income to Tot~11 Inconre Non - Interest Income - x 100

Total Income

Interest Expenses 3 . Interest Expenditure lo Total Income xl00

Total Income

Non - Interest Expenses 4. Non - Interest Expenditurt to Totul Income x I00

Total Income

Interest Expenses 5 . Interest Expense lo Interest Income xl00

Interest Income

Interest Expenses 6. Interest Expense to Borrowings xl00

Borrowings

Interest Income 7. Interest Income to Credit x 100

Credit

9. Spread loworking Fund

10. Burden to Working Fund

11. Profit to Owned Fund

Borrowings x loo

Credit Spread

-xlOO Working Fund

Burden xl00

Working F I I ~ O

P a r t A

Functional Performance of SIDBI - An Evaluation

A well-integrated structure of financial institutions in India comprising

eleven institutions at the national level and 46 institutions at the state level. The national

level institutions known as All Ir dia Financial Institutions (AIFIs) comprise six All India

Development Banks (AIDBs), two Specialised Financial Institutions (SFIs) and three

Investment Institutions. Of the AIDBs, IDBI, IFCI, ICICI and IIBI provide financial

assistance to medium and lag: industries where as IDFC and SIDBI cater to the

financial needs of the infrastruct~re sector and small-scale sector respectively.

Among the (SFIs) specialised financial institutions, EXIM bank operations

comprise financing of projects, xoducts and services, exports, export competitiveness,

import financing, foreign trade !parantee programme, export and consultancy services.

NABARD acts as an apex developn~ent bank for promotion and development of

agriculture, small-scale industries, cottage and village industries, handicraft and other

rural craft and other allied econotnic activities in rural areas.

Among the invcstm~:nt institutions, IJC deuls in lili: insurance bnsincss,

while GIC along with its subsidiaries provide general insurance cover. LIC and GIC

deploy their funds in accordance with the government guidelines. UTI mobilises savings

of small investors through sale of units and chanalises them into corporate investments

maiIlly by way of secondruy capital market operations. Besides, the investment

institutions also extend assistance to ind~~stry through loans and by way of ~~nderwriting /

direct subscription to equities and debentures. Here those operations of the Investment

Institutions and NABARD, which deal with industrial financing and capital market

activities, are covered. SFIs inclutled three institutions viz IFCI Venture Capital Funds

LTD, ICICI Venture Funds Nanagement Company I,TD and Tourism Finance

Corporation of India LTD. Due to tiny nalure of their operations, these institutions have

been excluded from the category of SFIs. The AIDBs and SFIs and SFC and SIDCs are

grouped as All Financial Institutions (AFIs).

Assistance disbursed t ~ y All India Financial Institutions is depicted in Table

5.1. Of the total assistance disbursed by AIFIs in the last five years an average of 77.42

percent are disbursed by All India Development Banks, and 5.40 percent are disbursed

by Specialised Financial Institutions and 17.25 percent are by Investment Institutions.

Among the All India Developmelt B d s ICICI disburse maximum i.e. 35.89 percent.

IDBI rank second with 23.38 percent and SIDBI in the third position 9.54 percent. The

share of SIDBI in total disbursement by AIFIs during 1997-98 was 9.66 percent this

increased to 10.63 percent in 15'98-99. It dipped to 8.42 percent in 2000-01. But it

slightly increased in 2001-02. Ho~vever the average share of SIDBI in total disbursement

by AIFIs is only 9.54 percent. Th: assistance disbursed by AIFIs is graphically depicted

in Figure 5.1.

Table 5.1 Assistance Disbursed by all India Financial Institutions from 1997-98 to 2001-02

- 200 1-02

Institution 1997-98 1998-99 1999-00 2000-0 1 %Sha Ave-

S1'No' Devel %Share %Share ,, Rs. %Sh rage% Rs. %Sha Rs. Rs. (crores) are

OPment (crores) 0:rores) re (crores) (crores)

15368.80 28.34 1'1473.40 24.47 17062.80 23.78 17473.5022.84 1 1 157.90 17.46 23.38

IFCI 5615.00 10.35 4838.60 8.18 3360.60 4.68 2164.70 2.83 1093.80 1.71 5.55

Source: IDBI Report on Development Banking.

Figure 5.1

Financial Assistance Disbursed by all India Financial Institutions

Percentage

UTI GIC 6%

LIC

NABARD A EXlM BANK

3% 7

Share of SIDBI in Per Capita Assistance Sanctioned by All Financial institutions

The percentage share of SIDBI in per capita assistance sanctioned by all

financial institutions is depicted in Table 5.2.

Table 5.2

Share of SIDBI in Statewise Per Capita Assistance Sanctioned by

All Financial Institutions (% share) from 1996-97 to 200-01

I~ondichery 1 14.15 1 11.71 1 9.77 1 2.55 / 2.35 1 6.30 l ~ l l India I 9.19 1 7.62 1 6.03 1 4.97 1 3.52 1 5.94

Source : IDBI Report on Developr3ent Banking Note: Data for 2001 - 02 not available

It is clear from the table that SIDBl has highest percentage share in per capita

assistance in Tripura (47.23 perce.it), and lowest share in Maharashtra (3.26 percent). In

Union temtories the highest share goes to Chandigarh and the lowest share to Andaman

and Nichobar islands. In Kerala the share of SIDBI was 28.31 percent in 1996-97. This

comes down to 5.02 percent in 2000-01. The average share of SIDBI was found to be

19.45 percent. The share of SIIIBI in all India per capita assistance was only 5.94

percent.

Statewise Assistance Sanctioned by AIFIs and SIDBI

The share of SIDBI ill the assistance sanctioned by AIFIs is shown in Table

5.3. Among the big states Bihar claimed the highest share in sanctions (41.37 percent)

followed by kerala (38 percent) a d the lowest sl~nrc is to Andhra pradesh (5.49 percent)

in average share of assistance b : ~ SIDBI during the last five years. In other states the

maximum share goes to Nagalani (75.03 percent) followed by Manipur (74.64 percent)

and Tripura (49.01 percent). Among the Union Territories Chandigarh claimed the

highest share in SIDBI sanction (58.40 percent) and Andaman and Nichobar has the

lowest share (1.22 percent). The percentage share of SIDBI in total state wise assistance

sanctioned by AlFIs is depicted i l l Fable 5.3.

Table 5.3

Share of SIDBI in total assistance of AIFIs (% share) from 1997-98 to 2001-02

Schemewise Assistance Sanction1:d by SIDBI and All India Financial Institutions

Schemewise assistance sanctioned by AlFls and SIDBI is shown in Table 5.4

Table 5.4 Schemewise assistance sanctior ed by AIFIs and SIDBI ("A share) from 1997-98 to

2001-02

P b i . 7 8 . Refinance / 84.21 i 83.23 i 82.57 / 76.06 i 80.49

. Bill finance

Project finance

1. Rupee Loans 2.10

2. Foreign Currency Loans 0.10 0.04

B.Non project finance

1. Bill rediscounting 34.60 50.78 30.21 32.34 v~;::: 1 40.42 / 28.07 1 36.31 / 71.00 I 32.72

. Direct discounting 43.80

b. Loans to and investments i - $ - m F l

35.52

0.67

1 Asset credivequipment

finance

2. Working capitallshort tenn

loans

The average share 0:' SIDBI in rupee loan is only 2.10 percent of AIFls rupee

51.57

2.83

37.60

0 12 4.10

y 1 ;,;:;;

loan and average share in foreig,n currency loan is only 0.04 percent. However the share

39.59

0.73

bonds of Fis

of SIDBI in total project finance i s only 2.14 percent. In working capital linancc the

share of SIDBI is negligible. ' t is only 0.67 percent. Hut in refinance the SIDBI has

Source: IDBI report on Develop~nent Banking.

0.00

17.35

considerable share (80.49 percttnt). In bill finance the share of SlDBI is 43.58 percent.

6.38

16.44

10.15

15.89

17.06

20.81

14.02

17.53

The schemewise analysis reveals that SIDBI has a major share in refinance in all the

years.

Share of SIDBI in Industrywise Assistance Sanctioned by AIFIs

The share of SIDBI in industrywise assistance sanctioned by AIFls is

depicted in Table 5.5.

Table 5.5

Of the total assistance by AIFls the maximum share is provideti to Ceramics

and refractory industry and the share is minimum to the Fertilisers industry Out of the

AIFIs assistance to the Ceramics anti refractory industry 85.63 percent are provided by

SIDBI. Assistance to automobile ruicillaries and leather products industries occupies

second and third place respectively in SIDBI assistance.

Assistance by AIFIs and SIDBI to Infrastructure Sector

Table 5.6

Cumulative assistance sanctioned by AIFIs to the

Infrastructure sector up to 31-3-2002

Source: IDBI Report on Developmeni Banking.

Cumulative assistance by AIFls to various infrastructure sectors is shown in

Table 5.6. Infrastructure sector comprise electricity generation, telecommunication,

road/portshridges/Railways/and urban infrastructure. Of the total finance provided to the

Electricity generation major porticn is provided by IDBI and ICICI their shares are 36.20

percent and 36.07 percent respecti.~ely. The share of SIDBI is only 4.84 percent.

In the case of Telecommunication also major portion of the finance is

provided by ICICI and IDBI i.e. 49.62 percent and 27.44 percent. The share of SIDBI in

this case is also negligible i.e.0 .O1 percent only.

More than 50 percent of the finance to the Road/Port/BridgelRailways is

provided by IClCI alone. For this sector SIDBI is not providing any assistance.

For urban infrastructure and others also more than 50 percent of the

assistance is provided by ICICI. For this sector the share of SIDBI assistance is only

6.44 percent.

From the above it can be observed that in Infrastructure financing more than

50 percent are provided by IDbI and ICICI. EXIM bank has the lowest share in

financing infrastructure scctor i.e. .001 1 pcrccnt. SlD131 has only 3.53 pcrccnt sharc in

financing the infrastructure sector.

Share of SIDBI in Purposewise P.ssistance Sanctioned by AlFls

The share of SIDBI in purposewise assistance sanctioned by AIFls is shown

in Table 5.7.

Table 5.7

Out of the total assistance provided by the AIFls for modemisation /

Share of SIDBI in Purposewise Assistance

Sanctioned by AIFIs from 1997-98 to 2001-02 (% Share)

balancing equipment an average cf 9.77 percent are provided by SIDBI. For new units

SI.No

,

and expansion /diversification thc share of SIDBI is 9.71 percent and %37 percent

respectively. For rehabilitation thc: share of SJDRI is onIyT.64 percent. The average

Source: IDBI Report on Developrent Banking.

Purpose

New

Expansion/Diversific

tionlacquisition

Modemisation/balanc

ing equipment

Rehabilitation

Working capital

Others

share of SIDBI in total purpose wis,: assistance of AII'Is is only 5.45 percent

Total

Sanction and Disbursemer~t by AlFIs and SIDBI

The growth in sanction and disbursement of AIFIs and SIDBI is depicted in

- 8.14 6.37 5.30 3.70 4.75 5.45

Table 5.8

Sanction and Disbursement by AIFIs and SIDBI from 1990-91 to 2001-02

AIFIs SIDBI

From the table it can be seen that the sanction of AII~ls shows an average

growth rate of 17.35 percent. The cisbursement also snows the same trend. Compared to

AIFIs the average growth rate it1 stnction and disbursement of SIDBI is less i.e. 13.65

percent and 12.18 percent respectively. Percentage of disbursement to sanction varies

between 65 percent to 75 percent in the case of AlFls. In the case of SlDB1 also i t vary

between 65 percent to 75 percer~t. However the cr~mulative disbursement to sanction of

AIFIs is 70.98 percent. But in the: case of SlDBI i t is only 69.51 percent.

For evaluating the ol~erational performance of SIDBI a total number of nine

variables are analysed. The first one is institutionwise assistance disbursed by All India

Financial Institutions. It is found that the share of SIDBI in financial assistance disbursed

by AIFI is only 9.54 percent. The share of SIDBI in per capita assistance sanctioned by

AFI is only 5.94 percent.

The state wise percentage share of SIDBI in total assistance by AIFI reveals

that in more than 50 percent of the states the share of SIDBI finance is less than 20

percent. Schemewise assistance: sanctioned by SIDBI and AIFI reveals that only in

refinance and bill finance SIDIlI has significant share that is 80.49 percent and 76.52

percent respectively. In rupee loan, foreign currency loan and working capital loan the

share of SIDBI is very low.

Out of the total assistance provided by AIFl to various industries in more

than 80 percent of the industries the share of SIDBI assistance is less than 25 percent.

Only in three industries the shar~: of SIDBI assistance is more than 50 percent.

The share of SIDBI in infrastructure finance is very low. Of the total assistance by AIFI

share of SIDBI is less than 8 pcrcent. In sectorwise assistance SIDBI has more than 10

percent shares only to the co-op:rative sector. Shnrc of SlDBl in purpose wisc assistance

shows that maximum share is for modernisation.

From the above analysis it can be concluded that SIDBI has no significant

share among the AIFIs to finance the small-scale industries. So the first hwothesis

stating that SIDBI has sienificant share amone the AIFIs in financing the industw can be

reiected.

Part B

Financial Performance Analysis of Selected Development Banks

The general health of a firm is very much reflected in the quantum of its

earnings. This is true in the caw of development banks also. The development banks

have to take up great social respc~nsibilities. To fulfill this and function as economically

viable units, a sufficient return can capital is necessary. After analysing the operational

performance of the SIDBI the profitability is analysed in this part. Financial performance

of SIDBI is analysed by corrparing with four selected development banks. By

considering the availability of data only four development banks are selected for

comparison. Profit is the motivating force behind every organisational activity and in

view of its importance, it is being used to measure the operational efficiency.

Profit and Profitability

The term profit is defined in various ways. From the accounting view it refers

to the excess of income over expenses for a given period. According to Howard and

upton' profitability is the ability of a given investment to earn a return from its use. In

the opinion of Khan and Jain profitability refers to a situation where output exceed

input i.e. the value created by the use of resources is more than the total of the input

resdurces. The goal of an enterprise should not be the maximization of profit but the

maximization of profitability. Profitability is a relative concept to measure it, profit is to

be related to some variables at:ecti~~g the prolit or relating to prolit in some fol-m or

other. In this study profit and otker related varlsbies are divided by working tilnd to have

the relativity and comparability.

Spread

Spread is the difrerencc between the interust incornc anti intcres! cxpensc.

Burden

The difference between non-interest c.spcnse and non-inlurcs~ incoinc is

known as burden.

Net Profit

Net profit is the profit given in the ~>rolit and loss :rccoun\ aiier charging all

expenses and providing reserves for overdue.

The components of spread and burden arc related to total incomc to know the

proportion of each in relation to tcttal income.

Components of Spread and Burden

The components of spread and burden are analysed here. As per the working

definition the components of spr-ad are interest income and interest expense and the

components of burden are no 1-interest income and non-interest expense. Each

component is compared to total i~:comc to asccrlain the proporlion of each in relation 10

total income.

Interest Income to Total Income Ratio

Interest income is the major share of the toial incon~e o f dcvriop~urnt bartiis.

Any.change in the rate of interest will hn\:c a wide impact oli thc incomc. and profit

position of these institutions.

The actual ratio obtained is presented in Table 5.9. In the case of IDBI, IFCI,

and IIBI, the ratio is 81.92 per cent, 81.31 percent and 75.49 percent respectively. The

SIDBI have this ratio as 90.88 per$:ent. But this does not mean that they are efficient in

the collection of ixit-t income. This only gives an idea about the portion of interest

income in the total income. This r;itio in general, showed a decreasing trend from 88.62

percent in 1997-98 to 75.47 percent in 2001-02. The variation in the ratio is high in the

case of IIBI.

Table 5.9

Interest Income to Total Income Ratio of Selected Development Banks

from 1997-98 to 2001-02

Source: Compiled and computed from the IDBI Report on Development Banking of

Various years.

Non Interest Ineome to Total Income

The non-interest incc~me to total income ratio explains the above situation

more clearly. This ratio shows the proportion of non-interest income in the total income

of the development banks.

From Table 5.10 it ir found that the portion of non-interest income is high in

the case of IIBI (21.11 percent). The percentage of non- interest income for IDBI and

IFCI are 17.70 percent and 18.3:3 percent respectively. It is found that the IDBI and IFCI

and IIBI have more non-interest incomes. SIDBI has a low ratio compared to other

institutions. The ratio shows an increasing trend during the period. The variation in the

ratio is high in the case of IIBI.

Table 5.10

Non-Interest Income to Total Income Ratio of Selected Development Banks

from 1997-98 to 2001-02

Source: Compiled and computed from the IDBI Report on Development Banking of

Various years.

Interest Expense to Total Incoma

The substantial portion of the expenditure of the development banks is in the

form of interest expense for the finds borrowed. Table 5.1 1 shows the portion of total

income to be paid as the interest expense for the selected development banks. The

interest expenditure is high in the case of IFCI (86.82 percent). The ratios of other banks

are IDBI (79.18 percent) IlBI (74.02 percent). When compared to the other institutions,

the ratio of SIDBI (66.39 perctmt) is low. There is no specific trend of increase or

decrease in the ratio during the r'sference period. The variation in the ratio is high in the

case of IFCI.

Table 5.11

Interest Expenditure to Total Income ratio of selected Development Banks

from 1997-98 to 2001-02

Source: Compiled and computed from the IDBI Report on Development Banking of

Various years.

Pion Interest Expense to Total Income Ratio

The non-interest expense is another major item of expenditure of these

development banks. A proper control on this will help these institutions to maintain a

reasonable return. Normally, this ratio will come down when the volume of business

increases.

The actual ratio obtained for the selected development banks is shown in

Table 5.12. This ratio is high in tlie case of IFCI (17.87 percent). In the case of IDBI,

IIBI and SIDBI the ratios are 6.20 percent 9.15 percent and 6.31 percent respectively.

IDBI has attained a better posii.ion compared to other institutions. There is no specific

trend of increase or decrease in the ratio during the reference period. This ratio shows an

inter year variation among the banks as is evident from coefficient of variation which

ranges from 9.28 percent to 53.30 percent.

Table 5.12

Non-Interest Expense to Total Income Ratio of

Selected Development Banks from 1997-98 to 2001-02

Year

1997-98

1998-99

1999-00

2000-01

2001-02

Average

C.V.

Source: Compiled and computed from the IDBI Report on Development Banking of

Various years.

Interest Expense to Interest Income Ratio

The effective management of inflow and outflow of funds is one of the most

important factors for the bank's survival. The interest expense to interest income ratio

shows the percentage of interest income which is utilised for interest payment. A

reasonable margin between the lending rate and receiving rate is essential for the survival

of these institutions. The bank c.mnot have any discretion in the interest rates, but they

can decide on which schemes they can lend and with what amounts so that they can plan

their returns. A lower ratio is more advantageous to ihe banks.

The actual ratio obtained for the selected development banks is presented in

Table 5.13. The ratio of SIDBI s 73.05 percent. In the case of IDBI, IFCI, and IIBI, the

ratios obtained are 96.65 percent, 105.55 percent and 98.05 percent respectively.

Comparatively the SIDBI has a better ratio. The variation in the ratio is high in the case

Table 5.13

Interest Expense to Intercst Income ratio of selected Development Banks

from 1997-98 to 2001-02

Source: Compiled and Computed from the IDBI Report on Development Banking of

Various years.

Interest Expenses to Borrowings Ratio

The interest expenditure is related to borrowings to know the cost of the

borrowed funds. The interest expense for the borrowed funds is the major item of

expenditure of the banks. This ratio shows the interest cost of borrowings. Table 5.14

presents the Interest Expense to Borrowings ratio of selected development banks. The

ratio for IDBI, IFCI, 1131 and SlDUI are 11.83 percent, 12 percent, 11.94 percent, and

10.33 percent respectively. The cost is high in the case of all banks. This ratio is high in

the case of IFCI (12 percent). This is minimum in the case of SIDBI (10.33 percent). The

variation in the ratio is high in the cise of IIBI.

Table 5.14

Interest Expense to Borrowings ratio of selected Development Banks

hrn 1997-98 to 2001-02

Year

1997-98

1998-99

1999-00

2000-01

2001 -02

Average

C.V.

Source: Compiled and Computed from the IDBI Report on Development Banking of

Various years.

Interest Income to Credit Ratio

The interest received from the beneficiaries of the bank is the return on the

loan given by the banks. The ratc: of return is different for different schemes and for

different amounts of loans. The bank can lend in different schemes to some extent and

assure a reasonable return for their activities.

The interest received to credit ratio is shown in Table 5.15. The ratio of

IDBI, IFCI, IIBI and SIDBI are 12.78 percent 13.54 percent and 13.86 percent 12.41

percent respectively. The ratio of all the banks are better. A higher ratio indicates the

eficiency of the banks. Compared to other banks the variation in the ratio is low in the

case of SIDBI.

Table 5.15

Interest Income to Credit Ratio of Selected Development Banks

from 1997-98 to 2001-02

I I I I

C.V. 7.37 9.05 7.58 4.19 3.58

Source: Compiled and Computed from the IDBI Report on Development Banking of

Various years.

Credit to Borrowings Ratio

This ratio shows the epficiency of the banks in converting the borrowings to

lending. The development banks are not subject to the normal banking regulations

regarding maintenance of reserves, liquidity ratios etc. They can lend to the maximum

h d available with them without keeping reserves. So these banks can lend the entire

amount of borrowings and the balance portion of the owned fund.

Credit to borrowings ratio of the selected development banks is presented in

Table 5.16. The ratio for. IDBI and IFCI are 95.90 percent and 84.08 percent

respectively. In the case of IIBI and SIDBI they are 87.80 percent and 113.93 percent

respectively. During the study period this ratio shows a declining trend from 101.20

percent to 87.45 percent. SIDBI performs better than others. In the case of other

institutions the ratio is lower than SIDBI. The variation of the ratio is high in the case of

IIBI.

Table 5.16

Credit to Borrowings Ratio of Selected Development Banks

fi.om 1997-98 to 2001-02

The relation of spread, burden to working fund and net profit to owned fund

Year

1997-98

1998-99

1999-00

2000-01

2001-02

Average

C.V.

is analysed here.

Name

IDBI

105.83

93.05

91.38

95.96

93.92

95.90

5.96

Spread Analysis

Source: Compiled and Computed 60m the IDBI Report on Development Banking of

Various years.

Spread, Burden and Profit

The spread analysis examines the change in the difference between gross

interest received on earning assets and gross interest paid on interest costing liabilities.

The difference is called net interest spread. Non-financial business has used spread and

margin concepts for centuries. When a merchant purchases goods, he adds to the cost of

sales an amount to cover expenses and to earn a reasonable profit and the difference

between the cost of goods and selling price is called spread or margin. Banks act in

similar manner but they deal in %pee and not in goods. The development banks acquire

b d s mainly by borrowings, in turn they promise to pay interest. These banks acquire

assets such as loans and investments for which they receive interests. The difference

between what the banks pay for fund and what they get for fund is spread.

Burden Analysis

The burden analysis examines the impact of non-interest income and non-

interest expenditure. The net result of spread and burden is termed as the gross profit. It

is also related to the working fund to compare profitability of the different selected

development banks.

Net profit is the real accounting profit after providing all expenses and

reserves for overdue. This is the amount available to shareholders. To find out whether a

reasonable return obtains on the capital, it is essential to relate the net profit to the owned

fund.

Spread to Working Fund Ratio

As stated earlier spread is the difference between interest income and interest

expenditure. It is the margin available to the banks in interest transactions. The higher the

margin, the safer the positions of the banks. A final conclusion can be taken only after

considering the burden ratio also.

Table 5.17 presents the spread to working fund ratio. The highest ratio is

obtained by SIDBI (2.35 percem) followed by IDBI (0.30 percent) and IIBI (0.23

percent). The ratio of IFCI is negative (-0.48 percent) In comparison with the other

institutions the SIDBI has a better ratio. This is due to more investment outside as in

securities or other banks rather than loans to industries. The interest received from this is

included in non-interest income. So a judgment canpot be taken about the profitability or

efficiency without considering the other ratios also. The ratio in general, shows a

decreasing trend from 2.31 percent in 1997-98 to -0.46 percent in 2001-02. The variation

in the ratio is high in the case of IISI and it is less in the case of SIDBI.

Table 5.17

Spread to Working Fund Ratio of Selected Development Banks

from 1997-98 to 2001-02

I year 1 Name of the development banks 1 Average 1

Average 0.23 2.35 0.97

827.78 16.46 113.38 Source: Compiled and Computed from the IDBI Report on Development Banking of

II'CI m.95 1997-98

1998-99 4'. 18

1999-00 -0.20 41.66

2000-01 -0.56 -0.57

Various years.

Burden to Working Fund Ratio

Burden is the net difference between non-Interest income and non-Interest

expenditure. The banks should earn sufficient non-interest income to meet the non-

IIBI

2.85

1.26

-0.40

-0.26

interest expenditure (cost of management). Then only they can maintain a reasonable

level of profitability. But in the case of all the banks except IFCI the non-interest income

is more than non-interest expendiiure. The burden to working fund ratio is presented in

Table 5.18. The IIBI shows a better position (1.11 percent) followed by IDBI 0.50

SIDBI

2.42

2.50

2.66

2.61

2.3 1 - 1.56

0.69

0.59

percent) SIDBI (0.02 percent) and IFCI (-0.79 percent). The variation in the ratio is high

in the case of SIDBI.

Table 5.18

Burden to Working Fund Ratio of Selected Development Banks

developrnrnt banks Average

IFCI I I SIDBI I

various years.

Net Profit to Owned Fund Ratic~

1997-98

1998-99

1999-00

2000-01

2001-02

Average

C.V.

Net profit is the profit available to the owners after providing all expenses

0.21

0.37

0.49

1.10

0.79

0.50

59.83

and reserves for over dues. This ratio is a real indicator of the profitability of the bank. It

Source: Compiled and Computeil from the IDBI Report on Development Banking of

indicates the ultimate result of the: activities of the bank in monetary terms

The net profit to owned fund ratio of the selected banks is presented in Table

5.19. The best result is given by SIDBI (1 1.81 percent) followed by IIBI (1 1.37 percent)

and IDBI (11.16 percent). The ratio for IFCI is - 4.95 percent. The IFCI is running in

loss. This ratio showed a decreasing trend from 20.65 percent in 1997-98 to 7.60 percent

in 2001-02. This indicates the general declining of profitability of these institutions.

Regarding the individual banks [DBI, IIBI, and SIDBI are running in profit throughout

the period of study. The IFCI showed loss only in the last two years. But the loss is

doubled during the last year. Variation in the ratio is-low in the case of SIDBI.

Table 5.19

Net Profit to Owned Fund ratio of selected Development Banks

Year

Various years.

1997-98

1998-99

1999-00

2000-01

2001-02

Average

C.V.

The interest expense is the major item of expenditure of the development

Name of the development banks

IDBI

21.59

14.51

11.14

8.01

6.20

11.16

49.52

banks. A proper control on this ill help these institutions to maintain a reasonable

Average

Source: Compiled and Computed from the IDBI Report on Development Banking of

return. The interest expense to tota.1 income ratio of SIDBI is lower than the IDBI, IFCI

and IIBI.

The non-interest expense to total income ratio of SIDBI is lower than IFCI

and IIBI but higher than IDBI. The ratio will come down when volume of business

increases. SIDBI has a high spread to working fund ratio. It is the margin available to the

banks in interest transaction. The burden to working fund ratio of SIDBI is 0.02, but it is

lower than IDBI and IIBI.

The net profit to owned fund ratio of SIDBI is higher than IDBI, IFCI and

IIBI. Interest expense to borrowillgs ratio is low in the case of SIDBI. It shows that the

cost of borrowed fimd of SIDBI i:r lower than other institutions. Interest income to credit

ratio is low in the case of SIDBI.

Interest expense to interest income ratio is low in the case of SIDBI. A lower

ratio is preferred for the developnlent banks. The credit to borrowings ratio of SIDBI is

higher than that of the other Institutions. It shows that SIDBI is successful in converting

the borrowings to lending.

The above analysis reveals that majority of the ratios of the SIDBI shows

better financial performance that other selected development banks. So the second

hwothesis stating that there is no significant difference in the financial ~erformance of

IDBI. IFCI. WI and SIDBI can be reiected. SIDBI has a better financial performance

than other selected development banks.

The role of SIDBI is imalysed on the basis of the perception of the small-

scale units linanced by SIDBI. Therefore it is necessary to study the form and structure

of units and the socio economic profile of the entrepreneurs. So the form and structure of

the sampled small-scale units and socio economic profile of the entrepreneurs of the

units are discussed in the following chapter.

Notes

1. Howard Bion Band Upton l'vliller, Introduction to Business Finance, Mc.Graw Hill

Book Co, Newelhi, 1953, P. 147.

2. Khan M.V and Jain. P.K, Financial Management, The Mc.Graw Hill Publishing

Co.Ltd, NewDelhi, 1980, P.123.