FINANCIAL PERFORMANCE OF LAKSHMI VILAS BANK By S.NATARAJAN 2010201044 A PROJECT REPORT Submitted to the FACULTY OF MANAGEMENT SCIENCES In partial fulfillment of the requirements for the award of the degree of MASTER OF BUSSINESS ADMINISTRATION
DEPARTMENT OF MANAGEMENT STUDIES COLLEGE OF ENGINEERING CAMPUS, GUINDY ANNA UNIVERSITY CHENNAI – 600025 JUNE 2011
ACKNOWLEDGEMENT I take this opportunity to thank Mr. Ravindrakumar Director, Lakshmi vilas bank for providing this project and giving me a chance to equip myself in this prestigious organization. I extend my gratitude to him for acting as an external guide to me in shaping out this project. I would also like to thank our esteemed Prof. Dr.L.Suganthi, Head of the Department, Department of Management Studies, Anna University, Guindy for her encouragement and for helping me in successful completion of this project. I thank all the faculty members of the department for their support in knowledge acquisition. I am thankful to the respondents for sparing their valuable time in filling up the questionnaire. I also extend my thanks to my friends for being supportive throughout this project.
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ABSTRACT
“Financial performance of Lakshmi Vilas Bank” This will undertake to examine and understand how financial management plays a crucial role in the growth of banking. It is concerned with examining the profitability position of the banks for a period of five years (2006-2010). The main objective of this study is to analyze the financial performance of the bank by analyzing the financial statements with CAMEL ratio. Financial performance is analysed for capital adequacy, assets quality, management, earning quality and liquidity. Charts and tables are used for better understanding of the bank performance. Lakshmi vilas bank as maintaining their capital above the minimum requirement of RBI. The study deals with findings and suggestions for the improvement of the bank.
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CONTENTS
CHAPTER 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 2 3 4 5 5.1 5.2 5.3
S.NO 4.1.1
TITLE INTRODUCTION INTRODUCTION TO THE TOPIC INDUSTRY PROFILE COMPANY PROFILE STATEMENT OF THE PROBLEM OBJECTIVE OF THE STUDY SCOPE OF THE STUDY LIMITATIONS OF THE STUDY REVIEW OF LITERATURE RESEARCH DESIGN AND METHODOLOGY DATA ANALYSIS AND INTERPRETATION FINDINGS, SUGGESTION AND CONCLUSIONS FINDINGS SUGGESTIONS CONCLUSION BIBILIOGRAPHY
LIST OF TABLES PARTICULARS Table showing the calculation of CAR Ratio
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PAGE NO 1 4 6 8 8 8 9 10 16 28 59 60 61 62
PAGE NO 28
4.2.1
Table showing the calculation of Debt-Equity Ratio
29
4.3.1
Table showing the calculation of Advance of Assets
30
4.4.1
Table showing the calculation of G – Secs to Total Investments
31
4.5.1
Table showing the calculation of Gross NPAs to Net Advances
32
4.6.1
Table showing the calculation of Gross NPAs to Total Assets
33
4.7.1
Table showing the calculation of Total Investments to Total Assets
34
4.8.1
Table showing the calculation of Percentage Change in Gross NPAs
35
4.9.1
Table showing the calculation of Net NPAs Ratio
36
4.10.1
Table showing the calculation of Shareholder’s Risk Ratio
37
4.11.1
Table showing the calculation of provision ratio
38
4.12.1
Table showing the calculation of Sub Standard Assets Ratio
39
4.13.1
Table showing the calculation of Doubtful Assets Ratio
40
4.14.1
Table showing the calculation of loss assets ratio
41
4.15.1
Table showing the calculation of Total advances to Total Deposits
42
4.16.1
Table showing the calculation of Net Profit per Employee
43
4.17.1
Table showing the calculation of Business per Employee
44
4.18.1
Table showing the calculation of RONW
45
5
4.19.1
Table showing the calculation of Operating Profit by Average Working
46
4.20.1
Funds Table showing the calculation of Net Interest Margin
47
4.21.1
Table showing the calculation of Net Profit to Average Assets
48
4.22.1
Table showing the calculation of Percentage Growth in Net Profit
49
4.23.1
Table showing the calculation of Non – Interest Income / Total Income
50
4.24.1
Table showing the calculation of Interest Income / Total Income
51
4.25.1
Table showing the calculation of Liquid Assets / Demand Deposits
52
4.26.1
Table showing the calculation of Liquid Assets / Total Deposits
53
4.27.1
Table showing the calculation of Liquid Assets / Total Assets
54
4.28.1
Table showing the calculation of G – Secs / Total Assets
55
4.29.1
Table showing the calculation of Approved Securities / Total Assets
56
4.30.1
Table showing the calculation of Cash Reserve Ratio
57
4.31.1
Table showing the calculation of Statutory Liquidity Ratio
58
LIST OF CHARTS S.NO
PARTICULARS
PAGE NO
4.1.2
Chart showing the CAR ratio
28
4.2.2
Chart showing the debt equity ratio
29
4.3.2
Chart showing the advance of assets
30
4.4.2
Chart showing the G – Secs to Total Investments
31
6
4.5.2
Chart showing the Gross NPAs to Net Advances
32
4.6.2
Chart showing the Gross NPAs to Total Assets
33
4.7.2
Chart showing the Total Investments to Total Assets
34
4.8.2
Chart showing the Percentage Change in Gross NPAs
35
4.9.2
Chart showing the Net NPAs Ratio
36
4.10.2
Chart showing the Shareholder’s Risk Ratio
37
4.11.2
Chart showing the provision ratio
38
4.12.2
Chart showing the Sub Standard Assets Ratio
39
4.13.2
Chart showing the Doubtful Assets Ratio
40
4.14.2
Chart showing the loss assets ratio
41
4.15.2
Chart showing the Total advances to Total Deposits
42
4.16.2
Chart showing the Net Profit per Employee
43
4.17.2
Chart Showing the Business per Employee
44
4.18.2
Chart showing the RONW
45
4.19.2
Chart showing the Operating Profit by Average Working Funds
46
4.20.2
Chart showing the Net Interest Margin
47
4.21.2
Chart showing the Net Profit to Average Assets
48
4.22.2
Chart showing the Percentage Growth in Net Profit
49
4.23.2
Chart showing the Non – Interest Income / Total Income
50
4.24.2
Chart showing the Interest Income / Total Income
51
4.25.2
Chart showing the Liquid Assets / Demand Deposits
52
4.26.2
Chart showing the Liquid Assets / Total Deposits
53
4.27.2
Chart showing the Liquid Assets / Total Assets
54
4.28.2
Chart showing the G – Secs / Total Assets
55
4.29.2
Chart showing the Approved Securities / Total Assets
56
7
4.30.2
Chart showing the Cash Reserve Ratio
57
4.31.2
Chart showing the Statutory Liquidity Ratio
58
\
CHAPTER 01 INTRODUCTION 1.1. INTRODUCTION TO THE TOPIC
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Financial Management is that managerial activity which is concerned with the planning and controlling of the firm’s financial resources. Though it was a branch of economics till 1890 as a separate or discipline it is of recent origin. Financial Management is concerned with the duties of the finance manager in a business firm. He performs such varied tasks as budgeting, financial forecasting, cash management, credit administration, investment analysis and funds procurement. The recent trend towards globalization of business activity has created new demands and opportunities in managerial finance. Financial statements are prepared and presented for the external users of accounting information. As these statements are used by investors and financial analysts to examine the firm’s performance in order to make investment decisions, they should be prepared very carefully and contain as much information as possible. Preparation of the financial statement is the responsibility of top management. The financial statements are generally prepared from the accounting records maintained by the firm. Financial performance is an important aspect which influences the long term stability, profitability and liquidity of an organization. Usually, financial ratios are said to be the parameters of the financial performance. The Evaluation of financial performance had been taken up for the study and was conducted at Lakshmi Vilas Bank. Analysis of Financial performances is of greater assistance in locating the weak spots at the financial position of Lakshmi Vilas Bank. This further helps in Financial forecasting and Planning Communicate the strength and financial standing of Lakshmi Vilas Bank For effective control of business FINANCIAL STATEMENTS ANALYSIS:
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Financial performance analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. The financial statements provide some extremely useful information to the extent that the balance sheet mirrors the financial position on a particular date in terms of the structure of assets, liabilities and owners’ equity, and so on and the profit and loss account shows the results of operations during a certain period of time in terms of the revenues obtained and the cost incurred during the year. Thus, the financial statements provide a summarized view of the financial position and operations of a firm. The focus of financial analysis is on key figures in the financial statements and the significant relationship that exists between them. 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 first task of the financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statements. The second step is to arrange the information in a way to highlight significant relationships. The final step is interpretation and drawing of inferences and conclusion. In brief, the financial analysis is the process of selection, relation and evaluation. NEED FOR FINANCIAL PERFORMANCE ANALYSIS: Financial statements are prepared to meet external reporting obligations and also for decision making purposes. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements. This analysis also helps the firm to evaluate its standings in terms of the financial position.
1.2. INDUSTRY PROFILE 10
If there is one industry that has the stigma of being old and boring, it would have to be banking; however, a global trend of deregulation has opened up many new businesses to the banks. Coupling that with technological developments like Internet banking and atms, the banking industry is obviously trying its hardest to shed its lacklustre image. There is no question that bank stocks are among the hardest to analyze. Many hold several assets and have several subsidiaries in different industries. A perfect example of what makes analyzing a bank stock so difficult is the length of their financials. While it would take us an entire textbook to explain all the ins and outs of the banking industry, this point will hopefully shed some light on the more important areas to look at when analyzing a bank as an investment. There are two major types of banks: 1. Regional Banks - These are the smaller financial institutions that primarily focus on one geographical area within a country. Providing depository and lending services are regional banks primary line of business. 2. Major (Mega) Banks - While these banks might maintain local branches, their main scope is in financial centres, where they get involved with international transactions, and underwriting, etc. Could you imagine a world without banks? At first this might sound like a great thought! Banks (and financial institutions) have, however, for several reasons, become cornerstones of our economic growth and steer the wheels of the economy towards its goal of “Self reliance in all fields”. They transfer risk, provide liquidity, facilitate both major and minor transactions, and provide financial information for both individuals and businesses. Perhaps the banking industry's largest distinction is the government's heavy involvement in it. Besides setting restrictions on borrowing limits and the amount of deposits that the bank must hold in their vault, the government has a huge influence on banks profitability. In present age in India there are many banks including foreign banks, public sector, private sectors, commercial banks and co-operative banks. The structure of INDIAN BANKING SYSTEM is as under:
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BRIEF PROFILE OF PRIVATE BANKS Private Banks are banks that are not incorporated. A private bank is owned by either an individual or a general partner(s) with limited partner(s). In any such case, the creditors can look to both the "entirety of the bank's assets" as well as the entirety of the sole-proprietor's/generalpartners' assets. These banks have a long tradition in Switzerland, dating back to at least the revocation of the edict of Nantes (1685). However most have now become incorporated companies, so the term is rarely true anymore. There are a few private banks remaining in the US. One is brown brothers Harriman & co., a general partnership with about 30 members. Private banking also has a long tradition in the UK where Coutts & Co has been in business since 1692. "Private Banks" and "private banking" can also refer to non-government owned banks in general, in contrast to government-owned (or nationalized) banks, which were prevalent in communist, socialist and some social democratic states in the 20th century. Private Banks as a form of organization should also not be confused with "private banks" that offer financial services to high net worth individuals and others. 12
1.3. COMPANY PROFILE LAKSHMI VILAS BANK Vision "To be a sound and dynamic banking entity providing financial services of excellence with Pan India presence." Mission “To develop a range of quality financial services and products to create value for customers, shareholders and the society; to motivate people to achieve excellence in performance leading to sustained profitable growth and build a vibrant organization.” Brief History and background The Lakshmi Vilas Bank Limited (LVB) was founded eight decades ago ( in 1926) by seven people of Karur under the leadership of Shri V.S.N. Ramalinga Chettiar, mainly to cater to the financial needs of varied customer segments. The bank was incorporated on November 03, 1926 under the Indian Companies Act, 1913 and obtained the certificate to commence business on November 10, 1926, The Bank obtained its license from RBI in June 1958 and in August 1958 it became a Scheduled Commercial Bank. During 1961-65 LVB took over nine Banks and raised its branch network considerably. To meet the emerging challenges in the competitive business world, the bank started expanding its boundaries beyond Tamil Nadu from 1974 by opening branches in the neighboring states of Andhra Pradesh, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Gujarat, West Bengal, Uttar Pradesh, Delhi and Pondicherry. Mechanization was introduced in the Head office of the Bank as early as 1977. At present, with a network of 273 branches,1 satellite branch and 8 extension counters, spread over 16 states and the union territory of Pondicherry, the Bank's focus is on customer delight, by maintaining high standards of customer service and amidst all these new challenges, the bank is progressing admirably. LVB has a strong and wide base in the state of Tamil Nadu, one of the progressive states in the country, which is politically stable and has a vibrant industrial environment. LVB has been focusing on retail banking, corporate banking and banc assurance. The Bank's business crossed Rs.15561.01 Crores as on March 31, 2010. The Bank earned a Net profit of Rs. 30.66 Crores. The Net owned Funds of the Bank reaches Rs. 739.00 Crores. With a 13
fairly good quality of loan assets the Net NPA of the bank was pegged at 4.11 % as on March 31, 2010. New Identity The new logo unit depicts the following, Red is for the values, Pure and Strong. Red is for Truth that can do no wrong. Gold is the land of prosperity where we all belong, the abode of wealth where happiness hails from. A glimmer of lights from ochre gold, the circle of kumkum where all good things hold. Come walk the path of Lakshmi and celebrate her blessings, wisdom, growth and contentme ana life full of rich meaning Board of Directors The Company's Board is broad based comprising 10 Directors: •
Shri. P.R. Somasundaram Managing Director & CEO
•
Shri. K. Balaji Director
•
Shri. N. Saiprasad Director
•
Shri. K. Ravindrakumar Director
•
Shri. Kusuma R Muniraju Director
•
Shri. D.L.N.Rao Director
•
Shri. B.K. Manjunath Director
•
Shri. K.R. Pradeep Director
•
Shri. S.G. Prabhakaran Director
•
Shri. S. Dattathreyan Director
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1.4. STATEMENT OF THE PROBLEM At regular period public sector banks must prepare documents called financial statements. Financial statements show the financial performance of a bank. They are used for both internal and external purposes. When they are used internally, the management and sometimes the employees use it for their own information. Managers use it to plan ahead and set goals for upcoming periods. When they use the financial statements that were published, the management can compare them with their internally used financial statements. They can also use their own and other enterprises’ financial statements for comparison with macro economical data’s and forecasts, as well as to the market and industry in which they operate in. The four main types are balance sheets, profit and loss accounts, cash flow statements, and income statements. Financial statements for banks present a different analytical problem than manufacturing and service companies. As a result, analysis of a bank's financial statements requires a distinct approach that recognizes a bank's somewhat unique risks. Banks take deposits from savers, paying interest on some of these accounts. They pass these funds on to borrowers, receiving interest on the loans. Their profits are derived from the spread between the rate they pay for funds and the rate they receive from borrowers. This ability to pool deposits from many sources that can be lent to many different borrowers creates the flow of funds inherent in the banking system. By managing this flow of funds, banks generate profits, acting as the intermediary of interest paid and interest received and taking on the risks of offering credit. So, the study is conducted to analyse the financial performance of Lakshmi Vilas Bank on the basis of CAMEL model.
1.5. OBJECTIVE OF THE STUDY PRIMARY OBJECTIVE •
To analyze the financial performance of LAKSHMI VILAS BANK.
SECONDARY OBJECTIVES 15
•
To do an in-depth analysis of the bank by using CAMEL as a tool of measuring performance.
•
To compare the performance of Lakshmi Vilas bank and Indusind bank.
1.6. SCOPE OF THE STUDY •
This study will be useful for the bank to find out its financial position.
•
It also analyzes its competitor’s performance to ensure effective competition through improved competence.
•
It also brings out the fact that whether the financial performance of the bank is progressive or regressive.
1.7. LIMITATONS OF THE STUDY •
The data have been tabulated using last five years annual report and such data are secondary in nature.
•
Lakshmi Vilas bank performance compared with Indusind bank though there are so many private sector banks.
•
It has not been possible to get a personal interview with the top management employees of Lakshmi Vilas Bank.
•
Time was a limiting factor in conducting the study.
•
The study was completely done on the basis of ratios calculated from the balance sheets.
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CHAPTER 2 REVIEW OF LITERATURE Financial Performance of Banks in India The present study was undertaken to examine and understand how financial management plays a crucial role in the growth of banking. It is concerned with examining the profitability position of the selected sixteen banks (BANKEX-based) for a period of five years (2000-01 to 2006-2007). The study reveals that the profitability position was reasonable during the period of study when compared with the previous years. Return on Investment proved that the overall profitability and the position of selected banks were sustained at a moderate rate. With respect to debt equity position, it was evident that the companies were maintaining 1:1 ratio, though at one point of time it was very high. Interest coverage ratio was continuously increasing, which indicated the company's ability to meet the interest obligations. Capital adequacy ratio was constant over a period of time. During the study period, it was observed that the return on net worth had a negative correlation with the debt equity ratio. Interest income to working funds also had a negative association with interest coverage ratio and the Non-Performing Assets (NPA) to net advances was negatively correlated with interest coverage ratio.1 CAMELs and Banks Performance Evaluation Despite the continuous use of financial ratios analysis on banks performance evaluation by banks' regulators, opposition to it skill thrive with opponents coming up with new tools capable of flagging the over-all performance (efficiency) of a bank. This research paper was carried out; to find the adequacy of CAMEL in capturing the overall performance of a bank; to find the relative weights of importance in all the factors in CAMEL; and lastly to inform on the best ratios to always adopt by banks regulators in evaluating banks' efficiency. The data for the research work is secondary and was collected from the annual reports of eleven commercial banks in Nigeria over a period of nine years (1997 - 2005). The purposive sampling technique was used. The findings revealed the inability of each factor in CAMEL to capture the holistic 1
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performance of a bank. Also revealed, was the relative weight of importance of the factors in CAMEL which resulted to a call for a change in the acronym of CAMEL to CLEAM. In addition, the best ratios in each of the factors in CAMEL were identified. The paper concluded that no one factor in CAMEL suffices to depict the overall performance of a bank. Among other recommendations, banks' regulators are called upon to revert to the best identified ratios in CAMEL when evaluating banks performance.2 Rating the Performance of the Bank through CAMELS Model In today’s scenario, the banking sector is one of the fastest growing sectors and a lot of funds are invested in Banks. Also today’s banking system is becoming more complex. So, we thought of evaluating the performance of the banks. There are so many models of evaluating the performance of the banks, but we have chosen the CAMELS Model to evaluate the performance of the banks. We have read a lot of books and found it the best model because it measures the performance of the banks from each parameter i.e. Capital, Assets, Management, Earnings and Liquidity After deciding the model, we have chosen three banks from the three different sectors, i.e. AXIS Bank from Private Sector, Gandhidham Co-operative Bank from co-operative banks and Bank of India from the public sector. Then we have collected annual reports of the consecutive five years i.e. 2004-05 to 2008-09 of all the banks. And we have calculated ratios for all the banks and interpreted them. After that we have given weightage to each parameter of the CAMELS Model. According to their importance and our understandings, we have allocated weightage to the each ratios of the each parameter. From the weighted results of each ratio, we have given marks on the bases of the performance of the bank. And after addition of all the marks, we have given the rank 1, 2 and 3 to the banks. As per the whole evaluation, we gave 1st rank to AXIS Bank, 2nd rank to Bank of India and 3rd rank to Gandhidham Co-operative Bank.3
2 3
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CHAPTER 3 3. METHODOLOGY Research connotes a systematic and objective investigation of a subject or problem in order to discover relevant information or principles. The success of a research depends mostly on the method on which it is carried out. The applied method will improve the validity of finding. This chapter discusses the method of data collection. RESEARCH It is defined as “A systematic gathering, recording and analyzing of data’s about problems relating to marketing of goods and services”. It enables the companies to understand the needs and wants of the customers and also helps them in making decisions. RESEARCH DESIGN The kind of research design used in this study is Exploratory Research. Exploratory research is conducted to clarify ambiguous problems. Management may have discovered general problems, but research is needed to gain better understanding of the dimensions of the problems. Exploratory studies provide information to use in analyzing a situation, but uncovering conclusive evidence to determine a particular course of action is not the purpose of exploratory research. Usually, exploratory research is conducted with the expectation that subsequent research will be required to provide conclusive evidence. DATA COLLECTION The data were collected from secondary sources. Secondary data The secondary data used for this study are collected from the annual reports published by the bank. TOOL USED FOR ANALYSIS The data collected from the annual reports of the bank were subjected to analysis using tool relevantly. The tool used in this study is •
Ratio Analysis 19
PERIOD OF STUDY •
The study was conducted for a period of five years from the year financial year
2005-2006 to 2009-2010. Ratio Analysis It's all very well being armed with a list of ratios and people who might want to use them, but we need to know where to get all the figures to put into those ratios, don't we? Here are all the figures which are taken from profit and loss account and balance sheet of “Lakshmi Vilas Bank.” Purely for analytical convenience, the Financial Ratio of bank is generally categorised differently from that of commercial businesses. The working Group to ``Review the system of on-site supervision over Bank’’ headed by Shri S. Padmanabhan, constituted in February 1995 recommended far reaching changes in bank inspections by the Reserve Bank of India and introduce a rating methodology for the banks i.e. CAMEL model. It is elaborated as under: 1. C – Capital Adequacy 2. A – Asset Quality 3. M – Management 4. E – Earnings Quality 5. L – Liquidity TYPES OF RATIOS C – CAPITAL ADEQUACY Capital adequacy is stipulated by Bank for International Settlements (BIS) at Basle to ensure that the banks have enough capital to absorb losses from assets which turn bad. The norms are fixed as a percentage of risk weighted assets i.e. assets are, weighted on the basis of the risk involved in their realisation. For example, cash is given a risk weightage of 0% and higher weightage for assets secured by goods, mortgage etc. In India Narasimham Committee recommendations have stipulated that Indian Banks particularly those with International 20
Presence must have a capital adequacy of 8%. Capital adequacy reflects the overall financial condition of the banks and also the ability of the management to meet the need for additional capital. It includes the following A. Capital Adequacy Ratio Capital adequacy ratios ("CAR") are a measure of the amount of a bank's core capital expressed as a percentage of its assets weighted credit exposures. Capital adequacy ratio is defined as
TIER 1 CAPITAL -A) Equity Capital, B) Disclosed Reserves TIER 2 CAPITAL -A) Undisclosed Reserves, B) General Loss reserves, C) Subordinate Term Debts Where Risk can either be weighted assets ( ) or the respective national regulator's minimum total capital requirement. If using risk weighted assets,
≥ 10% The percent threshold varies from bank to bank (10% in this case, a common requirement for regulators conforming to the Basel Accords) is set by the national banking regulator of different countries. Two types of capital are measured: tier one capital (T1 above), which can absorb losses without a bank being required to cease trading, and tier two capital (T2 above), which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors. Since different types of assets have different risk profiles, CAR primarily adjusts for assets that are less risky by allowing banks to "discount" lower-risk assets. The specifics of CAR 21
calculation vary from country to country, but general approaches tend to be similar for countries that apply the Basel Accords. In the most basic application, government debt is allowed a 0% "risk weighting" - that is, they are subtracted from total assets for purposes of calculating the CAR. B. Debt Equity Ratio The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. Closely related to leveraging, the ratio is also known as Risk, Gearing or Leverage. The two components are often taken from the firm's balance sheet or statement of financial position (so-called book value), but the ratio may also be calculated using market values for both, if the company's debt and equity are publicly traded, or using a combination of book value for debt and market value for equity financially. Debt Equity ratio = Debt (liabilities) Equity
C. Advances to Assets Total Advances also includes receivables. The value Total Assets is excluding revaluation of all the assets. Advances to Assets = Total Advances / Total assets D. G-Secs to Total Investment Government securities (G-secs) are sovereign securities which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of the Central Government's market borrowing programme. G – Secs to Total Investments = G-Secs / Total Investments X 100 Investment is putting money into something with the expectation of profit. More specifically, investment is the commitment of money or capital to the purchase of financial instruments or 22
other assets so as to gain profitable returns in the form of interest, dividends, or appreciation of the value of the instrument (capital gains). It is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and finance whether for households, firms, or governments. An investment involves the choice by an individual or an organization, such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time. A – ASSET QUALITY The prime motto behind measuring the asset quality is to ascertain the quality of assets and majority of ratios in this segment are related to nonperforming assets i.e. NPA. A credit facility is treated as past due when it remains outstanding for 30 days beyond the due date. An NPA is defined generally as a credit facility in respect of which interest or instalment of principal is in arrears for two quarter or more. This segment contain following ratio A. Gross NPAs to Total Assets Gross NPAs are gross provisions on NPAs and Total Assets considered are net of revaluation reserves. Gross NPAs to Total Assets = Gross NPAs / Total Assets X 100 B. Gross NPAs to Net Advances Net Advances are net of bills rediscounted and specific loan loss provision. Any extension of credit. Bankers talk of advances when the rest of us say loans. An advance from a banker in this context could be in the form of a drawing under an overdraft facility, a fully drawn advance or term loan, a line of credit with a bill option, a bill facility or a personal loan. Gross NPAs to Net Advances = Gross NPAs / Net Advances X 100 C. Total Investment to Total Assets
23
Total Investments to Total Assets = Total Investments / Total Assets An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions, and provide ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities. This ratio is used as a tool to measures the percentage of total assets locked up in investments. D. Percentage Change in Gross NPAs This measure gives the movement in Gross NPAs on year-on-year basis. Percentage Change in Gross NPAs = Change in Gross NPAs / Gross NPAs at beginning X 100 E. Net NPAs Ratio This ratio measures the Net NPAs on year-on-year with the help of Net Advances. Net NPAs Ratio = Net NPAs / Net Advances X 100 F. Shareholder’s Risk Ratio This ratio measures the shareholders risk between the Net npas and total Capital and Reserves. Shareholders Risk Ratio = Net NPAs / Total Capital and Reserves X 100 G. Provision Ratio This ratio measures the total provision of gross NPAs to know the provision ratio. Provision Ratio = Total Provision / Gross NPAs X 100 H. Sub Standard Assets Ratio This ratio measures the total sub standard assets of Gross NPAs with the help of Gross NPAs
24
Sub Standard Assets Ratio = Total Sub Standard Assets / Gross NPAs X 100 I. Doubtful Assets Ratio This ratio measures the total doubtful assets of Gross NPAs with the help of Gross NPAs Doubtful Assets Ratio = Total Doubtful Assets / Gross NPAs X 100 J. Loss Assets Ratio This ratio measures the total loss assets of Gross NPAs with the help of Gross NPAs Loss Assets Ratio = Total Loss Assets / Gross NPAs X 100
M – MANAGEMENT Management is the most important ingredient that ensures sound functioning of banks. With increased competition in the Indian banking sector, efficiency and effectiveness have become the rule as banks constantly strive to improve the productivity of their employees. The major improvements in the style of management and productivity have come about in the all sectors of banks.The ratios of this segment are: A. Total advances to Total Deposits This ratio measures the efficiency of the management in converting deposits into advances. Total deposits include demand deposits, saving deposits, term deposits and deposits of other banks. Total advances also include the receivables. Total advances to Total Deposits = Total advances / Total Deposits X 100 B. Net Profit per Employee It is arrived at by dividing the PAT earned by the bank by total number of employees. Higher the ratio, higher the efficiency of management. 25
Net Profit per Employee = Net Profit / No. of Employee C. Business per Employee It is arrived at by dividing total business by total number of employees. Business includes the sum total advances and deposits in a particular year. Business per Employee = Total Business / No. of Employee D. Return on Net Worth (RONW) It is a measure of the profitability of a company. PAT is expressed as a percentage of Average Net Worth. RONW = Net Profit / Net Worth X 100
E – EARNINGS QUALITY Investing additional funds forms an important part of the banking function along with lending. In the recent past, banks have been criticized for making most of their money from treasury operation and other investment rather than from core lending operation. Even as fee-based operations still account for a minority of the banks’ revenues, the share of non-interest income is higher. The ratio of this section, assesses the quality of income in terms of income generated by core activities i.e., income from lending operations. This segment contains the following; A. Operating Profit by Average Working Funds This ratio gives return on total assets employed on a daily basis. Working funds is the daily average of the total assets during the year. Operating Profit by Average Working Funds = Operating Profit / Average Working Funds X 100 B. Net Interest Margin (NIM) It is arrived at by dividing Spread by Total Earning Assets. Spread is the difference between the interest income and interest expended as a percentage of Total Assets. Interest income includes 26
dividend income. Interest expanded includes interest paid on deposits, loans from RBI, and other short-term and long-term loans. NIM = Spread / Total Earning Assets X 100 C. Net Profit to Average Assets This ratio measures return on assets employed or the efficiency in utilization of the assets. It is arrived at by dividing the Net Profit by Average Assets, which is the average of total assets in the current year and previous year. Net Profit to Average Assets = Net Profit / Average Assets D. Percentage Growth in Net Profit It is percentage change in net profit from last year. It arrived by dividing changes in net profit by net profit at beginning. Percentage Growth in Net Profit = Changes in Net Profit / Net Profit at Beginning X 100 E. Non – Interest Income / Total Income This measures the income from operations, other than lending as a percentage of total income. Non-interest income is the interest income earned by the banks excluding income on advances and deposits with RBI. Non – Interest Income / Total Income = Non – Interest Income / Total Income X 100 F. Interest Income / Total Income This ratio measures the income from lending operations as a percentage of total income generated by the banks in a year. Interest income includes income on advances, interest on deposits with RBI. Interest Income / Total Income = Interest Income / Total Income X 100 27
L – LIQUIDITY The business of banking is all about borrowing and lending money. Timely repayment of deposits is of crucial importance to avoid a run on a bank. With co-operative banks going under frequently and with the recent collapse of GTB (Global Trust Bank) investors have become extremely sensitive. They are alert; they rush to the bank to withdraw money at the slightest hint of trouble. In such a scenario, even false rumours could wreck havoc with a bank. Hence, banks have to ensure that they always maintain enough liquidity. Through mandatory Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR), RBI ensures that banks maintain ample liquidity. In fact, over the last few years banks have been awash with liquidity. It contains the following; A. Liquid Assets / Demand Deposits This ratio measures the ability of a bank to meet demand from demand deposits in a particular year. Liquid assets include cash in hand, balance with RBI, balance with other banks (both in India and abroad), and money at call and short notice. Liquid Assets / Demand Deposits = Liquid Assets / Demand Deposits B. Liquid Assets / Total Deposits Liquid assets are measured as a percentage of Total Deposits. Liquid Assets include cash in hand, balance with RBI, balance with other banks (both in India and abroad), and money at call and short notice. Total Deposits include demand deposits, saving deposits, term deposits and deposits of other financial institutions. Liquid Assets / Total Deposits = Liquid Assets / Total Deposits X 100 C. Liquid Assets / Total Assets Liquid Assets as measured as percentage of Total Assets. Liquid Assets / Total Assets = Liquid Assets / Total Assets X 100 28
D. G – Secs / Total Assets This ratio measures the proportion of risk free liquid assets invested in G-Secs as a percentage of the assets held by a bank and is arrived at by dividing investment in government securities by total assets. G – Secs / Total Assets = G – Secs / Total Assets X 100 E. Approved Securities / Total Assets Approved securities are investments made in state-associated bodies like electricity boards, housing boards, corporation bonds and shares of regional rural banks. Approved Securities / Total Assets = Approved Securities / Total Assets X 100 F. Cash Reserve Ratio RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from time to time. Increase in CRR means that banks have less funds available and money is sucked out of circulation. Thus we can say that this serves duel purposes i.e. it not only ensures that a portion of bank deposits is totally risk-free, but also enables RBI to control liquidity in the system, and thereby, inflation by tying the hands of the banks in lending money. Cash Reserve Ratio = Total Cash / Total Deposits X 100 G. Statutory Liquidity Ratio Statutory Liquidity Ratio is the amount of liquid assets, such as cash, precious metals or other approved securities, that a financial institution must maintain as reserves other than the Cash with the Central Bank. The statutory liquidity ratio is a term most commonly used in India. Statutory Liquidity Ratio = Total Demand/Time Liabilities X 100
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CHAPTER 4 4. DATA ANALYSIS AND INTERPRETATION 4.1 Capital Adequacy Ratio (CAR) or Capital to Risk Assets Ratio (CRAR): As per the latest RBI norms, banks in India should have a CAR of 9%. It is arrived at by dividing the Tier I and Tier II capital by risk weighted assets. Tier I capital includes equity capital and free reserves. Tier II capital comprises sub-ordinated debt of 5-7 year tenure. CAR = Capital Funds / Risk Weighted Assets X 100 4.1.1 Table showing the calculation of CAR ratio YEAR LVB 2006 10.79 2007 12.43 2008 12.73 2009 10.09 2010 14.82 4.1.2 Chart showing the CAR ratio
INDUSIND 10.54 12.54 11.97 12.55 15.3
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Inference: From the above table both the banks are maintain their CAR amount above 9% both the banks are averagely increase their capital adequacy. 4.2 Debt – Equity Ratio Debt-Equity ratio is arrived at by dividing Total borrowings and Deposits by Net Worth. Net Worth includes equity capital, preference capital, reserves and surplus less revaluation reserves and miscellaneous expenses not written off. Debt-Equity Ratio = Debt / Equity 4.2.1 Table showing the calculation of debt-equity ratio YEAR LVB 2006 91.23 2007 90.6 2008 91.75 2009 89.86 2010 83.9 4.2.2 Chart showing the debt equity ratio
INDUSIND 84.71 82.3 81.99 77.86 81.92
Inference: From the above table the two banks are maintaining their debt equity. In 2007 & 2008 the LVB as decrease their debt. But the INDUSIND bank as maintain their debt amount year by year.
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4.3 Advances to Assets Total Advances also includes receivables. The value Total Assets is excluding revaluation of all the assets. Advances to Assets = Total Advances / Total assets 4.3.1 Table showing the calculation of advance of assets YEAR LVB 2006 0.6 2007 0.62 2008 0.59 2009 0.63 2010 0.59 4.3.2 Chart showing the advance of assets
INDUSIND 0.52 0.55 0.55 0.57 0.58
Inference: From the above table the advances to asset of lakshmi vilas bank as increase year by year. Indusind bank as decrease the advances to asset to year by year.
4.4 G – Secs to Total Investments
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The ratio is calculated by dividing the amount invested in government securities by total investments. G – Secs to Total Investments = G-Secs / Total Investments X 100 4.4.1 Table showing the calculation of G – Secs to Total Investments YEAR LVB 2006 91.23 2007 90.6 2008 91.75 2009 89.86 2010 83.9 4.4.2 Chart showing the G – Secs to Total Investments
INDUSIND 84.71 82.3 81.99 77.86 81.92
Inference: From the above table government securities of lakshmi vilas bank are more than the indusind bank’s government securities.
4.5 Gross NPAs to Net Advances Net Advances are net of bills rediscounted and specific loan loss provision. Gross NPAs to Net Advances = Gross NPAs / Net Advances X 100 33
4.5.1 Table showing the calculation of Gross NPAs to Net Advances YEAR LVB 2006 4.22 2007 3.63 2008 3.57 2009 2.74 2010 5.17 4.5.2 Chart showing the Gross NPAs to Net Advances
INDUSIND 2.88 3.09 3.07 1.61 1.24
Inference: From the above table refers to the gross NPAs to net advances, in that table lakshmi vilas bank as increase their gross npa to net advances is year by year. But the indusind bank as maintain their gross npa to net advances is decrease by last two years.
4.6 Gross NPAs to Total Assets Gross NPAs are gross provisions on NPAs and Total Assets considered are net of revaluation reserves. Gross NPAs to Total Assets = Gross NPAs / Total Assets X 100 4.6.1 Table showing the calculation of Gross NPAs to Total Assets 34
YEAR LVB 2006 2.53 2007 2.25 2008 2.11 2009 1.73 2010 3.1 4.6.2 Chart showing the Gross NPAs to Total Assets
INDUSIND 1.52 1.63 1.68 0.92 0.72
Inference: From the above table describes Gross npa to total asset. In this comparison lakshmi vilas bank is higher than the indusind bank. But the Indusind bank is maintaining their gross npa to total asset.
4.7 Total Investments to Total Assets This ratio is used as a tool to measures the percentage of total assets locked up in investments. Total Investments to Total Assets = Total Investments / Total Assets 4.7.1 Table showing the calculation of Total Investments to Total Assets YEAR 2006 2007 2008
LVB 0.26 0.22 0.25
INDUSIND 0.3 0.28 0.28 35
2009 0.22 2010 0.28 4.7.2 Chart showing the Total Investments to Total Assets
0.29 0.29
Inference: From the above table represents the investment details of the banks. In that table Indusind bank is higher than the lakshmi vilas bank. Lakshmi vilas bank is slightly increasing their investment year by year.
4.8 Percentage Change in Gross NPAs This measure gives the movement in Gross NPAs on year-on-year basis. Percentage Change in Gross NPAs = Change in Gross NPAs / Gross NPAs at beginning X 100 4.8.1 Table showing the calculation of Percentage Change in Gross NPAs YEAR LVB 2006 33.43 2007 5.13 2008 5.18 2009 4.3 2010 125.7 4.8.2 Chart showing the Percentage Change in Gross NPAs 36
INDUSIND 16.12 27.48 14.46 34.99 0.17
Inference: From the above table clearly explains the percentage change in gross npa, here lakshmi vilas bank is increasing their gross npa in last financial year (2009-10). But the indusind is maintaining their gross npa year by year.
4.9 Net NPAs Ratio This ratio measures the Net NPAs on year-on-year with the help of Net Advances. Net NPAs Ratio = Net NPAs / Net Advances X 100 4.9.1 Table showing the calculation of Net NPAs Ratio YEAR 2006 2007 2008 2009 2010
LVB 1.89 1.57 1.54 1.24 4.11
INDUSIND 2.09 2.46 2.27 1.13 0.49 37
4.9.2 Chart showing the Net NPAs Ratio 4.5 4 3.5 3 2.5
LVB
2
INDUSIND
1.5 1 0.5 0 2006
2007
2008
2009
2010
Inference: From the above table represents the net npa of two banks. Here the lakshmi vilas bank as maintaining their net npa for the last four years (2006-2009) suddenly the net npa as increase higher than the indusind bank. 4.10 Shareholder’s Risk Ratio This ratio measures the shareholders risk between the Net NPAs and total Capital and Reserves. Shareholders Risk Ratio = Net NPAs / Total Capital and Reserves X 100 4.10.1 Table showing the calculation of Shareholder’s Risk Ratio YEAR 2006 2007 2008 2009 2010
LVB 19.22 14.3 14.2 14.29 34.88
INDUSIND 22.5 25.9 21.56 10.76 4.25
4.10.2 Chart showing the Shareholder’s Risk Ratio
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40 35 30 25 20
LVB
15
INDUSIND
10 5 0 2006
2007
2008
2009
2010
Inference: From the table represents the shareholders risk ratio of the banks. In that table shows the lakshmi vilas bank as maintaining their risk below the indusind bank for 2006-08. After that the lakshmi vilas bank as increased their shareholders risk higher than the indusind bank. 4.11 Provision Ratio This ratio measures the total provision of gross NPAs to know the provision ratio. Provision Ratio = Total Provision / Gross NPAs X 100 4.11.1 Table showing the calculation of provision ratio YEAR 2006 2007 2008 2009 2010
LVB 48.83 50.4 52.3 51.33 18.6
INDUSIND 27.47 20.12 25.8 29.75 60.14
4.11.2 Chart showing the provision ratio
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Inference: From the above table represents lakshmi vilas bank as totally decrease their provisions in the last year. At this stage indusind bank as increased their provision above the lakshmi vilas bank. 4.12 Sub Standard Assets Ratio This ratio measures the total sub standard assets of Gross NPAs with the help of Gross NPAs Sub Standard Assets Ratio = Total Sub Standard Assets / Gross NPAs X 100 4.12.1 Table showing the calculation of Sub Standard Assets Ratio YEAR 2009 2010
LVB 21.9 51.6
INDUSIND 53.7 49.8
4.12.2 Chart showing the Sub Standard Assets Ratio
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Inference: From the above table clearly explains the substandard assets of both banks are maintaining same level of the last year.
4.13 Doubtful Assets Ratio This ratio measures the total doubtful assets of Gross NPAs with the help of Gross NPAs Doubtful Assets Ratio = Total Doubtful Assets / Gross NPAs X 100 4.13.1 Table showing the calculation of Doubtful Assets Ratio YEAR 2009 2010
LVB 72.09 46.8
INDUSIND 43.54 49.1
4.13.2 Chart showing the Doubtful Assets Ratio
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Inference: From the above table represents the doubtful assets of the two banks are the lakshmi vilas bank as decreased their doubtful assets in last year. But the indusind bank as slightly increased then the lakshmi vilas bank. 4.14 Loss Assets Ratio This ratio measures the total loss assets of Gross NPAs with the help of Gross NPAs Loss Assets Ratio = Total Loss Assets / Gross NPAs X 100 4.14.1 Table showing the calculation of loss assets ratio YEAR 2009 2010
LVB 5.94 1.5
INDUSIND 0.08 0.8
4.14.2 Chart showing the loss assets ratio
42
Inference: From the above table represents the loss asset ratio of banks. In 2009 the lakshmi vilas bank as very high as the indusind bank. But in 2010 the lakshmi vilas bank as decrease their loss asset compare then the previous year. Indusind bank as increased their loss assets in last year. 4.15 Total advances to Total Deposits This ratio measures the efficiency of the management in converting deposits into advances. Total deposits include demand deposits, saving deposits, term deposits and deposits of other banks. Total advances also include the receivables. Total advances to Total Deposits = Total advances / Total Deposits X 100 4.15.1 Table showing the calculation of Total advances to Total Deposits YEAR LVB 2006 68.09 2007 71.96 2008 68.68 2009 71.26 2010 69.17 4.15.2 Chart showing the Total advances to Total Deposits
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INDUSIND 62.04 62.81 67.21 71.3 76.9
Inference: From the above table represents the total advances to total deposits. In that ratio both the banks are maintaining their advances to deposits equally. 4.16 Net Profit per Employee It is arrived at by dividing the PAT earned by the bank by total number of employees. Higher the ratio, higher the efficiency of management. Net Profit per Employee = Net Profit / No. of Employee 4.16.1 Table showing the calculation of Net Profit per Employee YEAR LVB 2006 119967 2007 91277 2008 121607 2009 206740 2010 115517 4.16.2 Chart showing the Net Profit per Employee
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INDUSIND 251846 261079 261589 348953 650770
Inference: From the above table represents net profit per employee. In that ratio lakshmi vilas bank is decrease than the indusind bank.
4.17 Business per Employee It is arrived at by dividing total business by total number of employees. Business includes the sum total advances and deposits in a particular year. Business per Employee = Total Business / No. of Employee 4.17.1 Table showing the calculation of Business per Employee YEAR LVB 2006 38917243 2007 4478584 2008 45607 2009 51815 2010 57826 4.17.2 Chart Showing the Business per Employee
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INDUSIND 166325332 109946439 110954096 89110535 87796313
Inference: From the above table Indusind bank business is higher than the lakshmi vilas bank. so the lakshmi vilas bank as to improve their business per employee.
4.18 Return on Net worth (RONW) It is a measure of the profitability of a company. PAT is expressed as a percentage of Average Net Worth. RONW = Net Profit / Net Worth X 100 4.18.1 Table showing the calculation of RONW YEAR LVB 2006 7.72 2007 4.43 2008 6.05 2009 11.08 2010 4.15 4.18.2 Chart showing the RONW
INDUSIND 4.25 6.45 5.56 8.91 14.62
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Inference: From the above table represents the return on net worth between the two banks. Here both the banks net worth are changing every year. In the year 2010 indusind bank is higher than the lakshmi vilas bank. 4.19 Operating Profit by Average Working Funds This ratio gives return on total assets employed on a daily basis. Working funds is the daily average of the total assets during the year. Operating Profit by Average Working Funds = Operating Profit / Average Working Funds X 100 4.19.1 Table showing the calculation of Operating Profit by Average Working Funds YEAR LVB INDUSIND 2006 1.62 2.95 2007 1.36 1.96 2008 1.46 2.03 2009 1.46 2.98 2010 0.31 4.23 4.19.2 Chart showing the Operating Profit by Average Working Funds
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Inference: From the above table represents the operating profit by average working funds. In that ratio shows the lakshmi vilas bank is lower than the indusind bank. In 2010 lakshmi vilas bank is lower than the 2009. 4.20 Net Interest Margin (NIM) It is arrived at by dividing Spread by Total Earning Assets. Spread is the difference between the interest income and interest expended as a percentage of Total Assets. Interest income includes dividend income. Interest expanded includes interest paid on deposits, loans from RBI, and other short-term and long-term loans. NIM = Spread / Total Earning Assets X 100 4.20.1 Table showing the calculation of Net Interest Margin YEAR LVB 2006 2.75 2007 6.12 2008 1.82 2009 2.93 2010 6.38 4.20.2 Chart showing the Net Interest Margin 48
INDUSIND 0.26 8.79 6.08 0.13 9.3
Inference: From the above table shows the Indusind bank as not maintaining their net interest margin. But the lakshmi vilas bank as slowly increased the net interest margin every year. 4.21 Net Profit to Average Assets This ratio measures return on assets employed or the efficiency in utilization of the assets. It is arrived at by dividing the Net Profit by Average Assets, which is the average of total assets in the current year and previous year. Net Profit to Average Assets = Net Profit / Average Assets 4.21.1 Table showing the calculation of Net Profit to Average Assets YEAR LVB 2006 0.50 2007 0.32 2008 0.41 2009 0.67 2010 0.32 4.21.2 Chart showing the Net Profit to Average Assets
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INDUSIND 0.22 0.35 0.33 0.58 0.11
Inferences: From the above table shows the difference of two banks in net profit to average assets. In this ratio lakshmi vilas bank is higher than the indusind bank. The bank will maintain correctly at every year. 4.22 Percentage Growth in Net Profit It is percentage change in net profit from last year. It arrived by dividing changes in net profit by net profit at beginning. Percentage Growth in Net Profit = Changes in Net Profit / Net Profit at Beginning X 100 4.22.1 Table showing the calculation of Percentage Growth in Net Profit YEAR LVB 2006 572.75 2007 21.76 2008 43.74 2009 99.05 2010 39.03 4.22.2 Chart showing the Percentage Growth in Net Profit
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INDUSIND 82.57 85.27 10.01 97.6 136.15
Inferences: From the above table indicates the percentage growth in net profit of the two banks. In that both the bank as maintaining their net profit averagely. But they want to increase their net profit.
4.23 Non – Interest Income / Total Income This measures the income from operations, other than lending as a percentage of total income. Non-interest income is the interest income earned by the banks excluding income on advances and deposits with RBI. Non – Interest Income / Total Income = Non – Interest Income / Total Income X 100 4.23.1 Table showing the calculation of Non – Interest Income / Total Income YEAR LVB INDUSIND 2006 25.07 22.53 2007 21.24 24.35 2008 22.41 21.71 2009 17.41 18.09 2010 18.21 17.88 4.23.2 Chart showing the Non – Interest Income / Total Income
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Inferences: From the above table indicates the non interest income / total income of the two different banks. In that both the banks as maintain the same level of non interest income. 4.24 Interest Income / Total Income This ratio measures the income from lending operations as a percentage of total income generated by the banks in a year. Interest income includes income on advances, interest on deposits with RBI. Interest Income / Total Income = Interest Income / Total Income X 100 4.24.1 Table showing the calculation of Interest Income / Total Income YEAR LVB 2006 61.58 2007 69.11 2008 66.71 2009 68.85 2010 71.56 4.24.2 Chart showing the Interest Income / Total Income
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INDUSIND 61.47 61.65 66.44 65.04 65.10
Inferences: From the above table represents the interest income / total income of two banks. In that interest income of lakshmi vilas bank is higher than the indusind bank for every year of interest. 4.25 Liquid Assets / Demand Deposits This ratio measures the ability of a bank to meet demand from demand deposits in a particular year. Liquid assets include cash in hand, balance with RBI, balance with other banks (both in India and abroad), and money at call and short notice. Liquid Assets / Demand Deposits = Liquid Assets / Demand Deposits 4.25.1 Table showing the calculation of Liquid Assets / Demand Deposits YEAR LVB 2006 1.02 2007 1.26 2008 1.09 2009 1.79 2010 1.32 4.25.2 Chart showing the Liquid Assets / Demand Deposits
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INDUSIND 1.23 1.51 1.20 0.65 0.59
Inferences: From the above table represents the liquid assets / demand deposits of two banks. In that lakshmi vilas bank as much higher than the indusind bank of every year. 4.26 Liquid Assets / Total Deposits Liquid assets are measured as a percentage of Total Deposits. Liquid Assets include cash in hand, balance with RBI, balance with other banks (both in India and abroad), and money at call and short notice. Total Deposits include demand deposits, saving deposits, term deposits and deposits of other financial institutions. Liquid Assets / Total Deposits = Liquid Assets / Total Deposits X 100 4.26.1 Table showing the calculation of Liquid Assets / Total Deposits YEAR LVB 2006 10.68 2007 12.77 2008 10.9 2009 11.97 2010 9.18 4.26.2 Chart showing the Liquid Assets / Total Deposits
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INDUSIND 9.86 14.7 11.4 8.7 9.74
Inferences: From the above table describes the liquid assets / total deposits of two banks. In that measures both the banks are maintaining their total deposits equally for every year. In 2010 indusind bank as increased slightly. 4.27 Liquid Assets / Total Assets Liquid Assets as measured as percentage of Total Assets. Liquid Assets / Total Assets = Liquid Assets / Total Assets 4.27.1 Table showing the calculation of Liquid Assets / Total Assets YEAR LVB 2006 0.09 2007 11.0 2008 9.43 2009 0.10 2010 0.07 4.27.2 Chart showing the Liquid Assets / Total Assets
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INDUSIND 8.40 12.4 9.36 6.96 7.35
Inference: From the above table represents lakshmi vilas bank is not maintaining their liquid assets / total assets comparing the indusind bank liquid assets. In 2006, 2009, 2010 the lakshmi vilas bank is very low than the Indusind banking.
4.28 G – Secs / Total Assets This ratio measures the proportion of risk free liquid assets invested in G-Secs as a percentage of the assets held by a bank and is arrived at by dividing investment in government securities by total assets. G – Secs / Total Assets = G – Secs / Total assets 4.28.1 Table showing the calculation of G – Secs / Total Assets YEAR 2006 2007 2008 2009 2010
LVB 23.7 20.37 23.83 20.12 24.6
INDUSIND 26 23.17 23.36 22.74 24.09
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4.28.2 Chart showing the G – Secs / Total Assets
Inferences: From the above table represents the government securities comparison of two banks. lakshmi vilas bank and Indusind bank as maintaining their securities as equally every year. 4.29 Approved Securities / Total Assets Approved securities are investments made in state-associated bodies like electricity boards, housing boards, corporation bonds and shares of regional rural banks. Approved Securities / Total Assets = Approved Securities / Total Assets X 100 4.29.1 Table showing the calculation of Approved Securities / Total Assets YEAR 2006 2007 2008 2009 2010
LVB 0.34 0.27 0.20 0.11 0.07
INDUSIND 0.014 0.007 0.016 0.013 0.01
4.29.2 Chart showing the Approved Securities / Total Assets
57
Inferences: From the above table represents the approved securities of two banks. In that ratio lakshmi vilas bank is higher than the indusind bank. But every year lakshmi vilas bank approved securities are decreasing every year. 4.30 Cash Reserve Ratio Cash Reserve Ratio = Total Cash / Total Deposits X 100 4.30.1 Table showing the calculation of Cash Reserve Ratio YEAR 2006 2007 2008 2009 2010
LVB 4.6 5.7 6.8 8.04 8.27
INDUSIND 4.02 5.78 8.01 5.38 7.85
4.30.2 Chart showing the Cash Reserve Ratio
58
Inferences: From the above table represents the cash reserve ratio of two banks. In that lakshmi vilas bank is higher than the indusind bank for every year. 4.31 Statutory Liquidity Ratio Statutory Liquidity Ratio = Total Demand/Time Liabilities X 100 4.31.1 Table showing the calculation of Statutory Liquidity Ratio YEAR 2006 2007 2008 2009 2010
LVB 13.5 12.9 12.7 8.03 8.46
INDUSIND 9.18 11.39 11.22 16.5 21.61
4.31.2 Chart showing the Statutory Liquidity Ratio
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Inferences: From the above table represents the statutory liquidity ratio of lakshmi vilas bank is lower than the Indusind bank for the last two year. So they want to maintain their statutory liquidity ratio. CHAPTER 5 5.1 FINDINGS Capital adequacy: Capital adequacy of Lakshmi vilas bank is the same level of Indusind bank. In 2010 Lakshmi vilas bank having the capital amount is 14.82%. The capital adequacy ratio of Lakshmi Vilas Bank is above the minimum requirements and above the RBI average. Assets: Compare to the Indusind bank, Lakshmi Vilas Bank has highest Gross NPA ratio which is not good for the bank. Management: 60
Professional approach that has been adopted by the bank in the recent past is in right direction & also it is the right decision. Earnings: Operating profit of Lakshmi vilas bank is to lower than the Indusind bank. In 2010 they earn only 0.31%. Lakshmi Vilas bank’s net interest income is equal to the Indusind bank net interest income. Liquidity: Compare to the Indusind bank, Lakshmi Vilas bank’s liquidity position is very low in the liquid assets to total assets.
5.2 SUGGESTIONS The bank should try to maintain a 0% NPA by always lending and investing or creating quality assets which earn returns by way of interest and profits. They should give loans to the customers, whose credit worthiness is good. Lakshmi vilas bank has highest government security to total investment ratio which leads to reduce their income and ultimately their profitability so they have to invest in other government investment option rather than only in government securities. Lakshmi vilas bank has to give more advances in order to earn more interest. But they should have to also keep in mind the credit worthiness of the customers. Have good appraisal skills, system, and proper follow up to ensure that bank is above the risk.
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5.3 CONCLUSION The study titled “Financial performance of lakshmi vilas bank” reveals the financial position of the bank currently. The study reveals that the bank has performed well during the period of study from 2006-2010. The bank has succeeded in maintaining CRAR at a higher level than the prescribed level, 9%. Gross NPA ratio has registered declining trend for during the last five years. In management quality, we have found that Business per Employee Ratio is increased during the last five years. The improvement shows the growth of the bank as well as efficiency of the employees. There is a huge possibility for the bank to improve in certain aspects like to introduce the new type of loans and fixed deposits. The return on capital employed could also to be improved. As a whole the financial performance of the bank is very much satisfactory.
BIBLOGRAPHY Books referred: M Y Khan and P K Jain, Financial Management Fourth Edition 2006, Tata McGraw-Hill Publishing Company Limited, New Delhi. Robert C Higgins, Analysis for Financial Management Eighth Edition 2009 Tata McGraw-Hill Publishing Company Limited, New Delhi. Prasanna Chandra Financial Management Sixth Edition 2004, Tata McGraw-Hill Publishing Company Limited, New Delhi. Websites visited: 62
www.lvbank.com www.indusind.com www.allbankingsolutions.com
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