Research Report in the field of Finance Undertaken

At“The Co – operative Bank of Rajkot Ltd.”

i.e. Raj Bank “Ratio Analysis Based on CAMEL Model of RBI”

1

PREFACE

As we enter the 21st Century with new hope and new expectations, it is

imperative that we appreciate the world around us is changing rapidly, throwing

open great challenges and innumerable opportunities. Driven by the growing trend

of globalization, the revolutionary developments in Information Technology and

the emergence of the digital era, we are witnessing phenomenal changes in the

world of finance. In the emerging scenario, finance will be operating in a totally

new financial landscape of atoms and electrons.

These far-reaching developments in the world of finance have redefined the

role of the finance manager, to evolve financial strategies that dovetail with the

firm’s competitive business strategies. In the present decade, the analysis of

financial statement of business has generated a wide divergence of view among the

thinkers and the management experts. The analysis of financial statement is very

crucial function.

Ratio are exceptionally useful tools with the finance manager to infer the

financial performance of the enterprise over a period of time, with the help of ratio

analysis conclusion can be drawn regarding several aspects such as financial health

profitability and operational efficiency of the undertaking.

This study aims at determining and analysing the profitability and

operational efficiency of the “The Co-operative Bank of Rajkot Ltd.” by way of

Ratio Analysis for the past five years.

2

INDEX

SR. NO. PARTICULARSPAGE

NO.

1. Introduction

2. Brief profile of Banking Sector in general

3. Brief profile of Co-operative Banks

4. History & Development of Raj Bank

5. Organisation Structure

6. Organisation Chart

7.Concept of Ratio Analysis its measurement and its

analysis

8. Research Methodology

9. Ratio Analysis of Raj Bank

10.Conclusion & Finding

11.Bibliography

3

INTRODUCTION

The firm’s financial information is contained in three basic financial

statements – The Balance Sheet, Profit & Loss Account and Profit and Loss

Appropriation Account. These statements are very useful to different parties

concerned such as management, investor, creditors and other to form judgement

about the operational efficiency and financial position of the firm. These

statements may be more fruitfully used if they are analysed and interpreted to have

an insight into the strengths and weaknesses of the firm. The success of the firm’s

financial plans is based on the financial analysis which is the starting point for

making plans, before using and sophisticated forecasting and budgeting

procedures.

Various tools and techniques are employed by the interested parties in

analysing the financial information contained in these financial statements. These

techniques are as follows:

Comparative Statements

Common Size Statements

Trend Analysis

Fund Flow Analysis

Cash Flow Analysis

Value Added Analysis

Ratio Analysis

Ahead of all is Ratio Analysis which is a very powerful analytical tool for

measuring performance of an organisation. The Ratio Analysis concentrates on the

inter-relationship among the figures appearing in the aforementioned financial

statements. The Ratio Analysis helps the management to analyse the past

performance of the firm and to make further projections.

Ratio Analysis is a process of comparison of one figure against another, which

make a ratio, and the appraisal of the ratio to make proper analysis about the

strengths and weaknesses of the firm’s operation. Ratio Analysis is extremely

helpful in providing valuable insight into a firm’s financial picture. Ratios

normally pinpoint a business strengths and weakness in two ways:

4

1. Ratios provide an easy way to compare today’s performance with past.

2. Ratios depict the areas in which a particular business is competitively

advantaged or disadvantaged through comparing ratios to those of other

businesses of the same size within the same industry.

5

BRIEF PROFILE OF BANKING INDUSTRY IN GENERAL

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

6

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:

7

Structure of Indian Banking System

Unorganised Organised

Licensed Creditors

Reserve Bank of India

Commercial Banks

Co-operative Banks

State Co-operative Banks at

State Level

Central Co-operative Banks at

District Level

Rural Primary Co-

operative Banks at Village /

Town Level

Unlicensed Indigenous

Money Lenders

Public Sector

Private Sector

BRIEF PROFILE OF CO – OPERATIVE BANKS

Once the Mahatma Gandhiji has remarked that,” There is sweetness in co-

operation; there is no one who weak or strong among those who co-operate. Each

is equal to other”.

The co-operative movement in India has played a significant role as an

important instrument of operationalising developmental initiatives. The Co-

operative Banks came under the preview of Banking Regulation Act, 1949 w.e.f.

1st April 1966. All Co-operative Banks having a paid up capital of Rs. 1 lakh or

more have come under the control of Reserve Bank of India. There has been really

a marked improvement in the progress of cooperative credit movement in our

country aided frequently by the government support and the intervention of

Reserve Bank of India.

Also today’s co-operative sector has grown in all over the world, with

globalization. They have also started to implement new technologies and various

management tools. Now, they are competing in same market with all the other

types of banks. In this way the Co-operative Banks holds the key position in the

economy.

CHANGES IN CO-OPERATIVE BANKS

We shall now enumerate the recent changes that have occurred in the Co-

operative Banking Scene, subsequent to the reform measures initiated by the

Government.

During 1992-93 the Reserve Bank of India liberalised the licensing policy for

new Primary Urban Co-operative Banks greatly; prescribed the entry point

viability norms and advised to follow the guidelines relating to their operations

and advised to adopt norms in respect of income recognition, classification of

assets and provisioning on the lines stipulated for commercial banks.

During 1993-94 the National Co-operative Bank of India (NCBI) was

registered on 5th August 1993 as a Multi-State Co-operative Society.

8

A Co-operative Development Fund was set up by NABARD to help the Co-

operative Banks to improve managerial systems and skills.

For the first time Scheduled Urban Co-operative Banks were permitted to

invest their surplus funds in Certificate of Deposits and Commercial Papers of

those Institutions / Corporate with credit rating P1 / A1 from CRISIL / ICRA.

With a view to maintaining the rural credit flow uninterrupted from SCBs and

RRBs the relaxation in the stipulation that they must recover loans at least 40%

of the demand for the previous year to be eligible for refinance from NABARD

was extended up to June 30, 1996.

Lending and deposit rates of all Co-operative Banks were deregulated in

various phases.

In February 1996, PCBs were allowed to invest their surplus funds in

Certificate of Deposits issued by banks and other financial institutions,

approved by the Reserve Bank subject to fulfilling certain conditions.

During 1995-96, all Scheduled PCBs were brought under the purview of the

provisions of the Banking Ombudsman Scheme, 1995.

All scheduled and non-scheduled PCBs with deposits of over Rs. 50 crore were

required to introduce the system of concurrent audit.

The prudential accounting norms viz, income recognition, asset classification,

provisioning for bad and doubtful debts and capital adequacy were applied to

State Co-operative Banks and Central Co-operative Banks form the year 1996-

97 in two phases viz., 1996-97 and 1997-98.

9

HISTORY & DEVELOPMENT OF RAJ BANK

It is well said that “In the emerging competitive business environment co-

operative banks who adhere to strict financial discipline only will survive”.

The co-operative Bank of Rajkot Ltd. popularly known as Raj Bank is

established on 28th November 1980 under the strong, effective leadership of Shri

Ramnikbhai Dhami with the intention of serving the common man.

The bank was started in small premises and converted into a large and most

popular bank having its Area of Operation in the entire Rajkot, Junagadh and

Jamnagar District. In years to come the bank will expand its business in the entire

Gujarat State.

At present, after completion of 25 year, Raj Bank has achieved a key

position in the market of Saurashtra. It has 11 branches in all over Saurashtra

including main branch with the advanced technologies and educated staff.

The Co-operative Bank of Rajkot Ltd, have been at the forerunner of the

change taking place in the Co-operative Banking sector over the years. Their

strategic initiatives have led their position today as the first Co-operative bank in

Saurashtra to provide ATM facility. Their pioneering new approaches to banking

and their focus on extending the availability of tech-driven convenience to large

customer base resulted into rapid business growth.

A critical constituent of their growth has been the quality of their people.

The single minded application and understanding of the challenges of the market

place by their managers. They have built today stable business that will deliver

sustainable value to their stakeholders; there are more exciting opportunities to

grow. These include the whole gamut of financial products ranging from

agriculture credit to consumer credit, liability product and insurance especially in

Rural India.

At last it can be said that The Co-operative Bank of Rajkot Ltd is well

placed to capitalize on emerging competitive business environment opportunities

as it reaches out to new markets in Gujarat.

10

ORGANIZATION STRUCTURE

An organization Structure is the mechanism through which management

try’s to achieve its objectives. Various jobs are divided among units of the

enterprise and are integrated into an effective operation system to achieve an

organizational goal.

It is primarily concerned with the allocation of duties and responsibilities

and delegation of authority. It is a management tool for achieving the objectives or

goals of an enterprise.

From the chart shown below it can be easily understood that Line & Staff

Organisation Structure is followed by Raj Bank.

ORGANIZATION CHART

11

12

CONCEPT OF RATIO ANALSIS ITS MEASUREMENT & ITS ANALYSIS

Financial ratio analysis is a fascinating topic to study because it can teach us

so much about accounts and businesses. When we use ratio analysis we can work

out how profitable a business is, we can tell if it has enough money to pay its bills

and we can even tell whether its shareholders should be happy!

Ratio analysis can also help us to check whether a business is doing better

this year than it was last year; and it can tell us if our business is doing better or

worse than other businesses doing and selling the same things.

In addition to ratio analysis being part of an accounting and business studies

syllabus, it is a very useful thing to know anyway!

The overall layout of this segment is as follows: We will begin by asking the

question, what do we want ratio analysis to tell us? Then, what will we try to do

with it? This is the most important question, funnily enough! The answer to that

question then means we need to make a list of all of the ratios we might use: we

will list them and give the formula for each of them.

Once we have discovered all of the ratios that we can use we need to know

how to use them, who might use them and what for and how will it help them to

answer the question we asked at the beginning?

At this stage we will have an overall picture of what ratio analysis is, who

uses it and the ratios they need to be able to use it. All that's left to do then is to use

the ratios; and we will do that step- by-step, one by one.

The three important questions we have asked at the beginning they are

describe in brief as under: That questions are;

What do we want ratio analysis to tell us?

What do the users of accounts need to know?

Which ratio for which group?

13

What do we want ratio analysis to tell us?

The key question in ratio analysis isn't only to get the right answer: for example, to

be able to say that a business's profit is 10% of turnover. We have to start working

on ratio analysis with the following question in our heads:

What are we trying to find out?

Isn't this just blether, won't the exam just ask me to tell them that profit is 10% of

turnover? Well, yes, but then they want to know that we are a good student who

understands what it means to say that profit is 10% of turnover.

We can use ratio analysis to try to tell us whether the business

1. is profitable

2. has enough money to pay its bills

3. could be paying its employees higher wages

4. is paying its share of tax

5. is using its assets efficiently

6. has a gearing problem

7. is a candidate for being bought by another company or investor

And more, once we have decided what we want to know then we can decide which

ratios we need to use to answer the question or solve the problem facing us.

Let's look at the ratios we can use to answer these questions.

The Ratios

We can simply make a list of the ratios we can use here but it's much better to put

them into different categories. If we look at the questions in the previous section,

we can see that we talked about profits, having enough cash, efficiently using

assets - we can put our ratios into categories that are designed exactly to help us to

answer these questions. The categories we want to use, section by section, are:

1. Profitability: has the business made a good profit compared to its turnover?

2. Return Ratios: compared to its assets and capital employed, has the business

made a good profit?

14

3. Liquidity: does the business have enough money to pay its bills?

4. Asset Usage or Activity: how has the business used its fixed and current

assets?

5. Gearing: does the company have a lot of debt or is it financed mainly by

shares?

6. Investor or Shareholder

Not everyone needs to use all of the ratios we can put in these categories so the table that we present at the start of each section is in two columns: basic and additional.

The basic ratios are those that everyone should use in these categories whenever we are asked a question about them. We can use the additional ratios when we have to analyse a business in more detail or when we want to show someone that we have really thought carefully about a problem.

Users of Accounting Information

Now we know the kinds of questions we need to ask and we know the ratios available to us, we need to know who might ask all of these questions! This is an important issue because the person asking the question will normally need to know something particular.

Of course, anyone can read and ask questions about the accounts of a business; but in the same way that we can put the ratios into groups, we should put readers and users of accounts into convenient groups, too: let's look at that now.

The list of categories of readers and users of accounts includes the following people and groups of people:

Investors &Lenders Managers of the organisation & Employees Suppliers and other trade creditors & Customers Governments and their agencies & Public Financial analysts Environmental groups Researchers: both academic and professional

15

What do the Users of Accounts Need to Know?

The users of accounts that we have listed will want to know the sorts of things we can see in the table below: this is not necessarily everything they will ever need to know, but it is a starting point for us to think about the different needs and questions of different users.

Investors

To help them determine whether they should buy shares in the

business, hold on to the shares they already own or sell the

shares they already own. They also want to assess the ability

of the business to pay dividends.

LendersTo determine whether their loans and interest will be paid

when due

ManagersMight need segmental and total information to see how they

fit into the overall picture

Employees

Information about the stability and profitability of their

employers to assess the ability of the business to provide

remuneration, retirement benefits and employment

opportunities

Suppliers and their

trade creditors

Businesses supplying goods and materials to other businesses

will read their accounts to see that they don't have problems:

after all, any supplier wants to know if his customers are going

to pay their bills!

CustomersThe continuance of a business, especially when they have a

long term involvement with, or are dependent on, the business

Governments and

their agencies

The allocation of resources and, therefore, the activities of

business. To regulate the activities of business, determine

taxation policies and as the basis for national income and

similar statistics

Local community

Financial statements may assist the public by providing

information about the trends and recent developments in the

prosperity of the business and the range of its activities as they

affect their area

16

Financial analystsThey need to know, for example, the accounting concepts

employed for inventories, depreciation, bad debts and so on

Environmental

groups

Many organisations now publish reports specifically aimed at

informing us about how they are working to keep their

environment clean.

Researchers

Researchers' demands cover a very wide range of lines of

enquiry ranging from detailed statistical analysis of the

income statement and balance sheet data extending over many

years to the qualitative analysis of the wording of the

statements

17

Which ratios will each of these groups be interested in?

On this page we see the table which help different groups interested in their

ratio. In the left hand column there is a list of interest groups one by one and in the

right hand column there is a list of ratios they might be interested in.

Interest Group Ratios to watch

Investors Return on Capital Employed

Lenders Gearing ratios

Managers Profitability ratios

Employees Return on Capital Employed

Suppliers and other trade creditors Liquidity

Customers Profitability

Governments and their agencies Profitability

Local Community This could be a long and interesting list

Financial analysts Possibly all ratios

Environmental groups Expenditure on anti-pollution measures

Researchers Depends on the nature of their study

18

RESEARCH METHODOLOGY

Research in common parlance refers to a search for knowledge. One can

also define research as a scientific and systematic search for pertinent information

on a specific topic. Research in academic activity and as such the term should be

used in a technical sense. Research is, thus, an original contribution to the existing

stock of knowledge making for its advancement.

Where as Research Methodology is a way to systematically solve the

research problem. It may be understood as a science of studying how research is

done. In it we study the various steps that are generally adopted by a researcher in

studying his research problem along with the logic behind them. It is necessary for

the researcher to know not only the research methods / techniques but also the

methodology.

Thus, when we talk of research methodology we not only talk of the

research methods but also consider the logic behind the methods we use in the

context of our research study. Here, data used is secondary, which is their Annual

Reports of last 5 years and method of ratio analysis is based upon the CAMEL

Model of RBI, which give the overall image of firm’s performance.

19

RATIO ANALYSIS OF RAJ BANK

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 “The Co-operative Bank of Rajkot Ltd.”

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

20

1) 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 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

1) Capital Adequacy Ratio

2) Debt – Equity Ratio

3) Advances to Assets

4) G – Secs to Total Investment

21

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

Calculation of Capital Adequacy Ratio of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007CAPITAL

FUNDS358,823,578 355,677,836 377,269,046 387,621,848 654,319,564

RISK WEIGHTED

ASSETS1,171,521,435

1,216,129,469

1,554,598,802

1,830,851,543

2,456,154,520

RATIO 30.63 29.25 24.27 21.17 26.64

Capital Adequacy Ratio

30.6329.25

24.27

21.17

26.64

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Cap

ital

Ad

equ

acy

Rat

io

Interpretation of the Capital Adequacy Ratio

The minimum CAR as per RBI norms is 9 % at Present. In fact, Raj Bank has always shown a healthy and improved margin of over 9 % which is stipulated by RBI, in the year 2002 – 2003 CAR is of 30.63 %. But from the year 2003 – 2004, it seems to decline in CAR gradually to 29.25 % in 2003 - 2004 up to 21.17 % in 2005 – 2006. This is due to steady rise in the Risk Weighted Assets. The main reason for the rise in Risk Weighted Assets and decline in CAR is constant increase in advances over the last few years. Now, it’s looks to improve as years passes.

22

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

Calculation of Debt – Equity Ratio of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

DEBT 2,113,556,1452,617,481,09

42,864,094,33

53,362,600,87

33,891,989,28

3

EQUITY 386,494,929 455,068,711 500,173,019 563,578,548 744,319,564

RATIO 5.47 5.75 5.73 5.97 5.23

Debt-Equity Ratio

5.47

5.75 5.73

5.97

5.23

4.80

5.00

5.20

5.40

5.60

5.80

6.00

6.20

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Deb

t-E

qu

ity

Rat

io

Interpretation of the Debt – Equity Ratio

Deposits form a major portion of liabilities for banks and are included in the

debt component of the debt – equity ratio. A debt – equity ratio of 50 times is

considered healthy for banks. Ratios of Raj Bank are below 50 times, which is

much below the acceptable limit and, therefore, has scope to increase the debt

component on their capital structure.

23

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

Calculation of Advances to Assets of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

ADVANCES 914,974,4651,120,389,61

91,421,177,10

61,667,592,11

72,181,947,34

7

ASSETS 56,209,726 74,232,950 81,579,900 88,579,119 177,973,776

RATIO 16.28 15.09 17.42 18.83 12.26

Advances to Assets

16.2815.09

17.42

12.26

18.83

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Ad

van

ces

to A

sset

s

Interpretation of the Advances to Assets

This ratio shows the total advances as a percentage of total assets, which can

give the capital adequacy of the firm. It shows the ability of firm to meet capital

need. Here, we see that Raj Bank has maintaining constant percentage of advances

to assets for last 4 years but in this year 2006 – 2007 it has decrease by 1/3 almost.

24

4) G – Secs to Total Investments:

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

Calculation of G – Secs to Total Investments of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

G – SECS. 447,050,000 659,110,5001,081,788,00

01,325,595,50

01,172,980,50

0

INVESTMENTS 532,117,500 718,785,0001,086,462,50

01,337,770,00

01,200,149,97

0

RATIO 84.01 91.70 99.57 99.09 97.74

G-Secs to Total Investment

84.01

91.70

99.57 99.0997.74

75.00

80.00

85.00

90.00

95.00

100.00

105.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

G-S

ecs

to T

ota

l In

vest

men

t

Interpretation of the G – Secs to Total Investments

G – Secs to investments indicate the percentage of risk free investments in

banks’ investment portfolio. Since government securities are risk free, the higher

the G – Secs to investments ratio the lower the risk involved in bank investments.

The calculation indicates that Raj bank has shown a stable rise in G – Secs

investments and therefore it has less risk involved in bank’s investments.

25

2) 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 non-

performing 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

1) Gross NPAs to Total Assets

2) Gross NPAs to Net Advances

3) Total Investments to Total Assets

4) Percentage Change in Gross NPAs

26

1) 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

Calculation of Gross NPAs to Total Assets of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

GROSS NPAs 2,289,000 2,919,217 4,835,162 2,150,849 2,362,836

ASSETS 56,209,726 74,232,950 81,579,900 88,579,119 177,973,776

RATIO 4.07 3.93 5.93 2.43 1.33

Gross NPAs to Total Assets

4.07 3.93

5.93

2.43

1.33

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

ofG

ross

NP

As

to T

ota

l A

sset

s

Interpretation of the Gross NPAs to Total Assets

The quality of loan is one of the crucial aspects of that decide the health of

banks. This ratio indicates the percentage of gross NPAs to total assets. Ratio does

not give any tolerable or desirable limit. But it should be below 10 %. Going by

this norm, the Raj bank has their entire ratio below 10 % which shows that it has

the lowest gross NPAs in relation to their total assets.

27

2) 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

Calculation of Gross NPAs to Net Advances of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

GROSS NPAs 2,289,000 2,919,217 4,835,162 2,150,849 2,362,836

NET ADVANCES

914,974,4651,120,389,61

91,421,177,10

61,667,592,11

72,181,947,34

7

RATIO 0.25 0.26 0.34 0.13 0.11

Gross NPAs to Net Advances

0.250.26

0.34

0.130.11

-

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Gro

ss N

PA

s to

Net

Ad

van

ces

Interpretation of the Gross NPAs to Net Advances

Gross NPAs as a percentage of net advances is most standard measure of

asset quality. A ratio of below 1 % is considered as a tolerable limit. The gross

NPAs of bank stand below 1 % to net advances. Net NPAs in relation to net

advances continue to remain at “ZERO” level for the last 15 years and it become

one of the only bank across the nation which has lowest level of gross NPAs.

Hence from this ratio only we can say that asset quality of Raj Bank is of high-

quality.

28

3) 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

Calculation of Total Investments to Total Assets of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

INVESTMENTS 532,117,500 718,785,0001,086,462,50

01,337,770,00

01,200,149,97

0

ASSTES 56,209,726 74,232,950 81,579,900 88,579,119 177,973,776

RATIO 9.47 9.68 13.32 15.10 6.74

Total Investment to Total Assets

9.47 9.68

13.32

15.10

6.74

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

To

tal

Inve

stm

ent

to T

ota

l A

sset

s R

atio

Interpretation of the Total Investments to Total Assets

Total investments to total assets indicate the extent of deployment of assets

in investments as against advances. The higher level of investment indicates the

lack of credit off-take in the market. The Raj Bank has higher investments in risk

free securities which shows the lack of credit off-take and further confirms the

aggressive strategy in the disbursal of advances.

29

4) 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

Calculation of Percentage Change in Gross NPAs of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007CHANGE IN GROSS NPAs

820,000 630,217 1,915,945 - 2,684,313 211,987

GROSS NPAs AT BEGINNING

1,469,000 2,289,000 2,919,217 4,835,162 2,150,849

% CHANGE IN NPAs

55.82 27.53 65.63 - 55.52 9.86

% Change in Gross NPAs

55.82

27.53

65.63

-55.52

9.86

-80.00

-60.00

-40.00

-20.00

-

20.00

40.00

60.00

80.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

% C

han

ge

in G

ross

NP

As

Interpretation of the Percentage Change in Gross NPAs

This ratio shows the percentage of increase or decrease in the Gross NPAs in the firm. From the ratio of Raj Bank it can be said that the gross NPAs is increasing progressively to 65.63 in 2004 – 2005, which is not the sign that each one is anticipated but it is increase because of the expansion of business over a year. But in 2005 – 2006 gross NPAs has been reduced to -55.52 which indicate great sign and stand ahead in the lowest gross NPAs level which is great sign of evolution.

30

3) 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. Today,

it is not uncommon to see the extended working hours, flexible time schedules,

outsourcing marketing, etc. to attract and retain customers. The parameters used to

assess the quality of management gives the measurement of the efficiency and

effectiveness of management. The ratios of this segment are:

1) Total Advances to Total Deposits

2) Gross Profit Per Employee

3) Net Profit Per Employee

4) Business Per Employee

5) Return on Net Worth

31

1) 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

Calculation of Total advances to Total Deposits of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

ADVANCES 914,974,4651,120,389,61

91,421,177,10

61,667,592,11

72,181,947,34

7

DEPOSITS 2,113,556,1452,617,481,09

42,864,094,33

53,362,600,87

33,891,989,28

3

RATIO 43.29 42.80 49.62 49.59 56.06

Total Advances to Total Deposits

43.29 42.80

49.62 49.59

56.06

-

10.00

20.00

30.00

40.00

50.00

60.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

To

tal

Ava

nce

s to

To

tal

Dep

osi

ts

Interpretation of the Total advances to Total Deposits

As it said above it measures the efficiency of the management in converting

deposits into advances. Over the last few years Raj Bank persistently convert

deposits into advances, this can be analysed from the chart shown above.

32

2) Gross Profit per Employee:

It is arrived at by dividing the Gross profit earned by the bank by total

number of employees. Higher the ratio, higher the efficiency of management.

Gross Profit per Employee = Gross Profit / No. of Employee

Calculation of Gross Profit per Employee of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

GROSS PROFIT 77,948,410 80,506,740 81,042,997 81,574,445 106,570,355

NO. OF EMPLOYEE

109 115 124 124 126

GROSS PROFIT PER EMPLOYEE

715,123.03 700,058.61 653,572.56 657,858.43 845,796.47

Gross Profit Per Employee

715,123.03 700,058.61653,572.56 657,858.43

845,796.47

-

100,000.00

200,000.00

300,000.00

400,000.00

500,000.00

600,000.00

700,000.00

800,000.00

900,000.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Gro

ss P

rofi

t P

er E

mp

loye

e

Interpretation of the Gross Profit per Employee

The gross profit per employees of Raj Bank decreases during the year 2004

– 2005 i.e. of Rs.653,572.56 relates to the past couple of year i.e. 2003 – 2004 of

Rs.700,058.61 and 2002 – 2003 of Rs.715,123.03 which increases gradually in

2006 – 2007 to Rs.845,796.47. A picture that show’s us a high efficiency of the

management of the Raj Bank.

33

3) 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

Calculation of Net Profit per Employee of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

NET PROFIT 24,589,408 27,081,504 27,706,018 28,037,137 32,477,112

NO. OF EMPLOYEE

109 115 124 124 126

NET PROFIT PER EMPLOYEE

225,590.90 235,491.34 223,435.63 226,105.95 257,754.85

Net Profit Per Employee

225,590.90

235,491.34

223,435.63226,105.95

257,754.85

200,000.00

210,000.00

220,000.00

230,000.00

240,000.00

250,000.00

260,000.00

270,000.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Net

Pro

fit

Per

Em

plo

yee

Interpretation of the Net Profit per Employee

The net profit per employee ratio of Raj Bank remains constant of the last

few years which show the effective management of the bank which can be observe

from the chart and the figures quoted above.

34

4) 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

Calculation of Business per Employee of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

BUSINESS 3,028,530,611

3,737,870,713

4,285,271,441

5,030,192,989

6,073,936,630

NO. OF EMPLOYEE

109

115

124

124

126

BUSINESS PER

EMPLOYEE27,784,684.50

32,503,223.59

34,558,640.65

40,566,072.49

48,205,846.27

Business Per Employee

27,784,684.50

32,503,223.5934,558,640.65

40,566,072.49

48,205,846.27

-

10,000,000.00

20,000,000.00

30,000,000.00

40,000,000.00

50,000,000.00

60,000,000.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Bu

sin

ess

Per

Em

plo

yee

Interpretation of the Business per Employee

Business per employee indicates the labour productivity of long term

viability of the bank. From the figures and chart shown above we see that the

business per employee of Raj Bank increases from Rs. 27,784,684.50 in 2002 –

2003 to Rs. 48,205,846.27 in 2006 – 2007. in between the period there is a steady

rise in the business per employee.

35

36

5) 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

Calculation of Return on Net Worth (RONW) of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

NET PROFIT 24,589,408 27,081,504 27,706,018 28,037,137 32,477,112

NET WORTH 386,494,929 455,068,711 500,173,019 563,578,548 744,319,564

RATIO 6.36 5.95 5.54 4.97 4.36

Return on Net Worth

6.365.95

5.54

4.97

4.36

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Ret

urn

on

Net

Wo

rth

Interpretation of the Return on Net Worth (RONW)

This ratio expresses the net profit in terms of net worth. This ratio is an

important yardstick of performance for equity shareholders since it indicates the

return on the funds employed by them. As we see that the net worth of the Raj

bank increases and the net profit averagely remain same, the RONW goes down

but than also Raj Bank maintained the dividend pay of 15 % for the last 15 years.

37

4) 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;

1) Operating Profit by Average Working Fund

2) Net Interest Margin

3) Net Profit to Average Assets

4) Percentage Growth in Net Profit

5) Non Interest Income to Total Income

6) Interest Income to Total Income

38

1) 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

Calculation of Operating Profit by Average Working Funds of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007OPERATING

PROFIT77,948,410 80,506,740 81,042,997 81,574,445 106,570,355

AVERAGE WORKING

FUNDS2,359,640,000

2,810,263,000

3,242,340,000

3,673,029,000

4,334,346,000

RATIO 3.30 2.86 2.50 2.22 2.46

Operating Profit by Average Working Fund

3.30

2.86

2.50

2.22

2.46

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Op

erat

ing

Pro

fit

by

Avg

.Wo

rkin

g

Fu

nd

Interpretation of the Operating Profit by Average Working Funds

The average ratio of operating profit as a percentage of average working

funds for Raj bank is 2.22 in 2005 – 2006 which is decreased continuously from

2002 – 2003 i.e. of 3.30 and stable around 2.00 to 2.50 . This is an encouraging

trend. The income is fund based it comes from investments rather than advances.

39

2) 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

Calculation of Net Interest Margin (NIM) of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

SPREAD 79,675,173 81,845,701 85,588,622 108,237,975 155,547,063

EARNING ASSETS

2,169,456,6282,417,899,09

72,897,848,26

83,612,933,66

33,997,253,02

8

NET INTEREST MARGIN

(NIM)

3.67 3.38 2.95 3.00 3.89

Net interest Margin

3.67

3.38

2.95 3.00

3.89

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Net

In

tere

st M

arg

in

Interpretation of the Net Interest Margin (NIM)

Net interest margin of Raj bank is also shows a steady decrease. The efficient and

prudent asset liability management enables the bank to maintain the interest spread. The

40

net interest margin in 2004 – 2005 is 2.95 from that of 3.67 in 2002 – 2003 which again

taken the momentum and reach to 3.89 in 2006 -2007.

3) 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

Calculation of Net Profit to Average Assets of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

NET PROFIT 24,589,408 27,081,504 27,706,018 28,037,137 32,477,112

AVG. ASSETS 56,075,500 65,221,338 77,906,425 85,079,509 133,276,447

RATIO 43.85 41.52 35.56 32.95 24.37

Net Profit to Average Assets

43.8541.52

35.5632.95

24.37

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Net

Pro

fit

to A

vera

ge

Ass

ets

Interpretation of the Net Profit to Average Assets

The profitability of the firm is measured by establishing relation of net profit

with the total assets of the organisation. This indicates the efficiency of utilisation

41

of assets in generating revenue. The Raj Bank over the last couple of years not able

to utilise their assets as effectively as they where in the past years, which can be

seen from the chart and figures arrived on.

42

4) Percentage Growth in Net Profit:

It is percentage change in net profit form 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

Calculation of Percentage Growth in Net Profit of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007CHANGE IN NET

PROFIT2,397,127 2,492,096 624,514 331,120 4,439,974

NET PROFIT AT BEGINNING

22,192,281 24,589,408 27,081,504 27,706,018 28,037,137

% GROWTH IN NET PROFIT

10.80 10.13 2.31 1.20 15.84

% Growth in Net Profit

10.8010.13

2.31

1.20

15.84

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

% G

row

th i

n N

et P

rofi

t

Interpretation of the Percentage Growth in Net Profit

The percentage growth in net profit for Raj Bank in 2005 – 2006 is only of

1.20 relates to the other preceding years i.e. of 10.13 in 2003 – 2004 and of 10.80

in 2002 – 2003. This shows that the net profit is decreases comparatively very

43

highly but it has U –turn in 2006 – 2007 reaches 15.84 which give the enormous

quality of earnings of the bank.

44

5) 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

Calculation of Non – Interest Income / Total Income of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007NON -

INTEREST INCOME

37,649,755 41,584,896 44,686,846 24,275,592 22,514,608

TOTAL INCOME 299,461,834 312,897,488 326,646,329 327,440,588 398,858,078

RATIO 12.57 13.29 13.68 7.41 5.64

Non-Interest Income to Total Income

12.5713.29 13.68

7.41

5.64

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

No

n-I

nte

rest

In

com

e to

To

tal

Inco

me

Interpretation of the Non – Interest Income / Total Income

It expresses the income from operations as a percentage of total income. The

main sources of income of Raj Bank is in advances and deposits that’s why the

non-interest income of Raj Bank is averagely only 10.52 .i.e. 11.00 approximately.

Thus the income source or earning source of Raj Bank is on the amount of deposits

with RBI and advances.

45

6) 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

Calculation of Interest Income / Total Income of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007INTEREST INCOME

262,136,677 271,689,840 282,662,020 303,164,996 376,343,471

TOTAL INCOME 299,461,834 312,897,488 326,646,329 327,440,588 398,858,078

RATIO 87.54 86.83 86.53 92.59 94.36

Interest Income to Total Income

87.5486.83 86.53

92.59

94.36

82.00

84.00

86.00

88.00

90.00

92.00

94.00

96.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Inte

rest

In

com

e to

To

tal

Inco

me

Interpretation of the Interest Income / Total Income

This ratio expresses the income from lending operations. It mainly generates

from the deposits and advances. The Raj Bank main income source is from lending

operation which shows the average income of about 89 % Approx. of total income.

46

5) 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;

1) Liquid Assets to Demand Deposits

2) Liquid Assets to Total Deposits

3) Liquid Assets to Total Assets

4) G – Secs to Total Assets

5) Approved Secs to Total Assets

47

1) 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

Calculation of Liquid Assets / Demand Deposits of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007LIQUID ASSETS

1,019,276,0481,180,022,63

0802,030,048 860,865,769

1,153,812,999

DEMAND DEPOSITS

174,658,280 299,597,880 303,278,169 393,986,232 511,499,804

RATIO 5.84 3.94 2.64 2.19 2.26

Liquid Assets to Demand Deposits

5.84

3.94

2.64

2.19 2.26

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Liq

uid

Ass

ets

to D

eman

d D

epo

sits

Interpretation of the Liquid Assets / Demand Deposits

Liquid assets as a percentage of demand deposits are one of the most

important measures of the liquidity position of the bank. In the case of Raj Bank,

the ratios indicate that liquid assets are able to meet demand for demand deposits.

Thus it indicates better liquidity situation.

48

2) 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

Calculation of Liquid Assets / Total Deposits of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007LIQUID ASSETS

1,019,276,0481,180,022,63

0802,030,048 860,865,769

1,153,812,999

DEPOSITS 2,113,556,1452,617,481,09

42,864,094,33

53,362,600,87

33,891,989,28

3

RATIO 48.23 45.08 28.00 25.60 29.65

Liquid Assets to Total Deposits

48.2345.08

28.0025.60

29.65

-

10.00

20.00

30.00

40.00

50.00

60.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Liq

uid

Ass

ets

to T

ota

l D

epo

sits

Interpretation of the Liquid Assets / Total Deposits

Liquid assets as a percentage of total deposits measures of the liquidity

position of the bank to meet the amount of total deposits. As we see above that

liquidity situation of Raj Bank is quite good, they can cope up with the total

deposits which can be seen from the above chart and figures.

49

3) Liquid Assets / Total Assets:

Liquid Assets as measured as percentage of Total Assets.

Liquid Assets / Total Assets = Liquid Assets / Total Assets

Calculation of Liquid Assets / Total Assets of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007LIQUID ASSETS

1,019,276,048

1,180,022,630

802,030,048 860,865,7691,153,812,99

9

ASSETS 56,209,726 74,232,950 81,579,900 88,579,119 177,973,776

RATIO 18.13 15.90 9.83 9.72 6.48

Liquid Assets to Total Assets

18.13

15.90

9.83 9.72

6.48

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Liq

uid

Ass

ets

to T

ota

l A

sset

s

Interpretation of the Liquid Assets / Total Assets

Liquid assets as a percentage of total assets measures of the liquidity

position of the bank to meet the amount of total assets. We have seen above that

liquidity situation of Raj Bank is quite good; that’s why they are able to meet with

the total assets shown in the above chart.

50

4) G – Secs / Total Deposits:

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 Deposits = G – Secs / Total Deposits

Calculation of G – Secs / Total Deposits of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

G – SECS. 447,050,000 659,110,5001,081,788,00

01,325,595,50

01,172,980,50

0

DEPOSITS 56,209,726 74,232,950 81,579,900 88,579,119 177,973,776

RATIO 7.95 8.88 13.26 14.97 6.59

G-Secs to Total Assets

7.958.88

13.26

14.97

6.59

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

G-S

ecs

to T

ota

l A

sset

s

Interpretation of the G – Secs / Total Deposits

The risk free liquid assets invested by Raj Bank in G – Secs as a percentage

of assets held by the bank is increasing daily as the investment in the G – Secs

increases, this increase is 14.97 in 2005 – 2006 from that of 7.95 in 2002 – 2003.

The chart shows the increasing figures over the years which suddenly decrease

almost half i.e. to 6.59 in 2006 – 2007.

51

5) 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

Calculation of Approved Securities / Total Assets of Raj Bank

PARTICULARSAs on As on As on As on As on

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007APPROVED SECURITIES

17,500,000 15,000,000 - - -

ASSETS 56,209,726 74,232,950 81,579,900 88,579,119 177,973,776

RATIO 31.13 20.21 - - -

Approved Secs to Total Assets

31.13

20.21

- - --

5.00

10.00

15.00

20.00

25.00

30.00

35.00

31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007

Year

Val

ue

of

Ap

pro

ved

Sec

s to

To

tal

Ass

ets

Interpretation of the Approved Securities / Total Assets

Investment in approved securities as a percentage of total assets shows a

decreasing trend in the Raj Bank as they started to invest more on the government

securities which are becoming less risky securities now-a-days than that of

approved securities. The figure in 2002 – 2003 is 31.13 which gradually decrease

as shown in the figures stated above and reach to NIL for the past couple of year.

52

CONCLUSION & FINDINGS

More analysis is of no use unless some conclusion is derived from it. On the

basis of ratio analysis one can get an overall idea of the profitability position of the

firm. The following conclusion has been arrived at on the basis of ratio analysis of

the Raj Bank.

1. Capital Adequacy

Raj Bank has always maintained the healthy and stable margin of ratios in

this segment. Then also they are not increasing the debt components in their capital

structure. Although the bank is able to taps the market and went ahead with their

equity offering. This inherent strength of the bank is evident in their capital

structure.

2. Asset Quality

Raj Bank has continue to maintain the “Zero” level in Net NPAs to Net

Advances for last 15 years and it become the only bank having the lowest Gross

NPAs level across the nation, these shows that the asset quality of the bank is too

much sound.

3. Management

From the ratio it can be observed that the management of the Raj Bank

varies widely. Even though there is a decrease in their gross profit per employee

with the increase in the employee but than also there is great combined effort of

employee which has shown the effective and efficient management of Raj Bank

which can be noted from their dividend declaration of 15 % for last 15 years to

their equity shareholders.

53

4. Earning Quality

Raj Bank has increased their investment in total SLR and Non-SLR as per

RBI norms. This also shows that effective utilisation of investment is their, as their

investment is in risk free securities which help them to concentrate over their

lending.

5. Liquidity

Liquidity shows the ability of the firm to meet its current obligation when

they become due for payment. The liquidity position of Raj Bank is too strong to

meet their obligations. Raj Bank has efficiently maintained their liquidity position

for last few years.

Perhaps, more important is the innovative spirit of Raj Bank that turns

challenges into opportunities over the last 25 year of their performance. These

gives the competent and willingness to scale the new height in the years to come.

54

BIBLIOGRAPHY

The following books and magazines become very useful to me for acquiring

knowledge regarding various topics relating to the preparation of my project work

both comprehensive & precise.

Books:

Sr.

No.Name of the Book Publication

Name of the

Author

1. Banking Law & Practice King BooksDr. M.M.Varma

R.K.Agarwal

2. Finance Management King BooksDr. M.M.Varma

R.K.Agarwal

3. Cost Accounting & Financial

ManagementTaxmann’s Ravi M. Kishore

4. Research MethodologyWishwa

PrakashanC.R.Kothari

Web Site: www.Raj Bank.net

Magazines & Journals:

Analyst ( Issue November, 2004 )

The Chartered Accountant ( Issue February, 2005 Volume 53 No.8 )

Indian Journal of Accounting { Issue June, 2005 Volume XXXV (2) }

Annual Report of Raj Bank ( Last five year i.e. from Financial Year 2002-

2003 to 2006-2007)

55