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CHAPTER-V
PERFORMANCE ASSESSMENT OF SIDBI
This chapter is based on the secondary data collected from SIDBI and other
institutions. The analysis is done in two parts. Part A is devoted to evaluate the
functional performance and Part I! is devoted to focus on the financial performance. The
functional performance of SIDhI is evaluated by comparing it with the All India
Financial Institutions. The analysis covers a period of five years from 1997-98 to 2001-
02. The second objective of the study is served in this chapter. Based on this objective
two hypotheses are formulated. They are:
A. Among the Financial Institutions at the national level, SIDBI has a significant
share in industrial financing.
B. There is no difference in the financial performance of SIDBI and other
Development Banks (that 1s IDBI, IFCI, IIBI).
For testing the hypothesis A the following variables are analysed:
1. Assistance disbursed by Financial Institutions at the all India level and
SIDBI.
2. Statewise per c a ~ i t a assistance sanctioned by All India Financial
Institutions and SIIIBI.
3 . Statewise i~ssistance sanctioned by All India Financial Institutions And
SIDBI.
4. Productwise assist;mce sanctioned by All India Financial Institutions
and SIDBI
5. Industxywise assistance sanctioned, by All India Financial
Institutions and SlDBI
6 . Assistance sanctioned by AIFI and SIDBI to infrastructure sector.
7. Purposewise assistance sanctioned. by All India Financial Institutions
and SIDBI
8. Assistance sanctioned and disbursed by AIFIs and SIDBI.
For testing the hypothzsis B a total number of 1 1 ratios are used. The ratios
and their mode of computation art: given below.
Ratios Mode of con~putation
IiIterest Income 1. Interest Income to Total Income xl00
Total Income
2. Non - Interest Income to Tot~11 Inconre Non - Interest Income - x 100
Total Income
Interest Expenses 3 . Interest Expenditure lo Total Income xl00
Total Income
Non - Interest Expenses 4. Non - Interest Expenditurt to Totul Income x I00
Total Income
Interest Expenses 5 . Interest Expense lo Interest Income xl00
Interest Income
Interest Expenses 6. Interest Expense to Borrowings xl00
Borrowings
Interest Income 7. Interest Income to Credit x 100
Credit
9. Spread loworking Fund
10. Burden to Working Fund
11. Profit to Owned Fund
Borrowings x loo
Credit Spread
-xlOO Working Fund
Burden xl00
Working F I I ~ O
P a r t A
Functional Performance of SIDBI - An Evaluation
A well-integrated structure of financial institutions in India comprising
eleven institutions at the national level and 46 institutions at the state level. The national
level institutions known as All Ir dia Financial Institutions (AIFIs) comprise six All India
Development Banks (AIDBs), two Specialised Financial Institutions (SFIs) and three
Investment Institutions. Of the AIDBs, IDBI, IFCI, ICICI and IIBI provide financial
assistance to medium and lag: industries where as IDFC and SIDBI cater to the
financial needs of the infrastruct~re sector and small-scale sector respectively.
Among the (SFIs) specialised financial institutions, EXIM bank operations
comprise financing of projects, xoducts and services, exports, export competitiveness,
import financing, foreign trade !parantee programme, export and consultancy services.
NABARD acts as an apex developn~ent bank for promotion and development of
agriculture, small-scale industries, cottage and village industries, handicraft and other
rural craft and other allied econotnic activities in rural areas.
Among the invcstm~:nt institutions, IJC deuls in lili: insurance bnsincss,
while GIC along with its subsidiaries provide general insurance cover. LIC and GIC
deploy their funds in accordance with the government guidelines. UTI mobilises savings
of small investors through sale of units and chanalises them into corporate investments
maiIlly by way of secondruy capital market operations. Besides, the investment
institutions also extend assistance to ind~~stry through loans and by way of ~~nderwriting /
direct subscription to equities and debentures. Here those operations of the Investment
Institutions and NABARD, which deal with industrial financing and capital market
activities, are covered. SFIs inclutled three institutions viz IFCI Venture Capital Funds
LTD, ICICI Venture Funds Nanagement Company I,TD and Tourism Finance
Corporation of India LTD. Due to tiny nalure of their operations, these institutions have
been excluded from the category of SFIs. The AIDBs and SFIs and SFC and SIDCs are
grouped as All Financial Institutions (AFIs).
Assistance disbursed t ~ y All India Financial Institutions is depicted in Table
5.1. Of the total assistance disbursed by AIFIs in the last five years an average of 77.42
percent are disbursed by All India Development Banks, and 5.40 percent are disbursed
by Specialised Financial Institutions and 17.25 percent are by Investment Institutions.
Among the All India Developmelt B d s ICICI disburse maximum i.e. 35.89 percent.
IDBI rank second with 23.38 percent and SIDBI in the third position 9.54 percent. The
share of SIDBI in total disbursement by AIFIs during 1997-98 was 9.66 percent this
increased to 10.63 percent in 15'98-99. It dipped to 8.42 percent in 2000-01. But it
slightly increased in 2001-02. Ho~vever the average share of SIDBI in total disbursement
by AIFIs is only 9.54 percent. Th: assistance disbursed by AIFIs is graphically depicted
in Figure 5.1.
Table 5.1 Assistance Disbursed by all India Financial Institutions from 1997-98 to 2001-02
- 200 1-02
Institution 1997-98 1998-99 1999-00 2000-0 1 %Sha Ave-
S1'No' Devel %Share %Share ,, Rs. %Sh rage% Rs. %Sha Rs. Rs. (crores) are
OPment (crores) 0:rores) re (crores) (crores)
15368.80 28.34 1'1473.40 24.47 17062.80 23.78 17473.5022.84 1 1 157.90 17.46 23.38
IFCI 5615.00 10.35 4838.60 8.18 3360.60 4.68 2164.70 2.83 1093.80 1.71 5.55
Source: IDBI Report on Development Banking.
Figure 5.1
Financial Assistance Disbursed by all India Financial Institutions
Percentage
UTI GIC 6%
LIC
NABARD A EXlM BANK
3% 7
Share of SIDBI in Per Capita Assistance Sanctioned by All Financial institutions
The percentage share of SIDBI in per capita assistance sanctioned by all
financial institutions is depicted in Table 5.2.
Table 5.2
Share of SIDBI in Statewise Per Capita Assistance Sanctioned by
All Financial Institutions (% share) from 1996-97 to 200-01
I~ondichery 1 14.15 1 11.71 1 9.77 1 2.55 / 2.35 1 6.30 l ~ l l India I 9.19 1 7.62 1 6.03 1 4.97 1 3.52 1 5.94
Source : IDBI Report on Developr3ent Banking Note: Data for 2001 - 02 not available
It is clear from the table that SIDBl has highest percentage share in per capita
assistance in Tripura (47.23 perce.it), and lowest share in Maharashtra (3.26 percent). In
Union temtories the highest share goes to Chandigarh and the lowest share to Andaman
and Nichobar islands. In Kerala the share of SIDBI was 28.31 percent in 1996-97. This
comes down to 5.02 percent in 2000-01. The average share of SIDBI was found to be
19.45 percent. The share of SIIIBI in all India per capita assistance was only 5.94
percent.
Statewise Assistance Sanctioned by AIFIs and SIDBI
The share of SIDBI ill the assistance sanctioned by AIFIs is shown in Table
5.3. Among the big states Bihar claimed the highest share in sanctions (41.37 percent)
followed by kerala (38 percent) a d the lowest sl~nrc is to Andhra pradesh (5.49 percent)
in average share of assistance b : ~ SIDBI during the last five years. In other states the
maximum share goes to Nagalani (75.03 percent) followed by Manipur (74.64 percent)
and Tripura (49.01 percent). Among the Union Territories Chandigarh claimed the
highest share in SIDBI sanction (58.40 percent) and Andaman and Nichobar has the
lowest share (1.22 percent). The percentage share of SIDBI in total state wise assistance
sanctioned by AlFIs is depicted i l l Fable 5.3.
Table 5.3
Share of SIDBI in total assistance of AIFIs (% share) from 1997-98 to 2001-02
Schemewise Assistance Sanction1:d by SIDBI and All India Financial Institutions
Schemewise assistance sanctioned by AlFls and SIDBI is shown in Table 5.4
Table 5.4 Schemewise assistance sanctior ed by AIFIs and SIDBI ("A share) from 1997-98 to
2001-02
P b i . 7 8 . Refinance / 84.21 i 83.23 i 82.57 / 76.06 i 80.49
. Bill finance
Project finance
1. Rupee Loans 2.10
2. Foreign Currency Loans 0.10 0.04
B.Non project finance
1. Bill rediscounting 34.60 50.78 30.21 32.34 v~;::: 1 40.42 / 28.07 1 36.31 / 71.00 I 32.72
. Direct discounting 43.80
b. Loans to and investments i - $ - m F l
35.52
0.67
1 Asset credivequipment
finance
2. Working capitallshort tenn
loans
The average share 0:' SIDBI in rupee loan is only 2.10 percent of AIFls rupee
51.57
2.83
37.60
0 12 4.10
y 1 ;,;:;;
loan and average share in foreig,n currency loan is only 0.04 percent. However the share
39.59
0.73
bonds of Fis
of SIDBI in total project finance i s only 2.14 percent. In working capital linancc the
share of SIDBI is negligible. ' t is only 0.67 percent. Hut in refinance the SIDBI has
Source: IDBI report on Develop~nent Banking.
0.00
17.35
considerable share (80.49 percttnt). In bill finance the share of SlDBI is 43.58 percent.
6.38
16.44
10.15
15.89
17.06
20.81
14.02
17.53
The schemewise analysis reveals that SIDBI has a major share in refinance in all the
years.
Share of SIDBI in Industrywise Assistance Sanctioned by AIFIs
The share of SIDBI in industrywise assistance sanctioned by AIFls is
depicted in Table 5.5.
Table 5.5
Of the total assistance by AIFls the maximum share is provideti to Ceramics
and refractory industry and the share is minimum to the Fertilisers industry Out of the
AIFIs assistance to the Ceramics anti refractory industry 85.63 percent are provided by
SIDBI. Assistance to automobile ruicillaries and leather products industries occupies
second and third place respectively in SIDBI assistance.
Assistance by AIFIs and SIDBI to Infrastructure Sector
Table 5.6
Cumulative assistance sanctioned by AIFIs to the
Infrastructure sector up to 31-3-2002
Source: IDBI Report on Developmeni Banking.
Cumulative assistance by AIFls to various infrastructure sectors is shown in
Table 5.6. Infrastructure sector comprise electricity generation, telecommunication,
road/portshridges/Railways/and urban infrastructure. Of the total finance provided to the
Electricity generation major porticn is provided by IDBI and ICICI their shares are 36.20
percent and 36.07 percent respecti.~ely. The share of SIDBI is only 4.84 percent.
In the case of Telecommunication also major portion of the finance is
provided by ICICI and IDBI i.e. 49.62 percent and 27.44 percent. The share of SIDBI in
this case is also negligible i.e.0 .O1 percent only.
More than 50 percent of the finance to the Road/Port/BridgelRailways is
provided by IClCI alone. For this sector SIDBI is not providing any assistance.
For urban infrastructure and others also more than 50 percent of the
assistance is provided by ICICI. For this sector the share of SIDBI assistance is only
6.44 percent.
From the above it can be observed that in Infrastructure financing more than
50 percent are provided by IDbI and ICICI. EXIM bank has the lowest share in
financing infrastructure scctor i.e. .001 1 pcrccnt. SlD131 has only 3.53 pcrccnt sharc in
financing the infrastructure sector.
Share of SIDBI in Purposewise P.ssistance Sanctioned by AlFls
The share of SIDBI in purposewise assistance sanctioned by AIFls is shown
in Table 5.7.
Table 5.7
Out of the total assistance provided by the AIFls for modemisation /
Share of SIDBI in Purposewise Assistance
Sanctioned by AIFIs from 1997-98 to 2001-02 (% Share)
balancing equipment an average cf 9.77 percent are provided by SIDBI. For new units
SI.No
,
and expansion /diversification thc share of SIDBI is 9.71 percent and %37 percent
respectively. For rehabilitation thc: share of SJDRI is onIyT.64 percent. The average
Source: IDBI Report on Developrent Banking.
Purpose
New
Expansion/Diversific
tionlacquisition
Modemisation/balanc
ing equipment
Rehabilitation
Working capital
Others
share of SIDBI in total purpose wis,: assistance of AII'Is is only 5.45 percent
Total
Sanction and Disbursemer~t by AlFIs and SIDBI
The growth in sanction and disbursement of AIFIs and SIDBI is depicted in
- 8.14 6.37 5.30 3.70 4.75 5.45
Table 5.8
Sanction and Disbursement by AIFIs and SIDBI from 1990-91 to 2001-02
AIFIs SIDBI
From the table it can be seen that the sanction of AII~ls shows an average
growth rate of 17.35 percent. The cisbursement also snows the same trend. Compared to
AIFIs the average growth rate it1 stnction and disbursement of SIDBI is less i.e. 13.65
percent and 12.18 percent respectively. Percentage of disbursement to sanction varies
between 65 percent to 75 percent in the case of AlFls. In the case of SlDB1 also i t vary
between 65 percent to 75 percer~t. However the cr~mulative disbursement to sanction of
AIFIs is 70.98 percent. But in the: case of SlDBI i t is only 69.51 percent.
For evaluating the ol~erational performance of SIDBI a total number of nine
variables are analysed. The first one is institutionwise assistance disbursed by All India
Financial Institutions. It is found that the share of SIDBI in financial assistance disbursed
by AIFI is only 9.54 percent. The share of SIDBI in per capita assistance sanctioned by
AFI is only 5.94 percent.
The state wise percentage share of SIDBI in total assistance by AIFI reveals
that in more than 50 percent of the states the share of SIDBI finance is less than 20
percent. Schemewise assistance: sanctioned by SIDBI and AIFI reveals that only in
refinance and bill finance SIDIlI has significant share that is 80.49 percent and 76.52
percent respectively. In rupee loan, foreign currency loan and working capital loan the
share of SIDBI is very low.
Out of the total assistance provided by AIFl to various industries in more
than 80 percent of the industries the share of SIDBI assistance is less than 25 percent.
Only in three industries the shar~: of SIDBI assistance is more than 50 percent.
The share of SIDBI in infrastructure finance is very low. Of the total assistance by AIFI
share of SIDBI is less than 8 pcrcent. In sectorwise assistance SIDBI has more than 10
percent shares only to the co-op:rative sector. Shnrc of SlDBl in purpose wisc assistance
shows that maximum share is for modernisation.
From the above analysis it can be concluded that SIDBI has no significant
share among the AIFIs to finance the small-scale industries. So the first hwothesis
stating that SIDBI has sienificant share amone the AIFIs in financing the industw can be
reiected.
Part B
Financial Performance Analysis of Selected Development Banks
The general health of a firm is very much reflected in the quantum of its
earnings. This is true in the caw of development banks also. The development banks
have to take up great social respc~nsibilities. To fulfill this and function as economically
viable units, a sufficient return can capital is necessary. After analysing the operational
performance of the SIDBI the profitability is analysed in this part. Financial performance
of SIDBI is analysed by corrparing with four selected development banks. By
considering the availability of data only four development banks are selected for
comparison. Profit is the motivating force behind every organisational activity and in
view of its importance, it is being used to measure the operational efficiency.
Profit and Profitability
The term profit is defined in various ways. From the accounting view it refers
to the excess of income over expenses for a given period. According to Howard and
upton' profitability is the ability of a given investment to earn a return from its use. In
the opinion of Khan and Jain profitability refers to a situation where output exceed
input i.e. the value created by the use of resources is more than the total of the input
resdurces. The goal of an enterprise should not be the maximization of profit but the
maximization of profitability. Profitability is a relative concept to measure it, profit is to
be related to some variables at:ecti~~g the prolit or relating to prolit in some fol-m or
other. In this study profit and otker related varlsbies are divided by working tilnd to have
the relativity and comparability.
Spread
Spread is the difrerencc between the interust incornc anti intcres! cxpensc.
Burden
The difference between non-interest c.spcnse and non-inlurcs~ incoinc is
known as burden.
Net Profit
Net profit is the profit given in the ~>rolit and loss :rccoun\ aiier charging all
expenses and providing reserves for overdue.
The components of spread and burden arc related to total incomc to know the
proportion of each in relation to tcttal income.
Components of Spread and Burden
The components of spread and burden are analysed here. As per the working
definition the components of spr-ad are interest income and interest expense and the
components of burden are no 1-interest income and non-interest expense. Each
component is compared to total i~:comc to asccrlain the proporlion of each in relation 10
total income.
Interest Income to Total Income Ratio
Interest income is the major share of the toial incon~e o f dcvriop~urnt bartiis.
Any.change in the rate of interest will hn\:c a wide impact oli thc incomc. and profit
position of these institutions.
The actual ratio obtained is presented in Table 5.9. In the case of IDBI, IFCI,
and IIBI, the ratio is 81.92 per cent, 81.31 percent and 75.49 percent respectively. The
SIDBI have this ratio as 90.88 per$:ent. But this does not mean that they are efficient in
the collection of ixit-t income. This only gives an idea about the portion of interest
income in the total income. This r;itio in general, showed a decreasing trend from 88.62
percent in 1997-98 to 75.47 percent in 2001-02. The variation in the ratio is high in the
case of IIBI.
Table 5.9
Interest Income to Total Income Ratio of Selected Development Banks
from 1997-98 to 2001-02
Source: Compiled and computed from the IDBI Report on Development Banking of
Various years.
Non Interest Ineome to Total Income
The non-interest incc~me to total income ratio explains the above situation
more clearly. This ratio shows the proportion of non-interest income in the total income
of the development banks.
From Table 5.10 it ir found that the portion of non-interest income is high in
the case of IIBI (21.11 percent). The percentage of non- interest income for IDBI and
IFCI are 17.70 percent and 18.3:3 percent respectively. It is found that the IDBI and IFCI
and IIBI have more non-interest incomes. SIDBI has a low ratio compared to other
institutions. The ratio shows an increasing trend during the period. The variation in the
ratio is high in the case of IIBI.
Table 5.10
Non-Interest Income to Total Income Ratio of Selected Development Banks
from 1997-98 to 2001-02
Source: Compiled and computed from the IDBI Report on Development Banking of
Various years.
Interest Expense to Total Incoma
The substantial portion of the expenditure of the development banks is in the
form of interest expense for the finds borrowed. Table 5.1 1 shows the portion of total
income to be paid as the interest expense for the selected development banks. The
interest expenditure is high in the case of IFCI (86.82 percent). The ratios of other banks
are IDBI (79.18 percent) IlBI (74.02 percent). When compared to the other institutions,
the ratio of SIDBI (66.39 perctmt) is low. There is no specific trend of increase or
decrease in the ratio during the r'sference period. The variation in the ratio is high in the
case of IFCI.
Table 5.11
Interest Expenditure to Total Income ratio of selected Development Banks
from 1997-98 to 2001-02
Source: Compiled and computed from the IDBI Report on Development Banking of
Various years.
Pion Interest Expense to Total Income Ratio
The non-interest expense is another major item of expenditure of these
development banks. A proper control on this will help these institutions to maintain a
reasonable return. Normally, this ratio will come down when the volume of business
increases.
The actual ratio obtained for the selected development banks is shown in
Table 5.12. This ratio is high in tlie case of IFCI (17.87 percent). In the case of IDBI,
IIBI and SIDBI the ratios are 6.20 percent 9.15 percent and 6.31 percent respectively.
IDBI has attained a better posii.ion compared to other institutions. There is no specific
trend of increase or decrease in the ratio during the reference period. This ratio shows an
inter year variation among the banks as is evident from coefficient of variation which
ranges from 9.28 percent to 53.30 percent.
Table 5.12
Non-Interest Expense to Total Income Ratio of
Selected Development Banks from 1997-98 to 2001-02
Year
1997-98
1998-99
1999-00
2000-01
2001-02
Average
C.V.
Source: Compiled and computed from the IDBI Report on Development Banking of
Various years.
Interest Expense to Interest Income Ratio
The effective management of inflow and outflow of funds is one of the most
important factors for the bank's survival. The interest expense to interest income ratio
shows the percentage of interest income which is utilised for interest payment. A
reasonable margin between the lending rate and receiving rate is essential for the survival
of these institutions. The bank c.mnot have any discretion in the interest rates, but they
can decide on which schemes they can lend and with what amounts so that they can plan
their returns. A lower ratio is more advantageous to ihe banks.
The actual ratio obtained for the selected development banks is presented in
Table 5.13. The ratio of SIDBI s 73.05 percent. In the case of IDBI, IFCI, and IIBI, the
ratios obtained are 96.65 percent, 105.55 percent and 98.05 percent respectively.
Comparatively the SIDBI has a better ratio. The variation in the ratio is high in the case
Table 5.13
Interest Expense to Intercst Income ratio of selected Development Banks
from 1997-98 to 2001-02
Source: Compiled and Computed from the IDBI Report on Development Banking of
Various years.
Interest Expenses to Borrowings Ratio
The interest expenditure is related to borrowings to know the cost of the
borrowed funds. The interest expense for the borrowed funds is the major item of
expenditure of the banks. This ratio shows the interest cost of borrowings. Table 5.14
presents the Interest Expense to Borrowings ratio of selected development banks. The
ratio for IDBI, IFCI, 1131 and SlDUI are 11.83 percent, 12 percent, 11.94 percent, and
10.33 percent respectively. The cost is high in the case of all banks. This ratio is high in
the case of IFCI (12 percent). This is minimum in the case of SIDBI (10.33 percent). The
variation in the ratio is high in the cise of IIBI.
Table 5.14
Interest Expense to Borrowings ratio of selected Development Banks
hrn 1997-98 to 2001-02
Year
1997-98
1998-99
1999-00
2000-01
2001 -02
Average
C.V.
Source: Compiled and Computed from the IDBI Report on Development Banking of
Various years.
Interest Income to Credit Ratio
The interest received from the beneficiaries of the bank is the return on the
loan given by the banks. The ratc: of return is different for different schemes and for
different amounts of loans. The bank can lend in different schemes to some extent and
assure a reasonable return for their activities.
The interest received to credit ratio is shown in Table 5.15. The ratio of
IDBI, IFCI, IIBI and SIDBI are 12.78 percent 13.54 percent and 13.86 percent 12.41
percent respectively. The ratio of all the banks are better. A higher ratio indicates the
eficiency of the banks. Compared to other banks the variation in the ratio is low in the
case of SIDBI.
Table 5.15
Interest Income to Credit Ratio of Selected Development Banks
from 1997-98 to 2001-02
I I I I
C.V. 7.37 9.05 7.58 4.19 3.58
Source: Compiled and Computed from the IDBI Report on Development Banking of
Various years.
Credit to Borrowings Ratio
This ratio shows the epficiency of the banks in converting the borrowings to
lending. The development banks are not subject to the normal banking regulations
regarding maintenance of reserves, liquidity ratios etc. They can lend to the maximum
h d available with them without keeping reserves. So these banks can lend the entire
amount of borrowings and the balance portion of the owned fund.
Credit to borrowings ratio of the selected development banks is presented in
Table 5.16. The ratio for. IDBI and IFCI are 95.90 percent and 84.08 percent
respectively. In the case of IIBI and SIDBI they are 87.80 percent and 113.93 percent
respectively. During the study period this ratio shows a declining trend from 101.20
percent to 87.45 percent. SIDBI performs better than others. In the case of other
institutions the ratio is lower than SIDBI. The variation of the ratio is high in the case of
IIBI.
Table 5.16
Credit to Borrowings Ratio of Selected Development Banks
fi.om 1997-98 to 2001-02
The relation of spread, burden to working fund and net profit to owned fund
Year
1997-98
1998-99
1999-00
2000-01
2001-02
Average
C.V.
is analysed here.
Name
IDBI
105.83
93.05
91.38
95.96
93.92
95.90
5.96
Spread Analysis
Source: Compiled and Computed 60m the IDBI Report on Development Banking of
Various years.
Spread, Burden and Profit
The spread analysis examines the change in the difference between gross
interest received on earning assets and gross interest paid on interest costing liabilities.
The difference is called net interest spread. Non-financial business has used spread and
margin concepts for centuries. When a merchant purchases goods, he adds to the cost of
sales an amount to cover expenses and to earn a reasonable profit and the difference
between the cost of goods and selling price is called spread or margin. Banks act in
similar manner but they deal in %pee and not in goods. The development banks acquire
b d s mainly by borrowings, in turn they promise to pay interest. These banks acquire
assets such as loans and investments for which they receive interests. The difference
between what the banks pay for fund and what they get for fund is spread.
Burden Analysis
The burden analysis examines the impact of non-interest income and non-
interest expenditure. The net result of spread and burden is termed as the gross profit. It
is also related to the working fund to compare profitability of the different selected
development banks.
Net profit is the real accounting profit after providing all expenses and
reserves for overdue. This is the amount available to shareholders. To find out whether a
reasonable return obtains on the capital, it is essential to relate the net profit to the owned
fund.
Spread to Working Fund Ratio
As stated earlier spread is the difference between interest income and interest
expenditure. It is the margin available to the banks in interest transactions. The higher the
margin, the safer the positions of the banks. A final conclusion can be taken only after
considering the burden ratio also.
Table 5.17 presents the spread to working fund ratio. The highest ratio is
obtained by SIDBI (2.35 percem) followed by IDBI (0.30 percent) and IIBI (0.23
percent). The ratio of IFCI is negative (-0.48 percent) In comparison with the other
institutions the SIDBI has a better ratio. This is due to more investment outside as in
securities or other banks rather than loans to industries. The interest received from this is
included in non-interest income. So a judgment canpot be taken about the profitability or
efficiency without considering the other ratios also. The ratio in general, shows a
decreasing trend from 2.31 percent in 1997-98 to -0.46 percent in 2001-02. The variation
in the ratio is high in the case of IISI and it is less in the case of SIDBI.
Table 5.17
Spread to Working Fund Ratio of Selected Development Banks
from 1997-98 to 2001-02
I year 1 Name of the development banks 1 Average 1
Average 0.23 2.35 0.97
827.78 16.46 113.38 Source: Compiled and Computed from the IDBI Report on Development Banking of
II'CI m.95 1997-98
1998-99 4'. 18
1999-00 -0.20 41.66
2000-01 -0.56 -0.57
Various years.
Burden to Working Fund Ratio
Burden is the net difference between non-Interest income and non-Interest
expenditure. The banks should earn sufficient non-interest income to meet the non-
IIBI
2.85
1.26
-0.40
-0.26
interest expenditure (cost of management). Then only they can maintain a reasonable
level of profitability. But in the case of all the banks except IFCI the non-interest income
is more than non-interest expendiiure. The burden to working fund ratio is presented in
Table 5.18. The IIBI shows a better position (1.11 percent) followed by IDBI 0.50
SIDBI
2.42
2.50
2.66
2.61
2.3 1 - 1.56
0.69
0.59
percent) SIDBI (0.02 percent) and IFCI (-0.79 percent). The variation in the ratio is high
in the case of SIDBI.
Table 5.18
Burden to Working Fund Ratio of Selected Development Banks
developrnrnt banks Average
IFCI I I SIDBI I
various years.
Net Profit to Owned Fund Ratic~
1997-98
1998-99
1999-00
2000-01
2001-02
Average
C.V.
Net profit is the profit available to the owners after providing all expenses
0.21
0.37
0.49
1.10
0.79
0.50
59.83
and reserves for over dues. This ratio is a real indicator of the profitability of the bank. It
Source: Compiled and Computeil from the IDBI Report on Development Banking of
indicates the ultimate result of the: activities of the bank in monetary terms
The net profit to owned fund ratio of the selected banks is presented in Table
5.19. The best result is given by SIDBI (1 1.81 percent) followed by IIBI (1 1.37 percent)
and IDBI (11.16 percent). The ratio for IFCI is - 4.95 percent. The IFCI is running in
loss. This ratio showed a decreasing trend from 20.65 percent in 1997-98 to 7.60 percent
in 2001-02. This indicates the general declining of profitability of these institutions.
Regarding the individual banks [DBI, IIBI, and SIDBI are running in profit throughout
the period of study. The IFCI showed loss only in the last two years. But the loss is
doubled during the last year. Variation in the ratio is-low in the case of SIDBI.
Table 5.19
Net Profit to Owned Fund ratio of selected Development Banks
Year
Various years.
1997-98
1998-99
1999-00
2000-01
2001-02
Average
C.V.
The interest expense is the major item of expenditure of the development
Name of the development banks
IDBI
21.59
14.51
11.14
8.01
6.20
11.16
49.52
banks. A proper control on this ill help these institutions to maintain a reasonable
Average
Source: Compiled and Computed from the IDBI Report on Development Banking of
return. The interest expense to tota.1 income ratio of SIDBI is lower than the IDBI, IFCI
and IIBI.
The non-interest expense to total income ratio of SIDBI is lower than IFCI
and IIBI but higher than IDBI. The ratio will come down when volume of business
increases. SIDBI has a high spread to working fund ratio. It is the margin available to the
banks in interest transaction. The burden to working fund ratio of SIDBI is 0.02, but it is
lower than IDBI and IIBI.
The net profit to owned fund ratio of SIDBI is higher than IDBI, IFCI and
IIBI. Interest expense to borrowillgs ratio is low in the case of SIDBI. It shows that the
cost of borrowed fimd of SIDBI i:r lower than other institutions. Interest income to credit
ratio is low in the case of SIDBI.
Interest expense to interest income ratio is low in the case of SIDBI. A lower
ratio is preferred for the developnlent banks. The credit to borrowings ratio of SIDBI is
higher than that of the other Institutions. It shows that SIDBI is successful in converting
the borrowings to lending.
The above analysis reveals that majority of the ratios of the SIDBI shows
better financial performance that other selected development banks. So the second
hwothesis stating that there is no significant difference in the financial ~erformance of
IDBI. IFCI. WI and SIDBI can be reiected. SIDBI has a better financial performance
than other selected development banks.
The role of SIDBI is imalysed on the basis of the perception of the small-
scale units linanced by SIDBI. Therefore it is necessary to study the form and structure
of units and the socio economic profile of the entrepreneurs. So the form and structure of
the sampled small-scale units and socio economic profile of the entrepreneurs of the
units are discussed in the following chapter.
Notes
1. Howard Bion Band Upton l'vliller, Introduction to Business Finance, Mc.Graw Hill
Book Co, Newelhi, 1953, P. 147.
2. Khan M.V and Jain. P.K, Financial Management, The Mc.Graw Hill Publishing
Co.Ltd, NewDelhi, 1980, P.123.