project - viva on financial analysis of indian bank
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A STUDY ON THE FINANCIAL
STATEMENT ANALYSIS OF
INDIAN BANK
ByN.Santhoshni
B.Com(General)
III Year
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INTRODUCTION
Balance sheet is a statement of the financial position of anenterprise at a particular point of time. Profit and loss account showsthe net profit or net loss of a company for a specified period of time.
When these statements of the last few year of any organization arestudied and analyzed, significant conclusions may be arrived
regarding the changes in the financial position, the importantpolicies followed and trends in profit and loss etc.
Analysis and interpretation of the financial statement has nowbecome an important technique of credit appraisal. The investors,financial experts, management executives and the bankers allanalyze these statements.
Analysis of financial statement is necessary because it help indepicting the financial position on the basis of past and currentrecords. Analysis of financial statement helps in making the futuredecision and strategies.
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FINANCIAL STATEMENT
ANALYSIS After preparation of the financial
statements (Balance Sheet andTrading and Profit and Loss Account),one may be interested in analyzing thefinancial statements with the help ofdifferent tools such as comparative
statement, common size statement,ratio analysis, trend analysis, etc. Inthis process a meaningful relationshipis established between two or moreaccounting figures for comparison.
Object ives:
To explain the meaning, need andpurpose of financial statement
analysis; To identify the parties interested in
analysis of financial statements;
To explain the various techniques andtools of analysis of financialstatements.
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The analysis and interpretation of financial statements is very
essential to measure the efficiency, profitability, financial soundness
and future prospects of the business units. Financial analysis serves
the following purposes:
Measuring the profitability
Indicating the trend of achievement
Assessing the growth potential of the business
Comparative position in relation to other firmsAssess overall financial strength
Assess solvency of the firm
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INDUSTRY PROFILE-BANKING
SECTOR The word bank was borrowed in
Middle English from Middle Frenchbanque, from Old Italian banca, fromOld High German banc, bank "bench,counter". Benches were used as desksor exchange counters during the
Renaissance by Florentine bankers,who used to make their transactionsatop desks covered by greentablecloths.
Another possible origin of the word isfrom the Sanskrit words () 'byaya'(expense) and 'onka' (calculation) =byaya-onka. This word still survives in
Bangla, which is one of Sanskrit's childlanguages. + = . Suchexpense calculations were the biggest
part of mathematical treatises writtenby Indian mathematicians as early as500 B.C.
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STRUCTURE OF INDIAN
BANKING INDUSTRY
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INDIAN BANK
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INTRODUCTION
INDIAN BANKis an Indian state-owned financial services companyheadquartered in Chennai, India. It has 22,000 employees, 2033branches and is one of the big public sector banks of India. It hasoverseas branches in Colombo, Jaffna, Sri Lanka, Singapore, and229 correspondent banks in 69 countries. Since 1969 the
Government of India has owned the bank, which celebrated itscentenary in 2007. It is the only Indian Bank other than State Bankof India to feature in the List of Fortune 500 Companies in the World.
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COMPANY PROFILEINDIAN BANK
Type Public Company
Traded As BSE:523465
NSE:INDIANB
Industry Banking and Financial services
Founded 1907
Headquarters Chennai, Tamil Nadu, India
Key people T.M.Bhasin(Chairman & MD)
Revenue IncreaseINR211,988 crore(US$42.29 billion) (2011)
Net income IncreaseINR12,745 crore(US$2.54 billion) (2011)
Total assets IncreaseINR121,841 crore(US$223.81 billion) (2011)
Employees 19,632
Website www.indianbank.in
Tagline/Slogan Your tech friendly bank
USP High end banking technology support
Target group International banking
Positioning Complete banking solutions
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NEED FOR THE STUDY
The analysis of financial statements of Indian Bank is an attempt toassess the efficiency and performance of the company.
To assess the efficiency and performance of the company it isnecessary
To know earnings capacity of the company i.e., the profitability of
the company. To have a view of the companys efficiency.
To know the comparative position in relation to previous year.
To have an idea about financial strength of the company.
To know the solvency of the company.
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OBJECTIVES OF THE STUDY
The main objectives of this study are the following:-
To study about INDIAN BANK and its related aspects like its
products & services, history, organizational structure, subsidiary
companies etc.
To analyse the financial statement i.e Profit & Loss account andBalance sheet of INDIAN BANK.
To learn about Profit & Loss Account, Balance-sheet and
different type of Assets& Liabilities.
To portray the financial position of INDIAN BANK with the help of
balance sheet and profit and loss account. To evaluate the financial soundness, stability and liquidity of
INDIAN BANK.
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RESEARCH METHODOLOGY
Research methodology is a way tosystematically solve the researchproblems. It is necessary to knownot only the research methods/techniques but also themethodology. Research
methodology is a scientific studyof various steps that are adoptedin research problem.
Descriptive research is used toobtain information concerning thecurrent status of the phenomena
to describe what exists withrespect to variables or conditionsin a situation. In this study, I usedsecondary data i.e., AnnualReport.
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L IMITATIONS OF THE STUDY
Financial statement analysis tools have some inherent limitations of
financial statements. This study has also suffered from those limitations.
The nature of financial statements is historical. Here, analysis and
interpretation are made on those historical data, which tells only about the
past performance and the financial weakness of the bank.
Change in accounting procedure by a firm often makes ratio analysismisleading.
The analysis and interpretation are based on secondary data contained in
the published annual reports of Indian Bank for the study period.
The study of financial performance can be only a means to know about the
financial condition of the company and cannot show a through picture of the
activities of the company.
Further, the conclusions drawn from the study are applicable only to the
Indian Bank and not for other banks.
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ANALYSIS AND
INTERPRETATION
TOOLS USED:
Comparative Statement
Trend Analysis
Cash Flow Statement
Ratio Analysis
Using these tools analysis and
interpretation has made in the
financial statements of Indian
Bank for five years
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COMPARATIVE FINANCIAL
STATEMENTComparative Balance Sheet:
Deposits and Advances are the mainliability and asset of a bankingcompany. Every banking companylikes to increase the both items. Forthe past five years i.e., 2008-2012there is no change in the share capital.
Deposits are increasing at adecreasing rate. During 2008-2009 itincreases by 18.90% and in 2009-2010 it increases by 21.56% butthereafter it increases by 19.92% in2010-2011 and 14.18% in 2011-2012.This represents deposits are repaidduring those years.
During 2008-2009 borrowingsdecreases by 58.64%. It meansborrowings are repaid. And thereafterare increases at increasing rate.
Comparative Income Statement:
For banking company the majorincome and expenditure are interestincome and interest expenses. Theinterest incomes are increases by32.61% in 2008-2009, 19.14% in2010-2011 and 30.66% during 2011-2012.
The interest expenses are alsoincreases by 7.85% in 2009-2010 and46.73% during 2011-2012. This is dueto increases in borrowings.
The net profits for the year are
increases at a decreasing rate. This isbecause of the increases in expensesthan increases in income.
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TREND ANALYSIS
Balance Sheet:
Deposits increases to Rs.1,20,803.80crores in 2012 from Rs.1,05,804.18crores in 2011. In 2008, it was onlyRs.61,045.95 crores.
Borrowings decreases in 2009 andthereafter increases at increasing rate.
Advances and Investments are alsoincreased, in the last five years.
Fixed assets increase as well asdecreases in the last five years. This isdue to change in depreciation ratesand revaluation of assets.
Finally in 2012, the capital WIPdecreases at a greater amount. It isalso a good sign for efficient workmanagement.
Income Statement:
Interest income as well as otherincome increases in the last five years.
Interest Expenses increased fromRs.3159.08 crores in 2008 to
Rs.7813.32 crores in 2012. The Net profit increased to Rs.1755.27
crores in 2012 compared to theprevious years profit.
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CASH FLOW STATEMENT
A cash flow statement is astatement showing inflows(receipts) and outflows (payments)of cash during a particular period.In other words, it is a summary ofsources and applications of eachduring a particular span of time.
It is revealed that the cash flowfrom operating activities is innegative in 2011 and 2012.
This is due to increase in InterestExpenses and Extra ordinary lossof Rs.8.30 crores in 2012.
The cash flows of the bank are ina good condition. In 2012 the cashflow from financing activitiesincreased at high level. It is agood sign.
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RATIO ANALYSIS
CAMEL Model:
The CAMEL approach was developedby bank regulators in the United Statesas a means of measurement of thefinancial condition of a financialinstitution. (Uniform FinancialInstitutions Rating System establishedby the Federal Financial InstitutionsExamination Council). RBI too analysisthe banks performance throughCAMEL methodology.
The acronym CAMEL stands for:
Capital Adequacy
Asset Quality Management Efficiency
Earning's (Profitability) Efficiency
Liquidity & Funding
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CAPITAL ADEQUACY RATIOS
The Capital of a Bank protects
the Bank against unexpected
future losses. Capital
adequacy reflects the overall
financial position of a bank and
also the ability of the
management to meet the need
for additional capital
requirement.
Capital Adequacy Ratio
Debt Equity Ratio
Advances to Asset Ratio
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ASSET QUALITY RATIOS
The asset quality is toascertain the proportion ofnon-performing assets as a
percentage of the total assets.It also ascertains the Non
performing asset movementand the amount locked up ininvestments as a percentageof the total assets.
Net Non Performing Assetsto Total Assets
Net Non Performing AssetsTo Net Advances
Percentage change in NetNon Performing Assets
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MANAGEMENT EFFICIENCY
RATIOS It refers to the efficiency of the
Management in managing the
bank, in all the ratios higher
the better.
Total Advances to Total
Deposits
Profit per Employee
Return on Net Worth
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EARNINGS EFFICIENCY RATIOS
A Bank with no profit is likea human body with noblood. Much of a bank'sincome is earned throughnon-core activities likeinvestments, treasuryoperations, and corporateadvisory services and so on. Percentage Growth in Net
Profit Net Interest Margin Non-interest
Income/Working Funds
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L IQUIDITY RATIOS
Inadequate Liquidity of a Bank may
cause an accident similar to an
airplane crash. Liquidity is the ability
of the bank to meet its financial
obligations.
A high liquidity ratio indicates a bank's
comfort level vis--vis its ability tomanage its obligations, both short-
term as well as long-term.
Liquidity of a bank can be measured
using metrics such as Liquid Assets
(LA) to Demand Deposits (DD) and LA
to Total Assets (TA). Liquid Assets/Demand Deposits
Liquid Assets/Total Assets
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FINDINGS
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FINDINGS
Comparative Statement: There are five types of liabilities in a
bank. Among that, the most importantliabilities are Deposits and Borrowings.The growth rate of deposits portfolio isdecreasing. During 2008-09, it hasincreased by 18.90%, and in 2009-10it increased by 21.56% but in 2011-12it increased by only 14.18%. Here thegrowth should be compared to overallbanking sector. (This is because thedeposits are repaid and increase innew customers are low.)
The most important and major assetsfor a bank, are advances andinvestments. It is observed that theadvances are increased at a marginallevel. Investments are increasedsignificantly. But in 2011-12 itincreases by 9.18% only. Herecompare the growth rate with overallIndustrial Production.
Trend Analys is: The deposits are increased marginally.
But the borrowings are increasedtremendously.
Both Advances and investments areincreased marginally.
The interest earned are increased
marginally. But the interest expensesare increased at tremendously. So, thenet profit increases slowly.
Cash Flow Statement:
Cash flow statement shows the inflowand outflow of a cash for a particular
period. It is observed that the bank isgood at maintaining the flows of cash.
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FINDINGS
Capital A dequacy Rat ios: It is observed that, the bank has better
ability to deal with proable loandefaults because the capital adequacyratio is higher.
And also the banks ability to borrowand repay the money is also good
because the debt equity ratio is low. Though the advances to assets ratio
has increased in the last five years, itis revealed that the bank has good risktaking ability.
Ass et Qual ity Rat ios:
Generally asset quality ratio should bereduced as compared to the previous
years. But, the banks asset qualityratios are increased which is not agood sign.
From the year 2010 to 2012, the nonperforming assets are increased whichis not good sign.
Management Eff ic iency Ratios: Higher the management efficiency
ratios means higher the efficiency ofthe management. It is found that theadvances to deposits ratio and profit
per employee are increased which is agood sign. It means the employeesefficiency is good, and the bank isbetter able to convert its advances todeposits.
But the return on net worth is reducedfrom 23.74% to 21.50% and to 18.73%in 2010,2011,2012 respectively.
Earnings Eff ic iency & Liqu id i ty Rat ios:
Overall, the banks earnings efficiency
is not satisfactory. Because all theearnings efficiency ratios are reducedin the last five years.
The bank is able to maintain itsliquidity position.
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SUGGESTIONS
The Reserve Bank of India issued prudential norms for banking companies.According to that more non performing assets may leads to bankruptcy.Hence, the bank tries to reduce its non performing assets to a extent.
The prime motive of any type of business is to earn profits. For bankingcompany, rendering financial services and earning profits are the primaryobjectives. As a nationalized bank, it also has the same objectives. Thegrowth rate of profits is decreasing. So, the bank tries to improve its profits.For that the bank needs to concentrate on both core and non core bankingactivities.
The major income for any financial institution is interest income. A bankingcompany will get more interest income only when it lends money for theproductive purposes. Advances are the major assets of a banking company.The bank tries to increase the advances because it is the core business of abank. Increase in advances pays a way to increase in interest income whichautomatically increases the profits of the bank.
Every company must try to control their borrowings. Because moreborrowings leads to increase their interest expenses which reduces theirprofits. At the same time, low borrowings are also not good for thecompany. Here, the borrowings are increasing to an extent. So, the bankshall try to reduce the borrowings which automatically reduce the interestexpenses to a certain extent.
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SUGGESTIONS
Deposits are of two types. One is term deposits and the other is demanddeposits. The important source of funds for bank is deposits. More depositsmeans the bank are attracting the customers. The bank provides advancesagainst his/her deposits to the needy person. This provides the bank to getinterest income as well as safety for its funds. So, the bank needs toincrease its deposits.
The bank has to focus on work than the work achieved. It means the bankhas to work to attract the new customers and rendering all types of financialservices.
As compared to its competitors, the bank has low number of branches andATMs. It is a major disadvantage to the bank. Due to low number ofbranches and ATM, both the customers and bank may feel uncomfortable tocontact and render services. So, the bank has to increase its number ofbranches and ATMs.
Nowadays competition takes in every sector. In banking sector, thecompetition is high. In general, a both good and bad product needsadvertisement. Advertisements pursue the people to buy. Other banks aregiving continues advertisements about their services to the public. So, thebank has to promote its services through advertisements which increase thenew customers.
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CONCLUSION
I here by conclude that the ratio analysis and trend analysis andanalysis of cash flow statement and comparative statement showsthat INDIAN Banks financial position is fair. Banks profitability isincreasing but not at high rate. Banks liquidity position is goodbecause bank invests more in liquid assets than the current assets.
The INDIAN Bank needs to pay attention on commercial activitieslike promoting more schemes for industrial customers etc. Banksposition is stable.
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