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Chapter-1
INTRODUCTION TO BANK
MEANING OF BANK
A bank is an establishment which makes to individuals such advance of money as
may be required and safely made and to which individuals entrust money when not needed
by them for use.
-Prof Kinlay
ORIGIN OF THE WORD BANK
Opinion is not uniform with regard to the origin of the word bank. According to
some authors, the word bank is derived from BANCUS or BANQUET i.e. bench. The
early bankers, the Jews in Italy transacted their business on benches in the market place,
when a banker failed his bench was broken into pieces by the people which indicated the
bankruptcy of the individual banker. Some other said that the word bank is originally
derived from the Greek word PACK meaning a joint stock fund, which was Italianized
into BANCO when the Germans were masters of a great part of Italy.
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The origin of modern financial institutions can be traced to antiquity, where the
individuals used to accept money in the form of deposit and lend it to people who needed
for meeting their requirements which may be economic or social. As time advanced, the
character of economic transactions also changed. Old order of borrowing and lending
underwent metamorphic changes.
Finance became a powerful instrument for any change. In fact, the innovations in the
field of transport and communication, development of energy and manufacturing have
resulted in innovations in the sphere of banking.
EARLY HISTORY OF BANKING:
Banking dates back to its history right from the middle ages. As early as 2000 B.C,
Babylonians were the earliest of all the people to develop a systematized banking system. It
is said that temples of Babylon were used as banks and as such in temples of Ephesus and
Delphi were famous great banking institutions. The anti religious feelings which developed
after wards led to the collapse of public confidence in depositing money in temples and the
priests ceased to perform the banking business. Whenever peace and solidarity were
threatened the spread of banking also was affected entirely. However, after the revival of
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civilization and with the development of social and economic institutions, money
transactions also were revived.
It was the 12th
century that some banks were established in Venice and Genoa. These
banks were simply receiving deposit and lending money to the people. The origin of modern
banking may be traced to money dealers in Florence who received money in the form of
deposits and lend it to business people. At that time Florence was the centre of money
market in Europe.
MODERN BANKING
Modern Banking as a service institution is a large corporate giant with large
resources and multi-faceted activities. Since, the nationalization of some big commercial
banks in India, there has been a great surge in the banking industry throughout the world
with a growing number of banking offices. The banking business today has become highly
critical and competitive between various classes of banks in offering a greater variety of
services nationally and internationally. With the growth of trade and commerce, banks are
also modernizing operations with a view to satisfy their customers. Modern banking
institutions have resorted to automation by means of introducing computers and other
equipment as well as the wealth of Information Technology (IT).
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The main aim of modernizing banking system is to improve bank operations with a
view to maintain high standards in banking. This involves applications of better
management techniques. In India, class banking has given way to mass banking, thereby
bringing in its fold a large number of customers. Banks are now looked upon as
development agents instead of purveyors of credit to the large industries and big business
companies. The banks apart from providing credit to agriculture, trade industry and
commerce are offering a good number of services to the customers such as making pension
payments to retired government servants and collection of water and electricity bills,
telephone bills, taking buy and sell decisions of behalf of their customers, managing public
issues, etc.
BANKS ARE CLASSIFIED INTO SEVERAL TYPES BASED ON
THEIR FUNCTION
Commercial Banks Investment or Industrial or Exchange Banks Land Development Banks Savings Bank Central Banks
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Co-operative Bank:
Co-operative Banks are promoted to meet the banking requirements of customers not
only in urban areas but also in rural areas. They provide short and medium term loans. They
are more service oriented than profit.
Co-operative Banking in India:
The Co-operative movement was started in India in 1904 with the object of
providing finance to agriculturists for productive and there by receiving them from the
clutches and money lenders. A large number of agriculture credit societies were set up in the
village under the Co-operative Societies Act 1904. Co-operative was included in India
mainly as defensive organization for dealing with problems of rural instrument for achieving
the social objective of the national plan.
The Co-operative Societies Act 1912 contributed to the establishment of Central Co-
operative Bank and State Co-operative Bank to provide refinance to many credit societies,
which could not mobilize funds. By facilitating the formation of central Co-operative
movements made good progress during and after the First World War of 1914-1918 but
during the real depression of 1929-1933, it received the serious setback with the outbreak of
the Second World War of 1939-1945 of the Co-operative credit movements made
considerable progress once again. The number of co-operative credit institutions has
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increased considerably, since then the progress has been maintained. Today an Indian Co-
operative movement has become one of the larger voluntary movements in the world. This
movement has no doubt record impressive progress in various segments of its activities.
Weaker sections have been the focus of attention of Co-operatives. State
Development Co-operative, Finery Societies have helped in providing organized support for
economic development of weaker section. Thanks to keen interest shown by RBI in the Co-
operative credit movement.
Co-operative Banking in Karnataka:
Karnataka had built a tradition and culture for an affective network of Co-operation
in the state origin of Co-operative credit movement in Karnataka can be traced to the
pursuing of first Co-operative Societies at 1904, based on the friendly Societies Act of
England 1874. The urban co-operative society of 18th
October 1904 in Dharwad district was
the first urban bank formed in Bombay-Karnataka area. The Bangalore city Co-operative
credit society was registered on 18th
December 1906. In Karnataka there were 302 Co-
operative banks by placing the state in 3rd
in the country as regrets urban Co-operative
banking movement when the banking regulation Act 1949, was made applicable to urban
Co-operative banks Karnataka is continuing the same bank having 300 working urban banks
in 2002 of this 302 primary co-operative urban banks and 14 are the salary earners.Different
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types of banks are working on par with the nationalized and commercial banks and
functioning by and large, self supplying and not dependent on outside progress.
Origin of urban co-operative banks:
The urban co-operative credit movements had originated in Germany when
Hermans Schultz started such societies for the benefit of artisans in cities. He found the
first urban society in 1850. However after 45 years prof. V.R.Alias Bhausahah, Kavathekar,
made the first experiment in urban credit in the Baroda state, he found Anyone Sahakari
Mandali (1889) for the promotion of thrift and to provide credit to the Maharashtras. The
Madras Presidency had developed indigenous societies in Britain. While western India
preferred mutual aid societies Act 1940, conferred legal status of credit societies and the
first urban Co-operative credit society was registered in 1904 at Conjeevarm in Madras
province. However, the real beginning was after the amendment in 1911, enhancing its
scope of 1920 severely affected an urban society and urban bank. An urban credit society
having Rs. 20000 as working capital and maintaining fluid resources according to a standard
fixed by the registration was designated as a bank in Madras, while in Bombay; an urban
credit society could be styled as an urban up to 1938. If had Rs.5,000/- as working capital.
However, the real growth of urban was only after the extension of the provision of RBI Act
1934 and Banking Regulation Act 1949 to co-operative banks from 1stMarch 1966. These 2
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acts showed the right path of development to urban co-operative banks in poor country.
Since, then urban co-operative banks had 5 steady growths.
Definitions and Meaning of Co-operative Banking:
In the words of Henry Worff Co-operative banking is an agency which is in a
position to deal with the small man on his own terms accepting the security he has and
without drawing on the protecting of the rich.
Devine defines a Co-operative bank mutual society formed, composed and
governed by working proper themselves for encourages regular savings and granting small
loans on easy terms of interest and repayment.
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INTRODUCTION TO SUBJECT
Finance:
In the words of John J. Hampton, the term finance can be defined as the management
of the flows of money through an organization, whether it will be a corporation, school,
bank or government agency.
According to Howard and Upton, finance may be defined as that
administrative area or set of administrative functions in an organization which relates with
the arrangement of each and credit so that the organization may have the means to carry out
the objectives as satisfactorily as possible.
Finance directs the flow of economic activity and facilitates the smooth operation.
Finance provides the required stimulus for continued business operations of all categories.
Finance is essential for expansion, diversification, modernization, establishment, of new
projects and so on. The financial policy of any organization to a greater extent, determines
not only its existence, and survival but also the performance and success of that
organization. Finance is required for investment, purposes as well as to meet substantial
capital expenditure projects.
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Business Finance:
The term business finance is very comprehensive. It implies finances of business
activities. The term, business can be categorized into three groups: commerce, industry
and service. It is a process of raising, providing and managing of all the money to be used in
connection with business activities.
Corporate Finance:
Corporate finance deals with the financial problems of a corporate enterprise. These
problems include the financial aspects of the promotion of new enterprises and their
administration during their early period; the accounting problems connected with the
distinction between capital and income, the administrative problems arising out of growth
and expansion, and finally, the financial adjustments which are necessary to booster up to
rehabilitate a corporation which has run into financial difficulties.
The term corporate finance includes, apart from the financial environment, the
different strategies of financial planning. It includes problems of public deposits, inter-
company loans and investments, organized markets such as the stock exchange, the capital
market, the money market and the bill market. Corporate finance also covers capital
formation and foreign capital and collaborations
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Financial analysis:
Financial analysis is the process of identifying the financial strength and weakness of
the Bank by properly establishing relationships between the items of the balance sheet and
the profit and loss account.
Users of financial analysis:
Trade creditors. Suppliers of long-term debt. Investors. Management.
Financial Statements:
DEFINITION OF FINANCIAL STATEMENTS:
The term financial statements refers to the profit and loss account and balance
sheet prepared by all the businessmen. The profit and losses account is prepared in order to
know results of business operations.
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They are the means to present the Banks financial situation to the users. As these
statements, are used by investors and financial analyst and examine the Banks performance
in order to make investment decisions.
Two basic financial statements are prepared for the purpose of external reporting to
owners, investors and creditors are:
Balance sheet or statement of financial positionProfit and loss account or income statement.
Objectives of Financial Statements
The basic objective of financial statement is to assist in decision-making and some
of the objectives of preparing the financial statement are,
Resources and obligations:- To provide the financial information about economic
resources and obligations of a business enterprise.
Change in net resources:-To provide reliable information about changes in resources
of an enterprise that result from the profit directed activities
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.
Earnings potential:- To provide financial information that assists in estimating the
earnings potential of the enterprise.
There are various methods or techniques used in analyzing and interpreting the
financial statements such as,
Common size financial statement.
Comparative financial statements.
Trend analysis.
Break-even analysis.
Fund flow analysis.
Cash flow analysis.
Ratio analysis.
All these techniques are one of the powerful tools of financial analysis. These methods are
used to review the financial performance of any company. With the help of these techniques
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that financial statements can be analyzed more clearly and decision can be made from such
analysis.
The methods or techniques used for the financial analysis are:
Trend analysis. Ratio analysis.
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Chapter-2
DESIGN OF STUDY
TITLE OF THE STUDY:
THE STUDY ON FINANCIAL PERFORMANCE OF BANGALORE
CITY CO-OPERATIVE BANK LIMITED.
STATEMENT OF THE PROBLEM:
Analysis of financial performance is one of the major requirements for planning.
BCCB being a government enterprise, it is very crucial to analyze its performance because,
it is required by shareholders, bank, management, creditors and employees, government and
financial institutions as they are interested to know the financial soundness of the Bank.
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OBJECTIVES OF THE STUDY:
To understand the financial performance indicators of BCCB. To study financial performance and trends through various key financial indicators. To gain practical knowledge in the areas of finance and accounts. To analyze the actual performance of company in the areas of liquidity, profitability
through financial indicators and compare the present performance with standard norms.
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SCOPE OF THE STUDY:
The study was taken up to know the financial activities in BCCB relating to their businessactivities and performance of the corporation only.
The study is being done to know the financial activities of the corporation and study islimited to BCCB only. Study is being done to ascertain the financial status of the Bank. The
study of financial performance comprise of trend analysis, ratio analysis, and comparative
statement analysis.
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METHODOLOGY AND DATA COLLECTIONS:
Sources of data are classified into two types they are,
Primary data Secondary data
PRIMARY DATA:
Primary data may be described as those data that have been observed by the
researchers for the first time. Primary data are collected from:
General discussions with officers of BCCB. An Unstructured informal interview was followed with high officials of the Bank. Annual reports of BCCB
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SECONDARY DATA:
Secondary data are those data that have been compiled already before conducting the
research. Secondary data may be internal as well as external. Internal data are collected from
the banks records. External data are collected from outside the bank.
The various sources of secondary data are:
Corporations previous records
Various publications and manuals of BCCB Books, magazines and news papers Bank website
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RESEARCH INSTRUMENTS:
The analysis interpretation of the financial statement is used to determine the financial
position and result and operation as well. A number of methods and devices are used to
study the relationship between different statements. The statistical tools adopted for the
study are:
Financial Ratio Trend analysis
METHOD OF STUDY:
Discussion with the management of the bank to get general information about theiractivities in bank.
Study of the classification of items adopted in profit and loss account and balance sheetand the accounting policies of the concern.
Study of the annual reports of 3 years from 2008-2010 for collecting data. Analysis of their adopted techniques and methods available. The study was made to analyze the financial performance with reference to financial
statements like profit and loss account and balance sheet with the help of tables, ratios,
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and graphs. Providing suggestions for improving the methods and procedures followed
by the bank.
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LIMITATIONS OF THE STUDY:
The effort has been made to study completely and as exhaustively as possible.
However the following problems were faced during the study is as follows:
1. The confidentiality of some facts and figures has acted as a limitation,does not include competition from commercial bank, nationalized,
foreign banks for which time was a constraint.
2. The study is based on the data given by the officials and reports of thebank. It was not possible to study day-to-day problems faced by the bank.
3. The comparison and analysis are limited only for the past 3 years.
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Chapter-3
PROFILE OF THE INDUSTRY
BANK PROFILE
The Bangalore City Co-operative bank Limited, started in the year 1905 as a credit Co-
operative Society. Later on in was converted as First Urban Co-operative Bank in the
country wide Registration No.314/cs.encl/4 dated 6/8-4-1907 from the Registrar of co-
operative Societies in Karnataka.
The bank has already celebrated the Silver Jubilee in the year 1932, Golden Jubilee in the
year 1957, Diamond Jubilee in the year 1967 and Platinum Jubilee in the year 1977 and
completed 100 years of Co-operative service to the members, depositors and general
publics and the board has making all arrangements to celebrate the century of the bank in
the month of April 2007.
The bank has successfully running since from its inception as Best Urban Co-
operative Bank and awarded meritorious certificate and rolling shield during the year 1926,
1927 and 1928 from the erstwhile Maharaja of Mysore Sri Sri Sri. Kanteerava
Narasimharaja Wodeyar Bahaddur.
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Recently the bank has also adjudged as best Urban Co-operative Bank by the Government
of Karnataka in the year 2001-02 and 2003-04 and received the meritorious certificate and
rolling shield.
Received award for completion of 100 years of banking service from the Government of
Karnataka in centenary celebration of Co-operative Movement.
Initially bank started with the share capital of 2727/- by 150 members and deposits of Rs.
2265/-
Apart from administrative office the bank has already opened 12 branches in prestigious
locality of Bangalore and now it has applied for 2 additional branches
In order to give better customer service to the members, depositors and general publics the
bank has already computerized its administrative office as well as entire 12 branches of the
bank.
Apart from banking business the bank has generously conducted/donated
Conduct free eye camp to the members and general public with theassistance of Lions Eye Hospital, Bangalore.
Conduct free medical check up to the members and general public.
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The bank is governed by the Veteran Co-operators who are dedicatedin the field of Co-operation.
Shortly the bank is reaching to attain the scheduled Co-operativeBanking status prescribed by the Reserve Bank of India.
Ownership
The bank is completely controlled by the President, Vice president and the Directors. Only
RBI can interfere in the rules and regulations of the bank. The bank consists of a president,
a vice president and 15 directors.
Board of Directors
President - Sri.Avalahalli chandrappa
Vice president - Dr. Devraj T.M
Directors - Sri Dr. T.P Yoga
- Dr. Devraj .T.M- Sri B.K. Ashwata Narayana- Sri Dayashankar G.S. Rajendra- Sri T.D. Dhananjaya- Sri K. Krishnappa- Sri Anjanappa- Sri M. Hanumanayya- Sri N. Thimayya
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- Sri U.P Puranik- Sri k. Krishna Murthy- Sri Basavaraju
Smt. L Bhgyalakshmi
General Manager - Sri. N. Manjunatha
ABOUT FOUNDATION:
Branches structure of the Bangalore City Co-operative Bank Ltd .The following 12 branches
along with one administration office and all the branch have been computerized under the
jurisdiction of Bangalore City Corporation, Bangalore Development Authority and
Bangalore Urban and Peripheral areas .
Notes On Formation, Growth And Achievement Of The Bangalore City
co-operative bank Ltd., Bangalore-18
The twentieth century of the Indian history has seen two people movements, of
which one was the freedom struggle against the British to free the nation from the foreign
rule and the other was the Co-operative movement against capitalists with aim to improve
the economic condition of the poor and economically backward ones. The Co-operative
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movement was started in India with the introduction of Co-operative societies Act, 1907 and
during the initial stages of Co-operative movement, our bank The Bangalore City Co-
operative Bank Ltd,. Bangalore came in to existence as credit Co-operative Society during
the year 1905 and later converted as urban Co-operative Bank on 06-04-1907 as first urban
co-operative bank of the then Mysore province.
The Bangalore City Co-operative Bank Ltd ,.with its main objective of promoting thrift and
saving habit among its member and to free the members from the clutches of money lenders
was formed under the leadership of Sri K Ramaswamaiah ,Head Master ,London Mission
School .
During the year 1907, our bank has mobilized share capital of Rs.2727/-from 150 members
and deposit of Rs.2265/- and also lent Rs.4036/- to its members. The bank has made a profit
of Rs.156/- and declared a dividend of 13.02% in the first year.
Since the date of inception, the bank never had a setback in mobilization of share
capital/deposits and in grant of loans and advances and in its net profit
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The financial growth of the bank is given here under in nutshell
Financial
year ending
No. of
members
Share capital Reserves &
other funds
Deposits Loans &
advances
Net profit
1907 156 2,727 2,265 4,036 156
1917 1110 1,26,922 1,17,318 2,36,725 9,892
1927 1535 1,77,980 4,003 1,15,079 6,06,756 20,737
1937 2545 3,65,277 14,095 17,07,660 17,40,913 42,216
1947 2172 3,51,783 15,223 17,57,738 12,26,099 26,313
1957 3348 3,79,109 21,257 21,00,049 23,13,176 36,187
1967 5360 4,10,266 4,66,337 24,87,795 28,16,749 22,054
1977 5496 8,95,904 9,82,631 37,58,839 48,69,489 1,48,615
1987 13579 44,45,525 33,55,252 5,42,64,904 4,15,38,926 11,53,581
1997 30980 2,76,23,080 44,50,551 53,48,55,407 35,05,87,887 1,18,83,78
2007 39912 11,41,64,541 38,53,63,257 224,43,62,150 150,17,47,820 3,55,49,26
2008 42191 13,94,22,103 41,57,51,667 289,10,54,009 233,67,94,907 4,27,23,78
2009 44518 17,33,63,267 44,98,27,118 378,63,09,868 294,84,43,368 5,17,00,05
2010 45500 20,35,48,167 47,96,00,052 461,29,68,093 326,72,71,284 5,34,00,00
2011 46000 28,71,12,907 54,26,10,058 597,62,10,335 444,12,12,211 7,95,66,28
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Aims:
As per the laws if the bank the following are the aims of the Co-operative Bank;
Accepting the deposits for the purpose of promoting saving habits in the mindsof public and members.
Providing the various types of loan facilities to members and associate members. To open new branches with the permission from the RBI and Registrar of Co-
operative Societies.
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Following are some of the Rules and Regulations provided by the bank for the
benefit of Customers:
Avail nomination facilities at A/C holders including saving bank A/C andcurrent A/C holders.
Bank will exchange mutilated currency notes as per RBI guidelines.
Bank will give standing instruction for the payment of bills, rents, interests,insurance etc
Bank provides required and important guidelines to the locker holders.
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CORPORATE MISSION
To meet the growing aspiration of the customers of the bank in particular andothers in general in the changing environment.
To bring about total customer satisfaction by providing quality service. To promote socio economic development and employment as national and
social objectives.
To meet the economic and career aspirations of the society and employees. Generating the deposits from the customers to increase profit and goodwill.
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IMPORTANT DECLARATION
Bank declares and undertakes:
To provide professional, efficient, courteous, diligent and speedy services onthe matter of retail deposits.
Not to discriminate on the basis of religion, caste, sex, descent or any ofthem.
To be fair and honest in advertisement and marketing of deposit products. To provide customer with accurate and timely disclosure of terms, costs,
rights and liabilities as regard deposit transactions.
If sought, to provide such assistance or advice to customers. To attempt a good faith to resolve any disputes or differences with customers
by setting up complaint redress cells within the organizations.
To comply with all regulatory requirements in good faith. To spread general awareness about potential risks contracting deposits and
encourages customers to take up independent financial advice and not act
only on representation from the bank.
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CHAPTER-4
ANALYSIS AND INTERPRETATION
OPERATIONAL DEFINITION OF CONCEPTS:
Financial Statements:
Financial statements contain summarized information of the Banks financial affairs
organized systematically. These are the means of presenting financial status of the Banks to
the users.
Two basic financial statements prepared for the purpose of external reporting to managers,
investors and creditors are,
Balance sheet Profit and Loss account
It is the most significant financial statement. It indicates the financial conditions or the state
of affairs of a business at a particular moment of time; balance sheet contains information
about resources and obligations of a business entity and about its bankers interest in the
business at a particular point in time.
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Assets:
Assets represent economic resources. These are the valuable possessions owned by the
Bank. These possessions should be capable of being measured in monetary terms. Assets are
the future benefits fixed assets are used in business for more than an accounting period of
one year, while current assets are converted into cash with an accounting period
Liabilities:
Are the amount payable by the Bank to the outsiders liabilities are payable within an
accounting period are called current liabilities and those payable after a year or so are called
long term liabilities.
Revenues:
Revenue is the value of amount supplied to the customers, more specifically; revenue is the
gross inflow of assets or the gross decrease in liabilities that result from a Banks activities
that change bankers equity.
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Expenses:
Expenses occur when assets are consumed or liabilities are increased in order to produce
revenue, more specifically expenses represent a gross decrease in assets or gross increase in
liabilities.
Profit:
The difference between the revenue and expenses
Ratio Analysis:
In financial analysis, ratios as a bench mark for evaluating the financial position and
performance of a Bank. Is a process of identifying the financial strength and weaknesses of
the Bank.
Capital employed:
Is equal to total of fixed assets are reduced by current liabilities.
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Fund:
The term fund can be defined in 3 ways, it may mean cash, and working
capital and financial resources fund flow statement provide an analysis of
changes in the Banks working capital position.
Profit and loss account:
Profit and loss account presents the summary of revenue, expenses and net income (or net
loss) of a Banks profitability.
Financial Ratio Analysis
INTRODUCTION
The most important task of a financial manager is to interpret the financial ratios the ratio
analysis is the most powerful tool in the hands of any product management as it offers
immediately on insight into the working of the corporate enterprises. It is the process of
establishing the financial ratios about the trend in terms of its financials can draw
inferences.
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Meaning
Ratio analysis is a powerful tool of financial analysis a ratio is defined as the indicated
quotient of two mathematical expressions and as the relationship between two or more
things. In financial analysis a ratio is used as a bench mark for evaluating financial positions
and performances of a bank the absolute accounting figures respected in the financial
statement do not provide a meaningful understanding of a performance and position of a
bank. The relationship between two or more accounting figures groups is called a financial
ratio.
Ratio helps to summarize large quantities of financial data and to make qualities judgment
about the banks financial performance
Types of ratios:
Several ratios calculated from the accounting data, can be grouped into various classes
according to financial activity or functions to be evaluated. As stated earlier, the parties
interested in the financial analysis are short and long terms creditors, owners and
management. Short-term creditors main interest in the liquidity position or the short-term
solvency of the bank. Long term creditors on the other hand, are more interested in the bank
profitability and financial conditions.
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Management is interested in evaluating every aspect of the bank performance. They have to
protect the interest of all parties and see that the bank grows profitability. In view of the
requirement of ratios, we may classify them into the following four important categories:
Liquidity ratios Leverage ratios Activity ratios
Profitability ratios
LIQUIDITY RATIO:
Liquidity ratios measure the ability of the firm to meet its current obligation. In the fact,
analysis of liquidity needs the preparation of cash and fund flow statements: but liquidity
ratios, by establishing a relationship between cash and others current assets to current
obligations, provide a quick measure of liquidity. A bank should ensure that it does not
suffer from lack of liquidity, and also that it does not have excess liquidity , will result in a
poor creditworthiness, loss of creditors confidence or even in legal tangles resulting in the
closer of the bank. A very high degree of liquidity is also bad ideal assets earn nothing. The
firms fund will be unnecessarytied up in current asset. Therefore, it is necessary to strike a
proper balance between high liquidity and lack of liquidity.
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The most common ratios that indicate the extent of liquidity or lack of it are: (1) current
ratio and
(2) Quick ratio.
Other ratios include cash ratio, interval measures and net working capital ratio.
Leverage ratio:
Financial leverage refers to the use of debit finance while doubt capital is a chapter source
of financial it is a riskier source of financial leverage ratios help in assessing the risk arising
from the rise of debit capital.
The important leverage ratios are:
Debit Asset Ratio Debit Equity Ratio Intrest Coverage Ratio
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Activity/efficiency/turnover ratio:
Activity ratios are employed to evaluate the efficiency with which the bank managers and
utilize its assets these ratios are also called turnover ratios because they indicates the speed
with which into sales. Activity ratios thus involve a relationship between sale and assets
generally reflect that assets are managed well.
Important activity ratios are:
Inventory turnover ratios Debtors turnover ratio
Fixed assets turnover ratioPROFITABELITY RATIOS:
Profitability reflects the final result of business operations profitability rate on are calculates
operations efficiency of the bank.
Important profitability ratios are:
Gross profit margin ratio Net profit margin ratio
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Return on total asset.
1. Current Ratio
It may be defined as the relationship between current assets and current liabilities. It shows a
banks ability to cover its current liabilities with its current assets. It can be expressed as
follows;
Current ratio = Current assets
Current liabilities
Table showing current ratio
Year Current assets
(Rs)
Current
Liabilities (Rs)
Ratio
2008-09 26,68,70,523 17,98,43,972 1.48
2009-10 31,70,74,391 21,25,71,023 1.49
2010-11 38,04,63,029 21,66,40,367 1.75
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Interpretation Of Current Ratio
A relatively high current ratio is an indicator that the firm is liquid and has ability to pay its
current obligations in time when they become due. On the other hand, relatively low current
ratio represents that the liquidity position of the firm is not good and the firm shall not be
able to pay its current liabilities in time without facing difficulties. The standard current
ratio of the bank for the years 2009, 2010, 2011 is 1.48, 1.49, and 1.75 respectively.
1.3
1.35
1.4
1.45
1.5
1.55
1.6
1.65
1.7
1.75
17,98,43,972 21,25,71,023 21,66,40,367
(Rs) 26,68,70,523 31,70,74,391 38,04,63,029
2008-09 2009-10 2010-11
Ratio
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2.Cash Ratio
Cash is the most liquid asset a financial analysis may examine cash ratio and its equivalent
to current liabilities. Trade investments or marketable securities are equivalent of cash
therefore they may be included in the computation of cash ratio. It can be calculated as
Cash+ Marketable securities
Cash Ratio =
Current Liabilities
Table showing Cash Ratio
Year Cash+Securities
(Rs)
Current
Liabilities
Ratio(%)
2008-09 3,43,68,746 17,98,43,972 0.19
2009-10 3,12,62,897 21,25,71,023 0.14
2010-11 3,35,90,290 21,66,40,367 0.16
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Interpretation of cash ratio:
This ratio indicates the proportion of cash and bank balance. i.e., it shows the ability of
firms to pay its current liabilities by using most liquid asset, cash and bank balance.
Here the cash ratio the bank shows that the bank is holding only little cash to maintain its
day today needs. That is not a bad sign to the banks
0
0.05
0.1
0.15
0.2
17,98,43,972 21,25,71,023 21,66,40,367
(Rs) 3,43,68,746 3,12,62,897 3,35,90,290
2008-09 2009-10 2010-11
0.19
0.140.16
Ratio(%)
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3. DEBT EQUITY RATIO
Debt equity ratio is the ratio, which express the relationship between debit and equity or
relationship between borrowed capital and owners.
Total debt
Debt equity ratio =
Net worth
Table showing debt equity ratio
Year Debt (Rs) Equity (Rs) Ratio (%)
2008-09 259,99,96,639 62,31,90,385 4.17
2009-10 92,90,02,709 70,10,31,633 1.32
2010-11 82,73,41,790 75,25,62,573 1.09
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Interpretation Of Debt Equity Ratio
The debt equity ratio is calculated to measure the extent to which debit financing has been
used in a business. The ratio indicates the proportion claims of owners and the outsiders
against the banks assets.
00.5
11.5
22.5
33.5
44.5
62,31,90,385 70,10,31,633 75,25,62,573
259,99,96,639 92,90,02,709 82,73,41,790
2008-09 2009-10 2010-11
Ratio (%) 4.17 1.32 1.09
debte
quity
ratio
Ratio (%)
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4 TOTAL DEBT RATIO
Debt ratios are used to analysis the long-term solvency of a firm. The firm may be
interested in knowing the interest bearing debt in capital structure. Total debt ratio may,
therefore, compute the debit ratio by following.
Total debt
Total Debt Ratio =
Total debt + net worth
Table showing total debt ratio
Year Total Debt (Rs) Total Debt + Net
worth
Ratio(%)
2008-09 277,98,40,611 340,30,30,996 0.79
2009-10 114,15,73,732 184,26,05,365 0.61
2010-11 82,73,41,790 152,81,73,423 0.54
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Interpretation Of Total- Debt Ratio
From the above analysis we come to know the debit equity ratio has decreased in the years
2011, 2010, compare to 2009. This shows that there is a increase and decrease fluctuation
and the debit is decreased in the bank.
It indicates the percentage of funds being financial through borrowings is decreased and it is
in good condition.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
340,30,30,996 184,26,05,365 152,81,73,423
277,98,40,611 114,15,73,732 82,73,41,790
2008-09 2009-10 2010-11
Ratio(%)
Ratio(%)
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5 Proprietary Ratio Or Equity Ratio
The proprietary ratio relates to the proprietors funds to total assets. It reveals the owners
contribution to the total value of assets. This ratio shows the long term solvency of the firm.
It is calculated by dividing proprietors fund by the total tangible assets.
Shareholders fund
Proprietary Ratio = 100
Total assets
Table Showing Proprietary Ratio
Year Share
Holders Fund
Total Assets Ratio (%)
2008-09 62,31,90,385 624,83,35,122 9.97
2009-10 70,10,31,633 793,07,52,606 8.83
2010-11 75,25,62,573 957,92,34,219 7.85
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Interpretation of Proprietary Ratio
As equity ratio represents the relationship of owners funds to total assets, higher the ratio,
better in long term solvency position of the company. The long term solvency of the bank is
lower with 7.85 in the year 2010-11.
0
2
4
6
8
10
624,83,35,122793,07,52,606
957,92,34,21962,31,90,38570,10,31,633
75,25,62,5732008-092009-10
2010-11
Equity
ratio
Axis Title
Ratio (%)
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Table Showing Absolute Liquid Ratio
Year Cash in hand
and bank
Current
liabilities
Ratio (%)
2008-09 13,44,81,798 17,98,43,972 0.74
2009-10 16,26,36,709 21,25,71,023 0.76
2010-11 20,85,98,232 21,66,40,367 0.96
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Interpretation Of Absolute Liquid Ratio
As ratio represents the relationship between worth of absolute liquid assets and worth of
current liabilities. Even the ratio gives a more meaning full measure of liquidity; it is not in
much use because the idea of keeping large cash balance has been disproved.
7 Return On Capital Employed Ratio
This ratio is an indicator of the earning capacity employed in the business. It is also called as
Overall Profitability Ratio. It is calculated as
Ratio (%), 0.96
0
0.2
0.4
0.6
0.8
1
1.2
17,98,43,972 21,25,71,023 21,66,40,367
13,44,81,798 16,26,36,709 20,85,98,232
2008-09 2009-10 2010-11
absolutel
iquidr
atio
Ratio (%)
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Operating Profit
Return on capital employed = *100
Capital Employed
Table showing Return on capital employed
Year Operating
profit
Capital
employed
Ratio (%)
2008-09 5,17,00,057 63,44,95,854 8.14
2009-10 4,27,23,786 59,96,36,953 7.12
2010-11 7,95,66,288 54,26,10,058 14.66
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Interpretation of Return on Share Capital Employed
This ratio is considered to be the most important because it reflects the overall
efficiency with which capital is used. In the above ratio there is a increase in
the year 2010- 11 as compared to 2009 and 2008, as both indicates decrease in
ratio,
0 5 10 15 20
63,44,95,854
59,96,36,953
54,26,10,058
5,
17,
00,
057
4,
27,
23,
786
7,
95,6
6,
288
2008-09
2009-10
2010-11
Ratio (%)
Ratio (%)
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Interpretation of Return on Share Holders Fund
If the net profit after tax is Rs7,95,66,288, and share holders fund 75,26,62,573
then the ratio will be 10.57
It shows the extent to which profitability objective is being achieved. Higher the ratio, the
better it is.
9.6 9.8 10 10.2 10.4 10.6 10.8
48,28,49,830
53,44,02,390
75,25,62,573
5,
17,
00,
0
57
5,
33,
77,
8
02
7,
95,
66,
2
88
2008-09
2009-10
2010-11
Ratio (%)
Ratio (%)
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9. SOLVENCY RATIO
Solvency ratio is the ratio between the total assets and that total liabilities of the concern this
ratio measures the ability of the concern to meet its total liabilities out of its total assets. It is
expressed as following;
Total assets
Solvency ratio =
Total liabilities
Table Showing Solvency Ratio
Year Total assets Total
liabilities
Ratio (%)
2008-09 624,83,35,122 619,66,35,064 1.00
2009-10 477,92,91,939 473,65,68,152 1.00
2010-11 957,92,34,219 949,96,67,930 1.00
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Interpretation Of Solvency Ratio
From the above we can understand there has been equal in the solvency ratios from 2008-09
to 2011 that means the bank is in normal (good) position.
0 0.2 0.4 0.6 0.8 1
619,66,35,064
473,65,68,152
949,96,67,930
624,
83,3
5,
122
477,
92,
9
1,
939
957,
92,
3
4,
219
2008-09
2009-10
2010-11
Ratio (%)
Ratio (%)
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Interpretation Of Liquidity Ratio
From the above analysis, indicates that there is an increase in ratio from current year to year,
where slight difference in past year 2011 which shows decrease in ratio, which is not good
for bank.
Ratio (%)
2008-09 16,67,57,510
17,98,43,972
2009-10 18,57,00579,
21,25,71,023
2010-11 19,20,37,009
21,66,40,367
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FINDINGS AND SUGGESTION
FINDINGS
Their has been fluctuating trend for a current year liquidity pointing i.e., 0.89% The banks current ratio is satisfactory compared to cash ratio of the bank from past
3 years i.e., 1.48 in 2009, 1.49 in 2010 and 1,75 in 2011.
The total debt ratio of the bank is in good condition without loss. The proprietary ratio of the bank is seen to be slightly decreasing trend in the past 3
years i.e., in 2009 it was increased by 9.97% and in 2010 and 2011 it was increased
by 8.83%, 7.85 respectively.
The returns on share holders fund is increasing in past 3 years. i.e. 10.70% in 2009 ,9.98% in 2010 and 10.57% in 2011.
The banks solvency ratio is in break-even point means where no profit and no loss. The banks ability in creating return on capital employed is satisfactory. It is
increased by 8.14% to 14.66% when comparison made between 2009 to 2011.
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SUGGESTIONS:
The management must achieve the targets by managing both current assets andcurrent liabilities in a proper way. It is suggested that bank should decrease its
liabilities and more concentrate on managing its current assets.
The bank should utilize the cash resource to the optimum; else the liquidity positionwill be affected. It can do well if those resources are utilized effectively.
The banks total assets should be utilized to optimum. It should concentrate moreon utilizing its available assets, so as to avoid expenses.
The bank should maintain its overall profitability position in order to retain currentdeposits.
Fixed assets used for long term of time must be sold off changing with lessdeprecation to increase the value of assets to meet the expected liability.
The bank should put much emphasis on modern advertising media in order toimprove the banks transactions to attract its customers.
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CONCLUSION
The investment and deposits shall be proportionate to loansand advances and the liability of interest payable shall be
reduced which increased net profit.
The bank should see the improvement of balance in cash andwith bank deposit.
To gain competitive edge over the competition in the market,the bank must minimize the default and should be in contact
with the customer to know about their specification.
The bank may introduce new products to complete with otherbank and adopt suitable procedure for obtaining details from
the borrowers in order to facilitate faster disbursement of
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advances and regulatory repayments as done in other banks
before sanctioning credit.
The bank must be more professional in credit collections andallocation.
The mobilization of deposit and investment decision shall bethoroughly analyzed by the financial manager to gain
maximum return with minimum risk.
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