Banking Project on UCO-Bank Analysis Submitted toDr.

Puneet Dublish Submitted byAnish Bhattachayya [FT-09-] Anurag Kumar Mishra [FT-09-729] Durgesh Tiwari [FT -09-748] Jagat Singh Nagar [FT -09-754] Sourav Mukherjee [FT- 09-887] Shwetank Kumar [FT -09-856]

Acknowledgement We take this opportunity to convey our sincere thanks and gratitude to all those who have directly or indirectly helped and contributed towards the completion of this pro ject.

First and foremost, we would like to thank Dr. Puneet Dublish for his constant g uidance and support throughout this project. During the project, we realized that the degree of relevance of the learning being imparted in the class is very high. The learning enabled us to get a better understanding of the nitty-gritty of the subject which we studied.

We would also like to thank our batch mates for the discussions that we had with them. All these have resulted in the enrichment of our knowledge and their inputs have hel ped us to incorporate relevant issues into our project.

TABLE OF CONTENTS Sl. No. Topic 1 Introduction 2 Camels Framework 3 Need, Scope & Objective Of Study 4 Methodology 5 Data Analysis And Interpretations 6 Conclusion & Recommendations 7 References

Executive Summary The banking sector has been undergoing a complex, but comprehensive phase of restructuring since 1991, with a view to make it sound, efficient, and at the sa me time forging its links firmly with the real sector for promotion of savings, investme nt and growth. Although a complete turnaround in banking sector performance is not expected til l the completion of reforms, signs of improvement are visible in some indicators under the CAMEL framework. Under this bank is required to enhance capital adequacy, streng then asset quality, improve management, increase earnings and reduce sensitivity to v arious financial risks. The almost simultaneous nature of these developments makes it d ifficult to disentangle the positive impact of reform measures. Keeping this in mind, signs of improvements and deteriorations are discussed for the three groups of scheduled banks in the following sections.

The whole banking scenario has changed in the very recent past on the recommenda tions of Narasimham Committee. Further BASELL II Norms were introduced to internationally standardize processes and make the banking industry more adaptive to the sensiti ve market risks. The fact that banks work under the most volatile conditions and the banki ng industry as such in the booming phase makes it an interesting subject of study. Amongst t hese reforms and restructuring the CAMELS Framework has its own contribution to the w ay modern banking is looked up on now. The attempt here is to see how various ratio s have been used and interpreted to reveal a banks performance and how this particular model encompasses a wide range of parameters making it a widely used and accepted mode l in today s scenario.

Introduction UCO Bank, previously known as United Commercial Bank, is a leading commercial ba nk in India. Founded in Kolkata in 1943, UCO Bank is one of the oldest Indian banks as well. It was the eminent Indian industrialist Ghanshyam Das Birla who, during the Quit India Movement of 1942, thought of establishing a commercial bank with Indian capital and manag ement. United Commercial Bank was the outcome of that idea. It, along with 13 others, w as nationalized on July 19, 1969. In the year 1985, its name was changed to UCO Ban k. Currently, UCO Bank has around 2000 Service Unites spread all across the nation. It also has two overseas branches in Hong Kong and Singapore.

UCO Bank has its presence in all segments of the economy including Industry, Agr iculture, Infrastructure Sector, Service Sector and Trade & Commerce. It works towards bec oming one of the most trusted and admired financial institution as well as the most so ught-after destination for the customers and investors.

UCO Bank has a large number of Service Units (around 2000) located across the na tion and overseas. These also include specialized and computerized branches. It also has its Correspondents / Agency arrangements all across the world. UCO Bank also carries out Foreign Exchange Business in more than 50 centers across the nation with 4 Forei gn Exchange Dealing Operations centers.

Deposit Schemes Following deposit schemes are offered by UCO Bank: No-frills Savings Bank Account

Money Back Recurring Deposits Friend-in-Need Scheme Two-way Deposit Scheme Lakshmi Yojana Kuber Yojana Flexible Fixed Deposit Scheme Special Deposit Scheme for Senior Citizens Current Account in Foreign Currency at Indian Branches Fixed Deposits in Foreign Currency at Overseas Branches Revised Minimum Balance Schedule UCO Tax Saver deposit Scheme - 2006 UCO Premium Plus Loan Schemes Following loan schemes are offered: UCO Shelter UCO Car UCO Trader Education Loan UCO Cash UCO Rent UCO Mortgage UCO Securities UCO Real Estate UCO Nari Shakti UCO Shopper UCO Pensioner

UCO Emd Loan UCO Swabhiman - Reverse Mortgage Loan Scheme for Senior Citizen Interest Subsidy Scheme for Housing the Urban Poor (ISHUP) NRI Corner UCO Bank offers a range of services for the NRIs. Following are the services tha t NRIs can choose from: Deposit Schemes Foreign Currency Non Resident (FCNR-B) Deposits Resident Foreign Currency (RFC) Deposits Non Resident External (NRE) Deposits Non Resident Ordinary (NRO) Deposits Remittance to India Loans to NRIs Against Deposits NRI Home Loans International Banking Following international banking services are offered; o o o o o Products & Services NRI Banking Foreign Currency Loans Finance/Services to Exporters Finance/Services to Importers Remittances

o o o o

Forex & Treasury Services Resident Foreign Currency (Domestic) Deposits Correspondent Banking Services General Banking Services

o o o o o o o

Foreign Currency Loans Finance/Services to Exporters Finance/Services to Importer Remittances Forex & Treasury Services Forex Inter Bank Placements/Borrowings Sale & Purchase of currency on behalf of customers Forward Cover Bookings Cross Currency Swaps Interest Rate Swaps (IRS) Forward Rate Arrangements (FRAs) Forex Money Market Operations

Resident Foreign Currency (Domestic) A/Cs Correspondent Banking Services

CAMELS Framework Supervisory framework, consistent with international norms, covers risk-monitori ng factors for evaluating the performance of banks. This framework involves the analyses of six groups of indicators reflecting the health of financial institutions. The indicators ar e as follows: . . . . . . CAPITAL ADEQUACY ASSET QUALITY MANAGEMENT SOUNDNESS EARNINGS & PROFITABILITY LIQUIDITY SENSITIVITY TO MARKET RISK

Objectives of Study

. To do an in-depth analysis of the UCO bank . To analyze UCO banks to get the desired results by using CAMELS, ROA, ROE and other analysis as a tool of measuring performance.

Research Proposal The Bank after the implementation of the balanced scorecard in 2002 has under go ne a drastic change. Both its peoples and process perspectives have changed visibly a nd the employees have full faith in the new strategy to produce quick results and keep them ahead in the industry. The balanced scorecard approach has brought about more role cla rity in the

job profile and has improved processes. In short it focuses not only on short te rm goals but is very clear about its way to achieve the long term goal. Scope of the Research To study the strength of using CAMELS framework as a tool of performance evaluati on for banking institutions. Type of research: Descriptive Methodology Data source: . Primary Data: Primary data was collected from the company balance sheets and c ompany profit and loss statements. . Secondary Data: Secondary data on the subject was collected from ICFAI journal s, company prospectus, company annual reports and IMF websites.

Plan of analysis: The data analysis of the information got from the balance sheets was done and ra tios were used. Graph and charts were used to illustrate trends.. Limitations of the study The study was limited to UCO banks of 3-4 years. 2) Time and resource constrains. 3) The method discussed pertains only to banks though it can be used for perform ance evaluation of other financial institutions. 4) The study was completely done on the basis of ratios calculated from the bala nce sheets.

\mbox{CAR} = \cfrac{T_1 + T_2}{a} \mbox{CAR} = \cfrac{\mbox{Capital}}{\mbox{Risk}} \,a Analysis and Interpretation Now each parameter will be taken separately & discussed in detail. Capital adequacy: Capital adequacy ratio is defined as , Where Risk can either be weighted assets () or the respective national regulator's minimum total capital requirement. If using risk weighted a ssets, = 8%.

The percent threshold (8% in this case, a common requirement for regulators conf orming to the Basel Accords) is set by the national banking regulator. Two types of capital are measured: tier one capital, which can absorb losses wi thout a bank being required to cease trading, and tier two capital, which can absorb losses i n the event of a winding-up and so provides a lesser degree of protection to depositors.

0 2 4 6 8 10 12 14 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Capital Adequacy Ratio Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 11.12 11.56 10.09 11.93

13.21

Interpretation: Capital adequacy ratio (CAR) is a ratio of a bank's capital to its risk. Nationa l regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss and are co mplying with their statutory Capital requirements. The formula for Capital Adequacy Rati o is, (Tier 1 Capital + Tier 2 Capital)/Risk Weighted Assets. Capital adequacy ratio is the ra tio which determines the capacity of the bank in terms of meeting the time liabilities and other risks such as credit risk, operational risk, etc. In the simplest formulation, a bank' s capital is the "cushion" for potential losses, which protects the bank's depositors or other le nders. Here, incase of UCO Bank we can see that its CAR showed a sudden dip in the year 2008 but after that it has shown a steady rise for the next 2 years which is a good sign for it s depositors and investors.

0.00 50.00 100.00 150.00 200.00 250.00 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Debt-Equity Ratio Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 69.93 84.22 102.11 186.19 234.24

Interpretation: The debt-to-equity ratio (D/E) is a financial ratio indicating the relative prop ortion of shareholders' equity and debt used to finance a company's assets. Here, in case of UCO Bank we can see that the Debt-Equity ratio has increased over the years. This is beca use its equity capital showed no growth from the year 2006 to 2008 and it decreased by around R s250 crore in 2009 and remained the same for the year 2010. But its debt capital has shown a steady increase over the past 5 years. From this we can infer that since UCO Ban k is a public sector undertaking it depends much more on debt capital ruther than equity capit al.

0.59 0.59 0.60 0.60 0.61 0.61 0.62 0.62 0.63 0.63 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Advances to Assets Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

0.60 0.63 0.61 0.62 0.60

Interpretation: Advances to Asset is also a good indicator of a firm s Capital Adequacy. A high rati o of Advances to Assets would mean that the chances of Non Performing Assets formatio n are also high, which is not a good scenario for a bank. This would mean the credibil ity of its assets would go down. In case of UCO Bank we can see that it is able to maintain a pretty steady ratio of its Advances to Assets which means the credibility of its assets is good.

0.79 0.80 0.81 0.82 0.83 0.84 0.85 0.86 0.87 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Government Securities to Total Investments Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

0.81 0.83 0.83 0.86 0.86

Interpretation: The ratio of Government Securities to Total investments shows how safe are the c ompany s investments. Here, in case of UCO Bank we can see that its ratio of investments in Government Securities to Total Investments is very high and it has remained quit e steady over the years with minimal fluctuations. The high ratio tells that UCO Banks in vestment policy is conservative and their investments are safe.

0 0.005 0.01 0.015 0.02 0.025 0.03 0.035 NPA IN 2008 NPA IN2009 NPA IN2010 Gross NPA to Net Advances in % NPA IN 2008 NPA IN2009 NPA IN2010 Series1 0.032 0.024

0.021 Gross NPA to Net Advances Assets Quality 1- Gross NPA to net Advances1652/51129=0.0323 1540/64020=0.024 1640/77560=0.021

The gross NPA was 1652, 1540 and 1640 in 2008,09 and 2010 respectively. The analysis shows that the gross nonperforming assets were 3.2% 0f the net advances means the bank was not able to receive the repayment of 3.2% of the total load a nd advances.

In 2009 it was 2.4% of the total net advances means that the bank is improving i ts capability to get return its loans and advances in comparison to 2008 that is it was lesser than the gross npa of 2008.Same in the 2010 it was continue decreasing .

in 2008 in 2009 in 2010 Series1 0.021 0.012 0.011 0 0.005 0.01 0.015 0.02 0.025 Net NPA to Net Advances in % Net NPA to Net Advances

Overall interpretation is the UCO bank is focusing towards the NPA the company doesn t want to increase the NPA because it will affect the performance of the ban k as due to increase in NPA the capital adequacy, of the bank will decrease.

1. NPA to net Advance1092/51129=0.021 813/64020=0.012 900/77560=0.011

In this section it can be seen from the above that the bank is able to decrease to its NPA and due to this the bank is able to increase its capital adequacy and also t he profitability of bank is increasing continuously. The gross profit of the bank i s Rs 5020 crore in 2008, Rs 6476 crore in 2009, and Rs 7202 crore in 2010.

If we see the analysis it can be seen that the net NPA of the bank was more in 2 010 in comparison to 2009 but still the profit was more in 2009 than 2008 the reason os that this time bank is able to reduce its cost of fund.

In 2008 In2009 In 2010 Series1 0.27 0.26 0.32 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 Total investment to Total Assets in % Total Investment to Total Assets 2. Total investment to total assets-

23135/83815=0.27 28110/104291=0.26 42358/129504=0.32

The bank invested 27%, 26% and 32%, in 208. 09 and 2010 respectively of its tota l assets means bank invested more than one fourth of its total assets that shows that the bank is moving towards the safe side. It can be seen that the bank is increasing its investment with the increase in the total assets. The policy of the bank is to be safe.

3. Percentage change in net NPA813-1093/1093=-0.25 900-813/813=0.10

The bank was able to reduce its net NPA in 2009 over 2008 means that was able to get receive its fund. But in 2010 the net NPA was more than 2009. Meaning is tha t the bank was not able to control its NPA i.e. bank did not get return on its loans a nd advances. But still the profit of the bank is more than 2009 because the total a ssets of the bank are increased and also the bank was able to reduce its cost of fund.

In 2008 In 2009 In 2010 Series1 0.013 0.007 0.006 0 0.002 0.004 0.006 0.008 0.01 0.012 0.014 Net NPA to Total Assets in % NET NPA TO TOTAL ASSETS 4. Net NPA to total Assets1092/83815=0.013

813/104291=0.007 900/129504=0.006

When the Net NPA is compared with the total assets in is continuously increasing and the percentage of net NPA is decreasing over the total assets. Due to decrease in th e Net NPA the bank s capital adequacy is increasing and the bank is able to pay more loans.

Management Management of financial institution is generally evaluated in terms of capital a dequacy, asset quality, earnings and profitability, liquidity and risk sensitivity rating s. In addition, performance evaluation includes compliance with set norms, ability to plan and r eact to changing circumstances, technical competence, leadership and administrative abil ity. Sound management is one of the most important factors behind financial institutions performance. Indicators of quality of management, however, are primarily applica ble to individual institutions, and cannot be easily aggregated across the sector. Furt hermore, given the qualitative nature of management, it is difficult to judge its soundne ss just by looking at financial accounts of the banks. Nevertheless, total advance to total deposit, business per employee and profit per employee helps in gauging the management qu ality of the banking institutions.

Several indicators, however, can jointly serve as, for instance, efficiency measur es do as an indicator of management soundness. The ratios used to evaluate management eff iciency are described as under:

0.470334 0.26956 0.210178 0.170957 0.112758 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5 2010 2009 2008 2007

2006 Profit per branch Profir per branch Profit per branch:

(Rs. in crores)

Year Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Net Profit 1012.19 557.72 412.16 316.10 196.65 No. of Branches 2152 2069 1961 1849 1744 Net Profit /No. of Branches 0.470334

0.269560 0.210178 0.170957 0.112758

Interpretation:

Profit per branch shows the increasing trend. As number of branches of UCO bank are increasing and percentage of profit per branch also is increasing. It shows the effective management of UCO bank. It not only focuses on increasing branches but also prof it per branches. UCO bank has increased no. of branches from 1744 branches to 2152 bran ches also ratio of profit per branch is four times.

0.64 0.65 0.66 0.67 0.68 0.69 0.7 0.71 0.72 0.73 2010 2009 2008 2007 2006 Total advance to total deposits Ratio Total advance to total deposits Ratio Total Advance to Total Deposit Ratio: This ratio measures the efficiency and ability of the banks management in conver ting the deposits available with the banks (excluding other funds like equity capital, et c.) into high earning advances. Total deposits include demand deposits, saving deposits, term

deposit and deposit of other bank. Total advances also include the receivables. Total Ad vance to Total Deposit Ratio =Total Advance/ Total Deposit

(Rs. in Crores) Particulars Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Deposits 122,415.55 100,221.57 79,908.94 64,860.01 54,543.7 Advances 82,504.54 68,803.86 55,081.89 46,988.91 37,377.58 Total advances/Total Deposits 0.6739 0.6865 0.6893 0.7244 0.6852

Interpretation:

This ratio measures the efficiency and ability of the banks management in conver ting deposits available with the banks (excluding other funds like equity capital, et c.) into high

earning advances. Total deposits include demand deposits, saving deposits, Term deposit and deposit of other bank. Total advances also include the receivables.

In year 2008, ratio of total advance to total deposits showed decline trend main ly due to Recession. Due to sub-prime crisis, all over the world mainly financial institut ion s failure in US market; Bank across the world started preferring liquid assets. Even gold wer e been sold in exchange of currency. This can be one of the main reason for giving less adva nce as bank were short of liquidity.

But, after that bank managed it well, in 2010 ratio increased due effective mana gement.

Business per Employee: Revenue per employee is a measure of how efficiently a particular bank is utiliz ing its employees. Ideally, a bank wants the highest business per employee possible, as it denotes higher productivity. In general, rising revenue per employee is a positive sign that suggests the bank is finding ways to squeeze more sales/revenues out of each of its emplo yee. Business per Employee =Total Income/ No. of Employees

(In Rs. crores)

Jun 10 Jun 09

Jun 08

Business per Employee 8.88 7.36 5.82

(Sources: http://www.ucobank.com/Performance-Board-June10.pdf)

0 1 2 3 4 5 6 7 8 9 10 2010 2009 2008 Profit per Employee Profir per employee

Interpretation Revenue per employee is a measure of how efficiently a particular bank is utiliz ing its employees. Ideally, a bank wants the highest business per employee possible, as it denotes higher productivity. In general, rising revenue per employee is a positive sign

that suggests the bank is finding ways to squeeze more sales/revenues out of each of its emplo yee. UCO bank is doing well; it has increased from 5.82 to 8.82 crores.

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 2007 2008 2009 2010 % Growth in net profit Earnings Quality

Percentage Growth in Net Profits 2007 0.61 2008 0.30

2009 0.35 2010 0.81

As per the analysis it can be seen that the net profit of the bank is going cont inuously from the year 2008 onwards. In the year 2007 -08 the net profit was decreased because of the subprime crises in USA. And again it was increased in 2008-09 as RBI did not sto pped money flow in the market.

0 0.001 0.002 0.003 0.004 0.005 0.006 0.007 0.008 0.009 2006 2007 2008 2009 2010 Net profit to total assets Net Profit to total Assets 2006 0.0031 2007 0.0042 2008

0.0049 2009 0.0053 2010 0.0078

Net profit to total assets is continue increasing from 2006 onwards .It means th e bank is able to utilize its assets.

7 7.2 7.4 7.6 7.8 8 8.2 8.4 8.6 8.8 9 2006 2007 2008 2009 2010 Interest income to total income interest incometo total income Interest Income to Total Income 2006 7.61

2007 7.86 2008 8.39 2009 8.76 2010 8.06

0.27 0.28 0.29 0.3 0.31 0.32 0.33 0.34 0.35 0.36 0.37 2006 2007 2008 2009 2010 Non interest income to total funds Non interest income to total funds Non-Interest Income to Total Income 2006

0.30 2007 0.32 2008 0.36 2009 0.35 2010 0.32

Liquidity An adequate liquidity position refers to a situation, where institution can obta in sufficient funds, either by increasing liabilities or by converting its assets quickly at a reasonable cost. It is, therefore, generally assessed in terms of overall assets and liability ma nagement, as mismatching gives rise to liquidity risk. Efficient fund management refers to a situation where a spread between rate sensitive assets (RSA) and rate sensitive liabilitie s (RSL) is maintained. The most commonly used tool to evaluate interest rate exposure is th e Gap between RSA and RSL, while liquidity is gauged by liquid to total asset ratio. I nitially solvent financial institutions may be driven toward closure by poor management of shortterm liquidity. Indicators should cover funding sources and capture large maturity mi smatches. The term liquidity is used in various ways, all relating to availability of, acc ess to, or convertibility into cash. An institution is said to have liquidity if it can easily meet its needs for cas h either because it has cash on hand or can otherwise raise or borrow cash. . A market is said to be liquid if the instruments it trades can easily be bough t or sold in quantity with little impact on market prices. . An asset is said to be liquid if the market for that asset is liquid. The common theme in all three contexts is cash. A corporation is liquid if it ha s ready access to cash. A market is liquid if participants can easily convert positions into ca sh or conversely. An asset is liquid if it can easily be converted to cash.

The liquidity of an institution depends on: The institution's short-term need for cash; -Cash on hand; -Available lines of credit; -The liquidity of the institution's assets; -The institution's reputation in the marketplace how willing will counterparty is to transact trades with or lend to the institution. The liquidity of a market is often measured as the size of its bid-ask spread, b ut this is an imperfect metric at best. More generally, Kyle (1985) identifies three component s of market liquidity: -Tightness is the bid-ask spread; -Depth is the volume of transactions necessary to move prices; -Resiliency is the speed with which prices return to equilibrium following a lar ge trade. Examples of assets that tend to be liquid include foreign exchange; stocks trade d in the Stock Exchange or recently issued Treasury bonds. Assets that are often illiquid include limited partnerships, thinly traded bonds or real estate. Cash maintained by the banks and balances with central bank, to total asset rati o (LQD) is an indicator of bank's liquidity. In general, banks with a larger volume of liquid assets are perceived safe, since these assets would allow banks to meet unexpected withdraw als. Credit deposit ratio is a tool used to study the liquidity position of the bank. It is calculated by dividing the cash held in different forms by total deposit. A high ratio show s that there is more amounts of liquid cash with the bank to met its clients cash withdrawals. The ratios suggested to measure liquidity under CAMELS Model are as follows: Liquidity Asset to Total Asset: Liquidity for a bank means the ability to meet its financial obligations as they come due. Bank lending finances investments in relatively illiquid assets, but it fund its loans with mostly short term liabilities. Thus one of the main challenges to a bank is ensu ring its own

liquidity under all reasonable conditions. Liquid assets include cash in hand, b alance with the RBI, balance with other banks (both in India and abroad), and money at call and short notice. Total asset include the revaluations of all the assets. The proportion of liquid asset to total asset indicates the overall liquidity position of the bank. Liquidity Asset to Total Asset

Financial year 07 3794.27+2420.26+46988.91/74863.89 = 0.710669 Financial year 08 5702.72+2400.80+55081.89/89794.93 = 0.70366 Financial year 09 6588.85+4264.59+68803.86/111664.16 = 0.713365 Financial year 10 7242.73+861.60+82504.53/137319.47 = 0.65984 Government Securities to Total Asset Government Securities are the most liquid and safe investments. This ratio measu res the government securities as a proportion of total assets. Banks invest in governmen t securities primarily to meet their SLR requirements, which are around 25% of net demand and time

liabilities. This ratio measures the risk involved in the assets hand by a bank.

Government Securities Total Asset Approved Securities to Total Asset Approved securities include securities other than government securities. This ra tio measures the Approved Securities as a proportion of Total Assets. Banks invest in approve d securities primarily after meeting their SLR requirements, which are around 25% of net dema nd and time liabilities. This ratio measures the risk involved in the assets hand by a bank. Approved Securities Total Asset

Liquidity Asset to Demand Deposit This ratio measures the ability of a bank to meet the demand from deposits in a particular year. Demand deposits offer high liquidity to the depositor and hence banks have to invest these assets in a highly liquid form. Liquidity Asset Demand Deposit Financial year 08 5702.72+2400.8+55081.89/99410 =0.63561 Financial year 09 6588.85+4264.59+68803.86/-1179 =67.56344

Liquidity Asset to Total Deposit This ratio measures the liquidity available to the deposits of a bank. Total dep osits include demand deposits, savings deposits, term deposits and deposits of other financial institutions. Liquid assets include cash in hand, balance with the RBI, and balance with other banks (both in India and abroad), and money at call and short notice. Liquidity Asset Total Deposit Financial year 07 3794.27+2420.26+46988.91/64860.01 =0.8202 Financial year 08 5702.72+2400.80+55081.89/79908.94 =0.790718 Financial year 09 6588.85+4263.59+68803.86/100221.57 =0.7948 Financial year 10 7242.73+861.60+82504.53/122415.55 =0.74017

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Return on Equity (ROE) and Return on Assets (ROA) Analysis Return on Equity (ROE) Mar '06 Mar '07 Mar

'08 Mar '09 Mar '10 0.25 0.40 0.52 1.02 1.84

Interpretation: Return on equity (ROE) measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. It measures a firm's efficien cy at generating profits from every unit of shareholders' equity (also known as net as sets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth. The formula for ROE is Net Income/ Average Total Equity. UCO Ba nk s ROE has always shown a growth over the past 5 years and it has grown at a very f ast rate from the year 2008 to 2009 and from the year 2009 to 2010. This is because in th e last 5 years its equity share capital has never increased; rather it decreased from Rs7 99.36crore to Rs549.36crore from the year 2008 to 2009. On the other hand its Net Income has a lways increased over the past 5 years and the jump from 2009 to 2010 was very high. Th e high growth in ROE from 2008 to 2009 is not only because its Net Income increased but also because its Equity Share Capital decreased but the high growth from 2009 to 2010 is due to the fact that it s Net Income almost doubled in this period.

0.0000 0.0010 0.0020 0.0030 0.0040 0.0050 0.0060 0.0070 0.0080 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Return on Assets (ROA) Mar '06 Mar '07 Mar '08 Mar ' 09 Mar '

10 0.0032 0.0042 0.0046 0.0050 0.0074

Interpretation: The formula for Return on Assets (ROA) is Net Income/ Average Total Assets. It s hows how profitable a company s assets are in generating revenue.The number tells you what the company can do with what it has, i.e. how many rupees of earnings it derives fro m each rupee of assetsit controls. In case of UCO Bank we can see that its ROA has incr eased over the years, especially from the year 2009 to 2010. This is because though its Tot al Assets has increased over the years, its Net Income has also increased accordingly and at a faster rate. The cause for the big jump in the ROA from the year 2009 to 2010 is due the fact that its Net Income almost doubled in this time from Rs557.72crore to Rs1,012.19crore the cha nge in its Total Assets during this period was Rs111,664.16crore to Rs137,319.47crore. With the increase in ROA we can conclude that UCO Bank is utilizing its assets well for g enerating revenue.

0.00 50.00 100.00 150.00 200.00 250.00 300.00 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Equity Multiplier Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 77.36 93.65 112.33

203.26 249.96

Interpretation: The formula for Equity Multiplier is Total Assets/Total Equity. It is a measure of the bank s financial leverage. A higher leverage works in the bank s favour when the by boost ing the ROE when the earnings are positive. But it is a double-edged sword because when the bank records negative earnings the fall in ROE is greater. Here, in case of UCO Bank we can see that its Equity Multiplier has shown a steady growth from the year 2006 to 2010. If we observe more closely we can also see that the jump from 2008 to 2009 is very hig h. So, it can be concluded that the risk in UCO Bank s equity has gradually increased over the y ears as the chances of fluctuations in its ROE has increased.

Sensitivity to market risk Some key issues under this are as follows:

Internal Control Systems

Like the central banks in developed supervisory regimes, RBI also has started pl acing an increasing reliance on professional accountants in the assessment of internal co ntrol systems of the banks and non-bank financial institutions. Over the period, the responsibilities of auditors have been delineated not only to make the audit mor e detailed but also to make them accountable. The methodology and processes used to generat e available data as certified by audit profession would improve the reliability of financial statements as regards their conformity with national accounting and disclosure s tandards.

Another area of crucial importance is strengthening of internal control systems in banks. The Reserve Bank has, over the years, emphasised the need for having an effective in ternal control system in banks. Banks have also been advised to introduce the system of Concurrent Audit in major and specialized branches. As a result, all commercial banks have introduced concurrent audit since 1993 by using external auditors as a major res ource. The banks are now required to set up Audit Committees to follow up on the reports of the statutory auditors and inspection by RBI. Similarly, immediate action is warrant ed on reconciliation of inter branch accounts which if left unreconciled, is fraught w ith grave risks. Substantial progress has been made by banks in reconciliation of the outstanding entries, and BFS reviews the progress in this area at quarterly intervals.

Technology is the key The decade of 90s has witnessed a sea change in the way banking is done in India . Technology has made tremendous impact in banking. Anywhere banking and anytime banking has become a reality. This has thrown new challenges in the banking sect or and new issues have started cropping up which is going to pose certain problems in t he near future. The new entrants in the banking are with computer background. However, o ver a period of time they would acquire banking experience. Whereas the middle and sen ior level people have rich banking experience but their computer literacy is at a low leve l. Therefore, they feel the handicap in this regard since technology has become an indispensab le tool in banking.

Foreign banks and the new private sector banks have embraced technology right fr om the inception of their operations and therefore, they have adapted themselves to the changes in the technology easily. Whereas the Public Sector Banks (PSBs) and the old privat e sector banks (barring a very few of them) have not been able to keep pace with these developments. In this regard, one can cite historical, political and other facto rs like work culture and working relations (which are mainly governed by bipartite settlement s between the managements and the staff members) as the main constraints. Added to these w oes, the PSBs were also saddled with some nonviable and loss making branches, thanks to the social banking concept thrust upon them by the regulatory authorities in 1960s.

\mathrm{ROE} = \frac{\mbox{Net income}}{\mbox{Sales}}\times\frac{\mbox{Sales}}{\ mbox{Total Assets}}\times\frac{\mbox{Total Assets}}{\mbox{Average stockholder eq uity}} The DuPont Analysis The DuPont formula, also known as the strategic profit model, is a common way to break down ROE into three important components. Essentially, ROE will equal the net margin multiplied by asset turnover multiplied by financial leverage. Splitting return on equity into three parts makes it easier to understand changes in ROE over time. For example, if the net margin increases, every sale brings in more money, resulting in a higher overall ROE. Similarly, if the asset turnover increases, the firm generates more sales for every unit of assets owned, again resulting in a higher overall ROE. Finally, in creasing financial leverage means that the firm uses more debt financing relative to equi ty financing. Interest payments to creditors are tax deductible, but dividend payments to shar eholders are not. Thus, a higher proportion of debt in the firm's capital structure leads to higher ROE. Financial leverage benefits diminish as the risk of defaulting on interest payme nts increases. So if the firm takes on too much debt, the cost of debt rises as creditors deman d a higher risk premium, and ROE decreases. Increased debt will make a positive contributio n to a firm's ROE only if the matching Return on assets (ROA) of that debt exceeds the interest rate on the debt. The DuPont formula is:

The DuPont Analysis of UCO Bank is as follows: Year Net Income/Revenue i.e. Asset Utilization A Revenue/Total Assets i.e. Margin B Total Assets/Average Shareholder Equity i.e.

Equity Multiplier C AxBxCi.e.Return on Equity(ROE) 2006 .041 .078 77.36 .25

2007 .054 .078 93.65 .40 2008 .057 .081 112.33 .52 2009 .061 .082 203.26 1.02 2010 .096 .076 249.96 1.84

In case of UCO Bank we can see that its Asset Utilization has shown a steady inc rease over the 5 years, especially in the last year i.e. 2010 there was a big jump due to t he fact that its Net Income almost doubled in this year. So, we can infer that the Asset Utilizat ion of UCO Bank is on the right track over the past % years. The Revenue to Total Assets ra tio i.e. the margin grew steadily from 2006 to 2009, but in the year 2010 it dropped by .006 which is a bad sign for the bank. The Equity multiplier grew steadily from 2006 to 2008, th en there was a huge jump as the Equity Capital of UCO Bank decreased by Rs250 crore and its T otal Assets also increased by around Rs21869.23 crore. It aslo grew in the year 2010. In 201

0, while calculating ROE, though the margin for the bank decreased it was more than compe nsated by the increase in the Asset Utilization by the bank. So, we can see that the RO E of UCO Bank has always increased over the years for the last 5 years though its margin dropped in the year 2010.

Findings Capital adequacy: The capital adequacy ratio of all the three banks is above the minimum requireme nts and above the industry average. Assets: UCO Bank has maintained a standard for the NPA s in the period of 2006-2010. UCO b ank has shown remarkable decrease in NPA s in the same period. Management: Professional approach that has been adopted by the banks in the recent past is i n right direction & also it is the right decision. Earnings: UCO has shown a good growth record for its ROA. Liquidity: Banks should maintain quality securities with good liquidity to meet contingenci es. Sensitivity to Market Risks: UCO banks have ventured into many financial areas and are in the league of Unive rsal Banking and also it has overseas presence. They have also become sensitive to cu stomer needs.

Conclusion & Recommendations 1. UCO banks should adapt themselves quickly to the changing norms.

2. The system is getting internationally standardized with the coming of BASELL II accords so the UCO bank and Indian banks should strengthen internal processes so as to cope with the standards.

3. UCO bank should maintain a 0% NPA by always lending and investing or creating quality assets which earn returns by way of interest and profits.

4. UCO bank should find more avenues to hedge risks as the market is very sensit ive to risk of any type.

5. Have good appraisal skills, system, and proper follow up to ensure that UCO b ank is above the risk.

References

. http://www.allbankingsolutions.com/camels.htm . http://www.shkfd.com.hk/glossary/eng/RA.htm . "http://www.wikinvest.com/wiki/CAPITAL_ADEQUACY_RATIO" . http://www.stock-picks-focus.com/hdfc-bank.html . http://www.stock-picks-focus.com/-bank.html . http://www.ucobank.com . www.financialexpress.com/ucobank . www.thehindu.com/ucobank . http://www.indiainfoline.com/Markets/Company/Fundamentals/Cash-Flow/UCO-Bank/5 32505