1.

1 INTRODUCTION TO INDUSTRY

INTRODUCTION TO THE BANKS

The banking sector is the lifeline of any modern economy. It is one of the important financial
pillars of the financial sector, which plays a vital role in the functioning of an economy. It is
very important for economic development of a country that its financing requirements of
trade, industry and agriculture are met with higher degree of commitment and responsibility.
Thus, the development of a country is integrally linked with the development of banking. In a
modern economy, banks are to be considered not as dealers in money but as the leaders of
development. They play an important role in the mobilization of deposits and disbursement of
credit to various sectors of the economy. The banking system reflects the economic health of
the country. The strength of an economy depends on the strength and efficiency of the
financial system, which in turn depends on a sound and solvent banking system. A sound
banking system efficiently mobilized savings in productive sectors and a solvent banking
system ensures that the bank is capable of meeting its obligation to the depositors. In India,
banks are playing a crucial role in socio-economic progress of the country after
independence.

The banking sector is dominant in India as it accounts for more than half the assets of the
financial sector. Indian banks have been going through a fascinating phase through rapid
changes brought about by financial sector reforms, which are being implemented in a phased
manner. The current process of transformation should be viewed as an opportunity to convert
Indian banking into a sound, strong and vibrant system capable of playing its role efficiently
and effectively on their own without imposing any burden on government. After the
liberalization of the Indian economy, the Government has announced a number of reform
measures on the basis of the recommendation of the Narasimhan Committee to make the
banking sector economically viable and competitively strong. The current global crisis that
hit every country raised various issue regarding efficiency and solvency of banking system in
front of policy makers. Now, crisis has been almost over, Government of India (GOI) and
Reserve Bank of India (RBI) are trying to draw some lessons.

RBI is making necessary changes in his policy to ensure price stability in the economy. The
main objective of these changes is to increase the efficiency of banking system as a whole as
well as of individual institutions. So, it is necessary to measure the efficiency of Indian Banks
so that corrective steps can be taken to improve the health of banking system.

EVALUATION OF INDIAN BANKING

The period of last six decades has viewed many macro economic development of India. The
monitory, external and banking policies have undergone several changes. The structural
changes in the Indian financial system specially in banking system has influence the
evaluation of Indian Banking in different ways. After the independence and implementation
of banking reforms, we can see the changes in the functioning of commercial banks. In order
to understand the changing role of commercial banks and the problems and challenges, it
would be appropriate to review the major development in the Indian banking sector.
Evaluation of Indian banking may be traced through four distinct phases

1. Evolutionary phase (Prior to 1947)

2. Foundation phase (1947-1969)
3. Expansion phase (1969-1990)
4. Consolidation and Liberalization phase (1990 to till)

The present chapter analyses the above phases and structure of the banking sector in
India. The main objective of this chapter is to setup the ground and logic for the next
chapter.

Evolutionary phase (Prior to 1947)

According to the Central Banking Enquiry Committee (1931), money lending activity in
India could be traced back to the Vadic period, i.e., 2000 to 1400 BC. The existence of
professional banking in India could be traced to the 500 BC. Kautilya Arthashastra, dating
back to 400 BC contained references to creditors, lenders and lending rates. Banking was
fairly varied to the credit needs for the trade, commerce, agriculture as well as individuals in
the economy, Mr. W.E. Preston, member, Royal Commission on India Currency and finance
set up in 1926, observed “….. it may be accepted that a system of banking that was extremely
suited to India then requirements was in force in that country many countries before the
science of banking become an accomplished fact inEngland.”2 They had their own in land
bills of exchange or Hundis which were the major instruments of transactions. The
dishonoring of bundies was a rare at that time as most banking worked on mutual trust,
confidence and without securities. The first western bank of a joint stock verity was Bank of
Bombay, establishing 1720 in Bombay. 3This was followed by bank of Hindustan in
Calcutta, which was established in1770 by an agency house.4 This agency house and banks
were close down in 1932. The first „Presidency Bank‟ was the Bank of Bengal established in
Calcutta on June 2, 1806with a capital of Rs.50 Lakh. The Government subscribed to 20
percent of its share capital and shared the privilege of appointing directors with voting rights.
The bank had the task to discounting the treasury bills to provide accumulation to the
Government. The bank was given powers to issue notes in 1823. The Bank of Bombay was
the second presidency bank set up in 1840 with a capital of Rs. 52 Lakh, and the Bank of
Madras the third Presidency bank established in July 1843 with a capital of Rs. 30 Lakh. The
presidency banks were governed by Royal charters. The presidency banks issued
currency notes until the passing of the paper currency Act, 1861, when this right to issue
currency notes by the presidency banks was taken over and that function was given to the
Government. The presidency bank act, which came into existence in 1876, brought the 2 As
Quoted by the Indian Central Banking Enquiry Committee (1931), Chapter II Page 11.3 RBI
(2006).4 Indian Central Banking Enquire Committee (1931)
Three presidency banks under a common statute and imposed some restrictions on their
business. It prohibited them from dealing with risky business of foreign bills and abroad for
lending more than 6 months. The presidency banks were amalgamated into a single bank, the
Imperial Bank of India, in 1921. The Imperial Bank of India was further reconstituted with
the merger of a number of banks belonging to old princely states such as Jaipur, Mysore,
Patiala and Jodhpur. The Imperial Bank of India also functioned as a central bank prior to the
establishment of the Reserve Bank in 1935. Thus, during this phase, the Imperial Bank of
India performed three set of functions via commercial banking, central banking and the
banker to the government. The first Indian owned bank was the Allahabad Bank set up in
Allahabad in 1865, the second, Punjab National Bank was set up in 1895 in Lahore, and the
third, Bank of India was set up in 1906 in Mumbai. All these banks were founded under
private ownership. The Swadeshi Movement of 1906 provided a great momentum to joint
stock banks of Indian ownership and many more Indian commercial banks such as Central
Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were
established between 1906 and 1913. By the end of December 1913, the total number of
reporting commercial banks in the country reached 56 comprising 3 Presidency banks, 18
Class „A‟ (with capital of greater than Rs.5 lakh), 23 Class „B‟ banks (with capital of
Rs.1lakh to 5 lakh) and 12 exchange banks. Exchange banks were foreign owned banks that
engaged mainly in foreign exchange business in terms of foreign bills of exchange and
foreign remittances for travel and trade. Class A and B were joint stock banks. The banking
sector during this period, however, was dominated by the Presidency banks as was reflected
in paid-up capital and deposits

BANKING STRUCTURE IN INDIA

Indian banking system consists of “non scheduled banks” and “scheduled banks”. Non
scheduled banks refer to those that are not included in the second schedule of the Banking
Regulation Act of 1965 and thus do not satisfy the conditions laid down by that schedule.
Schedule banks refer to those that are included in the Second Schedule of Banking
Regulation Act of 1965 and thus satisfy the following conditions: a bank must

1) Have paid up capital and reserve of not less than Rs. 5 lakh and

(2) satisfy the Reserve Bank of India (RBI) that its affairs are not conducted in a
manner detrimental to the interest of its deposits. Scheduled banks consists of “scheduled
commercial banks” and scheduled cooperative banks.

The former are further divided into four categories:

(1) Public sector banks (that are further classified as “Nationalized Banks and the “State Bank
of India(SBI) banks”);
(2) Private sector banks (that are further classified as “Old Private Sector Banks” and “New
Private Sector Banks” that emerged after 1991);
(3) Foreign banks in India, and
(4) Regional rural banks (that operate exclusively in rural areas to provide credit and other
facilities to small and marginal farmers, agricultural workers and small entrepreneurs).
These scheduled commercial banks except foreign banks are registered in India under the
Companies Act.15The SBI banks consist of SBI and five independently capitalized banking
subsidiaries. The SBI is the largest commercial bank in India in terms of profits, assets,
deposits, branches and employees and has 13 head offices governed each by a board of
directors under the supervision of a central board. It was originally established in 1806when
the bank of Calcutta (latter called the Bank of Bengal) was established, and then
amalgamated as the Imperial Bank of India after the merger with the bank of Madras and the
Bank of Bombay. The Imperial Bank of India was Nationalized and named SBI in 1955.
Nationalized banks refer to private sector banks that were nationalized (14 banks in 1969 and
6 in 1980) by the central government compared with the SBI banks, nationalized banks are
centrally governed by their respective head offices. In1993, Punjab National Bank merged
another nationalized bank, New Bank of India, leading to a decline in total number of
nationalized banks from 20 to 19. Regional rural banks account for only 4% of total assets of
scheduled commercial banks. As at the end of March 2001, the number of scheduled banks is
a follows: 19 nationalized banks, 8 SBI banks, 23 old private sector banks, 8 new private
sector banks, 42 foreign banks, 196 regional and 67 cooperative banks. But number of
scheduled commercial banks in India as on 31 October, 2012 as follows: 26 public sector
banks 20 private sector banks.

Indian banking system consists of “non scheduled banks” and “scheduled banks”. Non
scheduled banks refer to those that are not included in the second schedule of the Banking
Regulation Act of 1965 and thus do not satisfy the conditions laid down by that schedule.
Schedule banks refer to those that are included in the Second Schedule of Banking
Regulation Act of 1965 and thus satisfy the following conditions

The banking sector is dominant in India as it accounts for more than half the assets of the
financial sector. Indian banks have been going through a fascinating phase through rapid
changes brought about by financial sector reforms, which are being implemented in a phased
manner. The current process of transformation should be viewed as an opportunity to convert
Indian banking into a sound, strong and vibrant system capable of playing its role efficiently
and effectively on their own without imposing any burden on government. After the
liberalization of the Indian economy, the Government has announced a number of reform
measures on the basis of the recommendation of the Narasimhan Committee to make the
banking sector economically viable and competitively strong. The current global crisis that
hit every country raised various issue regarding efficiency and solvency of banking system in
front of policy makers. Now, crisis has been almost over, Government of India (GOI) and
Reserve Bank of India (RBI) are trying to draw some lessons.
BANKING STRUCTURE IN INDIA

―Development involves not merely economic changes but also social and industrial in many
underdeveloped countries call for new sets of values and new concepts of society and government. No
path to development is likely to be smooth. Banking is the base for economic development.
-Dr. N. Kumar

As Indian celebrates its 65th anniversary and an amazing growth as one of the fastest
growing economies in the World (Second to China), one sector which has played a vital
role in prevention from failing up economy is undoubtedly the Banking Sector. The
Banking Sector‘s performance is seen as the exact copy of economic activities of the
nation as a healthy Banking Sector system Acts as the basic facts of solid economic and
industrial growth of a nation.

During the past sixty five years, since independence, the Banking Sector has witness
significant changes and has surely come a long way from the nationalization and
privatization in the post-1997 era. The last two decade has brought about significant
changes in the Banking area in the country with technology being a major facilitator of
this transformation. ATMs, Internet Banking, CCs, and now Mobile Banking have helped
revolutionize the Banking landscape in the country.2 The old concepts, attitudes and
methods in Banking have yield place to new techniques of viability, need base finance
and marketing. Instead of the Banks merely moving with the slope into immediately
profitable ventures, they are required to participate in the nation building activities and
help in bringing about socio-economic changes. Banks are not only financial institutions
those mobilize funds from one to another but as social organizations, have to go out the
people and assist weaker sections in achieving their aspirations.

Banks are, thus, to act as catalytic agents for the development of the country, mobilizing
resources whether these are and canalizing them towards productive persons. New
strategies have to be involved for industrial development, both in small- scale and large-
scale sectors and, rather than confining to the traditional way of strong and distribution
finance of a short nature, developmental finance and term lending have to be taken up by
commercial Banks. Similarly opening of branches in Rural and Urban area efficient
customer.

ORIGIN OF THE WORD “BANK”

There seems no uniformity amongst the economist about the origin of the word―Bank
According to some authors the word Bank itself is derived from the word ―Bancus‖or Banque
that is a bench. The early bankers, the Jews inLombardy, transacted their business on benches
in the market place, when, a banker failed, his ‗Banco‘ was broken up by the people; it was
called Bankrupt. This etymology is however, ridiculed bymcleod on the ground that ―The
Italian Money changers as such were never called Banchier in the middle ages.

It is generally said that the word "BANK" has been originated in Italy. In the middle of 12th
century there was a great financial crisis in Italy due to war. To meet the war expenses, the
government of that period a forced subscribed loan on citizens of the country at the interest of
5% per annum. Such loans were known as 'Compare', 'minto' etc. The most common name
was "Monte'. In Germany the word 'Monte was named as 'Bank' or 'Banke'. According to
some writers, the word 'Bank' has been derived from the word bank.

It is also said that the word 'bank' has been derived from the word 'Banco' which means a
bench. The Jews money lenders in Italy used to transact their business sitting on benches at
different market places. When any of them used to fail to meet his obligations, his 'Banco' or
banch or bench would be broken by the angry creditors. The word 'Bankrupt' seems to be
originated from broken Banco. Since, the banking system has been originated from money
leading business; it is rightly argued that the word 'Bank' has been originated from the word
baanco'. Whatever be the origin of the word ‗Bank‘ as Professor Ram Chandra Rao says, ―It
would trace the history of banking in Europe from the middle Ages.
Actually meaning of bank is not specifies in any regulation or act. In India, different people
have different type of meaning for bank. Normal salary earner knows means of bank that it is
a saving institution, for current account holder or businessman knows bank as a financial
institutions and many other. Bank is not for profit making, it creates saving activity in salary
earner.

MEANING OF BANK

Finance is the life blood of trade, commerce and industry. Now-a-days, bank money acts
as the backbone of modern business. Development of any country mainly depends upon
the banking system.

The term bank is derived from the French word banco which means a bench or money
exchange table. In olden days, European money lenders or money changers used to
display (show) coins of different countries in big heaps (quantity) on benches or tables for
the purpose of lending or exchanging.

A bank is financial institution which deals with deposits and advances and other related
services. It receives money from those who want to save in the form of deposits and it
lends money to those who need it.

DEFINITIONS OF BANK

As bank is a very comprehensive word, various definitions have been given of the term
bank at various places and in various forms. To understand the basic idea and themeaning
of the term bank clearly, few definitions of the term bank are taken in different categories
as under:

BANKING UNDER LAW

The Banking Regulation Act-1949 defines in Sec.5 (1) (c):

Any company which is transacts the business of banking in India‖. However, the
acceptance of deposits by companies for the purpose of financing their own business is
not regarded as banking within the meaning of the act. The essential characteristics of the
banking business as define in section 5(b) of the banking Regulation Act is as follows:
 1. Acceptance of deposits from the public
2. For the purpose of lending or investment
3. Repayable on demand or otherwise, and
4. Withdraw able by means of any instrument whether a Cheque or otherwise.

HISTORY OF BANKING IN INDIA

The first bank in India, though conservative, was established in 1786. From 1786 till
today, the journey of Indian Banking System can be segregated into three distinct phases:

 Early phase of Indian banks, from 1786 to1969

 Nationalization of banks and the banking sector reforms, from 1969 to1991

• New phase of Indian banking system, with the reforms after1991.

Phase 1

The first bank in India, the General Bank of India, was set up in 1786. Bank of Hindustan and
Bengal Bank followed. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840), and Bank of Madras (1843) as independent units and called them Presidency
banks. These three banks were amalgamated in 1920 and the Imperial Bank of India, a bank
of private shareholders, mostly Europeans, was established. Allahabad Bank was established,
exclusively by Indians, in 1865. Punjab National Bank was set up in 1894 with headquarters
in Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda,
Canara Bank, Indian Bank, and Bank of Mysore were set up. The Reserve Bank of India
came in 1935.

During the first phase, the growth was very slow and banks also experienced periodic
failures between 1913 and 1948. There were approximately 1,100 banks, mostly small. To
streamline the functioning and activities of commercial banks, the Government of India came
up with the Banking Companies Act, 1949, which was later changed to the Banking
Regulation Act, 1949 as per amending Act of 1965 (Act No. 23 of 1965). The Reserve Bank
of India (RBI) was vested with extensive powers for the supervision of banking in India as
the Central banking authority. During those days, the general public had lesser confidence in
banks. As an aftermath, deposit mobilization was slow. Moreover, the savings bank facility
provided by the Postal department was comparatively safer, and funds were largely given to
traders.
Phase 2
The government took major initiatives in banking sector reforms after Independence. In
1955, it nationalized the Imperial Bank of India and started offering extensive banking
facilities, especially in rural and semi-urban areas. The government constituted the State
Bank of India to act as the principal agent of the RBI and to handle banking transactions of
the Union government and state governments all over the country. Seven banks owned by the
Princely states were nationalized in 1959 and they became subsidiaries of the State Bank of
India. In 1969, 14 commercial banks in the country were nationalized. In the second phase of
banking sector reforms, seven more banks were nationalized in 1980. With this, 80 percent of
the banking sector in India came under the government ownership.

Phase 3
This phase has introduced many more products and facilities in the banking sector as part of
the reforms process. In 1991, under the chairmanship of M Narasimham, a committee was set
up, which worked for the liberalization of banking practices. Now, the country is flooded
with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service
to customers. Phone banking and net banking are introduced. The entire system became more
convenient and swift. Time is given importance in all money transactions. The financial
system of India has shown a great deal of resilience. It is sheltered from crises triggered by
external macroeconomic shocks, which other East Asian countries often suffered. This is all
due to a flexible exchange rate regime, the high foreign exchange reserve, the not-yet fully
convertible capital account, and the limited foreign exchange exposure of banks and their
customers.

ROLE OF RESERVE BANK OFINDIA

The Reserve Bank of India (RBI)

it is the central banking system of India and controls the monetary policy of the Rupee as
well as currency reserves. The institution was established on 1 April 1935 during the British
Raj in accordance with the provisions of the Reserve Bank of India Act, 1934 and plays an
important part in the development strategy of the government. It is a member bank of the
Asian Clearing Union.
The Reserve Bank of India was constituted under the reserve Bank of India Act, 1934 to
regulate the issue of bank notes and the maintenance of reserves with a view to securing the
monetary stability in India and generally to operate the currency and credit system of the
country to itsadvantage.10The central bank was founded in 1935 to respond to economic
troubles after the First World War. The Reserve Bank of India was set up on the
recommendations of the Hilton Young Commission.
The commission submitted its report in the year 1926, though the bank was not set up for
another nine years. The Preamble of the Reserve Bank of India describes the basic functions
of the Reserve Bank as to regulate the issue of bank notes, to keep reserves with a view to
securing monetary stability in India and generally to operate the currency and credit system
in the best interests of the country. The Central Office of the Reserve Bank was initially
established in Kolkata, Bengal but was permanently moved to Mumbai in 1937.
The Reserve Bank continued to act as the central bank for Myanmar till Japanese occupation
of Burma and later up to April 1947, though Burma seceded from the Indian Union in 1937.
After partition, the Reserve Bank served as the central bank for Pakistan until June 1948
when the State Bank of Pakistan commenced operations. Though originally set up as a
shareholders‘ bank, the RBI has been fully owned by the government of India since its
nationalization in 1949.

Between 1950 and 1960, the Indian government developed a centrally planned economic
policy and focused on the agricultural sector. The administration nationalized commercial
banks and established, based on the Banking Companies.

Act, 1949 (later called Banking Regulation Act) a central Bank regulation as part of the
RBI. Furthermore, the central bank was ordered to support the economic plan with loans. As
a result of bank crashes, the reserve bank was requested to establish and monitor a deposit
insurance system. It should restore the trust in the national bank system and was initialized
on 7 December 1961. The Indian government founded funds to promote the economy and
used the slogan Developing Banking. The Gandhi administration and their successors
restructured the national bank market and nationalized a lot of institutes. As a result, the RBI
had to play the central part of control and support of this public banking sector.

Between 1969 and 1980 the Indian government nationalized 20 banks. The regulation of the
economy and especially the financial sector was reinforced by the Gandhi administration
and their successors in the 1970s and 1980s. The central bank became the central player and
increased its policies for a lot of tasks like interests, reserve ratio and visible deposits. The
measures aimed at better economic development and had a huge effect on the company
policy of the institutes. The banks lent money in selected sectors, like agri-business and
small trade companies.

The branch was forced to establish two new offices in the country for every newly
established office in a town. The oil crises in 1973 resulted in increasing inflation, and the
RBI restricted monetary policy to reduce the effects. A lot of committees analyzed the
Indian economy between 1985 and 1991. Their results had an effect on the RBI. The Board
for Industrial and Financial Reconstruction, the Indira Gandhi Institute of Development
Research and the Security & Exchange Board of India investigated the national economy as
a whole, and the security and exchange board proposed better methods for more effective
markets and the protection of investor interests. The Indian financial market was a leading
example for so-called "financial repression" (Mackinnon and Shaw). The Discount and
Finance House of India began its operations on the monetary market in April 1988; the
National Housing Bank, founded in July 1988, was forced to invest in the property market
and a new financial law improved the versatility of direct deposit by more security measures
and liberalization.
The national economy came down in July 1991 and the Indian rupee was devalued. The
currency lost 18% relative to the US dollar, and the Narsimahmam Committee advised
restructuring the financial sector by a temporal reduced reserve ratio as well as the statutory
liquidity ratio. New guidelines were published in 1993 to establish a private banking sector.
This turning point should reinforce the market and was often called neo-liberal The central
bank deregulated bank interests and some sectors of the financial market like the trust and
property markets.

The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed
nationalized banks in July to interact with the capital market to reinforce their capital base.
The central bank founded a subsidiary company— the Bharatiya Reserve Bank Note
Mudran Limited—in February 1995 to produce banknotes. The Foreign Exchange
Management Act from 1999 came into force in June 2000. It should improve the foreign
exchange market, international investments in India and transactions. The RBI promoted the
development of the financial market in the last years, allowed online banking in 2001 and
established a new payment system in2004- 2005 (National Electronic Fund Transfer). The
Security Printing & Minting Corporation of India Ltd., a merger of nine institutions, was
founded in 2006 and produces banknotes and coins.

Function of Reserve Bank of India:

As a central bank, the Reserve Bank has significant powers and dutie sto perform.
For smooth and speedy progress of the Indian Financial System, it has to perform
some important tasks. Among others it includes maintaining monetary and financial
stability, to develop and maintain stable payment system, to promote and develop
financial infrastructure and to regulate or control the financial institutions.

[A] Traditional Function

Traditional functions are those functions which every central bank of each nation
performs all over the world. Basically these functions are in line with the objectives
with which the bank is set up. It includes fundamental functions of the Central Bank.
They comprise the following tasks.

Issue of the Currency Note

The RBI has the sole right or authority or monopoly of issuing currency notes except
one rupee note and coins of smaller denomination. These currency notes are legal
tender issued by the RBI. Currently it is in denominations of Rs. 2, 5, 10, 20, 50, 100,
500, and 1,000. The RBI has powers not only to issue and withdraw but even to
exchange these currency notes for other denominations. It issues these notes
against the security of gold bullion, foreign securities, rupee coins, exchange bills
and promissory notes and government of India bonds.

Banker to the Banks

The RBI being an apex monitory institution has obligatory powers to guide, help and
direct other commercial banks in the country. The RBI can control the volumes of
banks reserves and allow other banks to create credit in that proportion. Every
commercial bank has to maintain a part of their reserves with its parent's viz. the
RBI. Similarly in need or in urgency thesebanks approach the RBI for fund. Thus it is
called as the lender of the last resort.

Banker to the Government

The RBI being the apex monitory body has to work as an agent of the central and
state governments. It performs various banking function such as to accept deposits,
taxes and make payments on behalf of the government. It works as a representative
of the government even at the international level. It maintains government accounts,
provides financial advice to the government. It manages government public debts
and maintains foreign exchange reserves on behalf of the government. It provides
overdraft facility to the government when it faces financial crunch.

Exchange Rate Management

It is an essential function of the RBI. In order to maintain stability in the external
value of rupee, it has to prepare domestic policies in that direction. Also it needs to
prepare and implement the foreign exchange rate policy which will help in attaining
the exchange rate stability. In order to maintain the exchange rate stability it has to
bring demand and supply of the foreign currency (U.S Dollar) close to each other.

Credit Control Function

Commercial bank in the country creates credit according to the demand in the
economy. But if this credit creation is unchecked or unregulated then it leads the
economy into inflationary cycles. On the other credit creation is below the required
limit then it harms the growth of the economy. As a central bank of the nation the
RBI has to look for growth with price stability.

Supervisory Function
The RBI has been endowed with vast powers for supervising the banking system in
the country. It has powers to issue license for setting up new banks, to open new
braches, to decide minimum reserves, to inspect functioning of commercial banks in
India and abroad, and to guide and direct the commercial banks in India.

[B] Developmental Function

Along with the routine traditional functions, central banks especially in the developing
country like India have to perform numerous functions. These functions are country
specific functions and can change according to there requirements of that country.
The RBI has been performing as a promoter of the financial system since its
inception. Some of the major development functions of the RBI are maintained below

.Development of the financial System

The financial system comprises the financial institutions, financial markets and
financial instruments. The sound and efficient financial system is a precondition of
the rapid economic development of the nation. The RBI has encouraged
establishment of main banking and non-banking institutions to cater to the credit
requirements of diverse sectors of the economy.

Development of Agriculture
In an agrarian economy like ours, the RBI has to provide special attention for the
credit need of agriculture and allied activities. It has successfully rendered service in
this direction by increasing the flow of credit to this sector. It has earlier the
Agriculture Refinance and Development Corporation (ARDC) to look after the credit,
National Bank for Agriculture and Rural Development (NABARD) and Regional Rural
Banks (RRBs).

Provision of Industrial Finance

Rapid industrial growth is the key to faster economic development. In this regard, the
adequate and timely availability of credit to small, medium and large industry is very
significant. In this regard the RBI has always been instrumental in setting up special
financial institutions such as ICICI Ltd. IDBI SIDBI and EXIM BANK etc.

Provision of Training
The RBI has always tried to provide essential training to the staff of the banking
industry. The RBI has set up the bankers' training colleges at several places.
National Institute of Bank Management i.e NIBM, Bankers Staff College i.e BSC and
College of Agriculture Banking i.e CAB are few to mention.

Collection of Data
Being the apex monetary authority of the country, the RBI collectsprocess and
disseminates statistical data on several topics. It includes inter strate, inflation,
savings and investments etc. This data proves to be quite useful for researchers and
policy makers.

Publication of the Reports

The Reserve Bank has its separate publication division. This division collects and
publishes data on several sectors of the economy. The reports and bulletins are
regularly published by the RBI. It includes RBI weekly reports, RBI Annual Report,
Report on Trend and Progress of Commercial Banks India., etc. This information is
made available to the public also at cheaper rates.

Promotion of the Banking Habits

As an apex organization, the RBI always tries to promote the banking habits in the
country. It institutionalizes savings and takes measures for an expansion of the
banking network. It has set up many institutions such as the Deposit Insurance
Corporation-1962, UTI-1964, IDBI-1964, NABARD-1982 NHB-1988, etc. These
organizations develop and promote banking habits among the people. During
economic reforms it has taken many initiatives for encouraging and promoting
banking in India.

Promotion of Export through Re-Finance

The RBI always tries to encourage the facilities for providing finance forforeign trade
especially exports from India. The Export-Import Bank of India(EXIM Bank India) and
the Export Credit Guarantee Corporation of India(ECGC) are supported by
refinancing their lending for export purpose.

[C] Supervisory Function

The reserve bank also performs many supervisory functions. It has authority to
regulate and administer the entire banking and financial system. Some of its
supervisory functions are given below.

Granting Licenses to the Banks

The RBI grants license to banks for carrying its business. License isalso given for
opening extension counters, new branches, even to close down existing branches

.Bank Inspection
The RBI grants license to banks working as per the directives and in aprudent
manner without undue risk. In addition to this it can ask for periodical information
from banks on various components of assets and liabilities.

Control over NBFIS

The Non-Bank Financial Institutions are not influenced by the a monitory policy.
However RBI has a right to issue directives to the NBFIs from time to time regarding
their functioning. Through periodic inspection, it can control the NBFIs.

Implementation of the Deposit Insurance System

The RBI has set up the Deposit Insurance Guarantee Corporation in order to protect
the deposits of small depositors. All bank deposits below Rs.One lakh are insured
with this corporation. The RBI work to implement the Deposit Insurance Scheme in
case of a bank failure.

[D] Traditional Banking Functions

In very general terms, the traditional functions of a commercial bank can be
classified under following main heads:

Receiving of Money on Deposit

This is the most important function of banks, as it is largely by means of deposits that
a bank prepares the basis for several other activities. The money power of a bank,
by which it helps largely the business community and other customers, depends
considerably upon the amounts it can borrow byway of deposits. The deposits of a
bank can take the form of fixed, savings or current deposits.

Lending of Money
This function is not only very important but is the chief source of profit for banks. By
lending money banks place funds at the disposal of the borrower, in exchange for a
promise of payment at a future date, enabling the borrowers to carry on their
Business/productive activities and meet their other requirements. Banks thus, help
their clients to meet their needs with the money lent to them and return the money
with interest as per agreed terms. The advances of a bank can take the form of
loans, cash, credits, bills purchase / discount facilities
1.2) INTRODUCTION TO COMPANY

THE BHIWANI CENTRAL CO-OPERATIVE BANK

The Bhiwani Central Co-operative Bank, a Scheduled Bank under RBI Act was registered in
the Year 1973 as the Apex Bank of the short term coop. Credit structure of Bhiwani with an
objective of Development of the agrarian economy of Bhiwani by catching the credit
equipment of the term of the Bhiwani. The BCCB had made a humble beginning with the
share of Rs. 1.76 lacks and a borrowing of Rs. 25.50 lakhs to address the form of problem of
farm credit dispensation. The BCCB, in its own way has contributed in providing farm credit
and inputs to bring the desired changes over the year. The Bank has been trying to develop
the primary societies viz. PACS (Primary Agricultural Co-operative Society) which
constitute of schemes as LAMPS (Large Scale Agricultural Multipurpose Co-operative
Society)/ FSS (Farmers service Co-operative Society).The activities of the BCCB are not
confined to dispensation of farm credit alone. As a schedule bank, it has responded to the
sweeping change in banking service in view of advancement in Information Technology. The
bank has assumed the role of leader of the coop-credit structure to develop the lower tiers to
cope with the emerging challenges of banking activities. The activities of BCCB are:

 General Banking Business

 Re-finance to the DCCB(District Central Co-operative Bank)
 Dispensation of Firms Credit

Who’s Who

Members of The Managing Committee Of The Bhiwani Central Co-operative Bank Ltd.
S.No Name Designation
1. Sh. Parmod Permar Chairman
2. Sh. Kuldeep Kaushik Chief Executive Officer
3. Sh. Ramesh Chander Bishnoi General Manager
4. Sh. Suresh Kumar Manager (Administration.)
5. Sh. Priyavart Manager (Banking)
6. Smt. Saroj Grewal Manager (Planning and Development)
Retail Banking of Bhiwani Central Co-operative Bank Ltd

Housing loan

The bank is financing housing loan under its “APNA GHAR” scheme. Maximum amount
under this head is Rs. 500000.00 for purchase of readymade house or construction. For
repair, renovation the limit is Rs. 50000.00. The rate of interest is 13% on reducing balance.
Maximum repayment period is 15 years with 18 months moratorium perio:-
1. Maximum limit Rs. 50000.00 or 75% of the cost of the item.
2. Subject to five times monthly gross income.
3. Repayable in maximum 40 monthly instalments in reducing balance.

Motor Vehicle Finance

For any sort of Surface Transport and Water Transport vehicle both for commercial and
personal purpose.

Requirement / Formalities

1. 75% of the total cost of vehicle, including insurance and registration.

2. Repayable in 60 monthly instalment reducing balance
Business enterprise

Terms Loan
1. Fixed Assets for Projects.
2. Commercial Complex and Kalyan Mandap.
3. Hotels, Tourist Resort, Health Care units.
4. Equipment and Machinries.

Requirements / Formalities
1. Maximum 75% of the fixed assets.
2. Maximum repayable periods- 10 years.
3. Interest in reduced balance method.

Working Capital Loans:-

1. Retail Business
2. Traders
3. Wholesaler
4. Project Solution
Requirement / Formalities
1. Maximum 75% of working capital requirement subject to Stock Holding.
2. Quarterly Interest on days balance.

Introduction of Corporate Governance by The Bhiwani Central

cooperative Bank Ltd.:

The Bhiwani Central Co-operative Bank Ltd. is the first bank in the cooperative sector in the
city to introduce sound practices of corporate governance to ensure transparency in its
functioning.

During the last three years, the following initiatives have been taken to follow good
corporate practices by addressing a range of issues as, protection of shareholder rights,
enhancing shareholder value, disclosure requirements, integrity of accounting practices and
strengthening the control system. The employees of the bank can now expose any
wrongdoing of the top management of the bank without any fear of reprisal. The board of
management of the bank in its meeting held on 30.06.2012 has accepted the system for
protection of whistle blowers adopted in USA and in Indian Companies like Wipro and
Infosys. This facility would give protection to the staff, who expose irregularities, corruption,
mal-practices etc. by the top management of the bank. Under this system, where any staff of
the bank discover information, which he believe show serious mal-practices, impropriety,
abuse or wrongdoing, then the information should be disclosed without fear of reprisal.
Following the spirit of Sarbanes Oxley Act of the USA, which envisages protection for
whistle blowers, a similar policy has been adopted to enable the employee to raise concern
about any irregularity and impropriety at an early stage and in the right way without fear of
victimisation, subsequent discrimination or disadvantage.

BCCB has become the first bank in the city to have adopted such a policy. Employees are
normally the first to realise that there are irregular or illegal practices being followed by any
management. Hence a policy which affords protection to the employees who expose
irregularities, corruption, mal-practices etc. will go a long way in ensuring transparent
management, setting standards, which the DCCBs shall be encouraged to emulate Besides,
The Bhiwani Central Co-operative Bank has adopted the following sound practices of
corporate governance.

1. Timely audit of accounts has been ensured. The audit of the year 2014-15 was
completed by 30.06.15.
2. The bank has been paying uninterrupted dividend to the shareholders.
3. Common coding of accounting heads has been introduced in the state of integrate the
accounting practices of the BCCB and all affiliated DCCBs. This has facilitated the
computerisation process in the central co-operative banks.
 4. Organisation of annual customer meets to understand their changed perception and to
reorient the polices and the procedures of the bank. Such meets are also being
organised at the level of the DCCBs as well as the PACS.
5. A transparent transfer policy have been formulated and adopted in the bank. Transfer
are now being affected on the basis of the policy without any other consideration.
6. A bi-monthly house journal “Sampark” is published with effect from January, 2001,
which not only provides a forum to the employees to express their views, but also the
management is also able to explain the justification for taking important decisions.
7. Each branch of the BCCB as well as the PACS is being visited by a supervisory
officer every month to inspect the functioning and also impart guidance.
8. Loans Manual for the bank has been prepared by NABCON the consultancy arm of
NABARD.
9. Systems A comprehensive HRD policy is being evolved for the bank by the National
Institute of bank management.

DESCRIPTION OF CO-OPERATIVE BANK

The Co-operative banks are an important constituent of the Indian Financial System,
judging by the role assigned to them, the expectations they are supposed to fulfill, their
number, and the number of offices they operate. The co- operative movement originated in
the West, but the importance that such banks have assumed in India is rarely paralleled
anywhere else in the world. Their role in rural financing continues to be important even
today, and their business in the urban areas also has increased phenomenally in recent
years mainly due to the sharp increase in the number of primary co-operative banks. Co-
operative bank regulated by Reserve Bank of India, NABARD & Apex bank.

The co-operative banks in rural areas mainly finance agricultural based activities including
farming, cattle, milk, hatchery, personal finance etc. along with some small scale industries
and self-employment driven activities, the co-operative banks in urban areas mainly finance
various categories of people for self-employment, industries, small scale units, home finance,
consumer finance, personal finance, etc. Though registered under the Co-operative Societies
Act of the Respective States the banking related activities of the co-operative banks are also
regulated by the Reserve Bank of India. They are governed by the Banking Regulations Act
1949 and Banking Laws (Co-operative Societies) Act, 1965.
COOPERATIVE BANKS SERVICES:

PRIMARY AGRI. COOPERATIVE CREDIT SOCIETIES (PACS)

PACS are the backbone of Short-term Cooperative Credit Structure. Out of 5255
PACS/LAMPS in the state, 5088 PACS advanced loan to their members during 2007-
2008 and 4783 PACS had Outstanding loans exceeding Rs.10.00 lacks as on 31.3.2008.
The Working capital of PACS as on 31.3.2008 stood at Rs.4181.33 crores and 2673
PACS working as Mini Bank were collecting deposits from their members. Total
deposits of these Mini Banks stood at Rs. 505.35 crores as on 31.3.2009. 3739 PACS
were in profit as on 31.3.2008 and it is expected that more than 4828 PACS would have
booked profit as on 31.3.2010 which is indicative of their sustainable viability

DIVERSIFICATION OF LOAN & DIPOSITS PORTFOLIO

In last few years concerted efforts have been made to diversify loan portfolio so as to
provide an opportunity to DCCBs to cross subsidize their losses in traditional crop loan
business. Consequent to above deliberated efforts, DCCBs have been able to develop
their investment portfolio over a period of time. In this endeavor NABARD has
introduced lots of new schemes vise; water harvesting structure, organic farming,
agriculture-clinic / agribusiness centers, aromatic and medicinal plantation, onion storage
structure, horticulture, self-help groups, house building, swarojgar credit card etc. for
which DCCBs can avail refinance from NABARD and can further diversify their farm
and non-farm investment portfolio.
Apex Bank on its part has been pursuing DCCBs to finance for innovative activities, the
sole purpose of which is to diversify the loan portfolio of these banks and to facilitate
economic development through creation of assets in the rural areas of the state.

Types of loan

1. TYPES OF COMMERCIAL LOAN

1. TPES OF DEPOSIT
 Saving Account
  Current Account
 Fixed Account
 Recurring Deposit Account

TYPES OF COMMERCIAL LOAN

 Personal Loans.
 Gyan Sagar Educational Loans.
 Home Loan
 Vehicle Loans.
 Mortgage Loan
 Industrial Loan
 Loan Against Security
 Hotel/Motel/Restaurant Loan Scheme
 Micro Finance
 Sahakar Tex Bachat Yojana
 Sahakar Sugam Credit Cash Scheme
 Kisan Credit card Scheme
 Krishak Mitrar Yojana
 Personal Accident Insurance Scheme

Types of Deposits:

Saving Account
General Information

a) Single type of saving a/c

b) Low opening charge

c) Various Banking facilities like ATM, FD Sweep, Accidental

coverage are not available
 d) Simplest Deposit available to depositor.

e) Easy to Operate. Terms And Condition are simple to understand

to facilitate layman's under standing.

f) Any individual or society to save from their earnings to plan for

your future financial requirements can open our Saving
Account

g) Your deposit is insured by DICGC.

h) Option for money withdrawal by withdrawal forms or by cheque.

i) Your savings remain liquid, safe and also earn moderate interest
@ of 3.5% p.a., compounded half yearly.

j) You can give various types of standing instructions like

transferring to fixed deposit accounts at regular intervals.

k) An average quarterly balance of Rs. 5,000only.

l) Interest is payable half-yearly.

m) Minimum balance Rs.1000 for Saving Account with Cheque book

andRs.500 for saving account without cheque book facility.

n) Minor not below 14 years of age can also open an

independent savings account without Cheque book facility.

Eligibility
a) Resident Indian, Self Help Group or a Co-operative Society.

Facility

a) You can give various types of standing instructions like transferring of

fund to fixed deposit accounts at regular intervals, payment of locker
rent with our bank's branches and other utility bills.
b) Nomination facility is available.

c) Quarterly Statement of Account at your doorstep.

 d) Free signature verification as per bank's norm.

e) Can open single or jointly with any other person.

The Co-operative banks are an important constituent of the Indian Financial System, judging by the
role assigned to them, the expectations they are supposed to fulfill, their number, and the number of
offices they operate. The co- operative movement originated in the West, but the importance that such
banks have assumed in India is rarely paralleled anywhere else in the world. Their role in rural
financing continues to be important even today, and their business in the urban areas also has
increased phenomenally in recent years mainly due to the sharp increase in the number of primary co-
operative banks. Co-operative bank regulated by Reserve Bank of India, NABARD & Apex bank
1.3) INTRODUCTION TO TOPIC

RATIO ANANLYSIS

Introduction

The ratio analysis is the most powerful tool of financial analysis. Several ratio IS
calculated from the accounting data can be grouped into various classes according to
financial activity or function to be evaluated
.
DEFINITION:
“The indicate quotient of two mathematical expressions and as “The relationship between
two or more things .It evaluates the financial position and performance of the firm. As started
in the beginning many diverse groups of people are interested in analyzing financial
information to indicate the operating and financial efficiency and growth of firm. These
people use ratios to determine those financial characteristics of firm in which they
interested with the help of ratios one can determine.
 The ability of the firm to meet its current obligations.
 The extent to which the firm has used its long-term solvency by borrowing funds.
 The efficiency with which the firm is utilizing its assets in generating the sales
revenue.
 The overall operating efficiency and performance of firm.
 Alexander wall is the pioneer of ratio analysis. He presented a detailed
system of ratio analysis in the year 1919. Ratio analysis is important one
for all management accounting for decision making.
 Ratio analysis of financial statements stands for the process of determining
and presenting the relationship of items and groups of items in the statements.
 Ratio analysis is a powerful tool of financial analysis. It is a process of identifying
the financial strengths and weakness of the firm by properly establishing there
relationship
between the different items of balance sheet and profit and loss account
for meaningful understanding of the financial position and performance
of the firm.
 FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strengths and weakness of the firm. It is
done by establishing relationships between the items of financial statements viz., balance sheet and
profit and loss account. Financial analysis can be undertaken by management of the firm, viz.,
owners, creditors, investors and others.

Objectives of the financial analysis

Analysis of financial statements may be made for a particular purpose in view.

To find out the financial stability and soundness of the business
enterprise. To assess and evaluate the earning capacity of the business

To estimate and evaluate the fixed assets, stock etc., of the concern.

To estimate and determine the possibilities of future growth of business.

To assess and evaluate the firm’s capacity and ability to repay short and long term loans

NATURE OF RATIO ANALYSIS

Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated quotient of
mathematical expression" and as "the relationship between two or more things .A ratio is used as
benchmark for evaluating the financial position and performance of the firm. The relationship between two
accounting figures, expressed mathematically is known as a financial ratio. Ratio helps to summarizes
large quantities of financial data and to make qualitative judgment about the firm's financial performance.
The persons interested in the analysis of financial statements can be group under three head owners
(or) investors who are desired primarily a basis for estimating earning capacity. Creditors are the
people who are concerned primarily with Liquidity and ability to pay interest and redeem loan within a
specified period. Management is interested in evolving analytical tools that will measure costs,
efficiency, liquidity and profitability with a view to make intelligent decision.
TYPES OF FINANCIAL PERFORMANCE ANALYSIS:
Financial performance analysis can be classified into different categories on the basis of material
used and modes operandi as under:

A) Material used:
On the basis of material used financial performance can be analyzed in following two
ways:
1. External analysis
this analysis is undertaken by the outsiders of the business namely investors, credit
agencies, government agencies, and other creditors whohave no access to the
internal records of the company. They mainly use published financial statements for
the analysis and as it serves limited purposes

2. Internal analysis
this analysis is undertaken by the persons namely executives and employees of the
organization or by the officers appointed by government or court who have access to
the books of account and other information related to the business.

B) Modus operandi: On the basis of modus operandi financial performance can be analyze in
the following two ways:

1. Horizontal Analysis
In this type of analysis financial statements for a number of years are
reviewed and analyzed. The current year’s figures are compared with
the standard or base year and changes are shown usually in the form
of percentage. This analysis helps the management to have an insight
into levels and areas of strength and weaknesses. This analysis is also
called Dynamic Analysis as it based on data from various years.
 2. Vertical Analysis
In this type of Analysis study is made of quantitative
relationship of the various items of financial statements on
a particular date. This analysis is useful in comparing the
performance of several companies in the same group, or
divisions or departments in the same company. This
analysis is not much helpful in proper analysis of firm’s
financial position because it depends on the data for one
period. This analysis is also called Static Analysis as it
based on data from one date or for one accounting period

STANDARD OF COMPARISON

The ratio analysis involves comparison for a useful interpretation of the financial statements.
A single ratio in itself does not indicate favourable or unfavourable condition. It
should be compared with some standard. Standards of comparison are:

1. Past Ratios
2. Competitor's Ratios
3. Industry Ratios
4. Projected Ratios

 Past Ratios: Ratios calculated from the past financial statements of the same
firm

 . Competitor's Ratios: Ratios of some selected firms, especially the most

progressive and successful competitor at the same point in time.

 Industry Ratios: Ratios of the industry to which the firm belongs.

 Projected Ratios: Ratios developed using the projected financial statements

of the same firm.
TIMESERIES ANALYSIS
The easiest way to evaluate the performance of a firm is to compare its present ratios
with past ratios. When financial ratios over a period of time are compared, it is known as
the time series analysis or trend analysis. It gives an indication of the direction of change
and reflects whether the firm's financial performance has improved, deteriorated or
remind constant over time.
\
CROSS SECTIONAL ANALYSIS

Another way to comparison is to compare ratios of one firm with some selected firms in
the industry at the same point in time. This kind of comparison is known as the cross-
sectional analysis. It is more useful to compare the firm's ratios with ratios of a carefully
selected competitors, who have similar operations.

INDUSTRY ANALYSIS
Its ratio may be compared with average ratios of the industry of which the firm is a member. This type of
analysis is known as industry analysis and also it helps to ascertain Financial standing and capability of the
firm &other firms in the industry. Industry ratios are important standards in view of the fact that each
industry has its method of analysis:

A financial analyst can adopt the following tools for analysis of the financial statements.
These are also termed as methods of financial analysis.

A. Comparative statement analysis

B. Common-size statement analysis
C. Trend analysis
D. Funds flow analysis
E. ratio analysis

Parties interested in financial analysis

The users of financial analysis can be divided into two broad groups.
 Internal users
1. Financial executives
2.Top management

External users
1. Investors
2. Creditor.
3. Workers
4. Customers
5. Government
6. Public
7. Researchers

Significance of financial analysis

Financial analysis serves the following purpose:

 To know the operational efficiency of the business:

The financial analysis enables the management to find out the overall efficiency of firm
enable firm the management to locate the weak Spots of the business and take necessary remedial
action.

 Helpful in measuring the solvency of the firm:

The financial analysis helps the decision makers in taking appropriate

decisions for strengthening the short-term as well as long-term solvency of
the firm
.
 Comparison of past and present results:

Financial statements of the previous years can be compared and the trend regarding
various expenses, purchases, sales, gross profit and net profit can be ascertained
 Helps in measuring the profitability:
Financial statements show the gross profit, & net profit

Inter‐firm comparison:
The financial analysis makes it easy to make inter-firm comparison. This
comparison can also be made for various time periods.

 Bankruptcy and Failure:

Financial statement analysis is significant tool in predicting the bankruptcy
and the failure of the business enterprise. Financial statement analysis
accomplishes this through the evaluation of the solvency position.

 Helps in forecasting:
The financial analysis will help in assessing future development by making forecast.
2.1) LITERATURE REVIEW

Shaji and Ganesan (2014)

study financial performance of two pharmaceutical companies in India. The study covered a period
of twelve years from 1998-99 to 2009-10. Liquidity ratios, Profitability ratios and Efficiency ratios
were used for comparative analysis of the selected companies. Variables of the study were analyzed
with the help statistical techniques including t-test. Finally, it was inferred from the results of
analysis that the liquidity position of both the companies has been strong during the period under
study but the companies relied more on external fund in case of long term borrowing and financial
stability ratios of both the companies had a downward trend.

Dharmaraj and Kathirvel (2016)

He made an attempt to study financial strength of automobile industry in India. The study covered a
period of fourteen years from 2008-2009 to 2015-16. A sample of fifteen companies was selected
to analyze financial strength, profitability and liquidity. Various financial ratios were calculated
under profitability, liquidity and solvency categories and descriptive statistics and ANOVA were
used for the analyses. Finally, the researchers concluded that financial performance of Atul Auto
Ltd, Ashok Leyland, HMT Ltd, TATA motors and SML ISUZU Ltd was highly improved as
compared to the group average value for all selected ratios and the automobile industry was
growing at 17% per annum, contributing in the country’s growth.

Dhevika Latasri and Gayathri (2013)

He attempted to find the financial position of City Union Bank. The period undertaken for the study
was from 2007-08 to 2011-12. Various financial ratios like gross profit ratio, net profit ratio,
operating ratio, dividend payout ratio, turnover ratio etc were used for financial analysis. Finally
the study revealed that despite of the price drops in various products, the company has been able to
maintain and grow its market share contributing to the strong financial position of the bank.

Chandrashekaran, Manimannan Priya (2017)

he made an attempt to analyze financial performance of private and public sector companies from
five major industries in India over a period of ten years from 2011 to 2017. Factor analysis, k-
means clustering, discriminate analysis and perceptual techniques were used for data analysis. The
selected companies were divided into three categories i.e. H-class (high performance), M-class
(moderate performance) and L-class (lower performance). Results of analysis revealed that
financial analyst can make use of these techniques and companies can project their performance on
the basis of financial ratios that were considered in the study.

I
Gupta (2014)
He aimed to analyze and compare the Financial Performance of ICICI Bank for a period from
2009-10 to 2013-14. Financial ratios were grouped in four broad categories: liquidity ratios,
profitability ratios, activity ratios and leverage ratios. Results of the study revealed bad liquidity
position, continuous improvement in the earning power of the bank and high debt equity ratio
which indicated a precarious amount of financial leverage for the bank. The researcher suggested
that the bank should take an appropriate measure to keep current ratio and Quick ratio on par with
the norms. The Non Performing Assets (NPAs) of the ICICI bank were more than one per cent,
hence it was suggested that the bank should control its NPAs otherwise it might affects the asset
quality of the bank in long run. It was also suggested that proper control over leverage should be
taken in order to magnify DP ratio and the spread of the ICICI bank should be controlled otherwise
the income of the bank might be eaten away by the interest expenses in the long-run.

Ahmed and Ahmed (2016)

he conducted a study to analyze the effect of mergers upon financial performance of manufacturing
industries in Pakistan. Twelve manufacturing companies were selected for the study which had
involved in the process of merger during 2000-2009. Three years data before merger and three
years data after merger were used to test the significance of study. Paired sample t-test was applied
on accounting ratios. The study revealed that overall financial performance of acquiring
manufacturing corporations were insignificantly improved after the merger. The liquidity,
profitability and capital position of the selected companies were insignificantly improved and the
efficiency deteriorated after the merger. Finally, it was concluded that merger impacted on different
industries of manufacturing sector differently.

Niresh Velnampy (2014)

he examined the effects of firm size on the profitability of fifteen companies, active in Colombo
Stock Exchange (CSE) during 2008 to 2012. Return on Assets and Net Profit were used as
measures of firm profitability, whereas Total Assets and Total Sales were used as indicators of firm
size. Correlation and regression analysis were used in the empirical analysis. The results of the
analysis indicated the existence of weak positive relationship between size indicators and
profitability of the listed manufacturing firms while negative association was found between Asset
Turnover and performance measures. Lower Asset Turnover indicated inefficiency of management
in utilizing the assets and decline in profitability of the firms.

Shanmugam and Kavitha (2017)

the working capital policies of twenty one firms out of thirty large pharmaceutical firms were
analyzed for a period of ten years from 2015-16 to 2016-17. Ratio analysis, descriptive statistics,
one-way ANOVA, Tukeys Honestly Significantly Different (HSD) tests, rank order correlation and
regression analysis were used for the analysis. Result of the study indicated that pharmaceutical
firms followed conservative investment and financing policies during study period. No uniformity
in the policies of firms was found despite the fact that they were in same industry. There was a
change in policies of all the firms over the period. Further, there was a strong stability in each
industry’s relative level of aggressiveness with respect to working capital investment policies over
the period of time and a negative relation was found between working capital policies and
profitability.

Kumar neeraj & kaur kuldip (2016)

he made an attempt to test the size and profitability relationship in the Indian automobile industry.
To analyse the relationship linear regression model as well as cross sectional has been employed
for the year 1998 to 2014 .for profitability analysis two different measures have been used (a) ratio
of net profit to total sales turnover (b)ratio of net income to net assets plus working capital and for
firm size two indicators used namely, total sales turnover and net assets. The time series analysis
showed the positive relationship between firm size and profitability bt cross sectional show no
relationship between firm size and profitability.

Ravichandran, M. & subramanium M venkata (2016)

The main idea behind this study is to assessment of viability stability and profitability of force
motors limited. operating position of the company can be measured by using various financial tools
such as profitability ratio, solvency ratio, comparative statement & graph etc. this study finds that
company has got enough funds to meet its debts & liabilities company can further improve
financial performance by reducing the administrative, selling & operating expenses.

Mathur shivam & aggrawal krati (2016)

Ratios are an excellent and scientific way to analyse the financial performance of any firm the
company has received many awards and achievements due to its new innovations and technological
advancement .these indicators helps investors to invest the right company for expected profits .the
study shows that maruti Suzuki limited is better than tata motors limited.

Jothi, k & geetalakshami A (2017)

this study tries to evaluate the profitability & financial position of selected companies of indian
automobile industry using statistical tools like ,ratio analysis, mean, standard deviation, correlation.
The study reveals the positive relationship between profitability short term and long term capital.

Nandini, M. & Kalaivani, p. (2015)

They have studied the impact of both financial leverage as well as operating language on the
profitability of TVS motor company. The results shows that company suffer from certain weakness
& suggested to control fixed cost as well as variable cost to gain adequate profits.
Takeh ata & navaprabha jubility (2017)
The authors has made conceptual model to outline the impact of capital structure on the financial
performance i.e capital structure is independent variable that value is measured by using for ratios
namely, financial debt, total debt equity, total assets debt and interest coverage ratio where as
financial performance is dependent varaiable that value is measured by using four ratios as return
on assets, return on equity, operating profit margin and return on capital employed. Researcher has
selected 13 ,major steel industries and applied various statistical tools like standard deviation,
correlation matrix, above etc are employed for testing hypothesis with help of SPSS22.

Sarwade Walmik Kachru (2015)

analyzed the effects of liberalization, government de- licensing and liberal trade policies on the
growth of Indian auto mobile industry .The study recommends that investing four- wheeler is
going to be smart potion not only in India but all around the world.

Becker Dieter (2015)

the report shows about the current state and future prospects of the worldwide automobile
industry. This survey report the manufacturer, executive and consumer views about four aspects,
mobility culture, technological fit, business model readiness and market share.
Surekha B. & Krishnalah K.Rama (2015)

This study reveals the prosperity of Tata motors company. It can be concluded that inner strength
of company is remarkable. Company can further improve its profitability by optimum capital
gearing, reduction in administration and financial expenses for the growth of company.

Anu B. (2015)

He made an attempt to examine the relationship between capital structure indicators, market price
per shares and also to test relationship between debt-equity and market price per share of selected
companies in industry. The study concludes that all three companies support the hypothesis that
there is relation between debt-equity and MPS.
Maheswari, V. (2015)
He made an attempt to analyze the financial soundness of the Hero Honda motors limited have
identified three factors, namely liquidity position, solvency position and profitability position
based on the study of period 2002 to 2010 using ratio analysis.

Agarwal, Nidhi (2015)

The study focus on the comparative financial performance of Maruti Suzuki and Tata motors ltd.
The financial data and information required for the study are drawn from the various annual
reports of companies. The liquidity and leverage analysis of both the firms are done. To analyze
the leverage position four ratios are considered namely, capital gearing, debt-equity, total debt and
proprietary ratio. The result shows that Tata motors ltd has to increase the portion of proprietor’s
fund in business to improve long term solvency position.

Nandhini, M. & Sivasalthi, V (2015)

They have studied the impact of both financial leverage as well as operating language on the
profitability of TVS motor company. The result shows that company suffers from certain
weakness & suggested to control fixed cost as well as variable cost to gain adequate profits.

Krishnaveni , M. & Vidya, R (2015)

The author has selected 87 companies out of 242 companies in capital line database to discuss the
standard current ratio of automobile industry is matched with tractor and four sectors like engine
parts, lamps, gears and ancillaries with standard norms. The study concludes that current and
liquidity ratio of automobile industry is matched with tractor and the four sectors but other sectors
have to improve the repaying capacity to strengthen the financial aspects.

Kumar Mohan M.S, Vasu. V. and Narayana T. (2016)

They the study has been made through using different ratios , mean, standard deviation and
Altman’s Z score approach to study the financial health of the company. The study reveals there is
a positive correlation between liquidity and profitability ratios except return on total assets as well
as Z score value indicate good health of the company
Kaur Harpreet (2016)

The author tries to examine the qualities & quantities performer of maruti Suzuki co. & how had
both impact on its market share in India, For this study secondary data has been collected from
annual reports, journals, report automobile sites. Result shows that MSL has been successfully
leading automobile sector in India for last few years.

Srivastava Anubha (2014)

Data analysis has been done using the top down approach Economic analysis, industry analysis,
company and technical analysis to find relationship between automobile sector index with market
index. Mahindra and Mahindra have a great position on the stock market and will attract investor
and this could lead to expansion and growth. Thus Tata motors and Maruti Suzuki need to take care
of their stock and expansion.

Sharma Nishi (2015)

he studied the financial performance of passenger and commercial vehicle segment of the
automobile industry in the terms of four financial parameters namely liquidity, profitability,
leverage and managerial efficiency analysis for the period of decade from 2010-11 to 2014-15.
The study concludes that profitability and managerial efficiency of Tata motors as well as
Mahindra & Mahindra ltd are satisfactory but their liquidity position is not satisfactory. The
liquidity position of commercial vehicle is much better than passenger vehicle segment
3.1) RESEARCH METHODOLOGY

CONCEPTUALIZATION

Though the co-operative banks have been established with laudable objective, they are
suffering from various problems and as a result ,their financial performance is very
precarious .this is due to many a number of reasons such as lower or negative spread
,mounting non-performing assets, entry of other banking institution into the area earmarked
for the cooperative banks as a result of which there is an increasing competition ,etc.
moreover high levels of non-performing assets and high growth in credit of UCBs and rural
credit cooperative institution continue to be the major area of concern . Therefore, it is
necessary to assess the financial performance of these banks, in this background the present
study intends to focus on the analysis of financial performance of cooperative banks in
general and of selected co-operative banks in Haryana in particular with the objective of
ascertaining the reasons for the same and also the extent to which each has contributed to the
poor financial performance of co-operative banks.

SIGNIFICANCE OF THE STUDY

This study is useful and important for the major aspects such as,
 It can give understanding of practical approach or implementation overview.

 It can also give corporative overview of Financial Performance provisions in

Indian Automobile Industry sector.

 It can also give to financial performance of Financial Performance Analysis in

 Indian Automobile Industry sector.

So the significance of the study is very high. Further some observation may be
useful to academicians, industry people, and policy makers

OBJECTIVE OF THE STUDY

The main objectives to study the Financial Performance of Selected Companies

engaged in Automobile Industry of India are listed as under:
 To understand the concept of Financial Performance.

 To know the practice of presenting financial statements.

 To know about the accounting practices i.e. legal provisions, standards etc.
  To analyze financial and non financial activities of the companies.

 To evaluate Financial Performance Analysis of selected Automobile companies

functioning as Automobile Industry in India in terms of Profitability, Productivity,

Capital Structure, Working Capital, Activity Ratio and Efficiency Ratio.
 To assess the financial strength of selected Automobile companies.

 To examine liquidity position of selected Automobile companies.

 To measure the financial efficiency of selected Automobile companies

 To examine the relationship between the analysis of Financial Performance and

decision making process of the Automobile companies.

 To suggest ways and means to improve financial and overall performance of

Automobile companies functioning as Automobile Industry in India.

From the viewpoint of Researcher the above objectives depend on accuracy,
quality, quantity and availability of data regarding financial information

SCOPE OF THE STUDY

The scope of study is limited to collecting financial data published in the annual reports of
the company every year. The analysis is done to suggest the possible solutions. The study is
carried out for 3 years (2016-2018). The present study is confirmed to only The Bhiwani
Central Cooperative Bank.

RESEARCH DESIGN

In the present descriptive study is employed. an attempt has been made to measure, evaluate
and compare the financial performance of the Bank. the analysis partitioned two side aspect
of stakeholders. the shareholders wealth and other external stakeholders. The study is based
on secondary data that has been collected from annual reports of the bank website,
magazines, journals, documents and other published information. The study covers the period
of 5 years from year 2010-11 to year 2014-15. Ratio Analysis was applied to analyze and
compare the trends in banking business and financial performance.

COLLECTION OF DATA

Every research is based on sound facts and data that are collected data by the
researcher. The kind of data collected and the methods used to collect the data has a very
important aspect of the research. There are two basic means of collection of data as follow:
  Primary data
 Secondary data

SOURCE OF DATA
The researcher uses both the methods of data collection for his convenience. But
researcher gives more emphases on secondary data because the researcher undertakes
research in Financial Performance practices for which researcher needs all Annual reports
and records from the selected companies, which are in nature of secondary data.
Researcher must be very careful in using secondary data and make a minute scrutiny
because it is just possible that the secondary data may be unsuitable or may be inadequate in
the context of the problem, which the researcher wants to study. The researcher must before
using the secondary data, see that they posses of (i) Reliability of data
(ii) Suitability of data (iii) Adequacy of data.

STATISTICAL TOOLS

The Researcher has used the following tools to present and analysis data
Data presentation
I. tables

II. Diagrams

Data analysis: Microsoft excel 2007

LIMITATION OF THE STUDY

Every living and Non- living on this world is its own limitation which restricts the
usability of that thing. The same rule applies to this research work. The main limitation of
the study as under:
 It is a new and developing concept, so it is not possible for all new and
developing companies.

 A Study is undertaken by individual researcher therefore all the limitation of

the individual researcher exists here also.

 It is secondary data based study, so the limitations of the secondary data

reveals with this study.

 As it is a new concept, it becomes hard task and through for accountants and
accounting practitioners for fulfilling all formalities.
 Profitability is affected by many factors, internal as well as external, but the
researcher is taking into consideration only some factors which are relevant to
study.
 4.1) CURRENT RATIO
The current ratio is the between all current assets and all current liabilities;
another way of expressing liquidity. It is a measure of the firm’s short-term solvency. It
indicates the availability of current assets in rupees for every one rupee of current liability. A
ratio of greater than one means that the firm has more current assets than current claims
against them.

CURRENT ASSETS
CURRENTRATIO= -----------------------------------
CURRENT LIABILITIES

YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO

2015-16 2,280,704,176 1,181,003,846 1.93

2016-17 3,500,193,294 1,312,272,610 2.67

2017-18 5,975,961,025 2,020,744,952 2.96

 current ratio
3.5

2.5

current ratio
1.5

0.5

0
2015-16 2016-17 2017-18

INTERPRETATION:

The Standard norm for current ratio is 2:1. During the year 2015-16 the current ratio is
1.93 and During the year 2016-17 the ratio is 2.67 and during the year 2017-18 the ratio
is2.93. The ratio above was standard except in the year 2015-16. So the ratio was
satisfactory.
 4.2) QUICK RATIO

Quick ratio establishes are relationship between quick, or liquid, assets and current
liabilities. An asset is liquid if it can be converted into cash immediately or reasonably
soon without a loss of value.

QUICK ASSETS
QUICKRATIO= ------------------------------------------
CURRENTLIABILITIES
TIO

YEAR QUICK ASSETS CURRENT LIABILITIES QUICK RATIO

2015-16 1,708,741,955 1,181,003,846 1.45

2016-17 2,578,479,879 1,312,272,610 1.96

2017-18 4,032,625,321 2,020,744,952 1.99

 quick ratio
2.5

1.5

0.5

0
2015-16 2016-17 2017-18

INTERPRETATION:

The standard form of a quick ratio is 1:1. Quick ratio is decreased in the year 2015-16 to 1.45.Then, it
decreased to 1.96 in the year 2016-17. And it has increased to1.99 in the year 2017-18 and then it
increased to 1.99 .however the ratio is more than the standard norm so it is satisfactory
 4.3) absolute liquidity ratio
Absolute liquidity ratio is the ratio between cash plus marketable
securities and current liabilities.

CASH+BANK+MARKETABLE SECURITIES
-----------------------------------------------
Absolute liquidity CURRENT LIABILITIES
ratio=

Cash +bank +marketable securities Current liabilities Cash ratio

YEAR

2015-16 205,212,363 1,181,003,846 0.17

2016-17 256,000,280 1,312,272,610 0.20

511,453,739
2017-18 2,020,744,952 0.25
 Absolute liquidity ratio
0.3

0.25

0.2

0.15 Absolute liquidity ratio

0.1

0.05

INTERPRETATION:

In all the above years the absolute quick ratio is very low. The standard norm for
absolute quick ratio is 1:2 the company is failed In keeping sufficient Cash &Bank
Balances and Marketable Securities.
4.4) DEBT EQUITYRATIO

Debt equity ratio indicates the relationship describing the lenders contribution for
each rupee of the owner’s contribution is called debt- equity ratio. Debt equity ratio
is computed by dividing Long term Liabilities divided by Equity. Lower debt –
equity ratio higher the degree of protection. A debt-equity ratio of 2:1 is consider
ideal:

LONG TERM DEBTS

DEBTEQUITYRATIO= ----------------------------------------
EQUITY CAPITAL

year Long terms debts Equity capital Debt-equity ratio

2015-16 378,672,427 2,012,852,920 0.19

2016-17 1,407,083,880 2,436,657,677 0.58

2017-18
3,162,620,560 3,331,014,470 0.95
 debt equity ratio
1
0.9
0.8
0.7
0.6
0.5
debt equity ratio
0.4
0.3
0.2
0.1
0
2015-16 2016-17 2017-18

Interpretation:
a debt equity ratio should be 1:2 in 2015-16 it is 0.19 in 2016-17 it is 0.58 and in 2017-18 it is
0.96 so it less than satisfactory.
4.5) INVENTORY TURNOVER RATIO

It indicates the firm efficiency of the firm in producing and selling its
product. It is calculated by dividing the cost of goods sold by the average
inventory.

COST OF GOODS SOLD

INVENTORYTURNOVERRATIO= -----------------------------------
AVERAGE INVENTIRY

YEAR COST OF GOODS AVERAGE INVENTORY TURNOVER

SOLD INVENTORY RATIO

2015- 3,499,805,230 506,460,567 6.91

16

2016- 5,324,665,192 746,837,818 7.13

17

2017- 9,782,463,974 1,432,524,559 6.83

18
 inventory turnover ratio
7.2
7.15
7.1
7.05
7
6.95
6.9 inventory turnover ratio
6.85
6.8
6.75
6.7
6.65
2015-16 2016-17 2017-18

INTERPRETATION:

Inventory turnover ratio is 6.91 Times in the year 2015-16 But, it is increased to 7.13 in the Year 2016-17
Then, it is decrease to 6.83 in the year 2017-18. Inventory turnover ratio increased for year that is
company production is also increased. Subsequently sales are also increased.
4.6) DEBTORS TURNOVER RATIO

It is found out by dividing t he credit sales by average debtors. Debtor’s turnover

indicates the number of times debtor’s turnover each year.

sales
Debtors turnover ratio=----------------------------------------
Average debtors

Year Sales Average debtors Debtors turnover ratio

2015-16 4,458,29 5,779 753,113,338 5.92

2016-17 7,451,03 2,998 1 ,158,032,767 6.43

2017-18 13,499,867,499 1 ,862,113,498 7.25

 debtor turnover ratio
8

4
debtor turnover ratio
3

0
2015-16 2016-17 Category 3

INTERPRETATION:

Debtor’s turnover ratio is 4.71 times in the year 2010 and it is increased to 4.7 9
times in the year 2011 and increased to 5.92 times in the year 2012 and it increased
t o 6.43 times &7.25 times in the years 2013&2014.
4.7) FIXED ASSETS TURNOVER RATIO:

The ratio is supposed to measure the efficiency with which fixed assets are employed a
high ratio indicates a high degree of efficiency in asset utilization and a low ratio reflects
in efficient use of assets. However, in interpreting this ratio, one caution should be borne
In mind. When the fixed assets of the firm are old and substantially depreciated, the fixed
assets turnover ratio tends to be high because the denominator of the ratio is very low.

NET SALES
FIXED ASSET TURNOVER RATIO=-------------------------------
NET FIXED ASSETS

YEAR NET SALES NET FIXED ASSETS FIXED ASSETTURNOVER RATIO

2015-16 4,458,295,779 1,043,547,559 4.27

2016-17 7,451,032,998 1,568,304,581 4.75

2017-18 13,499,867,499 1,888,508,475 7.15

 fixed assets turnover ratio
8

4
fixed assets turnover ratio
3

0
2015-16 2016-`17 2017-18

INTERPRETATION:

Fixed assets turnover ratio is 4.27 in the year 2015-16 and it is increased to in the
year 2016-17 to 4.75 and I n the year 2017-18 the ratio is 7.16 so we can say it is
continuesly increasing..
4.8) TOTAL ASSETS TUENOVER RATIO

This ratio ensures whether the capital employed has been effectively used or not. This
is also test of managerial efficiency and business performance. Higher total capital
turnover ratio is always required in the interest of the company.

NET SALES
TOTAL ASSETS TURNOVER RATIO= -------------------------------------
CAPITAL EMPLOYED

YEAR NET SALES CAPITAL EMPLOYED TOTAL ASSET TURNOVER RATIO

2015-16 4,458,295,779 2,511,537,662 1.77

2016-17 7,451,032,998 3,979,834,518 1.87

2017-18 13,499,867,499 6,663,141,085 2.02

 total assets turnover ratio
2.05

1.95

1.9

1.85

1.8 total assets turnover ratio

1.75

1.7

1.65

1.6
2015-16 2016-17 2017-18

INTERPRETATION:

Total assets ratio is 1.21 in the year 2015-16 and it gradually increased
year by year and reached to 1.41 in the year 2016-17 in 2017-18 it is 1.56.It
means Total Assets is increased in every year.
4.9) WORKING CAPITAL TURNOVER RATIO

A firm may also like to relate net current assets or net working capital to sales. Working
capital turnover indicates for one rupee of sales the company needs how many net
current assets. This ratio indicates whether or not working capital has been effectively
utilized market sales.

SALES
WORKING CAPITAL TURNOVER RATIO=---------------------------------------
WORKING CAPITAL

YEARS SALES WORKING WORKING CAPITAL TURNOVER

CAPITAL RATIO

2015-16 4 ,458,295,779 1,099700330 4.05

2016-17 7 ,451,032,998 2,187920684 3.41

2017-18 1 3,499,867,4 99 3,955216073 3.41

 working capital turnover ratio
4.2

3.8

3.6
working capital turnover ratio

3.4

3.2

3
2015-16 2016-17 2017-18

INTERPRETATION:

Working capital turnover ratio is 4.05 in the year 2015-16 and it is decreased to 3.41
in the year 2016-17 &2017-18 The higher the working capital turnover then more
favorable for the company.
4.10) NET ASSETS TURNOVER RATIO

It measures companys ability to generate sales from its assets by comparing net sales with average total assets
for instance a ratio 0.5 means that each dollar of assets generate 50% of sales.

SALES
NET ASSETTURNOVERRATIO= -----------------------------
NET ASSET

YEARS SALES NET ASSET NET ASSETTURNOVER RATIO

2015-16 4,458,295,779 2, 191,397,006 2.03

2016-17 7,451,032,998 3, 817,892,862 1.95

2017-18 13,499,86 7,499 6, 501,134,46 0 2.08

 net assets turnover
2.1

2.05

net assets turnover

1.95

1.9

1.85
2015-16 2016-17 2017-18

INTERPRETATION:

Net Assets turnover ratio is 2.03 in the year 2015-16 and it is decrease to 1.95
in the year 2016-17 and I t is increased to 2.08 in the year 2017-18. So it is satisfactory.
4.11)CAPITAL TURNOVERRATIO

The ratio obtains by dividing sales with the capital employed.

SALES
CAPITAL ASSEETS TURNOVER RATIO= ----------------------------------
CAPITAL EMPLOYED

YEARS SALES CAPITAL EMPLOYED CAPITAL TURNOVER RATIO

4,458,295,779 2,5 11,537,662 1.78

2015-16

7,451,032,998 3,9 79,834,518

2016-17 1.87

2017 -18 13,499,867, 499 6,6 63,141,085 2.03

 capital turnover ratio
2.05

1.95

1.9

1.85
capital turnover ratio
1.8

1.75

1.7

1.65
2015-16 2016-17 2017-18

INTERPRETATION:

Capital turnover ratio is 1.78 in the y ear 2015-16 and it is increased to 1.87 in the year 2016-17 and
it is increased to 2.03 in the year 2017-18. So we can say capital turnover is increasing year by year.
4.12 ) GROSS PROFIT RATIO:

This ratio shows that the margin left after meeting manufacturing costs. It measures
the efficiency of production as well as pricing.

GROSS PROFIT
GROSS PROFITRATIO= ----------------------------
NET SALES

Gross profit= Net sales-Cost of goods sold

Cost of goods sold= Opening stock+ material consumed+ mfg .exp- closing stock

YEARS GROSS PROFIT NET SALES GROSS PROFIT RATIO

2015-16 456,886,268 4,458,295,779 10.24

2016-17 2,126,367,806 7,451,032,998 28.5

2017-18 3,717,403,516 13,499,867,499 27.5

 gross profit ratio
30

25

20

15
gross profit ratio

10

0
2015-16 2016-17 2017-18

INTERPRETATION:

From the above we can say that gross profit ratio is 17% in the year 2015-16
but it increased to 28.5% & in the year 2017-18 it is decrease to 27.5%.The
company is maintaining proper control on Trade Activities.
4.13) NET PROFIT RATIO

This ratio also indicates the firm's capacity to with stand adverse economic conditions.
A firm with a high net margin ratio would be in an advantageous position to survive in the
face falling selling prices, rising costs of production or declining demand for the
product.

NET PROFIT
NETPROFITRATIO= --------------------------
NET SALES

YEARS NET PROFIT NET SALES NET PROFIT RATIO

2015-16 238,465,730 4,458,295,779 5.3

2016-17 470,434,575 7,451,032,998 6.3

2017-18 9,436,315,11 13, 499,867,49 9 6.99

 net profit ratio
8

4
net profit ratio
3

0
2015-16 2016-17 2017-18

INTERPRETATION:

During the year 2015-16 the net profit margin is 5.3% it suddenly increased to 6.3%
in the year 2016-17 because of decreased in administration and selling expenses. In
the next year, it again increased to6.99 I,e in the year 2017-18.it is satisfactory.
4.14) RETURN ONINVESTMENT

The conventional approach of calculated ROI is to divide by investment.

EBIT
RETURN ON INVESTMENT= ------------------------------------
CAPITAL EMPLOYED

YEARS EBIT CAPITAL EMPLOYED RETURN ON INVESTMENT

2015-16 386,899,738 2,511,537,662 0.15

2016-17 742,908,741 3,979,834,518 0.19

2017-18 1,588,690,299 6,663,141,085 0.24

 return on investment
0.3

0.25

0.2

0.15
return on investment
0.1

0.05

0
2015-16 2016-17 2017-18

INTERPRETATION:

Return on Investment is very low in all years. But in the year the 2013-14 in increased to
0.24 .it was continuously increasing comparing to past years
 FINDINGS

Except in the year 2015, the company is maintaining current ratio as 2 and more, standard
which indicates the ability of the firm to meet its current obligations is more. It shows
that the company is strong in working funds management.

The company is maintaining of quick assets more than quick ratio. As the company having
high value of quick ratio. Quick assets would meet all its quick liabilities without any
difficulty.

Investment increases due to increase in equity investment of the bank

Short term borrowings have decreased due to reduction in borrowing in view of

reduction in share prices. The increase in trade payables in mainly attributed to
increase in share supplies.

The company is failed in keeping sufficient cash &bank balances and marketable
securities.
• In above all current assets and liabilities ratios are better that also it is
double the normal position. Observe the absolute &super quick
ratio the company cash performance is down position.

Debt Equity ratio is increasing every year. It indicates the company depends on the debt
fund increasing.

In the year 2015, the interest coverage ratio 7.56 which increased to 94.76 in the year
2018 and high fluctuations in the followed years. In this position, outside investors are
interested to invest their money in this company.

The net profit of the company is increasing over the study period. Hence the organization
maintaining good control on all trees of expenses.
 SUGGESTIONS

The company has to increase the profit maximization and has to decrease the operating
expenses.

By considering the profit maximization in the company the earning per share, investment
and working capital also increases. Hence, the outsiders are also interested to invest.

Proper control over various expenses may increase the profit generation of the bank

The bank should reduce the cost of production and try to improve its profitability

The company has to give importance to maintenance and consumption of raw

materials which would otherwise result in the overstocking and leads to obsolence.

In order to overcome the expenses the firm may reduce the operating expenses. Labour
cost material cost and other overheads are reduce so as to improve the profitability of
the company.

The purchase of raw material at lower cost will reduce the cost of material.

The company should maintain sufficient cash and bank balances; they should invest the
idle cash in marketable securities or short term investments in shares, debentures, bonds
and other securities.

The company must reduce its debtors collection period from 83 & 84 days to 40 days be
adopting credit policy by poviding discounts to the debtors.
 CONCLUSION

From the above analysis of the company’s financial statements it’s concluded that the
company’s financial position is good because the company’s leverage, activity and
profitability positions are good and the company have to increase its liquidity position for
better performance in future.

The management of the organization is very keen in introducing sophisticated technology to

upgrade the quality of product. It has made proper plan for future development for conducting
the project work the authority of the company has given its full support and better cooperation. It
helps to conduct the study in any easy way and to reveal its performance.

This project of ratio analysis in the production concern is not merely a work of the project. But a
brief knowledge and experience of that how to analyse the financial performance of the firm the
study undertaken has brought in to the light of the following conclusions according to this
project I came to know that from the analysis of financial statements it is clear that The Bhiwani
Central Bank have been occurring profits during the period of study. Bank should focus on
internal as well as external factors both.
 BIBLOGRAPHY

BOOKS
. I.M. Pandey : Financial Management

M.Y Khan &P.K .Jai : Financial Management

P.Kulakarni : Financial Management

Dr abhijeeet mancharkar : business research methodology

Prof. deepali desai : business research methodology

Dr. shriparkash soni : business research methodology

REPORTS

Company annual report from2016 to 2018

Purchase order records
Inventory statues report by store

WEB SITES:

www.amararaja.co.in

www.arbl.com
 COMPARATIVE BALANCE SHEET

PARTICULARS 2015-16 2016-17 2017-18

Current assets 2,280,704,176 3,500,193,294 5,975,961,025
Current liblities 1,181,003,846 1,312,272,610 2,020,744,952
Quick assets 1,708,741,955 2,578,479,879 4,032,625,321
Cash+bank+marketable 205,212,363 256,000,280 511,453,739
security
Long term debts 378,672,427 140,083,880 3,162,620,560
Equity capital 2,012,852,920 2,436,657,677 3,331,014,470
Cost of goods sold 3,499,805,230 5,324,665,192 9,782,463,974
Average inventory 506,460,567 746,837,818 1,432,524,559
Sales 4,458,295,779 7,451,032,998 13,499,867,499
Average debtors 753,113,338 1,158,032,767 1,862,113,498
Fixed assets 1,043,547,559 1,568,304,581 1,888,508,475
Capital employed 2,511,537,662 3,979,834,518 6,663,141,085
Working capital 1,099,700,330 2,187,920,684 3,955,216,073
Net assets 2,191,397,006 3,817,892,862 6,501,134,460
Gross profit 456,886,268 2,126,367,806 3,717,403,516
Net profit 238,465,730 470,434,575 9,436,315,11
EBIT 386,899,738 742,908,741 1,588,690,299