CHAPTER 5

FINDINGS,
SUGGESTIONS
AND
CONCLUSION

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 CHAPTER 5

FINDINGS, SUGGESTIONS AND CONCLUSION

5.1 Findings
5.2 Suggestions and recommendations
5.3 Conclusion

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5.1 FINDINGS

During latest 5 years of the study all three banks taken under study
maintained high net profit margin ratio compare to the beginning 5
years of the study period, so based on this it can be concluded that
companies have maintained good amount of profit over gross
income. In latest 5 years all banks performing most efficient way.
During latest 5 years of the study all three banks taken under study
maintained high return on assets ratio except HDFC bank compare
to the beginning 5 years of the study period, so based on this it can
be concluded that banks have utilized their assets most efficient
way to generate revenue and earned profit. No major ups and down
can be observed in throughout last ten years.

Banks have maintained high return on long term fund in earlier 5

years except HDFC bank. All banks have utilized their long term
fund most efficient way to generate revenue and net profit. During
year 2007 and 2006 banks have highest return on net worth ratio
value, and then sudden drop can be observed in all banks in year
2008. So it can be concluded that during year 2006 and 2007 banks
have utilized their equity more efficient way than any other time
periods. From year 2008 to 2015 no major hike or decline can be
observed for all 3 banks. In earlier 5 years of study all banks have
high average Interest income to total fund ratio compare to latest 5
years of study. Sudden hike in ratio value can be observed in year
2009 compare to 2008 and drop can be seen in year 2010 and 2011.

In earlier 5 years of study all banks have high asset turnover ratio
compare to latest 5 years of study. Sudden hike in ratio value can

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be observed in year 2009 compare to 2008 and drop can be seen in
year 2010 and 2011. Average ratio value in current five years is
much higher than the average ratio value of earlier five years.
Sudden big jump can be seen in year 2011 from year 2010, which
indicates banks earned lower amount of other than interest income
in beginning of the years. No significant difference in ratio value
can be observed throughout last ten years of all three banks taken
under study. During latest 5 years of study all banks have high
average ratio compare to earlier 5 years of study except HDFC
bank. Sudden drop can be observed during year 2010 whereas
sudden hike can be seen during year 2012.

During earlier 5 years of study all banks have higher operating

expenses to total funds ratio value than in latest five years of study
period. Significant changes in ratio values can be observed in year
2011 from year 2010. During latest 5 years of study all banks have
higher net profit to total funds ratio value than in earlier five years
of study period. Significant changes in ratio values can be observed
in year 2011 from year 2010. No significant change in loans
turnover ratio value can be observed throughout last ten years.
Significant change in ratio value of HDFC bank can be observed
during year 2014 and 2013. During latest five years banks have
higher advances to loan funds ratio compare to earlier five years of
study. No significant change in ratio value can be observed
throughout last ten years of study.

During latest five years banks have higher capital adequacy ratio
compare to earlier five years of study. Significant ratio change in
year 2010 can be observed from year 2009, which indicates banks

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are at less risk level in current years. As per the guideline of RBI
ratio value ranges from 6 to 8%. During latest five years banks
have lower cash deposit ratio compare to earlier five years of
study. Significant ratio change in year 2008 can be observed from
year 2007 and 2012 from year 2011. This is an important ratio as it
conveys how much of each rupee of deposit is going towards credit
markets. A higher growth in credit deposit ratio suggests credit
growth is rising quickly which could lead to excessive risks and
leveraging on the borrowers side. In case of banks, it could imply
there will be a rise in NPAs when economic cycle reverses. This
ratio serves as a useful measure to understand the systemic risks in
the economy.

Sudden drop in current ratio value for the year 2011 can be seen
whereas significant jump can be observed during year 2012. ICICI
bank has highest ability among all three banks taken under study to
meet its current obligation followed by HDFC bank and Axis bank.
During earlier five years all banks have higher ratio value compare
to latest five years. Significant downside of ratio value can be
observed during the year 2011 from year 2010. Banks have higher
dividend per share ratio in current 5 years than in earlier 5 years of
study period except HDFC bank. Similar to dividend per share
ratio, sudden drop can be seen during year 2015 from the year
2014.

ICICI bank has highest average net profit margin ratio followed by
HDFC bank and Axis bank. Sudden hike in ratio value can be
observed in latest year 2015 from its previous year 2014. ICICI

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bank has highest average net return on assets ratio value followed
by Axis bank and HDFC bank. From all these three banks ICICI
bank has utilized its assets most efficient way throughout way
around last 10 years of study, while HDFC bank has utilized its
assets least efficient way. Sudden drop in ratio value can be
observed in latest year 2015 from previous year 2014. Axis bank
has highest average return on long term ratio value followed by
HDFC bank and ICICI bank. From all these three banks ICICI
bank has utilized its long term fund least efficient way throughout
last 10 years of study, while Axis bank has utilized its assets most
efficient way. No sudden drop or jump can be observed from all
three banks throughout last ten years. HDFC bank has highest
average return on net worth ratio value followed by Axis bank and
ICICI bank. From all these three banks HDFC bank has utilized its
shareholder’s equity most efficient way throughout last 10 years of
study, while ICICI bank has utilized its assets least efficient way.
No sudden drop or jump can be observed from all three banks
throughout latest eight years.

On an average HDFC bank has high ratio value of all time

followed by ICICI bank and Axis bank. On an average HDFC bank
has ability to leverage its average total resources in enhancing its
main stream of operational interest income whereas Axis bank has
lowest ability to leverage its average total resources in enhancing
its main stream of operational interest income. On an average
HDFC bank has high ratio value of all time followed by ICICI
bank and Axis bank. Among these three banks HDFC bank utilized
its assets most efficient way to generate revenue while Axis bank
has utilized its assets least efficient way to generate revenue. On an

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average HDFC bank has high ratio value of all time followed by
Axis bank and ICICI bank. Based on above table and graph it can
be concluded that in latest years ratio value of all banks declined
drastically which is mainly because of increase in non-interest
income of bank compare to purely interest income. With 1.06
average ratio values of last ten years Axis bank stood at number
one position followed by HDFC bank and then ICICI bank. No
major ups and down in ratio can be observed during first 5 years
and during latest 5 years of study. With 5.13 average ratio values
of last ten years ICICI bank stood at number one position followed
by Axis bank and then HDFC bank. HDFC bank has highest
average ratio value of all time followed by Axis bank with second
position and ICICI bank with lowest average ratio value of last ten
years. It can be seen that banks have higher operating expenses in
earlier age of time duration taken under study. HDFC bank has
highest average ratio value of all time followed by Axis bank with
second position and ICICI bank with lowest average ratio value of
last ten years. In earlier years HDFC bank has much higher ratio
value compare to Axis bank and ICICI bank. With 0.21 average
loan turnover ratio value HDFC stood at number one position
followed by ICICI bank with 0.17 average ratio value and Axis
bank with 0.16 average ratio value of last ten years.

With 77.00 average advances to loan fund ratio value HDFC stood
at number one position followed by ICICI bank with 72.05 average
ratio value and Axis bank with 72.02 average ratio value of last ten
years. With 16.55 average capital adequacy ratio value ICICI bank
stood at number one position followed by HDFC bank with 15.36
average ratio value and Axis bank with 14.03 average ratio value

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of last ten years. It can be concluded that ICICI bank has lowest
risk level whereas Axis bank has highest risk level. With 8.43
average cash deposit ratio value ICICI bank stood at number one
position followed by HDFC bank with 8.14 average ratio value and
Axis bank with 6.95 average ratio value of last ten years. No
significant change in ratio value can be observed. With 93.07
average credit deposit ratio value ICICI bank stood at number one
position followed by HDFC bank with 73.40 average ratio value
and Axis bank with 71.26 average ratio value of last ten years.
Axis bank has highest average ratio value of all time followed by
HDFC bank and ICICI bank. It can be concluded that Axis bank
has highest ability to satisfy fixed financing expenses, such as
interest and leases than HDFC bank and ICICI bank. In latest 5
years banks have higher average quick ratio value compare to
previous five years. Significant jump can be seen during year 2010
from the year 2009. Axis bank has highest average quick ratio
value followed by ICICI bank and HDFC bank. With 10.34
average ratio values Axis bank stood number one position followed
by HDFC bank with average 8.78 ratio values and ICICI bank with
5.23 average ratio values.

With 64.26 average ratio values Axis bank stood number one
position followed by HDFC bank with average 45.18 ratio value
sand ICICI bank with 44.76 average ratio values. No major up and
down can be observed throughout last ten years for all three banks.
ICICI bank has highest average dividend ratio value followed by
Axis bank and HDFC bank. With 80.71 average earning retention
ratio Axis bank stood no first position followed by HDFC bank

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with average value 80.66 and ICICI bank with average ratio value
70.14.

5.2 SUGGESTIONS
Based on the study conducted; there are some of the suggestions to
improve banks’ productivity, efficiency and liquidity. Below are
the suggestions about the improvement of the banking sector in
India.

1) Banks should obey the RBI norms and provide facilities as

per the norms, which are not being followed by the banks. While
the customer must be given prompt services and the bank officer
should not have any fear on mind to provide
the facilities as per RBI norms to the units going sick.

2) Banks should increase the rate of saving account.

3) Banks should provide loan at the lower interest rate and

education loans should be given with ease without much
documentation. All the banks must provide loans against shares.

4) Fair dealing with the customers. More contribution from the

employee of the bank. The staff should be cooperative, friendly
and must be capable of understanding the problems of customers

5) Internet banking facility must be made available in all the

banks.

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6) Prompt dealing with permanent customers and speedy
transaction without harassing the customers.

7) Each section of every bank should be computerized even in rural

areas also.

8) Real time gross settlement can play a very important role.

9) More ATM coverage should be provided for the convenience of

the customers.

10) No limit on cash withdrawals on ATM cards.

SUGGESTIONS FOR REDUCING NPA

1) Effective and regular follow-up of the end use of the funds
sanctioned is required to ascertain any embezzlement or diversion
of funds. This process can be undertaken every quarter so that any
account converting to NPA can be properly accounted for.

2) Combining traditional wisdom with modern statistical tools like

Value-at-risk analysis and Markov Chain Analysis should be
employed to assess the borrowers. This is to be supplemented by
information sharing among the bankers about the credit history of
the borrower. In case of new borrowers, especially corporate
borrowers, proper analysis of the cash flow statement of last five
years is to be done carefully.

3) A healthy Banker-Borrower relationship should be developed.

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Many instances have been reported about forceful recovery by the
banks, which is against corporate ethics. Debt recovery will be
much easier in a congenial environment.

4) Assisting the borrowers in developing his entrepreneurial skills

will not only establish a good relation between the borrowers but
also help the bankers to keep a track of their funds.

5) Countries such as Korea, China, Japan, Taiwan have a well-

functioning Asset reconstruction/Recovery mechanism wherein the
bad assets are sold to an Asset Reconstruction Company (ARC) at
an agreed upon price.

5.3 CONCLUSION
Over the years the Indian Banking Sector has passed through
various phases. The first phase is considered as the ‘infancy’ phase
up to independence i.e. 1974. During this time period banking
system developed on the privatized basis. The total numbers of
commercial banks have been 648 with total deposits of Rs. 1.080
crore, advances of Rs. 475 crore and Credit Deposit ratio of 43.99
percent on the eve of independence.

For the development and the growth of banking sector several

important steps have been taken up such as nationalization of
Reserve Bank of India in 1948, enactment of Banking Regulation
Act in 1949, emergence of State Bank of India in 1955 and its
subsidiary banks during 1959-60 etc. In 1967 Indian Government

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initiated the scheme of social control and 14 major Indian
Scheduled Commercial Banks have been nationalized. It have been
reported that 73 scheduled commercial banks having total deposits
of Rs. 4661 crore, advances of Rs. 3599 crore and credit-deposit
ratio of 77.5 percent on the eve of nationalization. Nationalization
of banks has been considered as one of the bold and major steps in
the process of banking sector reforms in India. As a result of this
Public Sector Banks control over 90 percent of banking business.
Indian banking structure emerged as strong and viable with
rigorous control enforced by the RBI during this period.

Banking Operations and Policies have been associated with

planning priorities. It has been reported that there have been 272
Scheduled Commercial banks with total number of bank branches
to the tune of 53287, controlling total deposits of Rs.92,233 crore,
advances of Rs.57,229 crore and credit-deposit ratio of 62.3
percent at the end of 1986.

The post nationalization period has been earmarked with rapid

branch expansion, wide geographical penetration impressive
growth in deposit mobilization as well as in credit expansion.
However, there have been several adverse factors such as high
reserve requirements deterioration in quality of loan assets, priority
and weaker section advances, high fixed and operating costs,
organizational weakness, lack of internal control, defective
accounting policies, under capitalization, political interference etc.
which severely damaged productivity, profitability and efficiency
of banking sector.

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As a result of this the financial sector reforms have been started to
bring about a paradigm shift in the banking sector. In the year of
1991 the high level Committee under the Chairmanship of Mr. M.
Narsimham has been constituted which submitted its reports in
1992. The committee has announced many recommendations for
changing practices, policies and procedures of the banking sector.
The implemented some of the important recommendations in
phased manner have been listed below:

 Introduction of prudential norms as regards income

recognition, asset classification and provisioning for bad
and doubtful debts.

 Entry of private sector banks and easier branch licensing

norms for foreign banks.

 Debt Recovery Tribunals (DRT) and Asset

Reconstruction Fund.

 Deregulation of interest rate structure.

 Regulation and supervision.

 Capital Adequacy Norms.

 Autonomy in operations.

In the year of 1992, the total number of Scheduled Commercial

Banks (SCBs) have been 272 with total number of branches 60570,
having total deposits of Rs. 2,37,107 crore and advances of Rs.
1,31,520 crore with a credit-deposit ratio of 55.4 percent on the eve
of implementation of financial sector reforms.

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Many significant environmental changes in financial sector have
been reported as a result of liberalization and globalization.
Introduction of innovative products and services, Interest rate
deregulations, free product pricing and introduction of increasing
competition among various bank groups have been reported. Under
the Chairmanship of Mr. M. Narsimham all these have induced the
Government of India to constitute another Committee to suggest
changes in ongoing financial sector reforms. By the Committee in
the year of 1998 many important recommendations suggested in
the various areas which are listed below:

 Asset /Liability Management and Risk Management.

 Human Resource Management.

 Internal Control System and Operational Methods.

 Strict prudential and disclosure norms.

 Technology up-gradation.

 Various Structural aspects etc.

At the end of the year 1999 , on the eve of ushering into 2 nd phase
of financial sector reforms, the number of SCBs have been 302
with an aggregate deposit base of Rs. 7,14,025 crore and total
advances portfolio of Rs. 3,68,873 crore having a credit-deposit
ratio of 51.7 percent.

The implementation of recommendation of second Narsimham

Committee commenced from 1999 onwards. Therefore, the period

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commencing from 1999 onwards has been earmarked as Reform
Phase (II). The important developments that have taken place
during this phase are:

 Consolidation of players through mergers and

acquisitions

 Development of new technology

 Globalization of operations

 Integrated Risk Management

 Product Innovation and Process Re-engineering

 Universalisation of banking

Since Independence Banking Sector has been dominated by Private

Sector Banks, 14 major scheduled banks were nationalized in the
year 1969 and 6 more were nationalized in the year 1980.

But Reserve Bank of India has issued guidelines immediately after

liberalization, Privatization and a globalization. Policy adopted by
India in 1993 RBI has issued specific guidelines for Private Banks.
Today Private Sector Banks are comparatively performing better
than Public Sector Banks therefore the study is mainly focusing on
three private banks namely AXIS, HDFS and ICICI Bank for the
period 2005-06 to 2014-15.

The following revelations have appeared:

As Compare to Public Sector Bank, Private Banks are having
increasing trend for deposits as well as for the growth of
investment.

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5.2.1 The share of Private Sector Banks in Deposits has been 17.12
percent during the year 2005 which was slowly increased to 19.20
percent during the year 2014. The annual average growth rate
attained in deposit mobilization has been 18.72 percent.

5.2.2 Private sectors banks share in total investments has been

16.17 percent during the year 2005 which was bit by bit increased
to 24.32 percent in the year 2014. They have coped to attain an
average annual growth rate of 21.86 percent during the period
under consideration.

5.2.3 The share of Private Sector Banks in Advances has been

19.23 percent in the year 2005 which was step by step increased to
19.88 percent during the year 2014. The average annual growth
rate attained has been 19.59 percent.

In the Banking Industry, Financial sector reforms have exchanged

the policies, structure, operations and procedures in a considerable
manner. The grandness of financial management function has
heightened in such volatile environment. The present study has
assayed to understand and analyze various financial accounting
techniques in relation to profitability, liquidity and efficiency
adopted by selected private sector banks. Important findings, as
derived from the study have been presented chapter wise in the
above paragraphs.

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