Professional Documents
Culture Documents
INTRODUCTION
General Introduction
Statement of Problem
Objectives of Study
Period of Study
Methodology
Limitations of The Study
Chapter scheme
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CHAPTER 1
INTRODUCTION
GENERAL INTRODUCTION
ORIGIN OF BANK
There are different opinions regarding the origin of the term ‘bank’.
According to some, the English term ‘bank’ is derived from the Italian word
‘Banco’, the Latin word ‘Bancus’ and the French word ‘Banque’, which means
a ‘bench’ used as a counter for banking activities. They are of the opinion that
the medieval European bankers [i.e., the money changers and money lenders]
transacted their banking activities, viz., money changing [i.e., exchanging one
currency for another] and money lending, by displaying coins of different
countries, and of different denominations, in big heaps on the benches in the
market places. As such, the word ‘Bank’ should be associated with the Italian
word ‘Banco’.
According to others, the term ‘bank’ is derived from the German word
‘Banck’ which means a joint stock fund or common fund [i.e., heaps of money]
raised from a large number of members of the public. They argue that the early
European bankers raised a common fund or heaps of money from the public for
the purpose of financing the needy. As banks deal in common fund or heaps of
money raised from the public, the term ‘bank’ should be traced to the German
word ‘Banck’.
Of these two views, the latter view seems to be more appropriate, as the
term ‘Bank’ is generally associated with an institution dealing in heaps of
money raised from the public.
1.1 DEFINITION OF BANK
It is very difficult to define the term ‘bank’ or ‘banker’ precisely. Even
the best authorities on banking have failed to provide a satisfactory definition of
this term. This is because a modern bank performs numerous activities, and it is
really difficult to incorporate all the activities of a modern bank in a simple and
satisfactory definition.
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1.1.1 DEFINITION GIVEN BY INDIAN BANKING REGULATION
ACT
Sec 5(1) (b) of the Indian Banking Regulation Act of 1949 defines the
term “Banking” as “accepting, for the purpose of lending or investment, of
deposits of money from the public, repayable on demand or otherwise and
withdrawable by cheque, draft, order or otherwise.”
1.1.2 CHARACTERISTICS OF BANK
According to the definition given by the Indian Banking Regulation Act
of 1949, the essential characteristics of bank are:
Acceptance of deposits from the public on current, fixed and savings
bank account.
Allowing of withdrawals of those deposits by cheques, drafts, orders or
otherwise.
Utilization of deposits in hand for the purpose of lending or investment
in securities.
Performance of other activities called subsidiary services, in addition to
the principal activities of receiving of deposits and lending of funds.
Performance of banking business as the main business.
Using the term ‘Bank’, ‘Banker’ or ‘Banking Company’ as part of the
firm.
The definition given by the Indian Banking Regulation Act of 1949
comprises all the essential features of the bank.
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be established in the year 1786. The others which followed were the Bank of
Hindustan and the Bengal Bank. The Bank of Hindustan is reported to have
continued till 1906 while the other two failed in the meantime. In the first half
of the 19th century the East India company established three banks; the Bank of
Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in 1843.
These three banks also known as presidency Banks were independent units are
functioned well. These three banks were amalgamated in 1920 and a new bank,
the Imperial bank of India was established on 27th January 1921. With the
passing of the State Bank of India Act in 1955 the undertaking of the Imperial
Bank of India was taken over by the newly constituted State Bank of India. The
Reserve Bank which is the central Bank was created in 1935 by passing Reserve
Bank of India Act 1934. In the wake of the Swadeshi Movement, a number of
banks with India management were established in the country namely, Punjab
National Bank Ltd., Bank of India Ltd., Indian Bank Ltd., The Bank of Baroda.,
The Central Bank of India Ltd. Only July 19, 1969, 14 major banks of the
country were nationalized and in 15th April 1980, six more commercial private
sector banks were also taken over by the government.
Banking institutions are the major sources of institutional finance in
India and they occupy a pivotal place in the organized sector of the Indian
money market. The organized sector consists of the commercial banks, co-
operative banks, Regional Rural Bank’s (RRB) and development banks. The
organized sector is under the regulation and control of the RBI and the
government. There is lot of difference between the organized and unorganized
sector of the money market in terms of their structure, working, function, terms
of credit, interest rate etc.
The institutions that perform banking activities are called banking
institutions. Banking institutions in India are classified as under:
1. Commercial Banks
a) Scheduled Banks
(i) Public sector banks
• State Bank group
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• Nationalized banks
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money into the economy and during times of boom they can siphon the money
off from the economy. All these actions of commercial banks have a direct
bearing on the economic activities taking place in a country.
1.4.5 Facilitates Monetary Policy: - The policies taken by the Central Bank of
a country to strengthen the economy is called monetary policy. The central bank
can implement the monetary policy only through the commercial banks. Thus
the role of commercial bank is that of a facilitator in implementing monetary
policy by the Central Bank.
1.4.6 Improves the standard of living of the people: - Generation of
employment opportunities by commercial banks fetches higher income to the
people that ultimately add to their purchasing power. Again, banks advance
loans to consumers to buy consumer durable goods like houses, scooters,
refrigerators etc. In this way, they help in developing the standard of living of
the people in a developing country.
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The word finance comes indirectly from the Latin word ‘finis’. Finance is the
only common denominator for vast range of corporate objectives. The major
part of any business plan must be expressed in financial terms. This brings to
light the need for proper administration of finance. Proper administration of
finance means the study, analysis and evaluation of all financial problems to be
faced by the management and to take proper decisions with reference to the
present circumstance regarding the procurement and utilization of funds that
might be necessary to increase the efficiency of the remaining factors of
production.
Finance is defined as ‘issuance of, distribution of, and purchase of liability and
equity claims issued for the purpose of generating revenue producing assets’1.
Profit may be considered as an index of success. It serves three purpose i.e.,
measures effectiveness, soundness of businessman and offers the ultimate test
of business performance. The basis of financial planning and decision making is
the financial information. Financial information is needed to predict, compare
and evaluate a firm’s earning capacity. It is also required to aid in economic
decision making, investment and financing decision making. The financial
information of an enterprise is contained in the financial statements or
accounting records. Financial statements are the basis for decision making by
the management as well as by outsiders who are interested in the affairs of the
firm.
Financial statement is an organized collection of data according to logical and
consistent accounting procedures. Its purpose is to convey an understanding of
some financial aspects of a business firm. Financial statements provide a
summary of the accounts of a business enterprise in the form of balance sheet
exhibits the assets, liabilities and capital as on a certain date while the profit and
loss account reveals the results of operations during a certain period. Each entry
in these statements has a meaning. In order to interpret these statements one
must know the implication and significance of each entry.
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The information provided in the financial statements is of immense use in
making decision through analysis and interpretation of financial statements.
Financial analysis is the process of identifying the financial strengths and
weakness of a firm by properly establishing relationship between the items of
balance sheet and profit and loss account. Financial statement analysis is largely
a study of relationship among the various financial factors in a business as
disclosed by a single set of statements and a study of the trend of these factors
as shown in a series. The analysis and interpretation is essential to bring out the
mystery behind the figures in the financial statements. The purpose of financial
analysis is to diagnose the information contained in the financial statements so
as to judge the profitability and financial soundness of the firm. Canara Bank is
now hundred years old founded on 1 July 1906 with laudable intentions of
helping the common man Canara Bank now ranks as the largest among the
nationalized banks in terms of the global business. It is also one of the highest
profit earners among Indian banks. In the study an attempt is made to analyze
bank’s past performance and asses its present financial strength.
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financial performance of Canara Bank. The problem is stated as ‘An Analysis of
Financial Performance of Canara Bank’.
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1.11 METHODOLOGY
The crucial aspect while doing the project is fetching correct and relevant
information which gives proper and correct conclusion after interpretation
having determined the purpose and objective. This is an exploratory research
design, which involves information from the annual financial statements and
reports of Canara Bank. For the analysis one has to determine the best method
of collection of data. Thus the sources of data collection are classified into two
groups;
• Primary Source
These are those data which are originally collected for the first time for specific
purpose. They are original in character. Interviews with the top executives of
the bank form the source of primary data.
• Secondary source
These are data which are already collected, purchased, used by someone else for
their own purpose. Such data have been collected from the audited accounts of
the Canara Bank. The required data for this study are basically secondary in
nature.
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CHAPTER II
COMPANY PROFILE
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CHAPTER II
COMPANY PROFILE
Canara Bank is today one of the largest banks in the country, the largest among
nationalized banks in terms of global business. The tiny seed that was planted
way back in 1906 in the coastal town of Mangalore by a crusader for social
causes, philanthropist and advocate, Sri. Ammembal Subba Rao Pai, has today
grown to attain the status of a banking behemoth, an institution that is looked at
with awe by its contemporaries.
Yes, Canara Bank has indeed come a long way. An institution that aimed to
ameliorate the sufferings of the common man, reeling under the clutches of
unscrupulous moneylenders and to promote thrift and savings among other
objectives still proudly relates itself to the noble cause of serving both the
cognoscenti and the hoi polloi and humbly holds on to its status of a ‘common
man’s bank’. It was David Rockefeller who said that ‘Banks are there to help
people who want to come up in the world’. In the hundred years of its existence
Canara Bank has let many lamps, brought sunshine into countless number of
households, and helped millions of our countrymen to rise and shine and to
better the quality of their lives. The characteristics that any good bank should
possess, viz. flexibility of approach, receptivity to change, optimism, courage to
take risk and a sense of responsibility is all to be found in this great Institution. It
has been nurtured to its present state by the invaluable contribution of thousands
of men and women, selfless individuals who shaped its destiny, acquiring for it
in the process a distinct brand image of trendsetter, a bank par excellence, setting
benchmarks in each and every sphere of its activity.
Canara Bank always lays great store by its human resources. Just as Rome was
not built in a day institutions too do not attain gargantuan proportions overnight.
Canara Bank is one of the few that has exhibited sturdiness and resilience taking
vicissitudes in its stride, emerging more powerful each time, bouncing back to
serve the community at large with all the resources at its command. This saga of
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success it owes to its workforce, its loyal band of men and women who have
stood by it through thick and thin and its clientele whose loyalty to the institution
unquestionable. The identification of the individual with the institution, a sine
qua non for progress, is complete in the institution which has never failed to
foster the growth of its human resources and has always charted out career path
for them. The bank has also focused extensively on training its human resources
so as to enable them to come to grips with the changing banking scenario. A
record number of 88,171 employees have been trained during 2005 and the
target of training 1, 00,000 employees has been achieved at the end of June
2006.
Another area where the bank has been placing emphasis in the last few years is
Information Technology (IT), the buzzword in banking circles today. The bank
has computerized all its branches, introduced slew of IT driven products and has
also rolled out its Core Banking Solution which will add a lot of muscle to its
operations in the coming days. Canara Bank has always prided itself on its
excellent standards of customer service. In a scenario of changing customer
expectations where the focus is more on speed and quality of service; the bank
has spared no effort to spruce up its service standards and has always
endeavored to render state of the art service to its clientele. The bank, right from
its fledgling years, has been aware of its duties and responsibilities as a
corporate citizen. Corporate Social Responsibility has been a mantra that the
bank has been assiduously cultivating and its efforts in this direction have been
amply rewarded with encomiums and accolades from all quarters. The bank was
the recipient of the Helpage India award for Corporate Social Responsibility for
2004-2005, an hour that it wrested in the teeth of competition from corporates
all over the country. Under the aegis of the Canara Bank Centenary Rural
Development Trust, the bank has been doing yeoman service in espousing the
cause of the poor and downtrodden and has devised a number of schemes for
their uplift, focusing not just on driving the wolf from the door but also on
engendering self employment, creating self-help groups, providing multifarious
avenues for women to come up in life and unshackling them from bondage have
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also been among the bank’s priorities. Corporate Governance is also being
accorded top priority and the bank has been endeavoring to maximize value for
all categories of stakeholders. The bank’s public issue in 2002 was
oversubscribed nearly two times even in lukewarm conditions and investors
have been handsomely rewarded with dividend and capital appreciation with the
bank’s stock trading at the bourses at several multiples of the offer price.
The bank has seen a steady and consistent growth in both its deposits and
advances. In the last five years the deposits and advances of the bank have been
grown at a compounded annual growth rate of 13.9 percent and 18.5 percent
respectively. The bank has also witnessed an improvement in its operating
efficiency with the business size per branch growing at a compounded annual
growth rate 14.4 percent over the last seven years.
The bank expanded into international markets with the opening of its London
branch as early as 1983. Currently, the bank’s international operations are
represented by its presence in London and Moscow and a wide network of
correspondent banking arrangements. The bank also has a wholly owned
foreign subsidiary Indo Hong Kong International Finance Ltd; head-quartered
in Hong Kong which accepts deposits and undertakes trade financing activities.
To further its foreign business initiative, the bank has recently entered into an
agreement with State Bank of India for setting up a joint venture bank in
Moscow under the name ‘Commercial Bank of India’. The bank already
operates in Moscow through a representative office. The bank is also providing
Tele-banking, Anywhere – Banking and remote Access Terminal facilities to its
customers.
The bank’s corporate vision in the medium term is to be a ‘World Class and
world Sized Bank’. The bank believes that its efforts in respect of IT initiatives,
focus on customer centric measures and thrust on profitability would enable it to
fulfill its vision. Corporate mission of the bank is to achieve ‘Profitability,
Efficiency, and Productivity’.
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II.1 Competitive Strength
One of the largest banks in India, with total business (advances plus
deposits) exceeding Rs. 97,000 crore.
Continuous track record of profitability since inception.
Low NPA level of 3.89 per cent.
Vast domestic branch network spread across the country.
Wide – ranging portfolio of financial services provided through various
subsidiaries of the bank.
Technology edge with hundred per cent of the bank’s business being
computerized.
Technology backbone enables the bank to undertake product innovation
and adopt a customer centric approach.
Strong presence in credit cards with an ISO 9000 certification for the
operations.
II.2 MANAGEMENT
The overall supervision and control of the Bank’s functions rests with the Board
Directors which consists of the Chairman and Managing Director and Executive
Director, both appointed by the Government of India, other directors
representing the Government, Reserve Bank of the India, Employees and
officers of the Bank. The day- to-day affairs of the Bank are managed by the
Chairman and Managing Director, the Executive Director, the Bank’s General
Managers who are assisted by a team of competent professionals.
The entire equity capital is presently held by the Government of India. The
Government of India, Ministry of Finance, Department of Economic Affairs
(Banking Division) by its letter dated August 29, 2002 has given its approval for
the present issue. After the issue, the shareholding of the Government of India
will be 73.17 per cent.The Government of India, Ministry of Finance,
Department of Economic Affairs (Banking Vision) has given its approval for
lock-in of 20 per cent of the post- issue capital for a period of three years from
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the date of allotment in the Issue and the remaining capital held it for a period of
one year from the date of allotment in this issue.
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FINANCIAL PERFORMANCE AND WORKING
RESULTS OF CANARA BANK
II.6 FINANCIAL SOUNDNESS
II.6.1 Capital
The Bank’s paid-up capital stood at Rs. 410 crore with 1.08 lakh
shareholders. Capital to Risk Weighted Assets Ratio worked out to 13.05% vis-
à-vis the 9% benchmark.
II.6.2 Reserves and owned funds
Reserves increased to Rs. 9944 crore, additional accrual during the year
being Rs. 3222 crore. Owned funds stood at Rs. 8111 crore as compared to Rs.
7132 crore at the end of the previous year.
II.6.3 Profits and profitability
Gross profit for the year 2006-07 stood at Rs. 2912 crore, while net profit
was of the order of Rs.1421 crore.
Return on Average Assets (RoAA), worked out to 0.98%, despite a 25%
growth in total assets. Net interest Income was up 12.43% to Rs. 4027 crore.
II.7 BUSINESS
II.7.1 Deposits
Global deposits of the Bank moved up to Rs.142381from Rs.116803
crore a year ago, signifying a 22% growth, covering 25.53 million accounts.
II.7.2 Advances
Global advances (net) aggregated to Rs.98506 crore, up from Rs.79426 crore a
year ago, exhibiting a growth of 24%. 75% of the incremental credit during the
year was deployed in productive sectors like agriculture, SME, industries,
infrastructure and services sectors. While overall credit growth has been 24%,
growth in credit to productive sectors worked out to over 33%, out of which
growth in agriculture and industries worked out to 29% and 36% respectively.
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160000
140000
120000
100000
Deposits
80000
Advances
60000
40000
20000
0
2003-04 2004-05 2005-06
II.7.3 Productivity
Business per Employee moved up from Rs. 4.42 crore to Rs. 5.49 crore,
while Profit per Employee stood at Rs.3.24 lakh.
23
14245
15521 SMEs
Other Priorities
Agriculture
12472
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portfolio, out of which 81% were under the priority ambit, reflecting the Bank’s
continued concern for the common man.
36000
34000
32000
30000
28000
26000
24000
22000
20000 Other personal
18000 Retail trade
16000
14000 housiing
12000
10000
8000
6000
4000
2000
YEAR 2003- 2004- 2005-
04 05 06
2004-05 2005-06 2006-07
II.7.6 Treasury
Aggregate investments of the Bank, as at March 2007, were of the order
of Rs. 45226 crore,. Duration of the investment portfolio has been brought
down considerably as a conscious management decision in view of interest rate
volatility and rising trend in interest rate. The advantage of having higher
volumes under the ‘Available for Sale’ duly reflects that the stated value of the
portfolio is truly realizable.
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Rs. 130083 crore, recording a robust y-o-y growth of 32%. Turn over under
exports, imports and remittances were of the order of Rs. 49307 crore, Rs.
31705 crore and Rs. 49071 crore respectively. Outstanding advances to the
export sector stood at Rs. 7896 crore as against Rs. 7136 crore at the end of the
previous year.
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II.9 CORPORATE SOCIAL RESPONSIBILITIES
II.9.1 Rural development
Rural Development and Self- Employment Training Institutes
(RUDSETls) co-sponsored by the Bank have been engaged in proving training
to rural youths to pursue various self-employment activities. RUDSETls,
numbering 20 across India, have so far trained 1.87 lakh unemployed youth,
with a settlement rate of 67%. The Bank under Canara Bank Centenary Rural
Development Trust, has promoted 14 self-employment training institutes. These
institutes have so far trained 56520 rural youth, with an impressive settlement
rate of 72%. The trust is also extending support to Society for the Educational
and Economic Development (SEED), a voluntary organization working for the
welfare of socially marginalized children.
The Bank’s ‘Rural Clinic Services’, scheme, has assisted doctors in
opening 21 additional clinics during 2006-07, taking the total of such clinics ro
493 across India. Under ‘Jalayoga’, a scheme for facilitating availability of safe
drinking water in rural areas, the Bank has completed 35 projects so far.
Tapping the spirit of voluntarism among its employees, the Bank, under the
Rural Service Volunteer Scheme, has assisted 500 villages, benefiting over 2
lakh families since its inception in 1985. As a responsible corporate social
citizen, the Bank has donated hi-tech and solar powered ‘Mobile Sales Van’ to
assist women entrepreneurs, SHG and artisans in their entrepreneurial ventures.
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II.10.2 Merchant banking operations
During 2006-07, the Bank handled 16 assignments as Lead Manager/Co-
Book Running Lead Manager/Co-Manager& Advisor, covering 5 Public Issues,
9 Private Placement Issues, one Rights Issue and one assignment of Delisting of
Equity. The Bank handled 22 ‘Bankers to the Issue’ assignments as Escrow
Bankers/ collecting Bankers with total float funds amounting to Rs. 4360 crore.
II.10.3 Corporate cash management services (CCMS)
Aggregate turnover under Corporate Cash Management Services scheme,
for the year ended March 2007, amounted to Rs. 2650 crore. The scheme
provides services, such as local and upcountry cheque collection, bulk cheques
collection and zero balance account facility. The CCMS network presently
covers 94 Operating Centres and 683 Pooling Branches.
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Focus on specialized expertise led to recruitment of 541 officers through
campus and direct recruitment in diverse areas like marketing, financial analysis
and risk management.Continued focus on quality drive enhanced the number of
ISO 9001 Certified Branches and Administrative Offices to 805 and 14
respectively as at March 2007.
II.12 PRODUCT PROLIFERATION
II.12.1 New products/services
In addition to a host of existing products and services, the Bank
introduced several deposit products during FY07, Can Tax Saver, a term deposit
scheme, was introduced under the Kamadhenu and fixed deposit mode with tax
benefit under Section 80C. CanChamp- an exclusive SB deposit product was
launched for aspiring children upto the age of 12 years for inculcating the habit
of savings. A term deposit scheme, namely, Canara Centenary Deposit was also
introduced during the year, offering attractive rate of interest for the depositors.
During the year, the Bank also launched a SB- Gold deposit scheme, targeting
the HNI clients.
In the sphere of new loan products, the Bank introduced ‘Kisan Tatkal’
for enabling farmers to meet emergent requirements and ‘Kisan Mitra’ scheme
for funding tenant farmers. Grameen Vikas Vahini, vehicle for inclusive growth
in rural areas was also introduced during the year. To promote SME sector, the
Bank launched SME Gold Card and a Term Loan Scheme for reimbursement of
capital expenditure.
II.13 SUBSIDIARIES, JOINT VENTURE AND SPONSORED
INSTITUTION
The Bank has nine subsidiaries/joint ventures/sponsored institutions
providing a wide ranges of services, and is, thus, poised to emerge as a major;
’Financial Conglomerate’.
Canbank Venture Capital Fund Limited (CVCFL) currently manages four
funds, with fourth fund made operational since December 2005. It has so
mobilized a corpus of Rs, 60 crore from seven banks and SIDBI. Till March
2006, CVCFL has assisted 84 ventures, involving financial assistance to the
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tune of Rs. 74 crore. The Company recorded a profit after tax of Rs.20 lakh for
the year 2006-07 and distributed a dividend of 40%.
Can Fin Homes Limited a sponsored housing finance institution of Canara
Bank, sanctioned and disbursed a sum of Rs. 417 crore and Rs. 453 crore
respectively during 2006-07. The Company has recorded a profit after tax of Rs.
30 crore.
Can Bank Investment Management Services Limited (CIMS) acts as
investment manager for all the schemes floated by Canbank Mutual Fund.
CIMS, with combined net assets of Rs. 2185 crore, is currently managing 18
schemes. The Company posted a profit after tax of Rs. 2185 crore, is currently
managing 18 schemes. The Company posted a profit after tax of Rs. 4 crore in
2005-06, with a proposed dividend of 30%.
Can Bank Factors Limited, the factoring subsidiary of the Bank, posted a total
turnover of Rs.33396 crore as at March 2006 and a profit after tax of Rs. 14
crore. The Company proposed a dividend of 15% for the year.
Gilt Securities Trading Corporation Limited (GSTCL), a primary dealer
promoted by Canara Bank, posted a profit of Rs.10.60 crore despite rise in
yield rates and provision for depreciation on stock of securities held. Primary
dealer functions of GSTCL have been taken over by Canara Bank from
February 2006, with diversification of activities into the areas of equity broking
and trading.
Canbank Financial Services Limited (CANFINA)confined its activities to
legal matters arising out of past transactions in securities, besides concentrating
on collection of lease rentals and realization of investments. The Company
recorded a profit after tax of Rs. 24.23 crore.
Indo-Hong Kong International Finance Limited, a wholly owned overseas
subsidiary of the Bank, posted a net of US$ 3.52 million for the year ended
March 2007. IHIFL has since been converted into a full fledged branch of the
Bank during March 2007.
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GOALS FOR 2007-08
Bank targets a global business level of Rs 2,90,000 crore for 2006-07, with a
growth rate of over 20%, comprising Rs. 1,70,000 crore under deposits and Rs.
1,20,000 crore under advances. Advances growth will be significantly driven by
agriculture, SME infrastructure and other productive segments, including
services sector.
Towards faster implementation of Core Banking Solution (CBS) , the Bank
targets to cover all the branches under CBS by March 2008.
The Bank has taken up a major brand building exercise and comprehensive
review of its business strategies covering products, processes, people and its
organization structure.
In pursuit of the Bank’s global aspirations, 21 prominent canters have been
identified by the Bank for expanding its global reach. With the preliminary
moves underway, the Bank’s Representative Office at Shanghai is being
converted into a full fledged branch.
After creation of JVs in insurance and Asset Management, the Bank is
exploring similar options in other financial services.
The Bank is geared up to comply with the revised guidelines issued under
priority sector lending.
Under HR, Assessment Development Centre concept will be implemented to
map training competence and upgrade manpower skill. Plans are underway to
introduce ‘internship’ programme to assist students pursuing professional
course.
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Performance Highlights at a Glance
Rs.in crores
2003-04 2004-05 2005-06
33
Chart II. 1
CANARA BANK CIRCLE OFFICES
JURISDICTION
Karnataka
Bangalore
Chandigarh HimachalPradesh,Punjab,
Chandigarh,Jammu&Kashmir
MadhyaPradesh,Rajasthan,
Delhi Delhi
& Haryana
Andra Pradesh
Hyderabad
Orissa,Assam,Sikkim,Tripur
Kolkata a,
West Bangal and Megalaya
Uttar Pradesh and
Lucknow Uttaranchal
Tamil Nadu
Madurai
Karnataka,Goa
Mangalore
Maharashtra
Mumbai (C)
Kerala
Thiruvanadapuram
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CHAPTER III
FINANCIAL ANALYSIS - A
GENERAL VIEW
• Financial Statements
• Types of Financial Analysis
• Techniques of Financial Analysis
35
CHAPTER III
FINANCIAL ANALYSIS – A GENERAL VIEW
36
III.2 FINANCIAL STATEMENTS
A financial statement is a collection of data organized according to logical
consistent accounting procedures. Its purpose is to convey an understanding of
some financial aspects of a business firm. These statements are the outcome of
summarizing process of accounting and are therefore the sources of information
on the basis of which conclusions are drown about the profitability and the
financial position of a concern. The analysis and interpretation of financial
statement depend upon the nature and type of information available in these
statements.
Financial statements primarily comprise two basic statements;
1. Position statement or Balance Sheet
2. Income Statement or Profit and Loss Account
III.2.1 Balance sheet
Balance sheet is one of the important statements depicting the financial
strength of the concern. It represents all the assets owned by the concern and all
the liabilities and claims it owes to owners and outsiders. It shows on one hand
the properties that it utilizes and on the other hand the sources of these
properties. The Balance sheet is prepared on a particular date
III.2.2 Income statement or Profit and Loss Account
Income statement is prepared to determine the operational position of the
concern. It is a statement of revenues earned and the expense incurred for
earning that revenue. If there is excess of over expenditure it will show a profit
and if the expenditure is more than income then there will be loss. The income
statement is prepared for a particular period, generally a year.
37
III.3.1 External Analysis
This analysis is performed by outsiders such as trade creditors, investors,
suppliers of long term debt etc
.
III.3.2 Internal Analysis
This analysis is performed by the corporate finance and accounting
department and is more detailed than external analysis.
38
1. Selection
2. Classification and
3. Interpretation
39
the bank is the ratio analysis. Ratio analysis is a very powerful tool useful for
measuring performance of an organization. Ratio analysis is a process of
comparison of one figure against another, which make a ratio, and the appraisal
of the ratios make proper analysis about the strengths and weaknesses of the
bank’s operations. A ratio is a mathematical relationship between two or more
related items taken from the financial statements. Thus ratio analysis
concentrates on the inter-relationship among the figures appearing in the
financial statements. The main ratios being calculated for the analysis of
financial performance of Canara bank are the following:
• Profitability Ratios
• Cost and Yield Ratios
Operational Efficiency Ratios.
III.5.1 PROFITABILITY RATIOS
While profit represents an absolute figure, profitability, measured by a ratio,
represents the operational efficiency. As opposed to absolute profit volumes,
profitability is a more meaningful yardstick of operational efficiency as it is
size-neutral. Profitability ratios, in contrast to absolute profit levels, obviate
difference in balance sheet size and places operational entities on a common
footing. More often, it is such ratios, which are prudent measures of profitability
and efficiency. More so, being a listed company, performance of the Bank is
closely followed by the market and financial analysts, each quarter.The
important profitability ratios are;
III5.1.1 Return on Assets
For banks, is refers to net income divided by average total assets. It is an
analytical measure of asset – use efficiency and industry comparison. For
industrial companies, it net income divided by average total assets on a per
common share basis, used in industry analysis and as a measure of asset – use
efficiency. For insurance companies, it is net operating income divided by the
mean / average assets. This ratio is calculated by the following formula;
Return on assets = Profit earned
Total assets
40
III.5.1.2 Book Value
Book value of a stock is determined from a company’s records, by adding all
assets then deducting all debts and other liabilities, plus the liquidation price of
any preferred issues. The sum arrived at is divided by the number of common
shares outstanding and the result is book value per common share. Book value
of the assets of a company or a security may have little relationship to market
value.
This ratio is calculated by the following formula;
Net profit
Return on Networth =
Average Networth
41
III.5.2 COST AND YIELD RATIOS
Cost of funds is a function of demand, liquidity, inflation, and bank specific
factors, such as, the operational and opportunity cost. Deposits constitute nearly
90% of banks’ funds. Composition of deposits and movement in interest rates
thus affect bank’s cost of funds. Forces of disintermediation, government
borrowings, interest rate movements and buoyancy in capital market are some
of the factors that affect the cost of bank deposits after a progressive decline,
interest rate cycle has revived since last part of 2004-05, resulting in an uptrend
in interest rates and consequently, in cost of funds. Volatile call money market,
high cost of bulk deposits and active refinance market (housing and export
refinance) do find a reflection in the liquidity crunch in the economy.
In tune with the RBI guidelines, banks have been arriving at their Benchmark
Prime Lending Rates (BPLR), considering the actual cost of funds operating
expenses minimum margin to cover regulatory provisioning and profit margin.
In recent years, it is observed in India that commercial banks’ lending rates are
relatively flexible downward while there is considerable rigidity in the upward
movements. Since 1995, there had been continues decline in interest rates.
III.5.2.1 Yield on Investment
The rate of income generated from a stock in the form of dividends, or the
effective rate of interest paid on a bond, calculated by the coupon rate divided
by the bond’s market price. Furthermore, for any investment, yield is the annual
rate of return expressed as a percentage. This ratio is calculated by the following
formula
Yield on investment = income earned on investment
Average investment
III.5.2.2Yield on Advances
Interest income non advances divided by average advances indicates average
yield on advances. This ratio enables cost-benefit assessment from various
advances related products. Progressive banking entities make extensive use of
42
yield on even segment-wise advances (e.g. retail priority consumer loan etc ;) to
re align the composition of advances portfolio. This ratio is calculated by the
following formula;
Yield on advances = Interest Earned on advances
Average Advances
Non-Interest Income
Burden Ratio =
Non-Interest Expenditure
43
CHAPTER IV
• Profitability Ratios
• Cost and Yield Ratios
• Operational Efficiency Ratios
44
CHAPTER IV
ANALYSIS AND INTERPRETATION OF FINANCIAL
STATEMENTS OF CANARA BANK
45
IV.1.1 Return on assets
This refers to net income divided by average total assets. It is an
analytical measure of asset use efficiency and industry comparison. The overall
effectiveness of management in generating profit with its available assets can be
measured through return on assets ratio. The international benchmark is deemed
as 1%.
Profit earned
Return on assets =
Total assets
1.6
1.4 1.34
1.24
1.2
1
An analysis of return on assets ratio of the bank for five years reveals
that for the first four years it has covered the global benchmark of 1%. But on
Ratio
the fifth year return on asset ratio has come down. So the bank must take
0.8
immediate measures to overcome the situation.
IV.1.2 Book value
0.6 46
Book value of a stock is determined from companies’ records, by
adding all assets then deducting all debts and other liabilities.
300
250
200
It is clear from the table VI.1.2 that book value shows an increasing trend
RATIO
for all the years which are encouraging signs for the bank.
150
IV.1. 3 Earning per share
128.09
101.19
100
47
The term earning pr share represents the portion of a company’s
earnings, net of taxes and preferred stock dividends that is allocated to each
share of common stock.
EPS = net profit after taxes
No of shares
Table IV.1.3 EPS
Net profit No. of Shares Ratios(%)
Year
40
35 32.63
30
The table IV.1.3 EPS shows an increasing trend for all the four years
24.85
except for 2004-2005.it is clear from the table that net profit for 2004-2005 was
25
less than that of the previous years which resulted in a decline in EPS for that
RATIO
20
IV.1. 4 Return on Networth
It’s also known as return on equity. Ratio of net profit to average
networth (share capital, plus reserves minus intangible assets).
15
48
10
Net profit
Return on Networth =
Average Networth
2003 10188919
2004 13380056 47002356 28.47
2005 11095045 56803001 19.53
2006 13432200 66205965 20.29
2007 14208100 87431109 16.25
Source: Financial Statement
30 28.47
25
19.53
20
The table IV.1.4 shows that Return on Networth on 2003-04 is 28.47.
But it came down on 2004-05 which again rose on 2005-06 and further
RATIO
decreased to 16.25 on 2006-07. It is also clear that increase in Net profit for all
15
the years is not in par with increase in Networth.
5 49
in interest rates thus affect bank’s cost of funds. Forces of disintermediation,
government borrowings, interest rate movements and buoyancy in capital
market are some of the factors that affect the cost of bank deposits after a
progressive decline, interest rate cycle has revived since last part of 2004-05,
resulting in an uptrend in interest rates and consequently, in cost of funds.
In tune with the RBI guidelines, banks have been arriving at their
Benchmark Prime Lending Rates (BPLR), considering the actual cost of funds
operating expenses minimum margin to cover regulatory provisioning and profit
margin. In recent years, it is observed in India that commercial banks’ lending
rates are relatively flexible downward while there is considerable rigidity in the
upward movements.
IV.2.1 Yield on advances
IV.2.2 Yield on investments
IV.2.3 Cost of deposits
Table IV.2.1
Interest Average
Ratios (%)
Year income on Advances
advances
2003 35909721
2004 38177163 440551130 8.67
2005 42726356 540300158 7.91
2006 54884896 699235518 7.85 50
2007 75075878 889656934 8.44
Source: Financial Statement
8.8
8.67
8.6
8.4
8.2
It is evident from the table IV.2.1 that yield on advances 2003-04 and 2006 – 07
RATIO
shows an increasing trend compared to 2004 – 2005 and 2005 – 2006. Therefore
the bank should focus on improving the high yield advances.
8
7.
IV.2. 2 YIELD ON INVESTMENT
7.8
This ratio is calculated in order to determine the interest earned from the
investment made by the bank.
Yield on investment = income earned on investment
7.6
51
Average investment
Table IV.2.2 Yield on investment
Int. income on invest+ Avg.
Ratios (%)
Dividend income Investment
Year
2003 27396874
2004 30400776 331256167 9.18
2005 31417523 369234365 8.51
2006 29160874 375140333 7.77
2007 33846185 410998607 8.24
Source: Financial Statement
Graph IV.2.2 Yield on investment
9.5
9.18
8.51
Yield on investment indicates the income (interest and dividend) earned
8.5
by the bank through its various investments. Table IV.2.2 shows that yield on
RATIO
investment featured a decreasing trend for the years 2004 – 05 and 2005 – 06
compared to 2003 – 04 and 2006 – 07. The management should take the effort
to invest the funds in high income generating assets.
8
IV.2. 3. COST OF DEPOSITS
It is the interest paid to the customers for the deposits they are having
with the bank
7.5
Cost of deposits = Actual interest paid to customers
Average deposits
52
7
Table IV.2.3 Cost of deposits
Interest Average
Year expenditure Deposits Ratios (%)
on Deposits
2003 42249439
2004 41219037 792196895 5.20
2005 42148516 915702375 4.60
2006 48246267 1067995752 4.52
2007 68880677 1295923419 5.32
5.4
5.2
5.2
4.8
RATIO
4.6
53
4.6
Table IV.2.3 shows that cost of deposits on 2003 – 04 was 5.2% which
declined on 2004 – 05 and 2005 – 2006 but it increased to 5.32% on the year
2006 – 07which is a serious problem for the bank. Interest on deposits is the
main expenditure for the bank and it should take all the steps to keep it in
control.
Table IV.3.1
Operating Net total
Year Ratio%
Efficiency Income
2003 17477057 37450814 46.67
2004 18965491 47552684 39.88
2005 21901678 50061308 43.75
2006 23471354 49590203 47.33
2007 25653054 55386269 46.32
Source: Financial Statement
54
Graph IV.3.1 Cost Income Ratio
48
46.67
46
44
It is evident from the table IV.3.1 that a bank is not able to reach global
Ratio
benchmark of 40% in all the years except on 2003 – 04 (39.88%). So the bank
42
should take all the necessary measures to reduce the operating expenses.
38 Non-Interest Income
Burden Ratio =
Non-Interest Expenditure
36
2003 2004
55
Table IV.3.2
Non-interest Non-interest
Year Ratio%
Income Expenditure
2003 14779657 17477057 84.57
2004 20729132 18965491 109.30
2005 15438273 21089716 73.20
2006 13775149 23471354 58.69
2007 15118012 25653054 58.93
Source: Financial Statement
Graph IV.3.2
120
109.3
100
84.57
80
Ratio
60
40
56
It is clear from the table IV.3.2 that burden ratio was the highest on 2003
– 04 as on that year only non-interest income is able to cover non-interest
expenditure. In all the other four years non-interest income is not able to cover
non-interest expenditure. The bank should take all the steps to reduce the
burden ratio by reducing operating expenses and / or increasing the non-interest
income.
57
Balancesheet of Canara Bank for five years
(Rs. ’000)
PARTICULARS 2003 2004 2005 2006 2007
CAPITAL AND
LIABILTIES
Capital 4100000 4100000 4100000 4100000 4100000
Reserves and surplus 37388283 48416430 56989572 67222358 99439861
Deposits 116803231 1423814519
720948225 863445565 967959186
9
Borrowings 938223 7548970 1141642 258240 15743517
Other liabilities and 116512530
57174575 71882958 72861333 88605670
Provisions
Total 132821858 1659610427
820549306 995393923 1103051733
7
ASSETS
Cash & balance with 90951915
56075112 68909376 49843832 79139957
RBI
Balance with bank & 72787421
20896392 51360751 36843491 49095590
money at short notice
Investments 304582440 357929894 380538836 369741830 452255384
Advances 404715983 476386278 604214039 794256998 985056870
Fixed assets 6596163 6801955 6728143 6884717 28613535
Other assets 27683216 34005669 24883392 29099495 29945302
Total 132821858 1659610427
820549306 995393923 1103051733
7
Contingent liabilities 511761439 524402495 576070268 549007090 616111376
Bills for collection 33169315 37057986 39579579 44225832 62000207
58
Profit and loss accounts of Canara Bank for five years
(Rs. ’000)
PARTICULARS 2003 2004 2005 2006 2007
INCOME
Interest earned 66918885 70069207 75719688 87115123 113645562
Other income 14779657 20729132 15438273 13155691 14509497
TOTAL 81698542 90798339 91157961 100270814 128155059
EXPENDITURE
Interest expended 44247728 43245655 44214993 51300069 73377305
Operating expenses 17477057 18965491 21089716 23471354 25653054
Provisions and
9784838 15207137 14758207 12067154 14916600
contingencies
TOTAL 71509623 77418283 800062945 86838614 113946959
NET PROFIT FOR
10188919 133800536 11095045 13432200 14208100
THE YEAR
Appropriations
Transfers to
Statutory reserve 2550000 3350000 2800000 3400000 3600000
Capital reserve 2503 1003535 2027031 10300 22090
Investment fluctuation
2990000 5100000 2300000 -12081482
reserves
Revenue reserves 3032041 1613916 1406552 19017382 7228210
Interim dividend 0000000 1025000 1025000
Proposed dividend 1435000 1025000 1230000 276000 2870000
Dividend tax 179375 262605 306462 380000 487800
TOTAL 10188919 13380056 11095045 13432200 14208100
Earnings Per Share 20.56 32.63 27.06 32.76 34.65
59
CHAPTER V
• Findings
• Suggestions
60
CHAPTER 5
V.2 OBJECTIVES
The important objective of the study is:-
1. To analyze and interpret the financial performance of the Bank.
2. To asses the operational efficiency of the bank
3. To determine its cost of deposits and yield investment
4. To analyze the profitability of the bank
5. To suggest suitable remedial measures for better functioning of the bank
V.3 FINDINGS
The study covers an analysis of the financial performance of Canara Bank for a
period of five years from 2003 – 2004 to 2006- 2007. Ratios are worked out for
analysis from the published financial statements. The various findings and
conclusions of the study are stated in the relevant chapter itself. However it is
considered suitable to provide a summary of those findings and conclusions.
61
The return on assets indicates the efficiency of assets’ use. The
international benchmark is deemed as 1%. However, for the first four
years return on assets has covered the global benchmark of 1%. But in
the fifth year it has come down, which is not a good sign for the bank.
Return on networth shows a mixed trend. It ranges from 16.25% to
28.47%.
Book value for all the years shows an increasing which is an encouraging
sign for the bank.
Earning per share (EPS) indicate the ability of the bank to access the
capital market and the appetite of the bank’s scrip in the market. The
EPS of the bank shows an increasing trend for all the years except on
2004-05. such a decrease in EPS is due t the decrease in net profit in the
year.
Yield on advances varies from 7.91% to 8.67%. The main reason for this
trend is due to the continuous variation in the interest rate.
Yield on investment shows a mixed trend. It was low during the year
2006 ie; 7.77% and high during the year 2004 i.e.; 9.18%.
Cost of deposits declines to 4.60% in 2005 from 5.20% in 2004. It again
declines to 4.52% in 2006 and in the year 2007 it rises to 5.32%.
The global benchmark of cost – income ratio is 40%. However the bank
is not able to reach the global benchmark except on 2003 – 04.
Burden ratio is highest in the year 2003 -04 and only on that year the
non- interest income is able to cover the non – interest expenditure.
62
V.4 RECOMMENDATION
From the above study it is clear that Canara bank has to make improvements in
certain areas. It has to take action to improve its performance. Following are the
recommendations to improve its performance.
The international benchmark for return on assets is deemed as 1%
whereas it is not able to reach the international benchmark for the last
year 2007. Efforts must be taken to reach the international benchmark of
1%.
So as to increase the net profit operating expenses must be in control.
The bank should encourage the lending of high yield advances such as
retail, personal loans etc;
The bank should focus on investing its funds in high income generating
assets.
Cost of funds is a function of demand, liquidity, inflation and bank’s
specific factors such as operational and opportunity cost. Most of the
factors are out of control of the bank. But it should be careful about the
bank’s specific factors.
The bank should take all the measures to minimize burden by reducing
operating expense and / or increasing the non – interest income.
63
CONCLUSION
64
BIBLIOGRAPHY
Other Sources
Profitability... a practitioner’s handbook issued by Planning and
Development Wing of Canara bank.
Performance Highlights 2006 – 07 issued by Canara bank.
Websites
www.canarabank.com
www.google.com
www.moneycontrol.com
65
66