Case Study
Financial appraisal of IDBI Bank Ltd.
through financial indicators
This paper examines the soundness or otherwise of liquidity position and capital ad-
equacy as well as effectiveness of various financial indicators to reflect the performance
of IDBI Bank by applying various statistical techniques like t-test and correlation
T
his research work is concerned
with banking organization that
offers a personalized service.
The bank uses various indicators for
measuring its financial performance.
These indicators are of great impor-
tance and tell us the true financial
position of the bank. These indica-
tors help in identifying the strengths
and weaknesses of the bank and sug-
gesting improvements in its future
working. It is, thus, very important
for a banking or business concern to
analyze its financial performance at
the end of each financial year.
The objectives of the Bank as set
out in the Memorandum of Associa-
tion are to establish and carry on the
business of banking in all forms
whether in India or outside India and
to provide latest automation and
technology enabling superior prod-
uct delivery and cost efficiency and
so on.
To achieve the required objec-
tives, information is collected
through primary data like observa-
tion, direct interview, personnel in-
terview, group discussion & second-
ary data like budget, statistical re-
port, annual report, financial state-
Asstt. Professor, Deptt. of Commerce and
Management, Rajeev Gandhi College,
Bhopal
Pradeep Kumar Singh
ment, balance sheet, profit & loss
account and their schedules and also
secondary data like field study. All
the information, which is collected
through annual report and interview
to the employees of the concern, is
relevant to the objectives so that the
objectives can be easily fulfilled.
This research work is mainly
done : To find the overall financial
position of the bank; To understand
the overall performance of the bank
through financial indicators; To mea-
sure the liquidity position of the
bank; To find out the profitability
position of the bank to the given level
of investment and turnover; To ana-
lyze the adequacy of the capital,
based on the level of activity by the
bank; & To identify the financial
strengths and weaknesses of the bank
so as to suggest improvements for the
future.
In order to achieve the above
said objectives, the different hypoth-
esis are framed. These hypothesis
states that The liquidity position as
well as the earning potential of the
Bank is very sound; Bank’s total
Capital Adequacy Ratio (CAR)
stands healthy; The financial infor-
mation found out by financial indi-
cators is very helpful and these fi-
nancial indicators are helpful in im-
proving the financial performance of
the bank as well as effective in indi-
cating the financial performance of
the bank. To test the validity of these
hypothesis, the help of various sta-
tistical tools such as Correlation and
T - test has also been taken. These
tools are of great help in telling us
whether the hypothesis assumed are
positive or negative in nature.
The various finanacial indicators
which have been used under the re-
search work are :-
Capital Adequacy Ratio
Non -performing Assets
Priority Sector Advances
Statutory Liquidity Ratio
Cash Reserve Ratio
Credit Deposit Ratio.
These financial indicators serve
as an important tool for measuring
the financial performance of a bank
as indicated below :-
It provides reliable financial in-
formation, economic resources
and obligations to the bank.
It provides reliable information
about the changes in net re-
sources arising out of various
banking activities.
It provides financial information
that assist in estimating the earn-
ing potential of the bank.

It is also very helpful in indicat-
ing the variances which arise
while calculating the ratios.
Thus, necessary steps can be
taken to improvise on that.
The financial appraisal of IDBI
Bank Ltd. has been done with the
help of the above mentioned indica-
tors. Thus, it becomes easier to know
about the true position of the Bank
in terms of its profitability, liquidity,
capital adequacy and so on.
After finding the financial position
of the Bank with the help of these fi-
nancial indicators, various conclusions
and suggestions has been discussed
which is essential for knowing the true
working position of the Bank.
At last it can be concluded that
IDBI Bank is a progressive, technol-
ogy driven, professionally managed
entity well geared to meet competi-
tion from existing as well as new
banks effectively. Its financial posi-
tion for the last five years is quite
satisfactory.
Financial Appraisal of IDBI Bank Ltd.
(through Financial Indicators)
Financial Appraisal is a scien-
tific evaluation of the profitability
and financial strength of any business
concern. In fact, financial appraisal
and financial statement analysis have
the same meaning and are generally
used as synonymous. The techniques
of financial statement analysis are
used for the purpose of financial ap-
praisal. Obviously financial ap-
praisal is the process of scientifically
making a proper, critical and com-
parative evaluation of the profitabil-
ity and financial health of a given
concern through the application of
the techniques of financial statement
analysis. Financial statement analy-
sis is a preliminary step towards the
final evaluation of the results drawn
by the analyst or management ac-
countant. Management makes ap-
praisal or evaluation of such results
thereafter.
Case Study
It is obvious that financial ap-
praisal begins where financial analy-
sis ends and financial analysis starts
where the summarization of financial
data in the form of profit and loss
account and balance sheet ends. Evi-
dently financial appraisal is the end
of a continuous accounting cycle,
which starts with the classification,
recording, summarizing presentation
and analysis of data and ends with
the interpretation of results obtained
from critical analysis thereof. Much
can be learnt about business and per-
formance and financial position
through and appraisal of financial
statement “The appraisal or analysis
of financial statement spotlight the
significant facts and relationship
concerning managerial performance,
corporate efficiency, Financial
strength and weakness and credit
worthiness. The techniques of ap-
praisal is frequently applied to the
study of accounting data with a view
to determining continuity or discon-
tinuity of the operating policies, in-
vestments value of the business,
credit rating and testing the effi-
ciency of operations.
Financial Appraisal analysis
covers a vast area and is of great
practical importance. Keeping in
view the importance of Financial
Appraisal analysis and the vast area
that it covers, we have carried out the
present research work. It is con-
cerned with banking organization
that offers a personalized service.
The vitality of this service depends
on the quality and attitude of its
working personnel. The bank uses
various indicators for measuring its
financial performance. These indica-
tors are of great importance and tell
us the true financial position of the
bank. The indicators help in identi-
fying the strengths and weaknesses
of the bank and suggesting improve-
ments in its future working.
The concept of establishing IDBI
Bank took place after RBI issued
guidelines for entry of new private
sector banks in January 1993. IDBI
Bank was promoted by Industrial
Development Bank of India (IDBI)
and Small Industries Development
Bank of India (SIDBI), two of India’s
premier financial institutions. The
Reserve Bank of India conveyed its
“in principle” approval to establish
IDBI Bank on February 11th, 1994.
Thereafter the Bank was incorpo-
rated at Gwalior under Companies
Act on 15th of September 1994 (Reg-
istration No. 10-08624 of 1994) with
its Registered Office at Indore. The
Certificate for Commencement of
Business was received on 2nd of
December, 1994. IDBI Bank’s Cor-
porate Office is at Mumbai and Reg-
istered Office at Indore.
Being a new private sector bank
it has to face direct competition,
interalia, with Foreign Banks func-
tioning in the country. Consequently
it has launched a number of match-
ing innovative products especially in
the field of retail banking with a view
to secure enough business and sus-
tains the competition. Some of the
important products launched by the
Bank are Demat Account; NRI
Banking; Personal Loans; Car Loans;
Phone/Mobile Banking; Invesment
Advisory Services; Education Loans;
Corporate Payroll Savings Account;
Anywhere/Anytime Banking and so
on.
The Bank came out with its
maiden public issue in Feb 1999.The
paid-up capital of the Bank after the
public issue stands enhanced to Rs
140 crores. Out of this, IDBI and
SIDBI have initially contributed Rs
80 crores and Rs 20 crores respec-
tively and the rest Rs. 40 crores were
mobilsed during the public issue. The
Bank made a beginning from Indore
on 13th of November 1995. Now it
has a network of 53 branches. 7 more
branches are proposed to be opened
by the end of year 2002.

The Bank has made considerable
investments in acquiring relevant
state-of-the-art technology, well ap-
pointed premises and in recruiting
highly experienced professional
Bankers with a strong service orien-
tation. It has already attained a repu-
tation for excellence in the pursuit of
its corporate mission of raising the
threshold of quality in customer ser-
vice standards. After long delibera-
tions the Bank has chosen
“Branchpower & Bankmaster”, soft-
ware for its operations. It is provid-
ing Anywhere- Anytime banking and
is a fully technology driven bank.
All the branches are linked to
Information Technology center at
Mumbai. All the staff members are
expected to keep themselves abreast
with technology adopted by the Bank
and keep on updating themselves
with the latest developments in the
field.
Everybody interested in the af-
fairs of a Bank is interested in find-
ing answer to the following search-
ing questions:
Does the bank earn adequate
profit?
Does the bank posses enough
funds to meet its obligations, as
and when they get matured?
Is investment in the bank safe?
Main Objectives of the study:
The study was conducted with
the following specific objec-
tives:
To study the overall financial
position of the bank;
To understand the overall per-
formance of the bank through
financial ratio analysis;
To analyze the adequacy of the
capital, based on the level of
activity by the bank;
To measure the liquidity posi-
tion and factors responsible for
causing liquidity/unliquidity in
the bank;
Case Study
To find out the profitability po-
sition of the bank to the given
level of investment and turnover
and
To identify the financial
strengths and weaknesses of the
bank so as to suggest improve-
ments for the future.
Assumptions :
Bank’s total Capital Adequacy
Ratio (CAR) stands healthy.
The liquidity position of the
Bank is very sound.
The earning potential of the
bank is strong.
The financial information found
out by financial indicators is
very helpful.
The financial indicators are
helpful in improving the finan-
cial performance of the bank
and they are very effective in
indicating the financial perfor-
mance of the bank.
Data Collection:
The study has used both primary
and secondary data. The secondary
data is collected from published
sources like magazines and internal
reports. These include, the annual
reports of IDBI bank, some maga-
zines like Dialogue, a weekly issue
of IDBI bank, financial analysis
magazine, IDBI bulletin etc. More-
over, unpublished sources were also
used for undertaking to published
data. These include noting on the
files, memoranda, proceedings of the
meetings etc. Primary data in the
form of clarifications from the execu-
tives regarding final points were also
taken. For this purpose, around 10 -
12 employees of the bank were also
interviewed.
Ratios based on Norms issued by
RBI:
Capital Adequacy Ratio :
Banks in India with interna-
tional exposure are required to
maintain minimum capital funds
equal to 8% of their risk
weighted assets and other expo-
sures on an ongoing basis. This
percentage has been increased
to 9% with effect from 31 st
March 2000. The above require-
ment was introduced from 1992
after acceptance of Narsimhan
Committee Report which rec-
ommended observance of pru-
dential norms by Commercial
Banks & Financial Institutions,
in respect of Income Recogni-
tion, Assets Classification, Pro-
visioning and Capital Adequacy
standards as prescribed by Bank
for International Settlement
(BIS).
Capital
Adequacy Capital fund of the Bank × 100
Ratio =
Risk Weighted Assets
Capital Fund :- Capital inclu-
sive of Tier I and Tier II Capi-
tal, i.e., Core Capital and
Supplementary Capital respec-
tively. Tier I Capital comprises
of Issued, subscribed & paid-up
capital; Statutory reserves;
Capital reserves; Share pre-
mium; Revenue and other re-
serves including Investment
Fluctuation Reserve and Bal-
ance in P&L account. Tier II
Capital comprises of Unse-
cured, Redeemable & Non con-
vertible Debentures.
Risk Weighted Assets & other
exposures :-
((Assets × Risk Weight) + (Off
Balance Sheet Items (i.e., contingent
credit exposure) × Conversion Fac-
tors))
The Capital Adequacy Ratio of
IDBI Bank Ltd. is being described
in Table No.1 for the period of five
years from 1997 to 2001 :
 Case Study

Interpretation of capital adequacy Table: 1

ratio : Table showing Capital Adequacy of the Bank
Before 31st March 2000 the per- (Rs in ‘000)
centage required by the banks for this
Year Capital Fund Risk Weighted Assets Ratio (%)
purpose was 8% which has now been (Tier I & II ) y
increased to 9%. IDBI bank has x
maintained a comfortable Capital
Adequacy Ratio since inception, the 1997 1,046,200 5,844,690 17.90
CAR of the Bank (including both 1998 1,246,723 12,695,750 9.82
Tier I and Tier II Capital) which 1999 2,172,264 19,377,910 11.26
stood 17.9% as on March 31,1997
2000 3,595,649 30,471,600 11.80
reached 9.82% as on March 31,1998
consequent to increased lending op- 2001 3,931,210 33,542,750 11.72
erations during 1997-98. With the
Source: Compiled from the Annual Reports of IDBI Bank Ltd.
increase in the Bank’s paid-up capi-
tal after the public issue and the ac- Table : 1.2
cretion to its share premium account (Rs in crores)
and reserves, Capital Adequacy Ra- Capital Fund (x) 105 125 217 360 393
tio for the year ended March 31, R,W, Assets (y) 585 1,270 1,938 3,047 3,355
1999 reached 11.26% and it stood
11.8% as on March 31, 2000.
In the table given below the dx dy dx 2 dy2 dxdy
Capital Fund is taken as ‘x’ and the (x - x') (y - y') ( x- x') 2 ( y- y')2
Risk Weighted Assets as ‘y’. It shows -135 -1,454 18,225 21,14,116 1,96,290
the coefficient of correlation between
-115 -769 13,225 5,91,361 88,435
both ‘x’ and ‘y’. To test the validity
of our hypothesis, we have taken the -23 -101 529 10,201 2,323
help of t - test. 120 1,008 14,440 10,16,064 1,20,960
The calculation for the above is
153 1,316 23,409 17,31,856 2,01,348
shown in Table No. 1,2 for the period
of five years i.e., from 1997 to 2001 : Σdx = 0 Σdy = 0 Σdx2 = 69,788 Σdy2 = Σdxdy =
There is a very high degree of 54,63,598 6,09,356
positive correlation between Risk
Weighted Assets and the Capital
Fund (r = 0.99). Σx 1,200
Here, x' = = 240
Testing our hypothesis with the N = 5
help of t – test:
Σy 10,195
Null Hypothesis: There is no y' = = = 2,039
N 5
significant difference between
the variables x and y.
Σdxdy
Alternative Hypothesis: We Coefficient of Correlation = ‘r’ =
√Σdx2dy2
may, therefore, conclude that in
general, the Risk Weighted As-
Σdxdy 6,09,356
sets have increased with an in- Now, r = =
crease in the Capital Fund. The √Σdx dy
2 2 √69,788 × 54,63,598
Bank has maintained the CAR
6,09,356
ratio far above the regulatory r= = + 0.99
requirement. 6,17,490

r × √n – 2
Calculation of t - test:- t =
√1 – (r)2
r × √n–2
t =
√1 - ( r )2
0.99 × √5 – 2
t =
√1 - ( 0.99) 2
0.99 × √3
t =
√1 - 0.98
0.99 × 1.73
t =
√0.02
0.99 × 1.73
t =
0.14
t = 12.23
v = n–2
v = 5–2=3
Hence, degree of freedom at 5%
level of significance is 3.182
Tabulated value of t for 3 degree
of freedom at 5% level of signifi-
cance is 3.182. Since t = 12.23
is much greater than the tabu-
lated value, it is highly signifi-
cant. Hence, the Null Hypothesis
is rejected at 5% level of signifi-
cance and we conclude that the
Risk Weighted Assets has in-
creased with an increase in the
Capital
Non-Performing Assets: After
introduction of Narsimhan
Committee recommendations,
all advances & loans are classi-
fied into two categories, i.e.,
Performing Assets (PA) and
Non-Performing Assets (NPA).
A loan account is classified as a
performing asset if the due in-
terest is recovered regularly and
there is no overdue in the ac-
count. An asset becomes non-
performing when it ceases to
generate income for the bank. In
this respect, the Reserve Bank
of India has prescribed a stan-
dard norm of 5% maximum. All
the banks in India are required
to follow this.
Case Study
Net NPA’s × 100
Non-Performing Assets =
Total Advances
Net NPA’s :- Gross NPA’s - Pro-
vision for NPA’s
Total Advances :- Total Ad-
vances are taken as per the
amount shown in the assets side
of the balance sheet of the bank.
The Non-Performing Assets of
IDBI Bank Ltd. is being described
in Table No.2 for the period of five
years from 1997 to 2001 :
Table :2
Table showing NPA’s of the Bank
(Rs in ‘000)
Year Net NPA’s Total Advances Ratio (%)
1997 49,300 4,954,241 1.00
1998 27,000 8,430,541 0.32
1999 137,213 10,744,378 1.28
2000 313,233 16,046,410 1.95
2001 903,200 17,249,934 5.24
Source: Compiled from the Annual
Reports of IDBI Bank Ltd.
Interpretation of non-performing
assets :
An asset becomes non-perform-
ing when it ceases to generate income
for the bank. In this respect, the Re-
serve Bank of India has prescribed a
standard norm of 5% maximum. All
the banks in India are required to
follow this norm.
IDBI Bank has made full provi-
sioning for NPA’s as per the pruden-
tial norms of Reserve Bank of India.
As on March 31, 1997, the Bank’s
standard assets constitute 99% of its
total assets. This means the percent-
age of non-performing assets were
only 1 % of its total assets. As at 31st
March 1998, NPA’s were just 0.32%
highlighting the prudent lending
practices that it has successfully fol-
lowed. During the year 1999, the
Bank’s Non Performing Assets val-
ued at Rs. 13.72 crores representing
1.28% of Net Advances. This per-
centage rose to 1.95% in the year
2000.
During the year 2001, there was
a rise in the amount of non-perform-
ing assets with the Bank which val-
ued Rs. 90.3 crores representing
5.24% of Net Advances. This shows
that there was irregularity regarding
payment of principal or interest
amount in this period. Despite this,
the Bank is making full provisions
for NPA’s as per the prudential norms
of RBI.
Priority Sector Advances: The
Reserve Bank of India on the
basis of recommendations made
by working groups and commit-
tees has been issuing guidelines
to commercial banks from time
to time for grant of loans and
advances to various categories
of priority sectors viz, agricul-
ture, small-scale industries, road
& water transport operators, re-
tail trade, small business, pro-
fessional & self employed per-
sons, educational and housing
loans, consumption loans to
weaker sections, etc.
Reserve Bank of India requires
banks to lend at least 40% of
their net bank credit to the “Pri-
ority Sector”, with sub- targets
of 18% for lending to the agri-
cultural sector and 10% for
lending to weaker sections.
Within this, indirect agricultural
lending is to be 4.5%. All the
banks in India are required to
follow this norm.
Advances to Priority Sector×100
Priority Sector
Advances =
Total Advances.
Prirority Sector Advances:-
This is amount of advances
made to Priority Sector by the
bank.
Total Advances :— Total Ad-
vances are given as per the
amount shown in the assets side
of the balance sheet.

The PSA’s of IDBI Bank Ltd. is
being described in Table No.3 for the
period of five years from 1997 to
2001 :
Table : 3
Table showing PSA’s of the Bank
(Rs in ‘000)
Year PSA’s Total Ratio
Advances (%)
1997 211,905 4,954,241 4.30
1998 1,768,265 8,430,541 21.00
1999 2,569,896 10,744,378 24.00
2000 3,398.531 16,046,410 21.20
2001 3,782,797 17,249,934 21.90
Interpretation of priority sector
advances :
As on March 31, 1997, the Bank’s
advances to priority sector were Rs.
21.19 crores representing just 4.3% of
Net Bank Credit. This ratio stood 21%
as on March 31,1998. During the year
1999, the Bank’s Priority Sector Ad-
vances were of the order of Rs. 257
crores representing 24% of Net Bank
Credit. This included investments in
eligible priority sector bonds and risk
sharing participation contracts. With
the tremendous increase in the Bank’s
Net Credit to Rs. 378 crores during the
year 2000, the Bank maintained the
ratio at 23.6%. During the year 2001,
there was a decline in the amount of
advances made to priority sector, Thus,
the Bank could only maintain this level
at 19,7%. The Bank is making all ef-
forts to step up its coverage to this sec-
tor without diluting its risk acceptance
criteria.
Statutory Liquidity Ratio:
Under Section 24 of the Bank-
ing Regulation Act, 1949, com-
mercial banks in India are re-
quired to maintain (in addition
to Average Daily Balance/Cash
Reserves under Section 42 of
Case Study
RBI Act/Section 18 of BR Act
respectively) → a) Cash; b)
Gold; c) Approved Securities
amounting to at least 25% of
their Net Demand and Time Li-
abilities in India. This percent-
age is called the Statutory Li-
quidity Ratio (SLR). The Act
also provides that the SLR can
be increased from time to time
by Reserve Bank of India up to
a maximum of 40% of the Net
Demand and Time Liabilities.
At present the applicable SLR
is 25%.
Liquid Assets of
the Bank comprising **
SLR = × 100
Net Demand & Time
Liabilities in India
** (of cash in hand, balances with
the RBI (in excess of that required to
be maintained under Section 42 of the
RBI Act, 1934), balances in current
account maintained in India with State
Bank of India or with any other noti-
fied bank, investments in gold and
Government and other approved secu-
rities maintained in India (less borrow-
ings there against)).
The SLR of IDBI Bank Ltd. is
being described in Table No.4 for the
period of five years from 1997 to 2001:
Table:4
Table showing SLR of the Bank
(Rs in ‘000)
Year liquid NDTL Ratio
Assets (%)
x y
1997 — — —
1998 3,854,625 13,430,436 28.70%
1999 6,070,769 22,563,547 26.91%
2000 9,245,434 28,757,305 32.15%
2001 11, 226,200 32,621 ,656 34.41 %
Source: Compiled from the Annual
Reports of IDBI Bank Ltd.
Interpretation of Statutory Li-
quidity Ratio :
Statutory Liquidity Ratio of the
Bank as on 31st March, 1998,
1999,2000 and 2001 stood at
28.7%, 26.91%, 32.15% and
34.49% respectively as against the
stipulated requirement of 25% for
each of the above years. There was
no default on the part of the branch
in this respect. Liquid assets of the
Bank for this purpose includes cash
in hand, balances with the RBI,
balances in current account main-
tained in India with State Bank of
India or with any other notified
bank, investments in gold and Gov-
ernment and other approved secu-
rities maintained in India (less bor-
rowings there against). It can be
seen from Table No. 4 that the
Bank has so far maintained a
proper SLR. This shows that the
Bank has got a good liquidity po-
sition. The Bank is making full ef-
forts to keep a sound liquidity po-
sition. The figure of 2001 dearly
indicates that the Bank has
achieved its target by maximizing
this figure far above than what is
required by the banks.
In the table given below the Liq-
uid Assets are taken as ‘x’ and the
NDTL amount as ‘y’. It shows the
coefficient of correlation between
both ‘x’ and ‘y’. To test the va-
lidity of our hypothesis, we have
taken the help of t - test.
The calculation for the above is
shown in Table No. 4.1 for the
period of five years i.e., from 1997
to 2001 :
 Case Study

Table : 4.1 of Section 42 of RBI Act, 1934,

(Rs in crores) every scheduled bank is re-
quired to maintain with the RBI
Liquid Assets (x) — 385 607 925 1,123 an Average Daily Balance, the
NDTL (y) — 1,343 2,256 2,876 3,262 amount of which shall not be
less than 3% of the Net Demand
dx dy dx 2 dy2 dxdy and Time Liabilities in India of
(x - x') (y - y') ( x- x') 2 ( y- y')2 such a bank. This ratio is called
— — — — — Cash Reserve Ratio (CRR) of
-375 -1,091 1,40,625 11,90,281 4,09,125 the bank. The Act also provides
that the Reserve Bank of India
-153 -178 23,409 31,684 27,234 can increase the CRR from time
165 441 27,225 1,94,481 72,765 to time up to a maximum of 15%
363 8,281 1,31,769 6,85,584 3,00,564 of the Net Demand and Time
Σdx = 0 Σdy = 0 Σdx2 = Σdy2 = Σdxdy = Liabilities. During the mid term
3,23,028 21,02,030 8,09,688 review of Monetary & Credit
Policy in October 2001, the RBI
has reduced the CRR from 7.5%
Σx 3,040 to 5.5%. Thus the present CRR
Here, x' = = = 760 r × √n–2 rate as applicable to commercial
N 4 t =
Σy 9,736 √1 - ( r )2 banks is 5.5%.
y' = = = 2,434 0.98 √4 – 2
N 4 t = × Current account
‘r’ =Σdxdy √1 - ( 0.98)2 balances held with RBI
Coefficient of Correlation = CRR = × 100
√Σdx2dy2 0.98 √2 Net Demand & Time
t = ×
√1 - 0.96 Liabilities in India
Σdxdy 8.09.688
Now, r = = t = 0.98 × 1.41
√Σdx dy √3,23,028 × 21,02,030
2 2 Here, current account balances
√0.04 with RBI is divided by Net De-
8.09.688
r = = + 0.98 0.98 1.41 mand & Time Liabilities to get
8,24,023 t = ×
0.2 the amount of CRR. The steps
There is a very high degree of for calculating the amount of
t = 6.91
positive correlation between uquid NDTL are already shown above.
Assets and the NDTL amount (r = v = n–2
The CRR of IDBI Bank Ltd. is be-
0.98). v = 4–2=2
ing described in Table No. 5 for the
Testina our hypothesis with the period of five years from 1997 to 2001
help of t - test: Hence. degree of freedom at 5% Table : 5
Null Hypothesis: There is no level of significance is 4.30
Table showina CRR of the Bank
significant difference between Tabulated value of t for 2 degree (Rs in ‘000)
the variables x and y. of freedom at 5% level of signifi-
Year Balances NDTL Ratio (%)
Alternative Hypothesis: We cance is 4.30. Since t = 6.91 is
with RBI
may, therefore, conclude that the greater than the tabulated value,
amount of Liquid Assets has it is highly significant. Hence, 1997 — — —
been increasing with the in- the Null Hypothesis is rejected 1998 1,892,637.07 13,430,436 14.09
crease in the amount of NDTL. at 5% level of significance and 1999 2,442,224.42 22,563,547 10.82
The Bank has maintained the we conclude that the Liquid As- 2000 2,658,797.63 28,757,305 9.25
SLR ratio far above the regula- sets of the Bank has increased 2001 2,654,905.67 32,621.656 8.14
tory requirement. with the increase in the amount
of the NDTL maintained by the Interpretation of cash reserve ra
r × √n – 2 tio:
Calculation of t - test:- t = Bank.
√1 – (r)2
Position of CRR of the Bank for
5) Cash Reserve Ratio : In terms the last 4 years was as under:
 Case Study
Date Stipulated Actual Ratio :
CRR CRR This is the ratio of total advances
31-3-1998 10.25% 14.09% granted by a bank to its total deposits on
31-3-1999 10.50% 10.82% any particular date. A ratio of 60% in this
respect is considered to be a desirable
31-3-2000 8.50% 9.25%
norm. As on March 31,1997, the credit
31-3-2001 8.00% 8.14%
deposit ratio of the Bank was 98.05%
There was no default on the part which was at its highest ever since its for-
of the bank in this respect. CRR and mation. This shows that in the year 1997
SLR together known as Reserve Re- the bank made a huge amount of business
quirement are the instruments used by granting loans & advances. After that
by RBI to directly regulate the liquid- there was a tremendous decrease in this
ity of the banking system. ratio, which was just 45.68% in the year
It can be seen from Table No. 5 1998, which further fell to 39.05% in the
that the Bank has so far maintained a year 1999. This shows that the Bank did
proper CRR. This shows that the Bank not grant much of its deposits as advances
has got a good liquidity position. The during this period. In the year 2000, the
table clearly shows that the Bank has credit deposit ratio of the Bank rose to
always maintained its cash reserve ra- 46.54%. As on March 31, 2001, the total
tio above the required percentage in deposits of the Bank were Rs. 3,567 crores
each year, which is a healthy sign for out of which the advances granted by the
the Bank. The Bank is making full ef- Bank were Rs. 1,725 crores. The credit
forts to keep a sound liquidity position. deposit ratio of the Bank was 48.35%,
Credit Deposit Ratio: The ratio which shows that the Bank has increased
of total advances granted by a its advances on its total deposits. The Bank
bank to its total deposits (i.e., Net is making all efforts to increase this ratio
Demand and Time Deposits) on further.
any particular date is called the Conclusion and sugestions findings
Credit Deposit Ratio of the Bank.
lDBI Bank has witnessed a steady but
A ratio of 60% in this respect is
modest growth in business volumes dur-
considered to be a desirable norm.
ing the past few years. The Bank has
Credit Deposit Total Advances × 100 implemented a host of initiatives during
Ratio = this period. It recognizes that people, pro-
Total Deposits
cesses and technology will build leader-
The Credit Deposit Ratio of ship position. It has brought in best of
IDBI Bank Ltd. is being described management talent from foreign and pri-
in Table No.6 for the period of five vate sector banks across various
years from 1997 to 2001 : functionalities. It has significantly in-
Table : 6 creased investments in revamping the tech-
Table showing CDR of the Bank nology platform. It has moved the credit
risk profile and tightened credit and risk
(Rs in ‘000)
management processes.
Year Total Total Ratio
The Bank is focusing on attaining a
Advances Deposits (%)
dominant position in retail banking and to
1997 4,954,241 5,052,511 98.05 consolidate, with some repositioning, the
1998 8,430,541 18.455,295 45.68 strengths already built in corporate bank-
ing. The emphasis will be on lowering the
1999 10,744,378 27.512,843 39.05
cost of deposits, improving fee-based in-
2000 16,046,410 34,481,704 46.54
come, improving operations efficiency and
2001 17,249,934 35,674,992 48.35
managing cost.
Interpretation of Credit Deposit Viewed in the backdrop of the macro-
economic outlook and general outlook for
banks, IDBI Bank has made commendable
progress during the last few years, consis-
tently turning out performances, which are
far superior to the overall Banking Indus-
try performance parameters.
Capital Adequacy of the Bank: IDBI
Bank has maintained a comfortable
Capital Adequacy Ratio since incep-
tion, the CAR of the Bank (includ-
ing Tier I and Tier II Capital) which
stood at 17.9% as on March 31,1997
reached 9.82% as on March 31, 1998
consequent to increased lending op-
erations during this period. After this
period, this ratio kept on increasing
and stood at 11.72% as on March 31,
2001, which was well above the
regulatory requirement of 9%. The
impact of raising a further Rs. 25
crores as Tier II capital during the
year was offset by growth in risk
weighted assets.
Profitability Position: The Total Net
Income of the Bank increased by
17% from Rs. 146 crores in the year
2000 to Rs. 171 crores in 2001. This
figure was just Rs. 30 crores in the
year 1997. The Net Profit as on
March 31, 2001 was just Rs. 19.4
crores as compared to Rs. 61 crores
as on March 31, 2000. This has been
impacted by sharp increase of Rs. 40
crores (63%) in operating expenses
due to investments in building blocks
and by aggressive loan loss provi-
sioning. Despite this, the Bank is
making full effort in increasing its
profitability position day by day.
Thus, it can be concluded that the
earning position of the IDBI Bank is
strong.
Liquidity Position: The Liquid
Assets of the Bank as on March 31,
2001 stood at Rs. 1,122.62 crores
as compared to last years figure,
which was Rs. 924.5 crores. This
shows that there is an increase of
21.4% in this respect. The Bank
has been maintaining its Statutory
Liquidity Ratio (SLR) well above
the regulatory requirement of 25%

each year. This ratio was 28.7% in
the year 1998 and has moved up to
34.41 % in the year 2001. On the
other hand, the Bank is maintain-
ing proper balances with the RBI
as its cash reserves. The Cash Re-
serve Ratio of the Bank was 8.14%
in the year 2001. This ratio was
14.09% as on March 31,1997 and
after that it has been decreasing
further every year. But the Bank
has maintained this ratio far above
the minimum requirement of 3% of
the NDTL each year. The balances
kept with RBI by the Bank
amounted to Rs. 265.5 crores in the
year 2001, which was Rs. 189.3
crores in the year 1998. This shows
that the Bank is having a very
sound liquidity position.
Non-Performing Assets: The Bank
has made full provisioning for NPA’s
as per the prudential norms of Re-
serve Bank of India including in re-
spect of NPA’s with outstanding of
less than Rs. 25,000 per borrower.
As at 31st March 1998, NPA’s were
just 0.32% highlighting the prudent
lending practices that it has success-
fully followed. The Bank has always
maintained this ratio below the maxi-
mum level of 5%.
Deposits of the Bank: The Bank
showed a marginal growth of 3.5%
in Total Deposits to Rs. 3,567 crores
in the year 2001 ,as it consciously
brought down level of expensive
bulk deposits. In the year 1997, the
deposits of the Bank were just Rs.
505 crores. After that, there has been
a tremendous increase in the depos-
its held by the Bank. Its low cost
deposits increased from 17% to 23%
during the year 2001. Saving depos-
its in particular registered an impres-
sive growth of 89%, from Rs. 173
crores to Rs. 237 crores, driven by
new value added products and ser-
vice initiatives.
Advances of the Bank: The Bank
showed a marginal growth of 7.5%
Case Study
in Total Advances to Rs. 1,725
crores in the year 2001, Advances
made to Priority Sector during this
period were 378 crores which
showed an increase of 11.3%. The
Bank is making all efforts to step
up its coverage to this sector with-
out diluting its risk acceptance cri-
teria. The total advances made by
the Bank in the year 1997 were just
Rs. 495 crores, which shows that
there is a tremendous increase in
the advances made by the Bank
during the last five years. The ob-
jective of the Bank is to focus on
strategic portfolio management to
retain a balanced and well distrib-
uted lending base without undue
concentration on any single indus-
try segment.
Suggestions
The challenges facing the Bank are
massive but not insurmountable. Every
challenge can be looked at as giving an
opportunity. To overcome these chal-
lenges, the Bank will need to look into the
following mentioned points:
Maximize earnings from Priority
Sector through a well-defined strat-
egy. Efforts should be made to pro-
vide more advances to agricultural
sectors as well as small-scale indus-
tries.
Control the level of Non-Performing
Assets by making proper provisions
for NPA’s.
Specialize and effectively address
needs of well-defined target seg-
ments. This will enable the Bank to
offer advisory services on a proactive
basis and to offer an effective tailored
product range.
Develop excellent risk assessment
capabilities. Bank’s risk management
policies should be developed in line
with best practices prevailing in the
industry across the world.
Device and exploit new sources of
funds. For this, the Bank should built
up a large customer base. Thereby,
the Bank will naturally target all
quality accounts in the category .
Tap traditional sources in most cost
efficient manner. Thus, the Bank will
be a cost-effective provider of high-
quality products and services to re-
tail and corporate clients.
Have access to expertise, recruit tal-
ented people and address staff con-
cerns to minimize attrition. The Bank
should provide the best environment
to bring out quality performance
from its employees.
The Bank has implemented a host of
initiatives during the year under review. It
recognizes that leadership position will be
built by people, processes and technology.
It has brought in the best of management
talent from foreign and private sector
banks across various functionalities. IDBI
Bank is a progressive, technology driven,
professionally managed entity well geared
to meet competition from existing as well
as new banks effectively.
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