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INDIAN BANK
By N.Santhoshni B.Com(General) III Year
INTRODUCTION
Balance sheet is a statement of the financial position of an enterprise at a particular point of time. Profit and loss account shows the net profit or net loss of a company for a specified period of time. When these statements of the last few year of any organization are studied and analyzed, significant conclusions may be arrived regarding the changes in the financial position, the important policies followed and trends in profit and loss etc. Analysis and interpretation of the financial statement has now become an important technique of credit appraisal. The investors, financial experts, management executives and the bankers all analyze these statements. Analysis of financial statement is necessary because it help in depicting the financial position on the basis of past and current records. Analysis of financial statement helps in making the future decision and strategies.
The analysis and interpretation of financial statements is very essential to measure the efficiency, profitability, financial soundness and future prospects of the business units. Financial analysis serves the following purposes: Measuring the profitability Indicating the trend of achievement Assessing the growth potential of the business Comparative position in relation to other firms Assess overall financial strength Assess solvency of the firm
INDIAN BANK
INTRODUCTION
INDIAN BANK is an Indian state-owned financial services company headquartered in Chennai, India. It has 22,000 employees, 2033 branches and is one of the big public sector banks of India. It has overseas branches in Colombo, Jaffna, Sri Lanka, Singapore, and 229 correspondent banks in 69 countries. Since 1969 the Government of India has owned the bank, which celebrated its centenary in 2007. It is the only Indian Bank other than State Bank of India to feature in the List of Fortune 500 Companies in the World.
COMPANY PROFILE
INDIAN BANK
Type Traded As Industry Founded Headquarters Public Company BSE:523465 NSE:INDIANB Banking and Financial services 1907 Chennai, Tamil Nadu, India
Key people
Revenue Net income Total assets Employees Website
Tagline/Slogan
USP Target group Positioning
RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problems. It is necessary to know not only the research methods/ techniques but also the methodology. Research methodology is a scientific study of various steps that are adopted in research problem. Descriptive research is used to obtain information concerning the current status of the phenomena to describe what exists with respect to variables or conditions in a situation. In this study, I used secondary data i.e., Annual Report.
Financial statement analysis tools have some inherent limitations of financial statements. This study has also suffered from those limitations. The nature of financial statements is historical. Here, analysis and interpretation are made on those historical data, which tells only about the past performance and the financial weakness of the bank. Change in accounting procedure by a firm often makes ratio analysis misleading. The analysis and interpretation are based on secondary data contained in the published annual reports of Indian Bank for the study period. The study of financial performance can be only a means to know about the financial condition of the company and cannot show a through picture of the activities of the company. Further, the conclusions drawn from the study are applicable only to the Indian Bank and not for other banks.
TREND ANALYSIS
Balance Sheet:
Deposits increases to Rs.1,20,803.80 crores in 2012 from Rs.1,05,804.18 crores in 2011. In 2008, it was only Rs.61,045.95 crores. Borrowings decreases in 2009 and thereafter increases at increasing rate. Advances and Investments are also increased, in the last five years. Fixed assets increase as well as decreases in the last five years. This is due to change in depreciation rates and revaluation of assets. Finally in 2012, the capital WIP decreases at a greater amount. It is also a good sign for efficient work management.
Income Statement:
Interest income as well as other income increases in the last five years. Interest Expenses increased from Rs.3159.08 crores in 2008 to Rs.7813.32 crores in 2012. The Net profit increased to Rs.1755.27 crores in 2012 compared to the previous years profit.
RATIO ANALYSIS
CAMEL Model:
The CAMEL approach was developed by bank regulators in the United States as a means of measurement of the financial condition of a financial institution. (Uniform Financial Institutions Rating System established by the Federal Financial Institutions Examination Council). RBI too analysis the banks performance through CAMEL methodology. The acronym CAMEL stands for: Capital Adequacy Asset Quality Management Efficiency Earning's (Profitability) Efficiency Liquidity & Funding
LIQUIDITY RATIOS
Inadequate Liquidity of a Bank may cause an accident similar to an airplane crash. Liquidity is the ability of the bank to meet its financial obligations. A high liquidity ratio indicates a bank's comfort level vis--vis its ability to manage its obligations, both shortterm as well as long-term. Liquidity of a bank can be measured using metrics such as Liquid Assets (LA) to Demand Deposits (DD) and LA to Total Assets (TA). Liquid Assets/Demand Deposits Liquid Assets/Total Assets
FINDINGS
FINDINGS
Comparative Statement: There are five types of liabilities in a bank. Among that, the most important liabilities are Deposits and Borrowings. The growth rate of deposits portfolio is decreasing. During 2008-09, it has increased by 18.90%, and in 2009-10 it increased by 21.56% but in 2011-12 it increased by only 14.18%. Here the growth should be compared to overall banking sector. (This is because the deposits are repaid and increase in new customers are low.) The most important and major assets for a bank, are advances and investments. It is observed that the advances are increased at a marginal level. Investments are increased significantly. But in 2011-12 it increases by 9.18% only. Here compare the growth rate with overall Industrial Production. Trend Analysis: The deposits are increased marginally. But the borrowings are increased tremendously. Both Advances and investments are increased marginally. The interest earned are increased marginally. But the interest expenses are increased at tremendously. So, the net profit increases slowly. Cash Flow Statement: Cash flow statement shows the inflow and outflow of a cash for a particular period. It is observed that the bank is good at maintaining the flows of cash.
FINDINGS
Capital Adequacy Ratios: It is observed that, the bank has better ability to deal with proable loan defaults because the capital adequacy ratio is higher. And also the banks ability to borrow and repay the money is also good because the debt equity ratio is low. Though the advances to assets ratio has increased in the last five years, it is revealed that the bank has good risk taking ability. Asset Quality Ratios: Generally asset quality ratio should be reduced as compared to the previous years. But, the banks asset quality ratios are increased which is not a good sign. From the year 2010 to 2012, the non performing assets are increased which is not good sign. Management Efficiency Ratios: Higher the management efficiency ratios means higher the efficiency of the management. It is found that the advances to deposits ratio and profit per employee are increased which is a good sign. It means the employees efficiency is good, and the bank is better able to convert its advances to deposits. But the return on net worth is reduced from 23.74% to 21.50% and to 18.73% in 2010,2011,2012 respectively. Earnings Efficiency & Liquidity Ratios: Overall, the banks earnings efficiency is not satisfactory. Because all the earnings efficiency ratios are reduced in the last five years. The bank is able to maintain its liquidity position.
SUGGESTIONS
The Reserve Bank of India issued prudential norms for banking companies. According to that more non performing assets may leads to bankruptcy. Hence, the bank tries to reduce its non performing assets to a extent. The prime motive of any type of business is to earn profits. For banking company, rendering financial services and earning profits are the primary objectives. As a nationalized bank, it also has the same objectives. The growth rate of profits is decreasing. So, the bank tries to improve its profits. For that the bank needs to concentrate on both core and non core banking activities. The major income for any financial institution is interest income. A banking company will get more interest income only when it lends money for the productive purposes. Advances are the major assets of a banking company. The bank tries to increase the advances because it is the core business of a bank. Increase in advances pays a way to increase in interest income which automatically increases the profits of the bank. Every company must try to control their borrowings. Because more borrowings leads to increase their interest expenses which reduces their profits. At the same time, low borrowings are also not good for the company. Here, the borrowings are increasing to an extent. So, the bank shall try to reduce the borrowings which automatically reduce the interest expenses to a certain extent.
SUGGESTIONS
Deposits are of two types. One is term deposits and the other is demand deposits. The important source of funds for bank is deposits. More deposits means the bank are attracting the customers. The bank provides advances against his/her deposits to the needy person. This provides the bank to get interest income as well as safety for its funds. So, the bank needs to increase its deposits. The bank has to focus on work than the work achieved. It means the bank has to work to attract the new customers and rendering all types of financial services. As compared to its competitors, the bank has low number of branches and ATMs. It is a major disadvantage to the bank. Due to low number of branches and ATM, both the customers and bank may feel uncomfortable to contact and render services. So, the bank has to increase its number of branches and ATMs. Nowadays competition takes in every sector. In banking sector, the competition is high. In general, a both good and bad product needs advertisement. Advertisements pursue the people to buy. Other banks are giving continues advertisements about their services to the public. So, the bank has to promote its services through advertisements which increase the new customers.
CONCLUSION
I here by conclude that the ratio analysis and trend analysis and analysis of cash flow statement and comparative statement shows that INDIAN Banks financial position is fair. Banks profitability is increasing but not at high rate. Banks liquidity position is good because bank invests more in liquid assets than the current assets. The INDIAN Bank needs to pay attention on commercial activities like promoting more schemes for industrial customers etc. Banks position is stable.