Download - Final Report of T.Y.B.B.A
Research Report in the field of Finance Undertaken
At“The Co – operative Bank of Rajkot Ltd.”
i.e. Raj Bank “Ratio Analysis Based on CAMEL Model of RBI”
1
PREFACE
As we enter the 21st Century with new hope and new expectations, it is
imperative that we appreciate the world around us is changing rapidly, throwing
open great challenges and innumerable opportunities. Driven by the growing trend
of globalization, the revolutionary developments in Information Technology and
the emergence of the digital era, we are witnessing phenomenal changes in the
world of finance. In the emerging scenario, finance will be operating in a totally
new financial landscape of atoms and electrons.
These far-reaching developments in the world of finance have redefined the
role of the finance manager, to evolve financial strategies that dovetail with the
firm’s competitive business strategies. In the present decade, the analysis of
financial statement of business has generated a wide divergence of view among the
thinkers and the management experts. The analysis of financial statement is very
crucial function.
Ratio are exceptionally useful tools with the finance manager to infer the
financial performance of the enterprise over a period of time, with the help of ratio
analysis conclusion can be drawn regarding several aspects such as financial health
profitability and operational efficiency of the undertaking.
This study aims at determining and analysing the profitability and
operational efficiency of the “The Co-operative Bank of Rajkot Ltd.” by way of
Ratio Analysis for the past five years.
2
INDEX
SR. NO. PARTICULARSPAGE
NO.
1. Introduction
2. Brief profile of Banking Sector in general
3. Brief profile of Co-operative Banks
4. History & Development of Raj Bank
5. Organisation Structure
6. Organisation Chart
7.Concept of Ratio Analysis its measurement and its
analysis
8. Research Methodology
9. Ratio Analysis of Raj Bank
10.Conclusion & Finding
11.Bibliography
3
INTRODUCTION
The firm’s financial information is contained in three basic financial
statements – The Balance Sheet, Profit & Loss Account and Profit and Loss
Appropriation Account. These statements are very useful to different parties
concerned such as management, investor, creditors and other to form judgement
about the operational efficiency and financial position of the firm. These
statements may be more fruitfully used if they are analysed and interpreted to have
an insight into the strengths and weaknesses of the firm. The success of the firm’s
financial plans is based on the financial analysis which is the starting point for
making plans, before using and sophisticated forecasting and budgeting
procedures.
Various tools and techniques are employed by the interested parties in
analysing the financial information contained in these financial statements. These
techniques are as follows:
Comparative Statements
Common Size Statements
Trend Analysis
Fund Flow Analysis
Cash Flow Analysis
Value Added Analysis
Ratio Analysis
Ahead of all is Ratio Analysis which is a very powerful analytical tool for
measuring performance of an organisation. The Ratio Analysis concentrates on the
inter-relationship among the figures appearing in the aforementioned financial
statements. The Ratio Analysis helps the management to analyse the past
performance of the firm and to make further projections.
Ratio Analysis is a process of comparison of one figure against another, which
make a ratio, and the appraisal of the ratio to make proper analysis about the
strengths and weaknesses of the firm’s operation. Ratio Analysis is extremely
helpful in providing valuable insight into a firm’s financial picture. Ratios
normally pinpoint a business strengths and weakness in two ways:
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1. Ratios provide an easy way to compare today’s performance with past.
2. Ratios depict the areas in which a particular business is competitively
advantaged or disadvantaged through comparing ratios to those of other
businesses of the same size within the same industry.
5
BRIEF PROFILE OF BANKING INDUSTRY IN GENERAL
If there is one industry that has the stigma of being old and boring, it would
have to be banking; however, a global trend of deregulation has opened up many
new businesses to the banks. Coupling that with technological developments like
Internet banking and ATMs, the banking industry is obviously trying its hardest to
shed its lacklustre image.
There is no question that bank stocks are among the hardest to analyze.
Many hold several assets and have several subsidiaries in different industries. A
perfect example of what makes analyzing a bank stock so difficult is the length of
their financials. While it would take us an entire textbook to explain all the ins and
outs of the banking industry, this point will hopefully shed some light on the more
important areas to look at when analyzing a bank as an investment.
There are two major types of banks:
1. Regional Banks - These are the smaller financial institutions that primarily
focus on one geographical area within a country. Providing depository and
lending services are regional banks primary line of business.
2. Major (Mega) Banks - While these banks might maintain local branches,
their main scope is in financial centres, where they get involved with
international transactions, and underwriting, etc.
Could you imagine a world without banks? At first this might sound like a
great thought! Banks (and financial institutions) have, however, for several
reasons, become cornerstones of our economic growth and steer the wheels of the
economy towards its goal of “Self reliance in all fields”. They transfer risk,
provide liquidity, facilitate both major and minor transactions, and provide
financial information for both individuals and businesses.
Perhaps the banking industry's largest distinction is the government's heavy
involvement in it. Besides setting restrictions on borrowing limits and the amount
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of deposits that the bank must hold in their vault, the government has a huge
influence on banks profitability.
In present age in India there are many banks including foreign banks, public
sector, private sectors, commercial banks and co-operative banks. The structure of
Indian Banking System is as under:
7
Structure of Indian Banking System
Unorganised Organised
Licensed Creditors
Reserve Bank of India
Commercial Banks
Co-operative Banks
State Co-operative Banks at
State Level
Central Co-operative Banks at
District Level
Rural Primary Co-
operative Banks at Village /
Town Level
Unlicensed Indigenous
Money Lenders
Public Sector
Private Sector
BRIEF PROFILE OF CO – OPERATIVE BANKS
Once the Mahatma Gandhiji has remarked that,” There is sweetness in co-
operation; there is no one who weak or strong among those who co-operate. Each
is equal to other”.
The co-operative movement in India has played a significant role as an
important instrument of operationalising developmental initiatives. The Co-
operative Banks came under the preview of Banking Regulation Act, 1949 w.e.f.
1st April 1966. All Co-operative Banks having a paid up capital of Rs. 1 lakh or
more have come under the control of Reserve Bank of India. There has been really
a marked improvement in the progress of cooperative credit movement in our
country aided frequently by the government support and the intervention of
Reserve Bank of India.
Also today’s co-operative sector has grown in all over the world, with
globalization. They have also started to implement new technologies and various
management tools. Now, they are competing in same market with all the other
types of banks. In this way the Co-operative Banks holds the key position in the
economy.
CHANGES IN CO-OPERATIVE BANKS
We shall now enumerate the recent changes that have occurred in the Co-
operative Banking Scene, subsequent to the reform measures initiated by the
Government.
During 1992-93 the Reserve Bank of India liberalised the licensing policy for
new Primary Urban Co-operative Banks greatly; prescribed the entry point
viability norms and advised to follow the guidelines relating to their operations
and advised to adopt norms in respect of income recognition, classification of
assets and provisioning on the lines stipulated for commercial banks.
During 1993-94 the National Co-operative Bank of India (NCBI) was
registered on 5th August 1993 as a Multi-State Co-operative Society.
8
A Co-operative Development Fund was set up by NABARD to help the Co-
operative Banks to improve managerial systems and skills.
For the first time Scheduled Urban Co-operative Banks were permitted to
invest their surplus funds in Certificate of Deposits and Commercial Papers of
those Institutions / Corporate with credit rating P1 / A1 from CRISIL / ICRA.
With a view to maintaining the rural credit flow uninterrupted from SCBs and
RRBs the relaxation in the stipulation that they must recover loans at least 40%
of the demand for the previous year to be eligible for refinance from NABARD
was extended up to June 30, 1996.
Lending and deposit rates of all Co-operative Banks were deregulated in
various phases.
In February 1996, PCBs were allowed to invest their surplus funds in
Certificate of Deposits issued by banks and other financial institutions,
approved by the Reserve Bank subject to fulfilling certain conditions.
During 1995-96, all Scheduled PCBs were brought under the purview of the
provisions of the Banking Ombudsman Scheme, 1995.
All scheduled and non-scheduled PCBs with deposits of over Rs. 50 crore were
required to introduce the system of concurrent audit.
The prudential accounting norms viz, income recognition, asset classification,
provisioning for bad and doubtful debts and capital adequacy were applied to
State Co-operative Banks and Central Co-operative Banks form the year 1996-
97 in two phases viz., 1996-97 and 1997-98.
9
HISTORY & DEVELOPMENT OF RAJ BANK
It is well said that “In the emerging competitive business environment co-
operative banks who adhere to strict financial discipline only will survive”.
The co-operative Bank of Rajkot Ltd. popularly known as Raj Bank is
established on 28th November 1980 under the strong, effective leadership of Shri
Ramnikbhai Dhami with the intention of serving the common man.
The bank was started in small premises and converted into a large and most
popular bank having its Area of Operation in the entire Rajkot, Junagadh and
Jamnagar District. In years to come the bank will expand its business in the entire
Gujarat State.
At present, after completion of 25 year, Raj Bank has achieved a key
position in the market of Saurashtra. It has 11 branches in all over Saurashtra
including main branch with the advanced technologies and educated staff.
The Co-operative Bank of Rajkot Ltd, have been at the forerunner of the
change taking place in the Co-operative Banking sector over the years. Their
strategic initiatives have led their position today as the first Co-operative bank in
Saurashtra to provide ATM facility. Their pioneering new approaches to banking
and their focus on extending the availability of tech-driven convenience to large
customer base resulted into rapid business growth.
A critical constituent of their growth has been the quality of their people.
The single minded application and understanding of the challenges of the market
place by their managers. They have built today stable business that will deliver
sustainable value to their stakeholders; there are more exciting opportunities to
grow. These include the whole gamut of financial products ranging from
agriculture credit to consumer credit, liability product and insurance especially in
Rural India.
At last it can be said that The Co-operative Bank of Rajkot Ltd is well
placed to capitalize on emerging competitive business environment opportunities
as it reaches out to new markets in Gujarat.
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ORGANIZATION STRUCTURE
An organization Structure is the mechanism through which management
try’s to achieve its objectives. Various jobs are divided among units of the
enterprise and are integrated into an effective operation system to achieve an
organizational goal.
It is primarily concerned with the allocation of duties and responsibilities
and delegation of authority. It is a management tool for achieving the objectives or
goals of an enterprise.
From the chart shown below it can be easily understood that Line & Staff
Organisation Structure is followed by Raj Bank.
ORGANIZATION CHART
11
12
CONCEPT OF RATIO ANALSIS ITS MEASUREMENT & ITS ANALYSIS
Financial ratio analysis is a fascinating topic to study because it can teach us
so much about accounts and businesses. When we use ratio analysis we can work
out how profitable a business is, we can tell if it has enough money to pay its bills
and we can even tell whether its shareholders should be happy!
Ratio analysis can also help us to check whether a business is doing better
this year than it was last year; and it can tell us if our business is doing better or
worse than other businesses doing and selling the same things.
In addition to ratio analysis being part of an accounting and business studies
syllabus, it is a very useful thing to know anyway!
The overall layout of this segment is as follows: We will begin by asking the
question, what do we want ratio analysis to tell us? Then, what will we try to do
with it? This is the most important question, funnily enough! The answer to that
question then means we need to make a list of all of the ratios we might use: we
will list them and give the formula for each of them.
Once we have discovered all of the ratios that we can use we need to know
how to use them, who might use them and what for and how will it help them to
answer the question we asked at the beginning?
At this stage we will have an overall picture of what ratio analysis is, who
uses it and the ratios they need to be able to use it. All that's left to do then is to use
the ratios; and we will do that step- by-step, one by one.
The three important questions we have asked at the beginning they are
describe in brief as under: That questions are;
What do we want ratio analysis to tell us?
What do the users of accounts need to know?
Which ratio for which group?
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What do we want ratio analysis to tell us?
The key question in ratio analysis isn't only to get the right answer: for example, to
be able to say that a business's profit is 10% of turnover. We have to start working
on ratio analysis with the following question in our heads:
What are we trying to find out?
Isn't this just blether, won't the exam just ask me to tell them that profit is 10% of
turnover? Well, yes, but then they want to know that we are a good student who
understands what it means to say that profit is 10% of turnover.
We can use ratio analysis to try to tell us whether the business
1. is profitable
2. has enough money to pay its bills
3. could be paying its employees higher wages
4. is paying its share of tax
5. is using its assets efficiently
6. has a gearing problem
7. is a candidate for being bought by another company or investor
And more, once we have decided what we want to know then we can decide which
ratios we need to use to answer the question or solve the problem facing us.
Let's look at the ratios we can use to answer these questions.
The Ratios
We can simply make a list of the ratios we can use here but it's much better to put
them into different categories. If we look at the questions in the previous section,
we can see that we talked about profits, having enough cash, efficiently using
assets - we can put our ratios into categories that are designed exactly to help us to
answer these questions. The categories we want to use, section by section, are:
1. Profitability: has the business made a good profit compared to its turnover?
2. Return Ratios: compared to its assets and capital employed, has the business
made a good profit?
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3. Liquidity: does the business have enough money to pay its bills?
4. Asset Usage or Activity: how has the business used its fixed and current
assets?
5. Gearing: does the company have a lot of debt or is it financed mainly by
shares?
6. Investor or Shareholder
Not everyone needs to use all of the ratios we can put in these categories so the table that we present at the start of each section is in two columns: basic and additional.
The basic ratios are those that everyone should use in these categories whenever we are asked a question about them. We can use the additional ratios when we have to analyse a business in more detail or when we want to show someone that we have really thought carefully about a problem.
Users of Accounting Information
Now we know the kinds of questions we need to ask and we know the ratios available to us, we need to know who might ask all of these questions! This is an important issue because the person asking the question will normally need to know something particular.
Of course, anyone can read and ask questions about the accounts of a business; but in the same way that we can put the ratios into groups, we should put readers and users of accounts into convenient groups, too: let's look at that now.
The list of categories of readers and users of accounts includes the following people and groups of people:
Investors &Lenders Managers of the organisation & Employees Suppliers and other trade creditors & Customers Governments and their agencies & Public Financial analysts Environmental groups Researchers: both academic and professional
15
What do the Users of Accounts Need to Know?
The users of accounts that we have listed will want to know the sorts of things we can see in the table below: this is not necessarily everything they will ever need to know, but it is a starting point for us to think about the different needs and questions of different users.
Investors
To help them determine whether they should buy shares in the
business, hold on to the shares they already own or sell the
shares they already own. They also want to assess the ability
of the business to pay dividends.
LendersTo determine whether their loans and interest will be paid
when due
ManagersMight need segmental and total information to see how they
fit into the overall picture
Employees
Information about the stability and profitability of their
employers to assess the ability of the business to provide
remuneration, retirement benefits and employment
opportunities
Suppliers and their
trade creditors
Businesses supplying goods and materials to other businesses
will read their accounts to see that they don't have problems:
after all, any supplier wants to know if his customers are going
to pay their bills!
CustomersThe continuance of a business, especially when they have a
long term involvement with, or are dependent on, the business
Governments and
their agencies
The allocation of resources and, therefore, the activities of
business. To regulate the activities of business, determine
taxation policies and as the basis for national income and
similar statistics
Local community
Financial statements may assist the public by providing
information about the trends and recent developments in the
prosperity of the business and the range of its activities as they
affect their area
16
Financial analystsThey need to know, for example, the accounting concepts
employed for inventories, depreciation, bad debts and so on
Environmental
groups
Many organisations now publish reports specifically aimed at
informing us about how they are working to keep their
environment clean.
Researchers
Researchers' demands cover a very wide range of lines of
enquiry ranging from detailed statistical analysis of the
income statement and balance sheet data extending over many
years to the qualitative analysis of the wording of the
statements
17
Which ratios will each of these groups be interested in?
On this page we see the table which help different groups interested in their
ratio. In the left hand column there is a list of interest groups one by one and in the
right hand column there is a list of ratios they might be interested in.
Interest Group Ratios to watch
Investors Return on Capital Employed
Lenders Gearing ratios
Managers Profitability ratios
Employees Return on Capital Employed
Suppliers and other trade creditors Liquidity
Customers Profitability
Governments and their agencies Profitability
Local Community This could be a long and interesting list
Financial analysts Possibly all ratios
Environmental groups Expenditure on anti-pollution measures
Researchers Depends on the nature of their study
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RESEARCH METHODOLOGY
Research in common parlance refers to a search for knowledge. One can
also define research as a scientific and systematic search for pertinent information
on a specific topic. Research in academic activity and as such the term should be
used in a technical sense. Research is, thus, an original contribution to the existing
stock of knowledge making for its advancement.
Where as Research Methodology is a way to systematically solve the
research problem. It may be understood as a science of studying how research is
done. In it we study the various steps that are generally adopted by a researcher in
studying his research problem along with the logic behind them. It is necessary for
the researcher to know not only the research methods / techniques but also the
methodology.
Thus, when we talk of research methodology we not only talk of the
research methods but also consider the logic behind the methods we use in the
context of our research study. Here, data used is secondary, which is their Annual
Reports of last 5 years and method of ratio analysis is based upon the CAMEL
Model of RBI, which give the overall image of firm’s performance.
19
RATIO ANALYSIS OF RAJ BANK
It's all very well being armed with a list of ratios and people who might want
to use them, but we need to know where to get all the figures to put into those
ratios, don't we?
Here are all the figures which are taken from profit and loss account and
balance sheet of “The Co-operative Bank of Rajkot Ltd.”
Purely for analytical convenience, the Financial Ratio of bank is generally
categorised differently from that of commercial businesses. The working Group to
``Review the system of on-site supervision over Bank’’ headed by Shri S.
Padmanabhan, constituted in February 1995 recommended far reaching changes in
bank inspections by the Reserve Bank of India and introduce a rating methodology
for the banks i.e. CAMEL model. It is elaborated as under:
1) C – CAPITAL ADEQUACY
2) A – ASSET QUALITY
3) M – MANAGEMENT
4) E – EARNINGS QUALITY
5) L – LIQUIDITY
20
1) C – CAPITAL ADEQUACY
Capital adequacy is stipulated by Bank for International Settlements (BIS) at
Basle to ensure that the banks have enough capital to absorb losses from assets
which turn bad. The norms are fixed as a percentage of risk weighted assets i.e.
assets are, weighted on the basis of the risk involved in their realisation. For
example, cash is given a risk weightage of 0% and higher weightage for assets
secured by goods, mortgage etc. In India Narasimham Committee
recommendations have stipulated that Indian Banks particularly those with
International Presence must have a capital adequacy of 8%. Capital adequacy
reflects the overall financial condition of the banks and also the ability of the
management to meet the need for additional capital. It includes the following
1) Capital Adequacy Ratio
2) Debt – Equity Ratio
3) Advances to Assets
4) G – Secs to Total Investment
21
1) Capital Adequacy Ratio (CAR) or Capital to Risk Assets Ratio (CRAR):
As per the latest RBI norms, banks in India should have a CAR of 9%. It is arrived at by dividing the Tier I and Tier II capital by risk weighted assets. Tier I capital includes equity capital and free reserves. Tier II capital comprises sub-ordinated debt of 5-7 year tenure.
CAR = Capital Funds / Risk Weighted Assets X 100
Calculation of Capital Adequacy Ratio of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007CAPITAL
FUNDS358,823,578 355,677,836 377,269,046 387,621,848 654,319,564
RISK WEIGHTED
ASSETS1,171,521,435
1,216,129,469
1,554,598,802
1,830,851,543
2,456,154,520
RATIO 30.63 29.25 24.27 21.17 26.64
Capital Adequacy Ratio
30.6329.25
24.27
21.17
26.64
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Cap
ital
Ad
equ
acy
Rat
io
Interpretation of the Capital Adequacy Ratio
The minimum CAR as per RBI norms is 9 % at Present. In fact, Raj Bank has always shown a healthy and improved margin of over 9 % which is stipulated by RBI, in the year 2002 – 2003 CAR is of 30.63 %. But from the year 2003 – 2004, it seems to decline in CAR gradually to 29.25 % in 2003 - 2004 up to 21.17 % in 2005 – 2006. This is due to steady rise in the Risk Weighted Assets. The main reason for the rise in Risk Weighted Assets and decline in CAR is constant increase in advances over the last few years. Now, it’s looks to improve as years passes.
22
2) Debt – Equity Ratio:
Debt-Equity ratio is arrived at by dividing Total borrowings and Deposits by
Net Worth. Net Worth includes equity capital, preference capital, reserves and
surplus less revaluation reserves and miscellaneous expenses not written off.
Debt-Equity Ratio = Debt / Equity
Calculation of Debt – Equity Ratio of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
DEBT 2,113,556,1452,617,481,09
42,864,094,33
53,362,600,87
33,891,989,28
3
EQUITY 386,494,929 455,068,711 500,173,019 563,578,548 744,319,564
RATIO 5.47 5.75 5.73 5.97 5.23
Debt-Equity Ratio
5.47
5.75 5.73
5.97
5.23
4.80
5.00
5.20
5.40
5.60
5.80
6.00
6.20
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Deb
t-E
qu
ity
Rat
io
Interpretation of the Debt – Equity Ratio
Deposits form a major portion of liabilities for banks and are included in the
debt component of the debt – equity ratio. A debt – equity ratio of 50 times is
considered healthy for banks. Ratios of Raj Bank are below 50 times, which is
much below the acceptable limit and, therefore, has scope to increase the debt
component on their capital structure.
23
3) Advances to Assets:
Total Advances also includes receivables. The value Total Assets is
excluding revaluation of all the assets.
Advances to Assets = Total Advances / Total assets
Calculation of Advances to Assets of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
ADVANCES 914,974,4651,120,389,61
91,421,177,10
61,667,592,11
72,181,947,34
7
ASSETS 56,209,726 74,232,950 81,579,900 88,579,119 177,973,776
RATIO 16.28 15.09 17.42 18.83 12.26
Advances to Assets
16.2815.09
17.42
12.26
18.83
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Ad
van
ces
to A
sset
s
Interpretation of the Advances to Assets
This ratio shows the total advances as a percentage of total assets, which can
give the capital adequacy of the firm. It shows the ability of firm to meet capital
need. Here, we see that Raj Bank has maintaining constant percentage of advances
to assets for last 4 years but in this year 2006 – 2007 it has decrease by 1/3 almost.
24
4) G – Secs to Total Investments:
The ratio is calculated by dividing the amount invested in government
securities by total investments.
G – Secs to Total Investments = G-Secs / Total Investments X 100
Calculation of G – Secs to Total Investments of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
G – SECS. 447,050,000 659,110,5001,081,788,00
01,325,595,50
01,172,980,50
0
INVESTMENTS 532,117,500 718,785,0001,086,462,50
01,337,770,00
01,200,149,97
0
RATIO 84.01 91.70 99.57 99.09 97.74
G-Secs to Total Investment
84.01
91.70
99.57 99.0997.74
75.00
80.00
85.00
90.00
95.00
100.00
105.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
G-S
ecs
to T
ota
l In
vest
men
t
Interpretation of the G – Secs to Total Investments
G – Secs to investments indicate the percentage of risk free investments in
banks’ investment portfolio. Since government securities are risk free, the higher
the G – Secs to investments ratio the lower the risk involved in bank investments.
The calculation indicates that Raj bank has shown a stable rise in G – Secs
investments and therefore it has less risk involved in bank’s investments.
25
2) A – ASSET QUALITY
The prime motto behind measuring the asset quality is to ascertain the
quality of assets and majority of ratios in this segment are related to non-
performing assets i.e. NPA. A credit facility is treated as past due when it remains
outstanding for 30 days beyond the due date. An NPA is defined generally as a
credit facility in respect of which interest or instalment of principal is in arrears for
two quarter or more. This segment contain following ratio
1) Gross NPAs to Total Assets
2) Gross NPAs to Net Advances
3) Total Investments to Total Assets
4) Percentage Change in Gross NPAs
26
1) Gross NPAs to Total Assets:
Gross NPAs are gross provisions on NPAs and Total Assets considered are
net of revaluation reserves.
Gross NPAs to Total Assets = Gross NPAs / Total Assets X 100
Calculation of Gross NPAs to Total Assets of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
GROSS NPAs 2,289,000 2,919,217 4,835,162 2,150,849 2,362,836
ASSETS 56,209,726 74,232,950 81,579,900 88,579,119 177,973,776
RATIO 4.07 3.93 5.93 2.43 1.33
Gross NPAs to Total Assets
4.07 3.93
5.93
2.43
1.33
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
ofG
ross
NP
As
to T
ota
l A
sset
s
Interpretation of the Gross NPAs to Total Assets
The quality of loan is one of the crucial aspects of that decide the health of
banks. This ratio indicates the percentage of gross NPAs to total assets. Ratio does
not give any tolerable or desirable limit. But it should be below 10 %. Going by
this norm, the Raj bank has their entire ratio below 10 % which shows that it has
the lowest gross NPAs in relation to their total assets.
27
2) Gross NPAs to Net Advances:
Net Advances are net of bills rediscounted and specific loan loss provision.
Gross NPAs to Net Advances = Gross NPAs / Net Advances X 100
Calculation of Gross NPAs to Net Advances of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
GROSS NPAs 2,289,000 2,919,217 4,835,162 2,150,849 2,362,836
NET ADVANCES
914,974,4651,120,389,61
91,421,177,10
61,667,592,11
72,181,947,34
7
RATIO 0.25 0.26 0.34 0.13 0.11
Gross NPAs to Net Advances
0.250.26
0.34
0.130.11
-
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Gro
ss N
PA
s to
Net
Ad
van
ces
Interpretation of the Gross NPAs to Net Advances
Gross NPAs as a percentage of net advances is most standard measure of
asset quality. A ratio of below 1 % is considered as a tolerable limit. The gross
NPAs of bank stand below 1 % to net advances. Net NPAs in relation to net
advances continue to remain at “ZERO” level for the last 15 years and it become
one of the only bank across the nation which has lowest level of gross NPAs.
Hence from this ratio only we can say that asset quality of Raj Bank is of high-
quality.
28
3) Total Investments to Total Assets:
This ratio is used as a tool to measures the percentage of total assets locked
up in investments.
Total Investments to Total Assets = Total Investments / Total Assets
Calculation of Total Investments to Total Assets of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
INVESTMENTS 532,117,500 718,785,0001,086,462,50
01,337,770,00
01,200,149,97
0
ASSTES 56,209,726 74,232,950 81,579,900 88,579,119 177,973,776
RATIO 9.47 9.68 13.32 15.10 6.74
Total Investment to Total Assets
9.47 9.68
13.32
15.10
6.74
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
To
tal
Inve
stm
ent
to T
ota
l A
sset
s R
atio
Interpretation of the Total Investments to Total Assets
Total investments to total assets indicate the extent of deployment of assets
in investments as against advances. The higher level of investment indicates the
lack of credit off-take in the market. The Raj Bank has higher investments in risk
free securities which shows the lack of credit off-take and further confirms the
aggressive strategy in the disbursal of advances.
29
4) Percentage Change in Gross NPAs:
This measure gives the movement in Gross NPAs on year-on-year basis.
Percentage Change in Gross NPAs = Change in Gross NPAs /
Gross NPAs at beginning X 100
Calculation of Percentage Change in Gross NPAs of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007CHANGE IN GROSS NPAs
820,000 630,217 1,915,945 - 2,684,313 211,987
GROSS NPAs AT BEGINNING
1,469,000 2,289,000 2,919,217 4,835,162 2,150,849
% CHANGE IN NPAs
55.82 27.53 65.63 - 55.52 9.86
% Change in Gross NPAs
55.82
27.53
65.63
-55.52
9.86
-80.00
-60.00
-40.00
-20.00
-
20.00
40.00
60.00
80.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
% C
han
ge
in G
ross
NP
As
Interpretation of the Percentage Change in Gross NPAs
This ratio shows the percentage of increase or decrease in the Gross NPAs in the firm. From the ratio of Raj Bank it can be said that the gross NPAs is increasing progressively to 65.63 in 2004 – 2005, which is not the sign that each one is anticipated but it is increase because of the expansion of business over a year. But in 2005 – 2006 gross NPAs has been reduced to -55.52 which indicate great sign and stand ahead in the lowest gross NPAs level which is great sign of evolution.
30
3) M – MANAGEMENT
Management is the most important ingredient that ensures sound functioning
of banks. With increased competition in the Indian banking sector, efficiency and
effectiveness have become the rule as banks constantly strive to improve the
productivity of their employees. The major improvements in the style of
management and productivity have come about in the all sectors of banks. Today,
it is not uncommon to see the extended working hours, flexible time schedules,
outsourcing marketing, etc. to attract and retain customers. The parameters used to
assess the quality of management gives the measurement of the efficiency and
effectiveness of management. The ratios of this segment are:
1) Total Advances to Total Deposits
2) Gross Profit Per Employee
3) Net Profit Per Employee
4) Business Per Employee
5) Return on Net Worth
31
1) Total advances to Total Deposits:
This ratio measures the efficiency of the management in converting deposits
into advances. Total deposits include demand deposits, saving deposits, term
deposits and deposits of other banks. Total advances also include the receivables.
Total advances to Total Deposits = Total advances / Total Deposits X 100
Calculation of Total advances to Total Deposits of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
ADVANCES 914,974,4651,120,389,61
91,421,177,10
61,667,592,11
72,181,947,34
7
DEPOSITS 2,113,556,1452,617,481,09
42,864,094,33
53,362,600,87
33,891,989,28
3
RATIO 43.29 42.80 49.62 49.59 56.06
Total Advances to Total Deposits
43.29 42.80
49.62 49.59
56.06
-
10.00
20.00
30.00
40.00
50.00
60.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
To
tal
Ava
nce
s to
To
tal
Dep
osi
ts
Interpretation of the Total advances to Total Deposits
As it said above it measures the efficiency of the management in converting
deposits into advances. Over the last few years Raj Bank persistently convert
deposits into advances, this can be analysed from the chart shown above.
32
2) Gross Profit per Employee:
It is arrived at by dividing the Gross profit earned by the bank by total
number of employees. Higher the ratio, higher the efficiency of management.
Gross Profit per Employee = Gross Profit / No. of Employee
Calculation of Gross Profit per Employee of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
GROSS PROFIT 77,948,410 80,506,740 81,042,997 81,574,445 106,570,355
NO. OF EMPLOYEE
109 115 124 124 126
GROSS PROFIT PER EMPLOYEE
715,123.03 700,058.61 653,572.56 657,858.43 845,796.47
Gross Profit Per Employee
715,123.03 700,058.61653,572.56 657,858.43
845,796.47
-
100,000.00
200,000.00
300,000.00
400,000.00
500,000.00
600,000.00
700,000.00
800,000.00
900,000.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Gro
ss P
rofi
t P
er E
mp
loye
e
Interpretation of the Gross Profit per Employee
The gross profit per employees of Raj Bank decreases during the year 2004
– 2005 i.e. of Rs.653,572.56 relates to the past couple of year i.e. 2003 – 2004 of
Rs.700,058.61 and 2002 – 2003 of Rs.715,123.03 which increases gradually in
2006 – 2007 to Rs.845,796.47. A picture that show’s us a high efficiency of the
management of the Raj Bank.
33
3) Net Profit per Employee:
It is arrived at by dividing the PAT earned by the bank by total number of
employees. Higher the ratio, higher the efficiency of management.
Net Profit per Employee = Net Profit / No. of Employee
Calculation of Net Profit per Employee of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
NET PROFIT 24,589,408 27,081,504 27,706,018 28,037,137 32,477,112
NO. OF EMPLOYEE
109 115 124 124 126
NET PROFIT PER EMPLOYEE
225,590.90 235,491.34 223,435.63 226,105.95 257,754.85
Net Profit Per Employee
225,590.90
235,491.34
223,435.63226,105.95
257,754.85
200,000.00
210,000.00
220,000.00
230,000.00
240,000.00
250,000.00
260,000.00
270,000.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Net
Pro
fit
Per
Em
plo
yee
Interpretation of the Net Profit per Employee
The net profit per employee ratio of Raj Bank remains constant of the last
few years which show the effective management of the bank which can be observe
from the chart and the figures quoted above.
34
4) Business per Employee:
It is arrived at by dividing total business by total number of employees.
Business includes the sum total advances and deposits in a particular year.
Business per Employee = Total Business / No. of Employee
Calculation of Business per Employee of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
BUSINESS 3,028,530,611
3,737,870,713
4,285,271,441
5,030,192,989
6,073,936,630
NO. OF EMPLOYEE
109
115
124
124
126
BUSINESS PER
EMPLOYEE27,784,684.50
32,503,223.59
34,558,640.65
40,566,072.49
48,205,846.27
Business Per Employee
27,784,684.50
32,503,223.5934,558,640.65
40,566,072.49
48,205,846.27
-
10,000,000.00
20,000,000.00
30,000,000.00
40,000,000.00
50,000,000.00
60,000,000.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Bu
sin
ess
Per
Em
plo
yee
Interpretation of the Business per Employee
Business per employee indicates the labour productivity of long term
viability of the bank. From the figures and chart shown above we see that the
business per employee of Raj Bank increases from Rs. 27,784,684.50 in 2002 –
2003 to Rs. 48,205,846.27 in 2006 – 2007. in between the period there is a steady
rise in the business per employee.
35
36
5) Return on Net Worth (RONW):
It is a measure of the profitability of a company. PAT is expressed as a percentage
of Average Net Worth.
RONW = Net Profit / Net Worth X 100
Calculation of Return on Net Worth (RONW) of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
NET PROFIT 24,589,408 27,081,504 27,706,018 28,037,137 32,477,112
NET WORTH 386,494,929 455,068,711 500,173,019 563,578,548 744,319,564
RATIO 6.36 5.95 5.54 4.97 4.36
Return on Net Worth
6.365.95
5.54
4.97
4.36
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Ret
urn
on
Net
Wo
rth
Interpretation of the Return on Net Worth (RONW)
This ratio expresses the net profit in terms of net worth. This ratio is an
important yardstick of performance for equity shareholders since it indicates the
return on the funds employed by them. As we see that the net worth of the Raj
bank increases and the net profit averagely remain same, the RONW goes down
but than also Raj Bank maintained the dividend pay of 15 % for the last 15 years.
37
4) E – EARNINGS QUALITY
Investing additional funds forms an important part of the banking function
along with lending. In the recent past, banks have been criticized for making most
of their money from treasury operation and other investment rather than from core
lending operation. Even as fee-based operations still account for a minority of the
banks’ revenues, the share of non-interest income is higher. The ratio of this
section, assesses the quality of income in terms of income generated by core
activities i.e., income from lending operations. This segment contains the
following;
1) Operating Profit by Average Working Fund
2) Net Interest Margin
3) Net Profit to Average Assets
4) Percentage Growth in Net Profit
5) Non Interest Income to Total Income
6) Interest Income to Total Income
38
1) Operating Profit by Average Working Funds:
This ratio gives return on total assets employed on a daily basis. Working
funds is the daily average of the total assets during the year.
Operating Profit by Average Working Funds = Operating Profit /
Average Working Funds X 100
Calculation of Operating Profit by Average Working Funds of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007OPERATING
PROFIT77,948,410 80,506,740 81,042,997 81,574,445 106,570,355
AVERAGE WORKING
FUNDS2,359,640,000
2,810,263,000
3,242,340,000
3,673,029,000
4,334,346,000
RATIO 3.30 2.86 2.50 2.22 2.46
Operating Profit by Average Working Fund
3.30
2.86
2.50
2.22
2.46
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Op
erat
ing
Pro
fit
by
Avg
.Wo
rkin
g
Fu
nd
Interpretation of the Operating Profit by Average Working Funds
The average ratio of operating profit as a percentage of average working
funds for Raj bank is 2.22 in 2005 – 2006 which is decreased continuously from
2002 – 2003 i.e. of 3.30 and stable around 2.00 to 2.50 . This is an encouraging
trend. The income is fund based it comes from investments rather than advances.
39
2) Net Interest Margin (NIM):
It is arrived at by dividing Spread by Total Earning Assets. Spread is the
difference between the interest income and interest expended as a percentage of
Total Assets. Interest income includes dividend income. Interest expanded
includes interest paid on deposits, loans from RBI, and other short-term and long-
term loans.
NIM = Spread / Total Earning Assets X 100
Calculation of Net Interest Margin (NIM) of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
SPREAD 79,675,173 81,845,701 85,588,622 108,237,975 155,547,063
EARNING ASSETS
2,169,456,6282,417,899,09
72,897,848,26
83,612,933,66
33,997,253,02
8
NET INTEREST MARGIN
(NIM)
3.67 3.38 2.95 3.00 3.89
Net interest Margin
3.67
3.38
2.95 3.00
3.89
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Net
In
tere
st M
arg
in
Interpretation of the Net Interest Margin (NIM)
Net interest margin of Raj bank is also shows a steady decrease. The efficient and
prudent asset liability management enables the bank to maintain the interest spread. The
40
net interest margin in 2004 – 2005 is 2.95 from that of 3.67 in 2002 – 2003 which again
taken the momentum and reach to 3.89 in 2006 -2007.
3) Net Profit to Average Assets:
This ratio measures return on assets employed or the efficiency in utilization
of the assets. It is arrived at by dividing the Net Profit by Average Assets, which is
the average of total assets in the current year and previous year.
Net Profit to Average Assets = Net Profit / Average Assets
Calculation of Net Profit to Average Assets of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
NET PROFIT 24,589,408 27,081,504 27,706,018 28,037,137 32,477,112
AVG. ASSETS 56,075,500 65,221,338 77,906,425 85,079,509 133,276,447
RATIO 43.85 41.52 35.56 32.95 24.37
Net Profit to Average Assets
43.8541.52
35.5632.95
24.37
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Net
Pro
fit
to A
vera
ge
Ass
ets
Interpretation of the Net Profit to Average Assets
The profitability of the firm is measured by establishing relation of net profit
with the total assets of the organisation. This indicates the efficiency of utilisation
41
of assets in generating revenue. The Raj Bank over the last couple of years not able
to utilise their assets as effectively as they where in the past years, which can be
seen from the chart and figures arrived on.
42
4) Percentage Growth in Net Profit:
It is percentage change in net profit form last year. It arrived by dividing
changes in net profit by net profit at beginning.
Percentage Growth in Net Profit = Changes in Net Profit /
Net Profit at Beginning X 100
Calculation of Percentage Growth in Net Profit of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007CHANGE IN NET
PROFIT2,397,127 2,492,096 624,514 331,120 4,439,974
NET PROFIT AT BEGINNING
22,192,281 24,589,408 27,081,504 27,706,018 28,037,137
% GROWTH IN NET PROFIT
10.80 10.13 2.31 1.20 15.84
% Growth in Net Profit
10.8010.13
2.31
1.20
15.84
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
% G
row
th i
n N
et P
rofi
t
Interpretation of the Percentage Growth in Net Profit
The percentage growth in net profit for Raj Bank in 2005 – 2006 is only of
1.20 relates to the other preceding years i.e. of 10.13 in 2003 – 2004 and of 10.80
in 2002 – 2003. This shows that the net profit is decreases comparatively very
43
highly but it has U –turn in 2006 – 2007 reaches 15.84 which give the enormous
quality of earnings of the bank.
44
5) Non – Interest Income / Total Income:
This measures the income from operations, other than lending as a
percentage of total income. Non-interest income is the interest income earned by
the banks excluding income on advances and deposits with RBI.
Non – Interest Income / Total Income = Non – Interest Income /
Total Income X 100
Calculation of Non – Interest Income / Total Income of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007NON -
INTEREST INCOME
37,649,755 41,584,896 44,686,846 24,275,592 22,514,608
TOTAL INCOME 299,461,834 312,897,488 326,646,329 327,440,588 398,858,078
RATIO 12.57 13.29 13.68 7.41 5.64
Non-Interest Income to Total Income
12.5713.29 13.68
7.41
5.64
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
No
n-I
nte
rest
In
com
e to
To
tal
Inco
me
Interpretation of the Non – Interest Income / Total Income
It expresses the income from operations as a percentage of total income. The
main sources of income of Raj Bank is in advances and deposits that’s why the
non-interest income of Raj Bank is averagely only 10.52 .i.e. 11.00 approximately.
Thus the income source or earning source of Raj Bank is on the amount of deposits
with RBI and advances.
45
6) Interest Income / Total Income:
This ratio measures the income from lending operations as a percentage of
total income generated by the banks in a year. Interest income includes income on
advances, interest on deposits with RBI.
Interest Income / Total Income = Interest Income / Total Income X 100
Calculation of Interest Income / Total Income of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007INTEREST INCOME
262,136,677 271,689,840 282,662,020 303,164,996 376,343,471
TOTAL INCOME 299,461,834 312,897,488 326,646,329 327,440,588 398,858,078
RATIO 87.54 86.83 86.53 92.59 94.36
Interest Income to Total Income
87.5486.83 86.53
92.59
94.36
82.00
84.00
86.00
88.00
90.00
92.00
94.00
96.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Inte
rest
In
com
e to
To
tal
Inco
me
Interpretation of the Interest Income / Total Income
This ratio expresses the income from lending operations. It mainly generates
from the deposits and advances. The Raj Bank main income source is from lending
operation which shows the average income of about 89 % Approx. of total income.
46
5) L – LIQUIDITY
The business of banking is all about borrowing and lending money. Timely
repayment of deposits is of crucial importance to avoid a run on a bank. With co-
operative banks going under frequently and with the recent collapse of GTB
(Global Trust Bank) investors have become extremely sensitive. They are alert;
they rush to the bank to withdraw money at the slightest hint of trouble. In such a
scenario, even false rumours could wreck havoc with a bank. Hence, banks have to
ensure that they always maintain enough liquidity. Through mandatory Statutory
Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR), RBI ensures that banks
maintain ample liquidity. In fact, over the last few years banks have been awash
with liquidity. It contains the following;
1) Liquid Assets to Demand Deposits
2) Liquid Assets to Total Deposits
3) Liquid Assets to Total Assets
4) G – Secs to Total Assets
5) Approved Secs to Total Assets
47
1) Liquid Assets / Demand Deposits:
This ratio measures the ability of a bank to meet demand from demand
deposits in a particular year. Liquid assets include cash in hand, balance with RBI,
balance with other banks (both in India and abroad), and money at call and short
notice.
Liquid Assets / Demand Deposits = Liquid Assets / Demand Deposits
Calculation of Liquid Assets / Demand Deposits of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007LIQUID ASSETS
1,019,276,0481,180,022,63
0802,030,048 860,865,769
1,153,812,999
DEMAND DEPOSITS
174,658,280 299,597,880 303,278,169 393,986,232 511,499,804
RATIO 5.84 3.94 2.64 2.19 2.26
Liquid Assets to Demand Deposits
5.84
3.94
2.64
2.19 2.26
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Liq
uid
Ass
ets
to D
eman
d D
epo
sits
Interpretation of the Liquid Assets / Demand Deposits
Liquid assets as a percentage of demand deposits are one of the most
important measures of the liquidity position of the bank. In the case of Raj Bank,
the ratios indicate that liquid assets are able to meet demand for demand deposits.
Thus it indicates better liquidity situation.
48
2) Liquid Assets / Total Deposits:
Liquid assets are measured as a percentage of Total Deposits. Liquid Assets
include cash in hand, balance with RBI, balance with other banks (both in India
and abroad), and money at call and short notice. Total Deposits include demand
deposits, saving deposits, term deposits and deposits of other financial institutions.
Liquid Assets / Total Deposits = Liquid Assets / Total Deposits X 100
Calculation of Liquid Assets / Total Deposits of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007LIQUID ASSETS
1,019,276,0481,180,022,63
0802,030,048 860,865,769
1,153,812,999
DEPOSITS 2,113,556,1452,617,481,09
42,864,094,33
53,362,600,87
33,891,989,28
3
RATIO 48.23 45.08 28.00 25.60 29.65
Liquid Assets to Total Deposits
48.2345.08
28.0025.60
29.65
-
10.00
20.00
30.00
40.00
50.00
60.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Liq
uid
Ass
ets
to T
ota
l D
epo
sits
Interpretation of the Liquid Assets / Total Deposits
Liquid assets as a percentage of total deposits measures of the liquidity
position of the bank to meet the amount of total deposits. As we see above that
liquidity situation of Raj Bank is quite good, they can cope up with the total
deposits which can be seen from the above chart and figures.
49
3) Liquid Assets / Total Assets:
Liquid Assets as measured as percentage of Total Assets.
Liquid Assets / Total Assets = Liquid Assets / Total Assets
Calculation of Liquid Assets / Total Assets of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007LIQUID ASSETS
1,019,276,048
1,180,022,630
802,030,048 860,865,7691,153,812,99
9
ASSETS 56,209,726 74,232,950 81,579,900 88,579,119 177,973,776
RATIO 18.13 15.90 9.83 9.72 6.48
Liquid Assets to Total Assets
18.13
15.90
9.83 9.72
6.48
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Liq
uid
Ass
ets
to T
ota
l A
sset
s
Interpretation of the Liquid Assets / Total Assets
Liquid assets as a percentage of total assets measures of the liquidity
position of the bank to meet the amount of total assets. We have seen above that
liquidity situation of Raj Bank is quite good; that’s why they are able to meet with
the total assets shown in the above chart.
50
4) G – Secs / Total Deposits:
This ratio measures the proportion of risk free liquid assets invested in G-
Secs as a percentage of the assets held by a bank and is arrived at by dividing
investment in government securities by total assets.
G – Secs / Total Deposits = G – Secs / Total Deposits
Calculation of G – Secs / Total Deposits of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
G – SECS. 447,050,000 659,110,5001,081,788,00
01,325,595,50
01,172,980,50
0
DEPOSITS 56,209,726 74,232,950 81,579,900 88,579,119 177,973,776
RATIO 7.95 8.88 13.26 14.97 6.59
G-Secs to Total Assets
7.958.88
13.26
14.97
6.59
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
G-S
ecs
to T
ota
l A
sset
s
Interpretation of the G – Secs / Total Deposits
The risk free liquid assets invested by Raj Bank in G – Secs as a percentage
of assets held by the bank is increasing daily as the investment in the G – Secs
increases, this increase is 14.97 in 2005 – 2006 from that of 7.95 in 2002 – 2003.
The chart shows the increasing figures over the years which suddenly decrease
almost half i.e. to 6.59 in 2006 – 2007.
51
5) Approved Securities / Total Assets:
Approved securities are investments made in state-associated bodies like
electricity boards, housing boards, corporation bonds and shares of regional rural
banks.
Approved Securities / Total Assets = Approved Securities / Total Assets X 100
Calculation of Approved Securities / Total Assets of Raj Bank
PARTICULARSAs on As on As on As on As on
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007APPROVED SECURITIES
17,500,000 15,000,000 - - -
ASSETS 56,209,726 74,232,950 81,579,900 88,579,119 177,973,776
RATIO 31.13 20.21 - - -
Approved Secs to Total Assets
31.13
20.21
- - --
5.00
10.00
15.00
20.00
25.00
30.00
35.00
31/3/2003 31/3/2004 31/3/2005 31/03/2006 31/03/2007
Year
Val
ue
of
Ap
pro
ved
Sec
s to
To
tal
Ass
ets
Interpretation of the Approved Securities / Total Assets
Investment in approved securities as a percentage of total assets shows a
decreasing trend in the Raj Bank as they started to invest more on the government
securities which are becoming less risky securities now-a-days than that of
approved securities. The figure in 2002 – 2003 is 31.13 which gradually decrease
as shown in the figures stated above and reach to NIL for the past couple of year.
52
CONCLUSION & FINDINGS
More analysis is of no use unless some conclusion is derived from it. On the
basis of ratio analysis one can get an overall idea of the profitability position of the
firm. The following conclusion has been arrived at on the basis of ratio analysis of
the Raj Bank.
1. Capital Adequacy
Raj Bank has always maintained the healthy and stable margin of ratios in
this segment. Then also they are not increasing the debt components in their capital
structure. Although the bank is able to taps the market and went ahead with their
equity offering. This inherent strength of the bank is evident in their capital
structure.
2. Asset Quality
Raj Bank has continue to maintain the “Zero” level in Net NPAs to Net
Advances for last 15 years and it become the only bank having the lowest Gross
NPAs level across the nation, these shows that the asset quality of the bank is too
much sound.
3. Management
From the ratio it can be observed that the management of the Raj Bank
varies widely. Even though there is a decrease in their gross profit per employee
with the increase in the employee but than also there is great combined effort of
employee which has shown the effective and efficient management of Raj Bank
which can be noted from their dividend declaration of 15 % for last 15 years to
their equity shareholders.
53
4. Earning Quality
Raj Bank has increased their investment in total SLR and Non-SLR as per
RBI norms. This also shows that effective utilisation of investment is their, as their
investment is in risk free securities which help them to concentrate over their
lending.
5. Liquidity
Liquidity shows the ability of the firm to meet its current obligation when
they become due for payment. The liquidity position of Raj Bank is too strong to
meet their obligations. Raj Bank has efficiently maintained their liquidity position
for last few years.
Perhaps, more important is the innovative spirit of Raj Bank that turns
challenges into opportunities over the last 25 year of their performance. These
gives the competent and willingness to scale the new height in the years to come.
54
BIBLIOGRAPHY
The following books and magazines become very useful to me for acquiring
knowledge regarding various topics relating to the preparation of my project work
both comprehensive & precise.
Books:
Sr.
No.Name of the Book Publication
Name of the
Author
1. Banking Law & Practice King BooksDr. M.M.Varma
R.K.Agarwal
2. Finance Management King BooksDr. M.M.Varma
R.K.Agarwal
3. Cost Accounting & Financial
ManagementTaxmann’s Ravi M. Kishore
4. Research MethodologyWishwa
PrakashanC.R.Kothari
Web Site: www.Raj Bank.net
Magazines & Journals:
Analyst ( Issue November, 2004 )
The Chartered Accountant ( Issue February, 2005 Volume 53 No.8 )
Indian Journal of Accounting { Issue June, 2005 Volume XXXV (2) }
Annual Report of Raj Bank ( Last five year i.e. from Financial Year 2002-
2003 to 2006-2007)
55