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2011-12

A Report on Financial Analysis of

Bank Of Baroda

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G.H.Patel P.G. Institute of Business Management Page 2

Preface

Knowledge is not power but the applied knowledge is powerAs the above line suggests the importance of application of knowledge, this report contains the

pragmatic approach of financial concepts and its applicability in banking that is through financialanalysis of Bank Of Baroda.

The practical approach is much more important to have an exposure of concepts which have

been learnt in the class room teaching.

This report contains the financial analysis of a Bank named Bank of Baroda in vis--vis

comparison with HDFC Bank Ltd.

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Acknowledgement

We would like to pay our thanks to all who helped me while doing this project work. Without the

support of colleague and guide this project would have not been prepared.

We would like to pay our special thanks to Dr. A. C. Mehta who helped us in clearing theconcepts of management of financial institutions and principles and practices of Banking.

We would also pay our thanks to our friends who helped us in preparing this report.

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Index

Sr.No. Particulars Page

No.

1 Introduction 5

2 History of the Bank of Baroda 6

3 The profit and loss Account of company 8

4 The Balance sheet of the company 9

5 Bank of Baroda: Key Strengths 10

6 The ratio analysis : CAMEL analysis 11

7 The Stock Price analysis

8 Conclusion

9 Bibliography

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1. Introduction

The financial institution i.e. banking industry is the Back Bone of any Economy. And the public

sector banks especially in India have given a considerable contribution in financing andinvestment part of economy.

This report contains the financial over view and analysis of a giant public sector bank i.e. Bank

of Baroda. Starting from a city like Baroda now it has travelled through the entire globe and has

became Indias international bank.

This report contains the CAMEL Rating Analysis of Bank of Baroda in vis--vis comparison

with HDFC Bank Ltd. Generally it is believed that public sector units are less competitive as

compared to private sector units thats why it is very interesting to have a comparison between

two big Bs i.e. Banks one is public sector Lion (BoB) and the another one is private sector Tiger

(HDFC).

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2. History of the Bank of Baroda

2.1. History.

Prior to independence from the British Rule, the ancient India was ruled by princely states,

scattered over the width and breadth of the large Indian nation. The Maharajas of the inner

States of colonial India contributed to the welfare of their respective regions as well as the Indian

nation as a whole. Their vision and foresight in founding various financial, charitable, social and

philanthropic organizations during their time is still cherished by any one going into the history

of modern India and its achievements in every walk of life.

The Maharaja of Baroda, a princely state of British India, by name Sir Sayyajirao Gaekwad III,

had the same vision in establishing a bank for servicing the public at large and the citizens of

Baroda State, a Gujarati population in particular. On 20th July 1908, Bank of Baroda was

established under the rules of Companies Act 1897, in a small building at Baroda, by the

Maharaja with a paid up capital of Rs.10 lakhs. The guidelines set by the Maharaja for the bank

was to serve the people of the State of Baroda as well as the neighboring regions with money

lending, saving, transmission and encouraging the development of arts, science, commerce and

trade for the people.

Even during the worst financial disaster caused by the First World War, during the period 1913

to 1917, when as many as 87 banks closed their shutters, Bank of India survived the turbulence

with its clear vision, ethical standards and financial prudence to grow from strength to strength.

There were heroes to sustain the development of this bank to its present glory, from ordinary

people as customers and the heirs of the Royal family of Baroda.

The success story of theBank of Baroda is studded with many a leaps and strides it made in the

International presence, apart from establishing branches all over the Indian nation, by acquisition

of already popular banking entities, as also commencing new commercial banking

establishments, in the unique Gujarathi style. During the years of 1908 to 2007 (and the century

year being round the corner) Bank of Barodas growth owes to the excellence in rendering

financial products and services to the national and international population.
http://www.theoriginof.com/andhra-bank.htmlhttp://www.theoriginof.com/andhra-bank.htmlhttp://www.theoriginof.com/andhra-bank.html

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2.2 The Profile of Bank of Baroda

Name: Bank Of Baroda

Type Public

Traded as BSE: 532134

Industry Banking, Financial services

Founded 1908

Headquarters Vadodara, India ,Mumbai, india

Area served Worldwide

Key people M. D. Mallya (Chairman & MD)

Products Credit cards, consumer banking, corporate banking, finance and insurance,

investment banking, mortgage loans, private banking, private equity,

wealth management

Revenue INR25,800 crore (US$5.15 billion) (2011)[1]

Net income INR4,433 crore (US$884.38 million) (2011)[2]

Total assets INR355,826 crore (US$70.99 billion) (2011)[3]

Website www.bankofbaroda.com

Source: http://en.wikipedia.org/wiki/Bank_of_Baroda
http://www.bankofbaroda.com/http://www.bankofbaroda.com/http://www.bankofbaroda.com/

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3. The profit and loss Account of Bank of Baroda

Source: Annual Report, Bank of Baroda:2010-11

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4. The Balance sheet of the Bank of Baroda

Source: Annual Report, Bank of Baroda:2010-11

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5. Bank of Baroda: Key Strengths

Source: The corporate presentation, Bank of Baroda:2010-11

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6. The ratio analysis: CAMEL analysis

Ratio analysis is a powerful tool for the interpretation of the financial statement. A ratio can be

defined as the indicated quotient of two mathematical expressions in financial analysis theratio is used as the benchmark for evaluating the financial position and performance of a firm.

The relation between two accounting figures, expressed mathematically, is known as financial

ratios.

The financial performance analysis in the banking industry is done through the help of stereotype

ratios i.e. CAMEL analysis.

Banks are rated on various parameters, based on financial and non financial performance.

One of the popular technique to measure the performance.

CAMEL, each letter refers to the specific category of performance. Capital Adequacy Assets Quality Management Quality Earnings Liquidity

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6.1 Capital Adequacy

Capital Adequacy is a measure of an FI's financial strength, in particular its ability to cushion

operational and abnormal losses. An FI should have adequate capital to support its risk assets in

accordance with the risk-weighted capital ratio framework. It has become recognized that capitaladequacy more appropriately relates to asset structure than to the volume of liabilities. This is

exemplified by central banks' efforts internationally to unify the capital requirements of

commercial banks and to generate worldwide classification formulae such as the one proposed

here. This indicator requires that assets be classified by reference to their demands on the equity

structure of financial institution.

The CAR indicator is derived by comparing the ratio of an entity's equity to its assets-at-risk.

The covenant specifies that the borrower/EA/FI should not make an advance to a sub borrower,

if after making the advance, the ratio (the performance indicator) of its equity to its assets-at-risk

would be greater than that specified in the covenant.

CapitalAdequacy Ratio

(%) =

[Paid in Capital +

Reserve Funds + Net

Profits] x 100

Divided By

Risk-free assets shouldinclude: (i) Cash on hand;

(ii) Due from Banks; (iii)Interbank loans; (iv)

Government-guaranteed

loans; and (v) Investments

in government securities,etc.

Total Assets - Loan lossProvision - Risk-free

Assets

Source: Reserve Bank of India, Glossary of Financial Terms.

Assets-at-risk are defined as the total of the impaired values of assets at the date of making the

advance to the sub borrower. Assets are typically classified as: (i) risk-free; (ii) minimum risk;

(iii) general risk; (iv) substandard; (v) "workout" (or minimal chance of recovery); and (vi) fixed

assets, furniture and office equipment, computers, etc. To each of these classifications is awarded

a percentage of their values for which an FI's capital is needed to cover risk of losses.

It includes three ratios

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1) CAR i.e. Capital Adequacy Ratio2) Debt to Equity Ratio(Financial leverage)3) Credit Extended Ratio

6.1.1. Capital Adequacy Ratios of Bank of Baroda

Source: www.moneycontrol.com

The capital Adequacy ratio of Bank of Baroda has been improving from FY 2007 to FY2010. But it has reduced in the FY 2011.

CAR of BoB has been more than the HDFC Bank in initial years but it is less than that ofHDFC bank in last two years.

0

2

4

6

8

10

12

14

16

18

2007 2008 2009 2010 2011

BOB 14.52 14.36 14.05 12.91 11.8

HDFC 13.8 13.6 15.09 16.45 15.32

in%

Capital Adequacy Ratio

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6.1.2. Debt to Equity

The debt to equity ratio shows the financial leverage factor which multiplies the income of

equity holders. The financial leverage is defined as the use of fixed income bearing fund s to

multiply the income of equity holders or earning per share.

ROE = ROCE * Equity multiplier (financial leverage)

Debt to Equity Ratio of Bank of Baroda


Banking industry is highly levered industry as compared to other manufacturing industry. Bank of Baroda being a public sector bank is having higher portion of debt in its capital

structure as compared to the private player i.e. HDFC bank.

Higher the financial leverage higher the return on equity and vice versa but at the sametime financial leverage is a double edged sword which can cause a bankruptcy in case of

situation of fluctuating income of the bank. But being a public sector bank, BoB can

afford higher degree of leverage because support of RBI.

2007 2008 2009 2010 2011

BOB 14.57 14.12 15.43 16.8 15.6

HDFC 10.98 9.12 10.34 8.35 8.71

0

2

4

6

8

10

12

14

16

18

intimes

Debt to Equity Ratio

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6.1.3. Credit Extended Ratio

The credit extended ratio is being calculated by dividing the advances by total assets.


The credit extended ratio of BoB has consistently been more than HDFC bank. The higher the ratio more aggressive the bank is. BoB is more aggressive in lending than HDFC bank.

2007 2008 2009 2010 2011

BOB 58.42 59.41 63.32 62.89 63.81

HDFC 51.36 47.59 53.97 56.56 57.84

0

10

20

30

40

50

60

70

In%

Credit Extended Ratio

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6.2. Assets Quality

The type of assets in the banking industry is different than that of other industries. The banks

have financial assets like loans and advances. These assets should generate the income which

must be adequate as well as regular.

NPAs. i.e. Non Performing Assets is a tree letter terror in the banking industry. Because it not

only impacts the profitability but also impacts the liquidity and credibility of the bank and it

ruins the reputation as well.

Asset quality has direct impact on the financial performance of an FI. The quality of assets

particularly, loan assets and investments, would depend largely on the risk management system

of the institution. The value of loan assets would depend on the realizable value of the collateral

while investment assets would depend on the market value.

Two ratios are been calculated to measure the assets quality.

1) Net NPAs to Net Advances ratio2) Net NPAs to Total Assets Ratio

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6.2.1. Net NPAs to Net Advances ratio

Net NPAs to Net advances ratio is calculated by dividing Net NPAs i.e. total NPAs minus

provisions for NPAs by Net Advances i.e. total advances minus provisions made for NPAs.

Source: Banking survey by Business Standard, 2011

The net NPAs to Net advances ratio in BoB in FY 2009 is lower than HDFC Bank while it is

higher in the year 2011 because of liberal recovery and expansion of operation

The lower the ratio more efficient the bank is.

2009 2010 2011

BOB 0.31 0.34 0.35

HDFC 0.63 0.31 0.19

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

In%

Net NPAs to Net advances ratio

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6.2.2. Net NPAs to Total Assets Ratio

This ratio is calculated by dividing Net NPAs by Total Assets.

Source: Banking survey by Business Standard, 2011

The Net NPAs to Total assets ratio of BoB was lower than that of HDFC bank in the year2009 but again it is higher than that of HDFC bank in FY 2011.

The lower the Ratio more efficient the Bank is. The higher % of NPAa eats out the productivity of performing assets so NPAs are as

dangerous for the Bank as the terror for mankind.

2009 2010 2011

BOB 0.197 0.216 0.221

HDFC 0.342 0.176 0.107

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

In%

Net NPAs to Total assets ratio

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