Financial Ratio Analysis of Central Bank Submitted by Zuhaib Sherwani, 222/2014

Financial Ratio Analysis of Central Bank
Submitted by Zuhaib Sherwani, 222/2014

Introduction
Quantitative analysis of information contained in a companys financial statements. Ratio
analysis is based on line items in financial statements like the balance sheet, income
statement and cash flow statement; the ratios of one item or a combination of items - to
another item or combination are then calculated. Ratio analysis is used to evaluate various
aspects of a companys operating and financial performance such as its efficiency, liquidity,
profitability and solvency.
The trend of these ratios over time is studied to check whether they are improving or
deteriorating. Ratios are also compared across different companies in the same sector to see
how they stack up, and to get an idea of comparative valuations. Ratio analysis is a
cornerstone of fundamental analysis.
Ratio analysis can provide an early warning of a potential improvement or deterioration in a
companys financial situation or performance. Analysts engage in extensive number
crunching of the financial data in a companys quarterly financial reports for any such hints.
PERFORMANCE HIGHLIGHTS- Q1 FY 2015-16
Total Business of the Bank increased to Rs. 4,51,739 crore from Rs. 4,26,829 crore in
June 2014, recording Y-o-Y growth of 5.84 %.
Total Deposits of the Bank increased to Rs. 2,58,607 crore from Rs. 2,40,782 crore in
June 2014, recording Y-o-Y growth of 7.40 %.
Total Advances stood at Rs. 1,93,132 crore against Rs. 1,86,047 crore in June 2014,
recording Y-o-Y growth of 3.81 %.
CASA increased to Rs. 88,623 crore from Rs. 79,476 crore in June 2014, recording Yo-Y growth of 11.51 % .
Share of CASA in total deposits stood at 34.27 % as against 33.01 % in June 2014.
Core Deposits increased to Rs. 2,37,572 crore from Rs. 1,88,981 crore in June 2014,
recording Y-o-Y growth of 25.71 %.
Total Income increased to Rs. 7,099 crore from Rs. 6,928 crore in June 2014
recording Y-o-Y growth of 2.47 % .
Provision Coverage Ratio has improved from 51.52 % to 54.95 % on Y-o-Y basis.
CRAR under BASEL II is at 11.67 % with Tier I at 8.34 % whereas CRAR under
BASEL III is 10.84 % with Tier I at 8.03 %. NIM stood at 2.74% for the quarter
ended June 2015.
Zuhaib Sherwani
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Average Cost of Deposits
The interest rate paid by financial institutions for the funds that they deploy in their business.
The cost of funds is one of the most important input costs for a financial institution, since a
lower cost will generate better returns when the funds are deployed in the form of short-term
and long-term loans to borrowers. The spread between the cost of funds and the interest rate
charged to borrowers represents one of the main sources of profit for most financial
institutions.
=
Interest Paid
100
Average Deposits
2015
= 19,199.65/2,55,941.60 =7.50%
2014
= 17,963.08/2,40,344.53=7.47%
Average Cost of Deposits is well within industry benchmark, since a lower cost will generate
better returns when the funds are deployed in the form of short-term and long-term loans to
borrowers.
Average Yield on Advances
The average yield on an investment or a portfolio that results from adding all interest,
dividends or other income generated from the investment, divided by the average of the
investments for the year. The average annual yield is a particularly useful tool for floatingrate investments, in which the fund's balance and/or the interest rate change frequently.
= Interest Received on Advances 100
Average Advances
2015
= 26,475.98/1,89,067.53=14%
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2014
= 24,478.32/1,77,754.61=13.77%
Average Yield is 14% in year 2015 which is higher than 2014, bank is improving its advances
structure and getting better return
Net Interest Margin
A performance metric that examines how successful a firm's investment decisions are
compared to its debt situations. A negative value denotes that the firm did not make an
optimal decision, because interest expenses were greater than the amount of returns generated
by investments.
= Interest Received Interest Paid 100
Average Invested Assets
2015
= 26,475.98-19,199.65/95,655.36=7.6%
2014
= 24,478.32-17,963.08/86,262.40= 7.5%
A negative ratio means that the company is paying more in interest than its generating. For
banks and rental companies, this means the company would be better off using its assets to
pay off its loans than attempting to loan them out. For these same companies, any positive
ratio is better than a negative one, but a higher ratio represents a more effective use of assets.
Gross NPA Ratio
Gross NPA is the amount outstanding in the borrower account, in books of the bank other
than the interest which has been recorded and not debited to the borrower account.
=
Gross NPAs 100

Total Loans and Advances
2015
= 11,449/1,89,067.53=6.055%
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2014
= 12931/1,77,754.61=7.2%
Gross NPAs have fallen, NPAs are one of the concern area for a bank and they have able to
reduce their NPAs which is a good sign.
Net NPA Ratio
Gross NPA (Balance in Interest Suspense account + DICGC/ECGC claims received and
held pending adjustment + Part payment received and kept in suspense account + Total
provisions held).
=
Net NPAs
100
Total Loans and Advances

2015
=7448 /1,89,067.53=3.93%
2014
= 6,505/1,77,754.61=3.65%
The key challenge going forward for Indian banks is to expand credit portfolio and
effectively manage NPAs while maintaining profitability. Asset quality continues to be the
core function and also biggest challenge for the banks in the present dynamic environment.
Though, management of asset quality is a balance sheet issue of individual banks, it has
wider macro-economic implications. In order to overcome the associated risks including
externalities, there is an imminent need for the banks to have well-structured and effective
credit monitoring system in place coupled with appropriate business models.
Return on Average Assets

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as
to how efficient management is at using its assets to generate earnings.
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=
Net Income 100

Total Average Assets
2015
= 618.3/3,10,951.65=.001988%
2014
= -1,251.51/2,88,254.53=-.00434%
ROA tells you what earnings were generated from invested capital (assets). ROA for public
companies can vary substantially and will be highly dependent on the industry. This is why
when using ROA as a comparative measure, it is best to compare it against a company's
previous ROA numbers or the ROA of a similar company. In 2015, ROA has decreased as
compared to 2014
Return on Equity
The amount of net income returned as a percentage of shareholders equity. Return on equity
measures a corporation's profitability by revealing how much profit a company generates
with the money shareholders have invested.
Net Income
100
Shareholders Equity
2015
= 618.3/1,658.27=3.72%
2014
= -1,251.51/1,350.44=-.92%
In other words, the return on equity ratio shows how much profit each rupee of common
stockholders' equity generates.
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So a return on 1 means that every rupee of common stockholders' equity generates 1 rupee of
net income. This is an important measurement for potential investors because they want to
see how efficiently a company will use their money to generate net income. Return on equity
has increased in 2015, Management is utilizing its resources more efficiently.
Operating Profit Ratio
The profit earned from a firm's normal core business operations. This value does not include
any profit earned from the firm's investments (such as earnings from firms in which the
company has partial interest) and the effects of interest and taxes.
=
Operating Expenses
Non Interest Income plus Interest Spread
2015
=5,596.64/26,475.98=21.11%
2014
=5,190.08/24,478.32=21.2%
It is a measure of income that tells investors how much of revenue will eventually become
profit for a company.
It is well with industry benchmark and core business of bank is performing well
Cost To Income Ratio

=
Operating Expenses
Net Interest Income + Non Interest Income
2015
= 5,596.64/28,376.37=19.72%
2014
= 5,190.08/26,409.70=19.65%
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CASA Ratio
This ratio of a bank is the ratio of deposits in current and saving accounts to total deposits
= Current Deposits +Savings Deposits
Total Deposits
2015
=13,238+ 75,385/2,58,607=34.26%
2014
=12,332+67,144 /2,40,782=33.01%
CASA Ratio has marginally increased in 2015 because while total deposits have increased
substantially, CASA deposits have increased only by a large amount.
Interest Expense Ratio
A ratio used to determine how easily a company can pay interest on outstanding debt. The
interest coverage ratio is calculated by dividing a company's earnings before interest and
taxes (EBIT) of one period by the company's interest expenses of the same period:
= Interest Expense
Interest Income
2015
= 26,475.98/ 19,199.65= 1.38 Times
2014
= 24,478.32/ 17,963.08= 1.36 Times
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Camel Ratios
CAMEL are an acronym for six measures Capital Adequacy, Assets Quality, Management
Soundness, Earnings, Liquidity, and Sensitivity to market risk. In this analysis the six
indicators which reflect the soundness of the institution framework are considered.
The six factors examined are as follows:
C - Capital adequacy
A - Asset quality
M - Management quality
E - Earnings
L - Liquidity
Capital Adequacy Ratio

Capital adequacy ratios (CARs) are a measure of the amount of a bank's core capital
expressed as a percentage of its risk-weighted asset and it is also known as "Capital to Risk
Weighted Assets Ratio (CRAR)
= Tier 1 Capital + Tier 2 Capital

Risk Weighted Assets
2015
= 8.34
2014
= 8.46
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Total debt/shareholders equity
2015
= 2,82,040.19/15,920.81=17.71
2014
= 2,62,481.08/14,170.08=18.52
Financial Leverage = Total assets/shareholders equity
2015
=3,10,951.65 /15,920.81=19.53
2014
=2,88,254.53 /14,170.08=20.34
Capital formation rate = Retained net income/ average shareholders equity
2015
=14,262.54/15,045.45=.947
2014
=11,202.64/13,920.47=.804
Asset Quality
Loans/Total Assets
2015
= 26,098.59/ 3,10,951.65= 0.083931344
2014
= 22,136.55/ 2,88,254.53= 0.07679515
A rise in the ratio in the current year indicates a better utilization of the assets by the bank.
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PGDM-Finance
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NPA/Total loans
2015
= 11,449/ 3,10,951.65= 0.0368
2014
= 12931/ 2,88,254.53= 0.0448
Reserve for NPA/NPA
2015
= 5625,24/11,449/ = 0.49133
2014
=42155.506/12931/ = 0.326
Interest earning assets/ Total assets
2015
= 2,82,040.19/3,10,951.66= 0.907
2014
=2,62,481.08/2,88,254.53 = 0.911
Non-interest earning assets/total assets
2015
= 1-0.907=.093
2014
=1-0.911=.089
Management Competence
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Credit Deposit Ratio - It is the ratio of how much a bank lends out of the deposits it has
mobilized. It indicates how much of a bank's core funds are being used for lending, the main
banking activity. A higher ratio indicates more reliance on deposits for lending and viceversa.
=
Total Advances
100
Customer Deposits
2015
= 1,93,132/33,470=577.03%
2014
= 1,86,047 / 28545 = 651.76%
Clearly the total advances to customer deposits are rising for the bank.
Earnings Ability
Return on Average Assets
An indicator of how profitable a company is relative to its total assets. ROA gives an idea as
to how efficient management is at using its assets to generate earnings.
Net Income 100

Total Average Assets
2015
= 618.3/3,10,951.65=.001988%
2014
= -1,251.51/2,88,254.53=-.00434%
ROA tells you what earnings were generated from invested capital (assets). ROA for public
companies can vary substantially and will be highly dependent on the industry. This is why
when using ROA as a comparative measure, it is best to compare it against a company's
Zuhaib Sherwani
PGDM-Finance
222
Page 11

previous ROA numbers or the ROA of a similar company. In 2015, ROA has decreased as
compared to 2014
Return on Equity
The amount of net income returned as a percentage of shareholders equity. Return on equity
measures a corporation's profitability by revealing how much profit a company generates
with the money shareholders have invested.
Net Income
=
100
Shareholders Equity
2015
= 618.3/1,658.27=3.72%
2014
= -1,251.51/1,350.44=-.92%
In other words, the return on equity ratio shows how much profit each rupee of common
stockholders' equity generates.
So a return on 1 means that every rupee of common stockholders' equity generates 1 rupee of
net income. This is an important measurement for potential investors because they want to
see how efficiently a company will use their money to generate net income. Return on equity
has increased in 2015, Management is utilizing its resources more efficiently.
Interest income/ Average interest earning assets
2015
= 28376.37/2,84,722.89= 0.099663115
2014
= 26409.7/2,64,017.01 = 0.100030297
Net Profit Ratio
=
Net Profit 100
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Total Income
2015
= 618.3 /28,376.37= 2.178%
2014
= -1,251.51/26,409.70 = 4.73%
Net profit Ratio in the current year has increased marginally because of the increase in net
profits.
Efficiency ratio= Non-interest expense/(Net income + Fee commissions)
2015
= 8,558.42/ 2,518.69= 3.39
2014
= 9,698.12 /679.87 = 14.2
Breakeven point= (total expenses non-interest income)/Total average interest earning assets
2015
= 25,857.68/666.06 = 38.2
2014
= 25,729.82/-1,213.22= -21.2
Dividend Per Share

Dividend per share indicates the return earned per share. It is bit different from return on
equity capital. It is calculated by dividing dividend on equity share capital by the total
number of equity shares. It is a good measure of profitability and when compared with
DPS similar other banks, it gives a view of the comparative earnings or earning power of
a bank
= Dividend on Equity Share Capital
Number of Equity Shares
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2015
= 16492770 / 18142047 = Rs. 0.909
2014
= 13134876 / 18388826.4 = Rs. 0.714
Liquidity Ratios
Current Ratio - Current ratio may be defined as the relationship between current assets and
current liabilities. Current assets include cash in hand, balance with RBI, balance with other
banks (both in India and abroad), money at call and short notice and stock. Current liabilities
include short-term borrowings, short-term deposits, bills payables, bank overdraft and
outstanding expenses. It is a measure of general liquidity and it is widely used to make the
analysis of a short-term financial position or liquidity of a bank. It is calculated by dividing
the total current assets by total current liabilities
(1) Loans/Deposits
2015
= 26,098.59/ 2,55,941.60= 0.10197
2014
= 22,136.55/ 2,40,344.53= 0.09210
Current Ratio for the bank has fallen in FY 2015 as the fall in the current liabilities is
proportionally smaller than the fall in the current assets.
(2) Liquid assets/deposits
2015
= 2,99,560.91/2,55,941.60=1.170426808
2014
= 2,76,403.33/2,40,344.53=1.150029626
(3)Liquid assets/(Deposits + Borrowings)
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PGDM-Finance
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2015
= 2,99,560.91/2,82,040.19=1.062121359
2014
= 2,76,403.33/2,62,481.08=1.053040966
Zuhaib Sherwani
PGDM-Finance
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PERFORMANCE HIGHLIGHTS- Q1 FY 2015-16