FINANCIAL PERFORMANCE OF LAKSHMI VILAS

ABSTRACT

“Financial performance of Lakshmi Vilas Bank” This will undertake to examine and
understand how financial management plays a crucial role in the growth of banking. It is
concerned with examining the profitability position of the banks for a period of five years (2006-
2010). The main objective of this study is to analyze the financial performance of the bank by
analyzing the financial statements with CAMEL ratio. Financial performance is analyzed for
capital adequacy, assets quality, management, earning quality and liquidity. Charts and tables
are used for better understanding of the bank performance. Lakshmi vilas bank as maintaining
their capital above the minimum requirement of RBI. The study deals with findings and
suggestions for the improvement of the bank.
 CONTENTS

CHAPTER TITLE PAGE NO

1 INTRODUCTION
1.1 INTRODUCTION TO THE TOPIC 1
1.2 INDUSTRY PROFILE 4
1.3 COMPANY PROFILE 6
1.4 STATEMENT OF THE PROBLEM 8
1.5 OBJECTIVE OF THE STUDY 8
1.6 SCOPE OF THE STUDY 8
1.7 LIMITATIONS OF THE STUDY 9
2 REVIEW OF LITERATURE 10
3 RESEARCH DESIGN AND METHODOLOGY 16
4 DATA ANALYSIS AND INTERPRETATION 28
5 FINDINGS, SUGGESTION AND CONCLUSIONS
5.1 FINDINGS 59
5.2 SUGGESTIONS 60
5.3 CONCLUSION 61
BIBILIOGRAPHY 62
LIST OF TABLES

S.NO PARTICULARS PAGE NO

4.1.1 Table showing the calculation of CAR Ratio 28

4.2.1 Table showing the calculation of Debt-Equity Ratio 29

4.3.1 Table showing the calculation of Advance of Assets 30

4.4.1 Table showing the calculation of G – Secs to Total Investments 31

4.5.1 Table showing the calculation of Gross NPAs to Net Advances 32

4.6.1 Table showing the calculation of Gross NPAs to Total Assets 33

4.7.1 Table showing the calculation of Total Investments to Total Assets 34

4.8.1 Table showing the calculation of Percentage Change in Gross NPAs 35

4.9.1 Table showing the calculation of Net NPAs Ratio 36

4.10.1 Table showing the calculation of Shareholder’s Risk Ratio 37

4.11.1 Table showing the calculation of provision ratio 38

4.12.1 Table showing the calculation of Sub Standard Assets Ratio 39

4.13.1 Table showing the calculation of Doubtful Assets Ratio 40

4.14.1 Table showing the calculation of loss assets ratio 41

4.15.1 Table showing the calculation of Total advances to Total Deposits 42

4.16.1 Table showing the calculation of Net Profit per Employee 43

4.17.1 Table showing the calculation of Business per Employee 44

4.18.1 Table showing the calculation of RONW 45

4.19.1 Table showing the calculation of Operating Profit by Average Working 46

Funds
4.20.1 Table showing the calculation of Net Interest Margin 47

4.21.1 Table showing the calculation of Net Profit to Average Assets 48

4.22.1 Table showing the calculation of Percentage Growth in Net Profit 49

4.23.1 Table showing the calculation of Non – Interest Income / Total Income 50

4.24.1 Table showing the calculation of Interest Income / Total Income 51

4.25.1 Table showing the calculation of Liquid Assets / Demand Deposits 52

4.26.1 Table showing the calculation of Liquid Assets / Total Deposits 53

4.27.1 Table showing the calculation of Liquid Assets / Total Assets 54

4.28.1 Table showing the calculation of G – Secs / Total Assets 55

4.29.1 Table showing the calculation of Approved Securities / Total Assets 56

4.30.1 Table showing the calculation of Cash Reserve Ratio 57

4.31.1 Table showing the calculation of Statutory Liquidity Ratio 58

LIST OF CHARTS

S.NO PARTICULARS PAGE NO

4.1.2 Chart showing the CAR ratio 28

4.2.2 Chart showing the debt equity ratio 29

4.3.2 Chart showing the advance of assets 30

4.4.2 Chart showing the G – Secs to Total Investments 31

4.5.2 Chart showing the Gross NPAs to Net Advances 32

4.6.2 Chart showing the Gross NPAs to Total Assets 33

4.7.2 Chart showing the Total Investments to Total Assets 34

4.8.2 Chart showing the Percentage Change in Gross NPAs 35

4.9.2 Chart showing the Net NPAs Ratio 36

4.10.2 Chart showing the Shareholder’s Risk Ratio 37

4.11.2 Chart showing the provision ratio 38

4.12.2 Chart showing the Sub Standard Assets Ratio 39

4.13.2 Chart showing the Doubtful Assets Ratio 40

4.14.2 Chart showing the loss assets ratio 41

4.15.2 Chart showing the Total advances to Total Deposits 42

4.16.2 Chart showing the Net Profit per Employee 43

4.17.2 Chart Showing the Business per Employee 44

4.18.2 Chart showing the RONW 45

4.19.2 Chart showing the Operating Profit by Average Working Funds 46

4.20.2 Chart showing the Net Interest Margin 47

4.21.2 Chart showing the Net Profit to Average Assets 48

4.22.2 Chart showing the Percentage Growth in Net Profit 49

4.23.2 Chart showing the Non – Interest Income / Total Income 50

4.24.2 Chart showing the Interest Income / Total Income 51

4.25.2 Chart showing the Liquid Assets / Demand Deposits 52

4.26.2 Chart showing the Liquid Assets / Total Deposits 53

4.27.2 Chart showing the Liquid Assets / Total Assets 54

4.28.2 Chart showing the G – Secs / Total Assets 55

4.29.2 Chart showing the Approved Securities / Total Assets 56

4.30.2 Chart showing the Cash Reserve Ratio 57

4.31.2 Chart showing the Statutory Liquidity Ratio 58

 CHAPTER 01

INTRODUCTION

1.1 INTRODUCTION TO THE TOPIC

Financial Management is that managerial activity which is concerned with the planning and
controlling of the firm’s financial resources. Though it was a branch of economics till 1890 as a
separate or discipline it is of recent origin.

Financial Management is concerned with the duties of the finance manager in a business firm.
He performs such varied tasks as budgeting, financial forecasting, cash management, credit
administration, investment analysis and funds procurement. The recent trend towards
globalization of business activity has created new demands and opportunities in managerial
finance.

Financial statements are prepared and presented for the external users of accounting information.
As these statements are used by investors and financial analysts to examine the firm’s
performance in order to make investment decisions, they should be prepared very carefully and
contain as much information as possible. Preparation of the financial statement is the
responsibility of top management. The financial statements are generally prepared from the
accounting records maintained by the firm.

Financial performance is an important aspect which influences the long term stability,
profitability and liquidity of an organization. Usually, financial ratios are said to be the
parameters of the financial performance. The Evaluation of financial performance had been
taken up for the study and was conducted at Lakshmi Vilas Bank. Analysis of Financial
performances is of greater assistance in locating the weak spots at the financial position of
Lakshmi Vilas Bank. This further helps in
  Financial forecasting and Planning
 Communicate the strength and financial standing of Lakshmi Vilas Bank For effective
control of business

FINANCIAL STATEMENTS ANALYSIS:

Financial performance analysis is defined as the process of identifying financial strengths and
weaknesses of the firm by properly establishing relationship between the items of the balance
sheet and the profit and loss account.
The financial statements provide some extremely useful information to the extent that the
balance sheet mirrors the financial position on a particular date in terms of the structure of assets,
liabilities and owners’ equity, and so on and the profit and loss account shows the results of
operations during a certain period of time in terms of the revenues obtained and the cost incurred
during the year. Thus, the financial statements provide a summarized view of the financial
position and operations of a firm.
The focus of financial analysis is on key figures in the financial statements and the significant
relationship that exists between them. The analysis of financial statements is a process of
evaluating the relationship between component parts of financial statements to obtain a better
understanding of the firm’s position and performance. The first task of the financial analyst is to
select the information relevant to the decision under consideration from the total information
contained in the financial statements. The second step is to arrange the information in a way to
highlight significant relationships. The final step is interpretation and drawing of inferences and
conclusion. In brief, the financial analysis is the process of selection, relation and evaluation.
NEED FOR FINANCIAL PERFORMANCE ANALYSIS:

Financial statements are prepared to meet external reporting obligations and also for decision
making purposes. But the information provided in the financial statements is not an end in itself
as no meaningful conclusions can be drawn from these statements alone. However, the
information provided in the financial statements is of immense use in making decisions through
analysis and interpretation of financial statements. This analysis also helps the firm to evaluate
its standings in terms of the financial position.

1.2. INDUSTRY PROFILE

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 lackluster 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 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:
BRIEF PROFILE OF PRIVATE BANKS

Private Banks are banks that are not incorporated. A private bank is owned by either an
individual or a general partner(s) with limited partner(s). In any such case, the creditors can look
to both the "entirety of the bank's assets" as well as the entirety of the sole-proprietor's/general-
partners' assets.
These banks have a long tradition in Switzerland, dating back to at least the revocation of the
edict of Nantes (1685). However most have now become incorporated companies, so the term is
rarely true anymore. There are a few private banks remaining in the US. One is brown brothers
Harriman & co., a general partnership with about 30 members. Private banking also has a long
tradition in the UK where Coutts & Co has been in business since 1692.
"Private Banks" and "private banking" can also refer to non-government owned banks in general,
in contrast to government-owned (or nationalized) banks, which were prevalent in communist,
socialist and some social democratic states in the 20th century. Private Banks as a form of
organization should also not be confused with "private banks" that offer financial services to
high net worth individuals and others.

1.3. COMPANY PROFILE

LAKSHMI VILAS BANK
Vision
"To be a sound and dynamic banking entity providing financial services of excellence with Pan
India presence."
Mission
“To develop a range of quality financial services and products to create value for customers,
shareholders and the society; to motivate people to achieve excellence in performance leading to
sustained profitable growth and build a vibrant organization.”
Brief History and background

The Lakshmi Vilas Bank Limited (LVB) was founded eight decades ago ( in 1926) by seven
people of Karur under the leadership of Shri V.S.N. Ramalinga Chettiar, mainly to cater to the
financial needs of varied customer segments. The bank was incorporated on November 03, 1926
under the Indian Companies Act, 1913 and obtained the certificate to commence business on
November 10, 1926, The Bank obtained its license from RBI in June 1958 and in August 1958 it
became a Scheduled Commercial Bank.
During 1961-65 LVB took over nine Banks and raised its branch network considerably. To meet
the emerging challenges in the competitive business world, the bank started expanding its
boundaries beyond Tamil Nadu from 1974 by opening branches in the neighboring states of
Andhra Pradesh, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Gujarat, West Bengal, Uttar
Pradesh, Delhi and Pondicherry. Mechanization was introduced in the Head office of the Bank as
early as 1977. At present, with a network of 273 branches,1 satellite branch and 8 extension
counters, spread over 16 states and the union territory of Pondicherry, the Bank's focus is on
customer delight, by maintaining high standards of customer service and amidst all these new
challenges, the bank is progressing admirably. LVB has a strong and wide base in the state of
Tamil Nadu, one of the progressive states in the country, which is politically stable and has a
vibrant industrial environment. LVB has been focusing on retail banking, corporate banking and
banc assurance.
The Bank's business crossed Rs.15561.01 Crores as on March 31, 2010. The Bank earned a Net
profit of Rs. 30.66 Crores. The Net owned Funds of the Bank reaches Rs. 739.00 Crores. With a
fairly good quality of loan assets the Net NPA of the bank was pegged at 4.11 % as on March 31,
2010.
New Identity
The new logo unit depicts the following,

 Red is for the values, Pure and Strong. Red is for Truth that can do no wrong.
 Gold is the land of prosperity where we all belong, the abode of wealth where happiness
hails from.
 A glimmer of lights from ochre gold, the circle of kumkum where all good things hold.
 Come walk the path of Lakshmi and celebrate her blessings, wisdom, growth and
contentme ana life full of rich meaning

Board of Directors

The Company's Board is broad based comprising 10 Directors:

 Shri. P.R. Somasundaram Managing Director & CEO
 Shri. K. Balaji Director
 Shri. N. Saiprasad Director
 Shri. K. Ravindrakumar Director
 Shri. Kusuma R Muniraju Director
 Shri. D.L.N.Rao Director
 Shri. B.K. Manjunath Director
 Shri. K.R. Pradeep Director
 Shri. S.G. Prabhakaran Director
 Shri. S. Dattathreyan Director
1.4. STATEMENT OF THE PROBLEM

At regular period public sector banks must prepare documents called financial statements.
Financial statements show the financial performance of a bank. They are used for both internal
and external purposes. When they are used internally, the management and sometimes the
employees use it for their own information. Managers use it to plan ahead and set goals for
upcoming periods. When they use the financial statements that were published, the management
can compare them with their internally used financial statements. They can also use their own
and other enterprises’ financial statements for comparison with macro economical data’s and
forecasts, as well as to the market and industry in which they operate in. The four main types are
balance sheets, profit and loss accounts, cash flow statements, and income statements.

Financial statements for banks present a different analytical problem than manufacturing and
service companies. As a result, analysis of a bank's financial statements requires a distinct
approach that recognizes a bank's somewhat unique risks. Banks take deposits from savers,
paying interest on some of these accounts. They pass these funds on to borrowers, receiving
interest on the loans. Their profits are derived from the spread between the rate they pay for
funds and the rate they receive from borrowers. This ability to pool deposits from many sources
that can be lent to many different borrowers creates the flow of funds inherent in the banking
system. By managing this flow of funds, banks generate profits, acting as the intermediary of
interest paid and interest received and taking on the risks of offering credit. So, the study is
conducted to analyse the financial performance of Lakshmi Vilas Bank on the basis of CAMEL
model.
1.5. OBJECTIVE OF THE STUDY

PRIMARY OBJECTIVE

 To analyze the financial performance of LAKSHMI VILAS BANK.

SECONDARY OBJECTIVES

 To do an in-depth analysis of the bank by using CAMEL as a tool of measuring

performance.
 To compare the performance of Lakshmi Vilas bank and Indusind bank.

1.6. SCOPE OF THE STUDY

 This study will be useful for the bank to find out its financial position.

 It also analyzes its competitor’s performance to ensure effective competition through

improved competence.

 It also brings out the fact that whether the financial performance of the bank is
progressive or regressive.

 1.7. LIMITATONS OF THE STUDY

 The data have been tabulated using last five years annual report and such data are
secondary in nature.

 Lakshmi Vilas bank performance compared with Indusind bank though there are so many
private sector banks.

 It has not been possible to get a personal interview with the top management employees
of Lakshmi Vilas Bank.
 CHAPTER 2
REVIEW OF LITERATURE

Financial Performance of Banks in India

The present study was undertaken to examine and understand how financial management plays a
crucial role in the growth of banking. It is concerned with examining the profitability position of
the selected sixteen banks (BANKEX-based) for a period of five years (2000-01 to 2006-2007).
The study reveals that the profitability position was reasonable during the period of study when
compared with the previous years. Return on Investment proved that the overall profitability and
the position of selected banks were sustained at a moderate rate. With respect to debt equity
position, it was evident that the companies were maintaining 1:1 ratio, though at one point of
time it was very high. Interest coverage ratio was continuously increasing, which indicated the
company's ability to meet the interest obligations. Capital adequacy ratio was constant over a
period of time. During the study period, it was observed that the return on net worth had a
negative correlation with the debt equity ratio. Interest income to working funds also had a
negative association with interest coverage ratio and the Non-Performing Assets (NPA) to net
advances was negatively correlated with interest coverage ratio.1

CAMELs and Banks Performance Evaluation

Despite the continuous use of financial ratios analysis on banks performance evaluation by
banks' regulators, opposition to it skill thrive with opponents coming up with new tools capable
of flagging the over-all performance (efficiency) of a bank. This research paper was carried out;
to find the adequacy of CAMEL in capturing the overall performance of a bank; to find the
relative weights of importance in all the factors in CAMEL; and lastly to inform on the best
ratios to always adopt by banks regulators in evaluating banks' efficiency. The data for the
research work is secondary and was collected from the annual reports of eleven commercial
banks in Nigeria over a period of nine years (1997 - 2005). The purposive sampling technique
was used. The findings revealed the inability of each factor in CAMEL to capture the holistic
performance of a bank. Also revealed, was the relative weight of importance of the factors in
CAMEL which resulted to a call for a change in the acronym of CAMEL to CLEAM. In
addition, the best ratios in each of the factors in CAMEL were identified. The paper concluded
that no one factor in CAMEL suffices to depict the overall performance of a bank. Among other
recommendations, banks' regulators are called upon to revert to the best identified ratios in
CAMEL when evaluating banks performance.

Rating the Performance of the Bank through CAMELS Model

In today’s scenario, the banking sector is one of the fastest growing sectors and a lot of funds are
invested in Banks. Also today’s banking system is becoming more complex. So, we thought of
evaluating the performance of the banks. There are so many models of evaluating the
performance of the banks, but we have chosen the CAMELS Model to evaluate the performance
of the banks. We have read a lot of books and found it the best model because it measures the
performance of the banks from each parameter i.e. Capital, Assets, Management, Earnings and
Liquidity After deciding the model, we have chosen three banks from the three different sectors,
i.e. AXIS Bank from Private Sector, Gandhidham Co-operative Bank from co-operative banks
and Bank of India from the public sector. Then we have collected annual reports of the
consecutive five years i.e. 2004-05 to 2008-09 of all the banks. And we have calculated ratios for
all the banks and interpreted them. After that we have given weightage to each parameter of the
CAMELS Model. According to their importance and our understandings, we have allocated
weightage to the each ratios of the each parameter. From the weighted results of each ratio, we
have given marks on the bases of the performance of the bank. And after addition of all the
marks, we have given the rank 1, 2 and 3 to the banks. As per the whole evaluation, we gave 1st
rank to AXIS Bank, 2nd rank to Bank of India and 3rd rank to Gandhidham Co-operative Bank.
 CHAPTER 3

3. METHODOLOGY

Research connotes a systematic and objective investigation of a subject or problem in

order to discover relevant information or principles. The success of a research depends mostly on
the method on which it is carried out. The applied method will improve the validity of finding.
This chapter discusses the method of data collection.

RESEARCH

It is defined as “A systematic gathering, recording and analyzing of data’s about problems

relating to marketing of goods and services”. It enables the companies to understand the needs
and wants of the customers and also helps them in making decisions.

RESEARCH DESIGN

The kind of research design used in this study is Exploratory Research. Exploratory
research is conducted to clarify ambiguous problems. Management may have discovered general
problems, but research is needed to gain better understanding of the dimensions of the problems.

Exploratory studies provide information to use in analyzing a situation, but uncovering

conclusive evidence to determine a particular course of action is not the purpose of exploratory
research. Usually, exploratory research is conducted with the expectation that subsequent
research will be required to provide conclusive evidence.

DATA COLLECTION
The data were collected from secondary sources.
Secondary data
The secondary data used for this study are collected from the annual reports published by the
bank.
TOOL USED FOR ANALYSIS
The data collected from the annual reports of the bank were subjected to analysis using tool
relevantly. The tool used in this study is
 Ratio Analysis

PERIOD OF STUDY
 The study was conducted for a period of five years from the year financial year
2005-2006 to 2009-2010.

Ratio Analysis
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
“Lakshmi Vilas Bank.”
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
TYPES OF RATIOS

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

A. Capital Adequacy Ratio

Capital adequacy ratios ("CAR") are a measure of the amount of a bank's core capital expressed
as a percentage of its assets weighted credit exposures.

Capital adequacy ratio is defined as

TIER 1 CAPITAL -A) Equity Capital, B) Disclosed Reserves

TIER 2 CAPITAL -A) Undisclosed Reserves, B) General Loss reserves, C) Subordinate Term
Debts

Where Risk can either be weighted assets ( ) or the respective national regulator's minimum
total capital requirement. If using risk weighted assets,

≥ 10%
The percent threshold varies from bank to bank (10% in this case, a common requirement for
regulators conforming to the Basel Accords) is set by the national banking regulator of different
countries.

Two types of capital are measured: tier one capital (T1 above), which can absorb losses without a
bank being required to cease trading, and tier two capital (T2 above), which can absorb losses in
the event of a winding-up and so provides a lesser degree of protection to depositors.

Since different types of assets have different risk profiles, CAR primarily adjusts for assets that
are less risky by allowing banks to "discount" lower-risk assets. The specifics of CAR
calculation vary from country to country, but general approaches tend to be similar for countries
that apply the Basel Accords. In the most basic application, government debt is allowed a 0%
"risk weighting" - that is, they are subtracted from total assets for purposes of calculating the
CAR.

B. Debt Equity Ratio

The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of
shareholders' equity and debt used to finance a company's assets. Closely related to leveraging,
the ratio is also known as Risk, Gearing or Leverage. The two components are often taken from
the firm's balance sheet or statement of financial position (so-called book value), but the ratio
may also be calculated using market values for both, if the company's debt and equity are
publicly traded, or using a combination of book value for debt and market value for equity
financially.

Debt Equity ratio = Debt (liabilities)

Equity

C. 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
D. G-Secs to Total Investment

Government securities (G-secs) are sovereign securities which are issued by the Reserve Bank of
India on behalf of Government of India, in lieu of the Central Government's market borrowing
programme.

G – Secs to Total Investments = G-Secs / Total Investments X 100

Investment is putting money into something with the expectation of profit. More specifically,
investment is the commitment of money or capital to the purchase of financial instruments or
other assets so as to gain profitable returns in the form of interest, dividends, or appreciation of
the value of the instrument (capital gains). It is related to saving or deferring consumption.
Investment is involved in many areas of the economy, such as business management and finance
whether for households, firms, or governments. An investment involves the choice by an
individual or an organization, such as a pension fund, after some analysis or thought, to place or
lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial
derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that
has certain level of risk and provides the possibility of generating returns over a period of time.

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 nonperforming 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.

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
A. Gross NPAs to Net Advances
Net Advances are net of bills rediscounted and specific loan loss provision. Any extension of
credit. Bankers talk of advances when the rest of us say loans. An advance from a banker in this
context could be in the form of a drawing under an overdraft facility, a fully drawn advance or
term loan, a line of credit with a bill option, a bill facility or a personal loan.
Gross NPAs to Net Advances = Gross NPAs / Net Advances X 100

B. Total Investment to Total Assets

Total Investments to Total Assets = Total Investments / Total Assets

An investment bank is a financial institution that assists individuals, corporations and

governments in raising capital by underwriting and/or acting as the client's agent in the issuance
of securities. An investment bank may also assist companies involved in mergers and
acquisitions, and provide ancillary services such as market making, trading of derivatives, fixed
income instruments, foreign exchange, commodities, and equity securities. This ratio is used as a
tool to measures the percentage of total assets locked up in investments.

C. 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

D. Net NPAs Ratio

This ratio measures the Net NPAs on year-on-year with the help of Net Advances.

Net NPAs Ratio = Net NPAs / Net Advances X 100

E. Shareholder’s Risk Ratio

This ratio measures the shareholders risk between the Net naps and total Capital and Reserves.

Shareholders Risk Ratio = Net NPAs / Total Capital and Reserves X 100
F. Provision Ratio

This ratio measures the total provision of gross NPAs to know the provision ratio.

Provision Ratio = Total Provision / Gross NPAs X 100

G. Sub Standard Assets Ratio

This ratio measures the total sub standard assets of Gross NPAs with the help of Gross NPAs

Sub Standard Assets Ratio = Total Sub Standard Assets / Gross NPAs X 100

H. Doubtful Assets Ratio

This ratio measures the total doubtful assets of Gross NPAs with the help of Gross NPAs

Doubtful Assets Ratio = Total Doubtful Assets / Gross NPAs X 100

I. Loss Assets Ratio

This ratio measures the total loss assets of Gross NPAs with the help of Gross NPAs

Loss Assets Ratio = Total Loss Assets / Gross NPAs X 100ss

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.The ratios of this segment are:
A. 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

B. 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

C. 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

D. 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

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;
A. 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

B. 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

C. 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

D. Percentage Growth in Net Profit

It is percentage change in net profit from 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
E. 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

F. 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

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;
A. 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

B. 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

C. Liquid Assets / Total Assets

Liquid Assets as measured as percentage of Total Assets.

Liquid Assets / Total Assets = Liquid Assets / Total Assets X 100

D. G – Secs / Total Assets

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 Assets = G – Secs / Total Assets X 100

E. 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

F. Cash Reserve Ratio

RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from
time to time. Increase in CRR means that banks have less funds available and money is sucked
out of circulation. Thus we can say that this serves duel purposes i.e. it not only ensures that a
portion of bank deposits is totally risk-free, but also enables RBI to control liquidity in the
system, and thereby, inflation by tying the hands of the banks in lending money.

Cash Reserve Ratio = Total Cash / Total Deposits X 100

G. Statutory Liquidity Ratio

Statutory Liquidity Ratio is the amount of liquid assets, such as cash, precious metals or other
approved securities, that a financial institution must maintain as reserves other than the Cash
with the Central Bank.
 CHAPTER 4

4.DATA ANALYSIS AND INTERPRETATION

4.1 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

4.1.1 Table showing the calculation of CAR ratio

YEAR LVB INDUSIND
2014-2015 10.79 10.54
2015-2016 12.43 12.54
2016-2017 12.73 11.97
 200 10.0 12.5

180 9 5

160

140

120
Column2
100
INDUSIND
80 LVB
60

40

20

0
2013 2014 2015 2016 2017

2016
2017 14.8 15.3
2

Inference: From the above table both the banks are maintain their CAR amount above 9% both
the banks are averagely increase their capital adequacy.
4.1.2 Chart showing the CAR ratio

4.2 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

4.2.1 Table showing the calculation of debt-equity ratio

YEAR LVB INDUSIND
2012-2013 91.23 84.71
2013-2014 90.6 82.3
2014-2014 91.75 81.99
2015-2015 89.86 77.86
2016-2017 83.9 81.92
4.2.2 Chart showing the debt equity ratio

200

180

160

140

120

100 INDUSIND
LVB
80

60

40

20

0
2012-2013 2013-2014 2014-2014 2015-2015 2016-2017

Inference:
From the above table the two banks are maintaining their debt equity. In 2007 & 2008 the LVB
as decrease their debt. But the INDUSIND bank as maintain their debt amount year by year.
4.3 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

4.3.1 Table showing the calculation of advance of assets

YEAR LVB INDUSIND
2012-2013 0.6 0.52
2013-2014 0.62 0.55
2014-2015 0.59 0.55
2015-2016 0.63 0.57
2016-2017 0.59 0.58
4.3.2 Chart showing the advance of assets

0.7

0.6

0.5

0.4 LVB
INDUSIND
0.3

0.2

0.1

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Inference:
From the above table the advances to asset of lakshmi vilas bank as increase year by year.
Indusind bank as decrease the advances to asset to year by year.
4.4 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

4.4.1 Table showing the calculation of G – Secs to Total Investments

YEAR LV INDUSIN
B D
2012-2013 91.2 84.71
3
2013-2014 90.6 82.3
2014-2015 91.7 81.99
5
2015-2016 89.8 77.86
6
2016-2017 83.9 81.92
 100

90

80

70

60 LVB
50 INDUSIND
40 4

30

20

10

0
2013 2014 2015 2016 2017

Inference:

From the above table government securities of lakshmi vilas bank are more than the indusind
bank’s government securities.