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ASSIGNMENT 1

Topic: Analysis of Banks Balance Sheet


(Management of Commercial Banks)

Submitted By

Submitted To:

Vanya gupta

Prof. Kamal Kalra

15IB366

Analysis of Balance Sheet and P&L:


The Balance Sheet of one Public Sector Bank (bank of baroda) and one Private Sector Bank
(HDFC bank) was analysed and compared on the basis of various parameters like CASA
(current account and saving accounts) deposits, gross NPAs (Non Performing Assets), CAR
(Capital Adequacy Ratio), PE (Price Earning) ratio, provisions etc.

Private Sector Bank


Balance Sheet of HDFC Bank

Profit & Loss Account of HDFC Bank

Analysis of HDFC BANK


NPAs are advances made by the bank on which borrowers are not paying interest payments or
principal repayments on time. In FY 16, the gross NPAs of the bank was 0.94% which has
been increased from 0.93% of that in FY15. As per current RBI norms, capital adequacy ratio

(CAR) of a bank should be atleast 9%. It is used to protect depositors and promote the
stability and efficiency of financial systems around the world. Bad loans bring down the CAR
of a bank reducing room to grow advances. The CAR of HDFC bank has dropped from
16.79% in 2014-15 to 15.53% in 2015-16. This is the result of increasing bad loans with the
bank.
The CASA deposits of the bank have increased from Rs. 198468 crore to Rs. 236311 crore.
They have remained close to 43% which quite a good percentage of total deposits. The higher
the proportion of CASA deposits in the total deposits indicates a comparatively lower interest
expense. The figure also indicates that the current account deposits with the bank have
decreased while the savings account deposits have increased as compared to the previous
financial year.
Banks in India are required to maintain a specified percentage, currently 21.5%, of their net
demand and time liabilities by way of liquid assets like cash, gold or approved unencumbered
securities and HDFC maintained a considerably good 25.4% of the NDTL as SLR. But this
has decreased from 27.48% of the SLR in FY 15.
Provisions assumes much more importance especially in times of economic stress when bad
loans start rising. They are mandatory as per RBI guidelines. They force the bank to keep
aside some of their income even if all is good (provisions on standard assets). The provisions
with the banks have grown up by about 129% and they form a total of about 1.7% of the total
advances by the bank..
The PE ratio of the bank has decreased from 24.3 in FY15 to 21.9 in FY16 indicating that
investors have lost some confidence in the bank as the price that they are willing to pay per
unit of the earnings is lesser.
Total assets of the Bank increased by 20.28% from 6070.96 billion at March 31, 2015 to
7,302.61 billion at March 31, 2016, primarily due to 27.11% increase in advances,18.31%
increase in cash and cash equivalents, 12.36% increase in other assets and 40.3% increase in
fixed assets. The net profit as a percentage of the total income for FY15-16 was 21.59%.
Net interest margin is the net interest income divided by the interest earning assets. NIM tells
about the profitability of the core lending business of the bank. The NIM of HDFC bank has
increased from 4.05% in FY 14-15 to 4.13% in FY 15-16 thus indicating slightly higher
profitability from the core business of the bank.

Public Sector Bank


Balance Sheet of Bank of Baroda

Profit & Loss Account of Bank of Baroda

Analysis of Bank of Baroda


In FY 16, the gross NPAs of the bank have increased by 149% from 16261 crore in FY 15 to
40521 crore in FY 16. The gross NPAs to gross advances stood at 9.99% and the net NPAs to
net advances were at 5.06%.
The CAR of the bank has increased from 12.60% in 2014-15 to 13.17% in 2015-16. This is a
good indication for investors as CAR is used to protect depositors and promote the stability
and efficiency of financial systems
The CASA deposits of the bank have increased from Rs. 204595 crore to Rs. 225035 crore in
the financial year ending March 2016. They increased from 45.5% of the total deposits to
45.8% of the total deposits. The higher the proportion of CASA deposits in the total deposits
indicates a comparatively lower interest expense.
The PE ratio of the bank has increased from 6.81 in FY15 to 18.35 in FY16 indicating that
investors have gained confidence in the bank.
Net Interest Margin (NIM) in global operations was 2.05% and in domestic operations at
2.60% during FY16.
Net Worth as on 31.03.2016 was at 30,586 crore. Net Interest Income of the bank decreased
by 3.39% on account of significant increase in non-performing assets which led to interest
reversals and cessation of interest income of such assets. However total revenue increased by
0.85% led by 13.56% increase in other income.
Operating expenses, including employee cost increased by 16.28%. Operating Profit of the
Bank at 8,816 crore was lower by 11.08%. During the year, the Bank made Provisions of
14,211 crore against 6,517 crore in FY 15. Provisions on NPAs were higher than the
regulatory requirements by 2,954 crore to improve the provision coverage ratio to 60.09%
against stressed assets and to strengthen the balance sheet.

Comparison between Bank of Baroda & HDFC Bank:

The CASA (current a/c and saving a/c) as a percentage of total deposits is 39% for
Bank of Baroda and 43% for HDFC Bank in 2016. Higher the amount of CASA as a
percentage of total liabilities, the lesser will be the interest paid by the bank. So, from
an investors perspective HDFC bank is better than Bank of Baroda.

The capital adequacy ratio of Bank of Baroda is lower than that of HDFC Bank. The
CAR is 13.17% for Bank of Baroda and 15.53% for HDFC Bank. As an investor you
will want the bank to have a high capital adequacy ratio. So, HDFC bank is a better
choice.

The gross non-performing assets are more in Bank of Baroda than the HDFC Bank.
The gross NPA is Rs. 40521 crore for Bank of Baroda. And the net NPA is 9.99% of
net advances in case of Bank of Baroda and it is only 0.28% in case of HDFC Bank
which means HDFC bank is better in analysing their loans and advances.

The market capitalisation is much higher for HDFC bank than Bank of Baroda. The
market capitalisation of HDFC bank is Rs. 20780 crores and it is only Rs. 35985
crores for Bank of Baroda.

The price earnings ratio of HDFC bank is 21.9 and it is 18.5 for Bank of Baroda this
means that investors are willing to pay more price per unit earnings in case HDFC
bank.