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INTRODUCTION OF BANK
People earn money to meet their day-to-day expenses on food, clothing, education of
children, housing, etc. They also need money to meet future expenses on marriage,
higher education of children, house building and other social functions. These are
heavy expenses, which can be met if some money is saved out of the present income.
Saving of money is also necessary for old age and ill health when it may not be
possible for people to work and earn their living.
The necessity of saving money was felt by people even in olden days. They used to
hoard money in their homes. With this practice, savings were available for use
whenever needed, but it also involved the risk of loss by theft, robbery and other
accidents. Thus, people were in need of a place where money could be saved safely
and would be available when required. Banks are such places where people can
deposit their savings with the assurance that they will be able to withdraw money
from the deposits whenever required. People who wish to borrow money for business
and other purposes can also get loans from the banks at reasonable rate of interest.
Bank is a lawful organization, which accepts deposits that can be withdrawn on
demand. It also lends money to individuals and business houses that need it.
Banks also render many other useful services – like collection of bills, payment of
foreign bills, safe-keeping of jewellery and other valuable items, certifying the credit-
worthiness of business, and so on.
Banks accept deposits from the general public as well as from the business
community. Any one who saves money for future can deposit his savings in a bank.
Businessmen have income from sales out of which they have to make payment for
expenses. They can keep their earnings from sales safely deposited in banks to meet
their expenses from time to time. Banks give two assurances to the depositors –
a. Safety of deposit.
b. Withdrawal of deposit, whenever needed
On deposits, banks give interest, which adds to the original amount of deposit. It
is a great incentive to the depositor. It promotes saving habits among the public. On
the basis of deposits banks also grant loans and advances to farmers, traders and
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businessmen for productive purposes.
Thereby banks contribute to the economic development of the country and well being
of the people in general. Banks also charge interest on loans. The rate of interest is
generally higher than the rate of interest allowed on deposits. Banks also charge fees
for the various other services, which they render to the business community and
public in general. Interest received on loans and fees charged for services, which
exceed the interest allowed on deposits, are the main sources of income for banks
from which they meet their administrative expenses.
The moneylenders, on the other hand, advance money out of their own private wealth
and usually do not accept deposits from others.
The following table shows the distinction between a bank and moneylender.
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Basis Banks Money lender
Entity Banks are organized institutions Moneylenders are
individuals
Activity Banking activities include acceptance Activities of Moneylender
of deposits as well as lending of may not include
money acceptance of deposits
Clients Banks meet the needs of people in Moneylenders met the
general and the business community need of agriculturist and
in particular poor people
Security Banks accept tangible ands personal Moneylenders generally
security against loan accept
Process of The process of recovery is flexible The process of recovery is
recovering loans rigid and strict
Interest rate Interest charged by banks on loan is Rate of interest is decided
governed by RBI by the money lender and is
normally very high
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balanced economic development in the country.
•It helps in raising the standard of living of people in general by providing loans for
purchase of consumer durable goods, houses, automobiles, etc.
Types of bank
A) Central Bank
A bank, which is entrusted with the functions of guiding and regulating the banking
system of a country, is known as its Central bank. Such a bank does not deal with the
general public. It acts essentially as Government’s banker, maintain deposit accounts
of all other banks and advances money to other banks, when needed. The Central
Bank provides guidance to other banks whenever they face any problem. It is
therefore known as the banker’s bank. The Reserve Bank of India is the central bank
of our country.
The Central Bank maintains record of Government revenue and expenditure
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under various heads. It also advises the Government on monetary and credit policies
and decides on the interest rates for bank deposits and bank loans. In addition,
foreign exchange rates are also determined by the central bank.
Another important function of the Central Bank is the issuance of currency notes,
regulating their circulation in the country by different methods. No other bank than
the Central Bank can issue currency.
B) Commercial Banks
Commercial Banks are banking institutions that accept deposits and grant short-term
loans and advances to their customers. In addition to giving short-term loans,
commercial banks also give medium-term and long-term loan to business enterprises.
Now a day some of the commercial banks are also providing housing loan on a long-
term basis to individuals. There are also many other functions of commercial banks,
which are discussed later in this lesson.
Types of Commercial banks: Commercial banks are of three types i.e., Public sector
banks, Private sector banks and Foreign banks.
(i) Public Sector Banks: These are banks where the Government of India or Reserve
Bank of India holds majority stake. Examples of public sector banks are: State Bank
of India, Corporation Bank, Bank of Boroda and Dena Bank, etc.
(ii) Private Sectors Banks: In case of private sector banks private individuals hold
majority of share capital of the bank. These banks are registered as companies with
limited liability. For example: The Jammu and Kashmir Bank Ltd., Bank of
Rajasthan Ltd., Development Credit Bank Ltd, Lord Krishna Bank Ltd., Bharat
Overseas Bank Ltd., Global Trust Bank, Vysya Bank, etc.
(iii) Foreign Banks: These banks are registered and have their headquarters in a
foreign country but operate their branches in our country. Some of the foreign banks
operating in our country are Hong Kong and Shanghai Banking Corporation (HSBC),
Citibank, American Express Bank, Standard & Chartered Bank, Gridley’s Bank, etc.
The number of foreign banks operating in our country has increased since the
financial sector reforms of 1991.
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C) Development Banks
Business often requires medium and long-term capital for purchase of machinery and
equipment, for using latest technology, or for expansion and modernization. Such
financial assistance is provided by Development Banks. They also undertake other
development measures like subscribing to the shares and debentures issued by
companies, in case of under subscription of the issue by the public. Industrial Finance
Corporation of India (IFCI) and State Financial Corporations (SFCs) are examples of
development banks in India.
D) Co-operative Banks
People who come together to jointly serve their common interest often form a co-
operative society under the Co-operative Societies Act. When a co-operative society
engages itself in banking business it is called a Co-operative Bank. The society has to
obtain a license from the Reserve Bank of India before starting banking business.
Any co-operative bank as a society is to function under the overall supervision of the
Registrar, Co-operative Societies of the State.
As regards banking business, the society must follow the guidelines set and issued by
the Reserve Bank of India.
(ii) Central Co-operative Banks: These banks operate at the district level having
some of the primary credit societies belonging to the same district as their members.
These banks provide loans to their members (i.e., primary credit societies) and
function as a link between the primary credit societies and state co-operative banks.
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(iii) State Co-operative Banks: These are the apex (highest level) co-operative banks
in all the states of the country. They mobilize funds and help in its proper
channelisation among various sectors. The money reaches the individual borrowers
from the state co-operative banks through the central co-operative banks and the
primary credit societies.
E) Specialized Banks
There are some banks, which cater to the requirements and provide overall support for
setting up business in specific areas of activity. EXIM Bank, SIDBI and NABARD
are examples of such banks. They engage themselves in some specific area or activity
and thus, are called specialized banks.
i. Export Import Bank of India (EXIM Bank): If one wants to set up a business for
exporting products abroad or importing products from foreign countries for sale in our
country, EXIM bank can provide you the required support and assistance. The bank
grants loans to exporters and importers and also provides information about the
international market. It gives guidance about the opportunities for export or import,
the risks involved in it and the competition to be faced, etc.
ii. Small Industries Development Bank of India (SIDBI): If you want to establish
a small-scale business unit or industry, loan on easy terms can be available through
SIDBI. It also finances modernization of small-scale industrial units, use of new
technology and market activities. The aim and focus of SIDBI is to promote, finance
and develop small-scale industries.
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1.4) FUNCTION OF COMMERCIAL BANKS
The functions of commercial banks are of two types.
(A) Primary functions
(B) Secondary functions.
a) Accepting deposits
The most important activity of a commercial bank is to mobilize deposits from the
public. People who have surplus income and savings find it convenient to deposit the
amounts with banks.
Depending upon the nature of deposits, funds deposited with bank also earn
interest. Thus, deposits with the bank grow along with the interest earned. If the rate
of interest is higher, public are motivated to deposit more funds with the bank. There
is also safety of funds deposited with the bank.
i) Loans
A loan is granted for a specific time period. Generally commercial banks provide
short-term loans. But term loans, i.e., loans for more than a year may also be granted.
The borrower may be given the entire amount in lump sum or in installments. Loans
are generally granted against the security of certain assets. A loan is normally repaid
in installments. However, it may also be repaid in lump sum.
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ii) Advances
An advance is a credit facility provided by the bank to its customers. It differs from
loan in the sense that loans may be granted for longer period, but advances are
normally granted for a short period of time. Further the purpose of granting advances
is to meet the day-to-day requirements of business. The rate of interest charged on
advances varies from bank to bank.
Interest is charged only on the amount withdrawn and not on the sanctioned amount.
Types of advances
Banks grant short-term financial assistance by way of cash credit, overdraft and bill
discounting.
a) Cash Credit
Cash credit is an arrangement whereby the bank allows the borrower to draw amount
up to a specified limit. The amount is credited to the account of the customer. The
customer can withdraw this amount as and when he requires. Interest is charged on
the amount actually withdrawn. Cash Credit is granted as per terms and conditions
agreed with the customers.
b) Overdraft
Overdraft is also a credit facility granted by bank. A customer who has a current
account with the bank is allowed to withdraw more than the amount of credit balance
in his account.
It is a temporary arrangement. Overdraft facility with a specified limit may be
allowed either on the security of assets, or on personal security, or both.
c) Discounting of Bills
Banks provide short-term finance by discounting bills, that is, making payment of the
amount before the due date of the bills after deducting a certain rate of discount. The
party gets the funds without waiting for the date of maturity of the bills. In case any
bill is dishonored on the due date, the bank can recover the amount from the
customer.
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perform a number of other functions, which are called secondary functions. These are
as follows-
a. Issuing letters of credit, travelers’ cheque, etc.
b. Undertaking safe custody of valuables, important document and securities by
providing safe deposit vaults or lockers.
c. Providing customers with facilities of foreign exchange dealings.
d. Transferring money from one account to another; and from one branch to another
branch of the bank through cheque, pay order, demand draft.
e. Standing guarantee on behalf of its customers, for making payment for purchase of
goods, machinery, vehicles etc.
f. Collecting and supplying business information.
g. Providing reports on the credit worthiness of customers.
i. Providing consumer finance for individuals by way of loans on easy terms for
purchase of consumer durables like televisions, refrigerators, etc.
j. Educational loans to students at reasonable rate of interest for higher studies,
especially for professional courses.
2) Debit Card
Banks are now providing Debit Cards to their customers having saving or current
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account in the banks. The customers can use this card for purchasing goods and
services at different places in lieu of cash. The amount paid through debit card is
automatically debited (deducted) from the customers’ account.
3) Credit Card
The bank issues credit cards to persons who may or may not have an account in the
bank. Just like debit cards, credit cards are used to make payments for purchase, so
that the individual does not have to carry cash. Banks allow certain credit period to
the credit cardholder to make payment of the credit amount. Interest is charged if a
cardholder is not able to pay back the credit extended to him within a stipulated
period. This interest rate is generally quite high.
4) Net Banking
With the extensive use of computer and Internet, banks have now started transactions
over Internet. The customer having an account in the bank can log into the bank’s
website and access his bank account. He can make payments for bills, give
instructions for money transfers, fixed deposits and collection of bill, etc.
5) Phone Banking
In case of phone banking, a customer of the bank having an account can get
information of his account, make banking transactions like, fixed deposits, money
transfers, demand draft, collection and payment of bills, etc. by using telephone.
As more and more people are now using mobile phones, phone banking is possible
through mobile phones. In mobile phone a customer can receive and send messages
(SMS) from and to the bank in addition to all the functions possible through phone
banking.
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CHAPTER-2
JUSTIFICATION
Now the question arises that why we have chosen a topic, which is quite related to
retail finance in banking sector is the direct connectivity of retail finance with
common people.
Retail banking can be crudely defined as the antonym of wholesale or bulk banking.
It is nothing, but shared business .A deposit of Rs.1 lack from single customer Vs.
small deposits of Rs. 10000 each from 10 different customers. The corporate and
retail divide is nothing but internal segmentations and the customer remains always a
customer.
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CHAPTER-3
LITERATURE REVIEW
Gup and Walter (1989) found that consistently profitable small banks stressed basic
banking with low cost funds and high quality investments. The study examined banks
from 1982 to 1987 during the early stages of bank deregulation. During this period
there were considerable differences between regions due to declining energy, real
estate and commodity prices. High performance banks during this period made higher
quality loans, held proportionately more capital, invested more in securities
(especially long-term) and relied on lower cost funding sources compared with the
average small bank.
Two different studies by Bassett and Brady (2001; 2002) examined recent
performance of community banks. The 2001 study found that many small banks from
1985-2000 vanished through mergers and acquisitions. Increased competition with
stock, bond and mutual fund investments may have weakened the competitive
position of small banks. These community banks, nevertheless, were able to compete
effectively against larger banks due in part to superior knowledge of local loan
markets combined with a reluctance of customers to bank with out-of- area
institutions. Bassett and Brady’s (2002) study found that small banks grew more
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rapidly than large banks from 1985-2001 with profitability remained at a high level.
While interest costs increased, this was more than offset by higher returns on earning
assets.
Gilbert and Sierra (2003) used the Federal Reserve System for Estimating
Examination Ratings (SEER) surveillance system to estimate the probability of failure
for community banks (which they define as less than $1 billion in assets) versus large
banks (with assets greater than $1 billion). The failure probability declined for both
groups during the 1990’s. The risk of failure since about 1997 rose slightly for
community banks and as of 2003 was about 4 basis points higher than for large banks.
Myers and Spong (2003) examined community bank growth in the 10th Federal
Reserve District (Kansas City) with an emphasis on economic conditions in slower
growing markets. These slower growing markets presented problems in loan quality
as well as staffing including senior management and directors. Community banks in
low growth markets experienced higher overhead costs relative to income than banks
in higher growth markets.
Critchfield, Davis, Davison, Gratton, Hanc and Samolyk (2005) in a study of past,
present and future community bank performance conducted for the FDIC concluded
that community banks continue to be of interest because
1) They still constitute over 90% of all banks,
2) They are economically important to small business and agricultural lending and 3)
they represent a disproportionately large percentage of FDIC failure costs.
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CHAPTER-4
COMPANY PROFILE
BANK OF INDIA
Relationship beyond banking…
At least three banks having the name Bank of India had preceded the setting up of the
present Bank of India.
1. A person named Ramakishen Dutt set up the first Bank of India in Calcutta
(now Kolkata) in 1828, but nothing more is known about this bank.
2. The second Bank of India was incorporated in London in the year 1836 as an
Anglo-Indian bank.
3. The third bank named Bank of India was registered in Bombay(now Mumbai)
in the year 1864.
The earlier holders of the Bank of India name had failed and were no longer in
existence by the time a diverse group of Hindus, Muslims, Parsis, and Jews helped
establish the present Bank of India in 1906. It was the first bank in India promoted by
Indian interests to serve all the communities of India. At the time, banks in India were
either owned by Europeans and served mainly the interests of the European merchant
houses, or by different communities and served the banking needs of their own
community.
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The promoters incorporated the Bank of India on 7 September 1906 under Act VI of
1882 with an authorized capital of Rs. 1 crore divided into 100,000 shares each of Rs.
100. The promoters placed 55,000 shares privately, and issued 45,000 to the public by
way of IPO on 3 October 1906; the bank commenced operations on 1 November
1906.
The lead promoter of the Bank of India was Sir Sassoon J. David (1849-1926). He
was a member of the community of Baghdadi Jews, which was notable for its history
of social service and included the Sassoons. He was a prudent banker, and remained
the Chief Executive of the bank from its founding in 1906 until his death in 1926.The
first board of directors of the bank consisted of Sir Sassoon David, Sir Cowasjee
Jehangir, J. Cowasjee Jehangir, Sir Frederick Leigh Croft, Ratanjee Dadabhoy Tata,
Gordhandas Khattau, Lalubhai Samaldas, Khetsety Khiasey, Ramnarain Hurnundrai,
Jenarrayen Hindoomull Dani, Noordin Ebrahim Noordin.
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nationalized BoI's branch in Aden, and the Nigerian and Ugandan
governments forced BoI to incorporate its branches in those countries.
• 1970: National Bank of Southern Yemen incorporated BoI's branch in Yemen,
together with those of all the other banks in the country; this is now National
Bank of Yemen. BoI was the only Indian bank in the country.
• 1972: BoI sold its Uganda operation to Bank of Baroda.
• 1973: BoI opened a rep in Jakarta.
• 1974: BoI opened a branch in Paris. This was the first branch of an Indian
bank in Europe.
• 1976: The Nigerian government acquired 60% of the shares in Bank of India
(Nigeria).
• 1978: BoI opened a branch in New York.
• 1970s: BoI opened an agency in San Francisco.
• 1980: Bank of India (Nigeria) Ltd, changed its name to Allied Bank of
Nigeria.
• 1986: BoI acquired Paravur Central Bank (Karur Central Bank or Parur
Central Bank) in Kerala in a rescue.
• 1987: BoI took over the three UK branches of Central Bank of India (CBI).
CBI had been caught up in the Sethia fraud and default and the Reserve Bank
of India required it to transfer its branches.
• 2003: BoI opened a representative office in Shenzhen.
• 2005: BoI opened a representative office in Vietnam.
• 2006: BoI plans to upgrade the Shenzen and Vietnam representative offices to
branches, and to open representative offices in Beijing, Doha, and
Johannesburg. In addition, BoI plans to establish a branch in Antwerp and a
subsidiary in Dar-es-Salaam, marking its return to Tanzania after 37 years.
• 2007: BoI acquired 76 percent of Indonesia-based PT Bank Swadesi.
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4.3) CMD SINCE NATIONALISATION
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4.4) BOI’S VISION, MISSION & QUALITY POLICY
BOI vision: - “To Become The Bank Of Choice For Corporate, Medium Business
And Up Market Retail customer And Development Banking For Small Business,
Mass Markets And Rural Markets”
BOI mission: - “To provide superior proactive banking service to niche markets
globally, while providing cost effective, responsive services to others in our role as a
development bank, and in doing so, meet the requirements of our stake holders.”
Quality policy: - We at bank of India are committed to become the bank of choice by
providing SUPERIOR, PROACTIVE, INNOVATIVE, STATE OF THE ART
banking services with an attitude of care and concern for the customers and patrons.
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12) To facilitate control and monitoring computer aided audit tool (CAAT)
launched.
13) Manpower planning put-on fast track and as many as 2650 employees
promoted and 27200 staff members trained. Plans for recruitment of over 4500
staff finalized.
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CHAPTER- 5
OBJECTIVE OF STUDY
Practical knowledge like how to deal with different type of customer and employees
has been imparted.
During working on project I came to know about camel rating model.
In CAMEL rating model ratings are obtained by five aspects of banking i.e.
Capital, Asset, Management, Earning, liquidity. These five aspects are given a certain
weight age and on the basis of this weight age final rating is obtained.
PRIMARY OBJECTIVE
• To study loan procedure of Bank of India and Banking scenario.
In recent scenario a tough competition has been faced by public sector bank by
private sector bank.
The current customer & untapped market of India is more inclined towards private
sector bank due to efficient & fast service.
Here in our study we will try to find out different factors like Capital handling, Asset
handling, Management, Earning, Liquidity of BOI, SBI, AXIS, HDFC, BOB which
shows the cumulative current ranking of the leading PSU with private banks.
That is why we are trying to find out CAMEL ranking of public sector bank with
private sector bank.
SECONDARY OBJECTIVE
By keeping above-mentioned point in mind secondary objective is to
• Capital handling of above banks on the basis of Capital ratios.
• Asset handling of banks on the basis of Asset ratios.
• Management efficiency of management of banks.
• Earning of the banks.
• Liquidity of banks
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CHAPTER-6
RESEARCH METHODOLOGY
A) Statement of problem
In the recent years the financial system especially the banks have undergone
numerous changes in the form of reforms, regulations & norms. The attempt here is to
see how various ratios have been used and interpreted to reveal a bank’s performance
and how this particular model encompasses a wide range of parameters making it a
widely used and accepted model in today’s scenario.
B) Research Design
Here, we are under going to have descriptive research i.e. analysis of banks financial
statements that will make us understand the position of one bank in comparison of
another and their financial position.
C) Sample Design
1) Sample Unit
Indian Commercial Bank.
2) Sample size
Five banks including, both public & private sector bank. Banks are Bank of India,
state bank of India, Punjab national bank, axis bank.
3) Sampling Technique
Convenience sampling which is a non probabilistic sampling techniques in which
samples are chosen from the available sample element according to convince and
there is no fixed probability of chosen from all the sample elements.
4) Area of survey
The survey will be done for five banks. The study environment will be the
Banking industry.
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5) Plan of analysis
Here, we will be using financial statements of the banks in order to calculate different
ratios required for camel rating system as it considers all areas of banking operations
and considered to be the best available method for evaluation bank performance and
bank’s health.
D) Data Collection
Data Source
We have taken secondary data. Secondary data on the subject was collected from
bank’s prospectus, annual reports and other websites.
E) Data analysis
Statistical tool
We have used CAMEL RATING technique for the comparative study of different
public and private sector banks of India.
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CHAPTER-7
DATA ANALYSIS
7.1) PROFIT & LOSS ACCOUNT
Net Profit for the Year 701.44 1,123.17 2,009.40 3,007.35 1,741.07
Extraordinary Items 0 0 0 0 0
Profit brought forward 220 541.76 541.76 0 0
Total 921.44 1,664.93 2,551.16 3,007.35 1,741.07
Preference Dividend 0 0 0 0 0
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Equity Dividend 166.73 196.69 245.77 491.54 428.65
Corporate Dividend Tax 0 0 0 0 0
Per share data
(annualized)
Earning Per Share (Rs) 14.39 23.04 38.26 57.26 33.15
Equity Dividend (%) 34 35 40 80 70
Book Value (Rs) 99.03 117.89 168.06 224.39 243.75
Appropriations
Transfer to Statutory -76.79 405.6 795.78 1,518.33 686.86
Reserves
Transfer to Other 289.74 520.88 1,509.61 997.48 625.56
Reserves
Proposed Dividend/ 166.73 196.69 245.77 491.54 428.65
Transfer to Govt
Balance c/f to Balance 541.76 541.76 0 0 0
Sheet
Total 921.44 1,664.93 2,551.16 3,007.35 1,741.07
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7.2) BALANCE SHEET
Table 3: Balance Sheet
Assets
Cash & Balances with
RBI 5,588.42 7,196.89 11,741.85 8,915.28 15,602.62
Balance with Banks,
Money at Call 5,857.57 10,208.65 5,975.54 12,845.97 15,627.51
Advances 65,173.74 84,935.89 113,476.33 142,909.37 168,490.71
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Investments 31,781.75 35,492.76 41,802.88 52,607.18 67,080.18
Gross Block 1,674.00 1,733.50 3,448.44 3,578.23 3,790.81
Accumulated
Depreciation 874.71 955.61 1,049.28 1,156.75 1,504.07
Net Block 799.29 777.89 2,399.16 2,421.48 2,286.74
Capital Work In
Progress 10.68 11.41 26.92 110.45 65.07
Other Assets 3,062.83 3,013.50 3,407.32 5,692.02 5,813.63
Total Assets 112,274.28 141,636.99 178,830.00 225,501.75 274,966.46
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7.3) BOI COMPARATIVE STUDY OF 2009 AND 2010
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7.4) BRANCHES & ATMS (BOI COMPARISION WITH OTHER BANKS)
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INTERPRETATION
As we can interpret from the table that: -
1) In terms of highest branches, SBI is the leader, which is having more than
twice the branch of PNB. That’s the reason they possess highest amount of
low cost deposits.
2) In private sector HDFC & ICICI is having close competition in terms of
(approx. 1408) branches. ICICI is prevalent in rural & semi urban area while
HDFC is having strong position in urban & metropolitan area.
3) In no of ATM, SBI leading all other banks with 8548 ATMS. And no
competition has been provided by other PSUS. ICICI is at second position
with 4713 ATMS.
CONCLUSION
1) Reach
With the no of branches the reach of any bank increases, as they will be able to
serve more & more customer.
So SBI can be considered having best reach in Indian bank.
2) Better services
Can deliver better services than others e.g. outward, jet clearing cheque procedure,
Deposit & withdrawal facility on comparatively more no of branches than others.
SUGGESTION
To increase the low cost margin, and interest income, which is very low in case of
BOI, they should increase the no. of customer.
And in today’s world deposit can be increased by providing good service of easy
withdrawal and deposits with the help of services like ATM facility through large
network of ATMS all over world.
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7.5) HIGHLIGHT OF BANK’S PERFORMANCE
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7.6) BRANCHES PROFITABILITY RATIO
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2) Hiring techno savvy employees
3) By reducing the time needed in documentation process.
4) By providing better services like efficient net banking, ATM services.
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7.7) EMPLOYEE PROFITABILITY RATIO
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7.8) ANNUAL POLICY STATEMENT OF RBI
B) REPO RATES
Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the
banks. When the repo rate increases borrowing from RBI becomes more expensive.
Therefore, we can say that in case, RBI wants to make it more expensive for the
banks to borrow money, it increases the repo rate; similarly, if it wants to make it
cheaper for banks to borrow money, it reduces the repo rate
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C) REVERSE REPO RATE
Reverse Repo rate is the rate at which banks park their short-term excess liquidity
with the RBI. The RBI uses this tool when it feels there is too much money floating
in the banking system. An increase in the reverse repo rate means that the RBI will
borrow money from the banks at a higher rate of interest. As a result, banks would
prefer to keep their money with the RBI.
D) SLR RATES
Every bank is required to maintain at the close of business every day, a minimum
proportion of their Net Demand and Time Liabilities as liquid assets in the form of
cash, and gold and un-encumbered approved securities. The ratio of liquid assets to
demand and time liabilities is known as Statutory Liquidity Ratio (SLR).
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7.9) CASA RATIO
A) Current a/c-Saving a/c
CASA stands for current and savings account.
Banks have different kinds of deposits
1) Current account
2) Savings account
3) Term deposits
The CASA ratio shows how much deposit a bank has in the form of current and
saving account deposits in the total deposit.
CASA ratio=low margin deposit (Current a/c+ SB a/c deposit)/Total deposit
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C) BOI’s CASA RATIO
CASA ratio of BOI has increased from 31 % to 32 % . The higher casa ratio higher
will be net interest margin because higher portion of the bank deposits comes from
cheaper source.
INTERPRETATION OF TABLE
1) As we can see from the table that SBI is having highest amount of low margin
deposits i.e.291560.53 Crores .That is the reason why SBI is able to set its
BASE RATE at 7.5% much lower in comparison to all other banks.
2) In public sector bank SBI is having highest CASA ratio while in private sector
bank HDFC is leading the private sector.
3) In overall performance HDFC emerged as the market leader from the point of
view of CASA ratio.
SUGGESTIONS
1) As we can see from the table that public sector banks are facing tough competition
from private sector banks like HDFC (47%), AXIS (43.1)
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Banks should increase their low cost deposits by attracting more & more customer.
And the reason behind attracting more and more customer is good services provided
by private sector bank.
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7.10) CD RATIO
(Credit-Deposit ratio)
CD ratio is the proportion of loan-assets created by banks from the deposits received.
The higher the ratio, the higher the loan-assets created from deposits.
CD RATIO = Credit given/Deposit received
Implication of CD ratio
1) Low ratio
It is required to have a proper tradeoff in ratio of credit to deposit.
A very low CD ratio indicates excess money lying ideal in bank. Resulting no Interest
income to bank. And indicates poor management
2) High ratio
High interest rate could lead to rise in interest rate.
Consider Bank X that has deposits worth Rs. 100 Crores and a credit-deposit ratio of
60 per cent. That means Bank X has used deposits worth Rs. 60 Crores to create loan-
assets. Only Rs. 40 Crores is available for other investments.
Now, the Indian government is the largest borrower in the domestic credit market.
The government borrows by issuing securities (G-secs) through auctions held by the
RBI. Banks, thus, lend to the government by investing in these G-secs. And Bank X
has only Rs. 40 Crores to invest in G-secs. The government has two options.
1) It can raise yields to make investment by banks in G-secs attractive.
2) Force the RBI to take the securities into its books.
Yields on G-secs serve as a benchmark for interest rates on other debt instruments. A
rise in the former, thus, pushes up interest rates on the latter. If the money so released
is large, ``too much money will chase too few goods'' in the economy resulting in
higher inflation levels. This would prompt investors to demand higher returns on debt
instruments. In other words, higher interest rates.
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saving deposit is just 3.5%. However, actual realization depends on other expenditure,
too.
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DEPOSITS OF BOI
Deposits as on March’ 10 have grown by 21.11% as compared to March’09. During
the period deposits went up from Rs. 189709 Crores to Rs. 229762 Crores.
42
ADVANCES OF BOI
We have adopted a proactive approach in ensuring a strong growth in quality assets.
Global Credit went up from Rs.144732 Crores to Rs. 171317 Crores as on
March’10.All the sectors registered a heavy growth. The Bank’s advances went up by
18.37% on YOY basis.
43
PERFORMANCE COMPARISION HIGHLIGHTS
For quarter ended March 2010 vis-a -vis March 2009
44
CHAPTER-8
RATIO ANALYSIS
8.1) CAPITAL RATIOS
45
3) ADVANCES –TOTAL ASSET RATIO
4) SECURITY-INVESTMENT RATIO
46
8.2) ASSET RATIOS
47
3) TOTAL LOANS –TOTAL ASSET RATIO
BANK TOTAL TOTAL ASSET TOTAL LOANS –
LOANS TOTAL ASSET
RATIO%
BANK OF INDIA 142909.37 225501.75 63.37
SBI 542503.20 964432.08 56.25
AXIS BANK 81556.77 147722.06 55.20
BOB 143985.90 227406.73 63.31
HDFC 98883.05 183270.78 53.95
Table 16: Total loans-Total asset ratio
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8.3) MANAGEMENT RATIOS
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8.4) EARING RATIOS
1) INTEREST SPREAD
BANK INTEREST INTEREST SPREAD
EARNED EXPENDITURE
BANK OF INDIA 16347.36 10848.45 66.36
SBI 63788.43 42915.29 67.27
AXIS BANK 10835.49 7149.27 65.98
BANK OF BARODA 15091.58 9968.17 66.05
HDFC 16332.26 8911.10 54.56
Table 21: Interest Spread
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3) INTEREST INCOME-TOTAL INCOME
BANK INTEREST TOTAL INTEREST
INCOME INCOME INCOME-TOTAL
INCOME %
BANK OF INDIA 16347.36 19399.22 84.2
SBI 63788.43 76479.78 83.4
AXIS BANK 10835.49 13732.37 78.9
BANK OF BARODA 15091.58 17849.24 84.5
HDFC 16332.26 19802.89 82.47
Table 23:Interest income-Total income
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8.5) LIQUIDITY RATIOS
52
3) APPROVED SEQURITY- TOTAL ASSET RATIOS
53
5) LIQUID ASSET- TOTAL DEPOSIT RATIOS
54
1) CAPITAL RATIOS
Interpretation
1) As per the capital adequacy ratio the minimum ratio is 9%.i.e every bank has
to maintain with RBI. Here HDFC outstands from the other banks
2) Advances to asset ratios shows how efficient capital is managed, so here we
have BANK OF INDIA at the top position.
3) Security to total investment shows the quick fund of the bank, which can be in
cashed at any point of time. Here State bank of India has the highest ratio.
Capital ratio for BOB & SBI show following characteristics
1) Capital levels exceed all regulatory requirements.
2) Strong earning performance.
3) Well-managed and controlled growth.
4) Competent management able to analyze the risk associated with the activities
in determining appropriate capital levels.
5) Reasonable dividends and ability to raise new capitals.
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6) Low volume of problem assets.
2) ASSET RATIOS
WEIGHTAGE .1 .5 .2 .2 TOTAL
BOI .11 .2 12.67 19.60 32.58
SBI .16 .9 11.25 27.48 39.79
AXIS BANK .06 .2 11.04 29.17 40.47
BOB .08 .15 12.66 13.33 26.22
HDFC .11 .3 10.79 56.20 67.4
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Table 30: Asset ratios
2) The loan to assets ratio measures the total loans outstanding as a percentage of
total assets. The higher this ratio indicates a bank is loaned up and its liquidity is
low. The higher the ratio, the more risky a bank may be to higher defaults. Here
the ratio for all the banks is almost same. But the position of HDFC is better than
others with having least 53.95 value.
3) Market value ratios are strong indicators of what investors think of the firm’s past
Performance and future prospects. It basically shows Goodwill or Reputation of
the bank in the market. Here HDFC Bank is highly reputed in the minds of
investors. Means private banks are having good reputation in the market.
5) If we compare only public banks, again SBI is ahead than other Banks.
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4) Non credit assets pose no loss threat
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3) MANAGEMENT RATIOS
59
This Ratio indicates the price of the shares in the market compared to the actually
face value of the shares. It shows the premium on each share people are ready to
pay because of the reputation and value of the company. Here, SBI is having
almost 106 times the market value whereas BOI is having only 22 times which is
lowest of all five banks.
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4) EARNING RATIOS
1) Operating profit to Average Working Funds shows the return on working funds.
Higher the ratio indicates the profitability of the bank. Here AXIS BANK is
having 3.0 %, where as its peers are having lower than it has. So AXIS Bank is
more profit making Bank.
2) Higher the Interest spread will be better for the bank as it shows the better offering
of bank in the market. Here SBI has the highest Interest Spread as compared to its
peers.
3) Net Profit To Average Assets shows return on assets of the banks. Higher the
return, better for the bank. Here HDFC bank and AXIS BANK is having highest
return on the assets.
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4) The main income of any bank is interest. This ratio shows the percentage of
income generated in bank through Interest. Here BOB is having 84.5 % of income
through interest followed by BOI, SBI and HDFC.
5) Here overall BOI is performing well in earnings ratio and it is leading as
compared to its competitors.
6) If we compare only private banks then AXIS Bank is well performing than the
HDFC Bank.
5) LIQUIDITY RATIOS
WEIGHTAGE .2 .2 .2 .2 .2 TOTAL
BOI 1.93 3.77 .05 34.4 1.89 42.04
SBI 2.16 4.68 .03 18.84 2.81 28.52
AXIS BANK 2.03 3.72 00 12.08 2.55 20.38
BOB 2.11 3.52 .084 33.2 2.5 41.41
HDFC 1.91 5.68 .084 12.3 .24 20.21
1) Liquid Assets To Total Assets ratio shows the percentage of liquid assets out of
the total assets. Higher the ratio indicates better liquidity of the bank. Here BOI is
having better liquidity as compared to other banks.
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2) Government securities are considered to be the quick assets of the bank which can
be in cashed easily. Here, HDFC bank is having 28.4% of the assets as
government securities and is the highest among others.
4) Liquid Assets To Total Deposits ratio indicates the Percentage of liquid assets
bank against deposits. Here Bank Of Baroda is having the highest ratio i.e. 166%
as compared to its competitors. So it shows that it is having an ample amount of
liquidity to pay the deposits.
5) Overall, Bank of India is performing well i.e. 42.04% followed by its peers i.e.
BOB- 41.41%, AXIS Bank- 20.38% and HDFC Bank -20.21%.
Liquidity Ratio of BOI and BOB show the following characteristics
1) Sufficient liquid assets to meet loan demand and unexpected deposit reduction
2) Little reliance on inter-bank market
3) Strong and sophisticated planning, control and monitoring
4) Existence of an contingency plan
Liquidity Ratio of SBI and AXIS Bank and HDFC show the following
characteristics
1) Bank meets its liquidity requirements, but management lacks proper expertise for
planning, control and monitoring
2) Bank experienced liquidity problems. Management reacted appropriately but
failed to take action to prevent a recurring risk
3) Management is unaware of negative trends
4) Management did not address liquidity problems
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CHAPTER-9
CAMEL RATING
FINDINGS
Rank 1 – Here SBI indicates strong performance and risk management practices that
consistently provide for safe and sound operations. The historical trend and
projections for key performance measures are consistently positive. It is not
performing well in Liquidity ratio but it performs strong in other ratios, which
covered up its weak performing area any weaknesses can be handled routinely by the
board of directors and management. Banks are considered stable, well managed and
capable of withstanding all but the most severe economic downturns. Risk
management practices are strong and minimal supervisory oversight is required to
ensure the continuation and validation of the bank’s fundamental
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Rank 2 – Here HDFC reflects satisfactory performance and risk management
practices that consistently provide for safe and sound operations. It maintains very
well in management and assets ratio, which has become its strength. In order to lead,
it should focus more on liquidity. Bank with a good composite rating and is in
substantial compliance with laws and regulations. Only moderate weaknesses are
present and well within the capabilities of the board of directors’ and management’s
capability and willingness to correct. HDFC bank is stable and can withstand most
economic downturns. Overall risk management practices are satisfactory and there are
not material supervisory concerns.
Rank 3 – BANK OF INDIA represents performance that is flawed to some degree and
is of supervisory concern. Performance is marginal. Risk management practices are
satisfactory. In order to improve their position, it should maintain the management
and Assets ratio so that it will be able to compete with their competitors.
Rank 4 –BOB Bank refers to poor performance that is of serious supervisory concern.
Risk management practices are generally unacceptable and the Bank should try to
improve its operations. It is performing Good in Earnings but Management and
Liquidity of the bank is not up to the mark and should give more importance to these
factors in order to be at the par with other banks.
Rank 5 – AXIS Bank is showing the worst condition in comparison to others banks.
Problem of liquidity exists in the bank which management has to take care. Banks has
weaknesses in one or more component areas that if not corrected within a reasonable
time frame could result in significant solvency or liquidity concerns. Management
may lack the ability or willingness to effectively address weaknesses in a timely
manner and Axis bank generally are less capable of withstanding business fluctuation
and are vulnerable to outside influences. Risk management practices may be less than
satisfactory and banks in this group may be in significant noncompliance with laws
and regulations.
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CHAPTER-10
CONCLUSION
The current Banking Crisis, which is quite unprecedented, underlines the importance
of regulatory issues and the effects of incompetence in this area. CAMEL, as a rating
system for judging the soundness of Banks is a quite useful tool, that can help in
mitigating the conditions and risks that lead to Bank failures.
The report makes an attempt to examine and compare the performance of four
different banks of India i.e. BOI, SBI, HDFC, Bank Of Baroda, AXIS bank. The
analysis is based on the CAMEL Model.
After evaluating all the ratios, calculations and ratings we have given 1st Rank to
State bank 0f India, 2nd Rank to HDFC, 3rd Rank to Bank of India, and 4th to Bank
of Baroda, 5th rank to Axis Bank.
Although SBI (1st rank) is leading the banking sector a tough competition is given by
HDFC bank (2nd rank) indicating rapid growth in private banking sector.
So Bank of India need to take corrective actions regarding CAMEL factors as
mentioned in recommendation to improve its ranking.
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RECOMMENDATION
1) Capital ratio of BOI is greater than RBI recommended ratio which is 9% for CAR
but lower than its counterparts which is due to two basic reasons, the capital adequacy
ratio of BOI is lesser than its counterparts which they have to take care by increase
their capital base i.e. tier1 & tier2 capital.
And the security –total investment ratio is lower as compared to others, which shows
inability of management to maintain the sufficient govt. securities.
2) Although credit has increased by 19%, BOI’s NPA has increased by 197%. So they
have to strengthen their credit lending policy by proper detection of credit exposure
through tightening KYC norms and not giving loans to priority sector above
prescribed RBI limit.
3) The ratio of market value-face value is only 22% which is lower than other banks
that means their reputation in the market is not at par than other banks. And Business
per employee of BOI is less as compared to others, which is due to existing non
techno-savvy conservative employees.
4) Action must be taken to strengthen the liquidity position of bank of India to meet
the entire obligation by extensive planning.
LIMITATIONS
1) The study was limited to only five banks.
2) Constraint of time & resources.
3) Study of completely done on the basis of ratios only.
4) Not able to communicate with higher management.
5) We haven’t covered foreign sector banks.
6) We fully trusted in secondary data.
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BIBLIOGRAPHY
JOURNALS
• Singh Vijay,(2008),”sandipani one page manager”,8th edition,kanpur pub ltd.
BOOKS
.
• Hasija Ashok, Sood Rajendra (2002), “Ever More Banking”, 6th edition, Sachin
Publication
• Jeevanandam.C (1993). “Practice And Law Of Banking”, 7th edition, Premier
Book Vompany
• Varshney P.N,Swaroop Gopal (1999). “Banking Law and Practice”, 6th edition,
Sultan Chand And Sons.
WEB SITE
http://www.hdfcbank.com/aboutus/basel_disclosures/default.htm
www.moneycontrol.com/financials/icicibank/balance-sheet/ICI02
http://www.moneycontrol.com/india/stockpricequote/bankspublicsector/bankofindia/
BOI
http://www.moneycontrol.com/india/stockpricequote/bankspublicsector/punjabnation
albank/PNB05
http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/kotakmahind
rabank/KMB
http://www.moneycontrol.com/india/stockpricequote/bankspublicsector/bankofbaroda
/BOB
http://www.rbi.org.in/scripts/AnnualPublications.aspx?head=A%20Profile%20of%20
Banks
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