By
S.NATARAJAN
2010201044
A PROJECT REPORT
Submitted to the
JUNE 2011
ACKNOWLEDGEMENT
I take this opportunity to thank Mr. Ravindrakumar Director, Lakshmi vilas bank for providing
this project and giving me a chance to equip myself in this prestigious organization. I extend my
gratitude to him for acting as an external guide to me in shaping out this project.
I would also like to thank our esteemed Prof. Dr.L.Suganthi, Head of the Department,
Department of Management Studies, Anna University, Guindy for her encouragement and for
helping me in successful completion of this project. I thank all the faculty members of the
department for their support in knowledge acquisition.
I am thankful to the respondents for sparing their valuable time in filling up the questionnaire.
I also extend my thanks to my friends for being supportive throughout this project.
2
ABSTRACT
3
CONTENTS
LIST OF TABLES
S.NO PARTICULARS PAGE NO
4
4.2.1 Table showing the calculation of Debt-Equity Ratio 29
5
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
4.23.1 Table showing the calculation of Non – Interest Income / Total Income 50
LIST OF CHARTS
S.NO PARTICULARS PAGE NO
6
4.5.2 Chart showing the Gross NPAs to Net Advances 32
7
4.30.2 Chart showing the Cash Reserve Ratio 57
CHAPTER 01
INTRODUCTION
1.1. INTRODUCTION TO THE TOPIC
8
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
9
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.
10
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 lacklustre 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:
11
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.
12
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
13
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
14
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.
PRIMARY OBJECTIVE
SECONDARY OBJECTIVES
15
• 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.
• It also brings out the fact that whether the financial performance of the bank is
progressive or regressive.
• 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.
• The study was completely done on the basis of ratios calculated from the balance sheets.
16
CHAPTER 2
REVIEW OF LITERATURE
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
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
1
17
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.2
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.3
2
3
18
CHAPTER 3
3. METHODOLOGY
RESEARCH
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.
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
19
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
20
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
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
21
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.
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.
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.
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
22
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 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
23
Total Investments to Total Assets = Total Investments / Total Assets
This ratio measures the Net NPAs on year-on-year with the help of Net Advances.
This ratio measures the shareholders risk between the Net npas and total Capital and Reserves.
Shareholders Risk Ratio = Net NPAs / Total Capital and Reserves X 100
G. Provision Ratio
This ratio measures the total provision of gross NPAs to know the provision ratio.
This ratio measures the total sub standard assets of Gross NPAs with the help of Gross NPAs
24
Sub Standard Assets Ratio = Total Sub Standard Assets / Gross NPAs X 100
This ratio measures the total doubtful assets of Gross NPAs with the help of Gross NPAs
This ratio measures the total loss assets of Gross NPAs with the help of Gross NPAs
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:
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.
25
Net Profit per Employee = Net Profit / No. of Employee
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;
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
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
26
dividend income. Interest expanded includes interest paid on deposits, loans from RBI, and other
short-term and long-term loans.
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.
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
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
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.
27
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;
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 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.
28
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.
Approved securities are investments made in state-associated bodies like electricity boards,
housing boards, corporation bonds and shares of regional rural banks.
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.
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. The statutory liquidity ratio is a term most commonly used in India.
29
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
2006 10.79 10.54
2007 12.43 12.54
2008 12.73 11.97
2009 10.09 12.55
2010 14.82 15.3
4.1.2 Chart showing the CAR ratio
30
Inference: From the above table both the banks are maintain their CAR amount above 9% both
the banks are averagely increase their capital adequacy.
4.2 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
2006 91.23 84.71
2007 90.6 82.3
2008 91.75 81.99
2009 89.86 77.86
2010 83.9 81.92
4.2.2 Chart showing the debt equity ratio
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.
31
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
2006 0.6 0.52
2007 0.62 0.55
2008 0.59 0.55
2009 0.63 0.57
2010 0.59 0.58
4.3.2 Chart showing the advance of assets
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.
32
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 LVB INDUSIND
2006 91.23 84.71
2007 90.6 82.3
2008 91.75 81.99
2009 89.86 77.86
2010 83.9 81.92
4.4.2 Chart showing the G – Secs to Total Investments
Inference:
From the above table government securities of lakshmi vilas bank are more than the indusind
bank’s government securities.
33
4.5.1 Table showing the calculation of Gross NPAs to Net Advances
YEAR LVB INDUSIND
2006 4.22 2.88
2007 3.63 3.09
2008 3.57 3.07
2009 2.74 1.61
2010 5.17 1.24
4.5.2 Chart showing the Gross NPAs to Net Advances
Inference:
From the above table refers to the gross NPAs to net advances, in that table lakshmi vilas bank as
increase their gross npa to net advances is year by year. But the indusind bank as maintain their
gross npa to net advances is decrease by last two years.
34
YEAR LVB INDUSIND
2006 2.53 1.52
2007 2.25 1.63
2008 2.11 1.68
2009 1.73 0.92
2010 3.1 0.72
4.6.2 Chart showing the Gross NPAs to Total Assets
Inference:
From the above table describes Gross npa to total asset. In this comparison lakshmi vilas bank is
higher than the indusind bank. But the Indusind bank is maintaining their gross npa to total asset.
35
2009 0.22 0.29
2010 0.28 0.29
4.7.2 Chart showing the Total Investments to Total Assets
Inference:
From the above table represents the investment details of the banks. In that table Indusind bank
is higher than the lakshmi vilas bank. Lakshmi vilas bank is slightly increasing their investment
year by year.
36
Inference:
From the above table clearly explains the percentage change in gross npa, here lakshmi vilas
bank is increasing their gross npa in last financial year (2009-10). But the indusind is
maintaining their gross npa year by year.
This ratio measures the Net NPAs on year-on-year with the help of Net Advances.
37
4.9.2 Chart showing the Net NPAs Ratio
4.5
4
3.5
3
2.5
LVB
2
INDUSIND
1.5
1
0.5
0
2006 2007 2008 2009 2010
Inference: From the above table represents the net npa of two banks. Here the lakshmi vilas
bank as maintaining their net npa for the last four years (2006-2009) suddenly the net npa as
increase higher than the indusind bank.
This ratio measures the shareholders risk between the Net NPAs and total Capital and Reserves.
Shareholders Risk Ratio = Net NPAs / Total Capital and Reserves X 100
38
40
35
30
25
20 LVB
15 INDUSIND
10
0
2006 2007 2008 2009 2010
Inference: From the table represents the shareholders risk ratio of the banks. In that table shows
the lakshmi vilas bank as maintaining their risk below the indusind bank for 2006-08. After that
the lakshmi vilas bank as increased their shareholders risk higher than the indusind bank.
This ratio measures the total provision of gross NPAs to know the provision ratio.
39
Inference: From the above table represents lakshmi vilas bank as totally decrease their
provisions in the last year. At this stage indusind bank as increased their provision above the
lakshmi vilas bank.
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
40
Inference:
From the above table clearly explains the substandard assets of both banks are maintaining same
level of the last year.
This ratio measures the total doubtful assets of Gross NPAs with the help of Gross NPAs
41
Inference:
From the above table represents the doubtful assets of the two banks are the lakshmi vilas bank
as decreased their doubtful assets in last year. But the indusind bank as slightly increased then
the lakshmi vilas bank.
This ratio measures the total loss assets of Gross NPAs with the help of Gross NPAs
42
Inference:
From the above table represents the loss asset ratio of banks. In 2009 the lakshmi vilas bank as
very high as the indusind bank. But in 2010 the lakshmi vilas bank as decrease their loss asset
compare then the previous year. Indusind bank as increased their loss assets in last year.
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
4.15.1 Table showing the calculation of Total advances to Total Deposits
YEAR LVB INDUSIND
2006 68.09 62.04
2007 71.96 62.81
2008 68.68 67.21
2009 71.26 71.3
2010 69.17 76.9
4.15.2 Chart showing the Total advances to Total Deposits
43
Inference:
From the above table represents the total advances to total deposits. In that ratio both the banks
are maintaining their advances to deposits equally.
44
Inference:
From the above table represents net profit per employee. In that ratio lakshmi vilas bank is
decrease than the indusind bank.
45
Inference:
From the above table Indusind bank business is higher than the lakshmi vilas bank. so the
lakshmi vilas bank as to improve their business per employee.
46
Inference:
From the above table represents the return on net worth between the two banks. Here both the
banks net worth are changing every year. In the year 2010 indusind bank is higher than the
lakshmi vilas bank.
47
Inference:
From the above table represents the operating profit by average working funds. In that ratio
shows the lakshmi vilas bank is lower than the indusind bank. In 2010 lakshmi vilas bank is
lower than the 2009.
48
Inference:
From the above table shows the Indusind bank as not maintaining their net interest margin. But
the lakshmi vilas bank as slowly increased the net interest margin every year.
4.21 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
4.21.1 Table showing the calculation of Net Profit to Average Assets
YEAR LVB INDUSIND
2006 0.50 0.22
2007 0.32 0.35
2008 0.41 0.33
2009 0.67 0.58
2010 0.32 0.11
4.21.2 Chart showing the Net Profit to Average Assets
49
Inferences:
From the above table shows the difference of two banks in net profit to average assets. In this
ratio lakshmi vilas bank is higher than the indusind bank. The bank will maintain correctly at
every year.
4.22 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
4.22.1 Table showing the calculation of Percentage Growth in Net Profit
YEAR LVB INDUSIND
2006 572.75 82.57
2007 21.76 85.27
2008 43.74 10.01
2009 99.05 97.6
2010 39.03 136.15
4.22.2 Chart showing the Percentage Growth in Net Profit
50
Inferences:
From the above table indicates the percentage growth in net profit of the two banks. In that both
the bank as maintaining their net profit averagely. But they want to increase their net profit.
51
Inferences:
From the above table indicates the non interest income / total income of the two different banks.
In that both the banks as maintain the same level of non interest income.
4.24 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
4.24.1 Table showing the calculation of Interest Income / Total Income
YEAR LVB INDUSIND
2006 61.58 61.47
2007 69.11 61.65
2008 66.71 66.44
2009 68.85 65.04
2010 71.56 65.10
4.24.2 Chart showing the Interest Income / Total Income
52
Inferences:
From the above table represents the interest income / total income of two banks. In that interest
income of lakshmi vilas bank is higher than the indusind bank for every year of interest.
53
Inferences:
From the above table represents the liquid assets / demand deposits of two banks. In that lakshmi
vilas bank as much higher than the indusind bank of every year.
54
Inferences:
From the above table describes the liquid assets / total deposits of two banks. In that measures
both the banks are maintaining their total deposits equally for every year. In 2010 indusind bank
as increased slightly.
4.27 Liquid Assets / Total Assets
Liquid Assets as measured as percentage of Total Assets.
Liquid Assets / Total Assets = Liquid Assets / Total Assets
4.27.1 Table showing the calculation of Liquid Assets / Total Assets
YEAR LVB INDUSIND
2006 0.09 8.40
2007 11.0 12.4
2008 9.43 9.36
2009 0.10 6.96
2010 0.07 7.35
4.27.2 Chart showing the Liquid Assets / Total Assets
55
Inference:
From the above table represents lakshmi vilas bank is not maintaining their liquid assets / total
assets comparing the indusind bank liquid assets. In 2006, 2009, 2010 the lakshmi vilas bank is
very low than the Indusind banking.
56
4.28.2 Chart showing the G – Secs / Total Assets
Inferences:
From the above table represents the government securities comparison of two banks. lakshmi
vilas bank and Indusind bank as maintaining their securities as equally every year.
4.29 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
4.29.1 Table showing the calculation of Approved Securities / Total Assets
YEAR LVB INDUSIND
2006 0.34 0.014
2007 0.27 0.007
2008 0.20 0.016
2009 0.11 0.013
2010 0.07 0.01
57
Inferences:
From the above table represents the approved securities of two banks. In that ratio lakshmi vilas
bank is higher than the indusind bank. But every year lakshmi vilas bank approved securities are
decreasing every year.
58
Inferences:
From the above table represents the cash reserve ratio of two banks. In that lakshmi vilas
bank is higher than the indusind bank for every year.
59
Inferences:
From the above table represents the statutory liquidity ratio of lakshmi vilas bank is lower than
the Indusind bank for the last two year. So they want to maintain their statutory liquidity ratio.
CHAPTER 5
5.1 FINDINGS
Capital adequacy:
Capital adequacy of Lakshmi vilas bank is the same level of Indusind bank. In 2010 Lakshmi
vilas bank having the capital amount is 14.82%. The capital adequacy ratio of Lakshmi Vilas
Bank is above the minimum requirements and above the RBI average.
Assets:
Compare to the Indusind bank, Lakshmi Vilas Bank has highest Gross NPA ratio which is not
good for the bank.
Management:
60
Professional approach that has been adopted by the bank in the recent past is in right direction &
also it is the right decision.
Earnings:
Operating profit of Lakshmi vilas bank is to lower than the Indusind bank. In 2010 they earn
only 0.31%. Lakshmi Vilas bank’s net interest income is equal to the Indusind bank net interest
income.
Liquidity:
Compare to the Indusind bank, Lakshmi Vilas bank’s liquidity position is very low in the liquid
assets to total assets.
5.2 SUGGESTIONS
The bank should try to maintain a 0% NPA by always lending and investing or creating
quality assets which earn returns by way of interest and profits. They should give loans to
the customers, whose credit worthiness is good.
Lakshmi vilas bank has highest government security to total investment ratio which leads
to reduce their income and ultimately their profitability so they have to invest in other
government investment option rather than only in government securities.
Lakshmi vilas bank has to give more advances in order to earn more interest. But they
should have to also keep in mind the credit worthiness of the customers.
Have good appraisal skills, system, and proper follow up to ensure that bank is above the
risk.
61
5.3 CONCLUSION
The study titled “Financial performance of lakshmi vilas bank” reveals the financial position of
the bank currently. The study reveals that the bank has performed well during the period of study
from 2006-2010. The bank has succeeded in maintaining CRAR at a higher level than the
prescribed level, 9%. Gross NPA ratio has registered declining trend for during the last five
years. In management quality, we have found that Business per Employee Ratio is increased
during the last five years. The improvement shows the growth of the bank as well as efficiency
of the employees. There is a huge possibility for the bank to improve in certain aspects like to
introduce the new type of loans and fixed deposits. The return on capital employed could also to
be improved. As a whole the financial performance of the bank is very much satisfactory.
BIBLOGRAPHY
Books referred:
Websites visited:
62
www.lvbank.com
www.indusind.com
www.allbankingsolutions.com
63