Professional Documents
Culture Documents
NIRMA UNIVERSITY
2014-2019
Bank Management
Group Assignment
TOPIC:
Comparing Financial Performance of Public vs Private
Bank in India
Submitted To:
Dr. Ritesh Patel
Submitted By:
Aayushi Ostwal (147101)
Neeraj Parikh (147125)
Prakriti Dutta (147131)
Shivam Patel (147142)
Banking Industry
As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and
well-regulated. The financial and economic conditions in the country are far superior to any
other country in the world. Credit, market and liquidity risk studies suggest that Indian banks
are generally resilient and have withstood the global downturn well.
Indian banking industry has recently witnessed the roll out of innovative banking models like
payments and small finance banks. RBI’s new measures may go a long way in helping the
restructuring of the domestic banking industry.
The digital payments system in India has evolved the most among 25 countries with India’s
Immediate Payment Service (IMPS) being the only system at level 5 in the Faster Payments
Innovation Index (FPII).
The Indian banking system consists of 27 public sector banks, 21 private sector banks, 49
foreign banks, 56 regional rural banks, 1,562 urban cooperative banks and 94,384 rural
cooperative banks, in addition to cooperative credit institutions. In FY07-18, total lending
increased at a CAGR of 10.94 per cent and total deposits increased at a CAGR of 11.66 per
cent. India’s retail credit market is the fourth largest in the emerging countries. It increased to
US$ 281 billion on December 2017 from US$ 181 billion on December 2014.
• By 2020 Banking sector will become one of the largest segment after agriculture
• CRM and Data warehousing will drive the next wave of technology
DEMONETIZATION
DIGITIZATION
While there has been a considerable measure of push of late on digital transactions from the
Narendra Modi-drove focal government, it is normal that the coming Union Budget 2018-19
will see Finance Minister Arun Jaitley restoring the push by reporting a few motivations for
small ventures to progressively go computerized in so far as managing an banking transaction
exchanges are concerned.
PwC and Business Standard observes the present situation in the managing banking sector,
the issues confronting it, and the Budget desires the business has from Finance Minister Arun
Jaitley:
1. Credit risk: Credit risk can be defined as the borrower or counter party fails to make
a payment obligation regarding the terms and conditions that are agreed by the bank.
2. Market risk: Market risk can be referred as the risk of losses that mainly occurs from
movement in market prices. Market risk is the mainly affects the banks that are
present in investment banking. Major components of market risks
Axis Bank India is one of the largest private sector bank in the banking industry. The Bank
offers variety of financial services to customers which are divided in the segments like
• MSME
• Agriculture
• Retail Businesses
There are 3,589 domestic branches and 13,977 Automated tailor machines in different parts
of the country. The Axis Bank increases its existence in 1,946 cities and towns which helps
the Axis Bank to reach out to a larger audience which provides customers with an array of
products and services. Axis Bank has its presence in overseas cities such as
• Singapore
• Hong Kong
• Dubai
• Shanghai
• London
Axis Bank started its operations in 1994. In 1993 Axis bank has promoted its brand Bank
jointly by Unit Trust of India, Life Insurance Corporation of India (LIC), General Insurance
Corporation of India (GIC), National Insurance Company Ltd., The New India Assurance
Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company
Ltd.
In western India, Bank of Maharashtra is one of the largest banks. Bank of Maharashtra has
1,292 branches which is present in 22 states. Bank of Maharashtra is highly specialised in
foreign exchange, industrial finance, small-scale industry and hi-tech agriculture. The various
schemes provided by Bank of Maharashtra which are as follows
Axis Bank:
The main services provided by Axis bank to their clients which are as follows:
• Retail banking
• Corporate/wholesale banking
• NRI services
• Business banking
• Investment banking
• Leading to small and medium enterprises
• Agriculture banking
• Advisory services
• Ping pay
Bank of Maharashtra:
The main services provided by Bank of Maharashtra which are as follows:
Credit Card
Debit Card
Education Loan
Fixed Deposit
Gold Loan
Home Loan
Personal Loan
Savings Account
Net profit shrank by 55.26% due to a higher provision for Non Performing assets. During
the beginning of the year, the bank published a Watch list of accounts which were the key
source of stress for the last two years. Interestingly, almost half the list comprised of stressed
sectors like power and iron and steel with an outstanding of more than 23000 crores. During
the year, an additional corporate slippage of transfer of a performance advance to the
category of NPA accounted for 19106 crores of which almost 16000 crores was contributed
by the Watch list itself.
SFG of the bank is a specialised group which focusses on resolving issues related to non-
retail impairments of a bank.
Due to the sluggish corporate growth along with a humongous debt burden has led to a lot of
stress on the balance sheet of most financial institutions. Challenged sectors like power, steel
and infrastructure have deteriorated the asset quality of the banking sector. However, the
recent policies initiated by the government like import duties on steel, passing of the GST
Bill and renewed focus on infrastructural development have enhanced the level of hope in the
corporate arena.
Bank of Maharashtra
Since BoM is a PSB, one of its consistent areas of focus has been to facilitate sustainable
economic development by timely availability of credit to marginal and small farmers,
MSME’s, women and other entrepreneurs from marginalised sections. Issuing of Kisan
Credit Cards, simplified loan applications and Credit Guarantee schemes were some of the
initiatives to implement the same.
Other than focussing on weaker sections, the bank also took steps to facilitate the urban
customers. To improve the turn around time of loans, the bank centralised the process of loan
processing in its 33 zones. Door step banking services are introduced for high end customers,
banking via Maha Mobile App, SMS/internet/phone were other facilities which are being
provided.
Axis Bank
(1) HORIZONTAL ANALYSIS – YEAR ON YEAR
Profit and Loss Statement
DESCRIPTION Mar-18 Mar-17
By analysing the year on year changes in statement of profit and loss of Axis Bank for the
year 2018 and 2017, we can interpret that there is marginal increase in the total income of the
company. The main source of revenue generation for banks are interest they receive on loans
and advances. Apart from this, bank also generates revenue from the sources like fee from the
advisory service, offering letter of credit, commission by selling third party products like
insurance. So, we can see that there is not much increase in interest income of bank. But we
can observe that, relatively there is considerable increase in the revenue from other sources.
Balance Sheet
DESCRIPTION Mar-18 Mar-17
SOURCES OF FUNDS:
Share Capital 0.51 0.52
Share Warrants & Outstanding 0.00 0.00
Total Reserves 4.93 19.20
Deposits 15.76 11.02
Borrowings -3.27 36.14
Other Liabilities & Provisions 30.77 33.56
Total Liabilities 11.42 16.86
APPLICATION OF FUNDS :
Cash and balance with Reserve Bank of India 38.00 12.83
Balances with banks and money at call 76.92 -32.65
Investments -2.08 11.89
Advances 10.12 20.52
Gross block 10.65 28.88
Less: Accumulated Depreciation 18.86 18.97
Less: Impairment of Assets
Net Block 4.52 37.43
Lease Adjustment
Capital Work in Progress 35.75 104.39
Other Assets 39.56 32.36
Total Assets 11.42 16.86
In Asset side of the balance sheet, Cash and balance with the Reserve Bank of India reflects a
noteworthy increase and also balances with banks and money at call is significantly
increased. The former may be due to changes in the RBI rates and the latter can be done by
bank due to the increasing NPAs. Investments and advances has been significantly reduced
and one reason can be the demonetization which affected almost every sector. Total assets
and liabilities of the bank has been reduced as compared to the earlier year.
We have taken Interest earned as our base to prepare common sized statement. Interest
earned is the basic revenue source for bank. But apart from it, there are other revenue sources
also. If we see trend from past 5 years, Other Income is constantly been around 25% of
Interest earned. Interest expenses have marginally reduced over 5 year’s period because of
cut in interest rates. Operating expenses have been constant over the period i.e. around 25%.
There is huge increase in Provisions and Contingencies in 2018 comparing to other years.
This is because of changes in RBI policy. PBT margin is been reduced in 2018 compared to
other 4 years due to increase in provision and contingencies expenses. Overall this effect is
been carried forwarded to PAT resulting into decreased margin. Bank keeps its total profit
and loss margin constantly on an increasing trend by adjusting its profit brought forward
accordingly. EPS has shown a decreasing trend because of decreasing PAT margin.
SOURCES OF FUNDS:
Share Capital 0.08 0.09 0.10 0.12 0.14
Share Warrants & Outstanding 0.00 0.00 0.00 0.00 0.00
Total Reserves 9.19 9.76 9.57 9.85 9.58
Deposits 68.89 66.31 69.80 73.31 74.18
Borrowings 17.46 20.11 17.27 13.12 12.91
Other Liabilities & Provisions 4.37 3.72 3.26 3.60 3.20
Total Liabilities 100.00 100.00 100.00 100.00 100.00
APPLICATION OF FUNDS :
Cash and balance with Reserve Bank of 5.13 4.14 4.29 4.45 4.34
India
Balances with banks and money at call 3.23 2.03 3.52 2.92 1.66
Investments 21.41 24.36 25.45 29.63 33.40
Advances 62.03 62.76 60.85 60.03 57.84
Gross block 1.07 1.07 0.97 1.08 1.16
Less: Accumulated Depreciation 0.49 0.46 0.45 0.48 0.50
Less: Impairment of Assets
Net Block 0.58 0.61 0.52 0.60 0.65
Lease Adjustment
Capital Work in Progress 0.05 0.04 0.02 0.03 0.04
Other Assets 7.58 6.05 5.34 2.34 2.07
Total Assets 100.00 100.00 100.00 100.00 100.00
Contingent Liabilities 111.33 114.38 127.98 155.27 160.95
Bills for collection 13.48 9.50 10.61 9.55 8.19
Book Value 0.04 0.04 0.04 0.21 0.21
Adjusted Book Value 0.04 0.04 0.04 0.04 0.04
In the common-size balance sheet, main components of liability are Deposits and
Borrowings. Deposits consist of about 2/3rd part of the liability. But if we analyze the trend,
it can be seen that deposits have marginally reduced while Borrowings have marginally
increased. In Assets side, main components are Advances and Investments in which
Advances consist of 2/3rd part of assets. Investments have seen a marginally increased trend
while Advances have seen decreasing trend.
From the above analysis, it can be said that profit has shown increasing trend. Total income is
increasing constantly. Amongst total income, component of interest income is marginally
lower than income from other sources. This is because now a day’s added services in banks
have popularized. In expense side, interest and operation expenses have increased constantly.
Provisions did grew constantly up to 4 years but in 2018 there was a sudden hike due to
changes in policies. Profit margin have been constant and EPS has grown constantly with a
constant margin.
SOURCES OF FUNDS:
Share Capital 102.36 101.84 101.31 100.40 100.00
Share Warrants & Outstandings 0.00 0.00 0.00 0.00 0.00
Total Reserves 169.37 161.42 135.42 115.66 100.00
Deposits 164.04 141.71 127.64 111.22 100.00
Borrowings 238.97 247.05 181.47 114.42 100.00
Other Liabilities & Provisions 241.51 184.68 138.28 126.64 100.00
Total Liabilities 176.61 158.51 135.64 112.53 100.00
APPLICATION OF FUNDS :
Cash and balance with Reserve Bank of 208.61 151.17 133.98 115.21 100.00
India
Balances with banks and money at call 343.77 194.30 288.51 198.43 100.00
Investments 113.24 115.64 103.35 99.83 100.00
Advances 189.41 172.00 142.71 116.81 100.00
Gross block 162.57 146.92 114.00 105.33 100.00
Less: Accumulated Depreciation 171.92 144.65 121.58 107.60 100.00
Less: Impairment of Assets
Net Block 155.39 148.67 108.18 103.59 100.00
Lease Adjustment
Capital Work in Progress 224.58 165.44 80.94 79.67 100.00
Other Assets 645.32 462.38 349.33 127.09 100.00
Total Assets 176.61 158.51 135.64 112.53 100.00
Contingent Liabilities 122.17 112.65 107.86 108.57 100.00
Bills for collection 290.57 183.83 175.69 131.21 100.00
Book Value 32.91 31.54 26.64 114.98 100.00
Adjusted Book Value 164.54 157.68 133.19 114.98 100.00
From the above analysis, it can be said that Assets and liability have grown constantly in last
5 years. This growth is predominantly because of growth in investments, advances,
borrowings, and deposits. Main this to consider is that bank’s main business is dependent on
deposits and advances. Both of them has shown a considerable amount of growth and has
outperformed other components in the balance sheet which is a healthy sign in business.
1. Liquidity ratios
The loan-to-deposit ratio (LTD) ratio is used by banks to evaluate the liquidity. It is
computed by dividing the total loans of the banks by the deposits. So, here we can observe
that the ratio is lower than 1 for all the five years. We can interpret that bank is totally relied
upon its own deposits to give loans and not by borrowing from outside. Cash Deposit
ratio (CDR) refers to the cash amount the banks have to meet its liabilities. For example, if
the deposits is Rs.100, then firstly out of this some amount has to be kept with RBI i.e. Cash
Reserve Ratio, suppose Rs.15 and after this banks keep some percentage of amount with
them i.e. suppose 10%. So, left out Rs75 is used for lending purpose. Axis Bank has kept
constant CDR of 6% for first four years and then increased it to 7% in 2018. So, it seems
appropriate as almost all banks maintain the CDR at this level only. So, it is line with the
industry. Investment to deposit ratio is the amount of investment done by banks out of the
deposits. So, we can see the decreasing trend in this ratio which means the amount of
investments done by the bank out of its deposits is reducing. Interest expended to interest
income has shown a decreasing trend which means out of the interest income earned what
amount is bank giving as interest expense. So, in axis bank this ratio is reducing which means
which means either interest expense is reducing or interest income is increasing, which is
both good for the company. CASA ratio means the deposits in current and savings account
divided by the total deposits of the bank. A higher ratio of this indicates that there is low cost
of funds. So, in Axis Bank CASA ratio has shown an increasing trend which means higher
amount of deposits are coming in the form of current and savings account.
Debt to Equity ratio is dividing the total liabilities of the company by shareholders’ fund.
So, usually D/E ratio of 1.5 or less is favourable and above 1.5 are less considered. But it
depend upon industry to industry. So, in banks a higher debt to equity ratio is very common
as the money the bank borrows is the only money they use for lending purpose. The main
product that banks deal in is debt. So, they have higher debt as compared to other sectors. So,
we can observe that in Axis Bank also this ratio is significantly higher and it shows a
fluctuating trend.
Financial charges coverage ratio also known as Interest coverage ratio is dividing the
earnings before interest and tax to the interest expenses or the interest required by the debt
which the company have. So, a higher ratio is good in this case as it indicates that company
has enough operating income to meet its interest obligations. A ratio below 1.5 or lower may
be questionable. But, here we can observe that the ratio is above 1.5 but it is not ideal, i.e. 2.
3. Management
Efficiency Ratios
2018 2017 2016 2015 2014
Interest Income / Total Funds 7.91 8.3 8.4 8.47 8.68
Net Interest Income / Total Funds 3.21 3.41 3.37 3.3 3.09
6. Profitability Ratios
Net Profit/ Employee (Rs.) 6,49,854.14 16,40,303.74 17,42,321.17 14,65,739.42 13,66,568.93
Per employee ratios is important in banks as it is a labour intensive industry. Here, we can
observe that interest income per employee, net profit per employee and business per
employee is highest in the year 2015 and the company is performing very well on per
employee basis. Net Profit per employee is significantly reduced from 2017 to 2018 but
The ratio is calculated to evaluate and compare the efficiency of the banks at its branch level.
So, if this ratio is higher that means there is higher efficiency per branch. So, interest income
per branch and net profit per branch is fluctuating and business per branch has shown an
increasing trend.
As per DuPont analysis, breaks ROE has three components by which this formula is made of:
The higher the ROE, better for the company as it is a best measure of profit and efficiency.
With this formula, we can get to know that which component is majorly responsible for the
increase or decrease in ROE.
So, the higher the profit margin, better for the company. Asset Turnover is also better if it is
higher as it shows that the company is performing well. But, equity multiplier measures the
financial leverage. So, this tells us that whether the company buys its assets majorly through
debt or equity. So, the higher the equity multiplier, that means the company has taken more
debt in relation to its total assets.
So, by analysing there of them we can find that which component is most responsible for the
changes in ROE.
So, in 2018 ROE is majorly affected by Equity multiplier which is not always a good sign.
But, in other years the ROE is reflected majorly by Profit margin of the company which is a
good sign.
Axis Bank
40000.00
30000.00
20000.00
10000.00
0.00
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
-10000.00
-20000.00
-30000.00
Net cash generated from operating activities Cash flow from investing activities
Cash flow from financing activities
Cash flow from operations Cash flow from investing Cash flow from financing
+ (-) (-)
So, overall if we look at the pattern we can observe that cash flow from operations is positive
while cash flow from financing is negative which means bank is borrowing from outside
sources and using that to purchase the assets.
Cash flow from Operating is very fluctuating in all the years and there is a sudden increase in
the year 2017. This increase is due to: non-cash expenses i.e. Depreciation, non-operating
expenses i.e. Interest paid and non-operating income i.e. loss on sale of assets. So,
Rs.12764.59 (in crores) is revenue generated internally.
Rs.21043.25 (in crores) is the change in working capital and this is largely due to increase in
advances, decrease in investments and increase in deposits.
In cash flow, Operating cash flow has seen a notable increase in 2017 as compared to earlier
years and this can be due to demonetisation as there was too much inflow of cash in banks.
This increase is been because of provisions and expenses. Keeping provision is a non-cash
expense, as it is been deducted from Net Profit beforehand in cash flow analysis it’s been
Rest for investing activities, bank sees a negative cash flow during all the years. So we can
say that bank have purchased of fixed assets and purchase of maturity securities.
Cash flow from financing activities has shown a positive trend except for the year 2018
because of the sudden outflow of cash in other financing activities as compared to earlier
years. Also, the dividend paid is increased in the year 2017. The net proceeds of bonds/debts
has increased though during this year. While in other years there is huge inflow from other
financing activities and this is the reason for positive cash flow from financing activities. In
the year 2014 also the cash flow from financing is positive but not significant as compared to
other years and the reason is that proceeds from issue from share capital is drastically reduced
in this year.
Decreased financing cash flow means bank may have repaid its previous debts. Overall banks
have a positive cash flow, which means that they won’t be facing much of liquidity crises.
By analysing the year on year changes in statement of profit and loss of Bank of Maharashtra
for the year 2018 and 2017, we can interpret that there is decrease in the total income of the
company. We can see that there is significant decrease in interest income of bank and this can
be inferred due to decrease in loans & advances. But we can observe that, there is noteworthy
increase in the revenue from other sources.
Expenditure of the bank can be bifurcated mainly into three heads: interest expense, operating
expense and provisions & contingencies. There is significant increase in total expenditure of
the bank and this is largely again due to the increase in the provisions & contingencies due to
So, we can notice that Profit before tax has been significantly gone down largely due to
increase in expenditure of provisions & contingencies and it can also be due to reduction in
interest income. Profit after Tax and EPS of the company is drastically reduced and this is not
the good sign for the company and the shareholders as well.
Balance Sheet
DESCRIPTION Mar-18 Mar-17
SOURCES OF FUNDS:
Share Capital 10.00 9.89
Share Warrants & Outstanding 0.00 0.00
Total Reserves -18.48 8.78
Deposits 0.05 13.82
Borrowings -11.83 -17.06
Other Liabilities & Provisions 20.31 -16.01
Total Liabilities -1.01 10.23
APPLICATION OF FUNDS :
Cash and balance with Reserve Bank of 82.23 26.00
India
Balances with banks and money at call 45.79 834.45
Investments 6.51 10.58
Advances -11.20 9.09
Gross block -3.66 13.52
Less: Accumulated Depreciation 2.65 6.76
Less: Impairment of Assets
Net Block -7.70 18.31
Lease Adjustment
Capital Work in Progress 22.05
Other Assets 13.68 -4.95
Total Assets -1.01 10.23
Contingent Liabilities -2.14 -3.34
Bills for collection 7.06 12.65
Book Value -17.60 -3.32
Adjusted Book Value -17.60 -3.32
By comparing 2017 and 2018 Bank of Maharashtra have seen reduction in both assets and
liabilities for the year 2018. In 2018 they have increased share capital while from 2017 to
2018 there is no change in it. Total reserves have seen a drastic reduction between both the
In Asset side, Bank’s balance with RBI has seen increased deposits with RBI while bank
balance with banks and money at call has shown a notable decrease. Former may be because
of changes in regulatory policies while the other can be due to external effect like
Demonetization. Capital WIP has seen a striking hike because again because of access need
of fund due to demonetization. Overall Total assets have decrease similarly to liabilities.
Balance Sheet
DESCRIPTION Mar-18 Mar-17 Mar-16 Mar-15 Mar-14
SOURCES OF FUNDS:
Share Capital 0.73 0.73 0.73 1.05 1.07
Share Warrants & Outstanding 0.00 0.00 0.00 0.00 0.00
Total Reserves 3.90 4.73 4.80 4.36 4.40
Deposits 87.28 86.35 83.63 85.68 80.66
Borrowings 5.11 5.73 7.62 6.11 11.01
Other Liabilities & Provisions 2.98 2.46 3.22 2.80 2.86
Total Liabilities 100.00 100.00 100.00 100.00 100.00
APPLICATION OF FUNDS :
Cash and balance with Reserve Bank of 9.59 5.21 4.56 4.40 4.50
India
Balances with banks and money at call 0.86 0.58 0.07 0.08 0.78
Investments 24.22 22.51 22.44 27.33 26.87
Advances 59.95 66.83 67.52 65.23 64.53
Gross block 1.68 1.73 1.68 1.70 1.85
Less: Accumulated Depreciation 0.70 0.67 0.70 0.64 0.63
Less: Impairment of Assets
Net Block 0.98 1.05 0.98 1.06 1.22
Lease Adjustment
Capital Work in Progress 0.01
Other Assets 4.39 3.82 4.43 1.91 2.09
Total Assets 100.00 100.00 100.00 100.00 100.00
Contingent Liabilities 18.41 18.62 21.23 18.43 20.83
Bills for collection 2.52 2.33 2.28 2.25 2.18
Book Value 0.03 0.04 0.05 0.05 0.06
Adjusted Book Value 0.03 0.04 0.05 0.05 0.06
We can interpret that till 2017 there is increase in the total income but in 2018 it has
decreases. We can see that again in 2017, there is increase in interest income of bank but in
2018, it has again decreased and this can be inferred due to decrease in loans & advances. But
There is significant increase in total expenditure of the bank and this is largely again due to
the increase in the provisions & contingencies and operating expenses. So, we can notice that
Provisions did grew constantly up to 4 years but in 2018 there was a sudden hike due to
changes in policies. Profit before tax has been significantly gone down largely due to increase
in expenditure of provisions & contingencies and it can also be due to reduction in interest
income. Profit after Tax and EPS of the company is drastically reduced and this is not the
good sign for the company and the shareholders as well.
Balance Sheet
DESCRIPTION Mar-18 Mar-17 Mar-16 Mar-15 Mar-14
SOURCES OF FUNDS:
Share Capital 93.51 93.51 85.09 114.22 100.00
Share Warrants & Outstandings 0.00 0.00 0.00 0.00 0.00
Total Reserves 120.67 148.01 136.07 115.42 100.00
Deposits 147.40 147.33 129.45 123.81 100.00
Borrowings 63.19 71.66 86.40 64.66 100.00
Other Liabilities & Provisions 142.30 118.28 140.83 114.39 100.00
Total Liabilities 136.23 137.63 124.85 116.56 100.00
APPLICATION OF FUNDS :
Cash and balance with Reserve Bank of 290.10 159.20 126.35 113.79 100.00
India
Balances with banks and money at call 150.66 103.34 11.06 12.22 100.00
Investments 122.78 115.27 104.25 118.51 100.00
Advances 126.56 142.52 130.65 117.82 100.00
Gross block 123.73 128.43 113.13 107.05 100.00
Less: Accumulated Depreciation 151.57 147.67 138.31 118.53 100.00
Less: Impairment of Assets
Net Block 109.41 118.53 100.19 101.16 100.00
Lease Adjustment
Capital Work in Progress 22.05
Other Assets 285.40 251.05 264.12 106.22 100.00
Total Assets 136.23 137.63 124.85 116.56 100.00
Contingent Liabilities 120.39 123.03 127.27 103.11 100.00
Bills for collection 157.77 147.37 130.83 120.33 100.00
Book Value 74.54 90.46 93.57 96.08 100.00
Adjusted Book Value 74.54 90.46 93.57 96.08 100.00
1. Liquidity Ratios
Mar-18 Mar-17 Mar-16 Mar-15 Mar-14
Loans/Deposits(x) 0.06 0.07 0.09 0.07 0.14
Cash/Deposits(x) 0.11 0.06 0.05 0.05 0.06
Investment/Deposits(x) 0.28 0.26 0.27 0.32 0.33
Inc Loan/Deposits(%) 5.85 6.64 9.11 7.13 13.65
Credit/Deposits(%) 68.69 77.39 80.74 76.13 80.00
Interest Expended / Interest earned(%) 73.68 70.28 69.40 70.65 68.45
CASA (%) 44.89 36.67 37.09 35.89 40.79
In BOM, the loan-to-deposit ratio (LTD) ratio is lower than 1 for all the five years.
We can interpret that bank is totally relied upon its own deposits to give loans and not
by borrowing from outside.
Bank of Maharashtra has kept constant CDR of 5% or 6% for first four years and then
increased it to 11% in 2018. So, it seems appropriate as almost all banks maintain the
CDR at this level only. So, it is line with the industry.
Investment to deposit ratio is the amount of investment done by banks out of the
deposits. So, we can see the decreasing trend in this ratio which means the amount of
investments done by the bank out of its deposits is reducing.
Interest expended to interest income has shown a decreasing trend which means out
of the interest income earned what amount is bank giving as interest expense. So, in
BOM this ratio is reducing which means which means either interest expense is
reducing or interest income is increasing, which is both good for the company.
CASA ratio means the deposits in current and savings account divided by the total
deposits of the bank. A higher ratio of this indicates that there is low cost of funds. In
BOM, CASA ratio has shown a decreasing trend initially but in the last year the ratio
2. Leverage
Ratios
Mar-18 Mar-17 Mar-16 Mar-15 Mar-14
Debt to Equity ratio is dividing the total liabilities of the company by shareholders’ fund.
So, usually D/E ratio of 1.5 or less is favourable and above 1.5 are less considered. But it
depend upon industry to industry. So, as we have seen earlier that in banks a higher debt to
equity ratio is very common as the money the bank borrows is the only money they use for
lending purpose. So, they have higher debt as compared to other sectors. So, we can observe
that in BOM also this ratio is significantly higher and it has reduced in the year 2015 and
2017 but again increased in 2018.
Financial charges coverage ratio also known as Interest coverage ratio is dividing the
earnings before interest and tax to the interest expenses or the interest required by the debt
which the company have. So, a higher ratio is good in this case as it indicates that company
has enough operating income to meet its interest obligations. A ratio below 1.5 or lower may
be questionable. Here, we can observe that the ratio is less than 1.5. So, it is actually a matter
of worry as the company does not have enough operating income to meet its interest
payments.
Efficiency ratios mean how well company uses its assets and liabilities internally. In case of
banks mostly all the efficiency ratios are been compared with their total funds. Total funds
will majorly include long term assets, investments and deposits. If we see the composition
within income, than it can be bifurcated into 2 categories: Interest Income and Non Interest
Income. Interest income / total funds and non interest income / total funds are
constantly decreasing from past 4 years. Last year (2018) there was a major dip in
the interest income/ total funds ratio because of reduction in interest rates by RBI which
was more and less constant for previous years. Decreasing interest income constantly should
be a matter of concern for the bank. Net interest income / total fund ratio is nothing but
after tax interest income compared with total funds. So this shows a similar trend as interest
income/ total funds turnover ratio. Now comparing different expenses compared with respect
to total funds. Expenses can be bifurcated majorly into two parts namely operational expenses
and interest expenses. Interest Expense / total fund has seen a negative trend over the
years. This can be due to 2 reasons (1) either the rate of lending has decreased (2) or number
of loan takers would have decreased. Amongst both 1st reasons is more applicable as there is
Per employee ratios is important in banks as it is a labour intensive industry. Here, Interest
income / employee has increased constantly for past 4 years but had a marginal dip in 2018.
There should be either reduction in number of employees or they must be constant. Net profit
per employee has also decreased over the years. This means profit has reduced over the years.
Because there is no mention of significant recruitments in annual reports. But contradicting to
it, business per employee does have increased which means the revenue has been increased
over the period of time but bank has stressed net profit margin.
The ratio is calculated to evaluate and compare the efficiency of the banks at its branch level.
So, if this ratio is higher that means there is higher efficiency per branch. So, interest income
per branch and net profit per branch have shown a decreasing trend while
Business per branch has shown an increasing trend.
So, in all the years, ROE is majorly affected by Equity multiplier which is not always a good
sign. Here, ROE is increasing due to the total assets divided by the shareholders’ equity
which means company has taken more debt to purchase the assets than equity.
Bank of Maharashtra
10000.00
8000.00
6000.00
4000.00
2000.00
0.00
-2000.00 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
-4000.00
Cash flow from operations Cash flow from investing Cash flow from financing
+ (-) (-)
So, again in BOM also if we look at the pattern we can observe that cash flow from
operations is positive while cash flow from financing is negative which means bank is
borrowing from outside sources and using that to purchase the assets.
Cash flow from Operating is very fluctuating in all the years and there is a sudden increase in
the year 2017. This increase is due to: non-cash expenses i.e. Depreciation, non-operating
expenses i.e. Interest paid and non-operating income i.e. loss on sale of assets. So, Rs.
2501.52 (in crores) is revenue generated internally.
Adjustments in working capital change is Rs.5504.68 (in crores) and this is largely due to
decrease in advances.
Cash flow from investing is negative due to more purchase in fixed assets as compared to the
sale of fixed assets. Cash flow from financing is showing increasing trend in earlier years but
decreasing trend in the last 2 years because there was reduction in proceeds from bonds/debts
as well as the proceeds from issue of share capital also reduced in the last years.
Operating Expenses
Operating
140.00 Expenses has
120.00 increased for
100.00 both the
80.00 companies
60.00
during the year
40.00
2009 and then
20.00
for Axis Bank is
0.00
almost constant
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
but for BOM the
BOM Axis Bank trend is
fluctuating.
Share Capital of
Share Capital
Total Assets & Liabilities BOM is highest in
160.00 2011 and then it
140.00 started
120.00
decreasing. Share
Cap for all the
100.00
times is higher for
80.00
BOM then Axis.
60.00 Share Capital of
40.00 Axis Bank has
20.00 shown a very little
0.00 increase in 2010
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 and then it almost
remained
BOM Axis Bank
constant.
Investments of BOM
Investments is higher than Axis
160.00 Bank in 2009 and
140.00 then for the year
120.00
2010 investments for
both the banks are
100.00
almost equal. From
80.00
the year after 2010,
60.00 investments of Axis
40.00 bank is higher than
20.00 BOM but both of the
0.00 bank reflected
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 almost same trend if
seen separately.
BOM Axis Bank
Net cash generated from operating activities Here, we can see that
200.00 BOM and Axis Bank are
150.00
reflecting opposite trend.
When Axis Bank is
100.00
increasing, BOM is
50.00 decreasing and vice
0.00 versa. In 2015, both
-50.00
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 shows negative
operating cash flow and
-100.00
in 2018 both are showing
-150.00 positive cash flow.
-200.00
By analysing the financial statements of both the banks 2 things can be interpreted as “red
flag” in accounting practise. Both the things are common in most of the banks in India
including both of them. These 2 things are
In both the banks the main problem or danger that can be interpreted from the given finances
are provisioning of NPAs. Both the firms have significantly increased the provisioning of
bad debts in 2018. This have resulted into considerable decrease in their profit margins.
NPAs are never good for any banks and increasing their provisions in the given year gives the
indication of chances of increase in NPAs in future. Provisioning of NPAs are as high as
around 20% in both the banks. This percent is almost double of their current Net Profit
Margin. This means there are chances that bank may lose money way more than they would
actually be earning. Also operating cash flow of both the banks also show negative trend.
This signifies that company is not actually generating enough through their operations that it
can fulfil its operational expenses. Though this deficit is been compensated by positive
investing and financing activities. But if bank increase the provisioning of NPAs they would
face both liquidity and profitability crunch in coming years. Given that it will negatively
affect their cash flow from investment as surplus, money left for investing would be reduced
which will result into decreased yield in investment followed by reduced cash inflow from
investing. Thus, increase in provisioning of NPAs are very serious issue that need to be
rectified.
Another reason that is will be affecting banking industry would be applicability of BASEL 3
norms. Amongst other compliance issues one of the biggest challenge to implement this is
increased capital conservation buffer. According to BASEL 2 banks need to keep capital
conservation buffer of 9%. Now as stated in BASEL 3, this ratio is been divided into 2 parts
that is minimum total capital ratio and capital conservation ratio. Effectively by adding both
percentage comes to around 11.5%. Now with present situation where banks are already
This two are the major concerns that banks may face in future.
Performance of Axis Bank’s Stock over the last 5 years in absolute terms
300
200
100
0
2013 2014 2015 2016 2017
-100
-200
So, with the graph we can observe that in the year 2014 there was a decrease in stock market
price of Axis Bank. In 2015, there was Rs.297.82 increase in the stock market price which
was the highest change in all the 5 years. Again in 2017 the price decreased with Rs.96.25. In
2018, there was an increase in the stock price by Rs.37.35. So, in 2018 the stock price of Axis
bank was Rs.509.6
0
2013 2014 2015 2016 2017
-5
-10
-15
-20
-25
So, with the graph we can observe that the stock price was highest in 2013 only. After that
the stock price kept on decreasing year on year. The highest decrease is in year 2014 and
there was only some increment in the year 2018 by Rs.6.85. Overall, the stock price was
57.85 in 2013 and in 2018 it was only at Rs.36.45.
Here, we can observe that according to the market (S&P BSE Sensex) in 2014 both Axis
Bank and BOM is lower. While in 2015, stock price change in Axis Bank is much higher
than the market and BOM was almost in line with the market. In 2017 and 2018, both the
banks shows an increase in the stock price but below the market. In the year 2018, the stock
price change of BOM is more as compared to Axis Bank.
Here, we can observe that according to the market (S&P BSE Bankex) in 2014 both Axis
Bank and BOM is lower. While in 2015, stock price change in Axis Bank is much higher
than the market and BOM was lower as compared with the market. In 2017 and 2018, both
the banks shows an increase in the stock price but below the market. In the year 2018, the
stock price change of BOM is more as compared to Axis Bank.
1400000000000.00
1200000000000.00
1000000000000.00
800000000000.00
600000000000.00
400000000000.00
200000000000.00
0.00
2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
Axis Bank and Bank of Maharashtra are Group A and Group B companies respectively.
Former is the private bank while the latter is the public sector unit. Following are the points
where we have done a comparative analysis.
Balance Sheet
In the common-size balance sheet, main components of liability are Deposits and
Borrowings. Deposits consist of about 2/3rd part of the liability. But if we analyze the trend,
it can be seen that deposits have marginally reduced while Borrowings have marginally
increased. In Assets side, main components are Advances and Investments in which
Advances consist of 2/3rd part of assets. Investments have seen a marginally increased trend
while Advances have seen decreasing trend. In case of Bank of Maharashtra, Deposits consist
of about 3/4th part of the liability. But if we analyze the trend, it can be seen that deposits
have marginally increased while Borrowings have marginally reduced. In Assets side, main
components are Advances and Investments in which Advances consist of 2/3rd part of assets.
Investments have seen a marginally reducing trend while Advances have also seen decreasing
trend.
We have taken Interest earned as our base to prepare common sized statement. Interest
earned is the basic revenue source for bank. But apart from it, there are other revenue sources
also. If we see trend from past 5 years, Other Income is constantly been around 25% of
Interest earned. Interest expenses have marginally reduced over 5 year’s period because of
cut in interest rates. Operating expenses have been constant over the period i.e. around 25%.
There is huge increase in Provisions and Contingencies in 2018 comparing to other years.
This is because of changes in RBI policy. PBT margin is been reduced in 2018 compared to
other 4 years due to increase in provision and contingencies expenses. Overall this effect is
been carried forwarded to PAT resulting into decreased margin. Bank keeps its total profit
and loss margin constantly on an increasing trend by adjusting its profit brought forward
accordingly. EPS has shown a decreasing trend because of decreasing PAT margin. We have
again taken Interest earned as our base to prepare common sized statement for Bank of
Maharashtra. If we see trend from past 5 years, Other Income is constantly been around 25%
Cash Flow
The above table shows the composition of each element of operating, financing and investing
cash flow in percentage terms of each. Cash Flow Cash Flow from Operations is mainly
attributed because of changes in advances and borrowings. Advances and Borrowings shows
a positive correlation. But both of them have opposite effect on cash flow. So they both offset
each other. Major portion operation cash flow is been attributed by these two only. Also they
both show very fluctuating pattern. They don’t have a constant increasing or decreasing
pattern. They keep on changing year on year that is if they are positive in one year than they
mostly will be negative in next year. Cash Flow from Investing is majorly been attributed
because of purchase or sale of bonds. It’s seen that bank is continuously selling off bonds and
maintain the cash inflow for investing. Bonds have been paid off this year because of which
there is sudden negative cash flow from financing. It is also seen that contribution of other
financial activities have also been increasing because banks are now no more source of just
lending and borrowing. They provide many add on services like selling insurance and mutual
funds and financial advice. Due to increase in importance of such activities have increased,
bank’s investment in them have also been increased. Net change in cash flow has been
positive for past years but it’s been negative this year mainly because of repayment of bonds.
In Bank of Maharashtra Cash Flow Cash Flow from Operations is mainly attributed
because of changes in advances and borrowings. Advances and Borrowings shows a positive
correlation. But both of them have opposite effect on cash flow. So they both offset each
other. Major portion operation cash flow is been attributed by these two only. Also they both
show very fluctuating pattern. They don’t have a constant increasing or decreasing pattern.
They keep on changing year on year that is if they are positive in one year than they mostly
Ratios
The loan-to-deposit ratio (LTD) ratio is used by banks to evaluate the liquidity. It is
computed by dividing the total loans of the banks by the deposits. So, here we can observe
that the ratio is lower than 1 for all the five years. We can interpret that bank is totally relied
upon its own deposits to give loans and not by borrowing from outside. Cash Deposit
ratio (CDR) refers to the cash amount the banks have to meet its liabilities. For example, if
the deposits is Rs.100, then firstly out of this some amount has to be kept with RBI i.e. Cash
Reserve Ratio, suppose Rs.15 and after this banks keep some percentage of amount with
them i.e. suppose 10%. So, left out Rs75 is used for lending purpose. Axis Bank has kept
constant CDR of 6% for first four years and then increased it to 7% in 2018. So, it seems
appropriate as almost all banks maintain the CDR at this level only. So, it is line with the
industry. Investment to deposit ratio is the amount of investment done by banks out of the
deposits. So, we can see the decreasing trend in this ratio which means the amount of
investments done by the bank out of its deposits is reducing. Interest expended to interest
income has shown a decreasing trend which means out of the interest income earned what
amount is bank giving as interest expense. So, in axis bank this ratio is reducing which means
which means either interest expense is reducing or interest income is increasing, which is
both good for the company. CASA ratio means the deposits in current and savings account
divided by the total deposits of the bank. A higher ratio of this indicates that there is low cost
of funds. So, in Axis Bank CASA ratio has shown an increasing trend which means higher
amount of deposits are coming in the form of current and savings account. In BOM, the loan-
to-deposit ratio (LTD) ratio is lower than 1 for all the five years. We can interpret that bank is
totally relied upon its own deposits to give loans and not by borrowing from outside. Bank of
Maharashtra has kept constant CDR of 5% or 6% for first four years and then increased it to
We can observe that according to the market (S&P BSE Sensex) in 2014 both Axis Bank and
BOM is lower. While in 2015, stock price change in Axis Bank is much higher than the
market and BOM was almost in line with the market. In 2017 and 2018, both the banks
shows an increase in the stock price but below the market. In the year 2018, the stock price
change of BOM is more as compared to Axis Bank. We can also observe that according to
the market (S&P BSE Bankex) in 2014 both Axis Bank and BOM is lower. While in 2015,
stock price change in Axis Bank is much higher than the market and BOM was lower as
compared with the market. In 2017 and 2018, both the banks shows an increase in the stock
price but below the market. In the year 2018, the stock price change of BOM is more as
compared to Axis Bank.