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Banks have played an important role in the growth of economies of nations all over the
world. Banks play a major role in ensuring adequate credit flow to various sectors of the
economy, thus facilitating their growth. It facilitates the various industries to enhance their
productive capacities. It also extends credit and facilitates savings among individuals. Banks
are partners in the development of the nation by playing an important role in financial inclusion
and ensuring balanced development. It needs to be said that Indian banking industry showed a
lot of resilience in the wake of the global economic slowdown. Banking regulations are
primarily done by Reserve Bank of India. Also there have been various committees which
paved the way for reforms in the sector over the years. These reforms have resulted in the
emergence of banks with high levels of customer service leveraging on best in class technology.
This study looks at banking sector in India and the reforms associated with the sector and tries
to appreciate the important role banks have played over the years in the holistic development
of the nation. Further this study looks at one of the leading scheduled banks namely South
Indian Bank and the how it has emerged as one the major banks among the scheduled
commercial banks in India. The various organisation aspects of South Indian bank such as the
history of the organisation, products and services, future plans are also looked at as part of the
organisational profile. The second part of the study involves a study on financial analysis of
the South Indian bank ltd. The financial analysis looks at the key indicators of financial
performance of South Indian Bank over the last few years, and try to understand the patterns
of growth in the recent years, the factors which have played a role in the growth, and the factors
which could play a role in the growth plans for the coming years.
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SECTION I
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CHAPTER I
INDUSTRY PROFILE
1.1.1 INTRODUCTION
The banking structure in India include commercial banks, regional rural banks,
financial institutions, banks in the cooperative sector, and non banking financial companies.
Commercial Banks refer to both scheduled and non-scheduled commercial banks which are
regulated under Banking Regulation Act, 1949. Scheduled Commercial Banks can be grouped
under State Bank of India and its Associates, nationalised banks, foreign banks, regional rural
banks, other scheduled commercial banks. State Bank of India and its Associates and the
nationalised banks are together known as public sector banks. Other scheduled commercial
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banks are known as private sector banks. Scheduled commercial banks occupy a key position
in the banking sector. Those banks which carry business of banking in India and which have
paid-up capital and reserves of an aggregate, real or exchangeable value of not less than 5 lakh,
and satisfy the Reserve Bank of India that their affairs are not being conducted in a manner
detrimental to the interests of their depositors, are eligible for inclusion in the Second Schedule
to the Reserve Bank of India Act, 1934 and when so included are known as Scheduled Banks.
It was in 1955 that Imperial Bank of India was converted to a state owned institution, State
Bank of India. Imperial bank of India itself was the result of amalgamation of the three
presidency banks in 1921. The Imperial Bank of India also functioned as a central bank prior
to the establishment of the Reserve Bank in 1935. Further in 1959, State Bank of India
(Subsidiary Banks) Act, 1959 made the banks of the erstwhile princely states of India the
subsidiaries of the State Bank of India.
All the Regional Rural Banks established under Section 3 of the Regional Rural Banks
Act, 1976 are included in the Second Schedule of the Reserve Bank of India Act, 1934.
Regional rural banks were setup with a view to developing the rural economy by providing
credit and other facilities, particularly to the small and marginal farmers, agricultural labourers,
artisans and small entrepreneurs. The equity of the RRBs was contributed by the Central
Government, concerned State Government and a sponsor bank in the proportion of 50:15:35.
Financial institutions provide medium to long term finance to different sectors of the
economy. These institutions were set up to meet the growing demands of particular segments,
such as, export, rural, housing and small industries. Urban co-operative banks play a significant
role in providing banking services to the middle and lower income groups of society in urban
and semi urban areas. Rural cooperatives occupy an important position in the Indian financial
system. Cooperative banks are registered under the respective State Co-operative Societies Act
or Multi State Cooperative Societies Act, 2002 and governed by the provisions of the respective
acts. The legal character, ownership, management, clientele and the role of state governments
in the functioning of the cooperative banks make these institutions different from commercial
banks. Rural cooperatives structure is bifurcated into short-term and long-term structure. The
short-term cooperative structure is a three-tier structure with State Cooperative Banks (StCBs)
at the apex (State) level, district central cooperative banks (DCCBs) at the intermediate
(district) level and primary agricultural credit societies (PACS) at the ground (village) level.
The short term structure caters primarily to the various short / medium-term production and
marketing credit needs for agriculture. The long term cooperative structure has the state
cooperative agriculture and rural development banks (SCARDBs) at the apex level and the
primary cooperative agriculture and rural development banks (PCARDBs) at the district or
block level. These institutions were conceived with the objective of meeting long-term credit
needs in agriculture.
Non-banking Financial Companies play an important role in the financial system, based
on upon the line of activity, NBFCs are categorised into different types, broadly into NBFCs
accepting public deposits or NBFCs-D and NBFCs not accepting public deposits or NBFCs-
ND. NBFC-NDs with assets of 100 crore and above had been classified as systemically
important non-deposit accepting NBFCs or NBFCs-ND-SI.
There has been an initiative to allow for entry of new banks. Entry of new banks could
increase the level of competition, bring new ideas and variety in the system. RBI sets norms
for entry of new banks. Entry of well qualified entities can further improve the quality of the
banking system and promote competition.
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1.1.3 BANKING IN INDIA
Banking in India has a long history tracing back up to the vedic era. According to
Central Banking Enquiry Committee of 1931, money lending activity in India could be traced
back to the vedic period that is around 2000 BC. Professional banking can itself be traced back
to the times around 500 BC. Banking could cater to various sectors such as agriculture,
commerce etc. In this regard it can be said that banking sector in India had an extensive network
of banking houses wide network of banking houses in major towns of commercial importance.
Most banking worked on mutual trust, confidence and without securities and facilities that were
considered essential by foreign bankers.
Reserve Bank of India decides on the monetary policy in India. Reserve Bank of India
was setup in 1935 under the Reserve Bank of India Act 1934. The origins of the bank can be
traced to 1926 as part of the "Royal Commission on Indian Currency and Finance" known as
the Hilton-Young Commission. Hilton Young commission recommended the creation of a
central bank for India to separate the control of currency and credit from the Government and
to augment banking facilities throughout the country. In 1933 “The White Paper on Indian
Constitutional Reforms” recommended the establishment of a reserve bank. Subsequent to this
the Reserve Bank of India act was passed and received the governor general’s assent in 1934.
The privately held banking forms which were relative small in size and scale, came under the
purview of the reserve bank since then. In 1949, in the post-independence period the
government nationalised the institution under the Reserve Bank (Transfer of Public
Ownership) Act, 1948. Since then Reserve Bank of India has diversified its role and has played
a significant role in the India growth story.
The early years of independence when the nation was still recovering from the yoke of
the colonial power, brought about significant challenges in the working of the reserve bank.
Gradually with the growth of banks in the post independent era, banking got extended to rural
areas many of which were unbanked or underbanked. Most of the banks in this period were
under private ownership.
The period from 1967 saw significant changes in the banking sector in India. With an
intent to channelize the resources of the banking system as part of the planning program of the
nation, the government undertook steps to nationalise the banks. In the first stage of
nationalisation 14 banks were nationalised in 1967 and six more in 1980. One of the focus as
part of the nationalisation was to increase the lending to priority sectors.
The scheme of priority sector lending was implemented in 1974, among public sector
banks. This was later expanded to all commercial banks in 1992. Directed credit programme
involving loans on preferential terms and conditions to priority sectors was a major tool of
development policy in the period. The priority sectors include sectors such as agriculture,
microcredit, micro and small enterprises, education, housing etc. The nationalisation of banks
was an attempt to use the scarce resources of the banking system for the purpose of planned
development. The nationalisation of banks was followed by rapid bank branch expansion.
There was significant decrease in the level of lending by the unorganised sector. Another
initiative which furthered cause of expansion was the Lead Bank scheme. The lead bank was
responsible for taking lead role in surveying the credit needs of the population, development
of banking and of credit facilities in the district allotted to it. The commercial bank was selected
as lead bank for each district, and this bank was responsible for banking development in the
district by coordinating the efforts of government and banking officials.
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The period beginning from the early 1990s witnessed the transformation of the banking
sector as a result of financial sector reforms that were introduced as a part of liberalisation of
the economy initiated in 1991. The underlying principles of the reforms adopted included
cautious and sequencing of reform measures, introduction of norms that were mainly
reinforcing, introduction of complementary reforms across sectors (monetary, fiscal, external
trade and financial sectors), development of financial institutions and development and
integration of financial markets. The phase saw adoption of various internationally accepted
norms such as prudential norms, risk management, supervision, corporate governance and
transparency and disclosures by the banking sector. "Committee on Financial System" was
constituted by the Government of India in 1991 to examine the financial system in the country,
chaired by Shri.M.Narasimham gave wide ranging recommendations on banks, development
financial institutions and the capital markets. "Committee on Banking Sector Reforms" chaired
by Shri.M.Narasimham was setup in 1998.
The phase of liberalisation coupled with enhanced responsibilities to the banks, helped
in building up a resilient banking system in the country. The phase saw government allowing
public sector banks to approach the capital markets for mobilising funds. Capital to risk-
weighted assets ratio (CRAR) system was also introduced for banks. Debt recovery tribunals
(DRTs) and debt recovery appellate tribunals (DRATs) were established. The cash reserve ratio
and statutory liquidity ratio which touched extremely high levels in the 1990s was reduced in
a phased manner, resulting enhancement of lendable resources to the banks. Administered
interest rates which was inefficient and costly was removed and freedom was given to banks
in deciding deposit and lending rates. This meant that banks were able to fix the interest rates,
depending on the overall liquidity conditions and their risk perceptions. Overall the reduction
in cash reserve ratio and statutory liquidity ratio and freedom in deciding interest rates
increased the profitability of the banking sector.
The period also saw increased freedom being given to banks with respect to opening of
new branches and automated teller machines (ATMs). Restrictions on banks in assessing
working capital requirements were relaxed in this period and maximum permissible banking
finance (MPBF) was phased out from 1997 and banks were given the freedom to decide on the
methodology of assessing working capital requirements.. Approach to onsite inspection was
changed to evaluation based on CAMELS system (Capital Adequacy, Asset Quality,
Management, Earnings, Liquidity System and Controls) for domestic commercial banks and
CALCS (Capital Adequacy, Asset Quality, Liquidity Compliance and Systems) for foreign
banks. Banking Codes and Standards Board of India (BCSBI) was set up by the Reserve Bank
or self-regulatory organisation for voluntary registration of banks committing to provide
customer services as per the agreed standards and codes. BCSBI is an independent and
autonomous watch dog to monitor and to ensure that the banking codes and standards
voluntarily adopted by banks are adhered to. It also undertakes research on the codes and
standards currently in practise in and outside India.
The impact that technology had on the sector in the post liberalisation phase can be seen
in the adoption of core banking system (CBS), real time gross settlement (RTGS), National
electronic fund transfer(NEFT) etc. Corporate governance was another area which got attention
in this phase and a comprehensive policy framework for governance in private sector banks
released in 2005. Corporate governance looks at management of the organisation in such a way
as to secure the interests of all the stakeholders including shareholders, employees, customers,
government, public etc. Corporate governance focusses on various aspects such as
transparency, audits, independent directors, disclosures etc.
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Financial inclusion refers to the delivery of financial services to the masses and the vast
section of the disadvantaged and low income groups. Inspite of the major expansion in banking
system, it has still not reached a significant number of households especially in the rural area.
Banking service if made available to the poorer sections of the society can play a role in
addressing the basic issues such as poverty and unemployment. The drive to achieve financial
inclusion is based on the understanding that there is a need to attract unbanked sections of
population, in particular pensioners, self-employed and those employed in the unorganised
sector, and this has reflected in the various schemes implemented by the government of late in
consonance with the banking sector. The realisation of goal of financial inclusion can play a
major role in overall development of the country with the banks being able to play a major role
in it.
The Government of India nationalised 14 major Indian scheduled banks having deposits
of Rs.50 crore and above through the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1969. The nationalisation of banks was an attempt to use the scarce
resources of the banking system for the purpose of planned development. The expansion of
banks since independence although significant was more in the urban areas. Proportion of
credit extended to sectors such as agriculture, small scale industries were less. Nationalisation
of banks was aimed at accelerating the pace of expansion of commercial banks branches in
rural areas and augmenting the flow of bank credit to agriculture and to the weaker sections of
the society. In terms of outcome, this phase of nationalisation greatly succeeded in mobilising
private savings through the banks.
The period of nationalisation also coincided with the period of the Green revolution and
its benefits started flowing to the rural sector in terms of higher income. The spread of banking
and deposit mobilisation could be termed two most significant achievements of the
nationalisation. Nationalisation of six more private commercial banks was done in 1980.
Nationalisation resulted in some drawbacks as well, there was decrease in efficiency due to
lack of entry of new banks in the private sector during the period and the resultant lack of
competition. Other restrictions such as regulation of interest rates and the system of financing
working capital requirements also had an adverse impact on the competitive environment. All
this led to period of further reforms in the banking sector in the1990s. These reforms RBI
allowing entry of new private sector banks, more freedom in opening of new branches and
automated teller machines (ATM).
The period from 1990 to 2000 also saw the committees setup under the chairmanship
of Shri.M.Narasimhan, namely “Committee on Financial sector reforms” in 1991, “Committee
on Banking Sector Reforms” in 1998 paving the way for major reforms in the sector along with
the other major committees setup in this period. The committee on banking sector reforms
suggested adoption of higher levels capital adequacy standards while taking into account
market risks. The committee gave recommendations on classification of assets and on
identification of non performing assets (NPAs). It also suggested additional disclosures by
banks related to non performing assets, maturity pattern of deposits and loans etc. It exhorted
banks to adopt the information and communication technology revolution taking place globally
in the banking sector, and also need for electronic fund transfer systems. The committee
pointed to inadequate bank automation, lack of robust inter-bank platform, inadequate telecom
infrastructure etc. Banks were advised to introduce effective risk management systems to cover
credit risk, market risk and operational risks. It pointed to the need to institute an independent
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loan review mechanism especially for large accounts and to identify potential non performing
assets. It can be seen that since these recommendations banking sector in India saw many
developments in terms of infrastructure, technology, customer service etc.
The first step towards an organized risk management in banks arose through Basel
initiatives. The attempt at harmonizing the capital adequacy standards internationally date back
to 1988, when the “Basel committee on Banking Regulations and supervisory practices”,
released a capital adequacy framework, now known as Basel-I. The accord, in its original form,
addressed only the credit risks in the bank’s operations. This meant that a bank with a higher
risk profile would have to maintain a higher quantum of regulatory capital. Basel-I accord had
a broad-brush approach under which the entire exposures of banks were categorized into three
broad risk buckets viz., sovereign, banks and corporates, with each category attracting a risk
weight of zero, 20 and 100 percent respectively. Basel-I accord addressed only the credit risk
and market risk in the banks’ operations, ignoring several other types of risks inherent in
banking activity such as operational risk.
Technology adoption has brought about many changes to the sector. Adoption of core
banking was a major initiative in the banking sector in India. Core banking system signifies the
integrated information technology components that enable a bank to manage its core business
activities in a centralised model. Core banking includes the processing of all the products,
services and information of the bank. Major information technology components of core
banking system include a robust banking application software, the hardware components and
network infrastructure, and centralised data processing at the backend. It is implemented at
central location to which various offices of the bank are connected. The shift towards core
banking system although initiated in the 1980s, gathered momentum in the 1990s, with
improved telecommunication facilities and reduction in hardware and networking costs.
Customers are no longer the customer of a bank branch alone but of the bank itself. Payment
systems have also undergone a major change in the period. A number of initiatives were
undertaken for bringing about efficiency in the payment and settlement systems. To reduce risk
in the electronic payment systems, the implementation of real time gross settlement (RTGS)
and national electronic fund transfer (NEFT) enabled receipt of funds on a real time or near to
real time basis.
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Financial inclusion is another area which has got much attention of late.
Notwithstanding the quantitative expansion of banks and branches, a significant portion of our
society is deprived of basic banking facilities. Banking system in India has not reached a
significant number of households in the rural area. This in a way suggests that the progress in
the financial system has not benefited the poorer sections of the society. In a developing country
like India, the basic issues such as poverty and unemployment cannot be addressed, unless the
banking service is made available to the poorer sections of the society. Financial inclusion
implies the provision of affordable financial services, that is access to payments and remittance
facilities, savings, loans and insurance services by the formal financial system to those who
tend to be excluded. Financial Inclusion has many benefits. This paves the way for
establishment of an account relationship which helps the poor people to avail a variety of
savings products and loan products for housing, consumption, etc. This also enables the
customer to remit funds at low cost. The government can utilize such bank accounts for social
security services like health and calamity insurance under various schemes for disadvantaged.
Financial inclusion calls for a collective effort by various agencies such banks, RBI,
Government etc. An improvement in the financial inclusion would produce benefits to the poor
rural households on one hand and banking community on the other.
MONETARY AUTHORITY
Reserve bank of India acts as the agency framing the monetary policy in India.
Monetary policy refers to the use of instruments under the control of the central bank to regulate
the availability, cost and use of money and credit. Main objectives of monetary policy include
maintaining price stability, ensuring adequate flow of credit to the various sectors of the
economy to sustain growth and achieving financial stability. The monetary policy department
(MPD) of the Reserve Bank of India formulates the monetary policy. The department is an
inter-disciplinary unit of the Reserve Bank with professional staff drawn from both operational
and research departments. The day to day liquidity management is handled by financial markets
department (FMD).
The management of monetary policy involves use of direct and indirect tools. The direct
tools include cash reserve ratio (CRR), statutory liquidity ratio (SLR), and refinance facilities.
CRR refers to the proportion of net demand and time liabilities that banks need to maintain as
cash with Reserve Bank of India. SLR refers to the proportion of demand and time deposits
that banks themselves need to maintain in the form of safe and liquid assets such as cash,
government securities etc. Refinancing facilities involve sector specific refinance facilities
against lending to specific sectors such as export sector.
The indirect tools include liquidity adjustment facility (LAF), open market operations
(OMO), market stabilisation scheme (MSS), repo/reverse repo operations and bank rate.
Liquidity adjustment facility involves daily infusion of liquidity on a repurchase basis, through
liquidity injection (repo) and absorption of liquidity using liquidity absorption auction (reverse
repo) operations using government securities as collateral. The rates at which repo and reverse
repo operations are conducted are expected to transmit the spread to the banking sector and to
the overall economy. Open market operations involve outright sale and purchase of government
securities outside repo operations to manage liquidity in the medium term. In market
stabilisation scheme introduced in 2004, liquidity of a more long standing nature arising from
large capital flows is absorbed through sale of short-dated government securities and treasury
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bills. The mobilised cash is held in a separate government account with the Reserve Bank.
Bank rate the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or
other commercial papers, and signals the medium-term stance of monetary policy.
The Reserve Bank explains the relative importance of its objectives in a transparent
manner, emphasises a consultative approach in policy formulation as well as autonomy in
policy operations and harmony with other elements of macroeconomic policies. It takes inputs
from various mechanisms and sources such as Technical Advisory Committee on Monetary
Policy, Pre-policy consultations with bankers, economists, market participants, chambers of
commerce and industry and other stakeholders, regular discussions with credit heads of banks,
feedback from banks and financial institutions, and internal analysis.
ISSUER OF CURRENCY
The Reserve Bank performs the traditional central banking function of managing the
government’s banking transactions, and also manages public debt. It can also act as banker to
state governments. In its role as banker to the government Reserve Bank pays and receives
money on behalf of the government, and where the bank lacks presence it may appoint other
banks as agents to make the transactions on behalf of the government. Reserve bank of India
also provides ways and means advances which are short term interest bearing advances to the
government. It acts as advisor to the government in banking and monetary matters if the
government asked to do so. It also manages the investment of surplus cash balances held by
the governments. As banker to the Government, the Reserve Bank works out the overall funds
position and sends daily advice showing the balances in its books, ways and means advances
granted to the government and investments made from the surplus fund. The daily advices are
followed up with monthly statements. The Reserve Bank manages the public debt and issues
new loans on behalf of the central and state Governments. The union budget decides the annual
borrowing needs of the central government.
BANKER TO BANKS
Banks need to retain a part of their demand and time deposits as cash with RBI. RBI
also facilitates interbank transactions. These functions as part of the “banker to the banks” role
are performed by the deposit accounts department at the regional offices of RBI. RBI also acts
as lender of last resort to various banks operating in the nation, by helping to ease out temporary
liquidity issues faced by the banks. This protects the interests of the depositors and also avoids
bank failure which can have ramifications on the larger economy as well.
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REGULATOR OF THE BANKING SYSTEM
RBI’s regulatory powers extends to the development financial institutions (DFI) and
non banking financial corporations (NBFC) as well. The Banking Regulation act, 1949
empowers the Reserve bank to regulate the banking system. The regulatory function is done
on ongoing basis. Board for Financial Supervision acts as the guiding force in the regulatory
initiatives.
With respect to commercial banks the regulations are framed by the department of
banking operations and development (DBOD) and the supervision is undertaken by department
of banking supervision (DBS). Some of the areas of regulation include the following.
Licensing
Corporate Governance
Statutory Pre-emptions
Interest Rate
Prudential Norms
Risk Management
Disclosure Norms
Know Your Customer Norms
Protection of Small Depositors
Para - banking Activities
On-site Inspection
Off-site Surveillance
Periodic Meetings
Fraud Monitoring
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Depositors insurance and credit guarantee corporation (DICGC) was setup to address
the need for protection of small depositors. Deposit insurance was introduced in India in 1962.
Banking crises and bank failures in the 19th as well as the early 20th Century had, from time
to time, underscored the need for depositor protection in India. The Deposit Insurance Scheme
was initially extended to functioning commercial banks. Deposit insurance was seen as a
measure of protection to depositors, particularly small depositors, from the risk of loss of their
savings arising from bank failures. The purpose was to avoid panic and to promote greater
stability and growth of the banking system. In the 1960s, it was also felt that an additional the
purpose of the scheme was to increase the confidence of the depositors in the banking system
and facilitate the mobilisation of deposits to catalyst growth and development. Gradual
deregulation of banking sector has resulted in banks venturing into non traditional banking
functions such as asset management, mutual funds, merchant banking etc, which broadly come
under para banking activities.
Alongwith strengthening the domestic banking system, RBI has a road map to slowly
enhance the presence of foreign banks in India. Quite a few foreign banks operate in India.
Based on the emerging scenario RBI periodically evaluates norms and regulatory mechanisms
for foreign bank operations in India.
Financial institutions provide credit to various sectors of the economy, such as small
industries, housing, export etc. Among the financial institutions which are under regulation and
supervision of RBI include National Bank for Agriculture and Rural Development
(NABARD), National Housing Bank (NHB), Small Industries Development Bank of India
(SIDBI) and Exim Bank. Prudential norms relating to asset classification, capital adequacy
ratio etc are applicable to these financial institutions as in the case of commercial banks. These
institutions are subject to on-site inspection and off-site surveillance as well.
Institutions meant to extend credit to the rural sectors include rural cooperatives and
regional rural banks. Rural cooperatives were one of first institutions to extend credit to rural
India. The cooperative banks are registered under state cooperative societies act or multi state
cooperative societies Act, 2002. The regulation of rural cooperative banks vests with rural
planning and credit department (RPCD) of the Reserve Bank of India, there supervision is
handled primarily by national bank for agriculture and rural development (NABARD).
Regional rural banks (RRB) were created under the regional rural banks act, 1976 and assigned
with playing a critical role in extending credit to agricultural and rural sectors, specially to the
agricultural labourers, small and marginal farmers, artisans and small entrepreneurs. RBI
undertakes the financial regulation of regional rural banks whereas the supervision is
performed by national bank for agriculture and rural development (NABARD). Income
recognition, asset classification and provisioning norms are applicable to RRBs as in the case
of commercial banks whereas capital to risk-weighted assets ratio (CRAR) norms are not
applicable.
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The regulation and supervision of areas related banking with respect to urban
cooperative banks (UCBs) are conducted by urban banks department (UBD) of RBI. Urban
cooperative banks (UCBs) are registered under respective State Co-operative Societies Act or
Multi State Cooperative Societies Act, 2002, and are envisaged to play a key role in extending
credit to low and middle income groups in semi-urban and urban areas. Urban cooperative
banks need to get license from RBI for banking and are also subject to prudential norms relating
to income recognition, asset classification, provisioning and capital adequacy ratio. They are
also subject inspections both onsite inspection and offsite surveillance. Urban banks
department carries out its various functions through its regional offices and the functions
include licensing, banking policies, supervision, and development. As part of development
initiatives the urban banks department undertakes training to the officials of urban cooperative
banks for upgrading the knowledge, skill and expertise.
Non banking financial corporations (NBFCs) play a major role in the financial system
of the nation. A Non-Banking Financial Company (NBFC) is a company registered under the
Companies Act, 1956 engaged in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local authority or other
marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business
but does not include any institution whose principal business is that of agriculture activity,
industrial activity, purchase or sale of any goods (other than securities) or providing any
services and sale/purchase/construction of immovable property. A non-banking institution
which is a company and has principal business of receiving deposits under any scheme or
arrangement in one lump sum or in instalments by way of contributions or in any other manner,
is also a non-banking financial company.
Unlike commercial banks NBFCs cannot accept demand deposits, do not form part of
the payment and settlement system and cannot issue cheques drawn on itself, and depositors in
NBFCs are not covered by deposit insurance facility provided by Deposit Insurance and Credit
Guarantee Corporation of India (DICGC). NBFCs are broadly divided into NBFCs that do not
accept public deposits which are known as NBFC-ND and NBFCs that accept public deposits
categorised as NBFC-D.
Traditionally the regulatory role of RBI was more active with respect to deposit taking
NBFCs or NBFC-Ds. In addition NBFC-NDs with assets of 100 crore and above were
classified as systemically important non deposit taking NBFCs or NBFC-ND-SI. With respect
to NBFCs accepting public deposits or NBFC-Ds, the Reserve Bank of India gives directions
with respect to quantum of public deposits, period of deposits, maximum interest rates payable
etc. NBFC-Ds are also subject to the prudential norms pertaining to asset classification,
accounting standards, income recognition, provisioning for bad and doubtful debts, capital
adequacy, credit and investment concentration. Additional disclosures in balance sheets are
also prescribed.
With respect to non banking financial corporations not accepting public deposits the
regulations are limited, however NBFC-ND-SIs having public deposits exceeding 100 crores
have to comply with exposure and capital adequacy norms. Periodic returns also have to be
furnished with RBI to facilitate offsite surveillance. Supervision of NBFCs is performed
through onsite inspections and offsite surveillance. Onsite inspection is done annually both for
NBFC-Ds and large NBFC-NDs, and inspection focusses on aspects of capital, asset quality,
management, earnings, liquidity and systems (CAMELS). As part of offsite surveillance,
several returns have to be filed by NBFCs to supplement onsite inspections.
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The Reserve Bank also regulates primary dealers in the government securities market,
credit information companies, and money market segment within financial market. Credit
information companies helps in gauging the track record of borrowers for the purpose of
extending credit.
Reserve bank of India act, 1934 empowers RBI to act as the custodian of foreign
exchange reserves and undertakes the responsibility of the prudential management of the
reserves. Foreign exchange reserves consist of foreign currency assets, special drawing rights
(SDRs) and gold. Special drawing rights (SDRs) are held by the government. This function has
become more challenging as the volume of reserves has increased over the years, and also the
volatility in the global foreign exchange market makes it difficult to maintain the level of
reserves.
The key parameters of RBI in maintaining of reserves are safety, liquidity and returns.
Within this role it includes objectives such as maintaining market’s confidence, enhancing
capacity to stabilise foreign exchange markets, limit external vulnerability, providing
confidence of managing external obligations thereby reducing cost incurred by market
participants in getting foreign exchange resources etc. RBI with consultations with the
government reviews the strategies to manage reserves. Prior to 1990s reserves were looked at
primarily as an import cover. The recommendations by the "high level committee on balance
of payments" chaired by Dr. C. Rangarajan (1993) market a significant shift in this, and the
committee stressed on sufficient reserves to meet external payment obligations, maintain a
level of confidence about India's repayment capacity among the international community, and
mitigate speculative tendencies in the market.
The Reserve Bank regulates and supervises the foreign exchange market in India, based
on the foreign exchange management act, 1999(FEMA). Prior to FEMA the focus of managing
foreign exchange was to control the market. The powers to control the market was endowed by
foreign exchange regulation act (FERA). Liberalisation in the post 1991 period saw many
changes such as increase in foreign trade, rationalisation in tariffs, increase in Indian
investments abroad, participation of foreign institutional investors in stock markets, increase
in foreign exchange reserves, etc. All this pointed to the need for a more rationalised regime
for managing foreign exchange resulted in enactment of foreign exchange management act in
1999.
With foreign exchange management act (FEMA) the objectives are to facilitate external
trade and payments, and supporting orderly growth of foreign exchange market. RBI gives
licenses for entities to act as authorised dealers in foreign exchange. Apart from liberalisation
of foreign exchange markets, norms pertaining to use of foreign exchange for travel purposes
such as technical study tours, higher studies, medical treatment, international conferences,
conducting business have also been liberalised. The restrictions on foreign investment has been
reduced in many sectors over the years. Foreign institutional investors (FIIs) are allowed to
invest in equity securities in primary and secondary markets, and also in mutual funds, debt
instruments, treasury bills etc. Foreign companies can also issue Indian depository receipts
(IDRs) subject to the approvals from regulatory agencies, to get funds from Indian investors.
Indian companies can also elicit funds from foreign investors by issue of global depository
14
receipts (GDR) and American depository receipts (ADR). Indian entities can expand abroad
through joint ventures and wholly owned subsidiaries. Indian companies can also source funds
using external commercial borrowings. Rules related to amount of remittances by residents
have been liberalised. Currency futures have been permitted regulation being done jointly by
RBI and securities and exchange board of India (SEBI), as currency futures are exchange
traded.
A robust and secure payment and settlement system is essential to ensure a proper
financial system. The RBI has initiated many reforms in this area, to ensure an efficient system
of payment and settlement between various entities in the financial system. Technology has
been leveraged in various functions such as image based cheque processing, interconnection
of clearing houses etc.
Electronic fund transfer has been implemented which enable an account holder of a
bank to electronically transfer funds to an account holder of any other participating bank. Real
time gross settlement (RTGS) facilitate interbank payments and also customer transactions
involving larger amounts of money. For settlement of trade in foreign exchange, government
securities and other debt instruments RBI setup the Clearing corporation of India Limited
(CCIL). National payments corporation of India (NPCI) acts as umbrella system for the various
retail payment systems. NPCI is expected to enhance the efficiency and reach of retail
payments. The payment and settlements systems act, 2007 sets out Reserve Bank of India as
the agency to regulate and supervise the various payment systems, and only payment systems
approved by Reserve Bank should be operated in India.
DEVELOPMENTAL ROLE
Reserve Bank has played a key role in the development of the nation. It tries to ensure
that credit is extended to productive sectors of the economy. It has a played a key role in the
government’s goal of achieving financial inclusion by extending banking services to all. The
priority sector lending scheme initiated in 1974 played a key role in extending credit to many
sectors which were underbanked. The scheme was extended to other commercial banks by
1992. The priority sector categorisation is based on the goal of holistic development and those
sectors are prioritised which impact large segments of population, which are labour intensive
and which uplift the weaker sections of the society. Agriculture and small industries are among
the sectors designated under this category. The specific criteria for priority categorisation has
been revised many times since inception of the scheme.
15
Under the Lead bank scheme started in 1969, one bank was designated as responsible
for the holistic development of a district, and to coordinate the efforts of other banks and
various agencies to this end. As India had development programs based on five year plans one
of the necessities was creation of institutions to ensure that the funds are channelized to right
sectors as envisaged by the five year plans. In this direction RBI has played major role in
establishing many a financial institutions in India. Since independence, and especially after the
nationalisation phase although banking sector has grown in volume and competitiveness, it was
felt that banking facilities had not yet reached the underprivileged sections of the society. To
this end of achieving financial inclusion RBI wanted to extend basic banking services to all
sections of the population, and has been working towards this end. There is also regional
imbalances in the spread of banking services across India, and RBI has initiated efforts to
address this need. The Kisan Credit Card (KCC) Scheme was introduced in the year 1998-99
to enable the farmers to purchase agricultural inputs and draw cash for their production needs.
Under the scheme, the limits are fixed on the basis of operational land holding, cropping pattern
and scales of finance.
Reserve Bank of India, periodically publishes many reports based on its operations and
also on the overall trends of the economy, including "The Report on Trend and Progress of
Banking in India". RBI also publishes recommendation reports by the various committees it
has setup, and also discussion papers prepared by internal experts. "The Handbook of Statistics
on the Indian Economy" was started in 1996 and provides statistical data on wide range of
economic indicators. The reports published on annual basis include "Annual Report", "Trend
and Progress of Banking in India", "A Profile of Banks", "Basic Statistical Returns of
Scheduled Commercial Banks in India", "Handbook of Statistics on Indian Economy".
16
CHAPTER II
ORGANIZATIONAL PROFILE
1.2.1 INCORPORATION AND HISTORY OF SOUTH INDIAN BANK
One of the earliest banks in South India, "South Indian Bank" came into being during
the Swadeshi movement. The establishment of the bank was the fulfilment of the dreams of a
group of enterprising men who joined together at Thrissur, a major town (now known as the
Cultural Capital of Kerala), in the erstwhile State of Cochin to provide for the people a safe,
efficient and service oriented repository of savings of the community on one hand and to free
the business community from the clutches of greedy money lenders on the other by providing
need based credit at reasonable rates of interest. The South Indian Bank Limited (SIB) was
incorporated on January 29, 1929 as a private limited company and was later converted into a
public limited company on August 11, 1939. Translating the vision of the founding fathers as
its corporate mission, the bank has during its long sojourn been able to project itself as a vibrant,
fast growing, service oriented and trend setting financial intermediary.
The South Indian Bank has created for itself a new logo and image recently. With
branches all over India and a clientele across the world, the bank is considered one of the most
proactive banks in India with a competent tech savvy team of professional at the core of
services. The reasons for the growth include a strong presence in South India with increasing
pan-India presence, presence of experienced management team, operations based on a proven
business model and growth track-record, large customer base resulting in increasing deposit
franchise, high focus on risk management and leveraging a strong technology platform which
is essential for a bank to deliver in this age, diversified advances portfolio with growing thrust
on retail.
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1.2.2 VISION AND MISSION
An organisation’s vision decides the direction the organisation has to take in the coming
years. It directs the efforts of the organisation towards this vision. South Indian Bank’s vision
is as given below.
“To be the most preferred bank in the areas of customer service, stakeholder value and
corporate governance.”
While vision gives a long term direction for a firm, mission tries to translate vision the
medium term, by defining what needs to be realised in the medium term. Mission acts as the
basis for framing objectives and goals for organisation and the employees. The mission of
South Indian Bank is as follows.
“To provide a secure, agile, dynamic and conducive banking environment to customers with
commitment to values and unshaken confidence, deploying the best technology, standards,
processes and procedures where customer convenience is of significant importance and to
increase the stakeholders’ value.”
The shareholding pattern can be broadly divided into institutional and non-institutional
shareholders. Institutional shareholders include mutual funds, insurance companies, foreign
institutional investors etc, who as of march 2015 hold around 41% of the shares. Non-
institutional shareholders include individuals, corporate bodies, foreign portfolio investors etc,
who together hold around 59% of the shares. As of march 2014, there were 134,39,47,561
shares of Rs.1 each. The Bank’s shares are listed on, The Cochin Stock Exchange Ltd (CSE),
The Stock Exchange Mumbai (BSE), The National Stock Exchange of India Ltd Mumbai
(NSE). The Bank has entered into agreements with National Securities Depository Limited
(NSDL) and Central Depository Services (India) Ltd (CDSL) from September 2000 onwards
to enable the shareholders to dematerialize their share holding in the Bank. The Bank’s shares
are now traded in demat form only. Although trading is in demat form, conversion of shares in
demat form is optional. If a member so desires, the shares can be held in physical form also.
But any buying or selling of such shares would be possible only in dematerialised form at stock
exchanges now.
The bank was founded in 1929 in Thrissur, where its corporate office is located. The
address of the corporate office is as below.
CORPORATE OFFICE
South Indian Bank Ltd.
Head Office
T.B Road,
Mission Quarters,
Thrissur 680 001
Kerala, India
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As of 2014, South Indian Bank has been successful in widening its presence pan India
with around 800 branches and 9 service branches. The branch network now covers 29 states /
union territories and has a network of more than 1000 ATMs. State wise as of 2014 Kerala has
the maximum number of branches of the bank with 441 branches of the bank, followed by
Tamil Nadu with 139 branches.
The organisation structure has the board of directors and managing director at the top,
followed by senior vice presidents, chief general manager, general manager, deputy general
manager, assistant general manager, chief manager, senior manager, manager, assistant
manager and then the staff belonging respective functions.
19
The departments under corporate office include departments related to corporate
financial management, legal department, division for non resident Indians (NRI), personnel
department, inspection and vigilance, planning and development department, grievance
redressal, credit sanctions, credit monitoring, legal department, compliance department etc.
Planning and development department’s responsibilities chart out the plans for new
branches, branch development, shifting of branch locations. The department also plays a role
in deciding the interest rates. Inspection and vigilance department has the responsibility to
undertake internal inspections.
The credit sanctions and credit monitoring departments perform the role of analysing
credit history, credit sanctioning and monitoring, and also take necessary steps for recovery of
credit. Legal department has the responsibility of looking into legal matters such as legal suits,
and examining legal documentation.
Human Resource is the major catalyst for effective and efficient operation of any
organization. The bank has a team of committed, self-motivated and empathetic workforce,
who strive to meet the customers’ requirements, and at the same time, also meet the bank’s
targets. Personnel department plays a role in ensuring that the right person is recruited to the
right roles. The department takes care of recruitment, training, leaves etc. The major talent
acquisition initiatives of the bank include local/general recruitments and campus recruitments
of clerks and officers from Colleges/Business Schools all over India. Personnel department
also looks after the disbursal of salary, medical aid etc. The Bank accords utmost importance
to human resources development. The training programmes are designed to develop
competency of operating personnel while imbibing the spirit and culture of the organisation
through an effective learning process. Industrial relations in the bank have been cordial and
harmonious. The representatives of workmen union, officers association and management have
been working collectively with a sense of ownership for all-round growth and prosperity of the
Bank. On account of cordial industrial relations, bank has achieved considerable growth over
the years.
The bank has undertaken many brand promotion initiatives in various media like
newspaper, television, radio, outdoor and online media. “SIBLINK”, Bank’s corporate
magazine, has been functioning as an internal tool educating and motivating the staff for better
performance. It is published every quarter. Students’ economic forum is a monthly publication
from the staff training college and it provides an analysis of contemporary themes relating to
developments in economy, banking and finance. The objective of this venture is to kindle
interest in economic affairs among the younger generation and also to provide a learning
platform to the student community.
The Bank’s corporate social responsibility policy strictly conforms to the guidelines of
RBI and Ministry of Corporate Affairs. The bank focuses on major areas like education, health
20
care, sustainable livelihood, Infrastructure development and social causes. As a part of CSR
initiative, the Bank has contributed to education, healthcare initiatives and social causes. The
Bank has provided school kits to poor students and provided financial assistance for the
maintenance of schools.
The business of South Indian Bank can be broadly divided into personal banking, NRI
banking and business banking facilities.
Personal banking business includes accounts and deposits, loans, mutual funds,
insurance and money transfers. Under accounts and deposits South Indian Bank offers
customers option of opening savings accounts, term deposits etc. Within savings account
various features are provided to customers as per need. Term deposits offer opportunities for
investing and earning high amount of returns under various schemes of deposits including fixed
deposits, recurring deposits, annuity deposit schemes etc.
The loan portfolio offered by South Indian Bank includes personal loans, home loans,
educational loans among others. Mutual fund is a popular form of investment since it provides
the advantages of professional portfolio management and dividend reinvestment. South Indian
Bank has tie-ups with major mutual funds which the customer can choose from to invest in.
The bank gives the opportunity for customers to avail insurance products from major providers
of insurance in life insurance, health insurance etc. With all its branches under core banking
system, the bank allows money transfers to other branches and also branches of other banks.
Some of other value added services provided by the bank include any branch banking, internet
banking, mobile banking, demat services, applications supported by blocked amount (ASBA)
etc.
South Indian Bank provides various products and services for non resident Indians. For
non resident Indians (NRIs) bank provide various services such as Non Resident External
Rupee Account (NRE), Non Resident Ordinary Rupee Account(NRO) etc. The loans extended
to NRIs includes mainly personal loans and home loans. The bank also offers facilities for
money transfer within and outside India. In cooperation with major insurance providers the
bank provides offers life insurance, health insurance and other products to its NRI customers.
Other value added services provided to NRIs include internet banking, mobile banking, demat
services etc.
For business customers, South Indian Bank offers different types of business accounts
such as current account, overdrafts(OD), cash credits(CC) etc. These accounts allow the
convenience of conducting day-to-day banking operations, in addition to offering working
capital credit requirements. Business accounts comes with facilities such as unlimited
transactional facilities, cheque book facility, deposit cash to account from any of the branches,
make balance inquiries, get statement of accounts etc. A business requires a constant flow of
finance for its growth. The finance can be from various sources, including bank finance. The
bank extends short term finance by way of inventory limits in the form of overdraft, cash credit,
working capital term loan etc.
21
credit limit granted by the bank and is operated in almost the same manner as an overdraft
account. When the advance is secured by the pledge/hypothecation of goods or produce, it is
treated as a cash credit account.
To cater to the high growth export sector, South Indian bank offers pre-shipment credit
to take care of purchase and processing of raw materials, for making the goods ready for export.
Also post-shipment credit is extended to exporters against assured sale receivables, till the
actual sale proceeds are realized. South Indian Bank facilitates insurance through Export Credit
Guarantee Corporation (ECGC). With respect to import finance, the bank offers letter of credit
services, remittance services, import bill collection services etc.
The Bank has effectively leveraged technology and introduced several variants of
traditional products and new e-based services, tailor made to the diversified needs of customers.
Technology services like automated teller machine cards (ATM), internet banking, mobile
banking etc., have transformed the customer’s banking experience from branch banking to
anytime, anywhere banking. The marketing department that focusses on the technology
products delivered by the bank, and the department in creating awareness on products and
promoting products by driving customer-centric campaigns.
All the branches of the Bank are inter-connected and are capable of providing online,
real-time transactions to its customers. As information is centralized and updates are available
simultaneously at all places, single-window service has become possible, leading to effective
service-delivery to customers. Customers can deposit / withdraw freely without any tariff
charge from any branch.
INTERNET BANKING
The internet banking service under the brand name “SIBerNet” has helped to position
the Bank as a technology-driven bank offering superior services to both retail and corporate
customers. It helps to avail banking services and e-commerce through internet. SIBerNet is
available in two modes - SIBerNet Personal and SIBerNet Corporate, wherein "SIBerNet
Personal" is primarily for individuals and "SIBerNet Corporate" for organisations such as
companies, partnerships etc. The bank has also introduced direct and indirect tax payment
facility for its retail and corporate Customers.
MOBILE BANKING
Mobile banking services help customers maintain a virtual connection with the Bank at
all times. SMS, SIB M-Pay and SIB M-Passbook are the mobile banking based services
currently offered by the Bank. SIB Mobile Service (SMS) enables customers receive instant
intimation on their account activities via SMS alerts and also enquire important information
over SMS. Registration for SIB Mobile service can be done at the customer's branch either at
the time of opening of account or at any later stage. The enhanced mobile banking service of
bank "SIB M-Pay", offers 24x7 inter/intra bank fund transfers, with immediate credit of the
beneficiary account. The fund transfer facility is facilitated through the IMPS (Immediate
Payment Service) platform of National Payments Corporation of India (NPCI).
22
1.2.6 INNOVATIVE PRACTICES
With its innovative practices South Indian Bank has been a leader with respect to many
areas of operations.
The first among the private sector banks in Kerala to become a scheduled bank in 1946
under the RBI Act.
The first bank in the private sector in India to open a Currency Chest on behalf of the RBI
in April 1992.
The first private sector bank to open a NRI branch in November 1992.
The first bank in the private sector to start an Industrial Finance Branch in March 1993.
The first among the private sector banks in Kerala to open an "Overseas Branch" to cater
exclusively to the export and import business in June 1993.
The first bank in Kerala to develop an in-house, a fully integrated branch automation
software in addition to the in-house partial automation solution operational since 1992.
The third largest branch network among private sector banks, in India, with all its branches
under Core banking System.
The banking sector in India is sound and well-regulated. Indian financial and economic
conditions are much better than in many other countries of the world. The banking sector in
the coming years offers many opportunities of growth which South Indian bank, with its
inherent strengths should be able to capitalise on.
STRENGTHS
The bank has many inherent strengths which can help it to leverage the opportunities
and tide over potential threats as seen below.
23
OPPORTUNITIES
Indian banking sector expected to be among large banking systems in the world by 2025.
Ongoing reforms towards improving the performance of the Indian banking sector.
THREATS
South Indian bank has a well-defined strategy based on the inherent strengths of the
bank, and the opportunities and threats present in the macroeconomic environment. Some of
the facets of the bank’s strategy to move forward in the years to come are given below.
The bank plans to increase share of retail to 65% respectively by financial year 2017,
by focussing on small and medium enterprises, home loans and vehicle loans with competitive
pricing and centralised monitoring. The bank has also initiated a number of structural and
cultural changes to increase the focus on profitable growth including training branch and
regional managers to increase cross-selling across products and improving efficiency further
by increasing mobile and internet interface.
The bank plans to leverage the high credibility and perception in Kerala, by increasing
bank’s presence in new states. Branch network is planned to expand to 825 and automated
teller machine (ATM) network to expand to 1,250 by financial year 2015.
High focus on reducing risks and thus reducing earnings volatility, by strong check on
stressed assets to maintain asset quality, focus on high rated companies for corporate advances.
Significant investment is planned in fraud detection, integrated risk management and CRM
packages. There is also initiative to reduce cost to income ratio by 1% per annum.
24
1.2.9 ACCOLADES AND RECOGNITIONS
South Indian Bank has a long history of the growth and has been able to sustain its
momentum through the years. The bank has won many accolades and recognitions in this
journey. Some of the awards and accolades received by the bank in this journey are given
below.
2006 -South Indian Bank won a special award for excellence in Banking Technology from
IDRBT (Institute for Development and Research in Banking Technology), the technical
arm of the Reserve Bank of India.
2010 - South Indian Bank won the Technology Excellence Award 2010 from IDRBT
(Institute for Development and Research in Banking Technology) - the technical arm of
the Reserve Bank of India.
2011 - South Indian Bank bagged the best web site award from Kerala Management
Association (KMA).
2011 -South Indian Bank awards for asset quality and priority sector lending in the Dun
&Bradstreet Banking awards.
2012 - South Indian Bank received the “Banking Technology Excellence Award 2011-12
from IRDBT (Institute for Development and Research in Banking Technology)
2013 - South Indian Bank Bags Mastercard Innovation Award for Activation And Usage
Program.
2013 - South Indian Bank, won four coveted national awards in mid-sized bank category
- 1. Best Banker Award, 2. Best Private Sector Banker Award, 3. Best Banker- All Round
Expansion Award and 4. Best Banker - Efficiency and Profitability Award, in the Sunday
Standard Best Bankers -2013 Awards instituted by The New Indian Express Group.
Special recognition among private sector banks “Banking Frontiers - Inspiring Work
Places Award” during the year 2014-15.
25
SECTION II
26
CHAPTER I
PROBLEM FORMULATION
2.1.1 TITLE OF THE STUDY
Banks play a key role in the economy of a nation. They extend credit to various sectors
of the economy including individuals and businesses. They also play a key role in financial
inclusion. Banks over the years and especially after the reforms in the 1990s have changed
immensely in terms of technology, level of customer service etc. The banking system in India
includes commercial banks and cooperative banks. Commercial banks accounts for a
significant portion of assets. A healthy commercial banking ecosystem is essential for holistic
development of any economy.
The first section of this report which has information on the industry profile of the
banking sector as a whole and also on the profile of South Indian Bank as an organisation, is
intended to give an overview of South Indian bank and its functioning. The industry profile
gave an overview about the history of the banking sector, the importance of the sector, the key
reforms that happened, the regulatory mechanism etc. Further the profile of the organisation
covered the areas such as history of South Indian Bank, its organisation structure, milestones
in its growth story, the future plans, recognitions received etc.
Although these inputs on the industry and the organisation act as valuable inputs in
evaluating an organisation, but from the perspective of a financial analyst it is more important
to evaluate the organisation based on a methodical analysis of the financial statements
published by the organisation using various techniques. Firms periodically publish the financial
statements based on the revenues, profits, and expenses incurred as part of their business. But
a cursory view of these financial statements would hardly be sufficient to gauge the financial
health of the organisation. Based on the patterns that emerge from the systematic financial
analysis of the statements and the understanding gained on the interrelationships among various
variables over the years, the analyst arrives at a reasonable conclusion on the financial health
of the firm. The financial figures in the financial statements when taken in isolation might not
give a clear picture about the financial health of the firm. The figures give meaning when seen
in the context of other critical pieces of information presented, and also their variation over the
course of multiple years. So to get a better understanding techniques of financial analysis such
as time series analysis, ratio analysis would be needed.
The technique of ratio analysis include analysis based on various ratios such as liquidity
ratios, profitability ratios, leverage ratios, turn over ratios etc. Again based on the needs of the
researcher, whether the research is being done for the management, or for a shareholder, or for
a creditor, the type and nature of ratio analysis will vary. Ratio analysis can helps in various
ways such as assessing the current financial health of the firm in terms of profitability, making
forecasts about future performance of the firm, gauging the efficiency of operations, indicate
the liquidity position of a firm and act as a tool for the efficient management of the firm.
27
At the same time it is important to note that ratios are only a means to gain an
understanding of the firm, and the interpretation of ratios is also significant. Moreover a single
ratio alone might not give the complete picture of the firm. So multiple ratios might have to be
calculated and the inter-relationships would need to be analysed.
Analysis of financial statements for one year would not be sufficient to gauge a holistic
understanding about the performance of the firm. Data pertaining to a single year alone could
be unduly influenced by some temporary factors which might not be applicable in the future.
So an assessment based on a single year, can result in forming wrong conclusions or forecasts.
To this end it is better to analyse the financial statements pertaining to multiple years to get a
holistic understanding and also bring out the underlying patterns in variation over the years.
Such an analysis based on time series data for multiple years would also reveal the direction in
which the variable or ratio is moving, and give insights on the causes for the movement. The
time series can also reveal any areas of potential concern with respect to efficiency or
profitability which might need to be addressed by the management.
The profitability ratios include gross profit ratio, net profit ratio, operating ratio, return
on equity, return on investment. There are also ratios used for valuation such as earnings per
share, dividend payout etc. Ratios such as operating expenses ratio and interest expenses ratio
reveal the trend with respect to change in expenses as compared to income earned. Asset
turnover ratios reveal efficiency in generating income using the assets of the firm. The amount
of capital and reserves and capital adequacy ratios depicts the ability of the bank to withstand
any unexpected crises. There are also ratios more relevant to the banking sector such as
investment deposit ratio, credit deposit ratio, cost to income ratio. Investment deposit ratio
shows level of investments made by the bank, and investment in safe and secure investments
provide additional liquidity at the disposal of the bank along-with income in the form of interest
from the investments. Cost to income ratio is an indicator of overall efficiency of the bank.
Credit deposit ratio shows the extent to which the deposits mobilised by the bank has been used
to extend credit to the economy, at the same time a very high growth in the ratio can imply a
higher level of risk being taken by the bank.
The financial health of banking sector and banks are key to a robust economy. Financial
analysis gives a perspective on the financial health of the firm, which can be used for decision
making by various stakeholders such as management, shareholders, investors. Financial
statements published by the firm gives lot of data, but an investor or a researcher employs
advanced techniques to make an informed assessment. Financial analysis studies the firm from
different perspectives of financial health, such as efficiency, profitability, safety etc. Financial
analysis makes use of the data published in the financial statements, to arrive at values for
various commonly adopted measures of performance. The values obtained for these measures
help the analyst to arrive at an assessment of the firm's health and performance. Banks source
funds from deposits and earn income from extending credit. The efficiency of a bank is
displayed by minimizing the cost in doing this function. In addition to income from credit
extended, banks also get income from investments made. Bank also earns non-interest income
from fee based transactions, which also needs to be accounted while doing the analysis. All
these aspects needs to be looked at as part of the analysis. A detailed analysis will be able reveal
the strengths of the bank and areas of concern if any, and will help in charting out the strategy
28
for the future. Another aspect which merits attention is that banking being a well regulated
sector operates based on guidelines and directions of the Reserve Bank of India. Variables
related to regulatory guidelines such as capital adequacy reflect the ability of the bank to
withstand shocks. So an analysis of such regulated variables would also be needed. Credit
deposit ratio depicts the proportion of credit extended by the bank using the earnings from
deposits, a very high proportion can reveal a higher level of risk.
There is also the challenge that data in financial statements could be voluminous to
allow for quick analysis by an investor or top management. So an inference directly based on
the numbers in the financial statements might not be easy. But when financial analysis is
performed and the results and underlying relationships are presented in a pictorial or graphical
form, it is easier to make inferences. If the graph can present the change in the underlying ratios
and relations over multiple years as a time series, it helps the researcher to gauge the patterns
that emerge, which can be used as a basis for evolving forecasts and strategies for the future.
29
CHAPTER II
RESEARCH PROCESS
The objectives include study of various aspects such as profitability, liquidity, reserves,
regulatory compliance etc. Based on a study of all these aspects a holistic assessment of the
financial health is to be arrived at. The specific objectives of the study are as mentioned below.
Analyse the change and direction in terms of important variables related to income and
expenses of the bank.
Understand the variables and ratios that can influence the efficiency of the bank and
their pattern of changes over the years, such as net interest income, interest expenses
ratio, operating expenses ratio, profit margin.
Study the robustness of banking operations, using measures commonly adopted in
banking sector such as credit deposit ratio, investment-deposit ratio, cost to income
ratio, total business etc.
Study the key variables from an investor perspective such as return on investment,
return on equity. Analyse variables related to returns to shareholders such as earnings
per share, dividend pay-out etc.
Understand the amount of capital and reserves which helps to withstand in case of
unexpected events in the sector.
Study the efficiency in earning income using the assets of the bank.
Study variables related to regulatory compliance by the bank.
Gain understanding the inherent strengths of the bank which helped in its growth over
the years. Gain insights on the opportunities and challenges facing the banking sector.
The scope of study would be the financial analysis of the South Indian Bank ltd, based
on the financial statements published by the bank on a periodic basis. The study would
predominantly focus on the data over the last three years, to gain insights on aspects such
profitability, efficiency, regulatory compliance. The study would use methods such as time
series analysis, ratio analysis to delve into the interrelationships among the variables over the
years. The study intends to capture the pattern of growth during the period, as the bank is
planning to expand the operations at a national level. Variables and ratios commonly studied
in banking such as net interest income, total business, interest expense ratio, credit deposit
ratio, cost to income ratio would also be studied.
The inputs for the study will be financial statements of the bank. The techniques used
for analysis would include time series analysis of key variables and ratio analysis to deduce the
30
inter-relationships between variables. Ratio analysis includes study based on profitability
ratios, liquidity ratios, turnover ratios etc. Bank being a financial services organisation without
any manufacturing operations, the ratios typically applied in a manufacturing context might
not be meaningful or applicable. For example inventory turnover ratio, which would be
important for a manufacturing firm might not be relevant in a banking context. Also there are
some ratios specific to banking and financial services such as credit deposit ratio, investment
deposit ratio, cost to income ratio which have been included as part of the analysis. For these
ratios the definitions and guidelines of the Reserve bank of India has been used.
The data needed for each step of analysis would be presented in tabular form with the
values for the underlying variables, for each of the years given in the table. Further for ease of
the interpretation the results of the analysis would be presented in appropriate pictorial forms
such as graphs. Formulas needed to be applied as part of the analysis they would be given as
part of the analysis and further explanation of the variables would also be given. Also the
significance of the variables and the components involved are also presented as part of the
analysis. As all the ratios used in a typical analysis might not be relevant in a banking context,
so a preliminary analysis need to be done to analyse the ratios, which holds relevance in a
banking context and which could be arrived at using the data available in financial statements.
On the basis of the preliminary analysis the study was decided to consist of analysis of the
trends related to some of the key variables, commonly used ratios in banking, profitability
ratios, asset turnover ratios, and finally analyse performance of the bank with respect to
banking regulations such as Basel norms. Banking involves balancing of risks and return,
concern of higher return should also consider the risks involved, and the ability of the bank to
withstand shocks. To this end apart from profitability and efficiency, measures of safety such
as capital adequacy as part of Basel norms have also been included in the study. Based on
viability and relevance the below mentioned variables and ratios were decided to be studied.
31
2.2.3.2 LIMITATIONS OF STUDY
Unlike a manufacturing firm, a bank being a provider of services of diverse variety, the
ratios relevant in manufacturing might not give a holistic picture in case of banks.
The analysis is based on quantitative aspects so qualitative factors might get missed.
Variable and ratios could be influenced by the price level changes during the period, eg:
operating expenses.
Lack of standard norms in usage and interpretation of ratios. To mitigate this challenge, as
much as possible definitions given by the Reserve Bank of India has been adhered to as
part of the study.
The data being used would be the financial statements periodically published by South
Indian Bank. The required data over the three years 2013, 2014, 2015 would be taken from the
respective annual financial statements for these years. Time series analysis and ratio analysis
of the underlying variables are the methods used as part of analysis. The data used as part of
analysis would be shown in tabular form, and the result of analysis would be represented using
graphs.
The annual financial statements of South Indian Bank Ltd published periodically has
been used for the purpose of conducting the study on financial analysis. The financial
statements of the bank over the last three years has been used for conducting the study. The
study of the data over the last three years would give insights on the pattern of growth shown
by the bank and on the strategy employed to sustain growth. It would also show how well the
bank has been able to face the challenges facing the banking sector over the last few years in
the period following the global economic turmoil. All amounts used for the purpose of the
study are in terms of Indian rupees.
32
CHAPTER III
TABLE 1
Table 2013 2014 2015
TOTAL INCOME 476922 538353 578329
(In lacs of rupees)
700000
600000
500000
400000
300000
200000
100000
0
2013 2014 2015
YEAR
TOTAL INCOME
It can be seen that the total income has been increasing year on year. From that of
476922 lacs in 2013, the total income has increased to 578329 lacs in 2015. This shows a
consistent increase in income. From 2014 to 2015 there is a 7.4 % increase in total income.
Overall as compared to 2013 there has been 21 % increase in total income from that of 2013.
The increase in total income is a result of increase seen both in terms of interest income and
other income during the period. The main income of bank is interest income, but non-interest
income can also help in sustaining the income especially as the competition in the banking
sector increases.
33
2.3.2 INTEREST INCOME EARNED
Banks earn a major portion of the income from interests. The interests mainly include
interest/discount on advances/bills, income on investments and interest on balances with
Reserve Bank of India and other inter-bank funds. All these three components contribute to the
total interest earned by the bank.
a) Interest/discount on advances/bills
b) Income on investments
c) Interest on balances with Reserve Bank of India and other inter-bank funds
The amount earned from interest/discount on advances/bills for years ending 2013,
2014 and 2015 are as given below. Amounts are in lacs of rupees.
TABLE 2
Table 2013 2014 2015
Interest/discount 357594 394974 415297
on advances/bills
500000
400000
300000
200000
100000
0
2013 2014 2015
YEAR
Interest/discount on advances/bills
34
The income from “income on investments” for the years ending 2013, 2014, 2015 are
as given in table below. Amounts are in lacs of rupees.
TABLE 3
Table 2013 2014 2015
Income on 74639 95448 105373
Investments
250000
200000
150000
100000
50000
0
2013 2014 2015
YEAR
Income on investments
Bank also earns interest on balances with Reserve Bank of India, and interbank funds.
The respective amounts in lacs of rupees are given in table below. This income has seen a
decrease over the period from 2013 to 2015. Amounts are in lacs of rupees.
TABLE 4
Table 2013 2014 2015
Interest on balances
with RBI and other 11196 11085 7952
inter-bank funds
25000
and other Inter-bank funds
20000
15000
10000
5000
0
2013 2014 2015
YEAR
35
2.3.3 INCOME – OTHER INCOME
The earnings under the head “other income” is shown in table below. Other income acts
as an additional source of income for banks apart from interest income. Increase in other
income adds to the total income and can enhance the profitability of the bank. Other income
mainly consists of income from foreign exchange, transaction charges, automated teller
machine(ATM) fees, profit on sale of investments etc.
TABLE 5
Table 2013 2014 2015
Other income 33493 36846 49707
(in lacs of rupees)
40000
30000
20000
10000
0
2013 2014 2015
YEAR
Other income
As can be seen there has been a consistent increase in earnings under the head "other
income". Other income increased by 34.9% from 2014 to 2015, during the year with
contribution from treasury, forex and automated teller machine (ATM) usage fees. The treasury
services segment primarily consists of gains or losses on investment operations and earnings
from foreign exchange business.
In order to further enhance the income under head the bank is planning various
strategies such as focussing on remittances from non-resident Indians (NRI) and currency
conversion, expanding the automated teller machine (ATM) network. The foreign exchange
business of the bank has seen an increase over the years, and the bank has been working to
further enhance this. The ATM network has expanded to around 1200 ATMs, with more
planned to opened in the years to come. As banks might not be able to exert much control over
varying the interest rates or enhancing the interest income, increasing the non-interest income
would be key to profitability in the years to come. South Indian bank has also focussed on
increasing the non-interest income as part of its strategy for the future.
36
2.3.4 TOTAL EXPENDITURE
The total expenditure for years ending 2013, 2014, 2015 are as given in table. This
expenditure involves two components which are interest expenses paid and the operating
expenses, but excludes provisions and contingencies. Control of expenditure plays an
important role in enhancing profitability of the bank. To this end financial reporting and other
internal control systems are employed by the bank, for continuous monitoring and control over
expenses.
The interest expenses include the interest paid on deposits and interest paid on
borrowings from the Reserve Bank of India and on inter-bank funds. Operating expenses
include employee expenses and other operating expenses such as printing, stationery,
advertisement and publicity, postage, telephones, maintenance, auditor’s fees, law charges etc.
TABLE 6
Table 2013 2014 2015
Total expenditure 392063 449918 496703
(In lacs of rupees)
1000000
800000
600000
400000
200000
0
2013 2014 2015
YEAR
EXPENDITURE
The total expenditure has seen increase over the years. Two components of the total
expenditure namely interest expense and operating expense has increased during the period
resulting in the overall increase. There was 10.4 % increase in the expenditure from 2014 to
2015. Due to regulatory limits and market forces, controlling interest expenses might not be
easy. Technology is expected to play a role in bringing down operating expenses. With advent
of technology, the classical big size branch concept has given way for modern compact high
tech banking. With the popular adoption of technology initiatives such as internet banking,
mobile services the operating expenses are expected to decline over time.
37
2.3.5 INTEREST EXPENDED
For banks one of the key areas of expense is the interests paid back, and constitutes a
major component of expenses of any bank. The interest expenses incurred by the bank in the
years ending 2013, 2014, 2015 are as given in the table below.
TABLE 7
Table 2013 2014 2015
Interest Expended 315346 361629 391999
(in lacs of rupees)
1000000
800000
600000
400000
200000
0
2013 2014 2015
YEAR
Interest expended
The interest expense includes the expense incurred by the bank for payment of
interest on deposits made by customers. It also includes interest expended on Reserve Bank of
India/inter-bank borrowings. As seen the interest paid has increased from 315346 lacs in 2013
to 391999 lacs in 2015. From 2014 to 2015, there is an 8.4 % increase in interest expended.
Banks take deposits under various type of accounts such as current accounts, savings account,
term deposits. While a current account is primarily meant for transaction purposes and are
usually maintained by companies, public enterprises and business firms for meeting their day-
to-day requirement of funds, and does not have restrictions on number of withdrawals. Savings
accounts are maintained for both transaction and savings purposes mostly by individuals and
households, and usually have stipulations on number of withdrawals. Current account and
savings account generally incur lower interest expenses, whereas term deposits incur a higher
level of interest expense to be paid. South Indian bank has put in place concerted efforts at
branch level to enhance the level of current account and savings account as a proportion of
total deposits. As per annual reports published by the bank, current account and savings account
as a proportion of total deposits has increased from 18.6 % in 2013 to 20.6 % in 2015, and
plans are in place to further increase this proportion. The increase in current account and
savings account proportion can bring down the interest expenses.
38
2.3.6 OPERATING EXPENSES
Operating expenses over the years ending 2013, 2014, 2015 are as given below. These
are expenses of the bank other than the interest expenses incurred.
TABLE 8
Table 2013 2014 2015
Operating Expenses 76717 88289 104704
(in lacs of rupees)
250000
200000
150000
100000
50000
0
2013 2014 2015
YEAR
OPERATING EXPENSES
The operating expense include expenses on employee expenses and other operating
expenses. Employee expenses include expenses on salaries, gratuity, pension etc. Other
operating expenses include printing, stationery, advertisement and publicity, postage,
telephones, maintenance, auditor’s fees, law charges etc. The operating expenses has shown a
rising trend in the period from 76717 lacs in 2013, to 88289 lacs in 2014, to 104704 lacs in
2015. From 2014 to 2015 there was a 18.7 % increase in the expenses. Cost effectiveness is an
important factor in competitiveness of banks, and there is an increasing focus on efficiency and
economy of operations. Information Technology and its huge potential to offer innovative
solutions have paramount importance for growth and sustenance of the Banks. Various
information technology initiatives such as branch automation, automated teller
machines(ATMs), and internet banking can bring down the costs in the long run. South Indian
bank has been an early adopter of technology and has provided various services and facilities
for enhancing customer satisfaction using technology, such as core banking, internet banking,
automated teller machines (ATM), electronic fund transfer, cash deposit machines, which
obviates the need for customers to visit the bank and also makes these services available round
the clock.
39
2.3.7 NET INTEREST INCOME
The net interest income(NII) is an important variable for a bank which shows the net
difference between the interest income earned and the interest expended. The higher amount
of net interest income ratio shows the financial strength of the bank. Being the difference
between interest earned and interest expended, net interest income increases with an the
increase in the interest earned from various heads such as advances, investment. A decrease in
the interest expended towards deposits and borrowings, also results in an increase in net interest
income. The interest earned and interest expended in the years ending 2013, 2014, 2015 are as
given in table below.
TABLE 9
Table 2013 2014 2015
Interest Earned 443429 501507 528622
(in lacs of rupees)
Interest Expended 315346 361629 391999
(in lacs of rupees)
150000
120000
90000
60000
30000
0
2013 2014 2015
YEAR
An increase in net interest income indicates that the bank was able to earn a higher net
income from the deposit and credit operations. There was an increase of in the net interest
income from 2013 to 2014. From 2014 to 2015 there is a slight dip in the net interest earned
owing to the increase in interest expense in the period. Overall the period from 2013 to 2015
saw an increase in NII from 128083 lacs in 2013 to 136623 lacs in 2015.
40
2.3.8 INTEREST EXPENSE RATIO
Interest expense ratio measures the proportion of interest expense to that of total
income. Interest expense and operating expense are two main components bank’s expense.
Interest costs consists of interest paid on deposits and borrowings. Banks need deposits as
source of funds to extend credit. The amounts for interest expended and total income are given
in table below for the years 2013, 2014, 2015.
TABLE 10
Table 2013 2014 2015
Interest expended 315346 361629 391999
(In lacs of rupees)
Total income 476922 538353 578329
(In lacs of rupees)
0.8
0.6
0.4
0.2
0
2013 2014 2015
YEAR
The interest expense ratio has remained fairly consistent at around 67 %, although there
is a slight increase over the years. Banks might not be in a position to influence the deposit
rates directly so as to reduce the interest expense. South Indian bank has been working on
strategies to enhance the proportion of current account and savings accounts as a proportion of
total deposits, as these offer a lower interest expense to be incurred, thereby resulting in better
profitability. Bank with a higher proportion of current account and savings account can also
afford to offer a comparitively lower level of interest on advances to customers thereby
increasing marketshare.
41
2.3.9 OPERATING EXPENSES RATIO
The operating expenses for the years ending 2013, 2014 and 2015 are as given in table
below. The total income for the years are also given in the table. Controlling operating expenses
as a proportion of income, reflects the efficiency of the bank. The operating expense ratio can
be calculated as below.
TABLE 11
Table 2013 2014 2015
Operating Expenses 76717 88289 104704
(in lacs of rupees)
Total Income 476922 538353 578329
(in lacs of rupees)
Operating Expenses .161 .164 .18
Ratio
0.4
0.3
0.2
0.1
0
2013 2014 2015
YEAR
The operating expenses ratio has seen an increase over the years. Although the total
income has also increased in these years, the operating expenses has also seen an increase, and
the net effect can be seen that the operating expenses ratio has seen a rise over the years. The
operating expenses include printing, stationery, advertisement and publicity, postage,
telephones, maintenance and employee expenses among others. Controlling non-interest
expenses assumes importance, as controlling interest expenses would be more challenging due
to regulatory limits and market forces preventing large changes in interest rates.
42
2.3.10 OPERATING PROFIT MARGIN
Operating profit margin can be calculated as the ratio between operating profit and total
income/revenue. The operating profit and the total income/revenue generated for the years
ending 2013, 2014, 2015 as per the bank’s financial statements are as given in table below. The
total income includes interest income and the non-interest income(fee based).
TABLE 12
Table 2013 2014 2015
Operating Profit Margin 84859 88435 81626
(in lacs of rupees)
Total income 476922 538353 578329
(In lacs of rupees)
0.4
0.3
0.2
0.1
0
2013 2014 2015
YEAR
The total income as is evident has increased over the years. But the total expense which
includes the interest expended and the operating expense has also increased in the period, with
the overall effect that operating profit ratio has had a decrease over the years.
43
2.3.11 NET PROFIT MARGIN
Net profit margin signifies the net profit obtained after all the deductions from total
income. A higher ratio means that company is able to retain a higher amount as profits and
represents overall efficiency. The values for net profit and total income for the years ending
2013, 2014, 2015 are as given in table below. Total income includes the interest income and
also other income which includes fees, commissions etc.
TABLE 13
Table 2013 2014 2015
Net profit 50227 50750 30720
(in lacs of rupees)
Total Income 476922 538353 578329
(in lacs of rupees)
0.2
0.15
0.1
0.05
0
2013 2014 2015
YEAR
The decrease in the net profit marging, is due to the moderation in profit which is
primarily attributable to increased provisioning requirements due to loan losses, restructured
assets etc. Although the total income increased in the period, the large increase in provisioning
requirement in the year 2015 resulted in decrease net profit margin.
44
2.3.12 CREDIT DEPOSIT RATIO
TABLE 14
Table 2013 2014 2015
Total Advances 3181553 3622985 3739164
(In lacs of rupees)
Aggregate Deposits 4426230 4749109 5191249
(In lacs of rupees)
100
80
60
40
20
0
2013 2014 2015
YEAR
Credit-Deposit ratio
It can be seen that credit-deposit ratio has stayed relatively stable at a around 72%,
meaning that 72 % of the amount of deposits received have been used by the bank to extend
credit to the economy. This shows a healthy level of extension of credit by the bank, with a
reasonable amount of around 30% left for meeting liquidity needs.
45
2.3.13 INVESTMENT DEPOSIT RATIO
Firms can maintain cash balances or make investments using them and get returns out
of it. In case of banks there is mandatory requirement to maintain certain level of liquidity to
ensure safe operations. Investing in safe and secure investments adds to the safety of operations
and also in case of short term investments they ensure the liquidity of bank in case of urgent
needs to be met with. Investment deposit ratio are calculated as ratio of investments to deposits.
The level of investments and deposits of South Indian bank over the years are as given below.
The investments represents total investments which include government securities, shares,
commercial paper, mutual funds etc.
TABLE 15
Table 2013 2014 2015
Investments 1252347 1435178 1671716
(In lacs of rupees)
Total Deposits 4426230 4749109 5191249
(in lacs of rupees)
1
0.8
0.6
0.4
0.2
0
2013 2014 2015
YEAR
The investment deposit ratio has shown an improvement from .2829 in 2013, to that of
.3220 in 2015. Firms invest the cash in excess of their day to day needs. The increase in
investment is a healthy sign of potential liquidity available with the bank if need arises.
46
2.3.14 COST TO INCOME RATIO
Cost to income ratio can be termed as an overall efficiency measure of the bank. The
cost income ratio signifies the extent to which non-interest expenses of a bank make a charge
on the net total income (total income - interest expense). All amounts in lacs of rupees.
TABLE 16
Table 2013 2014 2015
Non interest expenditure 76717 88289 104704
(In lacs of rupees)
Net total Income 161576 176724 186330
(In lacs of rupees)
1
0.8
0.6
0.4
0.2
0
2013 2014 2015
YEAR
The cost to income ratio indicates how profitably the funds have been deployed by the
banks, and ratio reflects the ability of a bank to generate revenue from its expenditure, so a
lower ratio would point to a higher level of efficiency. In the case of the bank the net total
income has increased over the years from 2013 to 2015. But the operating expenses have also
kept pace or have exceeded the rate of increase in net total income. The net effect has been that
this has resulted in a higher cost to income in 2015.
47
2.3.15 TOTAL BUSINESS
Bank’s primary business is to accept deposits and extend credit. The deposits act as a
source of funds to extend loans. Total business is a metric used in banking to ascertain the
volume of business performed by the bank. Total business can be found the sum of deposits
and advances. Total deposits include demand deposits and time Deposits. Demand deposits are
liabilities which are payable on demand. Time deposits are those which are payable otherwise
than on demand and they include fixed deposits, recurring deposits etc. The advances include
loans, cash credits, overdrafts. Total deposits and total advances for the years ending 2013,
2014 and 2015 are as given in table below. Amounts are in lacs of rupees.
TABLE 17
Table 2013 2014 2015
Total Deposits 4426230 4749109 5191249
Total Advances 3181553 3622985 3739164
Total Business 7607783 8372094 8930413
10000000
8000000
6000000
4000000
2000000
0
2013 2014 2015
YEAR
Total Business
It can be seen that bank has been able to elicit more business over the years. From 2014
to 2015, there has been a 6.7 % increase in total business. This also indicates that the business
performed by the bank has kept pace with its expansion plans over the years. The deposits have
grown by around 9.3 % from 2014 to 2015. Current account and savings deposits form around
20% of the volume of deposits, with rest being term deposits. The growth in advances shows
the increasing role the bank is able to play in extending credit, including that of credit extended
to priority sectors such as agriculture and small scale industries thereby playing an important
role in the overall development of the nation.
48
2.3.16 RETURN ON INVESTMENT
The return on investment signifies the returns earned from investments made by the
firm. Return on investment based on the needs are evaluated using various methodologies. In
this analysis, returns in terms of operating profits have been analysed with respect to the total
assets. The operating profits and total assets for years ending 2013, 2014 and 2015 are as given
in table below. The amounts are in lacs of rupees.
TABLE 18
Table 2013 2014 2015
Operating Profit 84859 88435 81626
(In lacs of rupees)
Total assets 4979503 5498596 5911632
(in lacs of rupees)
0.05
0.04
0.03
0.02
0.01
0
2013 2014 2015
YEAR
ROI(Operating Profits)
The return on investment based on operating profits focusses on the operational revenue
and expenditure of the firm, and is independent of the mode of financing and tax policies. This
provides a close indication of how the firm uses its resources for operational purposes, and is
able to generate profits. The return on investment based on operating profits has changed and
is in line with the decrease in level of operating profits due to the increase in the level of
expenses incurred.
49
2.3.17 RETURN ON ASSETS
Return on assets represent of how the firm is able to utilize its assets to generate profits.
Return on assets is calculated as ratio of net profit after tax to that of total assets. The values of
net profit after tax and total assets for years ending 2013, 2014 and 2015 are as given in table
below.
TABLE 19
Table 2013 2014 2015
Net profit 50227 50750 30720
(In lacs of rupees)
Total Assets 4979503 5498596 5911632
(In lacs of rupees)
0.02
0.015
0.01
0.005
0
2013 2014 2015
YEAR
Return on assets
The return on assets has faced a decline in the years from 2013 to 2015. This is due to
the decline in net profits during the period. One of the important reasons for decline in profits
is due to increase in the provisions, including provision for non performing assets. An asset
50
becomes non performing when it ceases to generate income for the bank. Bank may take steps
to retrieve the payments due from such asset. As per norms to protect the bank against impact
of non-performing assets especially the chance of becoming a loss asset, provisions have to be
set aside as a precautionary step against unexpected loss from such assets.
As part of efforts to get back the amount due from non performing assets bank adopts
restructuring of the loans to get back the income due from such advances. A restructured
account is one where the bank, grants to the borrower concessions that the bank would not
otherwise consider. Restructuring would normally involve modification of terms of the
advances/securities, which would generally include, among others, alteration of repayment
period/ repayable amount/ the amount of installments and rate of interest.
South Indian bank has taken many a steps to reduce the level of non performing assets
such as creation of a special recovery cell, monitoring of restructured loan portfolio, creation
of a large asset monitoring cell in head office, shifting focus to mid and small enterprises. Some
of the sectors in which the bank had to perform significant amount of restructuring include
sectors such as power sector, construction sector and pharmaceutical sector. The total amount
of restructured assets in 2015 amounted to 2068 crores. During the year 2014-15, as a result of
the focused and sustained efforts like early recovery of NPAs, through prompt and effective
measures including, follow up of recovery cases pending before debt recovery tribunals(DRTs)
and civil courts, one time compromise settlements of accounts, etc., bank could recover non
performing assets beyond the set target.
This rise in non performing assets is also a reflection of the economic turmoil that the
world economy has been going through. The rise in level of such assets has impacted the
banking industry. But the situation is expected to improve. This optimism stems from factors
such as the Government working hard to revitalize the industrial growth in the country and the
RBI initiating a number of measures that would go a long way in helping the banks to
restructure assets. Macroeconomic improvements and reforms should is expected to bring
about a reduction in stressed loans on lower slippages and higher recoveries.
Overall the macroeconomic challenges, and situation in the banking sector facing
declining profits on account of higher provisioning on banks’ delinquent loans and lacklustre
credit growth, has had an impact on the bank as well. The decline in net profits due to the higher
level of provisions and restructured assets would also influence the other financial indicators
of the bank such as earnings per share, return on equity etc.
51
2.3.18 RETURN ON EQUITY
Return on requity is defined as the ratio between net profits and equity shareholder’s
funds. For the purpose of this analysis equity shareholder’s funds has been taken as the sum
of capital and reserves and surplus. The net profits and equity capital for the years ending
2013, 2014, 2015 are as given below. The amounts are in lacs of rupees.
TABLE 20
Table 2013 2014 2015
Net profit 50227 50750 30720
(In lacs of rupees)
Equity 300361 336804 358941
shareholder’s funds
(In lacs of rupees)
0.4
0.3
0.2
0.1
0
2013 2014 2015
YEAR
Return on equity
52
faced a year of decline in profits on account of higher provisioning on banks’ delinquent loans
and lacklustre credit growth. This situation is expected to change in the coming year, as the
outlook is for economic strengthening through higher infrastructure spending, increased fiscal
devolution to states, and policy reforms. South Indian Bank has also put various specific
measures focussing on ensuring growth of the bank, in such a dynamic business environment
and challenging global economic situation. Bank has created a special cell to recover the non
performing assets. Monitoring of restructured assets is envisaged, with a significant portion of
such assets from the power sector and infrastructure sector. There will be increased focus on
growing business in the medium and small business sectors. Focus will be on small and
medium enterprises, home loans and vehicle loans with competitive pricing and centralised
monitoring. The banks also intends to focus on increasing fee-based income by expanding
product offerings, increasing fee-based services and cross-selling offerings to the customers.
There is also initiative to increase the proportion of current account and savings account, which
incur a lower cost as source of funds for the bank. The bank is also planning extend its pan
India presence by opening new branches and automated teller machine(ATM) counters.
53
2.3.19 EARNINGS PER SHARE
Earnings per share(EPS) represent the ratio of net profits earned by the company to that
of the total number of equity shares held. The calculated ratio has been presented in the
financial statement. Both basic and diluted earnings per share are published by the bank. Basic
earnings per share(EPS) is computed by the bank, by dividing net profit for the year by the
weighted average number of equity shares outstanding for the period.
The basic EPS has been used for the purpose of the analysis as presented in the financial
statements of the bank. Given below is table with values of basic earnings per share for years
ending 2013, 2014, 2015 from the financial statements of the bank for the respective years.
TABLE 21
Table 2013 2014 2015
EPS (Basic) 4.03 3.78 2.28
0
2013 2014 2015
YEAR
Earnings of the bank is used for payment of dividends and augmenting reserves.
Dividend amount is set apart from the earnings of the bank and provides periodic income to
the shareholders and a part of the earnings is retained to augment the reserves. The decline in
the earnings per share is due to two reasons. One as mentioned is the decline in net profits,
mainly due to the increase in provisioning and for restructuring of assets. Also there has been
change due to the additional shares alloted over the years. The number of shares held has
increased from 13385 in the year 2013 to 13439 lacs in 2014 to 13502 lacs in 2015. With the
strategies put in place by the bank for the coming year and an improvement in the
macroeconomic situation the earnings are expected to increase in the coming years.
54
2.3.20 DIVIDEND PAYOUT RATIO
Dividend payout ratio signifies the proportion of dividends being paid to shareholders
from the earnings of the company. Dividend payout ratio has been calculated using values for
basic earnings per share (EPS). The amounts declared as dividends by the bank and the earnings
per share for the years ending 2013, 2014, 2015 are as given in table below. Amounts are in
terms of rupees.
TABLE 22
Table 2013 2014 2015
Dividend declared .70 .80 .60
(per share)
Earnings per share 4.03 3.78 2.28
(Basic EPS)
0.4
0.3
0.2
0.1
0
2013 2014 2015
YEAR
The dividend payout ratio has increased from .17 in 2013, to .26 in 2015. Dividends are
a means of periodic income of shareholders. An increase in the dividend payout ratio in the
period signifies that the proportion of earnings of the company that has been returned as
dividends to shareholders has been increasing over the period.
55
2.3.21 CAPITAL AND RESERVES
Capital and reserves show an account of the contributions by the shareholders and the
profits retained by the firm over the years. It can increase over the years by fresh infusion of
capital and and ploughing back of profits. The level of capital and reserves over the years
ending 2013, 2014, 2015 are as given in table below.
TABLE 23
Table 2013 2014 2015
Capital 13385 13439 13502
Reserves & Surplus 286976 323365 345439
Capital and 300361 336804 358941
Reserves
(in lacs of rupees)
400000
300000
200000
100000
0
2013 2014 2015
YEAR
Capital and Reserves of South Indian Bank have grown over the years. There was a
12% growth in this account from 2013 to 2014. From 2014 to 2015 also, capital and reserves
continued to grow. This shows a healthy growth in the capital and reserves of the bank. Capital
and reserves can act as a protection any unexpected events. In such uncertain times capital and
surplus will add to the confidence of stakeholders on the bank. The level of capital to risk
weighted assets ratio (CRAR), which measures the proportion of capital as a percentage of risk
weighted assets, is commonly used as an indicator of financial strength of a bank. The level of
capital is relevant especially as there is lot of focus on capital adequacy of banks and as the
economy has been facing strain due to the impact of global economic turmoil.
56
2.3.22 BOOK VALUE PER SHARE
Book value per share is defined as net worth divided by number of shares. The networth
is arrived as the sum of capital and reserves, that is the capital provided by the shareholders
and the portion of profits ploughed back over the years. The networth of South Indian Bank in
the years ending 2013, 2014, 2015 are given below, alongwith the number of shares.
TABLE 24
Table 2013 2014 2015
Net worth 300361 336804 358941
(in lacs of rupees)
Number of shares 13385 13439 13502
(in lacs)
40
30
20
10
0
2013 2014 2015
YEAR
It can be seen that book value of South Indian Bank has improved year on year over the
period from 22.44 in 2013 to 25.06 in 2014, and 26.58 in 2015. The book value has increased
due to the strengthening in the capital and reserves of the bank.
57
2.3.23 TOTAL ASSETS TURNOVER RATIO
Assets turnover ratio shows the ratio of revenue to that of total assets. Turnover ratios
signifies the efficiency with which the resources of the firm are being used. The values for total
income/ total revenue and total assets in the years ending 2013, 2014 and 2015 are as given
below.
TABLE 25
Table 2013 2014 2015
Total Income 476922 538353 578329
(In lacs of rupees)
Total Assets 4979503 5498596 5911632
(In lacs of rupees)
0.25
0.2
0.15
0.1
0.05
0
2013 2014 2015
YEAR
The asset turnover ratio has shown increase from .096 in 2013 to .097 in 2015. This
signifies a slight increase in the usage of assets to create revenue for the bank. For banks
advances and investments are the main components of assets. The bank has been able to
enhance the efficiency of earning returns from assets such as advances and investments.
Interest earned on advances and interest from investments saw an increase in the period,
resulting in a higher asset turnover ratio.
58
2.3.24 FIXED ASSETS TURNOVER RATIO
The fixed assets turnover ratio measures the revenue generated per unit of investment
in fixed assets by the firm. The total income/revenue and level of fixed assets for the years
ending 2013, 2014, 2015 are as given in the table below. An increase in the ratio would signify
an increase in the efficiency with which fixed assets are being leveraged to generate revenue
for the bank.
TABLE 26
Table 2013 2014 2015
Total Income 476922 538353 578329
Fixed Assets 39612 41220 47905
25
20
15
10
0
2013 2014 2015
YEAR
The fixed assets turnover ratio has remained fairly consistent at around 12. As a bank
is not involved in any manufacturing activities, the level of fixed assets would be generally low
as compared to the total assets. Banks have higher proportion of assets in the form of
investments made and advances extended. This explains the higher level of fixed assets
turnover ratio as compared to total assets turnover ratio. In 2015 the ratio was 12.07. From the
ratio it can be seen that the bank has been able to generate a high revenue as compared to the
level of investment in fixed assets.
59
2.3.25 BASEL II NORMS
The attempt at harmonizing the capital adequacy standards internationally date back to
1988, when the “Basel committee on Banking Regulations and supervisory practices”, released
a capital adequacy framework, now known as Basel-I. This norm was widely adopted in over
100 countries. The Basel - I accord had many limitations including that it addressed only the
credit risk and market risk in the banks’ operations, ignoring several other types of risks
inherent in banking activity. In order to take care of the limitations of Basel-I, Basel Committee
on Banking Supervision (BCBS), after a world-wide consultative process and several impact
assessment studies, evolved a new capital regulation framework, widely known as Basel-II
framework. Basel- II framework can be seen in terms of three broad pillars of capital adequacy
ratio, supervisory review process and market discipline. The pillar 1 of Basel II norms
stipulates the minimum capital adequacy ratio and requires allocation of regulatory capital not
only for credit risk and market risk but additionally, for operational risk as well, which was not
covered in the previous accord. Capital to risk weighted assets ratio is arrived at by dividing
the capital of the bank with aggregated risk weighted assets for credit risk, market risk and
operational risk. The higher the CRAR of a bank the better capitalized it is. The capital
adequacy ratio maintained in the years ending 2013, 2014, 2015 as presented in annual
financial statements are seen in table below.
TABLE 27
Table 2013 2014 2015
Capital adequacy 13.91 12.53 12.06
ratio (in %)
50
40
30
20
10
0
2013 2014 2015
YEAR
As against the statutory requirement of 9%, the capital to risk weighted assets ratio
(CRAR) of the Bank in terms of Basel II guideline stood at 13.91%, 12.53% and 12.06% in
2013, 2014 and 2015 respectively.
60
2.3.26 BASEL III NORMS
The capital adequacy ratio percentage maintained by the bank as under Basel III norms
are as given below. The norms were framed during 2010 period, in taking into account the
aftermath of the financial meltdown. As per guidelines Basel III norms are to be implemented
beginning 1st April, 2013 in a phased manner.
Capital to risk weighted assets ratio also known as capital adequacy ratio is arrived at
by dividing the capital of the bank with aggregated risk weighted assets for credit risk, market
risk and operational risk. The notional amount of the asset is multiplied by the risk weight
assigned to the asset to arrive at the risk weighted asset number. The higher the capital
adequacy ratio of a bank the better capitalized it is. The capital adequacy ratio as per Basel-III
norms has been applied since 2014, 2015 and the ratios are as given in table below.
TABLE 28
Table 2013 2014 2015
Capital adequacy Not Applicable 12.42 % 12.01 %
ratio (in %)
50
40
30
20
10
0
2014 2015
YEAR
The Bank is subject to the capital adequacy guidelines stipulated by the Reserve Bank
of India, which are based on the framework of the Basel Committee on Banking Supervision.
As per RBI guidelines based on Basel III, banks are required to maintain a minimum Capital
to Risk Weighted Assets Ratio (CRAR) of 9%. The Capital to Risk Weighted Assets Ratio
(CRAR) of the Bank as on March 31, 2014 according to Basel III guidelines is 12.42%, as
against the statutory requirement of 9%. The Capital to Risk Weighted Assets Ratio (CRAR)
of the Bank as on March, 2015 was 12.01 % as against the statutory requirement of 9%. It can
be seen that the capital adequacy as stipulated by the Reserve Bank of India under Basel III
norms has been consistently met by the bank.
61
The International Banking system passed through an era of financial turmoil after the
sub- prime crisis. Basel III was based on a realisation after the recent global economic crisis
that the foundations of an alternative finance system need to be established urgently to allow
the real economy to survive the next global crisis. The committee was of the view that the
existing regulatory standards need a review and more stringent norms have to be put in place
to provide adequate protection to the international banking system.
The Basel III accord is a set of standards to equip the international banks to overcome
the crisis in a difficult market condition by infusing extra capital and reserves during times of
growth and stability. With respect to the capital to risk weighted assets ratio (CRAR), as per
Basel-III accord the minimum total capital requirement is 8%. But Basel III accord raises the
quality of capital. The minimum tier 1 capital has been raised from 4% to 6%, of which the
component of minimum common equity tier-1 capital is raised from 2% to 4.5 %. Capital
conservation buffer of 2.5% is envisaged or banks to build buffers of capital in times of growth
and stability and to use the capital buffer to absorb losses as the economy contracts. Thus as
per Basel-III accord, the total requirement of capital including the conservation buffer would
be 10.5 %. Thus the proportion of tier-I capital and the share of common equity in the capital
ratio have been enhanced causing a change in the quality of capital. Common equity has more
capacity to absorb losses, so enhancement of the proportion of common equity will result in
improvement in the quality of capital adequacy ratio. As for India, the Reserve Bank of India
has more stringent regulations based on the Basel framework. RBI has mandated a minimum
capital requirement of 9%.
62
CHAPTER IV
The findings of the financial analysis performed on the annual financial statements of
the bank are mentioned below. The findings reveal information on various financial aspects of
the bank such as income, expenses, profitability, level of reserves etc.
The total income of the bank has shown a consistent increase. The total income include
interest income and other income as components.
Interest income earned has increased in the period, this has happened because of the
increases in levels of interest earned on advances/bills and interest earned on investments.
Other income which includes the non-interest income, including fees, commissions etc has
shown an increase during the period. As competition in the banking sector increases, banks
will have to increasingly focus on non-interest income as a differentiator. To this end the
increase in non-interest income is a positive aspect, and shows that the measures taken by
the bank to diversify sources of income has been successful.
The total expenditure (excluding provisions) has seen an increase in the period. The
components of total expenditure namely, interest expense and operating expenses increased
contributing to the overall increase.
Although there was a slight decline in net interest income from 2014 to 2015, net interest
income has seen an overall increase in the period studied from 128083 lacs in 2013 to
136623 lacs in 2015.
Interest expenses ratio which measures interest expense as a proportion of total income has
seen a slight increase from .661 in 2013 to .678 in 2015. Operating expenses ratio has
increased. Overall both the interest income and other income components have seen an
increase. But the expenses have also increased over the period, resulting in an overall
increase in the interest expense ratio and operating expense ratio. The overall increase in
interest expenses and operating expenses has resulted in slight decline in operating profits
margin.
Net profit margin saw a decrease during the period. This was primarily due to the increase
in provisioning requirements which saw a rise from 15541 lacs in 2014 to 41405 lacs in
2015. Bank has taken various steps to redress the stressed assets such as recovery measures
and restructuring, and thereby the levels is expected to come back to normal in the coming
years. The increase in provisioning also impacted the other ratios such as return on
investment, return on equity, earnings per share etc. Although earnings per share have
decreased, the dividend payout ratio has not seen a reduction over the period.
63
Credit deposit ratio has been at around 72 %, signifying that 72 % of deposits received have
been mobilised for extending credit in the overall economy. This also shows that there is a
buffer of liquidity remaining with the bank after extending credit.
Investment deposit ratio which has increased during the period. Investing in safe and secure
investments adds to the safety of operations and also in case of short term investments they
ensure the liquidity of bank in case of urgent needs to be met with. So the increase in
investment deposit ratio is a healthy sign for the bank.
Total business as measured by total deposits and total advances has seen an overall increase
from 7607783 lacs in 2013 to 8930413 lacs in 2015, an increase of 17 %. Increase in total
business depicts a consistent growth in aggregate deposits and credit. The significant
increase in total business shows that the plans employed by the bank to increase the business
have worked well. This a positive sign as the bank continues with its branch network
expansion plans at a national level.
The dividend payout ratio has seen an increase from a level of .17 or 17 % in 2013, to that
of .26 or 26 % in 2015, implying that the returns paid to shareholders as a proportion of the
earnings has been increased.
Capital and reserves acts a buffer for the bank in the eventuality of sudden increase in need
for liquidity. The capital and reserves has seen an overall increase from 300361 lacs in 2013
to 358941 lacs in 2015, an increase of around 19 %, which is a healthy sign of safety in a
dynamic business environment. Especially in times when the overall economy and the
banking sector still recovering from effects of the global economic turmoil, the increase in
capital and surplus will add to the confidence of stakeholders.
The book value per share measured as ratio of capital and reserved against number of shares
has seen an increase from 22.44 in 2013, to 26.58 in 2015. This shows a consistent
strengthening in the capital and reserves as compared to the number of shares of the bank.
Increase in total assets turnover ratio depict an increase in efficiency in generating income
using the assets at disposal. This shows that the bank has been able to enhance the efficiency
of earning returns from assets such as advances extended and investments made.
The fixed assets turnover ratio has remained consistent from 2013 to 2015, at around 12.
The comparatively high level of fixed assets turnover is expected in a non-manufacturing
firm such as a bank, with less portion of assets in the form of fixed assets.
The bank has achieved the capital requirements needed with respect to regulations
pertaining to Basel II and Basel III norms. With respect to both Basel II norms and Basel III
norms, the bank has been able to maintain a capital adequacy ratio well above the minimum
capital adequacy levels mandated by RBI. Basel III norms were adopted by the bank since
financial year ending 2014.
64
2.4.2 SUGGESTIONS / RECOMMENDATIONS
The financial analysis shows up many a fundamental strengths of the bank. It shows
that the income has been increasing, the total business has been increasing, the book value has
also increased etc. Study of many of the key ratios such as investment deposit ratio, credit
deposit ratio, asset turnover ratio, have all shown the resilience and consistency in the growth
of the bank over the years. At the same time the macroeconomic situation has thrown in
challenges, which has resulted in an enhanced need for provisioning and restructuring of assets.
This invariably has had an impact on the profitability as well, as reflected in the net profit
margin, return on assets, earnings per share etc. But considering the fundamental strengths of
bank in terms of consistent increase in both interest income and non-interest income, consistent
increase in the total business, increase in the levels of capital and reserves available, regulatory
compliance, and in the light of the long history of sustained growth of the bank, this should be
seen as an aberration and not as a norm, especially as the banking sector overall has been
affected by non-performing assets, which seems to be a reflection of an economy which has
still not yet fully recovered from the aftereffects of the global economic turmoil. Moreover the
company has put in place specific plans and is also creating the organisational infrastructure to
address these challenges, to enhance the income and the overall profitability. The measures
include increased focus on monitoring of advances and restructured assets, focus on small and
medium enterprises, steps to enhance non-interest income etc. which should all enhance the
growth of the bank. Moreover the bank has adequate reserves in terms of financial strength to
implement the strategy envisaged to enhance the growth. The bank has also to its advantage
strong presence in South India with a growing pan-India presence, diversified advances
portfolio, a large customer base, strong focus on risk management and good usage of
technology for management and operations. Technology can play a big role in streamlining the
operations and enhancing the efficiency. The implementation of core banking and banking over
the internet has significantly changed the way banking operates. South Indian bank has been at
the forefront of adoption of technology through adoption of core banking, interactive website,
internet banking facilities, mobile banking services etc. These initiatives can play a role in
driving down the costs as well in the long run. Also the overall economy has also shown signs
of recovery and the banking sector is also looking towards better pick up in projects and growth
of the overall economy. Overall the inference is that based on the resources at disposal and the
well defined strategy charted for the future growth, South Indian bank should be able to
leverage the opportunities that come up and emerge as a major organisation in the banking
sector in India.
65
2.4.3 CONCLUSION
The fact that the bank which started in 1929 has sustained its growth amidst the
challenging environment is a testimony to the resilience of the bank. The bank has weathered
many challenges during the post-independence period, the nationalisation phase, period of
liberalization after 1991 and the recent global economic turmoil.
The financial analysis shows up many of the inherent strengths of the bank. The bank
has a healthy capital reserve which is growing and which can act as a buffer of safety in
uncertain times. The bank’s total income has been growing at a healthy pace over the period of
analysis. The net interest income has also been relatively steady in the period analysed. The
non-interest income component has also shown growth over the period. The bank has also
maintained a stable level of investment deposit ratio, which would help the bank in terms of
meeting liquidity needs. The credit-deposit ratio which points to the role that the bank plays in
extending credit to the larger economy has also been relatively stable. The financial statements
also show that the total business done as total of deposits and advances has also increased over
the period analysed. This shows that the growth in total business has kept pace with the branch
expansion. The total assets turnover ratio has shown an increase showing an enhanced
efficiency in the usage of the assets. The bank also seem to have a clear-cut strategy for the
future to focus more on retail sector and small and medium enterprises. On the regulatory front,
the bank has complied with and is in a comfortable position with respect to the standards
mandated. The levels of capital to risk weighted assets ratio has been achieved by the bank as
per regulations. The analysis also reflects the difficult times the banking sector is going through
and the sector and the economy has not yet fully come out of the impact of the global economic
turmoil. The level of stressed assets has increased, necessitating to set apart a higher level of
provisions in the year 2015. The fact that the operating profit has not seen much of a decline
shows the impact of the provisioning on net profits. Subsequently the return on assets and
return on equity and the earnings per share also reflected this. Overall this seems more to be a
reflection of macroeconomic scenario and a transitory phase back towards a resurgent
economy. Also the bank also taken various specific measures to address these challenges, and
a future strategy has been framed addressing all these factors.
The future prospects look bright. The Indian banking sector is set to emerge as one of
the major players at a global level in the years to come. The pace of reforms in the banking
sector and the macroeconomy has been impressive. The macroeconomic situation has shown
signs of growth. The schemes such as direct benefit transfer and financial inclusion offers
opportunities for expansion. India also has a key advantage of a significant demographic
dividend, and there is tremendous opportunity for the banking sector to leverage internet and
mobile based technologies, to bring in the youth into the fold of banking. South Indian bank
has an experienced management team, adequate organizational infrastructure and a large
customer base, so as to make use of all these opportunities. The bank has also put in place a
future strategy to leverage the opportunities ahead, with focus on sectors which offer better
consistency and safety of income and measures to enhance non interest income. With the
inherent strengths of the bank, and with these plans and the organisational infrastructure in
place, and with the banking sector in India expected to become one of the largest in the world
in the years to come, the bank seems poised to further growth in the years to come.
66
BIBLIOGRAPHY
1) “www.southindianbank.com”
3) “www.rbi.org.in”
4) "https://rbi.org.in/scripts/glossary.aspx"
8) RBI(2005) "Statistical Tables Relating to Banks in India: Explanatory Notes" retrieved from
"https://www.rbi.org.in/Scripts/AnnualPublications.aspx?head=Statistical+Tables+Relating+t
o+Banks+in+India"
67
ANNEXURE
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