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DATA INTERPRETATION
(Rs. In Thousands)
Year
2005 2006
The Debt to Equity Ratio measures how much money a bank should safely be able to borrow over long periods of time. Generally, any bank that has a debt to equity ratio of
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over 40% to 50% should be looked at more carefully to make sure there are no liquidity problems.
Graph No. 1
Here the ratio is very less than the expected ratio from 2009 to 2010. In 2010, bank is showing 27.39 %. Its because if the increase of borrowings and a continuous increment in reserves and surplus.
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(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 2
Interpretation:
Total Advance to Total Asset Ratio shows that how much amount the bank holds against its assets.
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Graph No. 2
Here the Total Asset Ratio is continuously increasing from 52.12% to 61.90%, from 2009 2010, which shows the sound condition of the bank. As the bank is growing the advances and the assets are increased in same proportion. Because of that the ratio keeps in same rate.
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(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 3
Interpretation:
This ratio shows the percent of investment in government securities. It is believed that the more investment in government security is safer. As per norms stipulated by the RBI, the banks have to maintain SLR at the rate of 25%.
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Graph No. 3
Here the ratio was averagely 86.5% but in the last year it was decreased to 82.81% in the year 2010. The ratio was decreased in the year 2010 because of decrease in investment in government securities as compared to last two preceding years. Moreover as against statutory requirement to invest 15% out of 25% of SLR in central government securities the bank has invested 100% of SLR requirement in Govt. of India Securities. So, Dhanlaxmi Bank has adequate liquidity as per RBI norms, but it reduces their profitability.
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(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 4
Interpretation:
This ratio is used to check whether the bank's gross NPAs are increasing quarter on quarter or year on year. If it is, indicating that the bank is adding a fresh stock of bad loans. It would mean the bank is either not exercising enough caution when offering loans or is too lax in terms of following up with borrowers on timely repayments.
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Graph No. 4
Here the ratio is decreased from approx 6.49% to 1.98% which shows the Bank takes care of their money. Thats why their Gross NPA decreases year by year. And this is because of the concentrated efforts taken during the year to reduce the level of existing Non-Performing Assets (NPAs), as well as preventing fresh accretion of NPAs.
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(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 5
Interpretation:
Net NPAs reflects the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also wear down the value of the asset. Loans and advances usually represent the largest asset of most of the banks. It monitors the quality of the banks loan portfolio. The higher the ratio, the higher the credits risk.
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Graph No. 5
Above ratios show the fluctuation of NPA of Dhanlaxmi Bank during the last 5 years. The bank has lowest net NPA is 0.83% in 2009-10. Net NPA is continuously decreased from 2006 to 2010. So it is good for the bank to decrease in NPA. Because of decrease in NPA the risk of bad loans are also decreased.
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(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 6
Interpretation:
This ratio shows the investment of the bank through approving the loans against accepting the loan.
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Graph No. 6
Here the ratio is continuously increasing year by year from 62.95% to 70.52% in year 2006 to 2010. This shows good sign of the bank, if it will be increased more, than it may be risky for the bank. The number of borrowal accounts surpassed the two-lakhs-mark and stood at 2,08,962 as on March 31, 2010.
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(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 7
Interpretation:
Revenue per employee is a measure of how efficiently a particular bank is utilizing its employees. Ideally, a bank wants the highest business per employee possible, as it denotes higher productivity. In general, rising revenue per employee is a positive sign that suggests the bank is finding ways to squeeze more sales/revenues out of each of its employee.
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Graph No. 7
The Bank is maintaining an average ratio for last three years. And the revenue per employees has decreased because of recruitment of employees by the bank.
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(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 8
Interpretation:
Profit per employee is a measure of how efficiently a particular bank is utilizing its employees. Ideally, a bank wants the highest profit per employee.
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Graph No. 8
The ratio says that, profit per employee was 1.9 lakhs in 2006 and it has decreased to .55 lakhs in 2010 which is because of the decrease in profit by 50 % as compared to 2009.
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(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 9
Interpretation:
Dividend payout ratio shows the percentage of profit shared with the shareholders. The more the ratio will increase the goodwill of the bank in the share market
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Graph No. 9
Here the average ratio during the five years is approx 22%. The ratio is much fluctuated. In 2010, it was highest at 27.51% and minimum in the year 2009 which was 11.16% only.
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Return on Assets
(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 10
Interpretation:
Return on Asset Ratio shows that how much return bank can get from their total asset. Higher the ratio is good for the bank. Because if ratio is higher than we can say that the return of bank is high.
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Graph No. 10
Here we can see that in 2006 this ratio is 0.33% and it has increased to1.02% in 2009, and in 2010 it has dropped to 0.28%. The main reason for this change in the ratio is the drop in Net profit and change in Assets.
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Operating Profit Operating Profit to Average Working Fund = Avg. Working Fund
(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 11
Interpretation:
Earning reflect the growth capacity and the financial health of the bank. High earnings signify high growth prospects.
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Graph No. 11
Here it was increased from 0.36% in the year 2006 to 1.07% in the year 2009 which is good for the bank. Because of decrease in the net profit, the ratio was dropped in the year 2010 to 0.31%.
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(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 12
Interpretation:
Net profit to average asset indicates the efficiency of the banks in utilizing their assets in generating profits. A higher ratio indicates the better income generating capacity of the assets and better efficiency of management.
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Graph No. 12
In this, the ratio has continuously increased year by year from 0.34% in 2006 to 1.18% in the year 2009. This is a good time for Bank to be 'giving back', for it has just completed a very successful year. And in 2010 it has dropped to 0.33%. The main reason for this change in the ratio is the drop in Net profit.
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(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 13
Interpretation:
Interest income to total income ratio shows that how much interest income earn from total income.
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Graph No. 13
The bank was maintained on an average same percentage from 2006 to 2009 of 89.20%. In 2008 it was decreased to 83.73% and in 2010 it has increased to 85.45.
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Other than Interest Income Other Income to Total Income = Total Income
(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 14
Interpretation:
Fee based income account for a major portion of the banks other income. The bank generates higher fee income through innovative products and adapting the technology for sustained service levels. The higher ratio indicates increasing proportion of fee-based income. The ratio is also influenced by gains on government securities, which fluctuates depending on interest rate movement in the economy.
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Graph No. 14
The Bank has averagely 11% part of income is from other way of income which is good for the bank from 2006 to 2007.And in last two years it shows 16.26 % and 14.54 %, which shows that, Bank earning from government security and through providing innovative products.
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4.5) Liquidity
(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 15
Interpretation:
Liquidity for a bank means the ability to meet its financial obligations as they come due. Bank lending finances investments in relatively illiquid assets, but it fund its loans with mostly short term liabilities. Thus one of the main challenges to a bank is ensuring its own liquidity under all reasonable conditions.
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Graph No. 15
Here the ratio is continuously decreasing from 2008 to 2010, which was very high at 17.54 in 2007 and very low at 9.27 in 2010. The ratio was decreased because of increment in total assets.
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(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 16
Interpretation:
Government securities to total asset ratio shows that, what percentage of government securities bank has against total assets. Higher the ratio is good for the bank because if this ratio is higher than we can say that bank is more investing in government securities.
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Graph No. 16
This ratio was fluctuating during the five years. At last in the year 2010 the ratio was 20.763%. In the year 2009, the G-sec investment was decreased as compared to last years preceding year and the total assets were increased also increased.
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(Rs. In Thousands)
Year
Approved Securities
Total Assets
Percentage
2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 17
Interpretation:
Approved securities include securities other than government securities. This ratio measures the Approved Securities as a proportion of Total Assets. Banks invest in approved securities primarily after meeting their SLR requirements, which are around 25% of net demand and time liabilities. This ratio measures the risk involved in the assets hand by a bank.
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Graph No. 17
The ratio was continuously decreased from 0.01% in the year 2006 to 0.006% in the year 2009. The ratio is continuously decreased because of decrement in Approved securities. In the last year 2010 the ratio was increased to 2.16, because of the increment in investment in approved securities.
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(Rs. In Thousands)
Year 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010
Table No. 18
Interpretation:
The ratio shows how much part of the deposits invested into the liquidity asset, which can be easily convert in to monetary value in the time of need.
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Graph No. 18
Here the ratio was 19.59 % in 2006 and after fluctuation it was 10.57 % in 2010. The ratio was decreased because of increment in deposits and approx 10 % increment in assets in the year 2010.
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6.2) ANALYSIS
TABLE - 19 Component Weightage Parameters Capital Adequacy Asset Quality Management Earnings Liquidity Total Weightage 27 % 16 % 15 % 18 % 24 % 100 %
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After giving the importance to the each parameter, now its turn to give the weightage according to the importance of the ratio we will allocate the weightage to the each particular ratio. The weightage given to the each ratio is as follows.
RATIO Capital Adequacy Debt Equity Ratio Total Advances to Total Assets Ratio Government Securities to Total Investment Asset Quality Gross NPA to Total Loan Net NPA to Total Loan Management Total Advances to Total Deposit Business per Employees Profit per Employees Earnings Dividend Payout Ratio Return on Assets Operating Profit to Average Working Fund Net Profit to Average Assets Interest Income to Total Income Other Income to Total Income Liquidity Liquidity Asset to Total Assets G-Sec to Total Assets Approved Securities to Total Security Liquidity Asset to Total Deposit Total Table No. 20
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After allocating the weightage, we have made frequency classes according to the results found from the ratios for each ratio of each parameter. He frequency classes for each ratio are as follows:
Capital Adequacy
Table No. 21 Ratios
Debt-Equity Ratio Total Advances to Total Assets G-Sec to Total Invest.
1
Below 0.15 Below 50 Below 82
2
0.15 - 1 50 - 53 82 - 84
4
1-3 53 - 55 84 - 86
Marks 5
3- 9 55 - 57 86 - 88
6
9 - 18 57 - 59 86 - 88
8
18 - 27 59 - 61 88 - 90
9
Above 27 Above 61 Above 90
Asset Quality
Total No. 22 Marks 5
4-6 1 1.5
Ratios
Gross NPA to Total Loan Net NPA to Total Loan
1
Above 10 Above 3.5
2
8 - 10 2.5 3.5
3
6-8 1.5 2.5
6
2-4 0.75 - 1
7
1-2 0.50 0.75
8
Below 1 Below 0.50
Management Quality
Table No. 23 Marks 3
55 - 65 1500 2000 100 - 150
Ratios
Total Advance to Total Deposit Business per Employee Profit per Employee
1
Below 50 Below 1000 Below 50
2
50 - 55 1000 1500 50 - 100
4
65 70 2000 3000 150 - 200
5
Above 70 Above 3000 Above 200
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Earnings Quality
Table No. 23 Marks 2.0
18 - 25 0.75 - 1 0.75 - 1 0.75 - 1 84 - 86 14 -16
Ratios
Dividend Payout Ratio Return on Assets Operating Profit to Avg. Working Fund Net Profit to Avg. Assets Interest Income to Total Income Other Income to Total Income
0.5
Below 10 Below 0.25 Below 0.25 Below 0.25 Below 80 Below 10
1.0
10 12 0.25 0.50 0.25 0.50 0.25 0.50 80 - 82 10 - 12
1.5
2.5
25 - 30 1 1.25 1 1.25 1 1.25 86 - 88 16 - 18
3.0
Above 30 Above 1.25 Above 1.25 Above 1.25 Above 88 Above 18
Liquidity
Table No. 25 Marks 3.5
12 - 14 21 - 23 0.5 - 1 12 - 15
Ratios
Liquidity Asset to Total Asset G-Sec To Total Assets Approved Sec to Total Assets Liquidity Asset to Total Deposit
1
Below 10 Below 20 Below 0.05 Below 10
2
10 - 12 20 - 21 0.05 0.5 10 - 12
5
14 - 16 23 - 24 1-2 15 - 18
6
Above 16 Above 24 Above 2 Above 18
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After allocating classes for the each ratio and for the five years, now we will give marks, on the basis of average of their average of performance during the last five years i.e. 2006 to 2010.
RATIO Capital Adequacy Debt Equity Ratio Total Advances to Total Assets Ratio Government Securities to Total Assets Asset Quality Gross NPA to Total Loan Net NPA to Total Loan Management Total Advances to Total Deposit Business per Employees Profit per Employees Earnings Dividend Payout Ratio Return on Assets Operating Profit to Average Working Fund Net Profit to Average Assets Interest Income to Total Income Other Income to Total Income Liquidity Liquidity Asset to Total Assets G-Sec to Total Assets Approved Securities to Total Security Liquidity Asset to Total Deposit Table No. 26 Marks Out of 9 Marks 5 5 5 Out of 8 Marks 6 5 Out of 5 Marks 3 4 3 Out of 3 Marks 2 1.5 1.5 1.5 2.5 1.5 Out of 6 Marks 3.5 3.5 2 5
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Parameters Capital Adequacy Asset Quality Management Quality Earning Quality Liquidity TOTAL Table No. 27
After going through the whole process, I found that, bank has scored 60.5 Marks
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FINDINGS
Capital adequacy:
The capital adequacy ratio of the bank is above the minimum requirements and above the industry average.
Assets:
The bank has maintained a standard for the NPAs in the period of 2006 2007. And then onwards, its decreasing every year.
Management:
Professional approach that has been adopted by the banks in the recent past is in right direction & also it is the right decision.
Earnings:
It has shown a good growth record for its ROA. But last year it has gone down in its performance with low profit.
Liquidity:
Banks should maintain quality securities with good liquidity to meet contingencies. The Bank is fulfilling this requirement by maintaining highest credit deposit ratio.
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RECOMMENDATIONS
2) The system is getting internationally standardized with the coming of BASELL III accords so the banks should strengthen internal processes so as to cope with the standards.
3) The banks should maintain a 0% NPA by always lending and investing or creating quality assets which earn returns by way of interest and profits.
4) The banks should find more avenues to hedge risks as the market is very sensitive to risk of any type.
5) Have good appraisal skills, system, and proper follow up to ensure that banks are above the risk.
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CONCLUSION
The report makes an attempt to examine the performance of the Dhanlaxmi Bank based on the CAMEL Model. The study has brought many interesting results, some of which are mentioned as below:
Gross NPA and Net NPA ratio has registered declining trend for the bank during the last five years. Thus, it indicates for improvement in the asset quality position of the banks.
In Management Quality, we have found that Business per Employee Ratio and Profit per Employee Ratio is decreased during the last five years. This shows the growth of the bank as well as efficiency of the employee, which is not very good in the banks and it will help the bank to grow in future.
In Earnings Quality, the major part of income of the bank is from Interest income. Because their large part of investment is in Government Securities. A little change in Interest Rate will effect on it more.
The Liquidity ratios of the Dhanlaxmi Bank indicate better liquidity of the bank.
From the above analysis I would like to conclude that Dhanlaxmi bank has high efficiency in terms of Capital Adequacy, Assets Quality, Earning Quality and Liquidity. After evaluating all the ratios, the bank scored 60.5 Marks.
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