Sajini Project

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK
FINANCE
Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. The term "finance" may thus incorporate any of the following:

The study of money and other assets; The management and control of those assets; Profiling and managing project risks; The science of managing money; As a verb, "to finance" is to provide funds for business or for an individual's large purchases (car, home, etc.). The field of finance deals with the concepts of time, money and risk and how they are interrelated. It also deals with how money is spent and budgeted. Finance works most basically through individuals and business organizations depositing money in a bank. The bank then lends the money out to other individuals or corporations for consumption or investment, and charges interest on the loans.
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The activity of finance is the application of a set of techniques that individuals and organizations (entities) use to manage their money, particularly the differences between income and expenditure and the risks of their investments. An entity whose income exceeds its expenditure can lend or invest the excess income. On the other hand, an entity whose income is less than its expenditure can raise capital by borrowing or selling equity claims, decreasing its expenses, or increasing its income. The lender can find a borrower, a financial intermediary, such as a bank or buy notes or bonds in the bond market. The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary pockets the difference. A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays the interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity. Banks are thus compensators of money flows in space.
A specific example of corporate finance is the sale of stock by a company to institutional investors like investment banks, who in turn generally sell it to the public. The stock gives whoever owns it part ownership in that company. If you buy one share of XYZ Inc, and they have 100 shares outstanding (held by investors), you are 1/100 owner of that company. Of course, in return for the stock, the company receives cash, which it uses to expand its business in a process called "equity financing". Equity financing mixed with the sale of bonds (or any other debt financing) is called the company's capital structure. Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance), as well as by a wide variety of organizations including schools and non-profit organizations. In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments, with consideration to their institutional setting. Finance is one of the most important aspects of business management. Without proper financial planning a new enterprise is unlikely to be successful. Managing money (a liquid asset) is essential to ensure a secure future, both for the individual and an organization
Financial Management
Management of funds is an important aspect of financial management. Management of funds acts as the primary concern whether it may be in a business undertaking or in an educational institution. Financial management, which is simply meant dealing with management of money matters.
Meaning of Financial Management By Financial Management we mean efficient use of economic resources namely capital funds. According to Phillippatus, "Financial management is concerned with the managerial decisions that result in the acquisition and financing of short term and long term credits for the firm". Here it deals with the situations that require selection of specific assets (or combination of assets), the selection of specific problem of size and growth of an enterprise. Here the analysis deals with the expected inflows and outflows of funds and their effect on managerial objectives.
So the analysis simply states two main aspects of financial management like procurement of funds and an effective use of funds to achieve business objectives.
Procurement of funds: As funds can be obtained from different sources so procurement of funds is considered as an important problem of business concerns. Funds procured from different sources have different characteristics in terms of risk, cost and control. In the globalised competitive scenario mobilization of funds plays a very significant role. Funds can be raised either through domestic market or from abroad. Foreign Direct Investment (FDI) as well as Foreign Institutional Investors (FII) is two major sources of raising funds. The mechanism of procurement of funds has to be modified in the light of requirements of foreign investors.
Utilization of Funds: Effective utilization of funds as an important aspect of financial management avoids the situations where funds are either kept idle or proper uses are not being made. Funds procured involve a certain cost and risk. If the funds are not used properly then running business will be too difficult. In case of dividend decisions we also consider this. So it is crucial to employ the funds properly and profitably.
FINANCIAL STATEMENTS
Financial statements (or financial reports) are formal records of the financial activities of a business, person, or other entity. Financial statements provide an overview of a business or person's financial condition in both short and long term. All the relevant financial information of a business enterprise presented in a structured manner and in a form easy to understand, is called the financial statements. There are four basic financial statements: 1. Balance sheet It is also referred to as statement of financial position or condition, reports on a company's assets, liabilities, and Ownership equity at a given point in time. 2. Income statement It is also referred to as Profit and Loss statement (or a "P&L"), reports on a company's income, expenses, and profits over a period of time. Profit & Loss account provide information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state.
3. Statement of retained earnings It explains the changes in a company's retained earnings over the reporting period. 4. Statement of cash flows It reports on a company's cash flow activities; particularly its operating, investing and financing activities. Financial statement analysis refers to an assessment of the viability, stability and profitability of a business, subbusiness or project. It is performed by professionals who prepare reports which are usually presented to top management as one of their bases in making business decisions. Based on these reports, management may:
Continue or discontinue its main operation or part of its business;
Make or purchase certain materials in the manufacture of its product;
Acquire or rent/lease certain machineries and equipment in the production of its goods;
Issue stocks or negotiate for a bank loan to increase its working capital;
Make decisions regarding investing or lending capital.
Parties Interested in Financial Statement Analysis

Information contained in financial statements is useful to different categories of users of financial data. Uses of financial data for each of these are briefly described below:
1. Management Management of a company is interested in its financial condition, profitability and progress. It uses a number of methods, tools and techniques available to it to analyze the financial data. Such analysis is used by the management to exercise control over the business and to make decisions to run it more efficiently.
2. Shareholders Shareholders are the suppliers of basic capital to run the business. Such capital is exposed to all the risks of ownership. Shareholders are interested in the profitability, dividends declared and market value of their holdings. In other words, shareholders mainly analyse the profitability and long term solvency of the company.
3. Creditors Creditors include short-term creditors like bankers, trade creditors and also long term credit grantors like debenture-holders and financial institutions, etc. All creditors are mainly interested in the short term and long-term solvency of the company. They are also interested in the profitability because profit is viewed as the primary source for payment of interest on loans and debentures.
4. Purchaser of Business Any person interested in the purchase of a going concern analyses the financial statements to determine its real value. It makes an assessment of the financial and operating strengths and weaknesses of the business.
5. Government Financial statements are used by various government departments like Income Tax, Sales Tax, Excise Duty, etc. to determine the tax liability of the company.
Types of Financial Statement Analysis

1. Internal and External Analysis. When analysis in done on behalf of the management who have access to the internal accounting records of the firm, it is called internal analysis. External analysis is done by outsiders like shareholders, creditors, investors and potential investors, government agencies, etc. who don't have access to the detailed internal records of the firm. Thus external analysis is dependent on the published financial statements of the firm.
2. Horizontal and Vertical Analysis. Horizontal analysis is that which covers financial data of more than one year (may be up to 5 or 10 years). The figures for various years are presented horizontally over a number of columns. Trend percentage and comparative financial statements are types of horizontal analysis. This type of analysis is also called dynamic analysis. Vertical analysis, also known as static analysis, covers a period of one year only and analysis is made on the basis of one set of financial statements. Common size financial statements and ratio analysis are techniques employed in vertical analysis.
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Significance and Purposes of Financial Statement Analysis

Financial statement analysis performs the essential function of converting mass data into useful information. Such analysed financial information serves many and varied purposes as described below: 1. Judging Profitability. 2. Judging Liquidity. 3. Judging Solvency. 4. Judging the Efficiency of Management. 5. Inter-firm Comparison. 6. Forecasting and Budgeting.
Tools of Financial Statements

In the analysis of financial statements, the analyst has available a number of tools from which he has to choose best suited for his specific purpose. The following are the principal tools of analysis of financial statements.
I. Comparative Financial Statements. II. Common-size Financial Statements. III. Trend Percentages.
IV. Ratio Analysis.
Financial Ratio Analysis
Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. Financial ratios are calculated from one or more pieces of information from a company's financial statements. For example, the "gross margin" is the gross profit from operations divided by the total sales or revenues of a company, expressed in percentage terms. In isolation, a financial ratio is a useless piece of information. In context, however, a financial ratio can give a financial analyst an excellent picture of a company's situation and the trends that are developing. A ratio gains utility by comparison to other data and standards. Taking our example, a gross profit margin for a company of 25% is meaningless by itself. If we know that this company's competitors have profit margins of 10%, we know that it is more profitable than its industry peers which are quite favorable. If we also know that the historical trend is upwards, for example has been increasing steadily for the last few years, this would also
be a favorable sign that management is implementing effective business policies and strategies. Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and operations. An overview of some of the categories of ratios is given below.
FINANCIAL RATIOS
LIQUIDITY
SOLVENCY
PERFORMANCE
PROFITABILITY
CURRENT RATIO
DEBT EQUITY RATIO
CAPITAL TURNOVER RATIO
GROSS PROFIT RATIO
QUICK RATIO
INTEREST COVERAGE RATIO
FIXED ASSET TURNOVER RATIO
NET PROFIT RATIO
ABSOLUTE LIQUID RATIO
PROPRIETORY RATIO
WORKING CAPITAL TURNOVER RATIO STOCK TURNOVER RATIO
OPERATING PROFIT RATIO
FIXED ASSET RATIO
OPERATING RATIO
CAPITAL GEARING RATIO
Leverage Ratios which show the extent that debt is used in a company's capital structure.
Liquidity Ratios which give a picture of a company's short term financial situation or solvency.
Operational Ratios which use turnover measures to show how efficient a company is in its operations and use of assets.
Profitability Ratios which use margin analysis and show the return on sales and capital employed.
Solvency Ratios which give a picture of a company's ability to generate cash flow and pay it financial obligations. It is imperative to note the importance of the proper context for ratio analysis. Like computer programming, financial ratio is governed by the GIGO law of "Garbage In...Garbage Out!" A cross industry comparison of the leverage of stable utility companies and cyclical mining companies would be worse than useless. Examining a cyclical company's profitability ratios over less than a full commodity or business cycle would fail to give an accurate long-term measure of profitability. Using historical data independent of fundamental changes in a company's situation or prospects would predict very little about future trends.
For example, the historical ratios of a company that has undergone a merger or had a substantive change in its technology or market position would tell very little about the prospects for this company. Credit analysts, those interpreting the financial ratios from the prospects of a lender, focus on the "downside" risk since they gain none of the upside from an improvement in operations. They pay great attention to liquidity and leverage ratios to ascertain a company's financial risk. Equity analysts look more to the operational and profitability ratios, to determine the future profits that will accrue to the shareholder. Although financial ratio analysis is well-developed and the actual ratios are well-known, practicing financial analysts often develop their own measures for particular industries and even individual companies. Analysts will often differ drastically in their conclusions from the same ratio analysis
PROFITABILITY RATIOS
Closely linked with income ratios are profitability ratios, which shed light upon the overall effectiveness of management regarding the returns generated on sales and investment. Gross Profit on Net Sales Net Sales Cost Of Goods Sold / Net Sales = Gross Profit on Net Sales Ratio
Does your average markup on goods normally cover your expenses, and therefore result in a profit? This ratio will tell you. If your gross profit rate is continually lower than your average margin, something is wrong! Be on the lookout for downward trends in your gross profit rate. This is a sign of future problems for your bottom line. Note: This percentage rate can and will vary greatly from business to business, even those within the same industry. Sales, location, size of operations, and intensity of competition are all factors that can affect the gross profit ratio.
NET OPERATING PROFIT RATIOS

Net Profit on Net Sales EAT/ Net Sales = Net Profit on Net Sales ratio
This ratio provides a primary appraisal of net profits related to investment. Once your basic expenses are covered, profits will rise disproportionately greater than sales above the break-even point of operations. EAT= earnings after taxes Note: Sales expenses may be substituted out of profits for other costs to generate even more sales and profits.
Net Profit to Tangible Net Worth EAT / Tangible Net Worth = Net Profit To Tangible Net Worth This ratio acts as a complementary appraisal of net profits related to investment. This ratio sizes up the ability of management to earn a return.
Net Operating Profit Rate of Return EBIT / Tangible Net Worth = Net Operating Profit Rate Of Return
Your Net Operating Profit Rate of Return ratio is influenced by the methods of financing you utilize. Notice that this ratio employs earnings before interest and taxes, not earnings after taxes. Profits are taken after interest is paid to creditors. A fallacy of omission occurs when creditors support total assets. Note: If financial charges are great, compute a net operating profit rate of return instead of return on assets ratio. This can provide an important means of comparison. Management Rate of Return Operating Income / Fixed Assets Net Working Capital = Mgt. Rate of Return
This profitability ratio compares operating income to operating assets, which are defined as the sum of tangible fixed assets and net working capital. This rate, which you may calculate for your entire company or for each of its divisions or operations, determines whether you have made efficient use of your assets. The percentage should be compared with a target rate of return that you have set for the business.
Earning Power Ratio Net Sales / tangible Net Worth x EAT / Net Sales = Earning Power Ratio
The Earning Power Ratio combines asset turnover with the net profit rate. That is, Net Sales to Tangible Net Worth (see "Income Ratios") multiplied by Net Profit on Net Sales (see ratio above). Earning power can be increased by heavier trading on assets, by decreasing costs, by lowering the break-even point, or by increasing sales faster than the accompanying rise in costs
LIQUIDITY RATIOS
While liquidity ratios are most helpful for short-term creditors/suppliers and bankers, they are also important to financial managers who must meet obligations to suppliers of credit and various government agencies. A complete liquidity ratio analysis can help uncover weaknesses in the financial position of your business.
Current Ratio Current Assets / Current Liabilities = Current Ratio Popular since the turn of the century, this test of solvency balances your current assets against your current liabilities. The current ratio will disclose balance sheet changes that net working capital will not.
Current Assets = net of contingent liabilities on notes receivable Current Liabilities = all debt due within one year of statement data
Note: The current ratio reveals your business's ability to meet its current obligations. It should be supplemented with the other ratios listed below, however.
Quick Ratio Quick assets / Current Liabilities = Quick Ratio Also known as the "acid test," this ratio specifies whether your current assets that could be quickly converted into cash are sufficient to cover current liabilities. Until recently, a Current Ratio of 2:1 was considered standard. A firm that had additional sufficient quick assets available to creditors was believed to be in sound financial condition. Note: The Quick Ratio assumes that all assets are of equal liquidity. Receivables are one step closer to liquidity than inventory. However, sales are not complete until the money is in hand.
Quick Assets = Current Assets Stock
Absolute Liquidity Ratio Cash + Marketable securities / Current Liabilities = Absolute Liquid Ratio A subsequent innovation in ratio analysis, the Absolute Liquidity Ratio eliminates any unknowns surrounding receivables. Note: The Absolute Liquidity Ratio only tests short-term liquidity in terms of cash and marketable securities.
Receivables Turnover Total Credit Sales / Average Receivables Owing = Receivables Turnover Ratio Another indicator of liquidity, Receivables Turnover Ratio can also indicate management's efficiency in employing those funds invested in receivables. Net credit sales, while preferable, may be replaced in the formula with net total sales for an industry-wide comparison. Note: Closely monitoring this ratio on a monthly or quarterly basis can quickly underscore any change in collections.
WORKING CAPITAL RATIOS

The working capital ratio can give an indication of the ability of your business to pay its bills. Generally a working capital ratio of 2:1 is regarded as desirable. A stronger ratio indicates a better ability to meet ongoing and unexpected bills therefore taking the pressure off your cash flow. Being in a liquid position can also have advantages such as being able to negotiate cash discounts with your suppliers. A weaker ratio may indicate that your business is having greater difficulties meeting its short-term commitments and that additional working capital support is required. Many believe increased sales can solve any business problem. Often, they are correct. However, sales must be built upon sound policies concerning other current assets and should be supported by sufficient working capital. There are two types of working capital: gross working capital, which is all current assets, and net working capital, which is current assets less current liabilities. Moody's Investors Service has listed net working capital since 1922.
If you find that you have inadequate working capital, you can correct it by lowering sales or by increasing current assets through either internal savings (retained earnings) or external savings (sale of stock). Following are ratios you can use to evaluate your business's net working capital. Working Capital Ratio Use "Current Ratio" in the section on "Liquidity Ratios." This ratio is particularly valuable in determining your business's ability to meet current liabilities.
Working Capital Turnover Net Sales / Net Working Capital = working Caoital Turnover Ratio This ratio helps you ascertain whether your business is top-heavy in fixed or slow assets, and complements Net Sales to Tangible Net Worth (see "Income Ratios"). A high ratio could signal overtrading. Note: A high ratio may also indicate that your business requires additional funds to support its financial structure, top-heavy with fixed investments.
Current Debt to Net Worth Current Liabilities / Tangible Net Worth = Current Debt To Net Worth Your business should not have debt that exceeds your invested capital. This ratio measures the proportion of funds that current creditors contribute to your operations. Note: For small businesses a ratio of 60 percent or above usually spells trouble. Larger firms should start to worry at about 75 percent.
Funded Debt to Net Working Capital Long Term Debt / Net Working Capital =Funded debt To Net Working Capital Funded debt (long-term liabilities) = all obligations due more than one year from the balance sheet date Note: Long-term liabilities should not exceed net working capital
LONG TERM ANALYSIS

Current Assets to Total Debt Current Assets / Current + Long Term Debts = Current Assets To Total Debts. This ratio determines the degree of protection linked to short- and long-term debt. More net working capital protects short-term creditors. Note: A high ratio (significantly above 100 percent) shows that if liquidation losses on current assets are not excessive, long-range debtors can be paid in full out of working capital.
Total Debt to Net Worth Current +Deferred Debt / Tangible Net Worth = Total Debt To Net Worth Rarely should your business's total liabilities exceed its tangible net worth. If it does, creditors assume more risk than stockholders. A business handicapped with heavy interest charges will likely lose out to its better financed competitors.
LEVERAGE RATIOS
This group of ratios calculates the proportionate contributions of owners and creditors to a business, sometimes a point of contention between the two parties. Creditors like owners to participate to secure their margin of safety, while management enjoys the greater
opportunities for risk shifting and multiplying return on equity that debt offers.
Equity Ratio Shareholders Equity / Total Capital Employed = Equity Ratio The ratio of common stockholders' equity (including earned surplus) to total capital of the business shows how much of the total capitalization actually comes from the owners. Debt to Equity Ratio Long Term Debts / Shareholders Equity = Debt To Equity Ratio
A high ratio here means less protection for creditors. A low ratio, on the other hand, indicates a wider safety cushion (i.e., creditors feel the owner's funds can help absorb possible losses of income and capital).
CHART SHOWING RATIOS CALCULATED IN BANKS
RATIOS
100
LIQUIDITY RATIOS
CURRENT RATIO
PERFORMAN60 CE RATIOS
40
80
SOLVENCY RATIOS
INTEREST COVERAGE RATIO 2nd Qtr 3rd Qtr
PROFITABILITY RATIOS East

West North
FIXED ASSET TURNOVER RATIO
20 0 1st Qtr
NET PROFIT RATIO

4th Qtr
QUICK RATIO
ABSOLUTE LIQUID RATIO
WORKING CAPITAL TURNOVER RATIO
OPERATING RATIO
Classification of current assets of a bank.

Cash in Hand Advances Term Loan Interest Accrued
Contra Items:
Bills for collection Acceptance & endorsement
Classification of current liabilities of a bank. Bills Payable Interest Accrued O/s Expense Accumulated Depreciation.
Contra Items:
Bills for collection Acceptance & endorsement P&L Account Classification of sales of a bank Interest on loan and advances. Interest on foreign exchange business. Interest on demand bills. Interest on pre shipment advance Interest on advance inland bills purchased. Interest on export bills. Interest on draught affected loan.
Bills discounted. Discount received under NBMS. Discount received under IDBI schemes. Interest recovered under NPA account. Interest received on statutory advances.
IMPORTANCE OF RATIO ANALYSIS

Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure,
reordering, leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas. Ratio analysis is primarily used to compare a company's financial figures over a period of time, a method sometimes called trend analysis. Through trend analysis, you can identify trends, good and bad, and adjust your business practices accordingly. We can also see how your ratios stack up against other businesses, both in and out of your industry. Financial ratios quantify many aspects of a business and are an integral part of financial statement analysis. Financial ratios are categorized according to the financial
aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt ratios measure the firm's ability to repay long-term debt.. Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. There are several considerations we must be aware of when comparing ratios from one financial period to another or when comparing the financial ratios of two or more companies.
If we are making a comparative analysis of a company's financial statements over a certain period of time, make an appropriate allowance for any changes in accounting policies that occurred during the same time span.
When comparing business with others in our industry, allow for any material differences in accounting policies between your company and industry norms.
When comparing ratios from various fiscal periods or Introduction To The Topiccompanies, inquire about the types of accounting policies used. Different accounting
methods can result in a wide variety of reported figures.
Determine whether ratios were calculated before or after adjustments were made to the balance sheet or income statement, such as non-recurring items and inventory or pro forma adjustments. In many cases, these adjustments can significantly affect the ratios.
Carefully examine any departures from industry norms.
GOALS OF FINANCIAL RATIOS

1. Profitability - its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency - its ability to pay its obligation to creditors and other third parties in the long-term; 3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations; 4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators.
LIMITATIONS OF RATIO ANALYSIS
False accounting data gives false ratio Limited use of single ratio. Limited comparability. Different meaning of different terms Qualitative factors are ignored. Ignores price level changes. Lack of proper standards. Ratios alone are not adequate for proper conclusion. Incompetence and personal bias. Window Dressing.
The Banking Sector.

History Of Banking In India
Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors.
For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process.
India has a well developed banking system. Most of the banks in India were founded by Indian entrepreneurs and visionaries in the pre-independence era to provide financial assistance to traders, agriculturists and budding Indian industrialists. The origin of banking in India can be traced back to the last decades of the 18th century. The government's regular policy for Indian bank since 1969 has paid rich dividends with the
nationalization of 14 major private banks of India.
Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dials a pizza. Money has become the order of the day.
The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:

Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms.
New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III.
Phase I
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders.
In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965).
Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. During those days public has lesser confidence in the banks. As an aftermath deposit mobilisation was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.
Phase II
Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country.
Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July, 1969, major process of nationalization was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country was nationalized.
Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership.
The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country:

1949 : Enactment of Banking Regulation Act. 1955 : Nationalisation of State Bank of India. 1959 : Nationalisation of SBI subsidiaries. 1961 : Insurance cover extended to deposits. 1969 : Nationalisation of 14 major banks. 1971 : Creation of credit guarantee corporation. 1975 : Creation of regional rural banks. 1980 : Nationalisation of seven banks with deposits over 200 crore. After the nationalisation of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%.
Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the
sustainability of these institutions. Phase III This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalisation of banking practices.
The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money.
The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.
TYPES OF DEPOSITS AND SCHEMES GENERALLY PROVIDED BY BANKS
Bank Fixed Deposits Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a certain sum of money is deposited in the bank for a specified time period with a fixed rate of interest. The rate of interest for Bank Fixed Deposits depends on the maturity period. It is higher in case of longer maturity period. There is great flexibility in maturity period and it ranges from 15days to 5 years.
Current Account Current Account is primarily meant for businessmen, firms, companies, public enterprises etc. that have numerous daily banking transactions. Current Accounts are cheque operated accounts meant neither for the purpose of earning interest nor for the purpose of savings but only for convenience of business hence they are non-interest bearing accounts
Demat Account Demat refers to a dematerialized account. Demat account is just like a bank account where actual money is replaced by shares. Just as a bank account is required if we want to save money or
make cheque payments, we need to open a demat account.
Recurring Bank Deposits Under a Recurring Deposit account (RD account), a specific amount is invested in bank on monthly basis for a fixed rate of return. The deposit has a fixed tenure, at the end of which the principal sum as well as the interest earned during that period is returned to the investor.
Savings Bank Account Savings Bank Accounts are meant to promote the habit of saving among the citizens while allowing them to use their funds when required. The main advantage of Savings Bank Account is its high liquidity and safety.
Senior Citizen Saving Scheme 2004 The Senior Citizen Saving Scheme 2004 had been introduced by the Government of India for the benefit of senior citizens who have crossed the age of 60 years. However, under some circumstances the people above 55 years of age are also eligible to enjoy the benefits of this scheme.
NATIONALISATION OF BANKS IN INDIA

The nationalisation of banks in India took place in 1969 by Mrs. Indira Gandhi the then prime minister. It nationalised 14 banks then. These banks were mostly owned by businessmen and even managed by them.

Central Bank of India Bank of Maharashtra Dena Bank Punjab National Bank Syndicate Bank Canara Bank Indian Bank Indian Overseas Bank Bank of Baroda Union Bank Allahabad Bank United Bank of India UCO Bank Bank of India Befor the steps of nationalisation of Indian banks, only State Bank of India (SBI) was nationalised. It took place in July 1955 under the SBI Act of 1955.
Nationalisation of Seven State Banks of India (formed subsidiary) took place on 19th July, 1960.
The State Bank of India is India's largest commercial bank and is ranked one of the top five banks worldwide. It serves 90 million customers through a network of 9,000 branches and it offers -- either directly or through subsidiaries -- a wide range of banking services.
The second phase of nationalisation of Indian banks took place in the year 1980. Seven more banks were nationalised with deposits over 200 crores. Till this year, approximately 80% of the banking segment in India were under Government ownership.
After the nationalisation of banks in India, the branches of the public sector banks rose to approximately 800% in deposits and advances took a huge jump by 11,000%.

1955 : Nationalisation of State Bank of India. 1959 : Nationalisation of SBI subsidiaries. 1969 : Nationalisation of 14 major banks. 1980 : Nationalisation of seven banks with deposits over 200 crores.
FINANCIAL AND BANKING SECTOR REFORMS
The last decade witnessed the maturity of India's financial markets. Since 1991, every governments of India took major steps in reforming the financial sector of the country. The important achievements in the following fields is discussed under separate heads:
A. Financial markets B. Regulators C. The banking system D. Non-banking finance companies E. The capital market F. Mutual funds G. Overall approach to reforms H. Deregulation of banking system I. Capital market developments J. Consolidation imperative
Financial Markets
In the last decade, Private Sector Institutions played an important role. They grew rapidly in commercial banking and asset management business. With the openings in the insurance sector for these institutions, they started making debt in the market.
Competition among financial intermediaries gradually helped the interest rates to decline. Deregulation added to it. The real interest rate was maintained. The borrowers did not pay high price while depositors had incentives to save. It was something between the nominal rate of interest and the expected rate of inflation.
Regulators
The Finance Ministry continuously formulated major policies in the field of financial sector of the country. TheGovernment accepted the important role of regulators. The Reserve Bank of India (RBI) has become more independant. Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and DevelopmentAuthority (IRDA) became important institutions. Opinions are also there that there should be a super-regulator for the financial services sector instead of multiplicity of regulators.
The Banking System

Almost 80% of the business are still controlled by Public Sector Banks (PSBs). PSBs are still dominating the commercial banking system. Shares of the leading PSBs are already listed on the stock exchanges.
The RBI has given licences to new private sector banks as part of the liberalisation process. The RBI has also been granting licences to industrial houses. Many banks are successfully running in the retail and consumer segments but are yet to deliver services to industrial finance, retail trade, small business and agricultural finance.The PSBs will play an important role in the industry due to its number of branches and foreign banks facing the constrait of limited number of branches. Hence, in order to achieve an
efficient banking system, the onus is on the Government to encourage the PSBs to be run on professional lines.
Development Of Finance Institutions

FIs's access to SLR funds reduced. Now they have to approach the capital market for debt and equity funds. Convertibility clause no longer obligatory for assistance to corporate sanctioned by termlending institutions.
DFIs such as IDBI and ICICI have entered other segments of financial services such as commercial banking, asset management and insurance through separate ventures. The move to universal banking has started.
Non-Banking Finance Companies

In the case of new NBFCs seeking registration with the RBI, the requirement of minimum net owned funds, has been raised to Rs.2 crores.
Until recently, the money market in India was narrow and circumscribed by tight regulations over interest rates and participants. The secondary market was underdeveloped and lacked liquidity. Several measures have been initiated and include new money market instruments, strengthening of existing instruments and setting up of the Discount and Finance House of India (DFHI).
The RBI conducts its sales of dated securities and treasury bills through its open market operations (OMO) window. Primary dealers bid for these securities and also trade in them.
The DFHI is the principal agency for developing a secondary market for money market instruments and Government of India treasury
bills. The RBI has introduced a liquidity adjustment facility (LAF) in which liquidity is injected through reverse repo auctions and liquidity is sucked out through repo auctions.
On account of the substantial issue of government debt, the giltedged market occupies an important position in the financial set- up. The Securities Trading Corporation of India (STCI), which started operations in June 1994 has a mandate to develop the secondary market in government securities.
Long-term debt market: The development of a long-term debt market is crucial to the financing of infrastructure. After bringing some order to the equity market, the SEBI has now decided to concentrate on the development of the debt market. Stamp duty is being withdrawn at the time of dematerialisation of debt instruments in order to encourage paperless trading.
The Capital Market

The number of shareholders in India is estimated at 25 million. However, only an estimated two lakh persons actively trade in stocks. There has been a dramatic improvement in the country's stock market trading infrastructure during the last few years. Expectations are that India will be an attractive emerging market with tremendous potential.
Unfortunately, during recent times the stock markets have been constrained by some unsavoury developments, which has led to retail investors deserting the stock markets.
Mutual Funds
The mutual funds industry is now regulated under the SEBI (Mutual Funds) Regulations, 1996 and amendments thereto. With the issuance of SEBI guidelines, the industry had a framework for the establishment of many more players, both Indian and foreign players. The Unit Trust of India remains easily the biggest mutual fund controlling a corpus of nearly Rs.70,000 crores, but its share is going down. The biggest shock to the mutual fund industry during recent times was the insecurity generated in the minds of investors regarding the US 64 scheme. With the growth in the securities markets and tax advantages granted for investment in mutual fund units, mutual funds started becoming popular.
The foreign owned AMCs are the ones which are now setting the pace for the industry. They are introducing new products, setting new standards of customer service, improving disclosure standards and experimenting with new types of distribution.
The insurance industry is the latest to be thrown open to competition from the private sector including foreign players. Foreign companies can only enter joint ventures with Indian companies, with participation restricted to 26 per cent of equity. It is too early to conclude whether the erstwhile public sector monopolies will successfully be able to face up to the competition posed by the new players, but it can be expected that the customer will gain from improved service.
The new players will need to bring in innovative products as well as fresh ideas on marketing and distribution, in order to improve the low per capita insurance coverage. Good regulation will, of course, be essential.
Overall Approach To Reforms
The last ten years have seen major improvements in the working of various financial market participants. The government and the regulatory authorities have followed a step-by-step approach, not a big bang one. The entry of foreign players has assisted in the introduction of international practices and systems. Technology developments have improved customer service. Some gaps however remain (for example: lack of an inter-bank interest rate benchmark,
an active corporate debt market and a developed derivatives market). On the whole, the cumulative effect of the developments since 1991 has been quite encouraging. An indication of the strength of the reformed Indian financial system can be seen from the way India was not affected by the Southeast Asian crisis.
However, financial liberalisation alone will not ensure stable economic growth. Some tough decisions still need to be taken. Without fiscal control, financial stability cannot be ensured. The fate of the Fiscal Responsibility Bill remains unknown and high fiscal deficits continue. In the case of financial institutions, the political and legal structures have to ensure that borrowers repay on time the loans they have taken. The phenomenon of rich industrialists and bankrupt companies continues. Further, frauds cannot be totally prevented, even with the best of regulation. However, punishment has to follow crime, which is often not the case in India.
Deregulation Of Banking System
Prudential norms were introduced for income recognition, asset classification, provisioning for delinquent loans and for capital adequacy. In order to reach the stipulated capital adequacy norms, substantial capital were provided by the Government to PSBs.
Government pre-emption of banks' resources through statutory liquidity ratio (SLR) and cash reserve ratio (CRR) brought down in steps. Interest rates on the deposits and lending sides almost entirely were deregulated.
New private sector banks allowed to promote and encourage competition. PSBs were encouraged to approach the public for raising resources. Recovery of debts due to banks and the Financial Institutions Act, 1993 was passed, and special recovery tribunals set up to facilitate quicker recovery of loan arrears. Bank lending norms liberalized and a loan system to ensure better control over credit introduced. Banks asked to set up asset liability management (ALM) systems. RBI guidelines issued for risk management systems in banks encompassing credit, market and operational risks. A credit information bureau being established to identify bad risks. Derivative products such as forward rate agreements (FRAs) and interest rate swaps (IRSs) introduced.
Capital Market Developments

The Capital Issues (Control) Act, 1947, repealed, office of the Controller of Capital Issues were abolished and the initial share pricing were decontrolled. SEBI, the capital market regulator was established in 1992.
Foreign institutional investors (FIIs) were allowed to invest in Indian capital markets after registration with the SEBI. Indian companies were permitted to access international capital markets through euro issues. The National Stock Exchange (NSE), with nationwide stock trading and electronic display, clearing and settlement facilities was established. Several local stock exchanges changed over from floor based trading to screen based trading.
Private Mutual Funds Permitted

The Depositories Act had given a legal framework for the establishment of depositories to record ownership deals in book entry form. Dematerialisation of stocks encouraged paperless trading. Companies were required to disclose all material facts and specific risk factors associated with their projects while making public issues.
To reduce the cost of issue, underwriting by the issuer were made optional, subject to conditions. The practice of making preferential allotment of shares at prices unrelated to the prevailing market prices stopped and fresh guidelines were issued by SEBI.
SEBI reconstituted governing boards of the stock exchanges, introduced capital adequacy norms for brokers, and made rules for making client or broker relationship more transparent which included separation of client and broker accounts.
Buy Back Of Shares Allowed

The SEBI started insisting on greater corporate disclosures. Steps were taken to improve corporate governance based on the report of a committee.
SEBI issued detailed employee stock option scheme and employee stock purchase scheme for listed companies. Standard denomination for equity shares of Rs. 10 and Rs. 100 were abolished. Companies given the freedom to issue dematerialised shares in any denomination.
Derivatives trading starts with index options and futures. A system of rolling settlements introduced. SEBI empowered to register and regulate venture capital funds. The SEBI (Credit Rating Agencies) Regulations, 1999 issued for regulating new credit rating agencies as well as introducing a code of conduct for all credit rating agencies operating in India.
Consolidation Imperative
Another aspect of the financial sector reforms in India is the consolidation of existing institutions which is especially applicable to the commercial banks. In India the banks are in huge quantity. First, there is no need for 27 PSBs with branches all over India. A number of them can be merged. The merger of Punjab National Bank and New Bank of India was a difficult one, but the situation is different now. No one expected so many employees to take
voluntary retirement from PSBs, which at one time were much sought after jobs.
Private sector banks will be self consolidated while co-operative and rural banks will be encouraged for consolidation, and anyway play only a niche role. In the case of insurance, the Life Insurance Corporation of India is a behemoth, while the four public sector general insurance companies will probably move towards consolidation with a bit of nudging. The UTI is yet again a big institution, even though facing difficult times, and most other public sector players are already exiting the mutual fund business. There are a number of small mutual fund players in the private sector, but the business being comparatively new for the private players, it will take some time.
We finally come to convergence in the financial sector, the new buzzword internationally. Hi-tech and the need to meet increasing consumer needs is encouraging convergence, even though it has not always been a success till date. In India organisations such as IDBI, ICICI, HDFC and SBI are already trying to offer various services to the customer under one umbrella. This phenomenon is expected to grow rapidly in the coming years. Where mergers may not be possible, alliances between organizations may be effective. Various forms of bancassurance are being introduced, with the RBI having already come out with detailed guidelines for entry of banks into insurance. The LIC has bought into Corporation Bank in order to spread its insurance distribution network. Both banks and insurance companies have started entering the asset management business, as there is a great deal of synergy among these businesses. The pensions market is expected to open
up fresh opportunities for insurance companies and mutual funds.
It is not possible to play the role of the Oracle of Delphi when a vast nation like India is involved. However, a few trends are evident, and the coming decade should be as interesting as the last one.
RESERVE BANK OF INDIA (RBI)

The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. The Government held shares of nominal value of Rs. 2,20,000.
Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of cooperative and indigenous banks.
The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank.
The Bank was constituted for the need of following:

To regulate the issue of banknotes To maintain reserves with a view to securing monetary stability and
To operate the credit and currency system of the country to its advantage.
FUNCTIONS OF RESERVE BANK OF INDIA

The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank the Reserve Bank of India.
Bank of Issue
Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by
the Reserve Bank as agent of the Government. The assets of the Issue Department were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crores in value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115 crores should be in gold. The system as it exists today is known as the minimum reserve system.
Banker to Government
The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, via. to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations. It acts as adviser to the Government on all monetary and banking matters.
Bankers' Bank and Lender of the Last Resort
The Reserve Bank of India acts as the bankers' bank. According to the provisions of the Banking Companies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand liabilites and 2 per cent of its time liabilities in India. By an amendment of 1962, the distinction between demand and time liabilities was abolished and banks have been asked to keep cash reserves equal to 3 per cent of their aggregate deposit liabilities. The minimum cash requirements can be changed by the Reserve Bank of India.
The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or stringency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to come to their help in times of banking crisis the Reserve Bank becomes not only the banker's bank but also the lender of the last resort.
Controller of Credit
The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank.
Every bank will have to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank.
As supreme banking authority in the country, the Reserve Bank of India, therefore, has the following powers : (a) It holds the cash reserves of all the scheduled banks. (b) It controls the credit operations of banks through quantitative and qualitative controls. (c) It controls the banking system through the system of licensing, inspection and calling for information. (d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.
Custodian of Foreign Reserves
The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at lsh.6d. though there were periods of extreme pressure in favor of or against the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F.
Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the country.
Supervisory functions
In addition to its traditional central banking functions, the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction, and liquidation. The RBI is authorized to carry out periodical inspections of the banks and to call for returns and necessary information from them. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation.
Promotional functions
With economic growth assuming a new urgency since Independence, the range of the Reserve Bank's functions has steadily widened. The Bank now performs a variety of developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialised financing agencies. Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972.
FEDERAL BANK
Federal Bank is a private sector bank in India. The head office of this prestigious bank is located at Aluva, Kerala. By 2008, the Federal Bank India had successfully introduced 671 branches and 681 ATMs across the nation. In the month of March of 2008 alone, the bank had opened 26 branches across 11 Indian States. BUSINESS PHILOSOPHY Growth is essential to keep an organisation live and vibrant. Organisations grow only when its roots are firmly planted on a ground of strong business philosophy. A strong sense of purpose drive organisations forward and a sound philosophy fuels this advance. Federal Bank is a notable player amongst the commercial banks in the country. Bank professes a set of values that are being nurtured over the years and these have become the principles of the organisation. The Bank envisions an all-round prosperity to all the stakeholders - customers, shareholders, employees and associates. We practice and propagate with excellence, in all spheres of activities.
Strategic alliances and diversification paths are adopted; making sure that the ultimate goal is achieved - To be a Bank of world-class standards.
A Bank that is respected by both its customers and competitors alike would never dare to overlook a very important asset the employees. A well-trained, well-informed and happy work force with strong work ethics is sure to result in success with no precedents. The Bank is reaping the benefits of an HRD policy that aimed at developing a WE attitude among the employees. Our employees are an energetic set of people with unfathomable skill, energy and commitment. Capitalising on our core competencies and smart sizing our operations, we are prepared to meet any challenge that may come our way and utilise opportunities the banking industry has to offer in the days to come. Every action conveys our message, we are - Your Perfect Banking Partner.
HISTORY OF FEDERAL BANK INDIA

Federal Bank Limited was founded as Travancore Federal Bank Limited in the year 1931, with an authorized capital of Rs. 5000. Federal Bank Limited in its entire span of customer services has seen both ups and downs. The bank started with an auction-chitty business along with other banking transactions related to agriculture and industry.
It was established at Nedumpuram, a place near Tiruvalla, in Central Travancore (a princely state later merged into Kerala), under Travancore Company's Act. Thirteen years later, in 1944, Shri K P Hormis and his close relatives /friends took over the controlling interest in the bank. The following year, the paid-up capital of the bank went up to 71,000. A new Board of Directors was constituted and the bank also incorporated new Articles of Association. Its registered office shifted to Aluva, in Ernakulam district of Kerala.
Subsequently, Federal Bank came with its branches in Angamally (1946) and Perumbavoor (1947). However, it came with a massive expansion plan in the years 1975 and 1976 by opening 53 and 42 branches respectively. From that time till today, the bank has continued to incorporate the effective changes to ensure smooth banking experience for its customers.
With the opening of its first branch at Aluva, Travancore Federal Bank commenced its business. It was in the Board Meeting of March 1947 that the name of the bank was changed to Federal Bank Limited. After a gap of 12 years i.e. in 1959, the bank was licensed under Sec. 22 of the Banking Companies Act 1949, after which it floated several kuries and launched various deposit schemes. In 1964, it took over the liabilities of Chalakudy Public Bank Ltd. (Chalakudy), Cochin Union Bank Ltd. (Trichur) and Alleppey Bank Ltd. (Alleppey).
In the next five year, Federal Bank took over St.George Union Bank Ltd. Puthenpally (1965) and Marthandom Commercial Bank Ltd. Trivandrum (1968). In 1970, it became a Scheduled Bank. Two years later, it became an authorized dealer in Foreign Exchange. Thereafter, Federal Bank came in an expansion mode and opened 53 branches in 1975 and 42 branches in 1976. In 1984, Federal Bank set up an Agricultural Finance Department in its head office, improving its performance in the field of agricultural and priority sector lending. The year 1985 saw Federal Bank opening a Personnel and Industrial Relations Department and a Computer Department. Four year later, the bank had entered the arena of Merchant Banking Operations. In 1993, ICICI group was roped in as a shareholder, through private placement.
VISION AND MISSION

Vision
Develop into a stronger and more efficient and profitable financial institution with a growing share of the market, providing an expanding range of products and services to a growing clientele within and outside the country, adopting best industry practices and employing contemporary technology, and be counted among the top private banks in the country.
Mission
Devote balanced attention to the interests and expectations of stakeholders, and in particular:
Shareholders: Achieve a consistent annual post-tax return of at least 20% on net worth.
Employees: Develop in every employee a high degree of pride and loyalty in serving the Bank.
Customers: Meet and even exceed expectations of target customers by delivering appropriate products and services, employing, as far as feasible, the single-window and 24-hourseven-day-week concepts, leveraging strengthened branch infrastructure, ATMs, and other alternative distribution channels, cross-selling a range of products and services to meet customer needs varying over time, and ensuring the highest standards of service at all times
Future:
We are the fourth largest bank in India in terms of capital base and can easily boast of a Capital Adequacy Ratio of 19.11%, one of the highest in the industry. This along with the existence in a highly regulated environment has helped the bank to tide over the recession with minimum impact to its financial stability. In fact we have been expanding organically over the past few months. We believe in extending our reach to our customers by making our services available to all, 24x7. We have over 690 ATMs and 669 Branches across India in addition to the Representative Office at Abu Dhabi that serves as a nerve centre for the NRI customers in UAE.
TECH-SAVVY BANK
It was in the year 2000 that Federal Bank started the Any Where Banking (ABB) service, in Bangalore, followed by the Depository Services, in association with NSDL. The same year, Internet Banking 'FedNet' was launched, with the Federal Millennium CD being just in tow.
With the start of 2001, the bank saw the launch of Wide Area Network, connecting Regional Offices at Mumbai, Bangalore, Chennai, Ernakulam and Chennai F & I with Head Office. The following year, all the branches of the bank were fully computerized (using FedSoft).
In 2002, Federal Bank started the installation of switch for networking all the ATMs. Soon enough, it introduced FedAlerts and FedMobile, with real-time transaction alerts and customizable options.
Two years later, a call centre was set up by the bank, attached to the Systems and Technology Department, and co-branded credit cards were launched, in association with ICICI Bank. Not much time later, Federal Bank claimed the distinction of becoming the first traditional bank with networked branches, having 100 percent connectivity.
PIONEERING PRODUCTS BY FEDERAL BANK INDIA

Depository Services Debit Cards General Insurance Products in association with United India Insurance
Export Credit Insurance Products in association with ECGC

Express Remittance Facility from Abroad - FEDFAST Cash -On- Line Express Cash Remittance Life Insurance Products in association with IDBI Fortis Lock Box Service for US-based NRIs Cash Management Services Merchant Banking Services E-shopping Payment gateway BSNL Bill Payment Easy Pay- On-line fee payment system Online LIC Insurance Payment Online Kiosks for customers Online Railway Reservation System
PIONEERING SERVICES BY FEDERAL BANK INDIA

In its attempt to serve customers with the best and to provide them an easy means of banking, Federal Bank in India has come up with many first of its kind services and products that re-defined the entire banking scenario of India.These are:
Launched Internet Banking Service via FedNet among all the traditional banks in India
Made its branches automated Inter-connected all its branches Started Electronic Telephone Bill Payment Introduced e-shopping payment gateway

Offered Mobile Alerts and Mobile Banking service Devised a way for Express Remittance Facility from Abroad
Provided RTGS facility in all its branches
THE FIRSTS
First traditional bank in India to launch Internet Banking Service (FedNet)
First traditional bank in India to have all its branches automated
First and the only traditional bank in India to have all its branches inter-connected
First bank to launch Electronic Telephone Bill Payment in India
First and only one of the older banks with e-shopping payment gateway
First traditional bank in India introduce Mobile Alerts and Mobile Banking service
First bank in India to implement an Express Remittance Facility from Abroad
First bank in India to provide RTGS facility in all its branches.
The Bank has been following prudent business policy throughout. The underlying principles of this policy are efficient cost structure, competitive pricing, asset quality, retention of existing customer
base and expanding the companys reach to new areas and new customer segments. The Bank aims to balance the multiple objectives of rewarding shareholders with cash dividends and of retaining capital to support future growth and to add further value to the shareholders. The Bank added 67 new branches crossing the 600 mark and opened 141 new ATM centers. As on March 31, 2008, the total number of branches and ATM centers of the Bank increased to 603 and 532 respectively, as against 536 and 391 of last financial year.
CREDIT RATING OF BANKS DEPOSITS AND DEBT INSTRUMENTS

The rating factors in the long standing track record of the bank, high level of capitalization aided by the successful GDR issue and internal accruals, strong solvency position, higher profitability and improving risk management systems and technology orientation. SHORT TERM DEPOSITS AND CERTIFICATE OF DEPOSIT: P1+ BY CRISIL This rating P indicates that the degree of safety regarding timely payment on the instrument is very strong. The "+" (plus) sign for ratings reflects a comparatively higher standing within the category.
LONG TERM DEBT: AA BY CARE Instruments with this rating are considered to offer high safety for timely servicing of debt obligations. Such instruments carry very low credit risk. LONG TERM DEBT - AA (IND) BY FITCH 'AA' national ratings denote a comparatively low credit risk relative to other issuers or issues in the country. The credit risk inherent in these financial commitments differs only slightly from the country's highest rated issuers or issues.
SOCIAL BANKING
At Federal Bank, we believe that Business exists in the society and any business requires social sanction for its survival and growth and organisations should have a social commitment, as they owe their existence to the society. All our social and mass banking initiatives are towards fulfilling such social commitments. Following measures are already initiated by us towards this direction.
Launching of Samrudhi Scheme through which the entire banking needs of the residents of selected villages (Grama Panchayats) are met by implementing various schemes of the Bank, so that these villages can be developed into model villages. These model villages are experimental samples for our innovations in Rural Banking and would help the Bank to demonstrate the effectiveness of its Rural Banking
strategies and the Banks social commitment by showcasing these villages.
Setting up a Training & Guidance Centre at Vythiri in Wayanad District in collaboration with YMCA. Bank has launched the Federal Ashwas Trust and opened three Federal Ashwas Financial Literacy and Credit Counseling Centers in association with Gandhi Smaraka Grama Seva Kendram, the only NGO from Kerala figuring among the CRISIL top 50 MFIs in India. Bank has launched Federal Prathyasha Loan Scheme to provide credit to distressed poor / Small and Marginal farmers to prepay their debt to informal sector against collateral or group security
IT ENABLED FINANCIAL INCLUSION

Kisan Credit Card (KCC) accounts - This is a comprehensive scheme of the Bank to extend adequate and timely support to the farmers. This aims at financial inclusion of small and marginal farmers. It is ATM enabled with Federal Haritha Card
RUBBER PRODUCERS SOCIETIES

With an aim to help the small rubber growers, the Bank has implemented a scheme for extending working capital finance to well run Rubber Producers Societies promoted by the Rubber Board. The scheme is designed to achieve financial independence of RPS, resulting in overall development and economic growth of small rubber growers. More than 1000 societies representing nearly a lakh of Small Rubber Growers have benefited by the scheme so far.
FOR THE ORPHANS

SOS Childrens Village SOS Childrens Villages of India is an NGO working with children. They provide long term family like care to children who lost their parents. Every child who comes to SOS Childrens Village receives a mother, brothers and sisters, a home and all opportunities to grow into happy and successful adults. SOS has been working in 132 countries with SOS-Kinderdorf International as the umbrella organisation that was established in 1964. At present there are 38 childrens villages spread across the country. Bank is proud to have associated with SOS (2006) in constructing a Learning Centre at the Choondy Unit, 4 Kms from Aluva. It was constructed over an area of 1076 sq. ft.
RESEARCH DESIGN & METHODOLOGY

STATEMENT OF THE PROBLEM
This particular topic titled a study of the ratio analysis of the banking sector with special reference to Federal Bank of India (Regional Head Office) is selected as a subject of the project to gain a better understanding about the functioning of commercial banks and their operations. Federal Bank is selected as the center to study the variables as its one of the oldest private sector bank. The study of the ratio analysis will help us to gain a better & practical knowledge of the various financial ratios and their utility in regard to the operations of the financial institutions and thereby help us to suggest the institution desirable measures to better up the performance of the institution.
OBJECTIVE To gain a better understanding of the practical aspect of

the topic.
To analysis the feasibility of the operations of the banking

institution studied.
To find out the various figures of the operating and

profitability index of the banking institution.
To measure the performance of the institution comparing

the worked out ratio with the standard ratios.
To suggest desirable measures to better up the

performance based on the deviation of the actual from the desired.
CHAPTER SCHEME
Chapter 1: Introduction to the topic:

meaning & definition of finance; financial management; financial ratio analysis; types of ratios; importance of ratio; limitations of financial ratio analysis.
Chapter 2:
Industry Profile:
the banking sector; nationalization of banks in India; scheduled commercial banks; banking sector reforms; development of financial institutions; financial markets; capital markets; mutual funds; reserve bank of India; functions of RBI.
Chapter 3: Company Profile:

introduction of Federal Bank; the history of Federal Bank; the vision and mission statement; products and services of Federal Bank; the firsts; credit rating of the bank deposits and schemes; social banking
Chapter 4:
Research Design & Methodology:
statement of the problem; objectives; chapter schemes; sources of data; limitations; conclusion.
Chapter 5:
Analysis & Interpretation:
Calculated ratio chart; current ratio; debt equity ratio, fixed assets ratio; current assets to fixed assets ratio; equity multiplier ratio; return on total assets ratio, non interest income ratio; interest income ratio; graphs showing comparison of last three financial years; analysis of ratios comparing three financial years; interpretation of the findings.
Chapter 6: Findings:
Results of various ratios calculated; the actual performance position; deviation from desired or idle position.
Chapter 7:
Suggestions:
Suggested measures for the undesirable ratios; measures to be adopted for bettering up the performance.
Chapter 8:
Conclusion:
Winding up of the project; completion of the study.
Bibliography: Reference books; referred sites; authors of the referred books.
SOURCES OF DATA
Database can be classified into two categories, which are:
Primary data and secondary data. Primary data: The data originally collected from Federal Bank (Regional Head Office) and its agents through direct interview.
Secondary data: various pamphlets, articles were

collected, various websites, annual reports to study the financial position of The Federal
Bank(Regional Head Office)
LIMITATIONS
The study process was dealt with some inevitable problems. Some of the valid limitations of the project work are dotted as under:
The calculation of ratio analysis was a difficult practice as all the listed ratios were not found as the studied institution was a banking firm and its records are not of regular format. The bank could not provide certain information for the project work as it was highly confidential in nature.
The time duration taken to complete the project was quite long.
ANANLYSIS AND INTERPRETATION

1. RETURN ON CAPITAL EMPLOYED Return on capital employed ratio=Net Profit /Net capital employed
Table.1
Table showing Net Profit, net capital employed and return on capital employed ratio for year ending 2007, 2008 and 2009:
Particulars
Net profit Capital employed Return on capital employed
2006-2007 2007-2008 2008-2009

2927328 15022078 0.19 3680538 39256972 0.09 5004936 43258758 0.12
Graph 1.a CHART REPRESENTING NET PROFIT AND CAPITAL EMPLOYED

50000000 40000000 30000000 20000000 10000000 0 2006-2007 2008-2009 Net profit Capital employed
Graph 1.b CHART REPRESENTING RETURN ON CAPITAL EMPLOYED RATIO
20082009 20072008 20062007 0 2000000 4000000 6000000
Net profit
INTERPRETATION The return on capital employed ratio of the bank for the year 2006-2007 is 0.19. It decreased in the year 2007-2008 to 0.09 and consequently increased over the following year 2008-2009 to 0.12.
2. FIXED ASSETS RATIO
Fixed Assets Ratio=Fixed Asset/Capital Employed Table 2:

Table showing fixed assets, capital employed and fixed asset ratio for year ending 2007, 2008 and 2009:
Particulars
Fixed assets Capital employed Fixed assets/ Capital employed
2006-2007 2007-2008 2008-2009

1860995 15022078 0.12 2328398 39256972 0.06 2807797 43258758 0.06
Graph 2.a CHART REPRESENTING FIXED ASSETS AND CAPITAL EMPLOYED
20082009 20072008 20062007 0 50000000 Capital employed Fixed assets
Graph 2.b
CHART REPRESENTING FIXED ASSETS RATIO
0.12 0.1 0.08 0.06 0.04 0.02 0 Fixed assets/ Capital employed 2006-2007 0.12 2007-2008 0.06 2008-2009 0.06
INTERPRETATION:
The fixed assets ratio of the bank for the year 2006-2007 is 0.12. It decreased in the year 20072008 to 0.06 and remains the same even in the following year 2008-2009.
3. NET INTEREST MARGIN RATIO Net Interest Margin Ratio=Interest Income / Total Assets
Table.3 Table showing interest income, total assets and Net Interest margin ratio for year ending 2007, 2008 and 2009: Particulars
Interest income Total assets Net Interest ratio
2006-2007 2007-2008 2008-2009

18014558 250899325 0.07 25154442 325064570 0.08 33153762 388508646 0.09
Graph 3.a CHART REPRESENTING INTEREST INCOME AND TOTAL ASSETS
2008-2009 2007-2008 2006-2007 0 200000000 400000000 Total assets Interest income
Graph 3.b CHART REPRESENTING NET INTEREST MARGIN RATIO
0.1 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 2006-2007
Net Interest ratio
2007-2008
2008-2009
INTERPRETATION:
The net interest margin ratio of the bank for the year 2006-2007 is 0.07. It decreased in the year 2007-2008 to 0.08 and consequently increased over the following year 2008-2009 to0.09.
4. INTEREST EXPENSE ON DEPOSITS RATIO Interest expense on deposits ratio=Interest Expense/Deposits
Table.4 Table Showing Interest Expense, Deposits And Interest Expense On Deposits Ratio For Year Ending 2007, 2008 And 2009: Particulars
Interest expense Deposits Interest expense on deposits
2006-2007 2007-2008 2008-2009

10849583 215844402 0.05 16474249 259133558 0.06 19999238 321981915 0.06
Graph 4.a: CHART REPRESENTING INTEREST EXPENSE AND DEPOSITS

25000000 20000000 15000000 10000000 5000000 0 20062007 20072008 20082009 350000000 300000000 250000000 200000000 150000000 100000000 50000000 0
Interest expense Deposits
Graph 4.b:
CHART REPRESENTING INTEREST EXPENSE ON DEPOSITS RATIO
6%
2008-2009 2007-2008 5% 2006-2007 0%
6% 2% 4% 6% 8%
Interest expense on deposits
INTERPRETATION:
The interest expense on deposits of the bank for the year 2008-2009 is 0.06. It remains the same in the year 2007-2008 consequently decreased over the following year 2006-2007 to 0.05.
5. EARNINGS PER SHARE RATIO
Earnings per share ratio=Net Profit after tax and depreciation /No. of Equity shares
Table.5
Table showing Net Profit after tax and depreciation, No. of Equity shares and Earnings per share ratio for year ending 2007, 2008 and 2009:
Particulars
Net Profit No. of Equity Shares Earnings per share ratio
2006-2007 2007-2008 2008-2009

2927328 101868 28.74 3680538 113539 32.42 5004936 171033 29.26
Graph 5.a CHART REPRESENTING NET PROFIT AND NUMBER OF EQUITY SHARES
No. of Equity Shares
Net Profit 2006-2007 2007-2008 2008-2009
Graph 5.b
CHART REPRESENTING EARNINGS PER SHARE RATIO
33 32 31 30 29 28 27
Earnings per share ratio
26 2006-2007 2007-2008 2008-2009
INTERPRETATION:
The earnings per share ratio of the bank for the year 2006-2007 is 28.74. It increased in the year 2007-2008 to 32.42 and consequently decreased over the following year 2008-2009 to 29.26.
6. RETURN ON ASSETS RATIO Return On Assets Ratio=Net Operating Income /Total Assets Table.6:
Table Showing Net Operating Income, Total Assets And Return On Assets Ratio For Year Ending 2007, 2008 And 2009:
Particulars
Net operating income Total assets Return on assets ratio
2006-2007 2007-2008 2008-2009

6357938 250899325 0.025 8230942 325064570 0.025 13020401 388508646 0.03
Graph 6.a CHART REPRESENTING NET OPERATING INCOME AND TOTAL ASSETS
300000000400000000 200000000300000000 100000000200000000 0-100000000 Net operating income 20072008 20082009
400000000 300000000 200000000 100000000 0 20062007
Graph 6.b CHART REPRESENTING RETURN ON ASSETS RATIO
0.035 0.03 0.025 0.02 0.015 0.01 0.005 0 2006-2007 2007-2008 2008-2009
Return on assets ratio
INTERPRETATION:
The earnings per share ratio of the bank for the year 2006-2007 is 0.025. It remains the same in the year 2007-2008 at 0.025 and consequently increased over the following year 2008-2009 to 0.03
7. EQUITY RATIO Equity Ratio=Share holders Equity/Capital Employed
Table 7:
Table showing Share holders Equity/Capital Employed and Equity ratio for year ending 2007, 2008 and 2009:
Particulars
Shareholders Equity Capital employed Equity Ratio
2006-2007 2007-2008 2008-2009

856033 15022078 0.06 1710334 39256972 0.04 1710334 43258758 0.04
Graph 7.a CHART REPRESENTING CAPITAL EMPLOYED AND SHARE HOLDERS EQUITY
50000000 45000000 40000000 35000000 30000000 25000000 20000000 15000000 10000000 5000000 0 20062007
Capital employed Shareholders Equity
20072008
20082009
Graph 7.b
CHART REPRESENTING EQUITY RATIO
0.06 0.04 0.02 Equity Ratio 0 2006-20072007-20082008-2009
Equity Ratio
INTERPRETATION:
The equity ratio of the bank for the year 2006-2007 is 0.06. It decreased in the year 2007-2008 to 0.04 and continues to remain the same over the following year 2008-2009.
8. DEPOSITS TO TOTAL LIABILITIES RATIO Deposits to total liabilities=Long term debt/ total liabilities
Table.8
Table showing Deposits, total liabilities and Deposits to total liabilities ratio for year ending 2007, 2008 and 2009:
Particulars
Deposits Total liabilities Deposits to total liabilities ratio
2006-2007 2007-2008
215844402 250899325 0.86 259133558 325064570 0.79
2008-2009
321981915 388508646 0.83
Graph 8.a CHART REPRESENTING DEPOSITS AND TOTAL LIABILITIES

500000000 400000000 300000000
200000000
100000000 0 2006-2007 2007-2008 2008-2009
Deposits
Total liabilities
Graph 8.b CHART REPRESENTING DEPOSITS TO TOTAL LIABILITIES RATIO
0.88 0.86 0.84 0.82 0.8 0.78 0.76 0.74 2006-2007 2007-2008 2008-2009 Deposits to total liabilities ratio
INTERPRETATION:
The deposits to total liabilities ratio of the bank for the year 2006-2007 is 0.86. It decreased in the year 20072008 to 0.79 and consequently increased over the following year 2008-2009 to 0.83.
9. INTEREST EARNED ON TOTAL INCOME Interest earned on total income= Interest earned/total income
Table.9
Table showing Interest earned, total income and Interest earned percentage of total income ratio for year ending 2007, 2008 and 2009:
Particulars
Interest earned Total income Interest earned on total income
2006-2007 2007-2008
18014558 21040417 0.86 25154442 29104311 0.86
2008-2009
33153762 38311515 0.87
Graph 9.a CHART REPRESENTING INTEREST EARNED AND TOTAL INCOME

40000000 30000000 20000000 10000000 0 20062007 20072008 20082009
Interest earned Total income
Graph 9.b CHART REPRESENTING INTEREST EARNED ON TOTAL INCOME RATIO
0.875 0.87 0.865 0.86 0.855 2006-2007 2007-2008 2008-2009

Interest earned percentage of total income
INTERPRETATION:
The interest earned on total income ratio of the bank for the year 2006-2007 is 0.86. It remains the same in the year 2007-2008 and increased a bit to 0.87 in the year 2008-2009.
10. OTHER INCOME ON TOTAL INCOME Other income on total income= Other income/total income
Table.10
Table showing Other income, total income and Interest earned on total income ratio for year ending 2007, 2008 and 2009:
Particulars
Other income Total income Interest earned on total income ratio
2006-2007 2007-2008
5157753 21040417 0.25 3949869 29104311 0.14
2008-2009
3025859 38311515 0.08
Graph 10.a CHART REPRESENTING OTHER INCOME AND TOTAL INCOME

40000000 30000000 20000000 10000000 2006200720082007 2008 2009 Other income 5157753 3949869 3025859 Total income 21040417 29104311 38311515 102 | P a g e INDIAN ACADEMY DEGREE COLLEGE 0
Graph 10.b
CHART REPRESENTING OTHER INCOME ON TOTAL INCOME RATIO
2008-2009 17%
2007-2008 30%
2006-2007 53%
INTERPRETATION:
The other income percentage of total income ratio of the bank for the year 2006-2007 is 025. It in the year 2007-2008, it decreased to 0.14 and further decreased to 0.08 in the year 2008-2009.
11. INTEREST EARNED ON ADVANCES

RATIO Interest Earned On Advances Ratio= Interest Earned/Advances
Table.11
Table showing interest earned, advances and interest earned on advances ratio for year ending 2007, 2008 and 2009:
Particulars
Interest earned Advances Interest earned on advances
2006-2007 2007-2008
18014558 148991002 0.12 25154442 189046616 0.13
2008-2009
33153762 223918752 0.15
Graph 11.a CHART REPRESENTING INTEREST EARNED AND ADVANCES

33153762 25154442 18014558 0 223918752 2008-2009 2007-2008 2006-2007
189046616
100000000
Interest earned
148991002
200000000
Advances
300000000
Graph 11.b
CHART REPRESENTING INTEREST EARNED ON ADVANCES
2006-2007 2007-2008 2008-2009
INTERPRETATION:
The interest earned on advances ratio of the bank for the year 2006-2007 is 0.12. It in the year 2007-2008, it increased to 0.13 and further increased to 0.15 in the year 2008-2009.
Findings
The return on capital employed ratio of the bank is consecutively
increasing over the years 2006-2009 though there is a considerable decrease in the year 2007-2008.
The fixed assets ratio of the bank has considerably decreased

for the period 2006-2009. The Return on Assets ratio of the bank for the years 2006-2008 remains constant and increases slightly in 2008-2009.
The net interest margin ratio of the bank for the year 2006-2009
has increased and the interest earned on total income has improved consecutively over the years 2006-2009.
The interest expense on deposits ratio of the bank shows almost

a constant figure from the years 2007-2009 which was earlier lesser in the year 2006-2007. The Interest earned on advances ratio also shows an increase.
The other income on total income ratio of the bank has slightly
decreased over the years 2006-2009.
The equity ratio has considerably decreased over the years

2006-2009.
The deposits to total liabilities ratio shows that there is a

decrease in 2007-2008 but later improved from 2008-2009.
The earnings per share of the bank shows an increase over the
years 2006-2008 but consecutive decrease over the following year 2008-2009.
SUGGESTIONS
The project work will be concluded providing the necessary suggestion for various findings. The analysis and interpretation are made based on the comparison of the various financial ratios done in a banking sector.
Hereby the methodology aims at the successful conclusion of the project to meet the objective of the study. The following suggestions were found and would render beneficial on application. The Federal Bank has to utilize effectively the capital it has collected by investing into various avenues of its operations so as to earn a return and thereby improving the current status of the Capital Employed. The Federal Bank can invest more on fixed assets. The bank can continue to follow the same methods for maintaining the return on assets. The net interest margin can be maintained as such and the interest percentage of total income shows an improvement indicating that the bank can continue to follow the same.
The bank has to concentrate on other incomes like commission, exchange and brokerage; net profit/loss on sale of investments, revaluation of investments land, buildings & other assets, foreign exchange transactions; income earned by way of dividends; miscellaneous income etc. Interest earned on advances position seems to be good and the organization and continues with the same. Since return on capital employed has affected the banks returns, the equity ratio has also considerably decreased over the years. The bank is advised to improve over its equity. The deposits to total liabilities show a decrease and this has a direct effect deposits resulting in the increase of total liabilities. The bank has to work on this and increase deposits from the public to get away with this situation. Thus, the overall performance of The Federal Bank is satisfactory.
Conclusion
The overall performance of The Federal Bank is satisfactory. Although it can also concentrate on investing more into fixed assets and other incomes as these avenues must be improved. The bank should see to it that its deposits and equity are increased considerably or else there are chances that its position may fall. The banks personnel have always been courteous enough in lending their valuable time and information in helping me conduct my project work. Though the project was a bit tedious as it was related to the banking sector where ratios collected may not pertain to those of the industry and were quite tough finding them, the seniors of the bank had tremendously helped me in coming up with valuable help.
The entire project work was but an experience that will surely take me a long way through both in my career and further job avenues.
ANNEXURE 1.1 CITIES WITH THE HIGHEST NATIONALISED BANKS IN INDIA
ANNEXURE 1.2 CITIES WITH THE HIGHEST NUMBER OF COMMERCIAL BANKS IN INDIA
PROFIT AND LOSS ACCOUNT AS ON 31st MARCH 2007 PARTICULARS AMOUNT (RS 000s) I. INCOME
Interest earned Other income 18014558 3025859
Total II. EXPENDITURE

Interest expended Operating expenses Provisions & contingencies
21040417
10849583 4061006 3202500
Total III. PROFIT/LOSS

Net profit for the year Add Profit b/f from Previous Year
18113089
2927328 134645
3061973 IV. APPROPRIATIONS

Transfer to Revenue Reserve Transfer to Statutory Reserve Transfer to Capital Reserve Transfer to Investment Fluctuation Reserve Transfer to Special Reserve Provision for proposed dividend Provision for Dividend Tax Balance carried over to Balance Sheet
TOTAL
1302100 731900 156405 146400 180000 342400 58200 144568 3061973
BALANCE SHEET AS ON 31st MARCH 2007

LIABILITIES AMOUNT (Rs 000s) ASSETS AMOUNT (Rs 000s)
Capital
856033
Cash & balances 12315427 with reserve bank of India Balances with banks & money at call and short notice Investments Advances Fixed assets 10815953
Reserves & surplus
14166045
Deposits Borrowings
215844402 7702077
70326621 148991002 1860995
Other liabilities & 12330768 provisions
Other assets
6589327
TOTAL
Contingent liabilities Bills for collection
250899325
129606897
TOTAL
250899325
5247452

29104311
16474249 4688870 4260654

25423773
3680538 144568
3825106 IV. APPROPRIATIONS

Transfer to Revenue Reserve Transfer to Statutory Reserve Transfer to Capital Reserve Transfer to Investment Fluctuation Reserve Transfer to Contingency Reserve Transfer to Special Reserve Provision for proposed dividend Provision for Dividend Tax Balance carried over to Balance Sheet 1317400 920200 276800 184100 0 180000 684100 116300 146206
TOTAL
3825106

23556928 Capital 1710330 Cash & balances with reserve bank of India 3897935 Reserves & surplus 37546642 Balances with banks & money at call and short notice Investments Advances Borrowings 7919519 Fixed assets Other liabilities & 18754521 provisions Other assets 5968744 2328398
100265949 189046616
Deposits
259133558
TOTAL
325064570
133159264
TOTAL
325064570
8165673

38311515
19999238 5714557 7592784

33306579
5004936 146206 5151142
IV. APPROPRIATIONS
Transfer to Revenue Reserve Transfer to Statutory Reserve Transfer to Capital Reserve Transfer to Investment Fluctuation Reserve Transfer to Contingency Reserve Transfer to Special Reserve Provision for proposed dividend Provision for Dividend Tax Balance carried over to Balance Sheet TOTAL
1972500 1251200 297500 0 300000 110000 855200 145400 219342

5151142

Capital
1710330
Cash & balances 22143952 with reserve bank of India Balances with banks & money at call and short notice Investments Advances Fixed assets 12226992
Reserves & surplus
41548428
Deposits Borrowings
321981915 7489351
121189662 223918752 2807797
Other liabilities & 15778622 provisions
Other assets
6221491
TOTAL
388508646
75882823
TOTAL
388508646
7888166

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A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

1|Page INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

2|Page INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

3|Page INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

4|Page INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

5|Page INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

6|Page INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

Continue or discontinue its main operation or part of its business;

Make or purchase certain materials in the manufacture of its product;

Make decisions regarding investing or lending capital.

7|Page INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

Parties Interested in Financial Statement Analysis

8|Page INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

9|Page INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

Types of Financial Statement Analysis

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

Significance and Purposes of Financial Statement Analysis

Tools of Financial Statements

11 | P a g e INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

Financial Ratio Analysis

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

DEBT EQUITY RATIO

CAPITAL TURNOVER RATIO

GROSS PROFIT RATIO

INTEREST COVERAGE RATIO

FIXED ASSET TURNOVER RATIO

NET PROFIT RATIO

ABSOLUTE LIQUID RATIO

WORKING CAPITAL TURNOVER RATIO STOCK TURNOVER RATIO

OPERATING PROFIT RATIO

FIXED ASSET RATIO

CAPITAL GEARING RATIO

13 | P a g e INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

14 | P a g e INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

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A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

NET OPERATING PROFIT RATIOS

17 | P a g e INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

18 | P a g e INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

19 | P a g e INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

20 | P a g e INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

Quick Assets = Current Assets Stock

21 | P a g e INDIAN ACADEMY DEGREE COLLEGE

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK

A STUDY ON RATIO ANALYSIS OF FEDERAL BANK