Banking End Term

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SUBMITTED BYGROUP 9

SAMIR BAJAJ 2009197SAURABH BHAGEL 2009200

SIVARAM SRIPADA 2009202PRAKHAR CHAWLA 2009225

RUCHIKA PURI 2009252

growth analysis of Bank of India &

Punjab National Bank


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Project Overview

The purpose the project is to analysevarious indicators of productivity like

Return on Assets (ROA), Return onEquity (ROE), Profit & Volume of business per employee, Number of

accounts per employee; ways thesefactors can be improved andunderstand their impact onprofitability of a bank. The Project is

prepared by comparing Bank of Indiaand Punjab National Bank over the

past 10 years that is from Year 2001-


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BANK OF INDIA

q Premier and one of theoldest commercial banks in India

q In July 1969, Bank of India wasnationalized along with 13 otherlarge Indian commercial banks

q India's 4th largest bank,after SBI, PNB and Central Bank of India

q It has 3216 branches, including 27

branches outside India


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q Made enormous contribution toIndia's efforts towards agriculturaland rural development, industrialdiversification and modernization.

q Ventured into Merchant Banking,Mutual Funds, Housing Finance, and

Custodial & Depository through itssubsidiaries.q


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Profitability Ratios


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ROE and ROA

In FY05 and FY06 were particularly badyears with poor Net Margins and lowerasset turnover resulting in poor returnon assets and return on equity.

In FY07 and FY08 Bank of India seems tohave recovered.

In FY08 Net Margins touched animpressive 13% plus on the back of robust fee income and interest incomegrowth.

BOI maintained a high ROE of over 20%because of the significantly higher NetMargin and higher Asset Turnover.


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In FY08 and FY09 the return fell dueto meltdown in global economy andtrying to emerge from the impact of it on India economy.

Also sluggish behavior of privateconsumption added to it.


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Spread and NIM

Net Interest Margins have been generallystable around the 3% mark for the lastfew years.

After recession reduction on PLR and globaleconomic slowdown caused pressure onNIM

During 2008-09, Reserve Bank of Indiatook several measures to infuseliquidity in the system and relaxed anumber of regulatory measures forfacilitating the financial system to copeup with the adverse impact of globalfinancial crisis.

Net interest Margin has remained constantinspite of constant increase in the spread


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Changes in Burden has mainly being

attributed by Noninterest Income.Non-interest income declined by

14.26% and covered 71.34% of Operating Expenses as against98.64% in the previous year.

Cost Efficiency ratio has seensignificant improvements on a

consistent basis in the last 4 yearsto just over 30 percent in FY08.


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Equity Multiplier


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This ratio shows a company's totalassets per dollar of stockholders'equity. A higher equity multiplierindicates higher financial leverage,

which means the company isrelying more on debt to finance itsassets.


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ASSET UTILIZATION


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The AU ratio measures the extent towhich the banks assets generaterevenue

AU for Bank of India over the years hasslowly and steadily come down. It wasabove 10% in 2001, but in 10 years ithas come below 8%.

It was above 10% in 2001, but in 10years it has come below 8%. Thoughtotal income has increased from Rs6178 crore in 2001 to Rs 20,494 crorein 2010, an increase of 231% but Totalassets of Bank has increased hasincreased at a greater rate; from Rs


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NET PROFIT MARGIN


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Net Profit Margin is a ratio of profitability, calculated asnet income divided by revenues, or

net profits divided by Total Income.A higher Net profit margin indicates a

more profitable bank that hasbetter control over its costscompared to its competitors.

NPM of Bank of India is M shaped; itstarted with 4.07 in year 2001,reached peak of 15.5 in 2009 andlowered again in 2010 when it


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OVERHEAD EFFICIENCY


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OH efficiency measures the banksability to generate noninterestincome to cover noninterestexpenses. It is the ratio of NIincome to NI expense.

This ratio should be as high as

possible, but due to high levels of Non-Interest expense it is seldommore than 100%.

Though too high OH may not begood.


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EFFICIENCY RATIO


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The Efficiency ratio is the ratio of NonInterest & Non Tax expenditure to totalincome interest expended.

Higher efficiency ratio means that thebank is losing a larger percentage of its income to expenses. If its lower,its good for bank and its

shareholders.Efficiency ratio graph is kind of Wshaped, it was between 0.8 & 0.9 in2001, best figure was in 2009 when itreached 0.5, but again 2010 it wastouching 0.7.


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TOTAL BUSINESS MIX


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Total Business Mix is sum of Advancesand Deposits.

It is measure of extent of operations of a

particular bank, indicating an increasein physical presence of bank acrossthe country and also popularity amongcustomers.

Total Business Mix for Bank of India hasincreased at an exponential pace fromyear 2001 to 2010, showing growth of 374%. This must be due to increase innumber of deposit schemes offered bythe bank and also increasing trustshown by its customers.


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Punjab National Bank (PNB)

Since its humble beginning in 1895 withthe distinction of being the first Indianbank to have been started with Indian

capital, PNB has achieved significantgrowth in business which at the end of March 2010 amounted to Rs 435931crore. Today, with assets of more thanRs 2,96,633 crore, PNB is ranked asthe 3rd largest bank in the country(after SBI and ICICI Bank) and has the2nd largest network of branches (5002offices including 5 overseas


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Productivity Ratio Analysis


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The reason why ROE had seen aslump in the year 2006 from 2005

and didnt show too muchimprovement in 2007 as well.Capital reserves had increased when

compared to 2005 in 2006 & 2007.Cash and balances with RBI had

increased in 2006 drastically due toregulations and therefore there

wasnt enough money to invest andmost of the cash at hand went forLoans and Advances.

This resulted in a very less increase inNET profit despite increase in


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ROA (Return on Assets)


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Although the Asset size increased

because of Increase in Cashbalance with RBI the investmentsdecreased from 2005 to 2006.

And also in 2007 the company issitting on almost double the callmoney at banks , and hadntinvested it anywhere.


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Spread


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The increase in Interest earned andInterest Expended have beenconstant.

It is however increase in Otherexpenses which is leading todeclining growth of NET profits.


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Net Interest Margin


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Increase in Spread has not been ableto catch up with the increase inAssets.

In 2008 Mar there is a slump,

Because huge increase in assets.Spread increased by only 500.


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Burden


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In 2007 other income didnt increasewhere as Non -interest expensesincreased hugely because of Increase in Payment to Employees.

There might have been a hugerecruitment.


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Non Interest Income/Total

Assets


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Non interest income for the yearsfrom 2005 to 2008 has increasedvery modestly. However the assetshave increased at a higher rate.Hence the slump.

The company didnt increase its

income through non interestsources.


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Operating Expenses/Total

Assets


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The assets have been increasing from06 to 10 and the operatingexpenses have been kept low .Thebank keeping its operatingexpenses low.


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Provisions/Total Assets


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The firm has decreased itsprovisions& contingencies 07 till 09,

This can be attributed to bettercredit policies.


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Equity Multiplier


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The equity multiplier has been almoststagnant for 06 &07. The EM is notincreasing or not reaching thelevels of 01 and 02 .This indicatesthat bank is not able to increaseassets despite increasing equity.


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Asset Utilization


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Net Profit Margin


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The expenses increased in 06&07 anddespite increase in income the Netprofit didnt increase considerably.

This is because substantial increase

in Provisions and Contingencies,because of change in credit policies.


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Efficiency Ratio


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Expenses increased when comparedto net income. This is because of anincrease in employee expensesalong with increase in Provisions.


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Total Business Mix


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2010 2009

Asset Quality Ratios for PNB


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2010 2009

Asset Quality Ratios for BOI


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Gross NPA of BOI to its total assets ismore than that of PNB which showsbetter management of PNB andalso better provisions.

Average profit per employee of BOI

decreased from 2009 to 2010 andAverage profit per employee of BOIis lesser than PNB. Average profitper branch also decreased for BOI.

This figure is also lower than that of PNB.However Average business per

branch of BOI is much higher than

that of PNB.


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THANK YOU

Documents

Banking End Term