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Presented by 9164 – Jenovah Carl Fernandes9117 – Ashwini Jadhav9108 – Amit Bhamare
11
Balance Sheet Balance Sheet Of Of
A bank A bank
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A Snap Shot
A photograph of financial worth of the concern at certain time.
The study of the balance sheet reveal whether the business of the bank is healthy and growing and has a promising future or not
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What is Balance SheetWhat is Balance Sheet
Liquid Assets Loans Marketable Securities Investment Securities Fixed Assets Accrued Interest Other Assets Total Assets
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Cash included cash in hand and RBI including
foreign currencies and balances with other banks.
Cash is kept in hand by the banks to meet the demand and obligation of the customer.
Cash is the primary reserve or first line of defense against depositors
The banks advance short term loans to their customers.
These loans are advanced on a normal interest with the promise that these will be returned to the bank on short notice
The amount advanced for short period is called money at call and at short notice and is regarded.
The bank invest funds in the govt. securities.
bonds, gold or other profitable commodities or instrument for short and long term investment
The investment in these items are quite liquid and profit yielding
The advances includes loans, cash credits, overdrafts, bills discounted.
Advances are the largest items on the assets side of the commercial bank.
These advances have high yield but low liquidity
Deposits Bank Borrowings Accrued Expenses Other Liabilities Shareholder’s Equity Total Liabilities
99
Fixed deposits and saving ,etc
Liabilities – Borrowing This is the amount which the bank borrows
from RBI.
Loans may be obtained against securities.
Share Capital Reserves Retained Earnings Revaluation Surplus Share Premiums Net Income Total S/H Equity
1111
The bank raises capital from its shareholder and the sale of ordinary shares.
Reserves
This is the amount which is accumulated over the years out of net undistributed profit.
That tries to give maximum profit to the
shareholders.
That lends rationally.
That give security to their depositors
Interest Rates Interest
Sensitivity Due Dates Foreign Currency
breakdown Collateral
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CC AMEL AMEL This system was adopted in India since
1995 Under this system the rating of individual
banks is done along five key parameters. Each of the five dimensions of
performance is rated on a scale of 1 to 5, varying from fundamentally strong bank to fundamentally weak bank.
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Capital AdequacyCapital Adequacy Asset QualityAsset Quality ManagementManagement EarningsEarnings LiquidityLiquidity
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“The Capital of a Bank protects the Bank against unexpected future losses.”
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CAPITAL ADEQUACY 1. Is level of capital high enough ? 2. Is capital growing proportionate to
assets ? 3. Can additional debt be raised if
needed 4. Is there pressure to pay high
dividends
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1. Shareholders’ Equity
----------------------------------- Total Assets
The ability of the present Capital to support the further growth of Assets
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2.
Shareholders’ Equity ------------------------
Risk Weighted Assets
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TIER ONE CAPITAL: Which can absorb losses without a bank
being required to cease trading
Tier I Capital = Ordinary Capital+Retained Earnings& Share Premium - Intangible assets
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TIER TWO CAPITAL : Which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.
Tier II Capital = Undisclosed Reserves+General Bad Debt Provision+ Revaluation Reserve + Subordinate debt+ Redeemable Preference shares
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4.
Total Debt --------------------------
Shareholder’s Equity
The ability to raise additional Debt Capital
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5. Financial Leverage :
Total Assets ----------------------- Shareholder’s Equity
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6. Capital Formation Rate :
Retained Net Income (RNI) ------------------------------
Average Shareholder’s Equity
RNI = Net Income - Dividends to be paid The internal growth of Equity Capital
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Minimum requirements of capital fund in India: * Existing Banks 09 % * New Private Sector Banks 10 % * Banks undertaking Insurance business 10 % * Local Area Banks 15%
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Asset quality is another important aspect of the evaluation of a bank’s performance under the Reserve Bank of India guidelines.
Bank managers are concerned with the quality of their loans since that provides earnings for the bank. Loan quality and asset quality are two terms with basically the same meaning.
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ASSET QUALITY 1. Are net charge - off s reasonable ? 2. Is management slow to charge off
loans? 3. Is loan growth reasonable ? 4. Is loan loss reserve level adequate ? 5. Do earnings comfortably cover loan
losses ?
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1.
Loans ------------------
Total Assets
3333
2. Non Performing Loans = a) Loans past due more than 90
days b) Loans not accruing interest c) Loans with low interest rates d) Loans on which repayment terms
have been renegotiated.
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3. Non Performing Loans ------------------------
Total Loans
Indicates how much of the loan portfolio is non performing.
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4. Reserves for Non Performing Loans -------------------------------- Non Performing Loans
Indicates the ability of the loan loss reserve to absorb potential losses from currently non performing loans.
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5. Loan Loss Provision --------------------
Average Loans
Shows current income reduction in anticipation of loan losses.
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6. Interest Earning Assets
--------------------------- Total Assets
7. Non Interest Earning Assets ------------------------------ Total Assets
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A bank can not sustain itself long without a positive cash flow.
Earnings are essential to : 1.Absorb loan losses 2.Finance internal growth of capital 3.Attract investors to supply capital
EARNINGS
1. Are earnings at an adequate level ?
2. Does valid reporting exist for earnings?
IF POOR, ASCRIBABLE TO : 1. Low asset yield 2. High cost of funds 3. Inadequate non interest income 4. High loan charge off s 5. High loan loss provisions 6. Mismanaging taxes 7. High overhead costs
IF STRONG, ASCRIBABLE TO : 1. Strong asset yield 2. Low cost of funds 3. Adequate non - interest income 4. High loan charge off s 5. High loan loss provisions 6. Adequate taxes 7. Low overhead costs
1. Return on Assets ( ROA )
Net Income ---------------------------
Total Average Assets
2. Return on Equity ( ROE )
Net Income ----------------------------
Average Shareholder’s Equity
3. Net interest margin
net interest Income
-------------------------- Average Interest Earning Assets
4. Net non interest income
Non interest income- non interest expenses ------------------------------------- Total average assets
5. Operating expense ratio
Total Operating Expense --------------------------------
Total Operating Income
6. Efficiency Ratio
Non Interest Expense ----------------------------
Net total income
10. Interest Rate Sensitivity Gap :
Interest Rate Sensitive Assets (-) Interest Rate Sensitive Liabilities
11. Interest Rate Sensitivity Gap Ratio :
Interest Rate Sensitive Assets ---------------------------------
Interest Rate Sensitive Liabilities
A class of financial metrics that is used to determine a bank's ability to pay off its short-terms debts obligations.
LIQUIDITY
1. Is bank dependent on bought money ?
2. Is core deposit growth proportionate
to asset growth ? 4. Is volatile funds significant to
assets?
1.Loan- deposit ratio
Loans -----------------
Deposits
2.Liquid assets ratio
Liquid Assets --------------
Deposits
3. Liquid Assets -------------------- Large Liabilities
Measures the assets readily available to cover a loss of large liabilities.
5. Core Deposits ----------------------
Earning Assets
Indicates the extend to which earning assets are funded by those deposits considered stable and not subject to interest rate disintermediation.
THANK YOU