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Statement of Problem Objectives of Study Period of Study Limitations of The Study
ORIGIN OF BANK
There are different opinions regarding the origin of the term ‘bank’. According to some, the English term ‘bank’ is derived from the Italian word ‘Banco’, the Latin word ‘Bancus’ and the French word ‘Banque’, which means a ‘bench’ used as a counter for banking activities. They are of the opinion that the medieval European bankers [i.e., the money changers and money lenders] transacted their banking activities, viz., money changing [i.e., exchanging one currency for another] and money lending, by displaying coins of different countries, and of different denominations, in big heaps on the benches in the market places. As such, the word ‘Bank’ should be associated with the Italian word ‘Banco’. According to others, the term ‘bank’ is derived from the German word ‘Banck’ which means a joint stock fund or common fund [i.e., heaps of money] raised from a large number of members of the public. They argue that the early European bankers raised a common fund or heaps of money from the public for the purpose of financing the needy. As banks deal in common fund or heaps of money raised from the public, the term ‘bank’ should be traced to the German word ‘Banck’. Of these two views, the latter view seems to be more appropriate, as the term ‘Bank’ is generally associated with an institution dealing in heaps of money raised from the public. 1.1 DEFINITION OF BANK It is very difficult to define the term ‘bank’ or ‘banker’ precisely. Even the best authorities on banking have failed to provide a satisfactory definition of this term. This is because a modern bank performs numerous activities, and it is really difficult to incorporate all the activities of a modern bank in a simple and satisfactory definition.
1.1.1 DEFINITION GIVEN BY INDIAN BANKING REGULATION ACT Sec 5(1) (b) of the Indian Banking Regulation Act of 1949 defines the term “Banking” as “accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise.” 1.1.2 CHARACTERISTICS OF BANK According to the definition given by the Indian Banking Regulation Act of 1949, the essential characteristics of bank are: Acceptance of deposits from the public on current, fixed and savings bank account. Allowing of withdrawals of those deposits by cheques, drafts, orders or otherwise. Utilization of deposits in hand for the purpose of lending or investment in securities. Performance of other activities called subsidiary services, in addition to the principal activities of receiving of deposits and lending of funds. Performance of banking business as the main business. Using the term ‘Bank’, ‘Banker’ or ‘Banking Company’ as part of the firm. The definition given by the Indian Banking Regulation Act of 1949 comprises all the essential features of the bank. 1.2 IMPORTANCE OF BANKS Banking system occupies a very important place in a nation’s economy. Banking institutions are indispensable in a modern society. They play a vital role in the economic development of a country, and form the core of the money market. The economic development of a country mainly depends on infrastructural facilities. Banks and other financial institutions constitute the financial infrastructure of a country. The economic history of many countries
all of which are of considerable utility to its customer and the community generally. They control financial stability of nations and can augment to retard development. social and all other fields of human activity. In addition to the lending and borrowing of money. free or centrally planned cannot progress without the aid of banks. They permeate into political. where banking development preceded industrial development.reveals the economic development succeeds the growth of financial infrastructure. who has devoted a section of his work to deposits and advanced and laid down rules relating to rates of interest. The commercial banks put together the savings of the community and arrange for their productive use. The General Bank of India was the first joint stock Bank to 4 . Economy of countries developed or less developed. the great Hindu Jurist. Banks occupy very important place in the field of commerce and industry of any country. They are so important that modern business is certainly impossible without them and no country can achieve commercial and industrial progress in the absence of a sound banking system. It is believed that the transmission from money lending to banking must have occurred even before Manu. During the Mogul period. They satisfy the financial needs of modern business. INDIAN BANKING SECTOR Banking in India has its origin as early as the Vedic period. The activities and functions have becomes all pervading and omniscient. the indigenous bankers played a very important role in lending money and financing foreign trade and commerce. During the days of the East India Company. No government or individual can discard or ignore the role of banks in their day to day activities. The commercial banks accept deposits from the public. Banks are important because they perform certain economic functions. a modern bank performs a host of other functions. it was the turn of the agency houses to carry on the banking business. History of Great Britain is the best example. which are repayable on demand or otherwise and lend money to those who stand in need of money.
The organized sector consists of the commercial banks.. In the wake of the Swadeshi Movement. In the first half of the 19th century the East India company established three banks. Banking institutions in India are classified as under: 1. working.. These three banks also known as presidency Banks were independent units are functioned well. The organized sector is under the regulation and control of the RBI and the government. the Imperial bank of India was established on 27th January 1921.. Commercial Banks a) Scheduled Banks (i) Public sector banks • State Bank group 5 . The Reserve Bank which is the central Bank was created in 1935 by passing Reserve Bank of India Act 1934. the Bank of Bombay in 1840 and the Bank of Madras in 1843.be established in the year 1786. The Central Bank of India Ltd. 14 major banks of the country were nationalized and in 15th April 1980. Punjab National Bank Ltd. Only July 19. The others which followed were the Bank of Hindustan and the Bengal Bank. 1969. cooperative banks. Banking institutions are the major sources of institutional finance in India and they occupy a pivotal place in the organized sector of the Indian money market. interest rate etc. The Bank of Hindustan is reported to have continued till 1906 while the other two failed in the meantime. The institutions that perform banking activities are called banking institutions. the Bank of Bengal in 1809.. Indian Bank Ltd. These three banks were amalgamated in 1920 and a new bank. Bank of India Ltd. function. terms of credit. There is lot of difference between the organized and unorganized sector of the money market in terms of their structure. Regional Rural Bank’s (RRB) and development banks. With the passing of the State Bank of India Act in 1955 the undertaking of the Imperial Bank of India was taken over by the newly constituted State Bank of India. six more commercial private sector banks were also taken over by the government. a number of banks with India management were established in the country namely. The Bank of Baroda.
scheduled banks. The banks. State Co-operative Banks (SCBs) 1. Primary Credit Societies (PACs) b. which are included in the second schedule of the RBI Act. are called non-scheduled banks. 6 Foreign Banks . To include a bank’s name in the second schedule of the RBI Act. which accept deposits from the public and lend them for short periods for trade and industry. Regional Rural Banks (RRB’s) 3.3 COMMERCIAL BANKS Commercial banks are those banks. The classification of scheduled and nonscheduled commercial banks lost significance in the wake of nationalization of commercial banks in 1969 and later in 1980. The commercial banks are classified into (a) Scheduled and (b) Non . Central co-operative Banks (CCBs) c. are known as scheduled banks. it must have a paid up capital and reserves fixed by the RBI from time to time and it must satisfy the RBI that its business is not conducted in a manner detrimental to the interest of the public.• Nationalized banks (ii) Private sector banks • Indian Banks Old Indian Private Sector Banks New Generation Banks • b) Non –Scheduled Banks 2. Now non-scheduled banks are disappearing from the banking scene. which are not included in the second schedule of RBI Act. Scheduled banks are entitled to get borrowing facilities from the RBI and they are also covered by the deposit insurance scheme and the credit guarantee scheme. Co-operative Banks a. Banks.
Thus they help in the capital formation of a country. New business activities generate employment opportunities.1 Capital formation: . 1. Commercial banks.2 Generation of employment opportunities: .4.Capital is an inevitable factor of modern production and without which entrepreneurs are helpless in carrying out business activities. banks help young people to get employment by providing loans for higher studies. During times of economic recession they can pump in more 7 ECONOMY . even small savings of the public through a variety of deposit schemes. who do not have their own funds.4. All these lead to development in backward areas. Development in trade and industry is possible only if the banking system in the country is developed.Commercial banks generate employment opportunities by financing trade and commerce. Indian public sector banks consist of State Bank group and other nationalized banks.4.4. Through financing of industries. 1. to start business activities.4 ROLE OF COMMERCIAL BANKS IN A DEVELOPING Commercial banks have a significant role to play in the development of a country. The money so mobilized is put to use for productive purposes by extending short term and medium term loans to industries.4 Influence economic activity: . Commercial bank mobilizes scattered.Expansion of banking system throughout the country. is very essential for the development of a country. cater to the financial needs of the rural people and they inculcate a healthy saving habit among the rural masses. both in urban and rural areas. 1. 1.3 Development of rural areas: . 1. Further. commercial banks encourage new entrepreneurs.Scheduled commercial banks can be public sector banks and private sector banks.Commercial banks in a country are capable of determining the rate of interest in the money market through its supply of funds. The importance of commercial banks in the development of a country can be understood from the following points. by establishing their branches in rural areas.
6 Improves the standard of living of the people: . In the emerging scenario. • High customer expectation for quality and value added service.4.money into the economy and during times of boom they can siphon the money off from the economy. In this way. • Marketing of banking product/services • Asset and liability mismatch • Increase in business risks.Generation of employment opportunities by commercial banks fetches higher income to the people that ultimately add to their purchasing power. • More competition • Innovation of various financial products.5 LIBERALISATION OF INDIAN BANKING SECTOR The financial sector reforms. The recent revolution in the Information Technology (IT) has further complicated the emerging scenario. The central bank can implement the monetary policy only through the commercial banks. Thus the role of commercial bank is that of a facilitator in implementing monetary policy by the Central Bank. refrigerators etc. All these actions of commercial banks have a direct bearing on the economic activities taking place in a country. Again. that started in the year 1991 – 1992. banks advance loans to consumers to buy consumer durable goods like houses. 1. Privatization and Globalization) in the horizon of the Indian banking industry.The policies taken by the Central Bank of a country to strengthen the economy is called monetary policy. The following are the outcome of LPG. 1. in this country has facilitated the dawn of LPG era (Liberalization. scooters. they help in developing the standard of living of the people in a developing country. 8 .4. the LPG strategy has brought sea changes in the banking sectors that have started rocking the bottom liens of many public sector banks. 1. Both IT and LPG have brought the under noted changes that pose with opportunities as well as threats to the banking sector.5 Facilitates Monetary Policy: .
M. In India. Advisor of the Reserve Bank of India.It is basically capital solvency and liquidity with clear differentiation between regulatory and economic capital. we can say that money is to an enterprise what oil to an engine. future potential to repay. The ambitious plans of a businessman would remain mere dreams unless adequate money is available to transform them into reality. Finance is the lifeblood of business. SBU’s etc. 9 . 1. providing an ability to assess changes in position. Thus the financial health of a bank mainly depends on the following: Financial performance: . 1. Reserve Bank of India constituted a working group on restructuring of weak public sector banks on February 6th 1999 under the chairmanship of Shri.It is the multidimensional views of the financial position reported by geography. As finance is required at each stage of an enterprise. increase shareholder wealth. Financial position: .7 INTRODUCTION TO THE PROJECT In a modern money using economy.• Capital restructuring • E-Commerce and internet banking • Whole sale and retail banking • Tele-banking • Home Banking • Anywhere and any time banking Public sector banks are those banks which are owned and controlled by the government.6 FINANCIAL HEALTH OF A BANK The customer views a bank’s capability through the security and solidity provided by it.S. business line. Verma Hon. finance means the provision of money at the time of its necessity. the nationalized banks and the Regional Rural Banks come under this category. and contribution to capital growth. and also the capability of the bank to meet its commitments.
It is also required to aid in economic decision making. This brings to light the need for proper administration of finance. The major part of any business plan must be expressed in financial terms. measures effectiveness. New Delhi: Himalaya Publishing House. Finance is defined as ‘issuance of. and purchase of liability and equity claims issued for the purpose of generating revenue producing assets’1. soundness of businessman and offers the ultimate test of business performance. The financial information of an enterprise is contained in the financial statements or accounting records. Kulkarni. Financial statements are the basis for decision making by the management as well as by outsiders who are interested in the affairs of the firm. It serves three purpose i.e. Financial statements provide a summary of the accounts of a business enterprise in the form of balance sheet exhibits the assets. Financial information is needed to predict. analysis and evaluation of all financial problems to be faced by the management and to take proper decisions with reference to the present circumstance regarding the procurement and utilization of funds that might be necessary to increase the efficiency of the remaining factors of production. Profit may be considered as an index of success. p. Proper administration of finance means the study. Its purpose is to convey an understanding of some financial aspects of a business firm. liabilities and capital as on a certain date while the profit and loss account reveals the results of operations during a certain period. compare and evaluate a firm’s earning capacity. 1990. In order to interpret these statements one must know the implication and significance of each entry. Finance is the only common denominator for vast range of corporate objectives. Financial statement is an organized collection of data according to logical and consistent accounting procedures. The basis of financial planning and decision making is the financial information. investment and financing decision making. distribution of.. Financial Management. 1 P. Each entry in these statements has a meaning.3 10 .V.The word finance comes indirectly from the Latin word ‘finis’.
7 STATEMENT OF THE PROBLEM A firm communicates financial information to the users through financial statement. So it is relevant and useful to make the analysis of the 11 . The information contained in these statements is used by management. Financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set of statements and a study of the trend of these factors as shown in a series. The purpose of financial analysis is to diagnose the information contained in the financial statements so as to judge the profitability and financial soundness of the firm. Understanding the past is the pre-requisite for anticipating the future. The analysis and interpretation is essential to bring out the mystery behind the figures in the financial statements. It is also one of the highest profit earners among Indian banks. Financial analysis is the process of identifying the financial strengths and weakness of a firm by properly establishing relationship between the items of balance sheet and profit and loss account. investors and others to form judgment about the performance and the financial position of the firm. Management is also interested in knowing financial strength of the firm to make their best use and be able to spot out financial weakness of the firm and to take suitable corrective actions. Canara Bank is now hundred years old founded on 1 July 1906 with laudable intentions of helping the common man Canara Bank now ranks as the largest among the nationalized banks in terms of the global business. Users of financial statements can get better insight about financial strengths and weakness of the firm provided they properly analyze the information contained in the statements. 1. The future plans of the firm should be laid down in view of the firm’s financial strengths and weaknesses. In the study an attempt is made to analyze bank’s past performance and asses its present financial strength.The information provided in the financial statements is of immense use in making decision through analysis and interpretation of financial statements. Financial analysis is the starting point for making plans.
This study will enable them to understand the trends of growth of the bank. 3. To determine the cost of deposits and yield on invest ratio. To asses the operational efficiency of the bank. 1.10 PERIOD OF STUDY The study comprise five years commencing from 2005-2006 to 2009-2010. 4. 1. 12 .financial performance of Canara Bank.9 SIGNIFICANCE OF THE STUDY 1. The problem is stated as ‘An Analysis of Financial Performance of Canara Bank’. Financial analysis is an essential prerequisite for financial planning and decision making. They have to rely upon the published accounts to a considerable extent. To suggest suitable remedial measures for better functioning of the bank. Financial analysis enables the management to exercise control over the bank’s operations. 4. The social and economic significance of the study can be stated as under. to know the changes in the financial and operating conditions and to check the adverse trends then and there. 5. 3. 5. 1. The outsiders who want to make analysis do not have access to the internal accounting records. 2.8 OBJECTIVES OF THE STUDY 1. Such a study helps the government to implement various measures on the bank. The main objective is to analyze and interpret the financial performance and effectiveness of the bank activities from 2006 to 2010. 2. 6. To analyze the profitability of the bank. The study enables to understand the competitive strength and growth rate when compared with other banks.
The required data for this study are basically secondary in nature. 13 .11 METHODOLOGY The crucial aspect while doing the project is fetching correct and relevant information which gives proper and correct conclusion after interpretation having determined the purpose and objective. For the analysis one has to determine the best method of collection of data. Such data have been collected from the audited accounts of the Canara Bank. used by someone else for their own purpose. Tables and charts are used to represent the analyzed data. trend percentage etc. Thus the sources of data collection are classified into two groups. 1. This is an exploratory research design. • Primary Source These are those data which are originally collected for the first time for specific purpose. • Secondary source These are data which are already collected.12 TOOLS OF ANALYSIS In this study profitability ratios cost and yield ratio and operational efficiency ratio are being calculated to analyze the financial statements of four years. 1. They are original in character. purchased. which involves information from the annual financial statements and reports of Canara Bank. years difficult. The change in interest and price levels makes comparison for the The study is made with the help of an analytical tools like ratios. 2. Interviews with the top executives of the bank form the source of primary data.1. So the inherent limitations of these analytical tools are other limitations of the study.13 LIMITATIONS OF THE STUDY 1.
methodology. Chapter IV The fourth chapter evaluates the over all performance and Profitability of the bank. period of the study. It includes a diagrammatic representation of jurisdiction of the bank. The important ratios calculated for the analysis of financial performance of the bank are Profitability ratios. Statement of the problem. significances of the study. Chapter V This chapter presents a summary of findings and recommendation 14 . limitations and chapter scheme. Chapter II The second chapter deals with the profile of the bank Chapter III The third chapter provides a brief review of literature related to financial analysis of the bank. This chapter also contains a brief description regarding the performance highlights of the bank and its various areas of operations. objectives of the study.3. introduction to the project. Cost and Yield ratios and Operational Efficiency ratios. Due to shortage of time an in depth study regarding the topic is not possible 1.14 CHAPTER SCHEME The study is presented in 5 chapters: Chapter I Introductory chapter contains general introduction.
CHAPTER II COMPANY PROFILE • About Canara bank Management Performance highlights Working results • • • 15 .
selfless individuals who shaped its destiny. Canara Bank is one of the few that has exhibited sturdiness and resilience taking vicissitudes in its stride. setting benchmarks in each and every sphere of its activity. The tiny seed that was planted way back in 1906 in the coastal town of Mangalore by a crusader for social causes. An institution that aimed to ameliorate the sufferings of the common man. This saga of 16 . It has been nurtured to its present state by the invaluable contribution of thousands of men and women. reeling under the clutches of unscrupulous moneylenders and to promote thrift and savings among other objectives still proudly relates itself to the noble cause of serving both the cognoscenti and the hoi polloi and humbly holds on to its status of a ‘common man’s bank’. acquiring for it in the process a distinct brand image of trendsetter. Yes. emerging more powerful each time. Just as Rome was not built in a day institutions too do not attain gargantuan proportions overnight. Canara Bank always lays great store by its human resources. brought sunshine into countless number of households. Canara Bank has indeed come a long way. optimism. a bank par excellence. Ammembal Subba Rao Pai. philanthropist and advocate. an institution that is looked at with awe by its contemporaries. bouncing back to serve the community at large with all the resources at its command. receptivity to change. has today grown to attain the status of a banking behemoth. Sri. In the hundred years of its existence Canara Bank has let many lamps. The characteristics that any good bank should possess. flexibility of approach.CHAPTER II COMPANY PROFILE Canara Bank is today one of the largest banks in the country. the largest among nationalized banks in terms of global business. It was David Rockefeller who said that ‘Banks are there to help people who want to come up in the world’. viz. courage to take risk and a sense of responsibility is all to be found in this great Institution. and helped millions of our countrymen to rise and shine and to better the quality of their lives.
right from its fledgling years. is complete in the institution which has never failed to foster the growth of its human resources and has always charted out career path for them. an hour that it wrested in the teeth of competition from corporates all over the country. Another area where the bank has been placing emphasis in the last few years is Information Technology (IT). The bank has computerized all its branches.171 employees have been trained during 2008 and the target of training 1. The bank was the recipient of the Helpage India award for Corporate Social Responsibility for 2004-2005. Canara Bank has always prided itself on its excellent standards of customer service. Under the aegis of the Canara Bank Centenary Rural Development Trust. In a scenario of changing customer expectations where the focus is more on speed and quality of service. focusing not just on driving the wolf from the door but also on engendering self employment. creating self-help groups. The bank has also focused extensively on training its human resources so as to enable them to come to grips with the changing banking scenario. 00. the bank has spared no effort to spruce up its service standards and has always endeavored to render state of the art service to its clientele. a sine qua non for progress. the buzzword in banking circles today. the bank has been doing yeoman service in espousing the cause of the poor and downtrodden and has devised a number of schemes for their uplift. The bank.000 employees has been achieved at the end of June 2009. The identification of the individual with the institution. its loyal band of men and women who have stood by it through thick and thin and its clientele whose loyalty to the institution unquestionable. providing multifarious avenues for women to come up in life and unshackling them from bondage have 17 . Corporate Social Responsibility has been a mantra that the bank has been assiduously cultivating and its efforts in this direction have been amply rewarded with encomiums and accolades from all quarters. introduced slew of IT driven products and has also rolled out its Core Banking Solution which will add a lot of muscle to its operations in the coming days. A record number of 88.success it owes to its workforce. has been aware of its duties and responsibilities as a corporate citizen.
4 percent over the last seven years. 18 .9 percent and 18. The bank has seen a steady and consistent growth in both its deposits and advances. head-quartered in Hong Kong which accepts deposits and undertakes trade financing activities. The bank is also providing Tele-banking. The bank has also witnessed an improvement in its operating efficiency with the business size per branch growing at a compounded annual growth rate 14. Efficiency.also been among the bank’s priorities. The bank’s corporate vision in the medium term is to be a ‘World Class and world Sized Bank’. Corporate mission of the bank is to achieve ‘Profitability. Currently. The bank also has a wholly owned foreign subsidiary Indo Hong Kong International Finance Ltd.5 percent respectively. The bank expanded into international markets with the opening of its London branch as early as 1983. the bank has recently entered into an agreement with State Bank of India for setting up a joint venture bank in Moscow under the name ‘Commercial Bank of India’. In the last five years the deposits and advances of the bank have been grown at a compounded annual growth rate of 13. To further its foreign business initiative. The bank believes that its efforts in respect of IT initiatives. Corporate Governance is also being accorded top priority and the bank has been endeavoring to maximize value for all categories of stakeholders. The bank already operates in Moscow through a representative office. the bank’s international operations are represented by its presence in London and Moscow and a wide network of correspondent banking arrangements. focus on customer centric measures and thrust on profitability would enable it to fulfill its vision. and Productivity’. The bank’s public issue in 2002 was oversubscribed nearly two times even in lukewarm conditions and investors have been handsomely rewarded with dividend and capital appreciation with the bank’s stock trading at the bourses at several multiples of the offer price. Anywhere – Banking and remote Access Terminal facilities to its customers.
Employees and officers of the Bank. Technology edge with hundred per cent of the bank’s business being computerized.1 Competitive Strength One of the largest banks in India. Department of Economic Affairs (Banking Vision) has given its approval for lock-in of 20 per cent of the post.89 per cent. Strong presence in credit cards with an ISO 9000 certification for the operations.The Government of India.17 per cent. Continuous track record of profitability since inception. Vast domestic branch network spread across the country. The day. both appointed by the Government of India. The entire equity capital is presently held by the Government of India. other directors representing the Government. Technology backbone enables the bank to undertake product innovation and adopt a customer centric approach. the Bank’s General Managers who are assisted by a team of competent professionals.2 MANAGEMENT The overall supervision and control of the Bank’s functions rests with the Board Directors which consists of the Chairman and Managing Director and Executive Director. Low NPA level of 3. 97. II. After the issue. the shareholding of the Government of India will be 73. Department of Economic Affairs (Banking Division) by its letter dated August 29.II. Ministry of Finance. Wide – ranging portfolio of financial services provided through various subsidiaries of the bank. with total business (advances plus deposits) exceeding Rs. Ministry of Finance.000 crore. Reserve Bank of the India. the Executive Director.issue capital for a period of three years from 19 . 2002 has given its approval for the present issue.to-day affairs of the Bank are managed by the Chairman and Managing Director. The Government of India.
loans to retail traders and self employed businessman. The key areas of focus for the bank in this regard are retail advance. In view of the likely expansion of risk weighted assets. the bank proposes to augment its net worth in order to sustain a healthy capital adequacy ratio. housing loans. II. List the shares of the bank on Stock Exchange. risk weighted assets of the bank also expected to increase over the years. Moreover. Augment the capital base of the Bank to meet its future capital adequacy requirements. The issue expenses will be met out of the proceeds.4 REQUIREMENTS & UTILIZATION OF FUNDS In years to come. Meets the expenses of the Issue. the bank expects growth in its business activities and operations. The proceeds of this issue will be utilized for the regular business activities of the bank. Increase in Tier I capital through retained earnings alone may not be enough to enable the bank to maintain sufficient capital adequacy ratio. II. Accordingly. II.the date of allotment in the Issue and the remaining capital held it for a period of one year from the date of allotment in this issue. listing will provide the Bank an opportunity to establish its presence in the capital market and an opportunity to raise funds in the future subject to fulfilling the statutory requirements. Canara bank entered into corporate Agency arrangements with AVIVA life insurance 20 .3 OBJECTIVE OF ISSUE The present Issue of equity shares is being made to Augment the long-term resources of the Bank. SSI lending and agricultural advances.5 CANARA BANK ATTEMPT TO SEED GROWTH In its time-tested pursuit of serving to grow growing to serve. in line with the estimated growth in risk weighted assets and accordingly to maintain an optimal Capital Adequacy Ratio.
poultry. electronic equipment insurance etc. 21 . The commission earned is paid directly by United India to a branch through which policies have been sourced thereby augmenting the non – interest income of the branch directly. name of the existing insurance company covering assets and date of renewal under corporate agency. which enabled both entities to meet the needs of their customers in a greater and more substantial measure. Canara bank obtained the IRDA composite license to act as a corporate agent both for AVIVA life insurance and United India. amount of loan sanctioned or outstanding . grameena personal policy etc. 2005. While it would enable Canara bank to leverage its large and extensive country wide branch network and customer base to cross sell a range of general insurance products and thus open up a new revenue stream. Rural insurance: cattle.on February 25.Canara bank foray was consolidated with a tie – up arrangements with United India insurance company ltd as a corporate agent for distribution of general insurance products without any risk participation. sum insured . pump sets. United India insurance company would gain by access to Canara bank’s huge network and customer base. through a memorandum of understanding (MOU) signed on February 17. and amount of premium paid to the company. machinery break down policy. Engineering insurance: electrician all risk policies. 2003.company Pvt. type of insurance policies. date of expiry of policy. Jana arogya policy. Ltd. Bhagyashree child welfare policy. are helpful for both large players. Potential premium for the branch is composed on the basis of classification of loans and advances. Such tie ups. Welfare policies: Raj Rageswari Mahila Kalian Yojna. contracts all risk policies.There are other types of policies available targeting specific areas or groups.
II.6.7 BUSINESS II.05% visà-vis the 9% benchmark.79426 crore a year ago. 2912 crore. 8111 crore as compared to Rs. 22 .98506 crore.6. SME. while net profit was of the order of Rs. Capital to Risk Weighted Assets Ratio worked out to 13.7.7. 410 crore with 1. out of which growth in agriculture and industries worked out to 29% and 36% respectively. Owned funds stood at Rs. While overall credit growth has been 24%. II.6. 9944 crore.98%. signifying a 22% growth. II. 75% of the incremental credit during the year was deployed in productive sectors like agriculture.53 million accounts.08 lakh shareholders.6 FINANCIAL SOUNDNESS II.1421 crore.2 Reserves and owned funds Reserves increased to Rs. 7132 crore at the end of the previous year.3 Profits and profitability Gross profit for the year 2006-07 stood at Rs. Net interest Income was up 12. infrastructure and services sectors.2 Advances Global advances (net) aggregated to Rs.1 Capital The Bank’s paid-up capital stood at Rs.FINANCIAL PERFORMANCE AND WORKING RESULTS OF CANARA BANK II. worked out to 0. additional accrual during the year being Rs. industries. exhibiting a growth of 24%.1 Deposits Global deposits of the Bank moved up to Rs. growth in credit to productive sectors worked out to over 33%.116803 crore a year ago. 3222 crore. II. Return on Average Assets (RoAA). up from Rs. despite a 25% growth in total assets.142381from Rs.43% to Rs. 4027 crore. covering 25.
registering more than doubling of agricultural credit in three years.7.49 crore.2. 14245 crore.3 Productivity Business per Employee moved up from Rs. while Profit per Employee stood at Rs.The Bank has so far 1. the number of Kisan Credit Cards (cumulative) reached a level of 21 lakh.42 crore to Rs. During the year.160000 140000 120000 100000 80000 60000 40000 20000 0 2003-04 2004-05 2005-06 Deposits Advances 2004-05 2005-06 2006-07 Graph II. 4. signifying a robust 29% y-o-y growth. Deposits and Advances II.6545 crore as at March 2003 to Rs.21% of net credit vis-à-vis the 40% norm. the Bank financed 326 lakh new farmers.Advances to SME sector moved up to Rs. Under priority sector advances. recording a growth of 22. 23 . Besides.15521 crore.2 lakh were credit linked.3. 4103crore during 20022003. accounting to 40. 5.9404 crore in 2005-2006 as against the level of Rs.24 lakh.33%.7. 15521 Crore as at March 2006.4 Priority sector operations Advances to priority sectors moved up to Rs.7. Agriculture disbursements touched Rs. Similarly outstanding agricultural advances increased from a level of Rs. 37844 crore. recording a y-o-y growth of 23% as against the target of 20% for the year. II. agricultural credit aggregated to Rs. signifying a 137% growth.5 lakh Self Help Groups (SHGs) in which1.
SMEs Other Priorities Agriculture
Graph II.7.4 Priority sector operations Canara Bank has been playing a lead role in furtherance of the financial inclusion movement in the country. In addition to various schemes for the hitherto excluded segments, the Bank has extended its Total Financial Inclusion campaign to 1639 villages across the country. Two of the Bank’s lead districts, namely Palakkad in Kerala and Davangere in Karnataka, have already acquired the distinction of 100% financially included. CanSaral, a no-frills Scheme, aimed at enhancing the coverage under total financial inclusion has garnered around 3.5 lakh accounts. The Bank has launched a programme to achieve total financial inclusion in 23 lead districts and initiated a campaign to create one million no-frill accounts during 2006-07.
II.7.5 Retail lending
Disbursals made under retail lending during FY06 amounted to Rs.7407 crore, taking the outstanding retail loans to Rs. 17485 crore, recording a y-o-y growth of 20%. Retail advances (direct) to the housing segment clocked a 17.43% growth to reach Rs. 6575 crore. Advances to retail trade and other personal segments stood at Rs. 3584 crore and Rs.7326 crore respectively. Bank has been prudent in its retail exposure. Retail portfolio as a proportion of net credit was also brought down to 17.84%, which is in tune with the policy focus on rebalancing of credit portfolio. Direct housing loan formed 37.6% of retail
portfolio, out of which 81% were under the priority ambit, reflecting the Bank’s continued concern for the common man.
36000 34000 32000 30000 28000 26000 24000 22000 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000
Other personal Retail trade housiing
YEAR 2003- 2004- 200504 05 06
Graph No. II.7.5 Retail Lending In the sphere of education loan, cumulative assistances by the Bank was of the order of Rs. 1252 crore, covering 92579 students taking up higher studies. With 31.37% growth in education loan, Canara Bank is placed first among nationalized banks in funding higher education.
Aggregate investments of the Bank, as at March 2007, were of the order of Rs. 45226 crore,. Duration of the investment portfolio has been brought down considerably as a conscious management decision in view of interest rate volatility and rising trend in interest rate. The advantage of having higher volumes under the ‘Available for Sale’ duly reflects that the stated value of the portfolio is truly realizable.
II.7.7 International operations
During the year, the second overseas branch of the Bank was inaugurated by Shri. P. Chidambaram, Hon’ble Finance Minister of India, at Hong Kong. Foreign business turnover of the Bank, as at March 2007, aggregated to
Rs. 130083 crore, recording a robust y-o-y growth of 32%. Turn over under exports, imports and remittances were of the order of Rs. 49307 crore, Rs. 31705 crore and Rs. 49071 crore respectively. Outstanding advances to the export sector stood at Rs. 7896 crore as against Rs. 7136 crore at the end of the previous year.
II.8 ASSET QUALITY AND RISK MANAGEMENT II.8.1 Asset quality
Bank’s gross NPA level stood at Rs. 1493 crore, with gross NPA ratio down from 2.25% to 1.5%. Net NPA level stood at Rs. 927 crore, with net NPA ratio further coming down to 0.94% from 1.12% a year ago. The Bank could effect a cash recovery of Rs. 1025 crore in NPA accounts during the previous year.
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Y ear 2003-04 2004-05 2005-06 1.88 1.51 1.12 0.94 2.25 G ross N A ratio P N N AR et P atio 3.89
Graph No. II.8.1 Asset quality
II.8.2 Risk management
The Bank has initiated implementation of parallel nun of new capital adequacy framework under Basel || during the year and is full geared for a smooth switchover within the RBI prescribed time schedule. The Bank’s Board has been driving the policy initiatives and putting appropriate strategies in place for effectively managing the Credit, Market and Operational risks. Top executive Risk Committees, headed by the Chairman & Managing Director, are in place to effectively address all issues related to the management and mitigation of various business/ control risks.
1 Bancassurance and cross-selling MF products The Bank. 318 crore (sum assured) during the year. RUDSETls. II. scheme.10. SHG and artisans in their entrepreneurial ventures. has assisted 500 villages. As a responsible corporate social citizen. 27 . It has also tied-up with M/s United India Insurance Company Limited for undertaking Non-Life Insurance business. Ltd. numbering 20 across India. a voluntary organization working for the welfare of socially marginalized children. under the Rural Service Volunteer Scheme. Under ‘Jalayoga’. The trust is also extending support to Society for the Educational and Economic Development (SEED). The Bank’s ‘Rural Clinic Services’. the Bank has donated hi-tech and solar powered ‘Mobile Sales Van’ to assist women entrepreneurs. has assisted doctors in opening 21 additional clinics during 2006-07. Under crossselling of Mutual Fund products of Canbank Mutual Fund and HDFC Mutual Fund. with an impressive settlement rate of 72%.9 CORPORATE SOCIAL RESPONSIBILITIES II. the Bank. The Bank under Canara Bank Centenary Rural Development Trust. with a settlement rate of 67%. have so far trained 1.87 lakh unemployed youth. benefiting over 2 lakh families since its inception in 1985.II. the Bank has completed 35 projects so far.Bank has since tied up with global majors for creating Joint Ventures in Insurance and Asset Management. under tie-up arrangement with M/s AVIVA Life Insurance Company India Pvt. Tapping the spirit of voluntarism among its employees. These institutes have so far trained 56520 rural youth. collected premium amounting to Rs. a scheme for facilitating availability of safe drinking water in rural areas. the Bank mobilized a sum of Rs.1 Rural development Rural Development and SelfEmployment Training Institutes (RUDSETls) co-sponsored by the Bank have been engaged in proving training to rural youths to pursue various self-employment activities. 945 crore.9. has promoted 14 self-employment training institutes. taking the total of such clinics ro 493 across India.10 ANCILLARY SERVICES II.
11. the Bank had 2578 branches. inclusive of its branch at London. amounted to Rs. providing access to ATM network of 23 other Banks. The Bank handled 22 ‘Bankers to the Issue’ assignments as Escrow Bankers/ collecting Bankers with total float funds amounting to Rs. II.3 Corporate cash management services (CCMS) Aggregate turnover under Corporate Cash Management Services scheme.591 and 600 respectively. II. one Rights Issue and one assignment of Delisting of Equity. In all. for the year ended March 2007.10. such as local and upcountry cheque collection.11 BUSINESS SUPPORT SYSTEM II. the Bank handled 16 assignments as Lead Manager/CoBook Running Lead Manager/Co-Manager& Advisor. In a noteworthy intiative. 656.2 Technology initiatives Financial 2005-06 witnessed significant headway in the realm of Core Banking Solution (CBS). Number of specialized branches stood at 121. The Bank entered into an agreement to share ATM network with SBI and ATMs under National Financial Switch (NFS). Number of branches providing RTGS and NEFT further increased to 1506.2 Merchant banking operations During 2006-07.10. 2650 crore. as many as 125 ATMs spread across the country were commissioned on a single day in March 28 . Numbers of branches in rural. covering 5 Public Issues. 9 Private Placement Issues. 1550 ‘Anywhere Banking’ branches and 1156 internet & Mobile Banking branches.11.1 Branch network As at March 2006. The CCMS network presently covers 94 Operating Centres and 683 Pooling Branches. besides 251 Extension Counters. The scheme provides services. 4360 crore. Hong Kong and Offshore Banking Unit at NOIDA.II. The Bank also significantly enhanced tech-enabled multi-delivery channels during the year to 1132 ATMs (458centres). urban semi-urban and metro locations were 728. bulk cheques collection and zero balance account facility. II. customers of Canara Bank now have increased access to over 14000 ATMs across the country.
Further. customer survey from a sample of 25 branches each in five metros. the Bank has brought out a booklet on “Code of Commitment to Customers” to create awareness among the customers as well as staff about the Uniform Fair Practice Code used as benchmark standard by all banks in India II. apart from moves to decentralize operational activities. comprising young talent.4 Human resources development / TQM Knowledge enrichment for employees continued to be a top priority for the Bank during FY07.. as a member of Banking Codes and Standards Board of India (BCSBI).3 Customer orientation The Bank. viz. Chennai. 29 . During the year. covering 10000 customers was conducted by consultant of repute to further improve the level of customer service. the Bank has implemented ‘Six Sigma’ project for enhancing the knowledge base of its frontline staff on products and services.68 lakh as at March 2006. Kolkata and Hyderabad. In a noteworthy intiative. introduced several new measures towards further improvingn customer centricity and service quality to match the competitive market conditions and customer expectations. V. Close on the heels of achieving the one lakh mark in training/re-skilling during its centenary year. during the year. set up by RBI. Reserve Bank India. Leeladhar. 2005-06 featured the tally moving up further to 109661 covering diverse functional areas.2006. the Bank effected a major organizational restructuring exercise for greater business focus and expeditious decision making. the Bank has Added more than 5 lakh Debit Card clientele base. Canara Bank is also the only Bank in the country to have formed ‘Club 2020’ a group. gracing the function at Banglore. During the year. The Bank also adopted a fast track promotion policy and implemented cash incentive scheme for high performers. Delhi. Keeping track of services quality at branches has been a hallmark of the Bank’s unprecedented customer orientation.11. II. Deputy governor. taking the total number of debit cards to 22. to spearhead strategic changes in the fast changing banking environment. Bangalore. During the year. with Shri.11.
targeting the HNI clients. II. Can Tax Saver. A term deposit scheme. It has so mobilized a corpus of Rs. 60 crore from seven banks and SIDBI. CVCFL has assisted 84 ventures. the Bank also launched a SB. During the year. the Bank introduced several deposit products during FY07. the Bank introduced ‘Kisan Tatkal’ for enabling farmers to meet emergent requirements and ‘Kisan Mitra’ scheme for funding tenant farmers. In the sphere of new loan products.1 New products/services In addition to a host of existing products and services. namely. the Bank launched SME Gold Card and a Term Loan Scheme for reimbursement of capital expenditure. involving financial assistance to the 30 . JOINT VENTURE AND SPONSORED INSTITUTION The Bank has nine subsidiaries/joint ventures/sponsored institutions providing a wide ranges of services. offering attractive rate of interest for the depositors. a term deposit scheme. thus.Focus on specialized expertise led to recruitment of 541 officers through campus and direct recruitment in diverse areas like marketing.Gold deposit scheme. with fourth fund made operational since December 2005. vehicle for inclusive growth in rural areas was also introduced during the year.Continued focus on quality drive enhanced the number of ISO 9001 Certified Branches and Administrative Offices to 805 and 14 respectively as at March 2007. Till March 2006. Grameen Vikas Vahini. Canbank Venture Capital Fund Limited (CVCFL) currently manages four funds. II. poised to emerge as a major.12 PRODUCT PROLIFERATION II. ’Financial Conglomerate’.an exclusive SB deposit product was launched for aspiring children upto the age of 12 years for inculcating the habit of savings. To promote SME sector. and is. was introduced under the Kamadhenu and fixed deposit mode with tax benefit under Section 80C.13 SUBSIDIARIES. CanChamp. financial analysis and risk management.12. Canara Centenary Deposit was also introduced during the year.
417 crore and Rs. 24. 30 crore. The Company has recorded a profit after tax of Rs.20 lakh for the year 2006-07 and distributed a dividend of 40%. 4 crore in 2005-06. The Company recorded a profit after tax of Rs. The Company posted a profit after tax of Rs. 74 crore. 31 .23 crore. Can Bank Investment Management Services Limited (CIMS) acts as investment manager for all the schemes floated by Canbank Mutual Fund. The Company recorded a profit after tax of Rs.tune of Rs. Primary dealer functions of GSTCL have been taken over by Canara Bank from February 2006. 14 crore.10. Can Fin Homes Limited a sponsored housing finance institution of Canara Bank. the factoring subsidiary of the Bank. 2185 crore. is currently managing 18 schemes. with a proposed dividend of 30%. CIMS. a wholly owned overseas subsidiary of the Bank. is currently managing 18 schemes. Indo-Hong Kong International Finance Limited. 2185 crore. a primary dealer promoted by Canara Bank. posted a net of US$ 3. sanctioned and disbursed a sum of Rs. The Company posted a profit after tax of Rs. besides concentrating on collection of lease rentals and realization of investments. Gilt Securities Trading Corporation Limited (GSTCL).60 crore despite rise in yield rates and provision for depreciation on stock of securities held. Can Bank Factors Limited.33396 crore as at March 2006 and a profit after tax of Rs. Canbank Financial Services Limited (CANFINA)confined its activities to legal matters arising out of past transactions in securities.52 million for the year ended March 2007. posted a profit of Rs. IHIFL has since been converted into a full fledged branch of the Bank during March 2007. with combined net assets of Rs. posted a total turnover of Rs. 453 crore respectively during 2006-07. with diversification of activities into the areas of equity broking and trading. The Company proposed a dividend of 15% for the year.
000 crore under deposits and Rs. people and its organization structure. The Bank has taken up a major brand building exercise and comprehensive review of its business strategies covering products. comprising Rs. Plans are underway to introduce ‘internship’ programme to assist students pursuing professional course. After creation of JVs in insurance and Asset Management. Assessment Development Centre concept will be implemented to map training competence and upgrade manpower skill. 21 prominent canters have been identified by the Bank for expanding its global reach. In pursuit of the Bank’s global aspirations. the Bank targets to cover all the branches under CBS by March 2008.90.70.GOALS FOR 2007-08 Bank targets a global business level of Rs 2. with a growth rate of over 20%. the Bank’s Representative Office at Shanghai is being converted into a full fledged branch. processes.000 crore under advances.20. With the preliminary moves underway. Advances growth will be significantly driven by agriculture. the Bank is exploring similar options in other financial services. 1. including services sector. Towards faster implementation of Core Banking Solution (CBS) . The Bank is geared up to comply with the revised guidelines issued under priority sector lending. 1. Under HR. 32 .000 crore for 2006-07. SME infrastructure and other productive segments.
17 3.06 3.in crores 2003-04 Number of Branches Capital Reserves Aggregate Business Deposits Advances (net) Advances to priority sectors Agriculture Small scale industries Advances to SC /ST Export credit Foreign Business Turnover Deposit Accounts (in million) Borrowal Accounts (in million) Total Number of Staff Total Income Total Expenditure Operating Profit Net profit 2468 410 4842 134784 86345 48439 19581 6545 4971 758 5497 67347 22.22 47389 9116 6531 2585 1110 2005-06 2532 410 6722 196229 116803 79426 30937 12032 7211 1332 7136 98665 24.52 46893 10089 7477 2612 1343 33 .48 2.Performance Highlights at a Glance Rs.88 47613 9080 6221 2859 1339 2004-05 2513 410 5699 157329 96908 60421 24777 8782 5779 1043 6183 84517 23.
Chart II. Chandigarh.Sikkim.Punjab. Delhi & Haryana Andra Pradesh Orissa.Goa Mumbai (C) Maharashtra Patna Bhiar & Jharkhand Kerala Thiruvanadapuram 34 .Rajasthan.Jammu&Kashmir Tamil Nadu. 1 CANARA BANK CIRCLE OFFICES JURISDICTION Bangalore Karnataka Chandigarh HimachalPradesh. West Bangal and Megalaya Uttar Pradesh and Uttaranchal Tamil Nadu Chennai Delhi Hyderabad Kolkata Lucknow Madurai Mangalore Karnataka.Assam. Pondicheri.Tripur a. Andaman & Nicobar Islands MadhyaPradesh.
A GENERAL VIEW • Financial Statements Types of Financial Analysis Techniques of Financial Analysis • • 35 .CHAPTER III FINANCIAL ANALYSIS .
‘interpretation’ means explaining the meaning and significance of the data so simplified. Financial Statement Analysis is largely a study of relationship among the various financial factors in the business as disclosed by a single set of statements.” The term ‘financial statement analysis’ includes both ‘analysis’ and ‘interpretation’.1 Financial Analysis and Interpretation Financial analysis is a process of evaluating the relationship between component parts of a financial statement to obtain a better understanding of a firm’s position and performance. It is the process of determining the financial strength and weakness of the firm by establishing strategic relationship between the items of Balance sheet. The purpose of financial analysis is to diagnose the information contained in financial statements so as to judge the profitability and the financial soundness of the firm. creditors. Profit and Loss Account and other operative data. and a study of the trend of these factors as shown in a series of statements. or by parties outside the firm via. While the term ‘analysis’ is used to mean the simplification of financial data by methodical classification of the data given in the financial statements. 36 . Financial statement analysis can be undertaken by management of the firm. bankers. government etc. investors. owners. “Financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set of statements. However both ‘analysis and interpretation are interlinked and complimentary to each other. Analysis is useless without interpretation and interpretation without analysis is difficult or even impossible.CHAPTER III FINANCIAL ANALYSIS – A GENERAL VIEW III. classifying them on the basis of certain understandable form. It involves the division of facts on the basis of some definite plans. and study of the trends of these factors as shown in a series of statements.
2. 1. These statements are the outcome of summarizing process of accounting and are therefore the sources of information on the basis of which conclusions are drown about the profitability and the financial position of a concern. The analysis and interpretation of financial statement depend upon the nature and type of information available in these statements. The analysis may be of the following types. The income statement is prepared for a particular period. It shows on one hand the properties that it utilizes and on the other hand the sources of these properties.2. If there is excess of over expenditure it will show a profit and if the expenditure is more than income then there will be loss. Financial statements primarily comprise two basic statements. Its purpose is to convey an understanding of some financial aspects of a business firm.2 FINANCIAL STATEMENTS A financial statement is a collection of data organized according to logical consistent accounting procedures.III. generally a year. III.1 Balance sheet Balance sheet is one of the important statements depicting the financial strength of the concern. It represents all the assets owned by the concern and all the liabilities and claims it owes to owners and outsiders.3 TYPES OF FINANCIAL ANALYSIS The main objective of financial analysis is to determine the financial health of a business enterprise. 37 . The Balance sheet is prepared on a particular date III. Position statement or Balance Sheet 2.2 Income statement or Profit and Loss Account Income statement is prepared to determine the operational position of the concern. It is a statement of revenues earned and the expense incurred for earning that revenue. Income Statement or Profit and Loss Account III.
III.6 Ratio Analysis This analysis establishes the numerical or quantitative relationship between two items / variables of financial statement so that the strengths and weaknesses of a firm as well as its historical performance and current financial position can be determined.3. 38 . III.4 PROCEDURE OF FINANCIAL STATEMENT ANALYSIS Broadly speaking. Profit and Loss Accounts and Balance Sheet of previous year along with the current year. These are.3.3. III. suppliers of long term debt etc .4 Vertical Analysis This analysis converts each element of the information into a percentage or the total amount of statements as to establish relationship with other components of the same statement.III.3.1 External Analysis This analysis is performed by outsiders such as trade creditors.3.2 Internal Analysis This analysis is performed by the corporate finance and accounting department and is more detailed than external analysis. III.5 Trend Analysis This analysis compares ratios of different components of the financial statements related to different period to those of a base year.3. investors. III. III.3 Horizontal Analysis This analysis compares the financial statements via. there are three steps involved in the analysis of financial statements.
The important technique that is being used for the financial performance analysis of 39 .5 TECHNIQUES OF FINANCIAL ANALYSIS The analysis and interpretation of financial statements is used to determine the financial position and results of operations as well. The following procedure is adopted for the analysis and interpretation of financial statements. trends etc. 2. The significance and utility of financial data is explained or helping decision making. He should know the plans and policies of management so that he may be able to find out whether these plans are properly executed or not. 3. Interpretation The first step involves selection of information relevant to the purpose of analysis of financial statements. A number of methods or devices are used to study the relationship between different statements. 1. 6. 5. Classification and 3. It will involve grouping of similar data under same heads and breaking down of individual components of statements according to nature. The financial data given in the statement should be re-arranged and reorganized. 4. The second step involved in the methodological of data and third step include drawing of inferences and conclusions. The information is interpreted in a simple and understandable way. Selection 2. The extent of analysis should be determined so that the sphere of work may be decided.1. A relationship is established among financial statements with the help of tools and techniques of analysis such as ratios. The conclusions drawn from interpretation are presented to the management in the form of reports. The analyst should acquaint himself with the principles and postulates of accounting. III. The data is reduced to a standard form.
More so. Ratio analysis is a process of comparison of one figure against another. Profitability ratios. For insurance companies.The important profitability ratios are. it is net operating income divided by the mean / average assets. It is an analytical measure of asset – use efficiency and industry comparison. A ratio is a mathematical relationship between two or more related items taken from the financial statements. As opposed to absolute profit volumes. it is such ratios.1 PROFITABILITY RATIOS While profit represents an absolute figure. it net income divided by average total assets on a per common share basis.1 Return on Assets For banks. Return on assets = Profit earned Total assets 40 . measured by a ratio. each quarter. Thus ratio analysis concentrates on the inter-relationship among the figures appearing in the financial statements.5. profitability is a more meaningful yardstick of operational efficiency as it is size-neutral. and the appraisal of the ratios make proper analysis about the strengths and weaknesses of the bank’s operations. is refers to net income divided by average total assets. III. The main ratios being calculated for the analysis of financial performance of Canara bank are the following: • Profitability Ratios • Cost and Yield Ratios Operational Efficiency Ratios.1. profitability. which are prudent measures of profitability and efficiency.the bank is the ratio analysis. performance of the Bank is closely followed by the market and financial analysts. III5. obviate difference in balance sheet size and places operational entities on a common footing. This ratio is calculated by the following formula. used in industry analysis and as a measure of asset – use efficiency. represents the operational efficiency. For industrial companies. More often. being a listed company. Ratio analysis is a very powerful tool useful for measuring performance of an organization. in contrast to absolute profit levels. which make a ratio.
EPS = net profit after taxes No of shares III. This ratio is calculated by the following formula.1. plus reserves minus intangible assets) represents the return on networth.5.1.3 Earning per Share The term earning per share (EPS) represents the portion of a company’s earnings. plus the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share.1. Because the number of shares outstanding can fluctuate. Book value = tangible net worth of bank No of shares III. This ratio is calculated by the following formula.5. by adding all assets then deducting all debts and other liabilities. a weighted average is typically used.2 Book Value Book value of a stock is determined from a company’s records.III.5. net of taxes and preferred stock dividends that is allocated to each share of common stock. Ratio of net profit to average networth (share capital. The figure can be calculated simply by dividing net income earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the term. Return on Networth = Net profit Average Networth 41 . Book value of the assets of a company or a security may have little relationship to market value.4 Return on Networth It’s also known as return on equity.
Composition of deposits and movement in interest rates thus affect bank’s cost of funds. there had been continues decline in interest rates.2Yield on Advances Interest income non advances divided by average advances indicates average yield on advances. This ratio is calculated by the following formula Yield on investment = income earned on investment Average investment III.5. high cost of bulk deposits and active refinance market (housing and export refinance) do find a reflection in the liquidity crunch in the economy. the operational and opportunity cost. government borrowings. inflation. Since 1995. Deposits constitute nearly 90% of banks’ funds. calculated by the coupon rate divided by the bond’s market price. it is observed in India that commercial banks’ lending rates are relatively flexible downward while there is considerable rigidity in the upward movements.1 Yield on Investment The rate of income generated from a stock in the form of dividends. or the effective rate of interest paid on a bond. Volatile call money market. In recent years.III. In tune with the RBI guidelines. liquidity. This ratio enables cost-benefit assessment from various advances related products. Forces of disintermediation.2 COST AND YIELD RATIOS Cost of funds is a function of demand. considering the actual cost of funds operating expenses minimum margin to cover regulatory provisioning and profit margin.5. resulting in an uptrend in interest rates and consequently. in cost of funds. for any investment. interest rate movements and buoyancy in capital market are some of the factors that affect the cost of bank deposits after a progressive decline. such as. yield is the annual rate of return expressed as a percentage. banks have been arriving at their Benchmark Prime Lending Rates (BPLR). Furthermore. Progressive banking entities make extensive use of 42 . III.5. and bank specific factors.2.2. interest rate cycle has revived since last part of 2004-05.
5. This ratio is calculated by the following formula. This ratio is calculated by the following formula.5. It signifies movement in operating cost relative to income. This ratio is calculated by the following formula. non-interest income should be able to cover the non-interest expenditure.2.3. retail priority consumer loan etc .3.) to re align the composition of advances portfolio.2 Burden Ratio Burden Ratio is the ratio of non-interest income to non-interest expenditure. Yield on advances = Interest Earned on advances Average Advances III.3 Cost of Deposits Cost of deposits is the cost generated from liabilities such as debt outstanding.g.yield on even segment-wise advances (e.3 OPERATIONAL EFFICIENCY RATIOS These ratios are calculated to analyze the operational efficiency of the Bank. Global benchmark is 40 percent. The ratios being calculated are:III. As an efficiency criterion. capital costs and other short term liabilities.5.5. Burden Ratio = Non-Interest Income Non-Interest Expenditure 43 . Cost of deposits = Actual interest paid to customers Average deposits III.1 Cost Income (Efficiency) Ratio Non-interest expenditure divided by net total income (total income minus interest expenses). Cost-Income Ratio = Operating Expenditure Net total Income III.
CHAPTER IV FINANCIAL ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS OF CANARA BANK • Profitability Ratios • Cost and Yield Ratios • Operational Efficiency Ratios 44 .
4 Return on Networth 45 . represents the operational efficiency. Profitability ratios. measured by a ratio.1 PROFITABILITY RATIOS While profit represents an absolute figure. • Profitability Ratios • Cost and Yield Ratios • Operational Efficiency Ratios IV. each quarter.1 Return on assets IV. profitability is a more meaningful yardstick of operational efficiency as it is size-neutral.3 Earning per share IV. “A ratio is an expression of quantitative relationship between two numbers”.1. being a listed company. The important profitability ratios calculated for the analysis are.1 RATIO ANALYSIS Ratio analysis is one of the most powerful tools of financial analysis. As opposed to absolute profit volumes. More so.1. performance of the Bank is closely followed by the market and financial analysts. in contrast to absolute profit levels. which are prudent measures of profitability and efficiency. The main ratios being calculated for the analysis of financial performance of Canara Bank are the following. More often.CHAPTER IV ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS OF CANARA BANK IV.1.2 Book value IV.1. IV. it is such ratios. It is the process of establishing and interpreting quantitative relationship between figures and group of figures. profitability. obviate difference in balance sheet size and places operational entities on a common footing.
1.856 Source: Financial Statement Graph IV. The international benchmark is deemed as 1%.6 1.2 An analysis of return on assets ratio of the bank for five years reveals that for the first four years it has covered the global benchmark of 1%.1 Return on assets 1.1. But on the fifth year return on asset ratio has come down.34 1 Ratio 0.1.1 Return on assets Year 2003 2004 2005 2006 2007 Net profit 10188919 13380056 11095045 13432200 14208100 Total Assets 820549306 995393925 1103051133 1328218587 1659610427 Ratios (%) 1. The overall effectiveness of management in generating profit with its available assets can be measured through return on assets ratio.2 Book value 1.1 Return on assets This refers to net income divided by average total assets.01 1.34 1.1.IV. Return on assets = Profit earned Total assets Table IV. It is an analytical measure of asset use efficiency and industry comparison.24 1.01 0.24 1. So the bank must take immediate measures to overcome the situation.4 1.6 46 . IV.8 0.
00 173. 2 Book value 300 250 200 for all the years which are encouraging signs for the bank. of Shares 410000 410000 410000 410000 410000 Ratios (%) 101. 3 Earning per share 128. Tangible net worth of bank No of shares Table IV. RATIO It is clear from the table VI.96 252.1.09 101.2 that book value shows an increasing trend 150 IV.54 Book value = Graph IV.1.1.09 149.2 Book value Year Net Worth 2003 4148283 2004 52516430 2005 61089572 2006 71322358 2007 103539861 Source: Financial Statement No.19 47 100 .1.19 128.Book value of a stock is determined from companies’ records. by adding all assets then deducting all debts and other liabilities.
it is clear from the table that net profit for 2004-2005 was less than that of the previous years which resulted in a decline in EPS for that year.06 32. plus reserves minus intangible assets).85 RATIO 48 .1. IV. of Shares 410000 410000 410000 410000 410000 Ratios(%) 24.3 EPS 40 35 30 The table IV. Ratio of net profit to average networth (share capital. 4 Return on Networth It’s also known as return on equity.63 25 20 15 10 24.65 2003 10188919 2004 13380056 2005 11095045 2006 13432200 2007 14208100 Source: Financial Statement Graph IV.1.1.3 EPS Year Net profit No.3 EPS shows an increasing trend for all the four years except for 2004-2005. net of taxes and preferred stock dividends that is allocated to each share of common stock.The term earning pr share represents the portion of a company’s earnings. EPS = net profit after taxes No of shares Table IV.85 32.63 27.76 34.1. In all other years EPS was favourable. 32.
47.47 19.1. such as. decreased to 16. Networth 47002356 56803001 66205965 87431109 Ratio% 28.47 25 20 The table IV.4 Return on networth Year 2003 2004 2005 2006 2007 Net Profit 10188919 13380056 11095045 13432200 14208100 Avg.4 shows that Return on Networth on 2003-04 is 28. It is also clear that increase in Net profit for all the years is not in par with increase in Networth.4 Return on networth 30 28.2 COST AND YIELD RATIOS Cost of funds is a function of demand. Deposits constitute nearly 90% of banks’ funds.1.1. liquidity. and bank 10 specific factors.53 RATIO But it came down on 2004-05 which again rose on 2005-06 and further 15 5 49 .25 Source: Financial Statement Graph IV. IV.53 20. inflation. the operational and opportunity cost.25 on 2006-07. Composition of deposits and movement 19.Return on Networth = Net profit Average Networth Table IV.29 16.
Yield on advances = Interest Earned on advances Average Advances Table IV.91 7.1 YIELD ON ADVANCES This ratio is concerned with the determination of interest earned on advances. IV. government borrowings. considering the actual cost of funds operating expenses minimum margin to cover regulatory provisioning and profit margin. interest rate movements and buoyancy in capital market are some of the factors that affect the cost of bank deposits after a progressive decline. resulting in an uptrend in interest rates and consequently.2. In tune with the RBI guidelines.in interest rates thus affect bank’s cost of funds. banks have been arriving at their Benchmark Prime Lending Rates (BPLR).3 Cost of deposits IV.1 Interest Year 2003 2004 2005 2006 2007 income on advances 35909721 38177163 42726356 54884896 75075878 Average Advances Ratios (%) 440551130 540300158 699235518 889656934 22.214.171.124 8.2 Yield on investments IV. it is observed in India that commercial banks’ lending rates are relatively flexible downward while there is considerable rigidity in the upward movements. interest rate cycle has revived since last part of 2004-05. in cost of funds.1 Yield on advances IV.2.2.67 7. In recent years.44 50 . Forces of disintermediation.
2 YIELD ON INVESTMENT 7.2. RATIO It is evident from the table IV.Source: Financial Statement Graph IV.2 8 7.4 8. Therefore the bank should focus on improving the high yield advances.8 126.96.36.199 This ratio is calculated in order to determine the interest earned from the investment made by the bank. IV.67 8.1 that yield on advances 2003-04 and 2006 – 07 7.6 8. Yield on investment = income earned on investment shows an increasing trend compared to 2004 – 2005 and 2005 – 2006.1 Yield on advances 8.6 51 .
2. The management should take the effort to invest the funds in high income generating assets.2. income on invest+ Year Dividend income Avg.51 RATIO by the bank through its various investments.2 shows that yield on 8.5 Cost of deposits = Actual interest paid to customers Average deposits 52 7 . Table IV. Investment Ratios (%) 2003 27396874 2004 30400776 2005 31417523 2006 29160874 2007 33846185 Source: Financial Statement 331256167 369234365 375140333 410998607 9. COST OF DEPOSITS 8. IV.Average investment Table IV. 3.51 7.2 Yield on investment Int.77 8.18 9 Yield on investment indicates the income (interest and dividend) earned investment featured a decreasing trend for the years 2004 – 05 and 2005 – 06 compared to 2003 – 04 and 2006 – 07.5 8 It is the interest paid to the customers for the deposits they are having with the bank 7.24 Graph IV.2.2.2 Yield on investment 9.5 9.18 8.
2.4 5.2 RATIO 4.20 4.Table IV.6 53 5.60 4.32 Source: Financial Statement Graph IV.3 Cost of deposits 5.2.3 Cost of deposits Interest Year 2003 2004 2005 2006 2007 expenditure on Deposits 42249439 41219037 42148516 48246267 68880677 Average Deposits Ratios (%) 792196895 915702375 1067995752 1295923419 5.2 5 4.52 5.8 4.6 .
Cost Income (Efficiency) Ratio Non-interest expenditure divided by net total income (total income minus interest expenses).3 shows that cost of deposits on 2003 – 04 was 5. 3 .75 47. It signifies movement in operating cost relative to income.1. Global benchmark is 40 percent.3.2. Interest on deposits is the main expenditure for the bank and it should take all the steps to keep it in control. IV.32 54 . The ratios being calculated are:IV.88 43.Table IV.2% which declined on 2004 – 05 and 2005 – 2006 but it increased to 5. 3 OPERATIONAL EFFICIENCY RATIOS These ratios are calculated to analyze the operational efficiency of the Bank.1 Efficiency 2003 17477057 2004 18965491 2005 21901678 2006 23471354 2007 25653054 Source: Financial Statement Year Operating Net total Income 37450814 47552684 50061308 49590203 55386269 Ratio% 46. Cost-Income Ratio = Operating Expenditure Net total Income Table IV.33 46.32% on the year 2006 – 07which is a serious problem for the bank.67 39.
1 Cost Income Ratio 48 46. As an efficiency criterion.Graph IV.2. Burden Ratio Burden Ratio is the ratio of non-interest income to non-interest expenditure.88 Burden Ratio = 38 Non-Interest Income Non-Interest Expenditure 36 2003 2004 55 .3. Ratio 42 IV.88%).3.3.1 that a bank is not able to reach global benchmark of 40% in all the years except on 2003 – 04 (39.67 46 44 It is evident from the table IV. So the bank should take all the necessary measures to reduce the operating expenses. 40 39. non-interest income able to cover the non-interest expenditure.
69 58.93 Graph IV.3 100 84.2 120 109.57 109.3.Table IV.20 58.57 80 Ratio 60 40 56 .30 73.3.2 Income 2003 14779657 2004 20729132 2005 15438273 2006 13775149 2007 15118012 Source: Financial Statement Year Non-interest Non-interest Expenditure 17477057 18965491 21089716 23471354 25653054 Ratio% 84.
In all the other four years non-interest income is not able to cover non-interest expenditure. The bank should take all the steps to reduce the burden ratio by reducing operating expenses and / or increasing the non-interest income.3. 57 .2 that burden ratio was the highest on 2003 – 04 as on that year only non-interest income is able to cover non-interest expenditure.It is clear from the table IV.
Balancesheet of Canara Bank for five years (Rs. ’000) PARTICULARS CAPITAL AND LIABILTIES Capital Reserves and surplus Deposits Borrowings Other liabilities and Provisions Total ASSETS Cash & balance with RBI Balance with bank & money at short notice Investments Advances Fixed assets Other assets Total Contingent liabilities Bills for collection 2003 2004 2005 2006 2007 4100000 37388283 720948225 938223 57174575 820549306 4100000 48416430 863445565 7548970 71882958 995393923 4100000 56989572 967959186 1141642 72861333 1103051733 4100000 67222358 116803231 9 258240 88605670 132821858 7 4100000 99439861 1423814519 15743517 116512530 1659610427 56075112 20896392 304582440 404715983 6596163 27683216 820549306 511761439 33169315 68909376 51360751 357929894 476386278 6801955 34005669 995393923 524402495 37057986 49843832 36843491 380538836 604214039 6728143 24883392 1103051733 576070268 39579579 79139957 49095590 369741830 794256998 6884717 29099495 132821858 7 549007090 44225832 90951915 72787421 452255384 985056870 28613535 29945302 1659610427 616111376 62000207 58 .
06 3400000 10300 -12081482 19017382 276000 380000 13432200 32.56 3350000 1003535 5100000 1613916 1025000 1025000 262605 13380056 32.76 3600000 22090 7228210 2870000 487800 14208100 34. ’000) PARTICULARS INCOME Interest earned Other income TOTAL EXPENDITURE Interest expended Operating expenses Provisions and contingencies TOTAL NET PROFIT FOR THE YEAR Appropriations Transfers to Statutory reserve Capital reserve Investment fluctuation reserves Revenue reserves Interim dividend Proposed dividend Dividend tax TOTAL Earnings Per Share 2003 66918885 14779657 81698542 44247728 17477057 9784838 71509623 10188919 2004 70069207 20729132 90798339 43245655 18965491 15207137 77418283 133800536 2005 75719688 15438273 91157961 44214993 21089716 14758207 800062945 11095045 2006 87115123 13155691 100270814 51300069 23471354 12067154 86838614 13432200 2007 113645562 14509497 128155059 73377305 25653054 14916600 113946959 14208100 2550000 2503 2990000 3032041 0000000 1435000 179375 10188919 20.Profit and loss accounts of Canara Bank for five years (Rs.65 59 .63 2800000 2027031 2300000 1406552 1025000 1230000 306462 11095045 27.
CHAPTER V SUMMARY OF FINDINGS AND RECOMMENDATIONS • Findings • Suggestions 60 .
Ratios are worked out for analysis from the published financial statements.2007. To analyze and interpret the financial performance of the Bank. User of financial statements can get better insight about financial strength and weaker of the firm provided they are properly analyses the information contained in these statement.3 FINDINGS The study covers an analysis of the financial performance of Canara Bank for a period of five years from 2003 – 2004 to 2006. The problem is staked is “An Analysis of Financial Performance of Canara Bank” V. investors and others to form judgments about the financial position of the form and its operational efficiency. To asses the operational efficiency of the bank 3. To determine its cost of deposits and yield investment 4. The various findings and conclusions of the study are stated in the relevant chapter itself. So it is relevant and useful to make the analysis of financial performance of Canara Bank.2 OBJECTIVES The important objective of the study is:1. To suggest suitable remedial measures for better functioning of the bank V.1 STATEMENT OF THE PROBLEM A form communicates financial information of the users though financial statement. To analyze the profitability of the bank 5. However it is considered suitable to provide a summary of those findings and conclusions. 2. 61 . The information contained in three statements is used by managements.CHAPTER 5 SUMMARY OF FINDINGS AND RECOMMENDATIONS V.
e. Cost of deposits declines to 4.18%. such a decrease in EPS is due t the decrease in net profit in the year.77% and high during the year 2004 i. 7.32%. However.60% in 2005 from 5. 9. The main reason for this trend is due to the continuous variation in the interest rate.. Earning per share (EPS) indicate the ability of the bank to access the capital market and the appetite of the bank’s scrip in the market. which is not a good sign for the bank. However the bank is not able to reach the global benchmark except on 2003 – 04. Book value for all the years shows an increasing which is an encouraging sign for the bank.20% in 2004. 62 . for the first four years return on assets has covered the global benchmark of 1%. Yield on advances varies from 7. Burden ratio is highest in the year 2003 -04 and only on that year the non.91% to 8. It ranges from 16. The EPS of the bank shows an increasing trend for all the years except on 2004-05.67%. The return on assets indicates the efficiency of assets’ use. The international benchmark is deemed as 1%. But in the fifth year it has come down.25% to 28.52% in 2006 and in the year 2007 it rises to 5.47%.interest income is able to cover the non – interest expenditure. Yield on investment shows a mixed trend. Return on networth shows a mixed trend. The global benchmark of cost – income ratio is 40%. It was low during the year 2006 ie. It again declines to 4.
liquidity. 63 . But it should be careful about the bank’s specific factors. personal loans etc.4 RECOMMENDATION From the above study it is clear that Canara bank has to make improvements in certain areas. The bank should take all the measures to minimize burden by reducing operating expense and / or increasing the non – interest income. The bank should encourage the lending of high yield advances such as retail. So as to increase the net profit operating expenses must be in control. The international benchmark for return on assets is deemed as 1% whereas it is not able to reach the international benchmark for the last year 2007. Efforts must be taken to reach the international benchmark of 1%. Following are the recommendations to improve its performance. The bank should focus on investing its funds in high income generating assets. It has to take action to improve its performance.V. Cost of funds is a function of demand. inflation and bank’s specific factors such as operational and opportunity cost. Most of the factors are out of control of the bank.
It is one of the leading institutions in the banking activity. In the case of banks cost of funds is a function of demand. The bank should also focus on improving the high yielding advances. and administrators. the bank expects growth in its business activities and operations. the bank should follow the norms laid down by the RBI and render quality and timing service to the customers. Most of the factors are out of control of the bank. The project entitled “An analysis of financial performance of Canara bank” is an attempt to study the financial performance of the bank for five years from 2003 to 2007. and efficient services. 64 .CONCLUSION The success of any organization depends on team work. reasonable rate. But it should be careful about the bank’s specific factors. The bank is managed by a group of professionals. In the coming years . It has developed an elaborate appraisal system where by they ensure that the funds are utilized for productive purpose. In order to maintain the growth. Canara bank is a long – standing profit making bank. inflation and bank’s specific factors such as operational and opportunity cost. quality of their products. liquidity.
a practitioner’s handbook issued by Planning and Development Wing of Canara bank. P.canarabank.N Maheswari Management Accounting and financial control New Delhi: Sultan Chand and Sons.com 65 . 1990. I.BIBLIOGRAPHY 1.N Maheswari Financial Management: New Delhi: Sultan Chand and Sons..R Kothari Research Methodology: Methods and techniques. 2000 Other Sources Profitability. New Delhi: Wiley Eastern Ltd.google.11 June 1988. 6. 1987 4.com www.11 June 1989 7. 2000 5. Websites www. 3.111 no. Om Pariahs “Ratio analysis for management in new perspective” Vol.S Gupta fundamentals of management accounting: New Delhi.moneycontrol. C. S. National Publishing House.K Ghosh and G. S.M Pandey “Financial Management” Bombay: Vikas Publishing House (p).com www. Gautam Banerjee “Financial analysis for decision making: vol 11 No. 1979 2.. Performance Highlights 2006 – 07 issued by Canara bank.
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