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Management of Banking and Financial Institutions Mini Project 1 Analysis of Banks’ Financial Statements

Group 3

Banks Analyzed Public Sector Bank: Union Bank of India Private Sector Bank: City Union Bank Foreign Bank: Standard Chartered (India operations)

6 6. borrowings.7 11. 2) Proportion of Equity. KPI UBI (Public) CUB (Private) Standard Chartered . They would require more liquidity. This shows that CUB and UBI are financially riskier than SC. This is risky and can lead to financial volatility. The proportion of deposits and borrowings of the total liabilities for the banks chosen is as follows Union Bank of India: 91% City Union Bank: 91% Standard charted: 63% The equity base is very low for banks and hence the financial leverage is very high. Capital and Reserves: Bank Union Bank Of India City Union Bank Standard Charted Proportion 5. share capital.1) Sources of funds for the banks: The major sources of funds for a bank are from deposits. reserves and surplus.6 3) Comparison of liability composition: The liability composition of CUB and UBI are more or less the same. Standard charted has a lesser proportion in terms of deposits and borrowings.

97% 22593.69% Over 1 year and upto 3 years 44458.72% 10.09 611.39 Over 6 months and upto 1 year 30572.01% 0.89 Over 3 yrs and upto 5 years Over 5 years Total 19463.96 8262.85% 57369470 55568820 5.89% 6476135 164257 639646971 8.47% Also if we look at the cost of funds ratio SC has a lower ratio when compared to the other three banks which shows the variable cost for funds by this bank is lower.71% 1.59 956.05912234 0.74% 1.11 222869 16340.048187872 Percentage deposits Duration Day 1 2-7 days 8-14 days 15 to 28 days 29 days to 3 mnths UBI 3369.83% 0. If any measure is taken .28% 0.51% 3.0717232 9 0.42 123070387 10. 4) Maturity pattern of deposits In case of UBI long term deposits for a major proportion while in case of CUB and SC medium term deposits form a major proportion of the total deposits.26 CUB 25.92 13.80% to SC total 1.31 SC 6623276 64872383 77162613 57136123 UBI 1.37 130. The cost structure of CUB and SC is better than UBI.16 76.14 132.36% CUB 0.93% 19.15% 0.14% 12.24% 8.67% 4.95% 69.96 790.94% 2.(Foreign) Cost of funds 0.14% 5.53 4313.02% 8.81% 3.84% Over 3 months and upto 6 months 12625. This is because the rates on deposits are fixed.73% 3.03% 32.06% 8.04% 10.76 191203507 19.1 5260.27 71949.94 625.49% 29.41 11355.9 1636.

In this case UBI and Standard Chartered follow a safe.6 Fixed assets 0.211063778 . Fixed assets form a very meager part of the uses of funds. This could be riskier for the bank Ratios Credit-asset ratio Net loans-asset ratio Short term investments .7% of investments.164224085 Standard Chartered 0.6 45. Bank CUB UBI Standard Chartered 6) Vulnerabilities of uses of funds Investments 25 24.89 2.07 For CUB the investments made in short term securities (overnight up to one year) formed 65. The same figure for UBI and Standard Chartered are 10. CUB and UBI show a higher percentage of advances indicating a more risky deployment of funds.53 0.4 Advances 66 assets ratio UBI 0.01547696 CUB the RBI to reduce these rates then the impact on banks which have larger quantity of long term deposits is that their income will decline along with the interest rates.456669077 0.661418264 0. However among the three banks Standard Chartered has a higher percentage of fixed assets.67629423 0.433950674 0.8% and 71.2 22. 5) Uses of funds Among the three banks the use of investments as a source of income is found to be lower. high liquidity policy whereas UBI has a rather low liquidity.7% respectively.66311442 0. The sharp contrast in numbers indicates that UBI invests in high risk investments compared to the other two banks.653418551 0.

108794332 0.08138115 0. 7) Revenues of the bank Ratios Efficiency ratio Overhead efficiency (burden) ratio UBI 0.0227).542788357 Yield on assets Net operating margin 0. .066662549 0. Standard Chartered-0. All the three banks are found to have healthier credit portfolio since the difference between credit-asset ratio and net loans-asset ratio is low (UBI-0.008. Short term investments . Net income will include all the revenues from both interest earning and non-interest earning income.013. on a comparative scale.273360062 0. Higher liquidity at the cost of profitability could be detrimental to the bank.85% of revenues flow through net income for CUB and 7. CUB receives higher yield (revenue) from interest earning assets followed by UBI and Standard Chartered. CUB-0.73% for UBI and Standard Chartered respectively.07409623 assets ratio. All the three banks have lower proportion of non interest income to total income indicating that the banks earn revenues mainly from loans and advances rather than from fee based transactions.485509218 Standard Chartered 0.10428248 0. From the ratios it can be observed that both UBI and CUB have comparable efficiency ratios and Standard Chartered has a relatively higher value.067309879 Net operating margin indicates assets ratio indicates that UBI has lower liquidity and higher profitability compared to CUB and Short term investments .32843571 CUB 0. Yield on assets indicates that.41% and 6.088502315 0.092959002 0.From the ratio analysis it was observed that UBI and CUB have similar type of creditratio indicating advances which have higher default risk compared to Standard Chartered.

1257 14.7620 0.22545 ROE(=ROA*EM) 0.0677 0.1143 UBI 17.1257 0.0006 0.0001 17.0006 0.01527 14.0677 0.6040 0.6040 0.1257 1.0114 0.12273 EM should be low.1143 0.60401 is low.7620 0.8) What is the banks’ profitability? Analyze the profitability of the three banks using the simple model given in Section III of chapter 3.2067 CUB 14.5156 0.12214 STANDARD CHARTERED Comments 0. KPI Equity multiplier Equity ratio Capital adequacy ratio Adjusted capital adequacy Provision ratio Net NPA to assets ratio Net NPA to equity ratio Average assets risk-weighted 0. .1023 0. Ideally ROA should be high and 0.0068 0.0435 Standard Chartered 8.7620 5 0.1115 0.9191 1 CUB 0.0032 0.9191 0.1706 8.0029 0. So the deviation in returns 8.1185 0.0001 0.01426 The equity multiplier for Standard Chartered is almost half of the other two banks.00682 17.0025 0.1207 0.0313 1.1185 0.0115 0.0000 0. The profitability ratios of all the three banks have been calculated in the excel sheet.0114 0.9191 0.0273 Incremental risk of asset portfolio Equity multiplier Equity ratio Capital adequacy ratio UBI ROA Equity Multiplier 0.

44%. 4. Priority sector mandatory lending can also be seen as a threat especially for private sector banks (CUB) where the operating costs (in certain areas) are much higher than the returns. 3. c) Exposure to the real estate sector : I. III. . Example: Some banks are opposing the Basel 3 norms because they think the amount of capital reserves required under it would be unreasonable especially during an economic slowdown. The same value for Standard Chartered is 0.203 crores CUB – 717 crores 11) Overall assessment of the three banks The overall assessment of the three banks can be summarized as follows: a) Efficiency and Expense control: Based on the KPIs under this section. b) While unsecured advances for CUB are NIL.5.000 crores for UBI and 119 crores for Standard Chartered. lower overhead efficiency burden ratio. we can say that UBI being a public sector has done well in terms of high operating efficiency. low cost of funds. II. But income productivity per employee and breakeven volume of incremental cost per employee is better for foreign and private banks.27% last year. 2.70% up from 0. it is 38. What are the vulnerabilities of the banks? a) The NPAs to net advances (%) is high for UBI – 1.70 % compared to CUB – 0. International regulations can be the biggest threat.9) What are the potential threats to bank’s profitability? The threats to all the three banks are almost common and can be summarized as follows: 1. UBI – 20580 crores Standard Chartered . Increase in CRR also leads to reducing the bank’s profitability as no interest is earned on that money. Increase in NPAs brings down the profitability of the bank. 10) Go through the “Notes to accounts” and disclosures made by the banks.

average risk weighted assets) under this section we can say that UBI is taking more risks than Standard Chartered and CUB. capital adequacy ratio.b) Liquidity: Based on demand-to-time deposit ratio. provision ratio. we can say that Standard Chartered needs higher liquidity that CUB which in turn needs higher liquidity than UBI. d) Profitability: Ratios like ROE. yield on assets show that CUB is make better profits that Standard Chartered and UBI. profit margin. non deposit borrowing ratio. . The risks of Standard Chartered and CUB look similar. c) Risk: Based on the ratios (equity multiplier. asset utilization. demand deposit ratio. Profits if UBI and Standard Chartered are comparable in terms of the ratios. net NPA to assets ratio. ROA.