Financial Statement Analysis of Axis Bank

MOCB Case
Submitted to: Prof. Vinay Dutta
Submitted by: Group 10, MOCB-E Manjima Chatterjee, 063023 Ritu Agarwal, 063041 Shantanu Mittal, 211134 Yatin Chauhan, 063063 Yukti Agarwal, 211169

PART 1: Inter-relationships between Balance sheet and Income statement items

The lines of connection in the figure, starting from the top and working down to the bottom:

     

Interest is earned from Investments and Advances/Loans Interest earned increases the cash balances, Investments and lending of Loans Interest is expended on Deposits, Borrowings Depreciation expense is recorded in operating expenses for the use of fixed assets (long-term operating resources). Operating expenses also include costs encompassing administrative, and general expenses. Earning Net Profit increases Capital and Reserves &Surplus

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DEPOSITS-BORROWINGS-INTEREST

Deposits Borrowings Interest expended
300,000.00 250,000.00 200,000.00

2013 252,613.59 43,951.10
17,516.31

2012 220,104.30 34,071.67
13,976.90

2011
189,237.80

26,267.88
8,591.82

Deposits 150,000.00 100,000.00 50,000.00 0.00 2013 2012 2011 Borrowings Interest expended

ADVANCES-INVESTMENTS-CASH-INTEREST EARNED

Advances Investments Cash & Balances with RBI Interest earned
250,000.00

2013 196,965.96 113,737.54 14,792.09 27,182.57

2012 169,759.54 93,192.09 10,702.92 21,994.65

2011 142,407.83 71,991.62 13,886.16 15,154.81

200,000.00

Advances Investments Cash & Balances with RBI Interst earned

150,000.00

100,000.00

50,000.00

0.00 2013 2012 2011

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FIXED ASSETS-OPERATING EXPENSES

2013 Fixed Assets Operating Expenses
2,355.64 6,914.23

2012
2,188.55 6,867.53

2011
2,250.46 5,734.55

8,000.00 7,000.00 6,000.00 5,000.00 4,000.00 3,000.00 2,000.00 1,000.00 0.00 2013 2012 2011 Fixed Assets Operating Expenses

NET PROFIT-CAPITAL-RESERVES

2013 Net Profit Capital Reserves
35,000.00 30,000.00 25,000.00 20,000.00 15,000.00 10,000.00 5,000.00 0.00 2013 2012
5,179.43 467.95 32,639.91

2012
4,242.21 413.2 22,395.34

2011
3,388.49 410.55 18,588.28

Net Profit Capital Reserves

2011

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76 MOCB-E_GROUP 10 5|Page . Loans Investment.05 390.4 5165. Reserves Investment. Loans/Credit.67 290.09 -36047. Borrowings Cash.34 66.13 57839.16 2011 -10917.PART 2: Different Functional Areas reflecting in Balance Sheet and Income Statement RETAIL BANKING: CORPORATE BANKING: TREASURY: BUSINESS BANKING: SEGMENTS NET PROFIT Balance Sheet Deposits.08 64830. Capital.11 216.386.3 130.36 -28198.13 -4.96 5662.2 151.21 3883. Cross-selling.1 Treasury 3000 2000 1000 0 2013 -1000 SEGMENTS NET ASSETS Corp Banking Retail Banking Busi Banking 2012 2011 Treasury Corp Banking Retail Banking Busi Banking 2013 8684.98 2011 732.28 527.64 -41035.25 2012 -8051. Funds borrowed Income Statement Interest earned and paid Interest earned and paid Interest earned and paid Interest earned and paid Treasury Corp Banking Retail Banking Busi Banking 6000 5000 4000 2013 984.86 377.59 2012 836. Cash.34 149.

80000 60000 40000 Treasury 20000 0 2013 -20000 -40000 -60000 2012 2011 Corp Banking Retail Banking Busi Banking MOCB-E_GROUP 10 6|Page .

MOCB-E_GROUP 10 7|Page .PART 3: CAMEL Ratios 1.66% 2012-13 17.00% I.00% 5. it can make up for it from its net worth. 14 in ’10-’11 to Rs.65% 2011-12 13.00% 15. The Reserve Bank of India (RBI). 16 in ’11-’12 to Rs. also known as Capital to Risk (Weighted) Assets Ratio (CRAR). credit risks and other risks. CAPITAL ADEQUACY Capital Adequacy Ratio: It is measured by Capital Adequacy Ratio (CAR).  It has thus also been able to provide its shareholders with increasing amount of cash dividends each year.  This means that the bank is highly capitalizes and its loan making capacity has been enhanced in each year.  Increasing CAR also suggests that Axis bank has a high risk absorbing capacity and is in a better position to counter future losses.00%  In all the three years.00% CRAR 2010-11 12.00% CRAR (%) 10. while maintaining a healthy CAR for future growth. 18 in ’12-’13. CRAR= Capital/Risk Weighted Assets Year CRAR 2010-11 12. A bank with a higher capital adequacy is considered safer because if its loans go bad. currently prescribes a minimum capital of 9% of risk-weighted assets. The dividends have increased from Rs. CRAR 20.65% 2011-12 13.66% 2012-13 17. the CRAR is above the RBI prescribed rate of 9%.00% 0. It is the ratio that measures a bank’s capacity to meet time liabilities and risks like operational risks.

24% 4. Net Non-performing Assets Ratio A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or installment of principal has remained ‘past due’ for a specified period of time (90 days).65% 13.41% 9.36% Asset MOCB-E_GROUP 10 8|Page . It helps identify the quality of assets that a bank possesses.21% 4.66% 17. 2.  Tier 2 capital has been raised through issuing sub ordinate bonds.29% 0.01% 1.23% Tier 2 Capital 3.27% 0.06% 1. ASSET QUALITY Asset quality of a bank can be measured using various ratios. The NPA ratio is one of the most important ratios in the banking sector. They are described below: I. Gross NPA ratio= Gross NPA/Net advances Net NPA ratio= Net NPA/Net advances Year 2010-11 2011-12 2012-13 Gross Ratio 1.45% 12.77%  Tier 1 capital has been raised in 2012-13 in the form of preferential equity share capital. This means that the scope for future growth is very high.Year 2010-11 2011-12 2012-13 CRAR 12.00% Tier 1 Capital 9.2% Non-performing Asset Net Non-performing Ratio 0.

06% 2012-13 0.1.40% 1.27% 1.20% 1. 3.40% 0.  Addition of fresh NPA’s through the year on ’12-’13 can be the cause of increase as it surpasses the recoveries ad write offs made during the year.80% 0.01% 2011-12 0.29% 1.90% MOCB-E_GROUP 10 9|Page .71% 8.00% Net NPA Ratio 0. this ratio shows a bank’s ability to leverage its average total resources in enhancing its main stream of operational interest income. MANAGEMENT I. Year 2010-11 2011-12 2012-13 Interest income to working funds ratio 7. Interest income to working fund: Expressed as a percentage.49% 8.20%  The NPA ratios have increased but are still considerably low.60% 0.00% Net NPA Ratio Gross NPA Ratio 2010-11 0.36% 1.20% 0.

Non-Interest income to working funds ratio 2. especially loans have been used in the right way to increase the interest income.49% 2011-12 8.15% Year 2010-11 2011-12 2012-13 MOCB-E_GROUP 10 10 | P a g e . this ratio assumes significance for it mirrors a bank’s ability to take full advantage of its operational freedom.Interest income to working fund ratio 9. gains on sale and revaluation of investments and fixed assets and profits from exchange transactions.00% 8.71% 2012-13 8. II. the interest income increased by 23%.15% 2.50% Interest income to working fund ratio 2010-11 7. Non-interest income to average working funds: This ratio denotes a bank’s ability to earn from non-conventional sources.50% 7.interest income includes items such as exchange commission. Non. brokerage.  In 2012-13. In a liberalized environment.00% 6.50% in % 8. This shows how effectively the working funds have been used.29% 2.50% 9.00% 7.90%  The interest income to working fund ratio has been increasing which implies that the company’s assets. while the total assets increased by 19%.

relative to the amount of their (interest-earning) assets. Net interest margin= (Interest earned-Interest paid)/Working funds Year Net interest margin 2010-11 3.Non-interest income to working funds ratio 2.  In the year 2012-13.20% 2.25% 2.10% 2. the non.59% 2012-13 3.53% MOCB-E_GROUP 10 11 | P a g e .35% 2.65% 2011-12 3. III. But there was a loss in the sale of fixed assets.15% 2. deposits). Net interest Margin: is a measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example.05% 2010-11 2011-12 2012-13 Non-interest income to working funds ratio  The decline in the ratio on 2011-12 may be attributed to lower recoveries of loans written off and adverse market conditions in the debt and equity markets.30% 2.interest income increased by 20.82% showing relatively higher earnings.

which may have also contributed to decline in NIM.48% 3.58% Net interest margin 3.54% 3.60% 3.46% 2010-11 2011-12 2012-13  In the year 2011-12.) 14.58 lakhs MOCB-E_GROUP 10 12 | P a g e .34 lakhs 14.81% to 8.35 lakhs 14.52% 3.  2012-13 also saw an increase in net NPA ratio. although the interest earned increased.64% 3.92%  In 2012-13. IV.10%. Profit per employee= net profit/total employees Year 2010-11 2011-12 2012-13 Profit per employee(Rs.56% 3.  Hence.3. cost of funds also increased due to increase of interest rates on term deposits from 8.92% to 9. the cost of funds increased because of increase of interest rates on term deposits from 6. Profit per employee: This indicator simply measures the amount of sales or revenue. generated per employee. the net interest margin has been declining.50% 3.62% 3.66% 3.

55 in lakh rupees 14.) 2010-11 13.3 14.2 Profit per employee 2010-11 14.76 2012-13 12. of employees.15 MOCB-E_GROUP 10 13 | P a g e .5 11 Business per employee(Rs. Year Business per employee(Rs. Business per employee: This tool is used to measure the efficiency of employees in generating business for the bank.35 2011-12 14.58  After a slight decline in 2011-12.6 14.  The high figures of this ratio indicate high levels of productivity in Axis Bank.35 14.5 12 11.5 13 in crores 12.76 crores 2012-13 12.4 14. Business per employee= total business/total no.  This is because the net profit during 2012-13 increased by 22.09% compared to the previous year.) 14 13.Profit per employee 14. V. Business is equal to total deposits(less inter-bank deposits) plus total advances.15 crores Business per employee(Rs. profit per employee increased considerably in 2012-13.34 2012-13 14.66 2011-12 12.5 14.25 14.) 2010-11 13.45 14.66 crores 2011-12 12.

2%. Crores) 2010-11 6415. operating profit increased by 25.35% MOCB-E_GROUP 10 14 | P a g e . II.435 in 2010-11 to 31. This is due to an increase in net interest income and other income by 20.86% respectively. Although the total business has been increasing. Year Net profit margin 2010-11 17. Year Operating profit (in Rs.47% 2012-13 15.738 in 2011-12 and 37.56% and 20. Operating profit: It is defined as total earnings less total expenses.13 Operating profit (in Rs.1%.12% 2011-12 15. Crores) in crore rupees 2010-11 6415. largely due to growth in bank’s network and infrastructure requirement.69 2011-12 7430.87 2012-13 9303. EARNINGS I.69 2011-12 7430.  Total number of employees increased from 26.13  In 2012-13.901 in 2012-13. although operating expenses increased by 15. Net profit margin: Net profit margin is the percentage of revenue remaining after all operating expenses.  This is due to the massive hiring done by the company through the year to meet its expansion demands. taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue. interest. there is a decline in business per employee in the company. Crores) 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Operating profit (in Rs. excluding provisions and contingencies. 4.87 2012-13 9303.

00% 16.50% In % 16.68% 2011-12 1. Return on Assets: The return on assets (ROA) ratio illustrates how well management is employing the company's total assets to make a profit. Return on assets= Net profit/Total assets Year ROA 2010-11 1.50% 14.32% in 2011-12 and 2012-13 respectively.Net profit margin 17.7% MOCB-E_GROUP 10 15 | P a g e . which can be backed by the increase in NPAs over the year.68% 2012-13 1. III.12% 2011-12 15.50% 17.00% 15. the more efficient management is in utilizing its asset base.35%  The decline in net profit margin may be a result of the increase in the figures for provisions and contingencies by 5. the provision for NPAs was increased by 37.  In 2012-13.47% 2012-13 15.00% Net profit margin 2010-11 17. The higher the return.50% 15.00% 14.33% and 29.09%.

They added 325 branches and 1.71% 1.70% 1. The higher the ratio percentage.51% MOCB-E_GROUP 10 16 | P a g e .321 ATMs in FY 2012-13.13% 2011-12 21. supported by an expanding network that is critical to the retail franchise.68% 1.67% 2010-11 2011-12 2012-13 ROA  The increase in ROA in 2012-13 may be because he Bank’s retail businesses grew steadily during the year and there was credible growth of both retail deposits and loans.22% 2012-13 20.69% 1. IV. Return on Equity: The return on equity ratio (ROE) measures how much the shareholders earned for their investment in the company. the more efficient management is in utilizing its equity base and the better return is to investors.70% 1.68% 1.ROA 1.69% 1. ROE= Net income/Average shareholders’ equity Year ROE 2010-11 20.

60% 20. Cash.86% II. 5.ROE 21. LTD= Total loans/total deposits Year Advances deposit ratio 2010-11 75.40% 21.40% ROE in % 2010-11 20.51%  The decline in 2012-13 in ROE may be attributed to the increase in equity holdings of the company during the year. If the ratio is too high.00% 19. LIQUIDITY I. Investment to Deposit Ratio: This is the ratio of total investments (including investments I non approved securities) and total deposits Investment deposit ratio=Total investments/ total deposits MOCB-E_GROUP 10 17 | P a g e .60% 19. it means that banks might not have enough liquidity to cover any unforeseen fund requirements.Deposit Ratio: It is the amount of money a bank has available (liquidity) as a percentage of the total amount of money its customers have put into the bank (deposits). if the ratio is too low.25% 2011-12 77.86% 2012-13 5.80% 20. Cash deposit ratio= (Cash in hand+ balances with RBI)/Total deposits Year Cash deposit ratio 2010-11 7.80% 19.13% 2011-12 21.22% 2012-13 20. banks may not be earning as much as they could be.20% 21.40% 20.00% 20. also known as the LTD ratio. This number.20% 20. is expressed as a percentage.97% III.12% 2012-13 77. Advances to Deposits Ratio: This ratio is used for assessing a bank's liquidity by dividing the banks total loans by its total deposits.30% 2011-12 4.

This indicates that the bank is increasing investment in government securities. which is a step it is taking to avoid risk in the period of economic slowdown.00% 10. (CRR)  The loans deposit ratio has been increasing.34% 2012-13 5.Year 2010-11 2011-12 2012-13 Investments deposit ratio 38. Since the investment deposit ratio has been consistently above 23%.25% 38.00% 30.86% 77. This means that the customers’ deposits are being used to provide loans that fetch the back an increasing interest income. it can be said that the banks is sitting on excess securities.00% 60.30% 75.02%  The cash deposit ratio has reduced through the years.00% 50.00% 20.00% 0.00% 80.04% 42. MOCB-E_GROUP 10 18 | P a g e .00% 40. This means that the spare/idle cash available with the banks have reduced over and above the statutory cash that remains with the RBI.86% 77.02% 90.04% 2011-12 4.12% 42.00% 70.97% 45.00% Cash Deposit Ratio Loans Deposit Ratio Investment Deposit Ratio 2010-11 7.  The investment deposit ratio has been increasing.34% 45. bonds and debentures.

Total Deposits and Total Advances Year 2010-11 2011-12 2012-13 Total Deposits (Rs. II. ‘000) 1892378010 2201043033 2526135881 Total Advances (Rs. the bank may have to take possessions of such assets.004% 0.008% 0.003% 0.006% 0.002%  The non banking assets rose sharply in the year 2011-12 showing a five-fold increase over the previous year.005% 0. RATIOS UNDER ANNEXURE-1 I.010% 0. This means that sometimes.000% Non Banking Assets to Total Assets Non Banking Assets to Total Assets 2010-11 0.PART 4: Other Key Ratios 1.009% 2012-13 0.002% Non Banking Assets to Total Assets 0.006% 2011-12 0." these assets must be disposed off in maximum seven years. The growth in 2012-13 was comparatively less which results in a fall in the ratio. the assets will be shown in the balance sheet as "non banking assets.001% 0.009% 0. In that case. Non-Banking Assets to Total Assets A bank cannot acquire certain asset but can lend against such assets. = Non banking Assets / Total Assets Year 2010-11 2011-12 2012-13 Non Banking Assets to Total Assets 0. in case of failure on the part of the loan taker to repay the loans.006% 0.009% 0. ‘000) 1424078286 1697595386 1969659574 MOCB-E_GROUP 10 19 | P a g e .002% 0.007% 0.

‘000) 1424078286 1697595386 1969659574  The deposits have grown by 14.46% 20 | P a g e .000.000 1. higher is the cost of funds for the bank since the interest rates on term deposits are generally higher than the interest rates on CASA deposits (taken together) Term Deposits Ratio = Term Deposits / Total Deposits Year 2010-11 2011-12 CASA Deposits 41.90% 58. CASA Ratio = CASA Deposits / Total Deposits IV. ‘000) Total Advances (Rs. ‘000) Total Deposits (Rs. ‘000) 1892378010 2201043033 2526135881 Total Advances (Rs.3.03% in 2012-13 over the previous year. The growth rate in 2011-12 over the previous year has been 16.000.000. CASA Ratio (%) The CASA (current and savings account) ratio is the ratio of deposits in the current and savings accounts of a bank to its total deposits.000.000.000.21% III.10% 41.500. The growth rate in 2011-12 over the previous year has been 19.000 2. since no interest is paid on the current accounts and the interest paid on savings account is usually low. A high CASA ratio indicates that a higher portion of the bank deposits come from current and savings accounts.54% MOCB-E_GROUP 10 Term Deposits 58.000 1.000.000. This means that the bank is getting money at low cost.000 2. Higher the term deposits.500. Term Deposits Ratio (%) This is the ratio of the term deposits to the total deposits.000 0 2010-11 2011-12 2012-13 Total Deposits (Rs.77% in 2012-13 over the previous year.31%  The advances have grown by 16.000.000 500.

90% 44.91% MOCB-E_GROUP 10 21 | P a g e . helped in containing the cost of funds.  The reduction in term deposits is a good sign as the cost of funds goes down when the proportion of term deposits goes down.551 crores last year.54% 58.845 crores from Rs.00% 60.50% 5. which on a daily average basis increased by 18. a steady growth of low-cost CASA deposits. the CASA deposits have been increasing.  During 2011-12.00% 20.00% 10. lower the cost of funds.00% 30. 80. helped in containing the cost of funds. which on a daily average basis increased to Rs.00% 50. 70. 70.00% 40. 59.62% CASA Deposits Term Deposits 2011-12 41.00% CASA Deposits Term Deposits 2010-11 41.941 crores from Rs.99% 5. V. which is a good sign as higher the CASA deposits.  During 2012-13. which had risen over the period due to the hardening of interest rates on term deposits. Cost of Funds (%) This ratio determines the expenses incurred by a bank on the funds that it raises by way of deposits and borrowings.46% 2012-13 44.10% 58.96% to Rs.00% 0.845 crores. a steady growth of low-cost CASA deposits. Cost of Funds = Total Interest Paid / (Total deposits + Borrowings) Year 2010-11 2011-12 2012-13 Cost of Funds 3.62%  As can be seen from the above graph.38% 55.38% 55.2012-13 70.

 Overall. 2.91% Cost of Funds  Overall. the daily average cost of funds in the year increased to 6. This ratio is given by: = Operating Profits/Total Assets Year 2010-11 2011-12 2012-13 Operating Profits to Total Assets 2.73% from 6.60% 2.10%).92%) as well as the cost of savings bank deposits.00% 6.00% 0.96% last year primarily due to an increase in cost of term deposits by 211 basis points (from 6.92% to 9.47% from 4. the daily average cost of funds in the year increased to 6. SOME MORE IMPORTANT RATIOS I. Operating Profits to Total Assets (%) This ratio tells about how well the bank’s assets are being used to generate operating profits.96% last year.99% 2011-12 5.00% Cost of Funds 2010-11 3.81% to 8.47% last year primarily due to an increase in cost of term deposits by 18 basis points (from 8.73% 2. in the year 2012-13. the cost of deposits increased to 6.00% 1.64% MOCB-E_GROUP 10 22 | P a g e .Cost of Funds 7.00% 2. in the year 2011-12.28% from 4.50% 2012-13 5.55% from 6.00% 5.28% last year.00% 3. the cost of deposits increased to 6. During the year.00% 4. During the year.

Business per Branch This denotes the total business averaged out over the total no. 1450687983 Rs. 2309088575 MOCB-E_GROUP 10 23 | P a g e . II.70% 2.68% in 2011-12 and at 19. An increase in this ratio denotes a general growth in the overall business of a bank.73% 2011-12 2.82% in 2011-12 over the previous year and by a significant 25.64% Operating Profits to Total Assets  The operating profits increased by 15.20% in 2012-13 over the previous year while the growth in assets stood at 17.55% 2.75% 2.65% 2.50% Operating Profits to Total Assets 2010-11 2.23% in 2012-13. the ratio declined marginally. Since the growth in assets was more in 2011-12 as compared to the growth in operating profits. 2403599518 Rs.Operating Profits to Total Assets 2.60% 2.60% 2012-13 2. of branches. of Branches Year 2010-11 2011-12 2012-13 Business per Branch Rs. Business per Branch = Total Business / No.

91% MOCB-E_GROUP 10 24 | P a g e .000 Rs.000.000 Rs.3.000.000.575 Business per Branch Business per Branch Rs.82% 11.000 Rs. Borrowings to Assets Ratio This ratio determines as to how well are the bank borrowings covered by the assets of the bank.500.2.000.000.000.000 Rs.983  The business of Axis bank has been expanding with a steady positive trend.2.309.0 2010-11 2011-12 Rs. The total business (deposits + advances) grew by 17.518 2012-13 Rs.1. = Total Borrowings / Total Assets Year 2010-11 2011-12 2012-13 Borrowings to Assets Ratio 10.000.2. The business per branch shows a marginal dip in the year 2012-13 because of the relatively slow growth of business (as compared to the previous period) and a substantial addition of 325 new branches as compared to the 231 new branches that were added in 2011-12.55% in 2011-12 as compared to the previous year and by 15.31% as compared to the previous year.500.687.000.Business per Branch Rs.2.000 Rs.088.599.403.000 Rs. which is a good sign and presents a healthy picture of the business growth.1.450.500. III.1.93% 12.000.

Provisioning Coverage Ratio = Provisioning / Gross non-performing Assets Year 2010-11 2011-12 2012-13 Provisioning Coverage Ratio 80. IV.82% 2011-12 11.90% 80. Provisioning Coverage Ratio (%) This indicates the extent of funds that a bank has kept aside to cover loan losses.91% Borrowings to Assets Ratio  The overall increasing trend in the borrowings to assets ratio shows a healthy sign in the sense that more and more borrowings are covered by the assets of the bank.00% 11. This gives a positive sign to the lenders as they see their funds as increasingly getting secured.91% 79. better it is for the bank.00% 12.15% MOCB-E_GROUP 10 25 | P a g e .93% 2012-13 12.Borrowings to Assets Ratio 13.50% 10.50% 12.00% 9.00% 10.50% 13.50% 11.50% Borrowings to Assets Ratio 2010-11 10. Greater the provisioning ratio.

00% 78.50% 78.00% 79. Equity Multiplier = Total Assets / Total Shareholder’s Equity Year 2010-11 2011-12 2012-13 Equity Multiplier 12. A higher equity multiplier indicates higher financial leverage.50% 81.52 10.50% 79. Financial Leverage (Equity Multiplier) The equity multiplier is a way of examining how a company uses debt to finance its assets. which means the company is relying more on debt to finance its assets.9 MOCB-E_GROUP 10 26 | P a g e .Provisioning Ratio 81.50% 80.91% 2012-13 79. V.78 12. In other words. This is also known as the financial leverage ratio or leverage ratio.90% 2011-12 80.15% Provisioning Ratio  The provisioning coverage ratio has been consistently high and well above the regulatory guidelines of 70%.00% 80.00% Provisioning Ratio 2010-11 80. this ratio shows a company's total assets per dollar of stockholders' equity. The ratio is decreasing because the Gross NPAs show an increasing trend.

78 2011-12 12.5 10 9. which means that the bank is reducing its reliance on debt to finance its assets.84% MOCB-E_GROUP 10 27 | P a g e . = Secured Advances / Total Advances Year 2010-11 2011-12 2012-13 Secured Advances to Total Advances 81.5 Equity Multiplier 2010-11 12.44% 82. the more secured it is against losses on account of defaults.5 12 11.9 Equity Multiplier  The equity multiplier has been falling. Secured Advances to Total Advances A secured advance is a loan in which the borrower pledges some asset as collateral for the loan. Banks generally have a high equity multiplier since advances (major part of assets) are funded by the amount of deposits that they receive. VI. Higher the percentage of secured advances in the total loan portfolio of a bank.70% 86.5 11 10.Equity Multiplier 13 12. The asset can be forfeited in case the borrower defaults.52 2012-13 10.

00% 81. which has been remaining in excess of 80% suggests that a very major part of the bank’s loans are secured by tangible assets or bank/government guarantees.00% 85.00% 84.00% 80. it gives a fair idea about the profitability on the assets of a bank.00% Secured Advances to Total Advances 2010-11 81.00% 82. Spread as Percentage of Working Funds (%) Spread is the difference between the interest received and the interest paid.80% 2.84% Secured Advances to Total Advances  Axis Bank maintains a very healthy secured advances to total advances ratio.70% 2011-12 86.Secured Advances to Total Advances 87.70% 2. Spread as percentage of working funds = Interest earned as percentage of working funds – Interest paid as percentage of working funds Year 2010-11 2011-12 2012-13 Spread as % of working funds 2. When calculated as a percentage of the working funds.84% MOCB-E_GROUP 10 28 | P a g e . VII. The figure.00% 79.00% 83. Such a healthy figure shows that the bank is well protected from borrower defaults. Higher the ratio. better it is.44% 2012-13 82.00% 86.

205% 0.80% 2. Burden as percentage of working funds = Non-interest expenditure as percentage of working funds – Non-interest income as percentage of working funds Year 2010-11 2011-12 2012-13 Burden as % of working funds 0.60% Spread as % of working funds 2010-11 2. VIII. higher the efficiency of the bank.Spread as % of working funds 2.80% 2012-13 2.75% 2. it gives a fair idea about profitability and how it might get affected on account of non-interest expenditure.84% Spread as % of working funds  It is a good sign that the interest spread has been showing an upward trend since it highlights the profitability of the bank. the net interest income showed growth.70% 2011-12 2.107% MOCB-E_GROUP 10 29 | P a g e .90% 2.65% 2.061% 0. It is the amount of non-interest expenditure not covered by non-interest income.70% 2. which may be attributed to an expansion in the balance sheet size and healthy low-cost Current Account and Savings Bank (CASA) deposits. When burden is taken as a percentage of the working funds. Lower the ratio.85% 2. Burden as Percentage of Working Funds (%) Burden is the difference between non-interest expenditure and the non-interest income of a bank.  During both the years.

trading profit and miscellaneous income increased by 20. the other income comprising fees.15% 0.10% 0. the better is the performance of the bank.e.420.21% 2012-13 0.86% to Rs.10% largely as a result of the growth of the bank’s network and other infrastructure required for supporting the existing and new businesses.69%. Cost to Income Ratio This ratio measures the income generated per rupee of cost incurred i. the other income comprising fees.91% 20.Burden as % of working funds 0. hence the fall in burden.00% Burden as % of working funds 2010-11 0.06% 2011-12 0. This explains the increase in burden in this year.01% while the operating expenses increased by 25. Since the rise in other income is more than the rise in operating expenses. The lower the C/I ratio. trading profit and miscellaneous income increased by 17.22 crores last year while the operating expenses increased by 15. 6. Cost to Income Ratio = Operating Expenses / Total Income Year 2010-11 2011-12 2012-13 Cost to Income Ratio 24.11 crores in 2012-13 from Rs.11% Burden as % of working funds  In 2011-12.05% 0.15% 21.  In 2012-13.50% MOCB-E_GROUP 10 30 | P a g e .25% 0. how expensive it is for the bank to produce a unit of output. IX.20% 0. 5.551.

67 MOCB-E_GROUP 10 31 | P a g e .95 102.00% 23.50% Cost to Income Ratio  The declining trend in the cost to income ratio presents a positive picture about Axis Bank. Earnings per Share (Rs. The trend transcends into an increase in the operating efficiency of the bank.Cost to Income Ratio 25.00% 18.00% 21.) The portion of a company's profit allocated to each outstanding share of common stock.91% 2012-13 20. which amounted to 15.91% declined by 6.44% to come down to 20. Earnings per share serves as an indicator of a company's profitability.50% in 2012-13 primarily because the increase in income during 2012-13 was 23. EPS = (Net Income – Dividends on Preferred Stock) / Average Outstanding Shares Year 2010-11 2011-12 2012-13 EPS 82.00% 19.10%.00% 22.00% 24.94 119.00% Cost to Income Ratio 2010-11 24.  The value of the ratio in 2011-12. A similar trend can be noticed in change from 2010-11 to 2011-12. X. 21.15% 2011-12 21. which is greater than the increase in operating expenses.00% 20.05%.

67 EPS XI. = (Net Income – Preferred dividends) / (The average number of common shares outstanding + Average number of common shares issued on the assumed conversion of convertible securities) Year 2010-11 2011-12 2012-13 Diluted EPS 81.85 MOCB-E_GROUP 10 32 | P a g e .61 102. Diluted Earnings per Share (%) It shows the potential effect on earnings per share of converting convertible securities into common shares.2 118.95 2011-12 102.94 2012-13 119.EPS 140 120 100 80 60 40 20 0 EPS 2010-11 82.

 Both EPS and Diluted EPS show a healthy growth in business as the quantum of net profit ranking for dividend for each share held by shareholders shows an increase.2 2012-13 118. trading and other income increased by 20.551.24 crores in 2012-13.017. MOCB-E_GROUP 10 33 | P a g e .86% to Rs. 9.914.10% to Rs. Dividend per share has gone up from Rs. 18 in 2012-13 and Rs.975. 16 in 2011-12.666.56% to Rs.75 crores last year.  NII increased by 20. 6.  The growth in earnings may be attributed to the performance of the Bank’s core income streams: net interest income (NII).61 2011-12 102.26 crores in 2012-13 from Rs.Diluted EPS 140 120 100 80 60 40 20 0 Diluted EPS 2010-11 81. The growth in earnings in 2011-12 over 2010-11 can be attributed to the same reasons as in the case of growth in 2012-13.11 crores in 2012-13 from Rs. The dilution in 2012-13 is on account of 2.646 stock options. Fee.22 crores last year.420. 8. 14 to Rs.85 Diluted EPS  The consistent strong performance in earnings resulted from the robust growth across all segments. The increase in earnings was partly offset by an increase in operating expenses by 15. 5. fee and other income. 16 to Rs. 6.

and Equity Multiplier (EM).DU PONT ANALYSIS: The DuPont System of Analysis merges the income statement and balance sheet into two summary measures of profitability: Return on Assets (ROA) and Return on Equity (ROE). THREE STEP DUPONT MODEL Profit Margin (Profit/Net Sales * 100) x Total Asset Turnover (Sales/Assets) Return on Total Assets (ROTA) x Equity Multiplier (Assets/Equity) Return on Equity (ROE) MOCB-E_GROUP 10 34 | P a g e . Asset Turnover Ratio (ATR). The system uses three financial ratios to express the ROA and ROE: Operating Profit Margin Ratio (OPM).

debt structure.  All three banks has been utilizing their assets effectively to generate sales over the last three years. however. and is not a substitute for detailed analysis.e.2  The DuPont analysis on Axis Bank highlights the company’s ROE figures over the last 3 years in comparison to its competitiors HDFC and ICICI. a DuPont analysis. inventory. MOCB-E_GROUP 10 35 | P a g e . Now.63 12.51 16..21 11.36 2011-12 21. helps efficiently determine where the company is weak and strong and quickly know what areas of the business to look at (i. margins) for more answers.  Even though the ROE of Axis Bank has been high in comparison to its competitors but there was a decrease in the value over last year.  The performance of Axis bank in terms of profit margins has declined in the last three years as its profit margins are lower than HDFC and ICICI.  Another reason behind the decrease in ROE could be the equity mulitplier whereas it has incresed for HDFC and ICICI which shows that Axis Bank is reducing their debt levels in order to finance their operations.94 13.22 14.The method goes beyond profit margin to understand how efficiently a company's assets generate sales or cash and how well a company uses debt to produce incremental returns.13 14. comparative analysis was done for AXIS bank with its competitors HDFC and ICICI to compare their ROE using DuPont analysis: ROE (%) 25 20 15 10 5 0 AXIS BANK HDFC ICICI 2010-11 20. The measure is still broad. Using these three factors.67 2012-13 20.

08 0.099 0.5 17 16.47 15.04 0.12 16.12 0.096 0.087 0.35 16.79 2011-12 15.09 0.75 2012-13 15.5 14 AXIS BANK HDFC ICICI 2010-11 17.09 MOCB-E_GROUP 10 36 | P a g e .08 2011-12 0.04 17.08 0.02 0 AXIS BANK HDFC ICICI 2010-11 0.35 15.083 2012-13 0.1 0.Profit Margin (%) 17.06 0.18 15.19 Asset turnover 0.5 15 14.1 0.5 16 15.

09 2012-13 10. of branches as compared to HDFC and ICICI. Of Branches 3500 3000 2500 2000 1500 1000 500 0 AXIS BANK HDFC ICICI 2010-11 1390 1966 2529 2011-12 1622 2544 2752 2012-13 1947 3062 3100  Here we can see that Axis Bank has less no. MOCB-E_GROUP 10 37 | P a g e .92 7.52 11.29 11.05 8.37 2011-12 12.04 Market Reach: AXIS Bank: No.29 8.78 10.Equity Multiplier 14 12 10 8 6 4 2 0 AXIS BANK HDFC ICICI 2010-11 12.

 We can see that HDFC bank has been the most aggressive in order to provide these personal services to the customers in order to increase its reach. of ATMs 12000 10000 8000 6000 4000 2000 0 AXIS BANK HDFC ICICI 2010-11 6270 5471 6104 2011-12 9924 8913 9006 2012-13 11245 10743 10481  The number of ATMs for Axis bank has been the highest over the last three years. MOCB-E_GROUP 10 38 | P a g e .No.

00% 45.48% 0.00% 60.00% 10.07% 2011-12 38.PART 7: Profitability of various Lines of Business SEGMENT PROFITABILITY: Segment Profit/Total Profit 90.38% 37.00% 0.00% -10.00%  Corporate banking is the highest contributor to the total profit of the bank.84% 2.36% 20.06% 2012-13 41.11% 75.00% 20.00% 20.74% 0.13% 17.00% 50.00% 30.04% 74.00% 40.30% 82.00% 40.63% 2012-13 13.06% 43.00% 10.65% 6.00% 15.07% 4.00% Treasury corporate/Wholesale Banking Retail Banking Other Banking Business in % 2010-11 39.97% 6.40% 2011-12 13.19% 0.99% 5.00% 35.78% 22.00% 70.00% Treasury corporate/wholesale Banking Retail Banking Other Banking Business in % 2010-11 15.00% 5.14% -0.07% MOCB-E_GROUP 10 39 | P a g e .00% 80.00% 25.10% 41.00% 0. Segement Assets/Total Assets 50.00% 30.

As a result. In such a case. investors would want to deposit their funds in savings accounts (instead of investing in the equity market). the return on investments might be lower than what could be got if the investments were made in the equity market. the cost of funds is bound to go up. which ultimately transcends into cost of funds going up. The reason behind this is that as the interest rates on deposits go up in the market. Q: Would the bank have been significantly impacted by the downslide in the equity markets in 2012-13? A: The effect of the downslide in the equity markets can be seen from two angles:  From the Bank’s POV: In case the equity markets go down. This will mean an increase in the deposits for the banks.3.  From an investor’s point of view: In case the equity markets go down. the bank would not want to invest in the equity market on account of the uncertainties involved in the market and lower returns. if market rates move upward tomorrow? A: If the market rates of funds move upward tomorrow morning. investments will be made in fixed income and risk-free securities. OTHER QUESTIONS IN ANNEXURE-I Q: What will be the impact on cost of funds of Axis Bank. MOCB-E_GROUP 10 40 | P a g e . the interest that is to be expended by Axis Bank is bound to go up.

from subsidiaries/companies and/or joint venture abroad/in India Miscellaneous income including recoveries on account of advances/investments written off in earlier years and net loss on account of portfolio sell downs/securitization. other expenses include provisions and contingencies.PART 8: Key Drivers of Non-Interest Income and Non-Interest Expense 1. telegrams. allowance and expenses Auditors’ fees and expenses Law charges Postage. 2. Key drivers of non interest income:       Commission. Key drivers of non-interest expense:             Payments to and provisions for employees Rent. Repairs and maintenance Insurance Other expenditure Apart from the operating expenses. taxes and lighting Printing and stationery Advertisement and publicity Depreciation on bank’s property Directors’ fees. exchange and brokerage Profit/(Loss) on sale of investments Profit/(Loss) on sale of fixed assets Profit on exchange/derivative transactions Income earned by way of dividends etc. telephones etc. MOCB-E_GROUP 10 41 | P a g e .

5 ICICI Bank 18. 102.15 crores 1. 5. 20  While the capital adequacy ratio of all the three banks are above the RBI stipulated 9%. MOCB-E_GROUP 10 42 | P a g e .94 Rs.11% 6.5 Rs. which again indicates managerial adeptness. This means that compared to its peers. ICICI Bank has the highest figure. 12.77% 8.  While earnings per share are highest for Axis bank. While this can mean that the bank has adequate cash to meet its liquidity requirements.5% 4. HDFC Bank and ICICI Bank. followed by Axis bank.74% 0. 28.35 crores 1. it can also indicate the existence of idle cash which can be used by the bank to generate income. followed by Axis. ICICI is the safest bank and has the highest capacity to meet its time liabilities and risks.5 crores 1.53% 5. 72.  Cash to deposit ratio is highest for ICICI bank as compared to its peers. Ratio Capital Adequacy Ratio Net NPA to Net Advance Ratio Interest income to working fund ratio Profit per employee Business per employee Return on Assets Net Interest Margin Cash to Deposit Earnings per share Dividend per share Axis Bank 17. 7. 18 HDFC Bank 16.58 lacs Rs.91% Rs.  Net NPA to Net advance ratio is highest for ICICI and lowest for HDFC.66% 3.94% Rs.17% Rs. we can conclude that:  Capital adequacy is highest in ICICI bank.  Net interest margin is highest for HDFC bank followed by Axis. The figures have been taken for FY 2012-13. 10 lacs Rs. some of the important ratios have been used to compare Axis Bank.  The measures for interest income to working fund ratio and return on assets are highest for HDFC bank which indicated that the total assets in this bank have been most effectively employed to generate income by the bank. 14. 7.00% 0. Dividend per share is highest for ICICI.20 Rs. This indicated the financial soundness of both companies in terms of shareholder’s money.PART 9: Peer to Peer Comparision For the purpose of this analysis. 14 lacs Rs.80% 0.36% 8.86% Rs.51% Rs.  Profit per employee and business per employee are highest for Axis Bank indicating highest level of productivity compared to its peers.70% 3.2% 9. Hence. This means that the quality of assets is best in case of HDFC.90% 4.90% Rs.

 Earnings are highest in HDFC bank. MOCB-E_GROUP 10 43 | P a g e .  Liquidity is maximum in ICICI bank. Asset quality is best in HDFC bank.  Management is most sound both in HDFC bank and Axis bank.

it can make up for it from its net worth.  Leverage Ratios o Implications – They imply the trade-off of a regulator between the banking stability and the credit banking activity. A bank with a higher capital adequacy is considered safer because if its loans go bad. High CAR also means that a bank's large amount of money is stuck in provisions or risk management .PART 10: Key Measures of Risks in Axis Bank  Capital Adequacy Ratio o Implications . Lower leverage can improve the banking stability. Lower capital adequacy ratios serve to protect depositors and promote the stability and efficiency of the financial system. meaning that there will be fewer money left for investment or for the continuation of the activity.  Liquidity Ratios o Implications – High liquidity ratios means bank’s ability to satisfy cash demands or payment obligations or financial emergency is good. But then credit multiplier effect is far less. But high leverage is thought to be more risky because they have more liabilities and less equity and less ability to meet its financial obligations.CAR is the ratio that measures a bank’s capacity to meet time liabilities and risks. MOCB-E_GROUP 10 44 | P a g e .

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