A STUDY ON FINANCIAL RATIO ANALYSIS OF AXIS BANK

PROJECT REPORT

In partial fulfillment of the requirement for the degree of

MASTER OF COMMERCE

Submitted to

TMG COLLEGE OF ARTS & SCIENCE

Affiliated to UNIVERSITY OF MADRAS

BY

OMAR ABDI DAHIR

(Reg. No: 531400952)

UNDER THE GUIDANCE OF

Mr. P. KUMARAVEL, M.Com., M.Phil

During the Academic year 2015-2016

DEPARTMENT OF COMMERCE

TMG COLLEGE OF ARTS & SCIENCE

MANIMANGALAM, CHENNAI 601301.

i
 BONAFIDE CERTIFICATE

This is to certify that, this project report entitled " A STUDY ON FINANCIAL RATIO
ANALYSIS OF AXIS BANK" submitted by Omar Abdi Dahir in partial fulfillment of
requirement for the award of the degree of Master of Commerce at TMG College of arts and
science is a Bonafide record of the work. carried out under the guidance of Mr. P.
KUMARAVEL, M.Com. , M.Phil., Assistant Professor, Department of Commerce TMG
college of arts & science, it is a further certified that this project has not submitted for any other
degree.

SIGNATURE OF HOD SIGNATURE OF THE EXTERNAL

......................... ........................................

SIGNATURE OF THE GUIDE

.............................................

ii
 DECLARATION

I hereby declare that the project report work entitled, " A STUDY ON FINANCIAL RATIO

ANALYSIS OF AXIS BANK", submitted to TMG COLLEGE OF ARTS AND SCIENCE,

affiliated to University of Madras during the academic year 2015-2016 is my original work and

it has not formed basis for the award of degree/ diploma/ associateship/ fellowship or any other

similar titles.

place: Signature Of Student

date: ...............................

i
 ACKNOWLEDGEMENT

I am hugely give pleasure to Mr. P.KUMARAVEL, M.Com. , M.Phil. , Assistant Professor,

Department of Commerce TMG COLLEGE OF ARTS & SCIENCE, for his motivating

guidance, important suggestion and support for the completion of this work in time and in great

successful approach

I am also immensely pleased to record my deep sense of gratitude to all the members of

commerce department TMG COLLEGE OF ARTS AND SCIECE, for their encouragement

and suggestion to complete this work successfully

I record my sincere thanks to the Management and Principal of TMG COLLEGE OF ARTS

AND SCIENCE, for providing necessary facilities in undertaking this work.

My sincere thanks are also due to my father and my Mother and all my family , friends for

cooperation and blessing all throughout.

Place:

Date: Signature of the Student

..................................

ii
 ABSTRACT

In today’s financial world, financial performance is a requirements amongst the perspective of

various stakeholders, be it in the management, lenders, owners and investors’ perspective. And it
is out of analysis of financial statements. Financial performance is crucial for taking financial
decisions related to planning and control. Hence, it forms the basis as one of the importance for
taking financial decisions effectively. Banking Sector plays an important role in economic
development of a country. The banking system of India is featured by a large network of bank
branches, serving many kinds of financial services of the people Axis Bank today is a leading
player in Indian banking industry and is deeply engaged in human and economic development at
the national level. The Bank works closely with although it is private. bank emerged as a pioneer
venture on the horizon of offering an expanded range of banking products and financial services
for corporate and retail customers through its diverse delivery channels and specialized
subsidiaries in the areas of investment banking, asset management, venture capital and insurance.
In the light of its strategic importance in the nation interest, it is crucial to evaluate the financial
performance of the Axis Bank. And the present study focused on operational control of the asset,
profitability and solvency etc. This research paper is aimed to analyze and compare the Financial
Performance of Axis Bank in five years period and offer suggestions for the improvement of
efficiency in the Bank

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 TABLE OF CONTENT

Contents
DECLARATION ....................................................................................................................................... i
ACKNOWLEDGEMENT ........................................................................................................................ ii
ABSTRACT................................................................................................................................................. iii
TABLE OF CONTENT ........................................................................................................................... iv
LIST OF TABLES ................................................................................................................................... vi
LIST OF FIGURES ................................................................................................................................ vii
CHAPTER I .............................................................................................................................................. 1
INTRODUCTION .................................................................................................................................... 2
1.1 BACKGROUND ................................................................................................................................ 2
1.2 PROBLEM STATEMENT ................................................................................................................. 3
1.3 OBJECTIVE OF THE STUDY .......................................................................................................... 4
1.4 SCOPE OF THE STUDY ................................................................................................................... 4
1.5 SIGNIFICANCE OF THE STUDY .................................................................................................... 4
1.6 LIMITATION OF THE STUDY ........................................................................................................ 5
1.7 RESEARCH DESIGN ........................................................................................................................ 6
1.8 STATISTICAL TOOLS ..................................................................................................................... 6
1.9 PERIOD OF THE STUDY ................................................................................................................. 6
1.10 SCHEME OF CHAPTERISATION ................................................................................................. 6
1.11 OPERATIONAL KEY TERMS DEFINITION................................................................................ 7
CHAPTER II............................................................................................................................................. 8
COMPANY INDUSTRY PROFILE ........................................................................................................ 9
2.1 WORLD BANKS SCENARIO .......................................................................................................... 9
2.2 NATIONAL SCENARIO ................................................................................................................. 11
CHAPTER III ......................................................................................................................................... 26
REVIEW OF LITERATURE ................................................................................................................. 27
3.1 LIQUIDITY ...................................................................................................................................... 27
3.2 PROFITABILITY ............................................................................................................................. 30

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 3.3 EFFICIENCY USE OF CAPITAL EMPLOYED ............................................................................ 32
CHAPTER IV ......................................................................................................................................... 34
RESEARCH METHODOLOGY ............................................................................................................ 35
4.1 DATA COLLECTION ..................................................................................................................... 35
4.2 DATA ANALYSIS ........................................................................................................................... 35
4.3 SECONDARY DATA ...................................................................................................................... 36
4.4 RESEARCH INSTRUMENTS ......................................................................................................... 36
4.5 HYPOTHESIS OF THE STUDY ..................................................................................................... 36
4.6 RATIO ANALYSIS FORMULAS ................................................................................................... 37
CHAPTER V .......................................................................................................................................... 40
DATA ANALYSIS AND INTERPRETATION .................................................................................... 41
5.1 Data Analysis .................................................................................................................................... 41
CHAPTER VI ......................................................................................................................................... 66
FINDINGS, SUGGESTIONS, AND CONCLUSION .......................................................................... 67
6.1 Findings............................................................................................................................................. 67
6.2 Suggestions ....................................................................................................................................... 68
6.2 Conclusion ........................................................................................................................................ 69
Bibliography ................................................................................................................................................ 70
APPENDIX A ......................................................................................................................................... 71
APPENDIX B ......................................................................................................................................... 73

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 LIST OF TABLES

Table 5.1 Showing The Bank's Current Ratio.................................................42

Table 5.2 Showing The Bank's Quick Ratio...................................................44

Table 5.3 Showing The Bank's cash position Ratio........................................46

Table 5.4 Showing The Bank's Net Profit Margin Ratio................................48

Table 5.5 Showing The Bank's Return on common stock equity...................50

Table 5.6 Showing The Bank's Return on Asset Ratio...................................52

Table 5.7 Showing The Bank's Current Asset Turnover Ratio......................54

Table 5.8 Showing The Bank's Fixed Asset Turnover Ratio.........................56

Table 5.9 Showing The Bank's Total Asset Turnover Ratio..........................58

Table 5.10 Showing The Bank's Debt Ratio...................................................60

Table 11 Shows Common Size Profit And Loss Account..............................62

Table 12 Shows Common Size Balance Sheet...............................................64

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 LIST OF FIGURES

Figure No:1 the Bank Current Ratio...........................................43

Figure No:2 the Bank Quick Ratio..............................................45

Figure No:3 the Bank Cash Position Ratio.................................47

Figure No:4 bank's net profit margin..........................................49

Figure No:5 Bank's Return on common stock equity.................51

Figure No:6 Bank's Return On Asset .........................................53

Figure No:7 Bank's Current Asset Turnover...............................55

Figure No:8 The Bank's Fixed Asset Turnover Ratio.................57

Figure No:9 The Bank's Total Asset Turnover Ratio..................59

Figure No:10 Table 5.10 Showing The Bank's Debt Ratio..........61

vii
CHAPTER I

1
 INTRODUCTION

1.1 BACKGROUND
The banking sector is one of the most important instrument of the national development,
occupies a unique place in a nation’s economy. Economic development of the country is evident
through the soundness of the banking system. deregulation in the financial market, market
liberalization, economic reforms have witnessed important changes in banking industry leading
to incredible competitiveness and technological sophistication leading to a new era of in banking.
Since then, every bank is relentless in their endeavor to become financial strong and
operationally efficient and effective. Indian banks are the dominant financial intermediaries in
India and have made good progress during the global financial crisis; it is evident from its annual
credit growth and profitability. the growth is possible in two ways, organic or inorganic. Organic
growth is also referred as internal growth, occurs when the company grows from its own
business activity using funds from one year to expand the company the following year. Such
growth is a gradual process spread over a few years but firms want to grow faster. Inorganic
growth is referred as external growth and considered as a faster way to grow which is most
preferred Inorganic growth occurs when the company grows by merger or acquisition of another
business. The main motive behind the Merger is to create synergy, that is one plus one is more
than two and this rationale beguile the companies for merger at tough times. Merger and
Acquisitions help the companies in getting the benefits of greater market share and cost
efficiency. For expanding the operations and cutting costs, Banks are using Merger and
Acquisitions as a strategy for achieving larger size, increased market share, faster growth, and
synergy for becoming more competitive through economies of scale. Today a large section of
people, who have minimal financial literacy, are need to know the financial performance status
of the banks where their deposits are vested. They may be as an investor, manager, employee,
owner, lender, customer, government and public at large. Financial performance is not available
from the records and files in any organisation. It has to be derived by the usage of financial
statement analysis techniques. The selection and usage of technique is subject to the option of the
user. Some of the important and commonly used techniques are: Ratio Analysis, Cross section
analysis Comparative statement analysis, Time series analysis, Common size analysis. The

2
usefulness of ratios depends on skilful interpretation and intelligence of the user. The present
study is devoted to analysis the financial ratios of Axis Bank by using ratio analysis with a view
to give meaningful interpretations for the users Financial Ratios are used in the evaluation of the
financial condition and profitability of a company. The ratios are calculated from the financial
information provided in the balance sheet and income statements. While analyzing the financial
statements you should keep in mind the principles/practices that accountants use in preparing
statements to examine at the financial condition and preference of a company. Ratio Analysis is
one of the techniques of financial analysis where ratios are used to evaluating the financial
condition and performance of a firm. Analysis and interpretation of various accounting ratios
gives a skilled and experienced analyst a better understanding of the financial condition and
performance of the firm.

1.2 PROBLEM STATEMENT

Generally banking System is the backbone of every country’s economy. It is generally agreed
that a strong and healthy banking system is a prerequisite for sustainable economic growth The
banking system of India is featured by a large network of banks, serving many kinds of financial
needs of the people The Axis Bank popularly is one of the leading banks in India with number of
branches and variety of products. the investigation in this study is the financial performance of
the bank. The study will mainly explore the financial tools to measure and interpret a
performance. The main objective of any company is the creation of wealth for its stakeholders
although this mostly applies market facts This means that progress needs to be measured to show
the bank return in total by highlighting the major strengths and opportunities of the bank and on
the other hand, weaknesses and threats facing the bank. also An analysis indicates the level of
efficiency, liquidity, debt management and adequate cash flow. No research is completed until it
has formulated a specific problem. The problem of the study is to analyze the financial status of
Axis Bank

3
1.3 OBJECTIVE OF THE STUDY

 To know the liquidity position and solvency

 To study the profitability of axis bank
 To find financial performance and efficiency use of capital employed

1.4 SCOPE OF THE STUDY

The current study choose one private sector bank to evaluate the financial performance The main
scope of the study was to put into practical the aspect of the study into real life work experience.
The study applies Ratio analysis based on last 5 years Annual financial reports of axis bank in
India

1.5 SIGNIFICANCE OF THE STUDY

Government regulation, in most of the countries shielded the banks from the forces of
competition. India is no exception for this. With the nationalization of the most of the major
commercial banks in 1969, restrictions on entry and expansion of private and foreign banks were
gradually increased. The Reserve Bank of India also began enforcing uniform interest rates,
spreads and service changes among nationalized banks. This cause of lack free market
competition either among public and private banks. gradually the force of competition from the
banking sector is still remain. In addition some areas of concern in the form of increasing non-
performing assets, declining profitability and efficiency, which were threatening the viability of
commercial banks. Commercial banks have played a vital role in giving direction to economic
development by catering the financial requirement of trade and industry in the country. By
encouraging saving among the people, commercial banks have fastened the process of capital
formation. Banks draw the community savings into the organized sector which can then be
allotted among the different economic activities according to the priorities laid down by planning
authorities in the country. ‘The banks are not only the safe deposit vaults for these savings, but
taking the banking system as a whole, they also create deposits in the process of their lending
operations. However, the important function of a banker is the provision of convenient

4
machinery by which people can make payments to each other without having to walk round each
other’s house with bags of coins. Banks also exercise influence on the level of economic
activities through the creation of manufacturing of money. Through their lending policies, they
divert the economic activity to the needs of the country. In view of this, the role of commercial
banks in underdeveloped countries and planned economies like India becomes particularly
important. the present study seeks to examine the trends in the financial performances of one of
the leading banking sector of the country (Axis Bank)

1.6 LIMITATION OF THE STUDY

Due to constraints of time and resources, the study is likely to suffer from certain limitations.
Some of these are mentioned here under so that the findings of the study may be understood in a
proper perspective. The limitations of the study are:
 The study is based on the secondary data and the limitation of using secondary data may
affect the results.
 The secondary data was taken from the five years annual reports of the Axis Bank. It
may be possible that the data shown in the annual reports may be limited period of time
which does not effectively show the actual fluctuation of the bank profitability.

Financial analysis is mainly done to compare the growth, profitability and financial soundness of
bank by diagnosing the information contained in the financial statements. Financial ratio analysis
is done to identify the financial strengths and weaknesses of the bank by properly establishing
relationship between the items of Balance Sheet and Profit & Loss Account for period of five
years. It helps in better understanding of bank financial position, growth and performance by
analyzing the financial statements with various tools and evaluating the relationship between
various elements of financial statements

5
1.7 RESEARCH DESIGN

In the present descriptive study is employed. an attempt has been made to measure, evaluate and
compare the financial performance of the Bank. the analysis partitioned two side aspect of
stakeholders. the shareholders wealth and other external stakeholders. The study is based on
secondary data that has been collected from annual reports of the bank website, magazines,
journals, documents and other published information. The study covers the period of 5 years
from year 2010-11 to year 2014-15. Ratio Analysis was applied to analyze and compare the
trends in banking business and financial performance.

1.8 STATISTICAL TOOLS

the Researcher has used the following tools to present and analysis data

data presentation
I. tables
II. Diagrams
data analysis
I. Microsoft excel 2007

1.9 PERIOD OF THE STUDY

this study of financial ratio analysis is limited to five years from 2010 to 2015. the accounting
year starts from 1 April to 31 march.

1.10 SCHEME OF CHAPTERISATION

The researcher is prepared the following scheme of chapterisation.

1. The first chapter deals with introduction and research design of the study.

2. The second chapters describes the Industry and company profile

3. The third chapter deals with literature review.

6
4. The fourth chapter is devoted to the research methodology.

5. The fifth chapter is data analysis and interpretation.

6. The sixth chapter gives findings of the study

1.11 OPERATIONAL KEY TERMS DEFINITION

Ratios: are the simplest mathematical (statistical) tools that reveal significant relationships
hidden in mass of data, and allow meaningful comparisons. Some ratios are expressed as
fractions or decimals, and some as percentages. Major types of business ratios include
Efficiency, Liquidity, Profitability, and Solvency ratios.

Analysis: Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick
indication of a firm's financial performance in several key areas. The ratios are categorized as
Short-term Solvency Ratios, Debt Management Ratios, Asset Management Ratios, Profitability
Ratios, and Market Value Ratios

Profit: The surplus remaining after total costs are deducted from total revenue, and the basis on
which tax is computed and dividend is paid. It is the best known measure of success in an
enterprise.

7
CHAPTER II

8
 COMPANY INDUSTRY PROFILE

2.1 WORLD BANKS SCENARIO

The global financial system suffered a profound and traumatic shock in September 2008 when
US investment bank Lehman Brothers collapsed. As market players withdrew from the financial
system, credit dried up and world trade collapsed, there was a real and immediate fear that the
world was heading for a repeat of the Great Depression of the 1930s. Two years on and there is
growing optimism that both the world economy and the banking industry are recovering from the
impact of the financial crisis. But it is equally clear that the financial world has changed
permanently, both in terms of who holds the balance of power within global industry and how
banks will be allowed to operate in future Global shifts in banking While the growing power of
emerging markets is a long-term structural phenomenon, it has accelerated in the banking
industry thanks as much to the relative decline of the west as to expansion in the east. There has
been a pronounced shift from west to east – and, to some extent, from north to south – in the
wake of the crisis. Banks on both sides of the Atlantic are expected to have written down more
than $2.1trn of assets by the end of 2010, according to the International Monetary Fund. The
equivalent figure for Asian banks is just $115bn. Banks in emerging markets are now well
capitalized and well funded and big enough to be able to compete directly against their western
counterparts in the global marketplace. The two largest banks by market capitalization are both
Chinese – ICBC and China Construction Bank. Although third place is taken by a British bank,
HSBC, it is largely an Asian operation. A league table, compiled by Bloomberg in April, shows
that Citi bank once the world’s largest bank, comes in at fifth, while banks from Brazil, Russia
and India – the other members of the BRIC grouping alongside China – are all in the top 25.
There are already signs that customers are questioning the ability of banks to look out for their
financial well-being. Only 36 percent of consumers believe what banks tell them, according to a
Forrester survey. A separate survey also indicates that over 60 percent of U.S. house- holds
conduct their own research before buying financial services products. As a result, banks have
begun to rethink what, where and how they serve an increasingly informed and demanding
customer base. At the same time, a confluence of industry developments, including

9
consolidation, regulation, industry specialization, changing workforce needs and new
technologies are putting additional pressure on banks’ operating models and raising questions
about traditional strategies for growth and value creation. in 2014, the global economy entered a
period of adjustment leading to differentiated bank performance results The banking industry in
the US and the UK saw an upturn, while that in Japan and Euro Zone remained sluggish and
facing challenges. Against the backdrop of the “New Normal” economic pattern in China, the
assets and liabilities and net profit growth of China’s banking industry slowed down, and credit
risk pressure increased but was controllable on the whole. In 2015, the global banking industry
will face large and challenging operating pressure, and difficulties and differentiated
performances will become the key words The banking industry experienced a strong recovery
after the worst of the financial crisis, but continued to be weighed down due to the ongoing Euro
zone crisis and concerns of sluggish growth in the United States. An evolving banking landscape
in emerging economies (especially China and Latin America) is expected to transform the
banking industry in the future. Meanwhile, regulations continue to evolve and create an ever-
tightening regulatory environment for the banking industry Assets of the Top 1000 banks
globally grew by 4.9% in 2012 and registered a growth across all regions in 2012, except in
Europe where asset growth was down 0.5% due to concerns about Euro zone debt. The Latin
America region registered an impressive growth of 20.5% in assets in 2012, as compared to the
other global regions. This resurgence of the economies in the region was driven primarily by
rising consumerism and financial inclusion Pre-tax profitability of the banking sector has
witnessed a moderate growth of 4.6% during 2011–12. This growth has been largely driven by
the emerging economies while the profitability of European banks has continued to be negatively
impacted due to the Euro zone crisis For banks, top priorities include regulatory compliance,
improving asset quality, enhancing customer centricity, focusing on digital convergence, and
tackling competition from non-banks. Banks are therefore making business and technology
investments to change their business models to comply with new regulatory requirements,
enhancing capital adequacy, rolling out new channels such as social media, and leveraging
customer data analytics and predictive analytics to enhance customer understanding and prevent
fraud

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2.2 NATIONAL SCENARIO
Modern banking in India could be traced back to the establishment of Bank of Bengal (Jan 2,
1809), the first joint-stock bank sponsored by Government of Bengal and governed by the royal
charter of the British India Government. It was followed by establishment of Bank of Bombay
(Apr 15, 1840) and Bank of Madras (Jul 1, 1843). These three banks, known as the presidency
banks, marked the beginning of the limited liability and joint stock banking in India and were
also vested with the right of note issue. In 1921, the three presidency banks were merged to form
the Imperial Bank of India, which had multiple roles and responsibilities and that functioned as a
commercial bank, a banker to the government and a banker’s bank. Following the establishment
of the Reserve Bank of India (RBI) in 1935, the central banking responsibilities that the Imperial
Bank of India was carrying out came to an end, leading it to become more of a commercial bank.
At the time of independence of India, the capital and reserves of the Imperial Bank stood at Rs
118 mn, deposits at Rs 2751 mn and advances at Rs 723 mn and a network of 172 branches and
200 sub offices spread all over the country.

In 1951, in the backdrop of central planning and the need to extend bank credit to the rural areas,
the Government constituted All India Rural Credit Survey Committee, which recommended the
creation of a state sponsored institution that will extend banking services to the rural areas.
Following this, by an act of parliament passed in May 1955, State Bank of India was established
in Jul, 1955. In 1959, State Bank of India took over the eight former state-associated banks as its
subsidiaries. To further accelerate the credit to fl ow to the rural areas and the vital sections of
the economy such as agriculture, small scale industry etc., that are of national importance, Social
Control over banks was announced in 1967 and a National Credit Council was set up in 1968 to
assess the demand for credit by these sectors and determine resource allocations. The decade of
1960s also witnessed significant consolidation in the Indian banking industry with more than 500
banks functioning in the 1950s reduced to 89 by 1969.

For the Indian banking industry, Jul 19, 1969, was a landmark day, on which nationalization of
14 major banks was announced that each had a minimum of Rs 500 mn and above of aggregate
deposits. In 1980, eight more banks were nationalised. In 1976, the Regional Rural Banks Act
came into being, that allowed the opening of specialized regional rural banks to exclusively cater
to the credit requirements in the rural areas. These banks were set up jointly by the central

11
government, commercial banks and the respective local governments of the states in which these
are located. The period following nationalization was characterized by rapid rise in banks
business and helped in increasing national savings. Savings rate in the country leapfrogged from
10-12% in the two decades of 1950-70 to about 25 % post nationalization period. Aggregate
deposits which registered annual growth in the range of 10% to 12% in the 1960s rose to over
20% in the 1980s. Growth of bank credit increased from an average annual growth of 13% in the
1960s to about 19% in the 1970s and 1980s. Branch network expanded significantly leading to
increase in the banking coverage. Indian banking, which experienced rapid growth following the
nationalization, began to face pressures on asset quality by the 1980s. Simultaneously, the
banking world everywhere was gearing up towards new prudential norms and operational
standards pertaining to capital adequacy, accounting and risk management, transparency and
disclosure etc. In the early 1990s, India embarked on an ambitious economic reform programme
in which the banking sector reforms formed a major part. The Committee on Financial System
(1991) more popularly known as the Narasimham Committee prepared the blue print of the
reforms. A few of the major aspects of reform included (a) moving towards international norms
in income recognition and provisioning and other related aspects of accounting (b) liberalization
of entry and exit norms leading to the establishment of several New Private Sector Banks and
entry of a number of new Foreign Banks (c) freeing of deposit and lending rates (except the
saving deposit rate), (d) allowing Public Sector Banks access to public equity markets for raising
capital and diluting the government stake,(e) greater transparency and disclosure standards in
financial reporting (f) suitable adoption of Basel Accord on capital adequacy (g) introduction of
technology in banking operations etc. The reforms led to major changes in the approach of the
banks towards aspects such as competition, profitability and productivity and the need and scope
for harmonization of global operational standards and adoption of best practices. Greater focus
was given to deriving efficiencies by improvement in performance and rationalization of
resources and greater reliance on technology including promoting in a big way computerization
of banking operations and introduction of electronic banking.

The reforms led to significant changes in the strength and sustainability of Indian banking. In
addition to significant growth in business, Indian banks experienced sharp growth in
profitability, greater emphasis on prudential norms with higher provisioning levels, reduction in

12
the non performing assets and surge in capital adequacy. All bank groups witnessed sharp
growth in performance and profitability. Indian banking industry is preparing for smooth
transition towards more intense competition arising from further liberalization of banking sector
that was envisaged in the year 2009 as a part of the adherence to liberalization of the financial
services industry. According to the RBI definition, commercial banks which conduct the
business of banking in India and which (a) have paid up capital and reserves of an aggregate real
and exchangeable value of not less than Rs 0.5 mn and (b) satisfy the RBI that their affairs are
not being conducted in a manner detrimental to the interest of their depositors, are eligible for
inclusion in the Second Schedule to the Reserve Bank of India Act, 1934, and when included are
known as ‘Scheduled Commercial Banks’. Scheduled Commercial Banks in India are
categorized in five different groups according to their ownership and/or nature of operation.
These bank groups are (i) State Bank of India and its associates, (ii) Nationalized Banks, (iii)
Regional Rural Banks, (iv) Foreign Banks and (v) Other Indian Scheduled Commercial Banks
(in the private sector). All Scheduled Banks comprise Schedule Commercial and Scheduled Co-
operative Banks. Scheduled Cooperative banks consist of Scheduled State Co-operative Banks
and Scheduled Urban Cooperative Banks. In the reference period of this publication (FY06), the
number of scheduled commercial banks functioning in India was 222, of which 133 were
regional rural banks. There are 71,177 bank XIV offices spread across the country, of which 43
% are located in rural areas, 22% in semi-urban areas, 18% in urban areas and the rest (17 %) in
the metropolitan areas. The major bank groups (as defined by RBI) functioning during the
reference period of the report are State Bank of India and its seven associate banks, 19
nationalized banks and the IDBI Ltd, 19 Old Private Sector Banks, 8 New Private Sector Banks
and 29 Foreign Banks.

13
Indian Banking at a Glance

Source: Secondary Data

Number of Banks, Group Wise

Source: Secondary Data

14
Group Wise: Comparative Average

Source: Secondary Data

Bank Groups: Key Indicators

15
Source: Secondary Data

Mergers & Acquisitions

During FY06, two domestic banks were amalgamated - Ganesh Bank of Kurundwad with
Federal Bank Ltd and Bank of Punjab Ltd with Centurion Bank Ltd to become Centurion Bank
of Punjab Ltd, while one Foreign bank UFJ Bank Ltd merged with Bank of Tokyo-Mitsubishi
Ltd. ING Bank NV closed its business in India. In Sept, 2006, The United Western Bank Ltd was
placed under moratorium leading to its amalgamation with Industrial Development Bank of India
Ltd. in Oct, 2006. On Apr 1, 2007, Bharat Overseas Bank an old private sector bank was taken
over by Indian Overseas Bank and on Apr 19, 2007, Sangli Bank, another old private sector bank
was merged with ICICI Bank, a new private sector bank. As of Mar 2006, only four Nationalized
Bank had 100% ownership of the Government. These are Central Bank of India, Indian Bank,
Punjab and Sind Bank and United Bank of India. As of Mar 2006, the government shareholding
in the State Bank of India stood at 59.7% and in between 51-77% in other nationalized banks. In
Feb 2007, Indian Bank came out with a public issue thus leaving only three nationalized banks
having 100% government ownership. Foreign institutional holding up to 20% of the paid up is
allowed in respect of Public Sector Banks including State Bank of India and many of the banks

16
have reached the threshold level for FII investment. In respect of Private Sector Banks where
higher FII holding is allowed, threshold limit has been reached in the leading banks. Indian
banking, in addition to improvements in performance and efficiency, has also experienced
significant changes in the structure of asset and liabilities. The major changes on the liabilities
side include relatively higher growth of demand deposits over time deposits, and also, within
time deposits, greater preference for short term over the longer term deposits. The share of
demand deposits in total deposits increased from 14.7% in FY01 to 17% in FY06. The share of
short term deposits in total time deposits increased from 43.8% in FY00 to 58.2% in FY06. The
narrowing of interest rate spread between short and long term deposits has reduced the
preference for long term deposits. Banks are moving away from investments to loans due to
more lending opportunities offered by the higher economic growth. The rate of bank credit
growth which was at 14.4% in FY03 rose sharply to reach 30% each in the FY05 and FY06.
Bank credit has picked up momentum on the back of rising growth of real economy. A period of
low interest rates induced banks to shift their preference from investments to advances, which
led to the share of gross advances in total assets of all commercial banks reaching 54.7% in
FY06 from 45% in two years prior to that. the sectors towards which the bank credit was directed
has also shown significant changes. Retail loans witnessed growth of over 40% in the last two
years, and began driving the credit growth to a significant extent. Retail loans as a percentage of
Gross Advances rose from about 22% in FY04 to 25.5% in FY06. Within the retail loans,
housing segment showed the highest growth of 50% in FY05 and 34% in FY06. As per the RBI
data, banks direct exposure to commercial real estate more than doubled in FY06. Despite sharp
rise in the credit growth, improved risk management processes and procedures of banks
contained the surge in bad debts which is evident from the lower levels of incremental
nonperforming assets reported by the banks as also the rise in the proportion of standard assets.
Further improvement in risk management systems could provide banks with more opportunities
in expanding credit and pursuing higher levels of growth in retail lending.

17
2.3 COMPANY PROFILE
Axis Bank is a leading private sector bank and financial services company in India offering a
wide range of products and services to corporate and retail customers through a variety of
delivery channels. Since commencing operations in April 1994 the Bank has grown both in terms
of its physical network of branches, extension counters and ATMs, as well as in terms of the size
of asset base. The Bank's ATM network of 3,171 ATMs is the third largest in the country. The
Bank has a wide presence through its 749 Branches & Extension Counters across 454 cities and
towns across India. As of March 31, 2008, the total assets of the Bank were Rs.1,095.78 billion,
an increase from Rs.732.57 billion as of March 31, 2007, whereas the same were Rs. 1374.71
billion as at December 31, 2008. In fiscal year 2008 the Bank posted a 63 per cent increase in net
profit of Rs. 10.71 billion (Rs.6.59 billion, fiscal year 2007), whereas the same for the nine
months ended December 31, 2008 was Rs. 12.34 billion, as compared to Rs. 7.10 billion during
the corresponding nine months. Total deposits have grown from Rs. 587.86 billion as of 31
March 2007 to Rs. 876.26 billion as of 31 March 2008, with demand deposits (savings bank and
current account) increasing significantly by Rs. 165.97 billion during the same period. As of
December 31, 2008 the total deposits stood at Rs. 1057.16 billion, with demand deposits
contributing 38 percent to the total deposits. The Bank’s net interest margin has increased from
2.74 per cent in fiscal year 2007 to 3.47 per cent in fiscal year 2008 and for the nine months
ended December 31, 2008 stood at 3.32 percent. For the fiscal year 2008 the Net NPA’s (as a
percentage of net customer assets) of the Bank stood at 0.36 percent, compared to 0.61 percent
for the fiscal year 2007. The Net NPA’s (as a percentage of net customer assets) for the nine
months ended December 31, 2008 stood at 0.39 percent and the Capital Adequacy Ratio as at
December 31, 2008 stood at 13.84 percent. The Bank’s principal business activity is broadly
divided into two segments, Banking Operations and Treasury. The Banking Operations consist of
corporate/wholesale banking; retail banking, including services offered to Non-Resident Indians
(NRIs); and other banking business which are not covered under any of the above three
segments. Banking Operations include products and services in the areas of Corporate Banking
and Retail Banking. Under Corporate Banking, the Bank offers various loan and fee-based
products and services to large corporations, MSMEs Mid-Corporate and to the agriculture sector.
These products and services include cash credit facilities, demand and short-term loans, project

18
finance, export credit, factoring, channel financing, structured products, discounting of bills,
documentary credits, guarantees, foreign exchange and derivative products, cash management
services, warrant payment services, cross-border trade and correspondent banking services and
tax collections on behalf of the Government and various State governments in India. Liability
products including current accounts, certificate of deposits and time deposits are also offered to
corporate clients. The Bank also offers various Capital Markets related services such as loan
syndication and placement, advisory services, depository services, custodian of securities,
clearing and settlement services to stock and commodity exchanges Retail Banking offers a
variety of liability and asset products and services to retail customers. Liability products include
savings accounts, time deposits and customized products for certain target groups such as high
net worth individuals, senior citizens, defense personnel, students and salaried employees. Retail
asset products include home loans, personal loans, auto loans, consumer loans, educational loans
as well as security-backed loans of various types. The Bank also offers other products and
services such as debit and travel currency cards, financial advisory services, bill payment
services and wealth management services. As of 31 March 2008, the Bank had 9.93 million retail
customers. The Bank also markets third party products such as mutual funds and Government
savings bonds. A wide range of liability and asset products and services are also offered to NRIs.
The Treasury department manages the funding position of the Bank and also manages and
maintains its regulatory reserve requirements. The Treasury department also invests in sovereign
and corporate debt instruments, undertakes proprietary trading in equity and fixed income
securities and foreign exchange. The Treasury department also undertakes investments in
commercial paper, mutual funds and floating rate instruments as part of the management of
short-term surplus liquidity. A wide range of treasury products and services are also offered to
corporate customers in the form of derivative instruments such as forward contracts, interest rate
swaps, currency swaps and foreign currency options.

Products and Services The Bank offers a wide spectrum of financial services to the corporate
sector. The Bank serves the large corporate sector, the growing SME sector and the agricultural
sector. A broad classification of products and services offered by the Bank is set out below.
Fund-based products. Loans and advances for working capital, corporate finance and project
finance. 9 Non-fund-based products. Non-funded advances such as documentary credits, stand-

19
by letters of credit and guarantees. Fee-based services. Including fund transfers, cash
management services, collection of Government taxes, trade services and loan syndication. Other
products and services offered include time deposits and current accounts (checking accounts).
These products and services are delivered to customers through a network of branches,
correspondent banking networks, phone banking and the Internet. Fund-based limits are
generally granted by way of overdrafts, cash credit, demand loans, term loans and bills
discounted. Generally, the purpose, the security offered, size of advance, repayment terms and
requirements of the customer determine the type of facility to be granted. The following table
sets forth a breakdown of the Bank’s corporate loans as of the dates indicated. (Rs .in millions)
31st March 2007 31st March 2008 Working Capital Finance 106,112 164,356 Project and
Corporate Finance 173,377 296,339 Total 279,489 460,695 Working Capital Finance Cash
credit, working capital demand loans and overdraft facilities, which are the most common forms
of working capital financing, are funded facilities usually secured by current assets such as
inventories and receivables. These facilities are generally extended for a period of one year. In
almost all cases, facilities are subject to an annual review and are generally repayable on
demand. Interest is collected on a monthly basis, based on daily outstanding amounts. Bill
discounting involves discounting negotiable instruments, which are generally issued for trade
receivables. These can also be re-discounted with other banks if required. As of March 31, 2008,
the Bank’s outstanding net working capital loans amounted to Rs. 164.36 billion, constituting
approximately 27.56 per cent of its net loan portfolio and as of March 31, 2007 these amounted
to Rs. 106.11 billion, constituting 28.78 per cent of the Bank’s net loan portfolio.
Project and Corporate Finance The Bank provides project finance to companies in the
manufacturing, service and infrastructure sectors typically by way of medium and long-term
loans. Corporate finance is offered to customers based on the Bank’s appraisal of the quality of
management, industry, prospects, business model and financial strength of the firm. This
financing is generally provided by way of term loans of various tenors in Indian rupees, and in
foreign currencies to a limited extent. The Bank offers asset-based lending such as receivable
financing and also offers customized. corporate finance products to meet specific customer
needs. As of March 31, 2008, the Bank’s outstanding net loans for project and corporate finance
amounted to Rs. 296.34 billion, constituting approximately 49.67 per cent. of its net loan
portfolio and as of March 31, 2007 these amounted to Rs. 173.38 billion, constituting 47.02 per

20
cent. of the Bank’s net loan portfolio. The Bank earned interest income on its corporate credit
portfolio of Rs. 35.62 billion in fiscal year 2008 andRs.19.38 billion in fiscal year 2007. The
Bank provides documentary credits to customers to meet their working capital requirements as
well as for capital equipment purchases. Documentary credits are approved together with a
working capital assessment or a project finance assessment. Typically, a working capital line can
be drawn down on a revolving basis over the term of the facility. Customers pay fees for draw
downs of the documentary credit and the Bank may require additional collateral by way of a cash
margin which depends on the risk perception of the transaction. As of March 31, 2008, the
Bank’s documentary credit portfolio amounted to Rs. 82.46 billion and as of 31 March 2007 it
amounted to Rs. 54.77 billion. Guarantees, which also include “Stand-by Letters of Credit”, can
be drawn down in a revolving manner over the life of the facility. Guarantees are also assessed
during the course of working capital requirements. Guarantees are issued for various purposes
such as bid bonds, performance guarantees on behalf of borrowers for execution of contracts,
deferral or exemption from payment of statutory duties against performance obligations, advance
payments, release of retention monies and other purposes. The term of guarantees is generally 36
months or less, although certain guarantees with a longer term may be approved. As with
documentary credits, the Bank sometimes obtains additional collateral by way of cash margin
which, in the case of certain types of guarantees, may be as much as 100 per cent. As of March
31, 2008, the Bank’s outstanding guarantees amounted to Rs. 119.72 billion and as of March 31,
2007 these amounted to Rs. 43.86 billion. Fee income from corporate banking services (which
includes fees from Credit, Business Banking and Capital Markets) constitutes one of the
significant revenue streams of the Bank, accounting for 16.66 per cent of total operating revenue
for the year ended 31 March 2008. The Bank offers a variety of fee-based services, including
cash management services, collection of commercial taxes, trade services, remittances,
collections and loan syndication. In addition to these traditional fee-generating products and
services, the Bank also offers tailor-made products on fee-basis to address specific corporate
customer needs through a Structured Products group. The Micro, Small and Medium Enterprises
(MSME) segment is an area of intense focus for the Bank, as it generates higher yield and helps
in diversification of risk. MSMEs offer good business potential both for fund and non-fund based
credit and cross selling of products. The Bank continued its focus on the MSME segment during
the year to March 31, 2008 by providing timely and adequate credit to customers with quick

21
turnaround time. The segment offers schematic and non-schematic products including term loans
and working capital finance, depending upon the specific requirement of clients. Under
schematic lending, specific loan-based products have been devised to target the requirements of
specific customers and loans are made available based on predetermined features, parameters
and levels. Loans not falling under any of the product-based schematic lending schemes are
treated as non-schematic lending. The Bank’s Small and Medium Enterprises (SME) business
segment achieved growth by implementing comprehensive strategies and focusing on specific
industry segments and customer preferences. Advances to SMEs increased by 73.98% to Rs
115,369.2 million as at March 31, 2008. The Bank continues to pursue a two-pronged strategy of
deepening existing relationships and widening its customer base. In order to increase the level of
SME advances across the country, 24 SME cells have been set-up at key centers. Commercial
banks in India are required by RBI to lend 40 per cent of their adjusted net bank credit of the
previous year to specified sectors known as “priority sectors”, subject to certain exemptions
permitted by RBI. from time to time. Priority sector advances include loans to agriculture,
MSME, microfinance loans to sectors deemed “weaker” by RBI, housing and education finance
up to certain ceilings, lending for specific infrastructure projects and investments in instruments
issued by specified institutions. The Bank is required to comply with the priority sector lending
requirements as of the last reporting Friday of March of every fiscal year. Any shortfall in the
amount required to be lent to the priority sectors may be required to be deposited with
Government sponsored Indian developmental banks such as the National Bank for Agriculture
and Rural Development (NABARD) and Small Industries Development Bank of India (SIDBI).
These deposits have a maturity of up to seven years and carry interest rates lower than market
rates. A summary of the Bank’s priority sector lending position as of the last reporting Friday in
March over the last two years is as follows RBI requires the Bank to lend 18 per cent of their
adjusted net bank credit of the previous year to the agricultural sector. In light of future business
prospects in the Indian agricultural and related sectors, the Bank has identified agricultural
lending as an area of potential growth. 10 |11 | The Bank has a diverse range of schematic
products such as tractor loans, the Kisan Credit Card (credit facilities to farmers for various
requirements), loans against pledges of gold ornaments and contract farming to cater to the
varied requirements of the agricultural sector. The Bank is in the process of introducing
additional schematic products such as advances to commission agents, warehouse receipt

22
financing, cattle loans, loans against pledges of gold ornaments and contract farming to cater to
the varied requirements of the agricultural sector. The agriculture business of the Bank is driven
through its selected branches, which facilitate the Bank’s growth in agricultural lending. In order
to provide a strategic focus to agricultural lending, the Bank has adopted cluster-centric approach
for agricultural lending in areas, which exhibited potential for such activities. 44 agricultural
clusters have since been formed as a result of such initiative. To strengthen the agricultural
lending of the Bank, Agri Business Cells have been formed. In addition, the Bank has established
relationships with various companies and co-operatives in the plantation, poultry, food
processing and seed sectors and meets their project financing and working capital requirements.
The Bank’s strategy in agricultural lending is based on a comprehensive view of the agricultural
value chain, a focus on diversification and partnerships with other companies in the agricultural
sector, micro finance and other rural institutions and non-governmental organisations that have
close links to the agricultural sector. The Bank has also devised a separate risk evaluation model
for agricultural loans with an objective to measure and mitigate the risk involved in financing
this sector. There has been considerable improvement in the rural infrastructure in select
geographies in India in recent years. The Bank’s agricultural financing initiatives are largely
focused on regions where the need for credit has The Bank offers a range of current account
products based on value as well as industry sectors in order to meet the needs of various
customer segments such as SMEs, traders, exporters, large corporations and other institutions.
These products offer flexibility to customers to choose from different options with varying
minimum average quarterly balance commitments and charge structures. In addition to
conventional banking facilities, these accounts offer a multi-city, AT PAR payable cheque-book
facility and an “Anywhere Banking” facility across all of the Bank’s branches. In addition to the
Bank’s branches and ATMs, customers can access and conduct transactions in their accounts
online through Corporate I-Connect, the Bank’s internet banking platform, or can access account
information through a tele-banking facility and mobile banking facility. Customers are subject to
transaction charges including charges for non-maintenance of minimum balances. The Bank had
341,998 business current account relationships as of March 31, 2008. The average balance of the
Bank’s business current accounts during fiscal 2008 was Rs. 118.34 billion with an outstanding
balance of Rs.200.45 billion as of March 31, 2008. Cash Management Services Through the
Bank’s cash management services, the Bank’s corporate and institutional clients are offered

23
customized solutions such as collection, payment and remittance services allowing them to
minimize the time gap between collections and remittances, thereby improving their cash flows.
Cash management products include local and remote collections with the pooling of funds in a
central account along with a customized management information system (MIS) including online
viewing of transactions through the Bank’s internet interface. In addition to collections, the Bank
also offers local and remote payments through customer cheques and bulk demand drafts with
centralized or remote printing, electronic clearing services, disbursement of dividend and
interest, remittance services and internet-based payment products. Electronic payment facilities
are offered to government, corporate and institutional customers for payments to their vendors or
suppliers through various modes such as electronic clearing and funds transfer facilities and
direct credit facilities for common customers. These services offer a high level of convenience
because no physical instruments are required and all transactions are effected electronically. To
respond to increasing customer demand, the Bank has established correspondent relationships
with smaller local banks in India to offer a broader distribution network for its cash management
services. As a result of these correspondent banking relationships, cash management services are
provided at over 3,000 locations in India, with a capability of extending the network to other
remote locations depending on need. The Bank also offers its services and network of 342 cash
management service locations to other private and foreign banks as a correspondent bank.
Customers are charged a fee for these services based on the number and size of transactions, the
location for cheque collection and the expected date of credit to the customer accounts. Apart
from fees, the Bank also benefits from holding the funds for a period of time before they are
required to be deposited in the customers’ current accounts. The total volume of cash
management services processed by the Bank was Rs. 7,462.86 billion for the year ended March
31, 2008. As of March 31, 2008, the Bank

24
Organizational Structure

25
CHAPTER III

26
 REVIEW OF LITERATURE

3.1 LIQUIDITY
Corporate liquidity can be examined along two basic dimensions: static and dynamic (Uyar,
2009). Static analysis is focused on traditional ratios (current and quick ratios) based on the data
from the balance sheet. These ratios assess to what extent current liabilities are covered by
current assets. Dynamic analysis is based on cash outflows and inflows and uses cash conversion
cycle (CCC) to measure effectiveness of a company’s ability to generate cash. It comprises both
balance sheet and income statement data to create a measure with a time dimension (cash flow
within the operating cycle of the firm). To conduct a comprehensive liquidity analysis both types
of ratios are used. the essential part in management of working capital lies in maintaining
liquidity in day-to-day operations is to ensure smooth running of the business and that it meets its
obligations (Deloof, 2003). Liquidity management, which refers to management of current assets
and liabilities, plays an important role in the successful management of a business and secures
future growth. The liquidity position of a business is about the degree in which it can dispose
money. Liquidity management is necessary for all businesses, small, medium or large.
Nevertheless, this is not an effortless task because managers must ensure that the firm is running
in an efficient and profitable manner and in most cases there are high possibilities of mismatch of
current assets and current liabilities during this process. If this happens and firm’s manager failed
to manage it properly then it will affect firm’s growth and profitability which will further lead to
financial distress and finally firms can go bankrupt. Qasim & Ramiz (2011) indicate the fact that
liquidity refers to the available cash for the near future, after taking into account the financial
obligations corresponding to that period. Liquidity risk consist in the probability that the
organization should not be able to make its payments to creditors, as a result of the changes in
the proportion of long term credits and short term credits and the un correlation with the structure
of organization's liabilities. Further, Qazim and Ramiz (2011) posit that liquidity management is
very important for every organization that means to pay current obligations on business that
include operating and financial expenses that are short term. Liquidity is particularly important to
shareholders, long-term lenders and creditors, as it provides information about a particular
business's safety margins afforded to creditors and its ability to repay loans. The levels of

27
inventory, credit, accounts payable and cash that form part of the overall cash flow of a business
affect the liquidity of the firm (Maness, 1994 ). By maintaining an appropriate level of liquidity a
business should be in a position to survive down turns and moreover, it may be able to exploit
profitable opportunities as they arise (Gitman, 1997). On the other hand, as asserted by Cooper,
et al (1998), illiquidity, unless remedied, will give rise to insolvency and eventually bankruptcy
as the Business’s liabilities exceed its assets. Excessive debt exposes the business to potentially
large interest costs and the risk of potential bankruptcy. Shareholders, long term lenders and
creditors evaluate the level of risk they bear, and require compensation for the risks, which arise
from a business's capital structure. The proportion of assets financed by creditors are of
particular importance to shareholders, since creditors have a prior claim on the Liquidity ratios
measure a business' ability to meet the payment obligations by comparing the cash and near-cash
with the payment obligations. If the coverage of the latter by the former is insufficient, it
indicates that the business might face difficulties in meeting its immediate financial obligations.
This can, in turn, affect the company's business operations and profitability. The Liquidity versus
Profitability Principle: There is a trade-off between liquidity and profitability; gaining more of
one ordinarily means giving up some of the other. Morris and Shin (2010) conceptually defines
the liquidity ratio as “realizable cash on the balance sheet to short term liabilities.” In turn,
“realizable cash” is defined as liquid assets plus other assets to which a haircut has been applied.
Ration analysis is one of the conventional way that use financial statements to evaluate the
company and create standards that have simply interpreted financial sense. Raheman and Nasr
(2007) in their study in which average collection period, inventory turnover in days, average
payment period, CCC, current ratio, debt ratio, size of the firm, and financial assets to total assets
ratio were the selected independent variables and net operating profit was the dependent variable
found a strong negative relationship between the current ratio and debt ratio and profitability of
the firms. The study also established a negative relationship between liquidity and profitability.
Furthermore, they found out a significant negative relationship between debt used by the firm
and its profitability. Benjamin and Kamalavali (2006) in their study in which the independent
variables used were current ratio, quick ratio, inventory turnover ratio, working capital turnover
ratio, debtor’s turnover ratio, ratio of current asset to total asset, ratio of current asset to
operating income, comprehensive liquidity index, net liquid balance size and leverage and
growth while dependent variable (profitability) was measured in terms of return on investment

28
ROI established a negative association between ROI and the current ratio, cash turnover ratio,
current asset to operating income and leverage. On the other hand they established a positive
association between ROI and the quick ratio, debtor’s turnover ratio, current asset to total asset
and growth rate. Dong (2010) in his study that focused on the variables that include profitability,
conversion cycle and its related elements and the relationship that exists between them reported
that the firms’ profitability and liquidity are affected by working capital management. The
relationship among these variables was found to be strongly negative. This denote that decrease
in the profitability occur due to increase in cash conversion cycle. It is also found that if the
number of days of account receivable and inventories are diminished then the profitability will
increase numbers of days of accounts receivable and inventories. Saswata Chatterjee (2010)
focused on the importance of the fixed and current assets in the successful running of any
organization. It poses direct impacts on the profitability and liquidity. There have been a
phenomenon observed in the business that most of the companies increase the margin for the
profits and losses because this act shrinks the size of working capital relative to sales. But if the
companies want to increase or improve its liquidity, then it has to increase its working capital.
Islam et al. (2009) conducted a research on financial diagnosis of the financial institutions of
Bangladesh: A comparative study on IPDC, IDLC and ICB and through ratio analysis they
measured the financial health of the financial institutions and concluded that financial institutions
play a key role in the economic development of capital market of the country. Hassan and Habib
(2010) used financial ratios for conducting a research on performance evaluation of the
pharmaceutical companies in Bangladesh. They revealed that the financial performance of
Beximco Pharmaceuticals Ltd. is better than Square Pharmaceuticals Ltd. Also, Salauddin (2001)
examined the profitability of the pharmaceutical companies of Bangladesh. By adopting ratio
analysis, mean, standard deviation and co-efficient of variation, he found that the profitability of
the pharmaceutical sector was very satisfactory in terms of the standard norms of return on
investment. Raheman and Mohamed (2007) studied the effect of average collection period,
inventory turnover in days, average payment period, cash conversion cycle, and current ratio on
the net operating profitability of Pakistani firms. They found that as the cash conversion cycle
increases, it leads to decreasing profitability of the firm and managers can create a positive value
for the shareholders by reducing the cash conversion cycle to a possible minimum level.

29
3.2 PROFITABILITY
Reilly and Brown (2005) stated that financial statement analysis seeks to evaluate managerial
performance in several important areas including profitability, efficiency and risk. The ultimate
goal of that analysis is to provide insights that will help us project future managerial
performance. They also suggest that financial ratios should be examined relating to the economy,
the firm’s industry, firm’s main competitors and the firm’s past relative ratios. the issue of trade-
off between liquidity and profitability has been discussed intensively since this it is crucially
important for companies. Ross (2000) and Myers (2003) mention that excess liquidity is an
expense for the company. Money tied up in current assets can be alternatively deposited or
invested and generate interest income. Thus, the price of working capital over financing is the
interest rate. In the case of liquidity deficit the company must either attract short term loan or sell
some liquid assets, which is also an expense. Only the optimal level of liquidity benefits
profitability. Taping and Stephan (2008) in their research on profit determinants found that
liquidity of Ukrainian firms, measured by current ratio, has a significant positive influence on
profitability. One can name the size of the company, intangible assets and liquidity among other
important determinants of profitability for companies operating in the emerging markets.
Therefore, liquidity has a considerable impact on firm’s profitability and that is why it requires
proper management. Banking Sector plays an important role in economic development of a
country. The banking system of India is featured by a large network of bank branches, serving
many kinds of financial services of the people. The State Bank of India, popularly known as SBI
is one of the leading bank of public sector in India. SBI has 14 Local Head Offices and 57 Zonal
Offices located at important cities throughout the country. ICICI Bank is second largest and
leading bank of private sector in India. The Bank has 2,533 branches and 6,800 ATMs in India.
The purpose of the study is to examine the financial performance of SBI and ICICI Bank, public
sector and private sector respectively. The research is descriptive and analytical in nature. The
data used for the study was entirely secondary in nature. The present study is conducted to
compare the financial performance of SBI and ICICI Bank on the basis of ratios such as credit
deposit, net profit margin etc. The period of study taken is from the year 2007-08 to 2011-12.
The study found that SBI is performing well and financially sound than ICICI Bank but in
context of deposits and expenditure ICICI bank has better managing efficiency than SBI (DR.
ANURAG, 2012). Reddy K. Sriharsha (2012) analyzed relative performance of banks in India

30
using CAMEL approach. It is found that public sector banks have appreciably improved
indicating positive impact of the reforms in liberalizing interest rates, rationalizing directed
credit and Investments and increasing competition. Singh A.B., Tondon P. (2012) examined the
financial performance of SBI and ICICI Bank, public sector and private sector respectively. The
study found that SBI is performing well and financially sound than ICICI Bank but in context of
deposits and expenditure ICICI bank has better managing efficiency than SBI. Srinivas K.,
Saroja L.(2013) compared and analyzed the Financial Performance of HDFC and ICICI Bank .
For the purpose of analysis of comparative financial performance of the selected banks using
CAMELS model with test. The result showed that there is no significance difference between the
ICICI and HDFC bank’s financial performance but the ICICI bank performance is slightly less
compared with HDFC. Determinants of bank profitability can be split between those that are
internal and those that are external. Internal determinants of bank profitability can be defined as
those factors that are influenced by the banks management decisions and policy objectives.
Management effects are the results of differences in bank management objectives, policies,
decisions, and actions reflected in differences in bank operating results, including profitability.
Zimmerman (1996) found that management decisions, especially regarding loan portfolio
concentration, were an important contributing factor in bank performance. Researchers
frequently attribute good bank performance to quality management. Management quality is
assessed in terms of senior officers‟ awareness and control of the banks policies and
performance. Haslem (1968, 1969) computed balance sheet and income statement ratios for all
the member banks of the US Federal Reserve System in a two-year study. His results indicated
that most of the ratios were significantly related to profitability, particularly capital ratios,
interest paid and received, salaries and wages. a number of studies have concluded that expense
control is the primary determinant of bank profitability. Expense management offers a major and
consistent opportunity for profitability improvement. With the large size and the large
differences in salaries and wages, the efficient use of labor is a key determinant of relative
profitability. Staff expenses, as conventional wisdom proposes, is expected to be inversely
related to profitability because these costs reduce the „bottom line‟ or the total operations of the
bank. The level of staff expenses appears to have a negative impact on banks‟ ROA in the study
of Bourke (1989). However, Molyneux (1993) found a positive relationship between staff

31
expenses and total profits. As he suggests high profits earned by firms in a regulated industry
may be appropriated in the form of higher payroll expenditures.

3.3 EFFICIENCY USE OF CAPITAL EMPLOYED

One of the most important areas in the day to day management of the firm is the management of
efficiency use of capital employed. Working capital refers to the funds invested in the current
assets i.e. investment in stock, sundry debtors, cash and others current are essential to use fixed
assets profitability for e.g.: A machinery cannot be used without raw materials. The investments
on the purchase of raw material are identified as working capital. It is obvious that a certain
amount of the fund is always tied up in raw material inventories. Working capital may be
regarded as lifeblood of a business (Srinivas K T, 2012). Working capital is nerve system of any
business. Without proper working capital management company cannot achieve its objectives
and not possible to maintain financial soundness. So in this perspective present study is
undertaken to study working capital management through ratio analysis at Karnataka Power
Corporation limited. From the present study it is found that company financial position was
seeing to be sound because the company tries to increase its production and also net profit
(Srinivas K T, 2012). Eljelly, (2004): elucidated that efficient liquidity management involves
planning and controlling current assets and current liabilities in such a manner that eliminates the
risk of inability to meet due short-term obligations and avoids excessive investment in these
assets. The relation between profitability and liquidity was examined, as measured by current
ratio and cash gap (cash conversion cycle) on a sample of joint stock companies in Saudi Arabia
using correlation and regression analysis. The study found that the cash conversion cycle was of
more importance as a measure of liquidity than the current ratio that affects profitability. The
size variable was found to have significant effect on profitability at the industry level. The results
were stable and had important implications for liquidity management in various Saudi
companies. First, it was clear that there was a negative relationship between profitability and
liquidity indicators such as current ratio and cash gap in the Saudi sample examined. Second, the
study also revealed that there was great variation among industries with respect to the significant
measure of liquidity. Deloof,( 2003): discussed that most firms had a large amount of cash
invested in working capital. It can therefore be expected that the way in which working capital is
managed will have a significant impact on profitability of those firms. Using correlation and
regression tests he found a significant negative relationship between gross operating income and

32
the number of days accounts receivable, inventories and accounts payable of Belgian firms. On
basis of these results he suggested that managers could create value for their shareholders by
reducing the number of days’ accounts receivable and inventories to a reasonable minimum. the
negative relationship between accounts payable and profitability is consistent with the view that
less profitable firms wait longer to pay their bills. Ghosh and Maji, (2003): in this paper made an
attempt to examine the efficiency of working capital management of the Indian cement
companies during 1992 – 1993 to 2001 – 2002. For measuring the efficiency of working capital
management, performance, utilization, and overall efficiency indices were calculated instead of
using some common working capital management ratios. Setting industry norms as target-
efficiency levels of the individual firms, this paper also tested the speed of achieving that target
level of efficiency by an individual firm during the period of study. Findings of the study
indicated that the Indian Cement Industry as a whole did not perform remarkably well during this
period

33
CHAPTER IV

34
 RESEARCH METHODOLOGY

The researcher adopted the analysis of data in a manner that to combine relevance to purpose
with economy in procedure. Research design is the based define of a research problem. The
preparation of the design of the project is standard analytical of researcher favorite. It was used
in secondary data that was published already as annual reports of the bank in bank website,
journals, magazines and newspapers and other secondary data sources. this Secondary data may
be already collected and analyzed by someone else but gap is period of the study and variables
which we want to know. The study mainly connected annual financial reports that are last five
years 2010-2015 company final accounts ( balance sheet and profit and loss )

4.1 DATA COLLECTION

Main data of this study is based to the annual financial reports axis bank from in 2010 to 2015.
also researcher used four main financial statements for ratio analysis of bank such as; balance
sheets, an income statement, cash flow statement; statement of shareholder's equity although
study strongly emphasis the first main reports

4.2 DATA ANALYSIS

the study used all important tools of ratio analysis for profitability evaluation of bank. It indicates
the different steps such Selection of financial report, Identification of balance sheet, income
statement and cash flow statement, ratio analysis, mathematical calculation, statistical analysis of
bank financial report year by year comparison and among industry First step of model, we do a
selection of financial report that means a choose of annual financial report. The annual financial
report present financial data of a company's position, operating performance, and funds flow for
an accounting period .We use the annual reporting of bank in 2010 to 2015. Second step of
model, researcher identify the balance sheet, income statement, cash flow statement from the
annual financial report. study used some data from balance sheets for different kind of ratio such
as liquidity ratios, asset management ratios, debt management ratios. In contrast, we was used
some sources from income statement. When analysis the ratio of profitability and debt
management ratio employment of bank income statement and balance sheet is must. however the

35
use of some data from the cash flow statement for ratio analysis such as market value ratio is also
possible . The third step of model, study identify the suitable ratio for profitability analysis and
evaluation the ratio such as current ratio, liquidity ratio, asset management ratio, profitability
ratio, debt coverage ratio, market value etc. All types of ratio are most important for how well a
bank to generate its assets, liquidity, revenue, expense, share holder equity profit or loss are also
here . The Forth step of model, study used the Mathematical calculation of bank. some figure
from the income statement and balance sheet. Financial calculators was used to determine the
results a financial ratio calculations a graphical analysis for evaluation of bank using Microsoft
excel is employed and finally study compares the results to manipulate objectives

4.3 SECONDARY DATA

The major source of data for this project was collected through Balance sheet and Profit and loss
of Axis bank account of 5 year period from 2010-2015 Descriptive research is used in this study
because it will ensure the minimization of bias and maximization of reliability of data collected.
The researcher had to use fact and information already available through financial statements of
earlier years and analyze these to make critical evaluation of the available material. Hence by
making the type of the research conducted to be both Descriptive and Analytical in nature

4.4 RESEARCH INSTRUMENTS

study used secondary data collected from publishers of the bank final accounts it is limited to
last five years 2010-2015 annual financial reports

4.5 HYPOTHESIS OF THE STUDY

the bank profitability is improving with constant growth rate

36
4.6 RATIO ANALYSIS FORMULAS
For most of us, accounting is not the easiest thing in the world to understand, and often the
terminology used by accountants is part of the problem. “Financial ratio analysis” sounds pretty
complicated. the analysis of the financial statements and interpretations of financial results of a
particular period of operations with the help of 'ratio' is termed as "ratio analysis." Ratio analysis
used to determine the financial soundness of a business concern. the term 'ratio' refers to the
mathematical relationship between any two inter-related variables. In other words, it establishes
relationship between two items expressed in quantitative form. According J. Batty, Ratio can be
defined as "the term accounting ratio is used to describe significant relationships which exist
between figures shown in a balance sheet and profit and loss account in a budgetary control
system or any other part of the accounting management

4.6.1 CLASSIFICATION OF RATIOS

Accounting Ratios are classified on the basis of the different parties interested in making use of
the ratios. A very large number of accounting ratios are used for the purpose of determining the
financial position of a concern for different purposes. Ratios may be broadly classified in to:

 Classification of Ratios on the basis of Balance Sheet.

 Classification of Ratios on the basis of Profit and Loss Account.
 Classification of Ratios on the basis of Mixed Statement (or) Balance Sheet and Profit
and Loss account
to meet the objective the study groups ratios and divides three main parts which are Liquidity
ratios, profitability ratios, and asset management ratios

37
4.6.2 common size ratios
One of the most useful ways for the owner of a business to look at the company’s financial
statements is by using “common size” ratios. Common size ratios can be developed from both
balance sheet and income statement items. The phrase “common size ratio” may be unfamiliar to
you, but it is simple in concept and just as simple to create. You just calculate each line item on
the statement as a percentage of the total

4.6.3 Liquidity ratio

Liquidity ratio refers to the ability of a company to interact its assets that is most readily
converted into cash. Assets are converted into cash in a short period of time that are concerns to
liquidity position. However, the ratio made the relationship between cash and current liability
 Current Ratio:
Current Ratio = Current assets /Current liabilities

 Quick Ratio:
Quick Ratio= (Quick Assets-Inventories)/ Quick Liabilities
Quick Asset= current asset-(stock + prepaid expense)
Quick Liabilities = current liabilities -Bank Overdraft
 Cash Ratio:
Cash Ratio = Cash / Current Liabilities

4.6.4 Profitability Ratio

Profitability ratios designate a bank's overall efficiency and performance. It measures how to use
assets and how to control its expenses to generate an acceptable rate of return. It also used to
examine how well the bank is operating or how well current performance compares to past
records of bank
 Net Profit margin
Net Profit margin = Net profit /sales

 Return on common stock equity ratio

Return on common stock equity ratio = Net income / Common stockholders' equity

38
  Return on Total Assets
Return on Total Assets = Net profits / total assets

4.6.5 Asset management ratios

Asset management ratios are most notable ratios of financial ratios analysis. It measure how
effectively any organization uses and controls its assets. It is analysis how a company quickly
converted to cash or sale on their resources. It is also called Turnover ratios because it indicates
the asset converted or turnover in to sales.

 current asset turnover ratio

current asset turnover ratio=sales/current asset

 Fixed asset turnover

Fixed asset turnover = Sales / Net fixed asset
 Total asset turnover
Total asset turnover = Sales / Total asset
 Debt Ratio
Debt Ratio =Total liabilities / Total assets

39
CHAPTER V

40
 DATA ANALYSIS AND INTERPRETATION

5.1 Data Analysis

The previous chapter discussed a detailed description of the research methodology. In this
chapter, the data comes from the Axis Bank in India with relation to the research objectives, all
data is Secondary data which is already published to Secondary data sources mainly bank
website. The data will be analyzed by using Microsoft excel 2007. also In this section study
present the result from our data analysis, the study briefly examined the performance of liquidity
position of the bank. Second part present the overall profitability of the bank and third part is
asset management condition after analysis the study also discussion the debt management
position and finally comments represent the market value of the bank

41
 CURRENT RATIO

Table 5.1 Showing The Bank's Current Ratio

Year Current Asset Current Liabilities Ratio

(A) (B) (A/B)
2010-2011 1,684,486,052 1,974,466,637 0.853

2011-2012 1,901,763,825 2,287,475,790 0.831

2012-2013 2,244,674,794 2,635,017,001 0.852

2013-2014 2,672,862,432 2,947,334,592 0.907

2014-2015 3,270,752,520 3,374,976,103 0.969

Source: Secondary Data From Financial Statements Of Axis Bank

INFERENCE:

Table 5.1 presents current ratio of five years from 2010 to 2015. in the above ratios the bank
current ratio of 2010 is 0.853, 2011 is 0.831, 2012 is 0.852, 2013 is 0.907, and 2014 is 0.969 it
shows us that bank current ratio is going to one with increasing positive growth year by year

42
 Figure No:1

The Bank Current Ratio

0.080

0.070

0.060

0.050

0.040

0.030

0.020

0.010

0.000
2009.5 2010 2010.5 2011 2011.5 2012 2012.5 2013 2013.5 2014 2014.5

43
 Quick Ratio

Table 5.2 Showing The Bank's Quick Ratio

Year Quick Assets Current Liabilities Ratio

(A) (B) (A/B)
2010-2011 214,086,559 1,974,466,637 0.108

2011-2012 139,339,157 2,287,475,790 0.061

2012-2013 204,349,599 2,635,017,001 0.078

2013-2014 282,386,946 2,947,334,592 0.096

2014-2015 360,990,318 3,374,976,103 0.107

Source: Secondary Data From Financial Statements Of Axis Bank

INFERENCE:

Table 5.2 presents Quick ratio of five years from 2010 to 2015. in the above ratios the bank
quick / asset test ratio of 2010 is 0.108, 2011 is 0.061, 2012 is 0.078 , 2013 is 0.096, and 2014 is
0.107 it shows us that bank liquidity is normally good with small increasing of growth side

44
 Figure No:2

The Bank Quick Ratio

0.120

0.100

0.080

0.060

0.040

0.020

0.000
2009 2010 2011 2012 2013 2014 2015

45
 Table 5.3 Showing The Bank's cash position Ratio

Year Cash Current Liabilities Ratio

(A) (B) (A/B)
2010-2011 138,861,630 1,974,466,637 0.070

2011-2012 107,029,214 2,287,475,790 0.047

2012-2013 147,920,883 2,635,017,001 0.056

2013-2014 170,413,196 2,947,334,592 0.058

2014-2015 198,188,397 3,374,976,103 0.059

Source: Secondary Data From Financial Statements Of Axis Bank

INFERENCE:

Table 5.3 presents cash ratio of five years from 2010 to 2015. in the above ratios the bank cash
position ratio of 2010 is 0.070, 2011 is 0.047, 2012 is 0.056 , 2013 is 0.058, and 2014 is 0.059 it
shows us that bank liquidity is normally good but there is little decrease of current liabilities in
recent years

46
 Figure No:3

The Bank Cash Position Ratio

0.080

0.070

0.060

0.050

0.040

0.030

0.020

0.010

0.000
2009 2010 2011 2012 2013 2014 2015

47
 Table 5.4 Showing The Bank's Net Profit Margin Ratio

Year Net Profit Current Liabilities Ratio

(A) (B) (A/B)
2010-2011 33,884,906 1,974,466,637 0.171

2011-2012 42,422,054 2,287,475,790 0.155

2012-2013 51,794,329 2,635,017,001 0.154

2013-2014 62,176,666 2,947,334,592 0.163

2014-2015 73,578,223 3,374,976,103 0.168

Source: Secondary Data From Financial Statements Of Axis Bank

INFERENCE:

Table 5.4 presents net profit margin ratio of five years from 2010 to 2015. in the above ratios the
bank net profit margin ratio of 2010 is 0.171, 2011 is 0.155, 2012 is 0.154 , 2013 is 0.163, and
2014 is 0.168 it shows us that bank profitability is satisfactory

48
 Figure No:4

Bank's Net Profit Margin

18.000

16.000

14.000

12.000

10.000

8.000

6.000

4.000

2.000

0.000
2009 2010 2011 2012 2013 2014 2015

49
 Table 5.5 Showing The Bank's Return On Common Stock Equity

Year Net Profit Common stock equity Ratio

(A) (B) (A/B)
2010-2011 33,884,906 4,105,458 8.254

2011-2012 42,422,054 4,132,039 10.267

2012-2013 51,794,329 4,679,545 11.068

2013-2014 62,176,666 4,698,446 13.233

2014-2015 73,578,223 4,741,044 15.519

Source: Secondary Data From Financial Statements Of Axis Bank

INFERENCE:

Table 5.5 presents Return on common stock equity ratio of five years from 2010 to 2015. in the
above ratios the bank net profit margin ratio of 2010 is 8.254, 2011 is 10.267, 2012 is 11.068 ,
2013 is 13.233, and 2014 is 15.519 it shows us that bank profitability is satisfactory

50
 Figure No:5

Bank's Return On Common Stock Equity

0.017

0.016

0.016

0.015

0.015

0.014

0.014
2009 2010 2011 2012 2013 2014 2015

51
 Table 5.6 Showing The Bank's Return on Asset Ratio

Year Net Profit Total Assets Ratio

(A) (B) (A/B)
2010-2011 33,884,906 2,427,133,716 0.014

2011-2012 42,422,054 2,856,277,934 0.015

2012-2013 51,794,329 3,405,606,584 0.015

2013-2014 62,176,666 3,832,448,882 0.016

2014-2015 73,578,223 4,619,323,942 0.016

Source: Secondary Data From Financial Statements Of Axis Bank

INFERENCE:

Table 5.6 presents Return on Asset Ratio of five years from 2010 to 2015. in the above ratios the
bank Return on Asset Ratio of 2010 is 0.014, 2011 is 0.015, 2012 is 0.015 , 2013 is 0.016, and
2014 is 0.016 it shows us that bank profitability is satisfactory

52
 Figure No:6

Bank's Return On Asset

0.017

0.016

0.016

0.015

0.015

0.014

0.014
2009 2010 2011 2012 2013 2014 2015

53
 Table 5.7 Showing The Bank's Current Asset Turnover Ratio

Year SALES Current Asset Ratio

(A) (B) (A/B)
2010-2011 197,869,396 1,684,486,052 0.117

2011-2012 274,148,637 1,901,763,825 0.144

2012-2013 337,336,807 2,244,674,794 0.150

2013-2014 380,463,801 2,672,862,432 0.142

2014-2015 438,436,435 3,270,752,520 0.134

Source: Secondary Data From Financial Statements Of Axis Bank

INFERENCE:

Table 5.7 presents Current Asset Turnover Ratio of five years from 2010 to 2015. in the above
ratios the bank Current Asset Turnover Ratio of 2010 is 0.117, 2011 is 0.144, 2012 is 0.150,
2013 is 0.142, and 2014 is 0.134 it shows us that bank Current Asset Turnover Ratio is not good
as liquidity

54
 Figure No:7

Bank's Current Asset Turnover

0.017

0.016

0.016

0.015

0.015

0.014

0.014
2009 2010 2011 2012 2013 2014 2015

55
 Table 5.8 Showing The Bank's Fixed Asset Turnover Ratio

Year SALES Fixed Asset Ratio

(A) (B) (A/B)
2010-2011 197,869,396 742,647,664 0.266

2011-2012 274,148,637 954,514,109 0.287

2012-2013 337,336,807 1,160,931,790 0.291

2013-2014 380,463,801 1,159,586,450 0.328

2014-2015 438,436,435 1,348,571,422 0.325

Source: Secondary Data From Financial Statements Of Axis Bank

INFERENCE:

Table 5.8 presents Bank's Fixed Asset Turnover Ratio of five years from 2010 to 2015. in the
above ratios the bank Fixed Asset Turnover Ratio of 2010 is 0.226, 2011 is 0.287, 2012 is 0.291,
2013 is 0.328, and 2014 is 0.325 it shows us that bank Fixed Asset Turnover Ratio is not good as
liquidity

56
 Figure No:8

The Bank's Fixed Asset Turnover Ratio

0.925

0.920

0.915

0.910

0.905

0.900

0.895
2009 2010 2011 2012 2013 2014 2015

57
 Table 5.9 Showing The Bank's Total Asset Turnover Ratio

Year SALES Total Asset Ratio

(A) (B) (A/B)
2010-2011 197,869,396 2,427,133,716 0.082

2011-2012 274,148,637 2,856,277,934 0.096

2012-2013 337,336,807 3,405,606,584 0.099

2013-2014 380,463,801 3,832,448,882 0.099

2014-2015 438,436,435 4,619,323,942 0.095

Source: Secondary Data From Financial Statements Of Axis Bank

INFERENCE:

Table 5.9 presents Bank's Total Asset Turnover Ratio of five years from 2010 to 2015. in the
above ratios the bank Total Asset Turnover Ratio of 2010 is 0.082, 2011 is 0.096, 2012 is 0.099,
2013 is 0.099, and 2014 is 0.095 it shows us that bank Total Asset Turnover Ratio is not good as
liquidity

58
 Figure No:9

The Bank's Total Asset Turnover Ratio

0.925

0.920

0.915

0.910

0.905

0.900

0.895
2009 2010 2011 2012 2013 2014 2015

59
 Table 5.10 Showing The Bank's Debt Ratio

Year Total Liabilities Total Asset Ratio

(A) (B) (A/B)
2010-2011 2,237,145,461 2,427,133,716 0.922

2011-2012 2,628,192,511 2,856,277,934 0.920

2012-2013 3,074,527,985 3,405,606,584 0.903

2013-2014 3,450,244,017 3,832,448,882 0.900

2014-2015 4,172,558,792 4,619,323,942 0.903

Source: Secondary Data From Financial Statements Of Axis Bank

INFERENCE:

Table 5.10 presents Bank's Debt Ratio of five years from 2010 to 2015. in the above ratios the
bank Debt Ratio of 2010 is 0.922, 2011 is 0.920, 2012 is 0.903, 2013 is 0.900, and 2014 is 0.903
it shows us that bank Debt Ratio is Favorable. comparison of years the bank debt ratio is getting
better according to recent years debt ratio

60
 Figure No:10

Table 5.10 Showing The Bank's Debt Ratio

0.925

0.920

0.915

0.910

0.905

0.900

0.895
2009 2010 2011 2012 2013 2014 2015

61
 COMMON SIZE STATEMENT

Table No:11 Shows Axis Bank Profit And Loss Account For The Year End 31 March (Five
Years Period)

INCOME 2011 2012 2013 2014 2015

1 Interest earned 76.6% 80.2% 80.6% 80.5% 80.9%
other income 23.4% 19.8% 19.4% 19.5% 19.1%
Total income 100.0% 100.0% 100.0% 100.0% 100.0%
2 Expenditure
Interest expended 43.4% 51.0% 51.9% 49.1% 48.5%
Operating expenses 24.2% 21.9% 20.5% 20.8% 21.0%
Provisions and contingencies 15.3% 11.6% 12.2% 13.8% 13.7%
Total exp 82.9% 84.5% 84.6% 83.7% 83.2%
3 NET PROFIT FOR THE YEAR
(1-2) 17.1% 15.5% 15.4% 16.3% 16.8%
Balance in Profit & Loss Account
brought forward from previous year 17% 18% 22% 26% 31%
4 AMOUNT AVAILABLE FOR
APPROPRIATION 34.4% 33.6% 37.1% 42.7% 47.6%
5 APPROPRIATIONS
Transfer to Statutory Reserve 4.3% 3.9% 3.8% 4.1% 4.2%
Transfer to/(from) Investment
Reserve -0.1% 0.0% 0.2% 0.1% 0.1%
Transfer to Capital Reserve 0.0% 0.2% 0.4% 0.1% 0.1%
Transfer to General Reserve 1.7% 0.0% 0.0% 0.0% 0.0%
Proposed dividend (includes tax on
dividend) 3.4% 2.8% 2.9% 2.9% 3.0%
Balance in Profit & Loss Account
carried forward 25.1% 26.7% 29.7% 35.5% 40.2%
TOTAL 34.4% 33.6% 37.1% 42.7% 47.6%

62
INFERENCE :

The interest earned is has been higher in the all five years period it was mainly due to more
positive investment in the other opportunities. how over due to paying other more interest
expenditure profit is not higher. The bank maintain net profit average of (16%). the other income
also was average of (20%) of total income that is mean 80% of the income is interest earning. the
investment reserve was negative in 2010 and 2011 was zero but maintain 0.1% in the rest of the
years. operating expense also maintain 20.5%. The share capital dividend has earning of 3% of
income of the bank which is not higher but it is satisfactory because there are other more
categories of reserve. finally axis bank owners/ investors are happy unless they see other higher
profit opportunities

63
 COMMON SIZE STATEMENT

Table No:12 Shows Axis Balance Sheet For The Year End 31 March (Five Years Period)

2011 2012 2013 2014 2015

CAPITAL AND
LIABILITIES
Capital 0.17% 0.14% 0.14% 0.12% 0.10%
Reserves & Surplus 7.66% 7.84% 9.58% 9.85% 9.57%
Total Capital 7.83% 7.99% 9.72% 9.97% 9.67%
Deposits 77.97% 77.06% 74.18% 73.31% 69.80%
Other Liabilities and
Provisions 3.38% 3.03% 3.20% 3.60% 3.26%
total Current Liabilities 81.35% 80.09% 77.37% 76.90% 73.06%
Borrowings 10.82% 11.93% 12.91% 13.12% 17.27%
total Debt 92.17% 92.01% 90.28% 90.03% 90.33%
TOTAL debt and capital 100.00% 100.00% 100.00% 100.00% 100.00%
ASSETS
Cash and Balances with
Reserve Bank of India 5.72% 3.75% 4.34% 4.45% 4.29%
Balances with Banks and
Money at Call and Short
Notice 3.10% 1.13% 1.66% 2.92% 3.52%
total cash on hand 8.82% 4.88% 6.00% 7.37% 7.81%
Advances 58.67% 59.43% 57.84% 60.03% 60.85%
Other Assets 1.91% 2.27% 2.07% 2.34% 2.14%
TOTAL Current Asset 69.40% 66.58% 65.91% 69.74% 70.81%
Fixed Assets 0.94% 0.79% 0.69% 0.63% 0.54%
Investments 29.66% 32.63% 33.40% 29.63% 28.65%
total Fixed Assets 30.60% 33.42% 34.09% 30.26% 29.19%
TOTAL ASSETS 100.00% 100.00% 100.00% 100.00% 100.00%

64
INFERENCE :

The Liabilities is has been higher in the all five years period it was mainly due to more
borrowing and deposits in the bank. The bank maintain net profit average of (17%) Fixed asset
has been grown up 4% in 2013 but down to -5%. the current asset 70% has gone up while it was
69% in 2010 this current assets growth shows positive but still the bank maintain same earning
able to manage with a lower investment in current assets on average The share capital has
decreased in 0.17% to 0.10% but there is reserve and surplus that has been growth 7.6% to
9.6% due to profit appropriations and transfers. the current liability has been higher in 2010
(81%) but down in 2015 (73%) it was due to huge depositors because axis bank is one of
leading private sector in India. finally Axis bank has a normal financial health but better to take
two steps controlling current liabilities maximum of 50% while now is 73% and investing more
higher paying opportunities to increase earning

65
CHAPTER VI

66
 FINDINGS, SUGGESTIONS, AND CONCLUSION

6.1 Findings
After the study of the components of current assets & current liabilities and the trends of working
capital, it was found that:

 The liquidity position of the bank is not good. The current ratio is below 1(current
liabilities exceed current assets) for the study period, then the bank may have problems
paying its bills on time. However, low values do not indicate a critical problem but
should concern the management.

 The debt of the bank is quite high as it indicates debt ratio. there is leverage risk. to
address this concern, bank can also analyze the firm's interest coverage ratio, which is the
company's operating income divided by debt service payments. A high operating income
will allow even a debt-burdened firm to meets its obligations

 Asset turnover ratio should be improved together with the bank's financing mix and its
profit margin for a better analysis. A lower turnover ratio means that the bank is not using
its assets optimally. Total asset turnover ratio is a key driver of return on equity which is
quite constant according to axis bank ratios

 year after year from 2010 to 2015 is the indication of continuous improvement in the
earning power of the bank. This increasing EPS is the sign of favorable earnings, health
financial position and, therefore, a reliable firm to invest money.

67
6.2 Suggestions
It is recommended that bank to use more ratios, especially those in the study which are so
significant as improvement of their financial performance measures. axis bank should probably
consider the use of the fund to invest other opportunities to get a profit, since they seem to be
paying or expending more interest not only for the majority of participants, but for businesses in
general.

It is also recommended that axis bank owners/ managers request more research study and
financial analysis to their financial staff and also external examiner on bankruptcy prediction
models at relevant institutions such as universities. The few models presented in this study may
be used by axis bank as well, since they are simple and important to know financial health of the
bank,

The axis bank should have increased its current assets than its current liabilities to make positive
working capital. The bank should have decreased its current liabilities by paying through the
profit which is being made. The debt should been minimized to keep debt ratio and debt-equity
ratio to a minimum value

efficiency use of asset good as liquidity measures of Asset accounts such us total asset turnover
of the bank are significant increase in positive account side but decreases some accounts the
point is that there is no proper efficiency use of asset so axis bank executive have to consider
best asset position use

68
6.2 Conclusion
The conclusion chapter is directly connected to the purpose. The analysis will be summarized in
order fulfill the purpose of the study Since the start of the financial institutions in the financial
sector were introduced in India, banking sector has undergone major transformation. The
underlying objectives of the study were to know financial health make the banking system more
competitive, productive and profitable. Since 2008 world Financial Crisis and meltdown which
may institutions in Banking Industry there Liquidated and drop out of market. the greater
presence of international financial players in the Indian Financial system and some of the Indian
banks would become international players in the recent years. The key to success in the
competitive environment is increased productivity. This research has analyzed the productivity
of selected private sector bank ( axis bank) in India during 2010-15 This Study concludes that
though the per ratio of the bank financial productivity of axis bank is far better than other
improving. This study is based on three main research objectives. First, we analysis of liquidity
measures indicates that current ratio is bed condition for the bank. Quick and asset measures is
found that the same position of previous ratio and cash ratio measures the bank is little bit better
than the previous years. So we notice that the bank is better condition of liquidity position
compare that 2010 and 2011.
Second the study analysis's profitability measures indicates the different kind of ratio. The bank
compare are more profitable recent years in net profit margin, return on assets (ROA), return on
equity (ROE), and Overall, net profit margin is found rising for bank and falling of debt ratio for
bank during 2012-2015. net profit margin of bank is found to increase than it return of asset to
increase. Whereas, the opposite debt is decrease year by year. Return in Equity is also found
increase during that years in bank. On the other, study ensure that the Axis bank is better
condition for profitable. Third, study analysis is all efficiency measures of Asset accounts.
Current assets turnover.

fixed assets turnover, total asset turnover . the bank are significant increase in asset account side
also increases some measure and decreases some measures but increasing point is so significant
and betters then decreasing parts so study ensure that the axis bank is standards position for
asset management measure.

69
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 APPENDIX A
Axis Bank Profit And Loss Account For The Year End 31 March

1 INCOME 2011 2012 2013 2014 2015

Interest earned 151,548,058 219,946,474 271,825,744 306,411,554 354,785,977
other income 46,321,338 54,202,163 65,511,063 74,052,247 83,650,458
Total income 197,869,396 274,148,637 337,336,807 380,463,801 438,436,435
2 Expenditure
Interest expended 85,918,230 139,769,024 175,163,111 186,895,220 212,544,595
Operating expenses 47,794,281 60,070,995 69,142,375 79,007,739 92,037,456
Provisions and
contingencies 30,271,979 31,886,564 41,236,992 52,384,176 60,276,161
Total exp 163,984,490 231,726,583 285,542,478 318,287,135 364,858,212
3 NET PROFIT FOR
THE YEAR (1-2) 33,884,906 42,422,054 51,794,329 62,176,666 73,578,223
Balance in Profit &
Loss Account brought
forward from previous
year 34,274,337 49,697,707 73,294,476 100,292,624 135,014,461
4 AMOUNT
AVAILABLE FOR
APPROPRIATION 68,159,243 92,119,761 125,088,805 162,469,290 208,592,684
5 APPROPRIATIONS
Transfer to Statutory
Reserve 8,471,227 10,605,513 12,948,583 15,544,167 18,394,555
Transfer to/(from)
Investment Reserve -149,372 0 534,571 500,289 254,885
Transfer to Capital
Reserve 47,630 519,047 1,414,579 388,664 631,421
Transfer to General 3,388,491 0 26,084 10,465 -12,664

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 Reserve
Proposed dividend
(includes tax on
dividend) 6,703,560 7,700,725 9,872,364 11,011,244 13,089,573
Balance in Profit &
Loss Account carried
forward 49,697,707 73,294,476 100,292,624 135,014,461 176,234,914
TOTAL 68,159,243 92,119,761 125,088,805 162,469,290 208,592,684
6 EARNINGS PER
EQUITY SHARE 82.95 102.94 119.67 132.56 31.18

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 APPENDIX B

Axis Bank Balance Sheet As At 31 March,

Particulars 2011 2012 2013 2014 2015

CAPITAL AND
LIABILITIES
Capital 4,105,458 4,132,039 4,679,545 4,698,446 4,741,044
Reserves &
Surplus 185,882,797 223,953,384 326,399,054 377,506,419 442,024,106
Total Capital 189,988,255 228,085,423 331,078,599 382,204,865 446,765,150
Employees’
Stock Options
Outstanding
(Net) 0 0 0 0 0
Deposits 1,892,378,010 2,201,043,033 2,526,135,881 2,809,445,649 3,224,419,369
Other Liabilities
and Provisions 82,088,627 86,432,757 108,881,120 137,888,943 150,556,734
total Current
Liabilities 1,974,466,637 2,287,475,790 2,635,017,001 2,947,334,592 3,374,976,103
Borrowings 262,678,824 340,716,721 439,510,984 502,909,425 797,582,689
total Debt 2,237,145,461 2,628,192,511 3,074,527,985 3,450,244,017 4,172,558,792
TOTAL debt
and capital 2,427,133,716 2,856,277,934 3,405,606,584 3,832,448,882 4,619,323,942
ASSETS
Cash and
Balances with
Reserve Bank of
India 138,861,630 107,029,214 147,920,883 170,413,196 198,188,397
Balances with
Banks and 75,224,929 32,309,943 56,428,716 111,973,750 162,801,921

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Money at Call
and Short Notice
total cash on
hand 214,086,559 139,339,157 204,349,599 282,386,946 360,990,318
Advances 1,424,078,286 1,697,595,386 1,969,659,574 2,300,667,584 2,810,830,297
Other Assets 46,321,207 64,829,282 70,665,621 89,807,902 98,931,905
TOTAL
Current Asset 1,684,486,052 1,901,763,825 2,244,674,794 2,672,862,432 3,270,752,520
Fixed Assets 22,731,456 22,593,250 23,556,420 24,102,106 25,143,105
Investments 719,916,208 931,920,859 1,137,375,370 1,135,484,344 1,323,428,317
total Fixed
Assets 742,647,664 954,514,109 1,160,931,790 1,159,586,450 1,348,571,422
TOTAL
ASSETS 2,427,133,716 2,856,277,934 3,405,606,584 3,832,448,882 4,619,323,942

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