INTRODUCTION:

Financial Management is that managerial activity which is concerned with the

planning and controlling of the firm’s financial resource. Through it was a branch of
economies till 1890, as a separate activity of discipline it is of recent origin. Still, it has
no unique body of knowledge of its own, and draws heavily on economics for its
theoretical concept even today.

The focus of financial management was mainly on certain episodic events like
formation, issuance of capital, major expansion, merger, reorganization and liquidation
in the life cycle of the firm. The approach was mainly descriptive and institutional. The
instruments of financing, the institutions and procedures used in capital markets, and the
legal aspects of financial events formed the core of financial management. The
outsider’s point of view was dominant. Financial management was viewed mainly from
the point of the investment bankers, lenders and other outsider interests.

Every business organization has to maintain appropriate funds to meet the long
term as well short term needs irrespective of nature and size and kind of the firm.
Proper funds maintaining in an enterprise increase the value of the firm.

In business organization basis for financial analysis and decision making in

financial information is required financial information is needed to predict compare and
evaluate the firms earning ability and aid in economic decision making and investment
and finance decision making .

The basic financial statements of great significance to owners management and

investors and balance sheet, profit and loss account and cash flow statement.

Finance is nothing but drafts currency notes and coins and short-term financial
instruments, which are acquiring the funds in business and their effective utilization.

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MEANING OF THE FINANCIAL MANAGEMENT:

According to “GUTMAN and DOGAL”: “The activity concerned which

planning raising controlling administrating the funds used in the business and finding
out various sources for raising funds for the firm.

IMPORTANCE OF FINANC IAL MANAGEMENT:

 Financial management helps proper allocation of funds for increasing the

profitability.
 To increase the size o f the business enterprise the firm should deals with the
financial management.
 It deals with the separation of owners and management.
 It helps in increasing wealth of the owners and as well as nation.
 Financial management will take sound financial decision.
AN OVERVIEW OF FINANCIAL MANAGEMENT:

AIMS OF FINANCIAL MANAGEMENT:

 Acquiring sufficient funds

 Proper utilization of funds
 Maximizing the profitability
 Increasing the value of the firms

Acquiring sufficient funds in the organization based on assessment of needs and

requirements of the funds. It may be short term or long term needs and acquiring funds
from long term sources or short –term sources.

FAVORABLE ARGUMENT:

Every financial decision should be based on cost benefit analysis. If the benefit
is more than the cost, the decision will help in maximizing the wealth.

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UNFAVORABLE ARGUMENT:

The objective of wealth maximization may also face difficulties when ownership
and management are separated.

NATURE AND SCOPE OF FINANCIAL MANAGEMENT:

 ESTIMATING FINANCIAL REQUIREMENTS :

The first task of financial management is to estimation of the short term and
long term financial requirements. It is based on the proper financial plan. It may be
either long period of time or short period of time.

 DECIDING CAPITAL STRUCTURE :

Capital structure means build up off a funds in an organization. These funds are
receiving from long-term sources. If we want to purchase fixed assets there is a need
of determination of capital structure.

 SELECTING A PATTERN OF INVESTMENT :

After receiving the funds from various sources the next step in invest the amount
either fixed assets or working capital with the help of capital budgeting techniques
and working capital analysis we have to make the investment in a profitable line.

 PROPER CASH MANAGEMENT :

Cash management is also important task of financial management. It deals with
various day to day expenses like payment of expense and raw material purchase and
payment to creditors and other expenses for this we have to maintain optimum level
of cash balance in the organization.

 IMPLEMENTING FINANCIAL CONTROLS:

In effective system if financial management how to use various control devices
like ratio analysis budgetary control and B.E.P. analysis etc..,

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FINANCIAL FUNCTIONS DECISIONS:

The financial decisions broadly classified into three categories:

 Investment decisions
 Financial decisions
 Dividend decisions

INVESTMENT DECISIONS:

It is divided into two categories:

1. Long term investment decisions

2. Short term investment decisions

LONG TERM INVESTMENT DECISIONS:

These decisions will helps to deal with the capital budgeting analysis. Capital
budgeting is the process of making investment for long period of time. That is return are
received more than one year.e.g: Set up of new units, Expansion of present unit,
Replacement of permanent assets.

SHORT TERM INVESTMENT DECISIONS:

It refers the working capital analysis. It relates to the allocation of funds for cash
receivable and the tradeoff between liquidity and profitability influences an inventory
such decisions.

FINANCIAL DECISIONS:

The financial decision is not only concerned with how to finance new assets but
also concerned with the best overall mix of financing for the firm. The financing
manager has to select best source of finance, which will make optimum capital
structure. It means where maximizing the profits and minimizing the risk increasing the
value of the firm that is called as optimum capital structure.

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DIVIDEND DECISIONS:

Dividend is nothing but simply we can say that profit. The third major financial
decision relates to the distribution of profit. The term dividend refers “TO THAT PART
OF PROFITS OF A COMPANY WHICH IS DISTRIBUTED AMONG ITS SHARE
HOLDERS.” The higher rate of dividend may raise the market price of the share and
thus maximize the wealth of share holders.

FINANCIAL ANALYSIS:

Financial analysis is a statement, which represent the changes in financial

position. The information contained in these statements is used by management
creditors and investors and others to judge the operating performance of the firm.

According to AICPA definition analysis of financial statements is an

interpretation of results there of financial analysis is the process of identifying the
financial strengths and weaknesses of the firm by property establishing relationship by
means of ratios between the items of the balance sheet and profit and loss account.

FINANCIAL SATAEMENT ANALYSIS:

In the words of MYER “Financial statement analysis largely a study of

relationship among the various financial factors in a business disclosed by a single set
statements and study of these factors as shown in a series of statements.”

STEPS INVOLVED IN THE ANALYSIS:

 Compilation of financial data

 Study of data
 Systematic classification of data
 Scientific arrangement of classified groups of data
 Establishing relationship with related data for further comparison
 Supplementing with appropriate comments analysis
 Interpretation of the analysis.

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INTRODUCTION

RATIO ANALYSIS:

Ratio analysis is the most widely used tool of analysis. A ratio is a “quotient to
two numbers and is an expression of relationship between the two amounts”. It indicates
a quantitative relationship, which is used for a qualified judgment and decision-making.
The ratios may be compared with the previous year or base year ratios of the same firm.

“The relationship between two accounting figures expressed mathematically is

known as a financial ratio”.

British Institute of management has classified the ratios into two categories.

 Primary ratios
 Secondary ratios

PRIMARY RATIOS:

Ratio indicating the relationship between profits and capital employed area
primary ratio.

SECONDARY RATIO:

These ratios give the information about the financial position and capital structure
of the company.

OBJECTIVES OF RATIO:

The objectives of working out ratios and consequential analysis are :

 To study the liquidity of the firm .

 To find the profitability of the organization .
 Leverage that is financing by debt or equity or preference shares .
 To know operating efficiency of the organization .
 To know Effective utilization of assets .

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ADVANTAGES OF RATIO ANALYSIS:

 To identify the significant accounting data relationship.

 A ratio indicates trends in which will help in decision making and forecasting
 Ratio analysis helps in assessment of liquidity profitability and solvency of the
firm
 To know the overall operating efficiency and performance of the firm.
 It helps in understanding financial statements.
 It provides basis not only for intra-firm comparison but also for inter-firm
company.
 It helps the management in controlling the affairs of the firm.

ACCOUNTING RATIOS CAN BE EXPRESSED IN VARIOUS WAYS:

Such as:

 A pure ratio say ratio of current assets to current liabilities.

 A rate say current assets are two times of current liabilities.
 A percentage says current asset are 200% of current liabilities.

DIAGNOSTIC ROLE OF RATIOS:

The essence of the financial soundness of a company lies in balancing its goal
commercial strategy product, market choice and resultant financial needs. The company
should have financial capability and flexibility to purpose its commercial strategy.

Ratio analysis is a very useful analysis technique to raise permanent question on a

number of managerial issues while assessing the financial wealth and health of the
company. with the help of ratio analysis answer to the following question may be sought.

1. How profitable is the company? What a accounting policies and practices does the
company follow? Are stable?
2. Is the profitability of the company high/low/average?

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 3. Is the return on equity high/low/average?
It is due to :
 Return on investment
 Financing Mix
 Capitalization of Resource
4. Can the company sustain its impressive profitability or improve its profitability
given competitive and other environmental situations?
5. How effectively Does Company utilizes its assets in generating sales.
6. What are the trends in collection period inventory turnover and fixed assets
turnover?
7. What is the level of current assets relative to current liabilities? It is reasonable
given the nature of the company’s business?
8. What is the Mix of current assets? Is the proportion of slow moving inventories
high?
9. How promptly the company pays its creditors?
The answer for all these questions can be known through the care observation of
company’s financial position through ratios.

STANDARDS OF COMPARISON:

The ratio analysis involves comparison for a useful interpretation of the financial
statements. A single ratio in itself does not indicate favorable or unfavorable condition. It
should be compared with some standards of comparison may consist of:-

 Ratio calculated from the past financial statements of the some firm.
 Ratio developed using the projected or performed financial statements of the same
firm.
 Ratios of some selected firms especially most progressive and successful at the
same point in time.
 Ratios of the industry to which the firm belongs. sometimes future ratios are used
as the standard of comparison ratio can be developed from the projected or
performed financial statements. The comparison of past ratios with future ratios
shows the firm’s relative strength and weakness in the past and future.
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 This kind of a comparison indicates the relative financial position and performance of
the firm can easily resort such a comparison and it is not difficult to get the published
financial statements of the similar firm.

USERS OF RATIO ANALYSIS:

The ratio analysis is one of the most powerful tools of financial Analysis. It is
used as a device to analysis and inter-prate the financial health of an enterprise.

1. Managers:

These are the persons who among the business. Financial ratios are important to
managers for evaluating the results of their decisions. Financial ratio also helps the
managers in decision forecasting and planning co-ordination and control of business
activities.

2. Shareholders/Investors:

Those who are interested in buying and selling the shares of a company are
naturally interested in the financial ratios. These ratios are helps in knowing the safety of
their investment. This ratios tells that the position of the firm whether it is good or not.

3. Creditors:

The creditors are interested to know whether their loan principal and interest will
be paid when due suppliers and other creditors are also interested to know their dues in
time.

4. Workers:

Generally the workers are entitled to payment of bonus in which depends on the
size of profit earned. The knowledge also helps them in conducting negotiations for
wages and bonus.

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5. Government:

The ratio analysis of a company or industry is useful to the management in

framing the policies and then the financial ratios are useful to the government in taking
decision relating to taxes.

6. Researchers:

The financial ratios being a mirror of business condition of great interest to

undertaking in accounting theory as well as business affairs and practices.

SIGNIFICANCE OF RATIO ANALYSIS:

Ratio analysis stands for the process of determining and presenting the
relationship items and groups of items in the financial statements. It is an important
technique of financial analysis. It is a way by which financial stability and health of a
concern can be judged. The following are the main points of importance of ratio analysis.

USEFUL IN FINANCIAL POSITION ANALYSIS:

Accounting ratios reveal the financial position of the concern. This helps the
banks, insurance companies and other financial institution in lending and making
investment decisions.

USEFUL IN SIMPLIFYING ACCOUNTING FIGURES:

Accounting ratios simplify summarizes and systematize the accounting figures in

order to make them more understandable and in lucid form. They highlight the
interrelationship, which exists between various segments of the business as expressed by
accounting statements. Often the figures standing alone cannot help them to convey any
meaning and ratios help them to relate with other figures.

USEFUL IN ASSESSING THE OPERATINAL EFFICIENCY:

Accounting ratios helps to have an idea of the working of a concern. The

efficiency of the firm becomes evident when analysis is based on accounting ratio. They

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diagnose the financial health by evaluating liquidity, solvency profitability the
capabilities of various units.

USEFUL IN FORECASTING PURPOSE:

If accounting ratios are calculated for a number of years, then a trend is

established. This trend is setting up of future plans and forecasting. For Example:
expenses as a percentage of sales can be easily forecasted on the basis of sales and
expenses of the past years.

USEFUL IN LOCATING THE WEAK SPORTS OF THE BUSINESS:

Accounting ratios are of great assistance in locating the weak spots in the business
even though the overall performance may be efficient weakness in financial structure due
to in correct policies in past are reveals through accounting ratios. If a firm finds that
increase in distribution expenses is more than proportionate to the results expected for
achieved it can be remedial measures to overcome this adverse situation.

USEFUL IN COMPARISON OF PERFORMANCE:

Through accounting ratios comparison can be made between one department of a

firm with another of the same firm in order to evaluate the performance of various
department in the order to evaluate the performance of various departments in the firm
manager is naturally interested in such comparison in order to know the proper and
smooth functioning of such departments ratios also help him to make any change in the
organization structure.

Management has to protect the interest of all concerned parties. Their survival
depends on their operating performance from time to time. Management uses ratios
analysis to determine the firm’s financial strength and weakness and according takes
actions to improve the firm’s position.

The various concerned parties include the owners, investors, creditors, customers,
consumers etc, they are interested to know the firms operating performance to get their
expected returns.

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 The owners of the company will observe the profitability of the firm and the
effective utilization of the assets of the firm. The investors can observe about the net
profit tax, which can be available for them to get the desired, dividends;

The creditors will think about the debt payment capacity of the firm. Ratio
analysis is very useful yardstick to determine the financial position of the firm and it will
protect the interest of the parties, through careful security of financial statements.

LIMITATIONS OF RATIO ANALYSIS:

Ratio analysis provides an indication of company’s profitability, liquidity,

leverage and solvency, ratio do not provide answers, and they are a guide to management
and others of the areas of weakness and strengths of a company.

Many firms are much diversified and are engaged in number of different
activities. This makes it difficult to developed meaningful set of averages in order to
compare performance.

No company or firm is content being average. They to be the best. Thus it may be
argued that comparing a company’s performance against an overage is not flattering or
indicative of a company’s position in an industry.

Ratios can be purposely distorted by companies to make it look better than it

actually is. A company could sell its receivable at a discount for cash. As a result, its
collection ratio of account receivables would be low, leading one to believe its efficiency
is better than it actually.

In order to state whether a ratio is good or bad it must be intelligently interpreted.

A high current ratio may indicate a liquidity position, which is positive or excessive
liquidity cash, which is negative.

It is difficult to compare companies as they very often follow different accounting

principles. A company may value inventory under “Last in First out” principle, where as
another may depreciate under the straight-line method, while its competitor may use
accelerated depreciation.

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TYPES OF RATIOS:

Several ratios calculated from the accounting data, can be grouped into various
classes according to financial activity or function to be evaluated management is
interested in evaluating every aspect of the firm’s performance. They have to protect the
interests of all parties and see that the firm grows profitably. In view of requirements of
the various users of ratios, we may classify them into the following four important
categories.

1. Liquidity ratios
2. Leverage ratios
3. Activity ratios
4. Profitability ratios

1. LIQUIDITY RATIOS:

Liquidity ratios are measures the firm’s ability to meet current obligations. It is
externally essential for a firm to be able to meet preparation of cash budgets and cash
flow and find flow statements. It’s establishing a relationship between cash and current
assets to current obligations. The failure of a company to meet its obligations due to lack
of sufficient liquidity will result in poor credit worthiness cost of creditors confidence a
very high degree of liquidity is also bad idle assets earn nothing.

The most common ratios, which indicate the extent of liquidity

a. Current ratio.
b. Quick ratio or Acid test or liquid ratio.
c. Absolute liquid ratio or cash position ratio

(a) CURRENT RATIO:

Current ratio may be defined as the relationship between the current assets and
liabilities. This ratio is also known as working capital ratio. It is most widely used to

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make the analysis of a short-term financial position. It is calculated by dividing the total
of current assets by the total current liabilities.

Current assets include cash and those assets that can be converted into cash within
a year such as marketable securities debtors and inventories and prepaid expenses also
considered as current assets.

Current liabilities are those obligations which are payable within a short period
generally within a year.

Current Ratio=current assets /current liabilities

(b) QUICK ASSETS RATIO:

Quick ratio may be defined as the relationship between quick/liquid assets and
current liabilities. An asset is liquid if it can be converted into cash immediately or
reasonably soon without a loss of value and Inventories are considered to be less liquid.

Quick Ratio=Quick assets/ Current liabilities

(c) ABSOLUTE LIQUID RATIO OR CASH RATIO:

Receivables, debtors and bills receivable are generally more liquid then inventories
yet there may be doubts regarding their realization into cash immediately or in time.

2. LEVERAGE RATIOS:

Leverage ratios may be calculated from the balance sheet items to determine the
preparation of debt in total financing. Many variations of the ratios exist, but all these
ratios indicate the same thing. Leverage ratios are also computed from the profit and loss
items by determining the extent to which operating profits are sufficient to cover the
fixed change.

a) Debt equity ratio

b) Total debt ratio
c) Capital equity ratio
d) Proprietary ratio

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 e) Fixed assets ratio

Leverage ratios are designed to measure the contribution of owners against following
information.

 The company’s ability to cover all its obligations including short term and long
term obligations
 The margin of safety afforded to the creditors by the equity
 The extent of control of share holders over the enterprise
 The potential ratio earnings from the long term funds

(a) DEBT EQUITY RATIO:

The ratio relates to all the creditors on assets to the owners funds. It is computed
by dividing the total debt, both the current and long term by it’s tangible net worth
consisting of common stock and invested more in the business than the owners.

Debt equity ratio=long term liabilities/capital employed

(b)TOTAL DEBT RATIO:

In order to know the long term solvency of the firm we may know by computing
several debt ratios. Total debt ratios show the relation between total debt to net assets or
capital or capital employed.

Total debt ratio=total debt/capital employed

(c) CAPITAL EQUITY RATIO:

It is another form of leverage ratio are may want to know how much funds are
contributed together by lenders and owners for rupee of owners contribution. This can be
found out by calculating the ratio of capital employed or net assets to net worth.

Capital equity ratio=Net assets/Net worth

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(d) PROPRIETARY RATIO:

This ratio indicates the general financial strength of the concern. It is a test of the
soundness of the financial structure of the concern. The total shareholders fund (net
worth) is compared with the tangible assets of the company.

Proprietary Ratio=Net worth or proprietary fund/Total assets

(e) FIXED ASSETS TO CAPITAL EMPLOYED RATIO:

This ratio indicates the extent of fixed assets the firm employed in the total capital
employed during the period. It is calculated by dividing fixed assets by capital employed.

Fixed assets to capital employed turn over ratio=fixed assets/capital employed

3. ACTIVITY RATIO:

Activity ratios reflect how effectively the company is managing its resources. These
ratios express the relationship between the level of sales and the investment assets like
inventory receivable fixed assets etc.

The important activity ratios are

a. Stock or inventory turnover ratio

b. Total assets turnover ratio
c. Fixed assets turnover ratio
d. Working capital turnover ratio
e. Current assets turnover ratio

(a) INVENTRY TURNOVER RATIO:

A ratio showing how many times the company’s inventory is soled and replaced
over a period. It is calculated as.

Inventory turnover ratio=sales/inventory

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(b) TOTAL ASSET TURNOVER RATIO:

This ratio ensures whether the capital employed has been effectively used or not.
This is also the test of managerial efficiency and business performance. Higher total
capital turnover ratio is always required in the interest of the company. This ratio is
measured on the basis of the following formula.

Total assets turnover ratio=sales/total assets

c) FIXED ASSET TURNOVER RATIO:

This ratio expresses the number of times fixed assets are being over in a given
period and how well the fixed assets are being used in the business.

Fixed assets turnover ratio= sales/ Net fixed assets

(d) WORKING CAPITAL TURNOVER RATIO:

This ratio shows the number of timers capital is turned over in a stated period. It
is calculated as follows. The higher is the ratio is lower is the investment in working
capital and greater are the profits.

Working capital turnover ratio=sales/net working capital

(e) CURRENT ASSET TURNOVER RATIO:

The firm may wish to know its efficiency of utilizing currents in organization.

A high gross profit margin ratio is assign of good management. A gross profit
margin ratio may increase due to any of these factors.

1. Higher sales prices and cost of goods sold remaining constant.

2. Lower cost of good a sold sale price remaining constant.
3. Combination of variations in sales price and cost and margin widening.
Current assets turnover ratio= sales / net fixed assets

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4. PROFITIBILITY RATIOS:

1. Gross profit ratio

2. Net profit ratio
3. Operating profit ratio

Profitability as related to investment

1. Return on investment
2. Return on shareholders
3. Return on capital employees

PROFITABILITY RATIOS:

Profit is the main objective of the every organization. A company should earn
profits to serve and grow over a long period of time. It is a fact that sufficient profits must
be earned to sustain the operations of the business to be able to obtain funds from
investors for expansion and growth and to contribute towards the social overheads for the
welfare of the society.

The profitability ratios are calculated to measure the operating efficiency of the
company. Creditors and owners are also interested to know the profitability of the firm.
Creditors want to get interest and repayment of principal regularly and return on
investment to investors. This is possible only when the company earn the enough profits.

a) GROSS PROFIT MARGIN RATIO:

The gross profit margin reflected the efficiency with which management produces
each unit of product. The high gross profit margin relative to the industry average implies
that the firm is able to produce at relatively lower cost.

A high gross profit margin ratio is assign of good management. A gross profit margin
ratio may increase due to any of these factors.

1. Higher sales prices cost of goods sold remaining constant.

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 2. Lower cost of goods sold sale price remaining constant.
3. Combination of variations in sales price and cost margin widening.

OPERATING EXPENSE RATIO:

The operating expense ratio explains the changes in the profit margin ratio. The
ratio is computed by dividing operating expenses by net sales. The operating expense
ratios a yardstick of operating efficiency but it should be used cautiously. It is affected by
a number of factors such as external uncontrollable factors and internal factors and
managerial efficiency.

EXPENSES RATIO:

Expenses ratio indicate the relationship of various expenses to net sales. The
operating ratio reveals the average total variations in expenses. But some of the expenses
may be increasing while some may be falling. Expense ratios are calculated by dividing
each item of expenses or group of expenses with the net sales to analysis the causes of
variation of the operating ratio. The lower the ratio the greater is the profitability and
higher the ratio and lower the profitability.

GROSS PROFIT RATIO:

This ratio shows the relationship between gross profits with sales to measure the
relative operating efficiency of the company. It also reflects its pricing policies. It is
computed by dividing sales minus the cost of goods sold by sales sometimes, it is
calculated by taking cost of goods sold instead of sales. It indicates the position of trading
result.

Gross profit can be measure by deducting the “Cost of Goods Sold” from the net
sales. Gross profit is the relationship between prices, sales volume and costs. The Gross
profit margin reflects the efficiency of the management.

Gross profit ratio=gross profit/net sales*100

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b) NET PROFIT RATIO:

Net profit to sales is also called net profit margin ratio. It is calculated by dividing net
incomes by net sales. This ratio provides good insight into the overall efficiency of the
business. A higher ratio shows the higher overall efficiency of the business and better
utilization of the total resources and at the same time the ratio indicates poor financial
planning and low efficiency also.

Net profit is obtained by deducting operating expenses, interest and taxes from the
gross profit. This ratio indicates the firm’s capacity to withstand adverse economic
conditions.

Net profit ratio= Net profit/ Net sales*100

OPERATING PROFIT RATIO:

This ratio indicates the relationship between Operating profit and sales. It is
worked out by dividing Operating profit by net sales. The net profit ratio may mislead by
showing high efficiency even though the efficiency is extremely low.

Operating profit ratio= Operating profit/ Net sales*100

RETURN ON CAPITAL EMPLOYED:

This ratio explains the relationship between net profit after tax and capital
employed.

This ratio explains about the amount of return that was attained through the
investment of capital. Net profit after tax is the profit that was available after the
deduction of all operating expenses. This ratio reveals the earnings and earning capacity
of the capital employed in the business.

Return on capital employed= Net profit/ Capital employed

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RETURN ON SHAREHOLDERS FUNDS OR EARNING PER SHARE:

The returns on shareholders’ funds explain the relationship between profit after
tax and the total shareholders’ funds. Shareholders equity consists of performance share
capital ordinary share capital and reserves and surplus. This ratio shows the owners funds
have been used by the firm and may be used in comparing the profitability of similar
firms.

The ratio carries the relationships of return to the sources of funds provided by the
owners of the firm. This measures the rate of return on shareholders’ funds. The higher
the ratio, the safer and advantage the financial position.

Earnings per share= (profit after tax-preference share)/number of equity shares.

2.8) TREND ANALYSIS:

Trend percentage are very useful is making comparative study of the financial
statements for a number of years. These indicate the direction of movement over a long
tine and help an analyst of financial statements to form an opinion as to whether
favorable or unfavorable tendencies have developed. This helps in future forecasts of
various items. For calculating trend percentages any year may be taken as the ‘base year’.
Each item of base year is assumed to be equal to 100 and on that basis the percentage of
item of each year calculated.

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INTRODUCTION

DEFINITIONOF BANK:

Banking Means "Accepting Deposits for the purpose of lending or Investment of

deposits of money from the public, repayable on demand or otherwise and withdraw by
cheque, draft or otherwise."

-Banking Companies (Regulation) Act, 1949

ORIGIN OF THE WORD “BANK”:-

The origin of the word bank is shrouded in mystery. According to one view point
the Italian business house carrying on crude from of banking were called banchi
bancheri" According to another viewpoint banking is derived from German word
"Branck" which mean heap or mound. In England, the issue of paper money by the
government was referred to as a raising a bank.

ORIGIN OF BANKING:

Its origin in the simplest form can be traced to the origin of authentic history.
After recognizing the benefit of money as a medium of exchange, the importance of
banking was developed as it provides the safer place to store the money. This safe place
ultimately evolved in to financial institutions that accepts deposits and make loans i.e.,
modern commercial banks.

BANKING SYSTEM IN INDIA:

Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it should be
able to meet new challenges posed by the technology and any other external and internal
factors.

For the past three decades India's banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no longer
confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system

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has reached even to the remote corners of the country. This is one of the main reasons of
India's growth process

HISTORY OF BANKING IN INDIA:

Banking in India has its origin as early or Vedic period. It is believed that the
transitions from many lending to banking must have occurred even before Manu, the
great Hindu furriest, who has devoted a section of his work to deposit and advances and
laid down rules relating to the rate of interest. During the mogul period, the indigenous
banker played a very important role in lending money and financing foreign trade and
commerce.

During the days of the East India Company it was the turn of agency house to
carry on the banking business. The General Bank of India was the first joint stock bank to
be established in the year 1786. The other which followed was the Bank of Hindustan and
Bengal Bank. The Bank of Hindustan is reported to have continued till 1906. While other
two failed in the meantime. In the first half of the 19th century the East India Company
established there banks, The bank of Bengal in 1809, the Bank of Bombay in 1840 and
the Bank of Bombay in1843. These three banks also known as the Presidency banks were
the independent units and functioned well. These three banks were amalgamated in 1920
and new bank, the Imperial Bank of India was established on 27th January, 1921.

With the passing of the State Bank of India Act in 1955 the undertaking of the
Imperial Bank of India was taken over by the newly constituted SBI. The Reserve Bank
of India (RBI) which is the Central bank was established in April, 1935 by passing
Reserve bank of India act 1935. The Central office of RBI is in Mumbai and it controls
all the other banks in the country.

In the wake of Swadeshi Movement, number of banks with the Indian

management were established in the country namely, Punjab National Bank Ltd., Bank of
India Ltd., Bank of Baroda Ltd., Canara Bank. Ltd. on 19th July 1969, 14 major banks of
the country were nationalized and on 15th April 1980, 6 more commercial private sector
banks were taken over by the government.

23 | P a g e
 The first bank in India, though conservative, was established in 1786. From 1786 till
today, the journey of Indian Banking System can be segregated into three distinct phases.
They areas mentioned below:

 Early phase from 1786 to 1969 of Indian Banks

 Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms.
 New phase of Indian Banking System with the advent of Indian Financial &
Banking Sector Reforms after 1991.

To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and
Phase III.

Phase I

The General Bank of India was set up in the year 1786. Next came banks are
Bank of Hindustan and Bengal Bank. The East India Company established Bank of
Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units
and called it Presidency Banks.

These three banks were amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians,
Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between
1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank,
Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic
failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To
streamline the functioning and activities of commercial banks, the Government of India
came up with The Banking Companies Act, 1949 which was later changed to Banking
Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of

24 | P a g e
India was vested with extensive powers for the supervision of banking in India as the
Central Banking Authority.

During those day’s public has lesser confidence in the banks. As an aftermath
deposit mobilization was slow. Abreast of it the savings bank facility provided by the
Postal department was comparatively safer. Moreover, funds were largely given to
traders.

Phase II

Government took major steps in this Indian Banking Sector Reform after
independence. In1955, it nationalized Imperial Bank of India with extensive banking
facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of
India to act as the principal agent of RBI and to handle banking transactions of the Union
and State Governments all over the country.

Seven banks forming subsidiary of State Bank of India was nationalized in 1960
on 19th July, 1969, major process of nationalization was carried out. It was the effort of
the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the
country were nationalized.

Second phase of nationalization Indian Banking Sector Reform was carried out in
1980 with seven more banks. This step brought 80% of the banking segment in India
under Government ownership.

The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:

 1949: Enactment of Banking Regulation Act.

 1955: Nationalization of State Bank of India.
 1959: Nationalization of SBI subsidiaries.
 1961: Insurance cover extended to deposits.
 1969: Nationalization of 14 major banks.
 1971: Creation of credit guarantee corporation.
 1975: Creation of regional rural banks.

25 | P a g e
  1980: Nationalization of seven banks with deposits over 200 Crore.

After the nationalization of banks, the branches of the public sector bank India raised
to approximately 800% in deposits and advances took a huge jump by 11,000%.Banking
in the sunshine of Government ownership gave the public implicit faith and immense
confidence about the sustainability of these institutions.

Phase III

This phase has introduced many more products and facilities in the banking sector
in its reforms measure. In 1991, under the chairmanship of M Narasimhan, a committee
was set up by his name which worked for the liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are
being put to give a satisfactory service to customers. Phone banking and net banking is
introduced. The entire system became more convenient and swift. Time is given more
importance than money.

The financial system of India has shown a great deal of resilience. It is sheltered
from any crisis triggered by any external macroeconomics shock as other East Asian
Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves
are high, the capital account is not yet fully convertible, and banks and their customers
have limited foreign exchange exposure.

BANKS IN INDIA:

In India the banks are being segregated in different groups. Each group has their
own benefits and limitations in operating in India. Each has their own dedicated target
market. Few of them only work in rural sector while others in both rural as well as urban.
Many even are only catering in cities. Some are of Indian origin and some are foreign
players.

26 | P a g e
 All these details and many more is discussed over here. The banks and its relation
with the customers, their mode of operation, the names of banks under different groups
and other such useful information’s are talked about.

One more section has been taken note of is the upcoming foreign banks in India.
The RBI has shown certain interest to involve more of foreign banks than the existing
one recently. This step has paved a way for few more foreign banks to start business in
India.

27 | P a g e
INTRODUCTION
Punjab National Bank (PNB) was registered on May 19, 1894 under the Indian
companies act with its office in Anarkali Bazaar Lahore. The bank is second largest
government-owned commercial bank in India with about 5,052 branches. It serves over
56 million customers. The bank has been ranked 248th biggest bank in the world by
Bankers Almanac, London.PNB has a subsidiary in the UK, as well as branches in
Hong-Kong and Kabul, and the representative offices in Almaty, Dubai, Oslo and
shanghai.The bank has total staff strength of 56928 employees at the end of Mar 2010.

HISTORY OF PNB:

1895:-PNB commenced its operations inLahore.PNB has the distinction of being

the first Indian bank to have been started solely with Indian capital that has survived to
the present. (The first entirely Indian bank, the Oudh Commercial, was established in
1881 in Faizabad, but failed in 1958) PNB, s founders included several leaders of the
Swdeshi movement such as Dayal Singh Majithia and Lala Harkishan Lal,Lala
Lalchand,Shri Kali Prosanna Roy and Lala Lajapat Rai was actively associated with the
management of the Bank in its early years.

1904:-PNB established branches in Karachi and Peshawar.

1940:-PNB absorbed Bhagwan Dass Bank, a scheduled bank located in Delhi circle.

1947:-partition of India and Pakistan at Independence.PNB lost its premises in Lahore,

but continued to operate in Pakistan.

1951:-PNB acquired 39 branches of Bharat Bank (est.1942); Bharat Bank become

Bharat Nidhi Ltd.

1961:-PNB acquired Universal Bank of India.

1963:-The Govt.of Burma nationalized PNB, s branch in Rangoon (Yangon).

28 | P a g e
September 1965:-After the Indo-Pak war the Govt.of Pakistan seized all the offices in
Pakistan of Indian banks, including PNB,s head office, which may have moved to
Karachi.PNB also had one or more branches in East Pakistan(Bangladesh).

1960:-PNB amalgamated Indo Commercial Bank (est.1933) in a rescue.

1969:-The Govt.of India (GOI) nationalized PNB and other 13 major commercial
banks, on July 19, 1969.

1976 or 1978:-PNB opened the branch in Landon.

1986:-The Reserve Bank of India required PNB to transfer its London branch to State
Bank of India after the branch was involved in fraud scandal.

1986:-PNB acquired Hindustan Commercial Bank (est.1943) in a rescue. The

acquisition added Hindustan’s 142 branches to PNB, s network.

1993:-PNB acquired New Bank of India, which the Govt.of India (GOI) had
nationalized in 1980

1998:-PNB set up a representative office in Alamaty, Kazakhstan.

2003:-PNB took over Nedungadi bank, the oldest private sector bank in Kerala. At the
time of the merger with PNB, Nedungadi Bank’s shares had zero value, with the result
that its shareholders received no payment for their shares.

PNB also opened a representative office in London.

2004:-PNB established a branch in Kabul, Afghanistan.

PNB also opened a representative office in Dubai.

2007:-PNB established PNBIL-Punjab National Bank (International),in the UK,with

two offices, once in London and one in South Hall. Since then it has opened a third
branch in Leicester and is planning a fourth in Birmingham.

2008:-PNB opened a branch in Hong Kong.

29 | P a g e
2009:-PNB opened a representative office in Oslo, Norway and a second branch in Hon
Kong, this is Kowloon.

2010:-PNB received permission to upgrade its representative office in Dubai

International Financial Centre to a branch

COMPANY PROFILE:

Established in 1895 in Lahore, Punjab National Bank is one of the oldest banks
in India having a virtual presence in every important center of the country. The bank has
56 million customers through 4997 domestic offices including 46 extension counters,
out of which 2/3 of its branches in rural areas-the largest among nationalized banks,
which makes it enjoy one of the highest penetration rate of banking activities in the
country.

Punjab National Bank caters to a wide range variety of audience through

spectrum of services including corporate and personal banking, industrial finance,
agricultural finance and international finance. Sitting on vast banking resources and
significant presence in almost every lending sphere,

The bank has capital adequacy ratio (CAR) well above the Basel-2 regulatory
requirement, at 14.16% as on end of March 2010, despite being exposed to numerous
market and credit risk elements.

PNB has achieved significant growth in business which at the end of March
2010 amounted to Rs 435931 crore.PNB is ranked as the 2nd largest bank in the country
after SBI in terms of branch network, business and many other parameters .During the
FY 2009-10, with 40.85% share of CASA (current account savings account) deposits.
Bank achieved a net profit of Rs 3905 core’s as on March 2010 the gross and net NPA
ratio of 1.71% and .53% respectively.

The bank has ambitious plan of major technological up-gradation to establish

capability of having 100,000 terminals under the Core Banking Solution (CBS) with a
greater thrust on increasing international foot prints. All branches of the bank are under
core banking solution since December 2008.The bank has also offering Internet banking

30 | P a g e
services to its customer which also enables online booking of rail tickets, payment of
utilities bills, purchase of online tickets etc. It has more than 3700 ATM,s has the
largest ATM network amongst Nationalized Banks.PNB has continued to retain its
leadership position among the nationalized banks. The bank enjoys the strong
fundamentals, large franchise value and good brand image. Besides being ranked as one
of the India’s top service brands, PNB has remained fully committed to its guiding
principles of sound and prudent banking. Apart from offering banking product the bank
also entered the credit card and debit card business; bullion business; life and non life
insurance business; gold coin and asset management business etc. Since its humble
beginning in 1985 with the distinction of being a first Indian bank to have been started
with Indian capital, PNB has achieved significant growth in business which at the end
of March 2010 amounted to Rs 435931 Crore. Today with asset of more than Rs
296,632.79 crore.PNB is the 3rd largest bank in the country (after SBI and ICICI Bank)
and 2nd largest network of branches. With the help of the advanced technology, the bank
has been front runner in the industry so far as the initiative fir financial inclusion is
concerned. With its policy of inclusive growth in the Indo-Gangetic belt, the Bank’s
mission is “BANKING FOR UNBANKED”. The bank has launched a drive for
biometric smart card based technology enabled Financial Inclusion with the help of
Business Correspondents/business facilitators(BC/BF)so as to reach out to the last mile
customer. The BC/BF will address the outreach issue while technology will provide
cost effective and transparent services. The bank has already achieved 100% financial
inclusion in more than 21000 villages. Backed by strong domestic performance, the
bank is planning to realize it global aspirations. Bank continues its selective foray in
international markets with presence in 9 countries, with two branches in Hong Kong,
one each at Kabul and Dubai, representative offices at Almaty,Dubai,Shanghai and
Oslo; a wholly owned subsidiary in UK;a joint venture with Everest Bank Ltd,Nepal
and a JV banking subsidiary “DRUCK PNB Bank Ltd” Buthan.Bank is pursuing up
gradation of its representative offices in China and Norway and is in the process of
setting up a representative office in Sydney, Australia and taking controlling stake in
JSC Dana Bank in Kazakhstan.

31 | P a g e
 Financial performance Punjab National Bank continues to maintain its frontline
position in the Indian Banking industry. In particular, the bank has retained its
NUMBER ONE position among the nationalized banks in terms of number of
branches,deposits,advances,total business, operating and net profit in the year of 2009-
10.The impressive operational and financial performance has been brought about by
banks focus on customer based business with thrust on SME,Agriculture more inclusive
approach to banking; better asset liability management; improved margin management,
trust on recovery and increased efficiency in core operations of the bank. The
performance highlights of the bank in terms of business and profit are shown below:

Table No:3.1 Performance Highlights of Bank:

Rs in Crore

Parameters Mar,07 Mar,08 Mar,09 Mar,10 CAGR

(%)

Operating 3617 4006 5690 7326 22.29

profit

Net profit 1540 2049 3091 3905 23.98

Deposit 139860 166457 209760 249330 14.42

Advance 96597 119502 154703 186601 16.01

Total 236456 285959 364463 435931 15.09

Business

OUTLOOK:

Punjab National Bank has always stood with the time even in the direst of
circumstances. The bank is facing stiff challenges from its private sector counterparts.
According to the RBI data, the banking business composition break up between private
sector bank and nationalized banks stood at 40% and 60% respectively, but the equation
has taken a paradigm shift in favor of private sector banks owing to phased

32 | P a g e
liberalizations of the BFSI sector, the composition stood at 21%as against nationalized
banks share with reduced 49% in 2007.

In a macro-prudential analysis of the Indian economy, it seems as the Indian

banking industry has come a long way and entered in its ever challenging growth phase
in a very prominent time as more than 49% of population financially excluded offers
immense opportunity to the bank. Pursuing its financial inclusion, Punjab National
Bank has opened more than 7.86 lakh No frills Accounts and intends to cover over
30,000 villages,75 million people by end of 2010 through Biometric Technology apart
from comprehensive scheme launched for covering finance and insurance (health and
life) for rickshaw pullers, project for empowering women weavers, vegetable vendors,
etc.The core focus of the bank will be on retaining and further improving low cost
deposits, lending to agriculture and small and medium enterprises and repositioning of
subsidiaries and joint ventures.At the time of global financial turmoil, where the banks
all over the world are creeping under tremendous pressure, Punjab National Bank
managed to insulate itself away from fatal transaction and has strictly adhered to RBI
guidelines.

33 | P a g e
BOARD OF DIRECTOR:

Table No:3.2: Board of Directors Of P.N.B:

Name Designation

K R Kamath Chairman and Managing director

Nagesh Pydah Director

Mushtaq A Antulay Director

V K Mishra Director

G R Sundaradivel Director

Mohinder Paul Singh Director

Jasbir Singh Director

M V Tanksale Director

Ravneet Kaur Director

Gautam P Khandelwal Director

T N Chaturvedi Director

D K Singla Director

BUSINESS OBJECTIVE:

VISION:

“To be a Leading Global Bank with Pan India footprints and become a household
brand in the Indo-Gangetic Plains, providing entire range of financial products and
services under one roof.”

34 | P a g e
MISSION:

“Banking for the unbanked”

VALUES AND ETHICS:

 Bonding and Integrity

 Ethical Conduct
 Periodic Discloser
 Confidentiality and fair dealing
 Compliance with rule and regulations

BUSINESS PROFILE:

PRODUCT AND SERVICES:

Table No.3.3:product and Services Offered By the P.N.B:

Savings Fund Account

Personal Banking Current Account
Fixed Deposit Schemes
Capital Gain Account Scheme
Social banking CSR Initiatives
Financial Inclusion
MSME Banking SSI Scheme(Manufacturing as well as services)
Traders Finance
Corporate Banking Loan against Future Lease Rentals EXIM Finance
Cash Management Services Gold Card Scheme for
Exporters
Agri Business Cell
Agricultural Banking Agricultural Banking
Farmers Banking
Offshore Banking Unit(OBU)
International Banking/NRI PNB's Helpdesk Forex Services
PNB's World Travel Card
Insurance Business
Financial Services Mutual Fund
Merchant banking
ASBA
Wealth Management Services

35 | P a g e
TECNOLOGY USED IN PNB:

Punjab National Bank, leading Nationalized bank of the country with focus on
providing Value added services by leveraging technology, today showcased its
“Technology Highway”., by un-veiling following six technology driven initiatives
dedicated to enhance customer convenience:

 PNB- Mobile Banking

 PNB- Biz – Merchant Acquiring Business(POS)
 PNB-Smart Invest (ASBA) and
 PNB-Xpress Remit (Remittances from Abroad)
 PNB- World Travel Card
 PNB- Pre-paid Card

PNB the second largest Public Sector Bank has already brought 100% of its
offices under the Centralized Banking Platform; with nearly 8000 own ATMs and
connectivity to 45000 other ATMs, also offer facilities like Internet Banking to both the
Retail/Corporate customers along with Debit & Credit Cards.

PNB Mobile Banking would enable PNB customers in accessing banking services
anytime/anywhere on-the-move through mobile phones. It is compatible with popular
mobile devices across most GSM & CDMA operators with easy to operate features.

The Mobile Banking Services are being offered in line with the guidelines of the
Reserve Bank of India. PNB Mobile Banking offers services like checking account
balances, transfer of funds, stop-payment of cheques, request for a cheque book and
many more add-ons features.

The introduction of services of PNB-Biz Merchant Acquiring Business (POS) not

only meets the popular demand of customers/merchants for increasing the use of plastic
money but also provides a platform for the Bank in generating revenue. Different type of
POS terminals – Physical, GPRS, PC Based, IVRS and Cash Register Integrated with
POS would be available. This will help the merchants in generating MIS and
simultaneous accounting at the time of transaction at POS, besides giving the merchant

36 | P a g e
complete reconciliation of his sales transactions. The Bank would soon come out with its
own Payment Gateway to facilitate e-commerce transactions over Internet.

The introduction of PNB-Smart Invest [Application Supported by Blocked

Amount (ASBA)] has provides an alternative mode of payment in Public Issues to bank’s
customers. With no submission of cheques required, PNB-Smart Invest is a Simple, Safe
and Smart way of investing. The funds from the customers’ accounts will be debited only
after the allotment of shares, thereby saving them from the loss of interest and hassles of
getting a refund.

To overcome the delays in NRI Remittances and to provide faster credit in the
beneficiary accounts, the PNB-Xpress Remit allows NRIs to remit funds directly in the
beneficiary account in any PNB branch in India. The beneficiary, if opted for SMS Alert
facility will get immediate alert of the remittance and would be able to withdraw money
from any PNB branch.

Extending convenience of making payments using “plastic money”, the two

variants of value-added cards were added to the bank’s card-bouquet - PNB-World
Travel Card for foreign travelers and PNB-Prepaid Card for domestic use.

The PNB World Travel Card – an “e-wallet” for the International traveler
acceptable across the globe would be available in three major currencies- US Dollar,
Pound Sterling and Euro. The World Travel Card offers convenience to outbound
travelers who can buy goods and services across the globe by just swiping it.

The PNB-Prepaid Card – a boon to the domestic consumer in meeting the

shopping/purchasing needs in a cashless way. The PNB Prepaid card with a reloading
option would be acceptable at all merchant establishments and with a facility to withdraw
cash. The card may also be used as a gift instrument. This may also be used by corporate
for bonus/reward instrument for employees/vendors.

37 | P a g e
AWARDS AND ACHIEVEMENTS:

Table No 3.4: Awards & Achievements of Punjab National Bank:

Awards & Achievements of Punjab National

Bank in Recent times.

Award from Minister of Commerce and

1) Niryat Bandhu Bronze Trophy.
Industry.

Excellent Performance in Lending From Ministry of Micro, Small & Medium

2)
Under PMEGP Scheme award. Enterprises.

3) The Best Bank Award From Reserve bank of India

2nd prize of Indira Gandhi Rajbhasha

4) For promoting Hindi for the year 2008-09.
Shield

Gold Trophy of SCOPE Meritorious

5) Award for Excellence in Corporate By Standing Conference of Public Enterprises.
Governance in 2009

5th Social and Corporate Governance

Award Under the Category of "Best
6) By Bombay Stock Exchange for 2010
Corporate Social Responsibility
Practice"

38 | P a g e
 Skoch Awards 2010 for
7) By Skoch for 2010
"Computerisation of RRBs"

Global HR Excellance Award 2010 for

8) the outstanding Contribution to the World HRD Congress
cause of Education

“Asia Best Employer Brand Award” for

9) By World HRD Congress for 2010
Excellence in Training

“Award for Brand Excellance” under

10) By CMO Asia for 2010
Banking & Financial Services

11) “CSR Excellence Award 2010” By ASSOCHAM

For“Livelihood Linkage” of the milk producers

12) Skoch Challenge Award 2010
in Bulandshahr District, Uttar Pradesh

Best use of Technology for Financial

13) By IDRBT.
Inclusion for 2009-10.

Best Employer Brand Award Regional

14) By Employer Branding Institute, India
Round Award Winners-Indore

Golden Peacock Award for Excellence

15) By Institute of Directors for 2009.
in Corporate Governance

India Pride Awards for excellence in By Dainik Bhaskar in association with Daily
16)
PSU News and Analysis for 2009.

Dun Bradstreet Award for “Priority

17) Sector Lending including Financial By Dun & Bradstreet for 2009.
Inclusion”.

National Award for Excellence in By Khadi & Village Industry Commission,

Lending for Institutional Finance in Ministry of Micro, Small & Medium Enterprises,
18)
Propagating KVI Programs in national Govt. of India, (Interest Subsidy Eligibility
level Certificate Scheme) for 2009.

39 | P a g e
 National Award for Excellence in
Lending for Institutional Finance for
19)
Propagating KVI Programs in NORTH
ZONE
By Khadi & Village Industry Commission,
Ministry of Micro, Small & Medium Enterprises,
Govt. of India, (PM’s Employment Generation
Programme) for 2009.

National Award for Excellence in By Khadi & Village Industry Commission,

Lending for Institutional Finance for Ministry of Micro, Small & Medium Enterprises,
20)
Propagating KVI Programmes Govt. of India(Prime Minister Employment
in CENTRAL ZONE Generation Programme) for 2009.

National Award for Excellence in By Khadi & Village Industry Commission,

Lending for Institutional Finance in Ministry of Micro, Small & Medium Enterprises,
21)
Propagating KVI Programmes in Govt. of India(Interest Subsidy Eligibility
NORTH ZONE Certificate Scheme) for 2009.

National Award for Excellence in By Khadi & Village Industry Commission,

Lending for Institutional Finance in Ministry of Micro, Small & Medium Enterprises,
22)
Propagating KVI Programmes Govt. of India (Interest Subsidy Eligibility
in CENTRAL ZONE Certificate Scheme) for 2009.

40 | P a g e
ORGANISATION STRUCTURE:

HEAD OFFICE

ZONAL OFFICES

REGIONAL OFFICES

BRANCHES

41 | P a g e
HIERARCHY:

CHAIRMAN

EXECUTIVE DIRECTOR(ED)

GENERAL MANAGER (GM)

DEPUTY GENERAL MANAGER (DGM)

ASSISTANT GENERAL MANAGER (AGM)

CHIEF MANAGER

SENIOR MANAGER

MANAGER

OFFICERS

SUBORDINATES/CLEARK STAFFS

42 | P a g e
STRENGTH AND WEAKNESS:

Table No 4.1:

Strength Weaknesses
 Fundamentally sound bank  Predominant presence in less
 3.7 crore strong customer base developed areas leading to high
 Well-entrenched Brand Image operating cost
 Dominant position in Indo-Gangetic  Complacency (Structural &
Plain –No competition Environmental)
 A leader amongst Public Sector  Weak & Inconsistent MIS
Banks rendering decision making difficult
 High proportion of customer base in  Limited International presence.
deposits Low NRI business
 Strong Risk Management Practices  More dependence on conventional
 Redefined processes through low margin business
technology initiatives like CBS,  No Income from Financial Products
ATM, Internet Banking such as Insurance, Mutual Fund,
 100% CBS branches Credit Card etc.
 High tech platform incorporating  “State” Ownership has affected
EDW, CRM etc. level playing field and competitive
 Large network of branches with ability
66% in Rural & Semi-urban areas  Less flexibility in dealing with
strategic HR & operational issues
 Imbalance in distribution/
deployment of staff
 Inadequate skills for modern
banking
 Changing environment, adoption of
technological advancement,
marketing of products requires
change in the mind-set of
employees

43 | P a g e
THREATS AND OPPORTUNITIES:
Table No.4.2
Threats
 Aggressive marketing by competitor
banks
 Expansion of peer Banks/Private
Sector Banks in Indo-Gangetic belt
eroding our dominance
 Loss of savings business to
Mutual Fund/ Insurance Products
which are aggressively marketed as
being more remunerative
 Technological parity of competitor
banks
 Aggressive strategy and innovative
products, larger risk appetite of
other banks
Threats have since been converted into
Opportunities.
Opportunities
 Rural India is the next growth
horizon with an opportunity 3
times the size of Urban India
 Financial Inclusion is a clear-cut
opportunity with overall exposure
to formal services of finance being
about 20%
 Great opportunity for expanding
business with over 60% population
outside the banking service net
 IT Initiative creating a back bone
for increasing reach. It provides an
opportunity to go beyond the Brick
& Mortar
 Bank has a visionary leadership
which can transform the bank
 Large workforce of 55398
number of employees. Each and
every employee has to believe we
can do it, usher in change in our
attitudes/conventional wisdom, be
a learner willing to adapt to the
changing
44 | P a g e
PERFORMANCE DURING THE LAST 5 YEARS:
The Bank’s performance in the last 5 years has been impressive in all major
parameters with business doubling to reach Rs. 286000 crore in 2007-08. The Bank’s
average growth in major parameters and achievement in the last 5 years is given below:

Table No: 4.3: Financial performance of Bank: (Data in Crore)

PARAMETERS Mar, 04 Mar, 05 Mar, 06 Mar, 07 Mar, 08 Dec, 08

Total Deposit 87916 103167 119685 139860 166457 197069

Total Advances 47224 60413 74627 96597 119502 141659

Operating Profit 3121 2404 2917 3617 4006 4156

Net Profit 1109 1410 1439 1540 2049 2225

Interest Income 7780 8460 9337 11236 14265 14083

Non - Interest 1867 1676 1521 1730 1998 2064

Income

Gross NPA 4670 3741 3138 3391 3319 3264

Net NPA 449 119 210 726 754 552

Gross NPA (%) 9.35 5.96 4.10 3.45 2.74 2.28

Net NPA (%) 0.98 0.20 0.29 0.76 0.64 0.39

Cost of Deposits (%) 5.01 4.43 4.32 4.53 5.59 6.26

Yield of Advances 9.08 8.10 8.31 9.17 10.36 11.51

Business Per 2.28 2.77 3.31 4.07 5.05 6.06

employee

Profit Per Employee 1.88 2.42 2.48 2.68 3.66 5.38

(in lac)

Return on Assets (%) 0.92 1.17 1.09 1.03 1.15 1.37

45 | P a g e
BALANCE SHEET OF PNB LTD:
As On Mar 2006, Mar 2007, Mar 2008, Mar2009, Mar2010.
Table No.4.4:Balancesheet of PNB:

2006 2007 2008 2009 2010

CAPITAL AND
LIABILITIES:

TotalShare Capital 315.30 315.30 315.30 315.30 315.30

Equity Share Capital 315.30 315.30 315.30 315.30 315.30

Share Application 0.00 0.00 0.00 0.00 0.00

Money

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 8758.68 9826.31 10467.35 12824.59 15915.63

Revaluation Reserves 302.38 293.85 1535.70 1513.74 1491.99

Net Worth 9376.36 10435.46 12318.35 14653.63 17722.92

Deposits 119684.92 139859.67 166457.23 209760.50 249329.80

Borrowings 6687.18 1948.18 5446.56 4374.36 19262.32

Total Debt 126372.10 141808.53 171903.79 214134.86 268592.17

Other Liabilities And 9518.93 10178.51 14798.23 18130.13 10317.69

Provisions

Total Liabilities 145267.39 162422.50 199020.37 246918.62 296632.78

ASSETS:

Cash AndBalances With 23394.56 12372.03 15258.15 17058.25 18327.58

RBI

46 | P a g e
Balances With Banks 1397.14 3273.49 3572.57 4354.89 5145.99
Money At Call

Advances 74627.37 97596.52 119501.57 154702.99 186601.21

Investments 41055.31 45189.84 53991.71 63385.18 77724.47

Gross Block 2106.92 2247.74 3699.64 3930.36 4215.21

Accumulated 1076.69 1237.92 1384.12 1533.25 1701.74

Depreciation

Net Fixed Assets 1030.23 1009.82 2315.52 2397.11 2513.47

Capital Work In Progress 0.00 0.00 0.00 0.00 0.00

Other Assets 3762.79 3980.80 4380.84 5020.20 6320.07

Total Assets 145267.40 162422.50 199020.36 246918.62 296632.79

PROFIT AND LOSS ACCOUNT OF PNB:

Table No.4.5: profit and Loss A/c of PNB:

Year 2006 2007 2008 2009 2010

Income In cr In cr In cr In cr In cr
Interest Earned 9,584.15 11,537.48 14,265.02 19,326.16 21,466.91
Other Income 1,478.23 1,343.64 1,997.56 2,919.69 3,565.31
Total Income 11,062.38 12,881.12 16,262.58 22,245.85 25,032.22
Expenditure
Interest expended 4,917.39 6,022.91 8,730.86 12,295.30 12,944.02
Employee Cost 2,114.97 2,352.45 2,461.54 2,924.38 3,121.14
Selling and
638.79 1,032.50 884.19 1,406.42 1,701.46
Admin Expenses
Depreciation 186.65 194.80 170.23 191.06 222.83
Miscellaneous
1,765.27 1,738.38 1,966.98 2,337.80 3,137.42
Expenses
Preoperative Exp
0.00 0.00 0.00 0.00 0.00
Capitalized

47 | P a g e
Operating
3,263.15 3,926.05 3,902.55 5,026.81 5,761.36
Expenses
Provisions &
1,442.53 1,392.08 1,580.39 1,832.85 2,421.49
Contingencies
Total Expenses 9,623.07 11,341.04 14,213.80 19,154.96 21,126.87
Net Profit for
1,439.31 1,540.08 2,048.76 3,090.88 3,905.36
the Year
Extra ordinary
0.00 0.00 0.00 0.00 0.00
Items
Profit brought
0.00 183.49 15.52 0.00 7.64
forward
Total 1,439.31 1,723.57 2,064.28 3,090.88 3,913.00
Preference
0.00 0.00 0.00 0.00 0.00
Dividend
Equity Dividend 189.18 409.89 409.89 630.61 693.67
Corporate
26.53 63.11 69.66 107.17 116.43
Dividend Tax
Per share data
(annualized)
Earnings Per
45.65 48.84 64.98 98.03 123.86
Share (Rs)
Equity Dividend
60.00 100.00 100.00 200.00 220.00
(%)
Book Value (Rs) 287.79 321.65 341.98 416.74 514.77
Appropriations
Transfer to
Statutory -1,512.23 435.06 596.14 1,155.46 1,532.46
Reserves
Transfer to Other
2,552.34 800.00 988.59 1,190.00 1,570.44
Reserves
Proposed
Dividend/Transfer 215.71 473.00 479.55 737.78 810.10
to Govt
Balance c/f to
183.49 15.52 0.00 7.64 0.00
Balance Sheet
Total 1,439.31 1,723.58 2,064.28 3,090.88 3,913.00

48 | P a g e
RESEARCH METHODOLOGY:

The procedure adopted for conducting the research requires a lot of attention as it
has direct bearing on accuracy, reliability and adequacy of results obtained. It is due to
this reason that research methodology, which we used at the time of conducting the
research, needs to be elaborated upon. It may be understood as a science of studying how
research is done scientifically. So, the research methodology not only talks about the
research methods but also considers the logic behind the method used in the context of
the research study. Research Methodology is a way to systematically study and solve the
research problems. If a researcher wants to claim his study as a good study, he must
clearly state the methodology adapted in conducting the research the research so that it
may be judged by the reader whether the methodology of work done is sound or not.

OBJECTIVE OF THE STUDY:

Objectives are the ends that states specifically how goal be achieved. Every study
must have an objective for which all the efforts have been done. Without objective no
research can be conducted and no result can be obtained. On the basis of objective all the
research process is followed. Objectives are the main aspect of every study. The objective
of the study gives direction to go through the research problem. It guides the researcher
and keeps him on track. I have two objectives regarding my research project. These are
shown bellow:-

1. Primary objective.
2. Secondary objective.

1. Primary objective :-
1) To analyze financial performance of P.N.B during 2006-10.
2) To understand the financial performance of the Bank.
3) To analyze the working capital of the company.
4) To understand measures with regard to loans and advances of the bank.

49 | P a g e
2. Secondary objective:-
To see whether the PNB is going well or not in different areas.

IMPORTANCE OF THE STUDY:

The study will be helpful to executives to make a review of the changes in

financial situations and deliberate on the measures to be taken to improve the
performance.

SCOPE OF THE STUDY:

The study is a longitudinal study. It considers a period of five years.

MEANING OF RESEARCH:

Research is defined as “a scientific and systematic search for pertinent

information on a specific topic”. Research is an art of scientific investigation. Research is
a systematized effort to gain now knowledge. It is a careful investigation or inquiry
especially through search for new facts in any branch of knowledge. Research is an
academic activity and this term should be used in a technical sense. Research comprises
defining and redefining problems, formulating hypothesis or suggested solutions. Making
deductions and reaching conclusions to determine whether they if the formulating
hypothesis. Research is thus, an original contribution to the existing stock of knowledge
making for its advancement. The search for knowledge through objective and systematic
method of finding solutions to a problem is research.

RESEARCH PROBLEM:

The first step while conducting research is careful definition of Research Problem.
“To ERR IS THE HUMAN” is a proverb which indicates that no one is perfect in this
world. Every researcher has to face many problems which conducting any research that’s

50 | P a g e
why problem statement is defined to know which type of problems a researcher has to
face while conducting any study. It is said that, “Problem well defined is problem half
solved.”Basically, a problem statement refers to some difficulty, which researcher
experiences in the context of either a theoretical or practical situation and wants to obtain
the solution for the same. The problem statement here is:-
“TO MAKE A RATIO ANALYSIS OF PUNJAB NATIONAL BANK”

RESEARCH DESIGN:

A research designs is the arrangement of conditions for collection and analysis

data in a manner that aims to combine relevance to the research purpose with economy in
procedure. Research Design is the conceptual structure with in which research in
conducted. It constitutes the blueprint for the collection measurement and analysis of
data. Research Design includes an outline of what the researcher will do form writing the
hypothesis and it operational implication to the final analysis of data. A research design is
a framework for the study and is used as guide in collection and analyzing the data. It is a
strategy specifying which approach will be used for gathering and analyzing the data. It
also includes the time and cost budget since most studies are done under these two cost
budget since most studies are done under theses tow constraints.

TYPES OF RESEARCH DESIGN:

 EXPERIMENTAL RESEARCH DESIGN

 EXPLORATORY RESEARCH DESIGN
 DESCRIPTIVE& DIAGNOSTIC RESEARCH

EXPERIMENTAL RESEARCH DESIGN:

This research design is preferred when researcher has a vague idea about the
problem the researcher has to explore the subject.

51 | P a g e
EXPLORATORY RESEARCH DESIGN:

The research design is used to provide a strong basis for the existence of casual
relationship between two or more variables.

DESCRIPTIVE DESIGN:

It seeks to determine the answers to who, what, where, when and how questions.
It is based on some previous understanding of the matter.

DIAGNOSTICRESEARCH DESIGN:

It determines the frequency with which something occurs or its association with
something else.

RESEARCH DESIGN USED IN THE STUDY:

Descriptive research design is used in this study because it will ensure the
minimization of bias and maximization of reliability of data collected. Descriptive study
is based on some previous understanding of the topic. Research has got a very specific
objective and clear cut data requirements. 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.

DATA COLLECTION METHOD:

The process of data collection begins after a research problem has been defined
and research design has been chalked out. There are two types’ of data:

52 | P a g e
PRIMARY DATA: -

It is first hand data, which is collected by researcher itself. Primary data is

collected by various approaches so as to get a precise, accurate, realistic and relevant
data. The main tool in gathering primary data was investigation and observation. It was
achieved by a direct approach and observation from the officials of the company.

SECONDARY DATA: -

It is the data which is already collected by someone else. Researcher has to

analyze the data and interprets the results. It has always been important for the
completion of any report. It provides reliable, suitable, adequate and specific knowledge.

TYPE OF DATA USED IN THE STUDY:

The required data for the study are basically secondary in nature and the data are
collected from:

 The audited reports of the company.

 INTERNET – which includes required financial data collected form PNB’s
official website i.e. www.pnbindia.in and some other websites on the internet for
the purpose of getting all the required financial data of the bank and to get
detailed knowledge about PNB for the convenience of study.
 Broachers of PNB.
 The valuable cooperation extended by staff members and the Circle Head of PNB
Karnataka circle Bangalore contributed a lot to fulfill the requirements in the
collection of data in order to complete the project.

53 | P a g e
METHODS OF DATA ANALYSIS:

The data collected were edited, classified and tabulated for analysis. The
analytical tools used in this study are:

ANALYTICAL TOOLS APPLIED:

The study employs the following analytical tools:

1. Ratio analysis.
2. Break even analysis.
3. Indexed analysis.

LIMITATION OF STUDY:

 Difficulty in data collection.

 The analysis and interpretation are based on secondary data contained in the
published annual reports of PNB for the study period.
 Due to the limited time available at the disposable, the study has been confined
for a period of 5 years (2006-2010).
 Ratio itself will not completely show the company’s good or bad financial
position.
 Inter firm comparison was not possible due to the non availability of competitors
full data.

SIGNIFICANCE OF THE STUDY:

The study will be helpful to executive to make a review of the changes in

financial situations and deliberate on the measures to be taken to improve the
performance.

54 | P a g e
RATIO ANALYSIS IN P.N.B

Financial analysis enables us to understand and assess the financial position of a

business organization. Ratio analysis is one of the most important techniques used for
effective financial analysis. A Ratio is used as a yard stick for evaluating the financial
performance.

According to Webster “a ratio shows the relationship between two or more

things.” The relationship between two accounting figures, expressed mathematically is
known as “financial ratio.” A ratio is used as an index or yardstick for evaluating
financial position and performance of an enterprise.
The following types of ratios are used

Liquidity Ratios
Leverage Ratios
Activity Ratios
Profitability Ratios

I. LIQUIDITY RATIOS

A class of financial metrics that is used to determine a company’s ability to pay

off its shirt-terms debts obligations. Generally, the higher the value of the ratio, the larger
the margin of safety that he company possesses to cover short-term debts.

Common liquidity ratios include the current ratio, the quick ratio and operating
cash flow ratio. Different analysts will calculate only the sum of the cash and equivalents
divided by current liabilities because they feel that they are the most liquid assets, and
would be the most likely to be used to cover short-term debts is of utmost importance
when creditors are seeking payment. Bankruptcy analysts and mortgage originators

55 | P a g e
frequently use the liquidity ratios to determine whether the company will be able to
continue as going concern.

6.1) CURRENT RATIO

A liquidity ratio is that measures the company’s ability to pay the short-term
obligations.
The current ratio formula is:

1. Current Ratio=current assets /current liabilities

The ratio is mainly used to give an idea of the company’s ability to pay back its
short-term liabilities (debt and payables) with its short-term assets (cash, inventory,
receivables). The higher the current ratio, the more capable the company is paying its
obligations. A ratio under 1 suggests that the company would be unable to pay off its
obligations if they came due at that point. While this shows the company is not in good
financial health, it does not necessarily mean that it will go bankrupt as there are many
ways to access financing – but it is definitely not a good sign. The current ratio can give a
sense of the efficiency of a company’s operating cycle or its ability to turn its product
into cash. Companies that have trouble getting paid on their receivables or have long
inventory turnover can run into liquidity problems because they are unable to alleviate
their obligations.
6.1. Table showing Current ratio:

Year Current Assets Current Liabilities Ratios

(Rs. In crores) (Rs. In croress)
2006 135891.03 122060.77 1.11
2007 151987.04 138038.43 1.0
2008 186702.02 166162.1 1.12
2009 232265.99 213077.8 1.09
2010 278909.9 249610.6 1.117

56 | P a g e
 Fig No.6.1: Current Ratio chart:

1.14
1.123613613
1.113306347 1.117379737
1.12
1.101048744
1.1 1.090048018

1.08 Series1 Series1

1.06
2006 2007 2008 2009 2010

The current ratio for the last five years is almost exceeds 1.1 except 2009.That
means the company is in a better position to pay its current liabilities which are
going to mature within one year.

6.2) QUICK RATIO

It is a measure of judging ability of the company to pay off its current

obligations. It is obtained by dividing quick liabilities. Quick ratio is 1:1 is usually
considered adequate, but again while using this ratio as a means of immediate ability to
pay off its short-term obligations, liquidity of receivable which are not collectable, are
not adequate to support the liquidity of the concern.

Quick Ratio=Quick assets/ Current liabilities

57 | P a g e
 6.2: Table showing Quick ratio:

Year Quick Assets Current Liabilities Ratios

(Rs. In cr) (Rs. In cr)
2006 135891.03 122060.77 1.11
2007 151987.04 138038.43 1.0
2008 186702.02 166162.1 1.12
2009 232265.99 213077.8 1.09
2010 278909.9 249610.6 1.117

Fig 6.2: quick Ratio Chart;

1.15 1.12 1.117

1.11
1.09
1.1

1.05
1
1 Series1

0.95 Series1
0.9
2006 2007 2008 2009 2010

Generally for Quick Ratio 1:1 is taken to be ideal.

In the above calculations for the years 2004-05 and 2005-06 the quick ratio is less than 1.
That is the current liabilities exceed the quick assets.
And for the last three years the quick ratio exceeds 1. That means the company is
concentrating in increasing its quick assets.

58 | P a g e
6.3) Solvency ratio:
Solvency ratio= Total liabilities / Total asset

6.3: Table Showing Solvency ratio (amount in Crores):

year Total liabilities Total assets Ratios

2006 145267.39 145267.40 0.9
2007 162267.50 162428.49 1.006
2008 199020.37 199020.36 1

2009 246918.62 246918.62 1

2010 296632.78 296632.79 1

Fig 6.3: Solvency ratio chart:

1.05
1.006
1 1 1 1
0.95
0.9
0.9
Series1
0.85
0.8
2006
2007 Series1
2008
2009
2010

59 | P a g e
 Generally the best solvency ratio to any firm is 1:1 .in the year 2006 the ratio is
less than 1, after that the bank’s solvency ratio is exceeds & equal to 1 by this we can say
that the bank is having a good solvency ratio and performing well.

6.4) Gross profit ratio:

Gross profit ratio=gross profit/net sales

6.4: Ttable Showing Gross Profit Ratio:

year Gross profit (cr) Net sales(cr) ratio

2006 7173.46 21466.91 0.33
2007 5744.35 19326.16 0.29
2008 4006.24 14265.02 0.28
2009 3230.64 11537.48 0.28
2010 2874.77 9584.15 0.29

Fig 6.4: Gross profit ratio chart:

0.34 0.33

0.32
0.3 0.29
0.28 0.28 0.29
0.28
0.26 Series1

0.24
2006 2007 2008 Series1
2009
2010

60 | P a g e
 This gross profit reveals the operating efficiency of the company. Gross profit
ratio may be indicated to what extent the selling prices of goods per unit may be reduced
without incurring losses on operations. It reflects efficiency with which a firm produces
its products. As the gross profit is found by deducting cost of goods sold from net sales,
higher the gross profit better it is. There is no standard GP ratio for evaluation. It may
vary from business to business The gross profit ratio for the year 2006 is 0.33 and for
2007 is 0.29 This reveals that the operating efficiency in this year is decreased than the
previous year. From this year it was decreased until the year 2010. That means the bank
is in a better position.

6.5) Return on share holder’s investment ratio:

Return on share holder’s investment=net profit/shareholder’s funds

6.5: Table Showing Return on Share Holder’s Investment:

year Net profit(cr) Shareholders’ Ratio

funds(cr)
2006 1439.3 9389.28 0.15
2007 1540.08 10456.91 0.14
2008 2048.76 11097.95 0.18
2009 3090.88 13455.19 0.22
2010 3095.35 16546.23 0.18

Fig.6.5: Return on share holder’s investment chart:

61 | P a g e
 0.25
0.22
0.2 0.18
0.15
0.14 0.18
0.15
0.1
Series1
0.05
0
2006
2007 Series1
2008
2009
2010

The bank’s performance in share market is very good and year by year the
investors are getting a appreciable returns on their investment except the year 2007. This
means the bank is in a very good position.

6.6) Ratio of reserves to equity capital:

Ratio of reserves to equity capital=reserves/equity share capital

6.6: Table Showing Ratio of Reserves to Equity Capital:

Year Reserves (cr) Equity share capital Ratio

(cr)
2006 8758.68 315.30 27.77
2007 9826.31 315.30 31.16
2008 10467.35 315.30 33.19
2009 12824.519 315.30 40.07
2010 15915.63 315.30 50.47

Fig 6.6: Ratio of reserves to equity capital chart:

62 | P a g e
 60
50.47
50
40.07
40 31.16 33.19
27.77
30
Series1
20
10 Series1
0
2006 2007 2008 2009 2010

The ratio of reserves to equity capital is increasing in a constant growth rate by the
growth from the reserves to equity capital we can say that the bank is performing very
well.

6.7) Total debts to assets ratio:

Total debts to assets ratio=total liabilities/ total assets

6.7: Table Showing Total DebtsTo Assets Ratio (amount in crores)

year Total liabilities Total assets ratio

2006 145267.39 145267.40 0.99
2007 162422.50 1624222.50 1
2008 199020.37 199020.36 1.005
2009 246918.62 246918.62 1
2010 296632.78 296632.79 1

63 | P a g e
 Fig.6.7: Total debts to assets ratio chart:

1.005
1 1.0005 1 1
1

0.995
0.99
0.99 Series1

0.985 Series1
0.98
1 2 3 4 5

It provides information about the company's ability to absorb asset reductions arising
from losses without jeopardizing the interest of creditors.
In the year 2006 the ratio is just below 1.
In the next years it is 1 and just exceeding 1.

6.8) Net profit ratio:

Net profit ratio= net profit/net sales *100

6.8 Table Showing Net Profit Ratio:

Year Net profit(cr) Net sales (cr) Ratios

2006 1439.31 21466.91 6.7
2007 1540.08 19326.16 7.9
2008 2048.76 14265.02 14.3
2009 3613.23 11537.48 31.3
2010 3095.88 9584.15 32.3

64 | P a g e
 Fig 6.8: Net profit ratio Chart:

40

30 31.3 32.3

20
14.3
6.7 7.9 Series1
10

0
2006
2007 Series1
2008
2009
2010

NP ratio is used to measure the overall profitability and hence it is very useful to
proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not
be able to achieve a satisfactory return on its investment.
This ratio also indicates the firm's capacity to face adverse economic conditions
such as price competition, low demand, etc. Obviously, higher the ratio the better is the
profitability. But while interpreting the ratio it should be kept in mind that the
performance of profits also be seen in relation to investments or capital of the firm and
not only in relation to sales

65 | P a g e
6.9) Expense Ratio:
Expense ratio=expense/net sales *100

6.9. Table Showing Expense Ratio:

year Total expense Net sales ratio
2006 9623.07 21466.91 44.82
2007 11341.04 19326.16 58.68
2008 14213.80 14265.02 62.33
2009 19154.96 11537.48 78.98
2010 21126.81 9584.15 84.76

Fig 6.9: Expense Ratio Chart:

100
80 78.98 84.76
58.68 62.33
60 44.82
40
20 Series1

0
2006
2007 Series1
2008
2009
2010

The ratio can be calculated for individual items of expense or a group of items of
a particular type of expense like cost of sales ratio, administrative expense ratio, selling
expense ratio, materials consumed ratio, etc. The lower the operating ratio, the larger is
the profitability and higher the operating ratio, lower is the profitability.

While interpreting expense ratio, it must be remembered that for a fixed expense
like rent, the ratio will fall if the sales increase and for a variable expense, the ratio in
proportion to sales shall remain nearly the same.

66 | P a g e
6.10) OPERATING PROFIT TO SALES RATIO:

This ratio indicates the relationship between operating profit and sales. It is
worked out by dividing the operating profit by net sales. This enables to judge the
material efficiency which may not be declared in net profit ratio.

6.10: Table Showing operating Profit to sales Ratio:

Year Operating Net profit Net Sales Ratios

2006 1980.91 21466.91 10.84

2007 1575.08 19326.16 24.41
2008 857.50 14265.02 16.50
2009 559.79 1153.48 9.42
2010 464.54 9584.15 7.60

Fig 6.10: The operating profit to sales ratio Chart:

30 24.41
20 16.5
10.84
10 9.42
7.6
0 Series1
2006 Series1
2007
2008
2009
2010

67 | P a g e
 The operating profit to sales ratio of P.N.B for the year 2006 is 10.84. It was
increased to 24.41 for the next year 2007. This means the company possessed high
operating efficiency in this year. After that it was decreased until the year 2010. That is
the company is concentrating on minimizing its costs.

6.11) WORKING CAPITAL TURNOVER RATIO

This ratio shows the number of timers capital is turned over in a stated period. It
is calculated as follows. The higher is the ratio is lower is the investment in working
capital and greater are the profits.
Working capital turnover ratio=sales/net working capital

6.11: Table showing Working capital turnover ratio:

Year Sales Net working capital Ratios

2006 5752.69 313.80 18.33
2007 6453.21 1494.74 4.32
2008 5196.79 1835.80 2.83
2009 5935.72 2060.79 2.88
2010 6110.11 2400.98 2.54

Fig.6.11: Working capital turnover ratio chart:

68 | P a g e
 20 18.33

15

10
4.32 Series1
5 2.83 2.88 2.54
Series1
0
2006 2007 2008 2009 2010

In the year 2006, the working capital results 18.33 times in the sales. After that it
was decreased for the next two years continuously. Then after that it was increased to
2.88 times in the sales for that year. Again it was increased in the year 2010. That means
the company is concentrating on decreasing cost of production

6.12) FIXED ASSETS TURNOVER RATIO:

This ratio expresses the number of times fixed assets are being over in a given
period and how well the fixed assets are being used in the business.
Fixed assets turnover ratio= sales/ Net fixed assets

69 | P a g e
 6.12: Table Showing Fixed assets turnover ratio:

Year Sales Net Fixed Assets Ratios

2006 5752.69 263.64 21.82

2007 6453.21 262.04 24.62
2008 5196.79 264.19 19.67
2009 5935.72 288.24 20.59
2010 6110.11 324.63 18.82

Fig.6.12: Fixed assets turnover ratio chart:

24.62
25
21.82
19.67 20.59
20 18.82

15
Series1
10

5 Series1

0
2006 2007 2008 2009 2010

The fixed assets turnover ratio of P.N.B for the year 2006 was 21.82 and it was
for 2007was 18.82. There is highest fixed asset turnover ratio for the year 2007. For this
year the cost of production is higher than the remaining years because fixed assets. And
for the last year the company utilized high amount of fixed assets. That is the company is
maintaining high rate of production with lower rate of cost of production at presently.

70 | P a g e
6.13) TREND ANALYSIS:
6.13(A): Table showing trend data:

(By taking data of 2006 as a base year)

31/3/2006 31/3/2007 31/3/2008 31/3/2009 31/3/2010

Advances 74627.37 97596.52 119501.57 154702.99 186601.21

deposits 119684.92 139860.67 166457.23 209760.50 249329.80

Net profit 1439.31 1540.08 2049.76 3091.88 3905.36

6.13(B): Table Showing Growth in trend:

31/3/2007 31/3/2008 31/3/2009 31/3/2010

Growth in
Advances 30.78% 22.44% 29.46% 20.62%
Growth in
deposits 16.85% 19.01% 26.01% 18.87%
Growth in net
profit 7.001% 33.09% 50.84% 26.31%

Fig 6.13: Representation of growth rate in trend line:

60

50 50.84

40

33.09 ADVANANES
30 30.78 29.46
26.31 DEPOSITS
26.01
22.44 NET PROFIT
20 19.01 20.62
18.82
16.85

10
7.001

0
2007 2008 2009 2010

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 Fig 6.14: Representation of advance:

200000 186601.21
154702.99
150000 2006
119501.57
97596.52 2007
100000 74627.37
2008
50000
2009
0 2010
2008 2009 2010
2007
Advances 2006

The amount of advances of PNB is fluctuating since last 4 years, but it is

increasing with decreasing rate because in 2007 growth rate of advances was 30.78%
while in 2008 it 22.44% and then in 2009 it was 29.46% .In 2010 it declined to 20.62%.

Fig 6.15: Representation of deposits:

250000 249329.8

209760.5
200000
166457.23
2006
150000 139860.67
119684.92 2007
2008
100000
2009
2010
50000

0
DEPOSITS 2006 2007 2008 2009 2010

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 The amount of deposited funds also had shown fluctuation. In 2007 growth rate
was 16.85% and it increased in 2008 and 2009 also. Again it decreased in 2010.

Fig 6.16: Representation of net profit:

3905.36
4000
3500 3091.88
3000
2006
2500
2049.76
2007
2000
1540.08
1439.31 2008
1500
2009
1000
2010
500
0
PROFIT 2006 2007 2008 2009 2010

The growth rate of net profit had shown high function from last four years. At the
end of financial year 2007 it was increased by 7% and it increased rapidly in next two
years at the rate of 33% and 51% respectively. Then it decreased to 26% at the end of
2010.

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FINDINGS:

1. The current ratio has shown in a nearly stable trend as 1.11, 1.0, 1.12, 1.09 and
1.117 during 2007 the ratio current assets and current liabilities are equal. But rest
of the year it shown little bit fluctuation..

2. The quick ratio is also in a same trend as current ratio throughout the period 2006
– 10 resulting as 1.11, 1.0, 1.12, and 1.09; 1.117.The Company’s present liquidity
position is satisfactory.

3. The solvency ratio has been showed a fluctuation in the year 2006 as well as
2007.In 2006 it was bellow 1 and 2007 it exceeded 1.Rest of the years the ratio
was shown stable performance.

4. The gross profit ratio has shown a fluctuating trend. The gross profit ratio is
decreased compared with the last year. Only in 2010 it increased and 2008 and
2009 it was stable so, the gross profit of the company decreased year to year and
it shown fluctuation.

5. The total debt asset ratio is shown stable trend apart from 2006 and 2008.In 2006
it was just below 1 and in 2008 just above 1.Rest of the years it was equal to 1.so
company’s liabilities and assets are nearly equal or exactly equal in all years.

6. The fixed asset turnover ratio is shown fluctuation trend from the year 2006 – 10
(21.82, 24.62, 19.67, 20.59, 18.82).It was more at the year 2007.But the it
decreased to 19.67 in 2008.At the end of 2010 financial year it decreased to
18.82.But this is also in under control. So company is utilizing its assent in a
relevant manner.

7. The working capital turnover ratio had shown huge fluctuation. It showed
decreased trend. It was 18.33 at 2006 and suddenly decreased to 4.32 in 2007.It
increased little bit in 2008 to 2.88 from 2.88 compare to 2007.At the end of 2010
it decreased once again.

8. Apart from 2010 return on share holder’s investment ratio shown increasing trend.
In the year 2009 the share holders earned maximum compare to other years.

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 9. The net profit ratio is in increasing manner. It increased in every year compared
with the previous year.

10. The Reserves and Surplus to Capital ratio is showed constant growth.

11. The expense ratio is in increasing manner. It increased in every year compared
with the previous year. It increased to 84.76 in 2010 compare with 44.82 at 2006.

12. The operating profit to sales ratio of P.N.B for the year 2006 is 10.84. It was
increased to 24.41 for the next year 2007. This means the company possessed
high operating efficiency in this year. After that it was decreased until the year
2010. That is the company is concentrating on minimizing its costs.

SUGGESTIONS:

Based on the study, the following measures are suggested to improve the company’s
performance:

1. Working capital turnover ratio is decreased because of extra cost involved in

operations and maintenance so therefore company should reduce those extra
cost involved in operations and maintenance in order to increase working
capital ratio.

2. The expense ratio shows the huge increase in every year. So the bank should
be reducing their operating cost to increase profitability.

3. In 2010 the return on share holder’s ratio shown decrease, maybe it due to
huge competition in an industry.So bank ought to use new strategies to face
competition.

4. The fixed asset ratio also shown decreased trend in last year. So company
should think about to increase their fixed asset.

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CONCLUSION:

The study entitled “Financial Ratio Analysis of Punjab National Bank” has been
undertaken with objective to analyze and interpret the company’s financial performance.
The analysis of the company was undertaken with the help of ratio’s which are important
tools of financial analysis.

The company’s liquidity position is satisfactory as the current ratio is as per norms.
Company also has enough cash to meet short term obligation.

The proprietary ratio revels that the shareholders funds are properly invested. It indicates
that the company is comfortable in raising its long term financial requirements.

After having the solved ratios and analyzing financial data we can conclude that the
company’s position is stable in maintaining its present position. It seems that the
company is maintaining status quo position in its business strategies.

The bank constantly innovates, reorients strategies and realigns business process with
advanced technology to serve the consumer better and earn brand salience, loyalty and
recall. The bank has the centralized solution, along with a variety of financial products
catering to different market segments.

Punjab National Bank has always looked at technology as a key facilitator to provide
better customer service and ensured that its “IT strategy” follows the “business strategy”
so as to arrive as “Best Fit”. The bank has made rapid strides in this direction.

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