CHAPTER I

INTRODUCTION

 General Introduction
  

Statement of Problem Objectives of Study Period of Study Limitations of The Study

 Methodology

 Chapter scheme

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CHAPTER 1

INTRODUCTION
GENERAL INTRODUCTION
ORIGIN OF BANK

There are different opinions regarding the origin of the term ‘bank’. According to some, the English term ‘bank’ is derived from the Italian word ‘Banco’, the Latin word ‘Bancus’ and the French word ‘Banque’, which means a ‘bench’ used as a counter for banking activities. They are of the opinion that the medieval European bankers [i.e., the money changers and money lenders] transacted their banking activities, viz., money changing [i.e., exchanging one currency for another] and money lending, by displaying coins of different countries, and of different denominations, in big heaps on the benches in the market places. As such, the word ‘Bank’ should be associated with the Italian word ‘Banco’. According to others, the term ‘bank’ is derived from the German word ‘Banck’ which means a joint stock fund or common fund [i.e., heaps of money] raised from a large number of members of the public. They argue that the early European bankers raised a common fund or heaps of money from the public for the purpose of financing the needy. As banks deal in common fund or heaps of money raised from the public, the term ‘bank’ should be traced to the German word ‘Banck’. Of these two views, the latter view seems to be more appropriate, as the term ‘Bank’ is generally associated with an institution dealing in heaps of money raised from the public. 1.1 DEFINITION OF BANK It is very difficult to define the term ‘bank’ or ‘banker’ precisely. Even the best authorities on banking have failed to provide a satisfactory definition of this term. This is because a modern bank performs numerous activities, and it is really difficult to incorporate all the activities of a modern bank in a simple and satisfactory definition.
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1.1.1 DEFINITION GIVEN BY INDIAN BANKING REGULATION ACT Sec 5(1) (b) of the Indian Banking Regulation Act of 1949 defines the term “Banking” as “accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise.” 1.1.2 CHARACTERISTICS OF BANK According to the definition given by the Indian Banking Regulation Act of 1949, the essential characteristics of bank are:  Acceptance of deposits from the public on current, fixed and savings bank account.  Allowing of withdrawals of those deposits by cheques, drafts, orders or otherwise.  Utilization of deposits in hand for the purpose of lending or investment in securities.  Performance of other activities called subsidiary services, in addition to the principal activities of receiving of deposits and lending of funds.  Performance of banking business as the main business.  Using the term ‘Bank’, ‘Banker’ or ‘Banking Company’ as part of the firm. The definition given by the Indian Banking Regulation Act of 1949 comprises all the essential features of the bank. 1.2 IMPORTANCE OF BANKS Banking system occupies a very important place in a nation’s economy. Banking institutions are indispensable in a modern society. They play a vital role in the economic development of a country, and form the core of the money market. The economic development of a country mainly depends on infrastructural facilities. Banks and other financial institutions constitute the financial infrastructure of a country. The economic history of many countries
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which are repayable on demand or otherwise and lend money to those who stand in need of money. the indigenous bankers played a very important role in lending money and financing foreign trade and commerce. a modern bank performs a host of other functions. The commercial banks accept deposits from the public. It is believed that the transmission from money lending to banking must have occurred even before Manu. The General Bank of India was the first joint stock Bank to 4 . where banking development preceded industrial development. They control financial stability of nations and can augment to retard development. During the days of the East India Company. all of which are of considerable utility to its customer and the community generally. They permeate into political. the great Hindu Jurist. Economy of countries developed or less developed. They satisfy the financial needs of modern business. social and all other fields of human activity. In addition to the lending and borrowing of money. The activities and functions have becomes all pervading and omniscient. They are so important that modern business is certainly impossible without them and no country can achieve commercial and industrial progress in the absence of a sound banking system. who has devoted a section of his work to deposits and advanced and laid down rules relating to rates of interest. INDIAN BANKING SECTOR Banking in India has its origin as early as the Vedic period.reveals the economic development succeeds the growth of financial infrastructure. The commercial banks put together the savings of the community and arrange for their productive use. Banks are important because they perform certain economic functions. History of Great Britain is the best example. During the Mogul period. it was the turn of the agency houses to carry on the banking business. free or centrally planned cannot progress without the aid of banks. Banks occupy very important place in the field of commerce and industry of any country. No government or individual can discard or ignore the role of banks in their day to day activities.

The Bank of Hindustan is reported to have continued till 1906 while the other two failed in the meantime. The organized sector is under the regulation and control of the RBI and the government.. The Bank of Baroda. six more commercial private sector banks were also taken over by the government. The Reserve Bank which is the central Bank was created in 1935 by passing Reserve Bank of India Act 1934. These three banks also known as presidency Banks were independent units are functioned well. a number of banks with India management were established in the country namely. cooperative banks. The Central Bank of India Ltd.. In the wake of the Swadeshi Movement. 14 major banks of the country were nationalized and in 15th April 1980. The institutions that perform banking activities are called banking institutions. In the first half of the 19th century the East India company established three banks. Commercial Banks a) Scheduled Banks (i) Public sector banks • State Bank group 5 . With the passing of the State Bank of India Act in 1955 the undertaking of the Imperial Bank of India was taken over by the newly constituted State Bank of India. Banking institutions are the major sources of institutional finance in India and they occupy a pivotal place in the organized sector of the Indian money market. function. Punjab National Bank Ltd. The others which followed were the Bank of Hindustan and the Bengal Bank.be established in the year 1786. working. 1969. There is lot of difference between the organized and unorganized sector of the money market in terms of their structure. These three banks were amalgamated in 1920 and a new bank. Indian Bank Ltd. the Bank of Bengal in 1809. the Bank of Bombay in 1840 and the Bank of Madras in 1843. the Imperial bank of India was established on 27th January 1921. Only July 19. interest rate etc. terms of credit.. The organized sector consists of the commercial banks. Bank of India Ltd.. Regional Rural Bank’s (RRB) and development banks. Banking institutions in India are classified as under: 1.

scheduled banks. which are not included in the second schedule of RBI Act. Co-operative Banks a. which accept deposits from the public and lend them for short periods for trade and industry. State Co-operative Banks (SCBs) 1. 6 Foreign Banks . Scheduled banks are entitled to get borrowing facilities from the RBI and they are also covered by the deposit insurance scheme and the credit guarantee scheme. The classification of scheduled and nonscheduled commercial banks lost significance in the wake of nationalization of commercial banks in 1969 and later in 1980. Now non-scheduled banks are disappearing from the banking scene. Central co-operative Banks (CCBs) c. The commercial banks are classified into (a) Scheduled and (b) Non .3 COMMERCIAL BANKS Commercial banks are those banks. it must have a paid up capital and reserves fixed by the RBI from time to time and it must satisfy the RBI that its business is not conducted in a manner detrimental to the interest of the public. The banks. Primary Credit Societies (PACs) b.• Nationalized banks (ii) Private sector banks • Indian Banks  Old Indian Private Sector Banks  New Generation Banks • b) Non –Scheduled Banks 2. Banks. Regional Rural Banks (RRB’s) 3. are called non-scheduled banks. which are included in the second schedule of the RBI Act. To include a bank’s name in the second schedule of the RBI Act. are known as scheduled banks.

cater to the financial needs of the rural people and they inculcate a healthy saving habit among the rural masses. Commercial bank mobilizes scattered. to start business activities.Capital is an inevitable factor of modern production and without which entrepreneurs are helpless in carrying out business activities. commercial banks encourage new entrepreneurs.4 Influence economic activity: . New business activities generate employment opportunities. both in urban and rural areas.4. Indian public sector banks consist of State Bank group and other nationalized banks. Further.Scheduled commercial banks can be public sector banks and private sector banks. All these lead to development in backward areas. 1. 1.4.4. Development in trade and industry is possible only if the banking system in the country is developed. Thus they help in the capital formation of a country. even small savings of the public through a variety of deposit schemes.Commercial banks in a country are capable of determining the rate of interest in the money market through its supply of funds.Expansion of banking system throughout the country. 1.Commercial banks generate employment opportunities by financing trade and commerce. 1. The importance of commercial banks in the development of a country can be understood from the following points. 1.4 ROLE OF COMMERCIAL BANKS IN A DEVELOPING Commercial banks have a significant role to play in the development of a country. who do not have their own funds.1 Capital formation: . The money so mobilized is put to use for productive purposes by extending short term and medium term loans to industries. Through financing of industries.3 Development of rural areas: . is very essential for the development of a country. banks help young people to get employment by providing loans for higher studies. Commercial banks.4. by establishing their branches in rural areas. During times of economic recession they can pump in more 7 ECONOMY .2 Generation of employment opportunities: .

1. 8 . they help in developing the standard of living of the people in a developing country.money into the economy and during times of boom they can siphon the money off from the economy.4. The following are the outcome of LPG.6 Improves the standard of living of the people: . Both IT and LPG have brought the under noted changes that pose with opportunities as well as threats to the banking sector. • More competition • Innovation of various financial products. banks advance loans to consumers to buy consumer durable goods like houses. scooters. in this country has facilitated the dawn of LPG era (Liberalization.4. Privatization and Globalization) in the horizon of the Indian banking industry. In this way. 1. The central bank can implement the monetary policy only through the commercial banks.5 Facilitates Monetary Policy: .The policies taken by the Central Bank of a country to strengthen the economy is called monetary policy.5 LIBERALISATION OF INDIAN BANKING SECTOR The financial sector reforms. that started in the year 1991 – 1992. Again. the LPG strategy has brought sea changes in the banking sectors that have started rocking the bottom liens of many public sector banks.Generation of employment opportunities by commercial banks fetches higher income to the people that ultimately add to their purchasing power. All these actions of commercial banks have a direct bearing on the economic activities taking place in a country. • Marketing of banking product/services • Asset and liability mismatch • Increase in business risks. • High customer expectation for quality and value added service. The recent revolution in the Information Technology (IT) has further complicated the emerging scenario. In the emerging scenario. 1. refrigerators etc. Thus the role of commercial bank is that of a facilitator in implementing monetary policy by the Central Bank.

Thus the financial health of a bank mainly depends on the following:  Financial performance: . the nationalized banks and the Regional Rural Banks come under this category. 1. Verma Hon. 9 .7 INTRODUCTION TO THE PROJECT In a modern money using economy. Reserve Bank of India constituted a working group on restructuring of weak public sector banks on February 6th 1999 under the chairmanship of Shri.It is the multidimensional views of the financial position reported by geography. business line. SBU’s etc.It is basically capital solvency and liquidity with clear differentiation between regulatory and economic capital.• Capital restructuring • E-Commerce and internet banking • Whole sale and retail banking • Tele-banking • Home Banking • Anywhere and any time banking Public sector banks are those banks which are owned and controlled by the government. As finance is required at each stage of an enterprise. M. The ambitious plans of a businessman would remain mere dreams unless adequate money is available to transform them into reality.  Financial position: .6 FINANCIAL HEALTH OF A BANK The customer views a bank’s capability through the security and solidity provided by it. future potential to repay. providing an ability to assess changes in position. and also the capability of the bank to meet its commitments. Advisor of the Reserve Bank of India. In India. 1. finance means the provision of money at the time of its necessity.S. Finance is the lifeblood of business. and contribution to capital growth. increase shareholder wealth. we can say that money is to an enterprise what oil to an engine.

Financial statements are the basis for decision making by the management as well as by outsiders who are interested in the affairs of the firm. Financial statement is an organized collection of data according to logical and consistent accounting procedures. The major part of any business plan must be expressed in financial terms. Profit may be considered as an index of success.. liabilities and capital as on a certain date while the profit and loss account reveals the results of operations during a certain period. 1 10 . compare and evaluate a firm’s earning capacity. In order to interpret these statements one must know the implication and significance of each entry. The basis of financial planning and decision making is the financial information. Its purpose is to convey an understanding of some financial aspects of a business firm. This brings to light the need for proper administration of finance. soundness of businessman and offers the ultimate test of business performance. Financial statements provide a summary of the accounts of a business enterprise in the form of balance sheet exhibits the assets. Finance is the only common denominator for vast range of corporate objectives.e. Each entry in these statements has a meaning. and purchase of liability and equity claims issued for the purpose of generating revenue producing assets’1. distribution of. Finance is defined as ‘issuance of. It is also required to aid in economic decision making. Proper administration of finance means the study. investment and financing decision making. analysis and evaluation of all financial problems to be faced by the management and to take proper decisions with reference to the present circumstance regarding the procurement and utilization of funds that might be necessary to increase the efficiency of the remaining factors of production.The word finance comes indirectly from the Latin word ‘finis’. The financial information of an enterprise is contained in the financial statements or accounting records. measures effectiveness. It serves three purpose i. Financial information is needed to predict.

The analysis and interpretation is essential to bring out the mystery behind the figures in the financial statements. So it is relevant and useful to make the analysis of the 11 . Financial analysis is the process of identifying the financial strengths and weakness of a firm by properly establishing relationship between the items of balance sheet and profit and loss account.The information provided in the financial statements is of immense use in making decision through analysis and interpretation of financial statements. Understanding the past is the pre-requisite for anticipating the future. 1. Management is also interested in knowing financial strength of the firm to make their best use and be able to spot out financial weakness of the firm and to take suitable corrective actions. Canara Bank is now hundred years old founded on 1 July 1906 with laudable intentions of helping the common man Canara Bank now ranks as the largest among the nationalized banks in terms of the global business. The future plans of the firm should be laid down in view of the firm’s financial strengths and weaknesses. In the study an attempt is made to analyze bank’s past performance and asses its present financial strength. It is also one of the highest profit earners among Indian banks. The information contained in these statements is used by management. Users of financial statements can get better insight about financial strengths and weakness of the firm provided they properly analyze the information contained in the statements. Financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set of statements and a study of the trend of these factors as shown in a series.7 USE OF FINANCIAL STATEMENT A firm communicates financial information to the users through financial statement. investors and others to form judgment about the performance and the financial position of the firm. Financial analysis is the starting point for making plans. The purpose of financial analysis is to diagnose the information contained in the financial statements so as to judge the profitability and financial soundness of the firm.

3. The problem is stated as ‘An Analysis of Financial Performance of Canara Bank’. 2. 1. To asses the operational efficiency of the bank. Financial analysis enables the management to exercise control over the bank’s operations. 3. 5. This study will enable them to understand the trends of growth of the bank. They have to rely upon the published accounts to a considerable extent. 4.10 PERIOD OF STUDY The study comprise five years commencing from 2007-2010 12 . 1. The main objective is to analyze and interpret the financial performance and effectiveness of the bank activities from 2007 to 2010. Financial analysis is an essential prerequisite for financial planning and decision making.9 SIGNIFICANCE OF THE STUDY The social and economic significance of the study can be stated as under.financial performance of Canara Bank. 1. The outsiders who want to make analysis do not have access to the internal accounting records. To suggest suitable remedial measures for better performance of the bank. to know the changes in the financial and operating conditions and to check the adverse trends then and there. 4. 1. The study enables to understand the competitive strength and growth rate when compared with other banks.8 OBJECTIVES OF THE STUDY 1. Such a study helps the government to implement various measures on the bank. 2. To analyze the profitability of the bank.

Tables and charts are used to represent the analyzed data.13 LIMITATIONS OF THE STUDY 1. 2. 3. For the analysis one has to determine the best method of collection of data. trend percentage etc. • Primary Source These are those data which are originally collected for the first time for specific purpose. years difficult. This is an exploratory research design. • Secondary source These are data which are already collected.1. used by someone else for their own purpose. Due to shortage of time an in depth study regarding the topic is not possible 13 .11 METHODOLOGY The crucial aspect while doing the project is fetching correct and relevant information which gives proper and correct conclusion after interpretation having determined the purpose and objective. Thus the sources of data collection are classified into two groups. 1. Interviews with the top executives of the bank form the source of primary data. purchased. which involves information from the annual financial statements and reports of Canara Bank. They are original in character.12 TOOLS OF ANALYSIS In this study profitability ratios cost and yield ratio and operational efficiency ratio are being calculated to analyze the financial statements of four years. So the inherent limitations of these analytical tools are other limitations of the study. The required data for this study are basically secondary in nature. The change in interest and price levels makes comparison for the The study is made with the help of an analytical tools like ratios. Such data have been collected from the audited accounts of the Canara Bank. 1.

Statement of the problem. objectives of the study. limitations and chapter scheme. Chapter II The second chapter deals with the profile of the bank Chapter III The third chapter provides a brief review of literature related to financial analysis of the bank. This chapter also contains a brief description regarding the performance highlights of the bank and its various areas of operations. Chapter IV The fourth chapter evaluates the over all performance and Profitability of the bank. methodology.14 CHAPTER SCHEME The study is presented in 5 chapters: Chapter I Introductory chapter contains general introduction. The important ratios calculated for the analysis of financial performance of the bank are Profitability ratios. It includes a diagrammatic representation of jurisdiction of the bank. introduction to the project. period of the study. Chapter V This chapter presents a summary of findings and recommendation 14 . significances of the study. Cost and Yield ratios and Operational Efficiency ratios.1.

CHAPTER II COMPANY PROFILE • About Canara bank Management Performance highlights Working results • • • 15 .

Canara Bank has indeed come a long way. It has been nurtured to its present state by the invaluable contribution of thousands of men and women. The characteristics that any good bank should possess.CHAPTER II COMPANY PROFILE Canara Bank is today one of the largest banks in the country. Just as Rome was not built in a day institutions too do not attain gargantuan proportions overnight. the largest among nationalized banks in terms of global business. The tiny seed that was planted way back in 1906 in the coastal town of Mangalore by a crusader for social causes. Canara Bank always lays great store by its human resources. has today grown to attain the status of a banking behemoth. flexibility of approach. acquiring for it in the process a distinct brand image of trendsetter. In the hundred years of its existence Canara Bank has let many lamps. a bank par excellence. viz. An institution that aimed to ameliorate the sufferings of the common man. reeling under the clutches of unscrupulous moneylenders and to promote thrift and savings among other objectives still proudly relates itself to the noble cause of serving both the cognoscenti and the hoi polloi and humbly holds on to its status of a ‘common man’s bank’. optimism. philanthropist and advocate. Yes. Sri. courage to take risk and a sense of responsibility is all to be found in this great Institution. selfless individuals who shaped its destiny. emerging more powerful each time. an institution that is looked at with awe by its contemporaries. receptivity to change. setting benchmarks in each and every sphere of its activity. bouncing back to serve the community at large with all the resources at its command. and helped millions of our countrymen to rise and shine and to better the quality of their lives. Ammembal Subba Rao Pai. It was David Rockefeller who said that ‘Banks are there to help people who want to come up in the world’. brought sunshine into countless number of households. This saga of 16 . Canara Bank is one of the few that has exhibited sturdiness and resilience taking vicissitudes in its stride.

focusing not just on driving the wolf from the door but also on engendering self employment. the buzzword in banking circles today. creating self-help groups. Another area where the bank has been placing emphasis in the last few years is Information Technology (IT).171 employees have been trained during 2005 and the target of training 1. providing multifarious avenues for women to come up in life and unshackling them from bondage have 17 . Canara Bank has always prided itself on its excellent standards of customer service. The bank has computerized all its branches. right from its fledgling years. In a scenario of changing customer expectations where the focus is more on speed and quality of service. a sine qua non for progress. Under the aegis of the Canara Bank Centenary Rural Development Trust. The identification of the individual with the institution. an hour that it wrested in the teeth of competition from corporates all over the country. the bank has spared no effort to spruce up its service standards and has always endeavored to render state of the art service to its clientele. has been aware of its duties and responsibilities as a corporate citizen. the bank has been doing yeoman service in espousing the cause of the poor and downtrodden and has devised a number of schemes for their uplift. Corporate Social Responsibility has been a mantra that the bank has been assiduously cultivating and its efforts in this direction have been amply rewarded with encomiums and accolades from all quarters. is complete in the institution which has never failed to foster the growth of its human resources and has always charted out career path for them. The bank.000 employees has been achieved at the end of June 2006. its loyal band of men and women who have stood by it through thick and thin and its clientele whose loyalty to the institution unquestionable.success it owes to its workforce. The bank has also focused extensively on training its human resources so as to enable them to come to grips with the changing banking scenario. introduced slew of IT driven products and has also rolled out its Core Banking Solution which will add a lot of muscle to its operations in the coming days. The bank was the recipient of the Helpage India award for Corporate Social Responsibility for 2004-2005. 00. A record number of 88.

5 percent respectively. 18 . The bank is also providing Tele-banking.9 percent and 18. Anywhere – Banking and remote Access Terminal facilities to its customers. The bank expanded into international markets with the opening of its London branch as early as 1983. Corporate Governance is also being accorded top priority and the bank has been endeavoring to maximize value for all categories of stakeholders. the bank has recently entered into an agreement with State Bank of India for setting up a joint venture bank in Moscow under the name ‘Commercial Bank of India’. The bank already operates in Moscow through a representative office. The bank has seen a steady and consistent growth in both its deposits and advances. In the last five years the deposits and advances of the bank have been grown at a compounded annual growth rate of 13. To further its foreign business initiative. The bank has also witnessed an improvement in its operating efficiency with the business size per branch growing at a compounded annual growth rate 14. The bank believes that its efforts in respect of IT initiatives. Currently. focus on customer centric measures and thrust on profitability would enable it to fulfill its vision. the bank’s international operations are represented by its presence in London and Moscow and a wide network of correspondent banking arrangements. Corporate mission of the bank is to achieve ‘Profitability.4 percent over the last seven years. The bank also has a wholly owned foreign subsidiary Indo Hong Kong International Finance Ltd. The bank’s public issue in 2002 was oversubscribed nearly two times even in lukewarm conditions and investors have been handsomely rewarded with dividend and capital appreciation with the bank’s stock trading at the bourses at several multiples of the offer price. head-quartered in Hong Kong which accepts deposits and undertakes trade financing activities. and Productivity’.also been among the bank’s priorities. Efficiency. The bank’s corporate vision in the medium term is to be a ‘World Class and world Sized Bank’.

000 crore. other directors representing the Government. 2002 has given its approval for the present issue. Department of Economic Affairs (Banking Division) by its letter dated August 29. both appointed by the Government of India. Vast domestic branch network spread across the country. Ministry of Finance. II. Ministry of Finance.17 per cent. The Government of India. Wide – ranging portfolio of financial services provided through various subsidiaries of the bank. the Bank’s General Managers who are assisted by a team of competent professionals. the shareholding of the Government of India will be 73. Low NPA level of 3.1 Competitive Strength  One of the largest banks in India.  Technology backbone enables the bank to undertake product innovation and adopt a customer centric approach.2 MANAGEMENT The overall supervision and control of the Bank’s functions rests with the Board Directors which consists of the Chairman and Managing Director and Executive Director.     Continuous track record of profitability since inception.issue capital for a period of three years from 19 .89 per cent. The entire equity capital is presently held by the Government of India. The day. Reserve Bank of the India. the Executive Director.The Government of India. After the issue. 97.  Technology edge with hundred per cent of the bank’s business being computerized. Employees and officers of the Bank.II. with total business (advances plus deposits) exceeding Rs. Department of Economic Affairs (Banking Vision) has given its approval for lock-in of 20 per cent of the post.to-day affairs of the Bank are managed by the Chairman and Managing Director.  Strong presence in credit cards with an ISO 9000 certification for the operations.

risk weighted assets of the bank also expected to increase over the years. loans to retail traders and self employed businessman.  Augment the capital base of the Bank to meet its future capital adequacy requirements. The proceeds of this issue will be utilized for the regular business activities of the bank.the date of allotment in the Issue and the remaining capital held it for a period of one year from the date of allotment in this issue. The issue expenses will be met out of the proceeds. In view of the likely expansion of risk weighted assets. the bank expects growth in its business activities and operations. II. II. the bank proposes to augment its net worth in order to sustain a healthy capital adequacy ratio. The key areas of focus for the bank in this regard are retail advance. Moreover. housing loans. II.  Meets the expenses of the Issue. SSI lending and agricultural advances.4 REQUIREMENTS & UTILIZATION OF FUNDS In years to come. Canara bank entered into corporate Agency arrangements with AVIVA life insurance 20 . listing will provide the Bank an opportunity to establish its presence in the capital market and an opportunity to raise funds in the future subject to fulfilling the statutory requirements. in line with the estimated growth in risk weighted assets and accordingly to maintain an optimal Capital Adequacy Ratio.  List the shares of the bank on Stock Exchange.5 CANARA BANK ATTEMPT TO SEED GROWTH In its time-tested pursuit of serving to grow growing to serve. Accordingly. Increase in Tier I capital through retained earnings alone may not be enough to enable the bank to maintain sufficient capital adequacy ratio.3 OBJECTIVE OF ISSUE The present Issue of equity shares is being made to Augment the long-term resources of the Bank.

contracts all risk policies. Welfare policies: Raj Rageswari Mahila Kalian Yojna. date of expiry of policy. poultry. Ltd. Such tie ups.company Pvt. Canara bank obtained the IRDA composite license to act as a corporate agent both for AVIVA life insurance and United India. type of insurance policies. through a memorandum of understanding (MOU) signed on February 17.There are other types of policies available targeting specific areas or groups. sum insured . which enabled both entities to meet the needs of their customers in a greater and more substantial measure. pump sets. Bhagyashree child welfare policy. machinery break down policy. Potential premium for the branch is composed on the basis of classification of loans and advances. Rural insurance: cattle. United India insurance company would gain by access to Canara bank’s huge network and customer base. The commission earned is paid directly by United India to a branch through which policies have been sourced thereby augmenting the non – interest income of the branch directly. Engineering insurance: electrician all risk policies. grameena personal policy etc. electronic equipment insurance etc.on February 25. and amount of premium paid to the company. Jana arogya policy. amount of loan sanctioned or outstanding . 2005. are helpful for both large players. 21 .Canara bank foray was consolidated with a tie – up arrangements with United India insurance company ltd as a corporate agent for distribution of general insurance products without any risk participation. name of the existing insurance company covering assets and date of renewal under corporate agency. 2003. While it would enable Canara bank to leverage its large and extensive country wide branch network and customer base to cross sell a range of general insurance products and thus open up a new revenue stream.

While overall credit growth has been 24%. out of which growth in agriculture and industries worked out to 29% and 36% respectively. II.6.53 million accounts. Capital to Risk Weighted Assets Ratio worked out to 13. Owned funds stood at Rs. despite a 25% growth in total assets. infrastructure and services sectors.7.6.116803 crore a year ago.98%. 4027 crore.FINANCIAL PERFORMANCE AND WORKING RESULTS OF CANARA BANK II. industries.79426 crore a year ago. growth in credit to productive sectors worked out to over 33%.98506 crore. covering 25.1 Deposits Global deposits of the Bank moved up to Rs.7.1421 crore.05% visà-vis the 9% benchmark.1 Capital The Bank’s paid-up capital stood at Rs. 7132 crore at the end of the previous year.3 Profits and profitability Gross profit for the year 2006-07 stood at Rs.142381from Rs. 8111 crore as compared to Rs. worked out to 0. Net interest Income was up 12. additional accrual during the year being Rs. 3222 crore. 75% of the incremental credit during the year was deployed in productive sectors like agriculture. up from Rs. 410 crore with 1. 2912 crore. II. exhibiting a growth of 24%. signifying a 22% growth.6 FINANCIAL SOUNDNESS II.7 BUSINESS II. SME.2 Reserves and owned funds Reserves increased to Rs. II. while net profit was of the order of Rs.6.43% to Rs. Return on Average Assets (RoAA).2 Advances Global advances (net) aggregated to Rs. 22 .08 lakh shareholders. II. 9944 crore.

37844 crore.5 lakh Self Help Groups (SHGs) in which1. recording a y-o-y growth of 23% as against the target of 20% for the year.4 Priority sector operations Advances to priority sectors moved up to Rs. accounting to 40.Advances to SME sector moved up to Rs. while Profit per Employee stood at Rs. the Bank financed 326 lakh new farmers.21% of net credit vis-à-vis the 40% norm. 4. Similarly outstanding agricultural advances increased from a level of Rs.24 lakh.7.160000 140000 120000 100000 80000 60000 40000 20000 0 2003-04 2004-05 2005-06 Deposits Advances 2004-05 2005-06 2006-07 Graph II.2.9404 crore in 2005-2006 as against the level of Rs. recording a growth of 22. 4103crore during 20022003. signifying a 137% growth.3. signifying a robust 29% y-o-y growth.6545 crore as at March 2003 to Rs.42 crore to Rs.2 lakh were credit linked.7. During the year. Agriculture disbursements touched Rs. 23 .33%.The Bank has so far 1. 15521 Crore as at March 2006.15521 crore.3 Productivity Business per Employee moved up from Rs. registering more than doubling of agricultural credit in three years. the number of Kisan Credit Cards (cumulative) reached a level of 21 lakh. 5. Deposits and Advances II. agricultural credit aggregated to Rs. 14245 crore.49 crore. Under priority sector advances. Besides. II.7.

15521

14245

SMEs Other Priorities Agriculture

12472

Graph II.7.4 Priority sector operations Canara Bank has been playing a lead role in furtherance of the financial inclusion movement in the country. In addition to various schemes for the hitherto excluded segments, the Bank has extended its Total Financial Inclusion campaign to 1639 villages across the country. Two of the Bank’s lead districts, namely Palakkad in Kerala and Davangere in Karnataka, have already acquired the distinction of 100% financially included. CanSaral, a no-frills Scheme, aimed at enhancing the coverage under total financial inclusion has garnered around 3.5 lakh accounts. The Bank has launched a programme to achieve total financial inclusion in 23 lead districts and initiated a campaign to create one million no-frill accounts during 2006-07.

II.7.5 Retail lending
Disbursals made under retail lending during FY06 amounted to Rs.7407 crore, taking the outstanding retail loans to Rs. 17485 crore, recording a y-o-y growth of 20%. Retail advances (direct) to the housing segment clocked a 17.43% growth to reach Rs. 6575 crore. Advances to retail trade and other personal segments stood at Rs. 3584 crore and Rs.7326 crore respectively. Bank has been prudent in its retail exposure. Retail portfolio as a proportion of net credit was also brought down to 17.84%, which is in tune with the policy focus on rebalancing of credit portfolio. Direct housing loan formed 37.6% of retail

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portfolio, out of which 81% were under the priority ambit, reflecting the Bank’s continued concern for the common man.
36000 34000 32000 30000 28000 26000 24000 22000 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000

Other personal Retail trade housiing

YEAR 2003- 2004- 200504 05 06

2004-05

2005-06

2006-07

Graph No. II.7.5 Retail Lending In the sphere of education loan, cumulative assistances by the Bank was of the order of Rs. 1252 crore, covering 92579 students taking up higher studies. With 31.37% growth in education loan, Canara Bank is placed first among nationalized banks in funding higher education.

II.7.6 Treasury
Aggregate investments of the Bank, as at March 2007, were of the order of Rs. 45226 crore,. Duration of the investment portfolio has been brought down considerably as a conscious management decision in view of interest rate volatility and rising trend in interest rate. The advantage of having higher volumes under the ‘Available for Sale’ duly reflects that the stated value of the portfolio is truly realizable.

II.7.7 International operations
During the year, the second overseas branch of the Bank was inaugurated by Shri. P. Chidambaram, Hon’ble Finance Minister of India, at Hong Kong. Foreign business turnover of the Bank, as at March 2007, aggregated to
25

Rs. 130083 crore, recording a robust y-o-y growth of 32%. Turn over under exports, imports and remittances were of the order of Rs. 49307 crore, Rs. 31705 crore and Rs. 49071 crore respectively. Outstanding advances to the export sector stood at Rs. 7896 crore as against Rs. 7136 crore at the end of the previous year.

II.8 ASSET QUALITY AND RISK MANAGEMENT II.8.1 Asset quality
Bank’s gross NPA level stood at Rs. 1493 crore, with gross NPA ratio down from 2.25% to 1.5%. Net NPA level stood at Rs. 927 crore, with net NPA ratio further coming down to 0.94% from 1.12% a year ago. The Bank could effect a cash recovery of Rs. 1025 crore in NPA accounts during the previous year.
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Y ear 2003-04 2004-05 2005-06 1.88 1.51 1.12 0.94 2.25 G ross N A ratio P N N AR et P atio 3.89

2004-05

2005-06

2006-07

Graph No. II.8.1 Asset quality

II.8.2 Risk management
The Bank has initiated implementation of parallel nun of new capital adequacy framework under Basel || during the year and is full geared for a smooth switchover within the RBI prescribed time schedule. The Bank’s Board has been driving the policy initiatives and putting appropriate strategies in place for effectively managing the Credit, Market and Operational risks. Top executive Risk Committees, headed by the Chairman & Managing Director, are in place to effectively address all issues related to the management and mitigation of various business/ control risks.
26

the Bank. a scheme for facilitating availability of safe drinking water in rural areas. These institutes have so far trained 56520 rural youth. numbering 20 across India. SHG and artisans in their entrepreneurial ventures. a voluntary organization working for the welfare of socially marginalized children.Bank has since tied up with global majors for creating Joint Ventures in Insurance and Asset Management. Ltd.1 Rural development Rural Development and SelfEmployment Training Institutes (RUDSETls) co-sponsored by the Bank have been engaged in proving training to rural youths to pursue various self-employment activities.9 CORPORATE SOCIAL RESPONSIBILITIES II. benefiting over 2 lakh families since its inception in 1985.9. under the Rural Service Volunteer Scheme. 27 . It has also tied-up with M/s United India Insurance Company Limited for undertaking Non-Life Insurance business. The trust is also extending support to Society for the Educational and Economic Development (SEED). the Bank has donated hi-tech and solar powered ‘Mobile Sales Van’ to assist women entrepreneurs. scheme.10.87 lakh unemployed youth. has assisted doctors in opening 21 additional clinics during 2006-07. Under ‘Jalayoga’. taking the total of such clinics ro 493 across India. the Bank has completed 35 projects so far. 945 crore. under tie-up arrangement with M/s AVIVA Life Insurance Company India Pvt. has promoted 14 self-employment training institutes. RUDSETls. II. collected premium amounting to Rs. Under crossselling of Mutual Fund products of Canbank Mutual Fund and HDFC Mutual Fund. Tapping the spirit of voluntarism among its employees.II. 318 crore (sum assured) during the year. The Bank under Canara Bank Centenary Rural Development Trust.1 Bancassurance and cross-selling MF products The Bank. the Bank mobilized a sum of Rs.10 ANCILLARY SERVICES II. have so far trained 1. The Bank’s ‘Rural Clinic Services’. has assisted 500 villages. As a responsible corporate social citizen. with an impressive settlement rate of 72%. with a settlement rate of 67%.

The Bank handled 22 ‘Bankers to the Issue’ assignments as Escrow Bankers/ collecting Bankers with total float funds amounting to Rs. Number of branches providing RTGS and NEFT further increased to 1506.1 Branch network As at March 2006. II.2 Merchant banking operations During 2006-07. urban semi-urban and metro locations were 728. II. 9 Private Placement Issues.11 BUSINESS SUPPORT SYSTEM II.10. the Bank handled 16 assignments as Lead Manager/CoBook Running Lead Manager/Co-Manager& Advisor. II. bulk cheques collection and zero balance account facility. Number of specialized branches stood at 121. The scheme provides services. as many as 125 ATMs spread across the country were commissioned on a single day in March 28 .591 and 600 respectively. covering 5 Public Issues.11. customers of Canara Bank now have increased access to over 14000 ATMs across the country. 4360 crore. In all. providing access to ATM network of 23 other Banks.11. 656. besides 251 Extension Counters.2 Technology initiatives Financial 2005-06 witnessed significant headway in the realm of Core Banking Solution (CBS). inclusive of its branch at London. for the year ended March 2007. Hong Kong and Offshore Banking Unit at NOIDA. 1550 ‘Anywhere Banking’ branches and 1156 internet & Mobile Banking branches.II. The Bank also significantly enhanced tech-enabled multi-delivery channels during the year to 1132 ATMs (458centres). The CCMS network presently covers 94 Operating Centres and 683 Pooling Branches. the Bank had 2578 branches. In a noteworthy intiative. 2650 crore.10. The Bank entered into an agreement to share ATM network with SBI and ATMs under National Financial Switch (NFS). such as local and upcountry cheque collection. one Rights Issue and one assignment of Delisting of Equity. Numbers of branches in rural.3 Corporate cash management services (CCMS) Aggregate turnover under Corporate Cash Management Services scheme. amounted to Rs.

customer survey from a sample of 25 branches each in five metros.. II.11.11. 29 .3 Customer orientation The Bank. Further. apart from moves to decentralize operational activities. The Bank also adopted a fast track promotion policy and implemented cash incentive scheme for high performers. taking the total number of debit cards to 22. Chennai. Bangalore. Deputy governor. during the year. Reserve Bank India. 2005-06 featured the tally moving up further to 109661 covering diverse functional areas. as a member of Banking Codes and Standards Board of India (BCSBI). comprising young talent. viz. During the year. introduced several new measures towards further improvingn customer centricity and service quality to match the competitive market conditions and customer expectations.4 Human resources development / TQM Knowledge enrichment for employees continued to be a top priority for the Bank during FY07. Close on the heels of achieving the one lakh mark in training/re-skilling during its centenary year. During the year.2006. with Shri. During the year. set up by RBI.68 lakh as at March 2006. Canara Bank is also the only Bank in the country to have formed ‘Club 2020’ a group. the Bank has implemented ‘Six Sigma’ project for enhancing the knowledge base of its frontline staff on products and services. In a noteworthy intiative. Keeping track of services quality at branches has been a hallmark of the Bank’s unprecedented customer orientation. gracing the function at Banglore. Delhi. V. Leeladhar. covering 10000 customers was conducted by consultant of repute to further improve the level of customer service. to spearhead strategic changes in the fast changing banking environment. the Bank has brought out a booklet on “Code of Commitment to Customers” to create awareness among the customers as well as staff about the Uniform Fair Practice Code used as benchmark standard by all banks in India II. Kolkata and Hyderabad. the Bank has Added more than 5 lakh Debit Card clientele base. the Bank effected a major organizational restructuring exercise for greater business focus and expeditious decision making.

involving financial assistance to the 30 . Grameen Vikas Vahini. with fourth fund made operational since December 2005. CanChamp. II.13 SUBSIDIARIES. namely. vehicle for inclusive growth in rural areas was also introduced during the year. the Bank launched SME Gold Card and a Term Loan Scheme for reimbursement of capital expenditure. targeting the HNI clients.12 PRODUCT PROLIFERATION II. Till March 2006. the Bank also launched a SB. financial analysis and risk management. To promote SME sector. JOINT VENTURE AND SPONSORED INSTITUTION The Bank has nine subsidiaries/joint ventures/sponsored institutions providing a wide ranges of services. Canara Centenary Deposit was also introduced during the year. a term deposit scheme. II. In the sphere of new loan products.12. It has so mobilized a corpus of Rs.Gold deposit scheme.1 New products/services In addition to a host of existing products and services. During the year. the Bank introduced several deposit products during FY07. Canbank Venture Capital Fund Limited (CVCFL) currently manages four funds. poised to emerge as a major. CVCFL has assisted 84 ventures. Can Tax Saver. 60 crore from seven banks and SIDBI. was introduced under the Kamadhenu and fixed deposit mode with tax benefit under Section 80C. and is. offering attractive rate of interest for the depositors.an exclusive SB deposit product was launched for aspiring children upto the age of 12 years for inculcating the habit of savings. thus. A term deposit scheme.Continued focus on quality drive enhanced the number of ISO 9001 Certified Branches and Administrative Offices to 805 and 14 respectively as at March 2007.Focus on specialized expertise led to recruitment of 541 officers through campus and direct recruitment in diverse areas like marketing. ’Financial Conglomerate’. the Bank introduced ‘Kisan Tatkal’ for enabling farmers to meet emergent requirements and ‘Kisan Mitra’ scheme for funding tenant farmers.

417 crore and Rs. the factoring subsidiary of the Bank. besides concentrating on collection of lease rentals and realization of investments.10.tune of Rs. is currently managing 18 schemes. sanctioned and disbursed a sum of Rs. 31 . The Company recorded a profit after tax of Rs.20 lakh for the year 2006-07 and distributed a dividend of 40%.33396 crore as at March 2006 and a profit after tax of Rs. Can Bank Investment Management Services Limited (CIMS) acts as investment manager for all the schemes floated by Canbank Mutual Fund. posted a total turnover of Rs. The Company posted a profit after tax of Rs. The Company recorded a profit after tax of Rs. Can Fin Homes Limited a sponsored housing finance institution of Canara Bank. The Company posted a profit after tax of Rs. CIMS. 24. with combined net assets of Rs. Indo-Hong Kong International Finance Limited. posted a profit of Rs. 2185 crore. 14 crore. Can Bank Factors Limited. The Company proposed a dividend of 15% for the year. 453 crore respectively during 2006-07.23 crore. IHIFL has since been converted into a full fledged branch of the Bank during March 2007. 74 crore. 2185 crore. with a proposed dividend of 30%. Canbank Financial Services Limited (CANFINA)confined its activities to legal matters arising out of past transactions in securities. a wholly owned overseas subsidiary of the Bank. Primary dealer functions of GSTCL have been taken over by Canara Bank from February 2006. 30 crore. a primary dealer promoted by Canara Bank. The Company has recorded a profit after tax of Rs. 4 crore in 2005-06.52 million for the year ended March 2007. with diversification of activities into the areas of equity broking and trading. posted a net of US$ 3. Gilt Securities Trading Corporation Limited (GSTCL). is currently managing 18 schemes.60 crore despite rise in yield rates and provision for depreciation on stock of securities held.

32 .000 crore for 2006-07. The Bank is geared up to comply with the revised guidelines issued under priority sector lending.000 crore under deposits and Rs. with a growth rate of over 20%. 1. Towards faster implementation of Core Banking Solution (CBS) .000 crore under advances. Advances growth will be significantly driven by agriculture. With the preliminary moves underway. Plans are underway to introduce ‘internship’ programme to assist students pursuing professional course. comprising Rs.GOALS FOR 2007-08 Bank targets a global business level of Rs 2. Under HR. 1.20. The Bank has taken up a major brand building exercise and comprehensive review of its business strategies covering products. the Bank is exploring similar options in other financial services. including services sector.90. processes. the Bank’s Representative Office at Shanghai is being converted into a full fledged branch. people and its organization structure. Assessment Development Centre concept will be implemented to map training competence and upgrade manpower skill. 21 prominent canters have been identified by the Bank for expanding its global reach. SME infrastructure and other productive segments. In pursuit of the Bank’s global aspirations. After creation of JVs in insurance and Asset Management. the Bank targets to cover all the branches under CBS by March 2008.70.

06 3.22 47389 9116 6531 2585 1110 2005-06 2532 410 6722 196229 116803 79426 30937 12032 7211 1332 7136 98665 24.52 46893 10089 7477 2612 1343 33 .88 47613 9080 6221 2859 1339 2004-05 2513 410 5699 157329 96908 60421 24777 8782 5779 1043 6183 84517 23.17 3.in crores 2003-04 Number of Branches Capital Reserves Aggregate Business Deposits Advances (net) Advances to priority sectors Agriculture Small scale industries Advances to SC /ST Export credit Foreign Business Turnover Deposit Accounts (in million) Borrowal Accounts (in million) Total Number of Staff Total Income Total Expenditure Operating Profit Net profit 2468 410 4842 134784 86345 48439 19581 6545 4971 758 5497 67347 22.Performance Highlights at a Glance Rs.48 2.

Andaman & Nicobar Islands MadhyaPradesh. West Bangal and Megalaya Uttar Pradesh and Uttaranchal Tamil Nadu Chennai Delhi Hyderabad Kolkata Lucknow Madurai Mangalore Karnataka. Pondicheri.Tripur a.Jammu&Kashmir Tamil Nadu.Punjab. Delhi & Haryana Andra Pradesh Orissa.Goa Mumbai (C) Maharashtra Patna Bhiar & Jharkhand Kerala Thiruvanadapuram 34 .Chart II.Sikkim.Rajasthan. 1 CANARA BANK CIRCLE OFFICES JURISDICTION Bangalore Karnataka Chandigarh HimachalPradesh.Assam. Chandigarh.

CHAPTER III FINANCIAL ANALYSIS .A GENERAL VIEW • Financial Statements Types of Financial Analysis Techniques of Financial Analysis • • 35 .

creditors. Financial Statement Analysis is largely a study of relationship among the various financial factors in the business as disclosed by a single set of statements. and a study of the trend of these factors as shown in a series of statements.” The term ‘financial statement analysis’ includes both ‘analysis’ and ‘interpretation’. It is the process of determining the financial strength and weakness of the firm by establishing strategic relationship between the items of Balance sheet. It involves the division of facts on the basis of some definite plans. owners. However both ‘analysis and interpretation are interlinked and complimentary to each other. 36 . bankers. Analysis is useless without interpretation and interpretation without analysis is difficult or even impossible. classifying them on the basis of certain understandable form. and study of the trends of these factors as shown in a series of statements. Financial statement analysis can be undertaken by management of the firm. investors. ‘interpretation’ means explaining the meaning and significance of the data so simplified.CHAPTER III FINANCIAL ANALYSIS – A GENERAL VIEW III. While the term ‘analysis’ is used to mean the simplification of financial data by methodical classification of the data given in the financial statements. The purpose of financial analysis is to diagnose the information contained in financial statements so as to judge the profitability and the financial soundness of the firm. or by parties outside the firm via. “Financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set of statements. government etc.1 Financial Analysis and Interpretation Financial analysis is a process of evaluating the relationship between component parts of a financial statement to obtain a better understanding of a firm’s position and performance. Profit and Loss Account and other operative data.

Its purpose is to convey an understanding of some financial aspects of a business firm.2 Income statement or Profit and Loss Account Income statement is prepared to determine the operational position of the concern. Financial statements primarily comprise two basic statements. 1. Position statement or Balance Sheet 2. Income Statement or Profit and Loss Account III. The Balance sheet is prepared on a particular date III.2 FINANCIAL STATEMENTS A financial statement is a collection of data organized according to logical consistent accounting procedures. The analysis may be of the following types. III. The income statement is prepared for a particular period.1 Balance sheet Balance sheet is one of the important statements depicting the financial strength of the concern.2.III. If there is excess of over expenditure it will show a profit and if the expenditure is more than income then there will be loss.3 TYPES OF FINANCIAL ANALYSIS The main objective of financial analysis is to determine the financial health of a business enterprise. These statements are the outcome of summarizing process of accounting and are therefore the sources of information on the basis of which conclusions are drown about the profitability and the financial position of a concern. The analysis and interpretation of financial statement depend upon the nature and type of information available in these statements.2. It shows on one hand the properties that it utilizes and on the other hand the sources of these properties. generally a year. It represents all the assets owned by the concern and all the liabilities and claims it owes to owners and outsiders. It is a statement of revenues earned and the expense incurred for earning that revenue. 37 .

3. Profit and Loss Accounts and Balance Sheet of previous year along with the current year.2 Internal Analysis This analysis is performed by the corporate finance and accounting department and is more detailed than external analysis.3 Horizontal Analysis This analysis compares the financial statements via. III. III.4 PROCEDURE OF FINANCIAL STATEMENT ANALYSIS Broadly speaking.3. These are.4 Vertical Analysis This analysis converts each element of the information into a percentage or the total amount of statements as to establish relationship with other components of the same statement. III.1 External Analysis This analysis is performed by outsiders such as trade creditors. there are three steps involved in the analysis of financial statements. suppliers of long term debt etc . III. III. 38 . investors.6 Ratio Analysis This analysis establishes the numerical or quantitative relationship between two items / variables of financial statement so that the strengths and weaknesses of a firm as well as its historical performance and current financial position can be determined.3.3.3. III.III.5 Trend Analysis This analysis compares ratios of different components of the financial statements related to different period to those of a base year.3.

The conclusions drawn from interpretation are presented to the management in the form of reports. He should know the plans and policies of management so that he may be able to find out whether these plans are properly executed or not. A relationship is established among financial statements with the help of tools and techniques of analysis such as ratios.1. Interpretation The first step involves selection of information relevant to the purpose of analysis of financial statements. The significance and utility of financial data is explained or helping decision making. III. The extent of analysis should be determined so that the sphere of work may be decided. 6. The financial data given in the statement should be re-arranged and reorganized. The important technique that is being used for the financial performance analysis of 39 . The following procedure is adopted for the analysis and interpretation of financial statements. The information is interpreted in a simple and understandable way. 2. trends etc.5 TECHNIQUES OF FINANCIAL ANALYSIS The analysis and interpretation of financial statements is used to determine the financial position and results of operations as well. The second step involved in the methodological of data and third step include drawing of inferences and conclusions. Classification and 3. It will involve grouping of similar data under same heads and breaking down of individual components of statements according to nature. The data is reduced to a standard form. 4. 5. The analyst should acquaint himself with the principles and postulates of accounting. 1. Selection 2. 3. A number of methods or devices are used to study the relationship between different statements.

it is net operating income divided by the mean / average assets. This ratio is calculated by the following formula. used in industry analysis and as a measure of asset – use efficiency. III5. The main ratios being calculated for the analysis of financial performance of Canara bank are the following: • Profitability Ratios • Cost and Yield Ratios Operational Efficiency Ratios. obviate difference in balance sheet size and places operational entities on a common footing. is refers to net income divided by average total assets.1 Return on Assets For banks. For industrial companies. profitability is a more meaningful yardstick of operational efficiency as it is size-neutral. it is such ratios. performance of the Bank is closely followed by the market and financial analysts. Profitability ratios. Return on assets = Profit earned Total assets 40 . in contrast to absolute profit levels.1. each quarter. Ratio analysis is a very powerful tool useful for measuring performance of an organization. More so. It is an analytical measure of asset – use efficiency and industry comparison. it net income divided by average total assets on a per common share basis. For insurance companies. profitability. which make a ratio. More often.1 PROFITABILITY RATIOS While profit represents an absolute figure. being a listed company. Thus ratio analysis concentrates on the inter-relationship among the figures appearing in the financial statements.the bank is the ratio analysis. measured by a ratio. represents the operational efficiency.The important profitability ratios are. which are prudent measures of profitability and efficiency. Ratio analysis is a process of comparison of one figure against another.5. As opposed to absolute profit volumes. A ratio is a mathematical relationship between two or more related items taken from the financial statements. and the appraisal of the ratios make proper analysis about the strengths and weaknesses of the bank’s operations. III.

by adding all assets then deducting all debts and other liabilities.5. plus the liquidation price of any preferred issues. Book value = tangible net worth of bank No of shares III. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share.3 Earning per Share The term earning per share (EPS) represents the portion of a company’s earnings. Because the number of shares outstanding can fluctuate. The figure can be calculated simply by dividing net income earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the term. Ratio of net profit to average networth (share capital.1. plus reserves minus intangible assets) represents the return on networth.4 Return on Networth It’s also known as return on equity.5. Book value of the assets of a company or a security may have little relationship to market value. a weighted average is typically used. Return on Networth = Net profit Average Networth 41 . net of taxes and preferred stock dividends that is allocated to each share of common stock. This ratio is calculated by the following formula.5. EPS = net profit after taxes No of shares III.III. This ratio is calculated by the following formula.1.2 Book Value Book value of a stock is determined from a company’s records.1.

there had been continues decline in interest rates. such as. resulting in an uptrend in interest rates and consequently.2Yield on Advances Interest income non advances divided by average advances indicates average yield on advances.5. in cost of funds.2 COST AND YIELD RATIOS Cost of funds is a function of demand. This ratio enables cost-benefit assessment from various advances related products.III. it is observed in India that commercial banks’ lending rates are relatively flexible downward while there is considerable rigidity in the upward movements. liquidity. Composition of deposits and movement in interest rates thus affect bank’s cost of funds. the operational and opportunity cost. or the effective rate of interest paid on a bond. considering the actual cost of funds operating expenses minimum margin to cover regulatory provisioning and profit margin. This ratio is calculated by the following formula Yield on investment = income earned on investment Average investment III.5.5. Since 1995. Furthermore.2. yield is the annual rate of return expressed as a percentage.1 Yield on Investment The rate of income generated from a stock in the form of dividends. Progressive banking entities make extensive use of 42 . In tune with the RBI guidelines. Forces of disintermediation. inflation. interest rate cycle has revived since last part of 2004-05. In recent years. high cost of bulk deposits and active refinance market (housing and export refinance) do find a reflection in the liquidity crunch in the economy. for any investment.2. calculated by the coupon rate divided by the bond’s market price. interest rate movements and buoyancy in capital market are some of the factors that affect the cost of bank deposits after a progressive decline. government borrowings. Volatile call money market. and bank specific factors. banks have been arriving at their Benchmark Prime Lending Rates (BPLR). Deposits constitute nearly 90% of banks’ funds. III.

2.5.) to re align the composition of advances portfolio. This ratio is calculated by the following formula.3 Cost of Deposits Cost of deposits is the cost generated from liabilities such as debt outstanding.1 Cost Income (Efficiency) Ratio Non-interest expenditure divided by net total income (total income minus interest expenses).5.g.yield on even segment-wise advances (e. It signifies movement in operating cost relative to income. This ratio is calculated by the following formula. As an efficiency criterion. Cost-Income Ratio = Operating Expenditure Net total Income III. retail priority consumer loan etc . This ratio is calculated by the following formula. Burden Ratio = Non-Interest Income Non-Interest Expenditure 43 . Global benchmark is 40 percent. Cost of deposits = Actual interest paid to customers Average deposits III.5.3. capital costs and other short term liabilities. non-interest income should be able to cover the non-interest expenditure. Yield on advances = Interest Earned on advances Average Advances III. The ratios being calculated are:III.3.2 Burden Ratio Burden Ratio is the ratio of non-interest income to non-interest expenditure.5.3 OPERATIONAL EFFICIENCY RATIOS These ratios are calculated to analyze the operational efficiency of the Bank.

CHAPTER IV FINANCIAL ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS OF CANARA BANK • Profitability Ratios • Cost and Yield Ratios • Operational Efficiency Ratios 44 .

measured by a ratio. More so. The main ratios being calculated for the analysis of financial performance of Canara Bank are the following.1. profitability. As opposed to absolute profit volumes. in contrast to absolute profit levels.1. it is such ratios.CHAPTER IV ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS OF CANARA BANK IV. “A ratio is an expression of quantitative relationship between two numbers”.1 PROFITABILITY RATIOS While profit represents an absolute figure. IV. which are prudent measures of profitability and efficiency. The important profitability ratios calculated for the analysis are.1 RATIO ANALYSIS Ratio analysis is one of the most powerful tools of financial analysis.2 Book value IV. More often. performance of the Bank is closely followed by the market and financial analysts. each quarter.1 Return on assets IV. • Profitability Ratios • Cost and Yield Ratios • Operational Efficiency Ratios IV.4 Return on Networth 45 . being a listed company. represents the operational efficiency.1. It is the process of establishing and interpreting quantitative relationship between figures and group of figures. obviate difference in balance sheet size and places operational entities on a common footing. Profitability ratios. profitability is a more meaningful yardstick of operational efficiency as it is size-neutral.1.3 Earning per share IV.

6 1. Return on assets = Profit earned Total assets Table IV.01 0.34 1 Ratio 0.4 1.24 1.1.1.8 0.24 1.6 46 .1 Return on assets Year 2003 2004 2005 2006 2007 Net profit 10188919 13380056 11095045 13432200 14208100 Total Assets 820549306 995393925 1103051133 1328218587 1659610427 Ratios (%) 1.01 1. The overall effectiveness of management in generating profit with its available assets can be measured through return on assets ratio. But on the fifth year return on asset ratio has come down.856 Source: Financial Statement Graph IV. IV.1 Return on assets 1. The international benchmark is deemed as 1%.1.IV.1 Return on assets This refers to net income divided by average total assets.1. It is an analytical measure of asset use efficiency and industry comparison. So the bank must take immediate measures to overcome the situation.2 Book value 1.2 An analysis of return on assets ratio of the bank for five years reveals that for the first four years it has covered the global benchmark of 1%.34 1.

3 Earning per share 128.96 252. by adding all assets then deducting all debts and other liabilities.2 that book value shows an increasing trend 150 IV.1.2 Book value Year Net Worth 2003 4148283 2004 52516430 2005 61089572 2006 71322358 2007 103539861 Source: Financial Statement No. Tangible net worth of bank No of shares Table IV.1.09 101.54 Book value = Graph IV. RATIO It is clear from the table VI.19 47 100 .09 149.19 128.1.1. 2 Book value 300 250 200 for all the years which are encouraging signs for the bank. of Shares 410000 410000 410000 410000 410000 Ratios (%) 101.00 173.Book value of a stock is determined from companies’ records.

Ratio of net profit to average networth (share capital.65 2003 10188919 2004 13380056 2005 11095045 2006 13432200 2007 14208100 Source: Financial Statement Graph IV.1. of Shares 410000 410000 410000 410000 410000 Ratios(%) 24.63 27.85 32. plus reserves minus intangible assets).1.3 EPS Year Net profit No.63 25 20 15 10 24. 4 Return on Networth It’s also known as return on equity. In all other years EPS was favourable.1.3 EPS shows an increasing trend for all the four years except for 2004-2005.The term earning pr share represents the portion of a company’s earnings.06 32. 32.85 RATIO 48 .3 EPS 40 35 30 The table IV.76 34. net of taxes and preferred stock dividends that is allocated to each share of common stock. EPS = net profit after taxes No of shares Table IV.1. IV.it is clear from the table that net profit for 2004-2005 was less than that of the previous years which resulted in a decline in EPS for that year.

4 Return on networth Year 2003 2004 2005 2006 2007 Net Profit 10188919 13380056 11095045 13432200 14208100 Avg. the operational and opportunity cost.29 16. inflation.1.4 Return on networth 30 28. It is also clear that increase in Net profit for all the years is not in par with increase in Networth. decreased to 16.25 on 2006-07.2 COST AND YIELD RATIOS Cost of funds is a function of demand.Return on Networth = Net profit Average Networth Table IV. Networth 47002356 56803001 66205965 87431109 Ratio% 28. Composition of deposits and movement 19.47 25 20 The table IV.53 20.47.53 RATIO But it came down on 2004-05 which again rose on 2005-06 and further 15 5 49 .4 shows that Return on Networth on 2003-04 is 28. such as.25 Source: Financial Statement Graph IV.1. liquidity. and bank 10 specific factors.1. Deposits constitute nearly 90% of banks’ funds.47 19. IV.

In tune with the RBI guidelines. In recent years.91 7.1 YIELD ON ADVANCES This ratio is concerned with the determination of interest earned on advances. resulting in an uptrend in interest rates and consequently.3 Cost of deposits IV.44 50 . interest rate cycle has revived since last part of 2004-05. in cost of funds. government borrowings.2. it is observed in India that commercial banks’ lending rates are relatively flexible downward while there is considerable rigidity in the upward movements.1 Yield on advances IV. Forces of disintermediation. interest rate movements and buoyancy in capital market are some of the factors that affect the cost of bank deposits after a progressive decline.2.2 Yield on investments IV.1 Interest Year 2003 2004 2005 2006 2007 income on advances 35909721 38177163 42726356 54884896 75075878 Average Advances Ratios (%) 440551130 540300158 699235518 889656934 8. IV. considering the actual cost of funds operating expenses minimum margin to cover regulatory provisioning and profit margin. Yield on advances = Interest Earned on advances Average Advances Table IV.85 8.67 7.2. banks have been arriving at their Benchmark Prime Lending Rates (BPLR).2.in interest rates thus affect bank’s cost of funds.2.

2.8 8.Source: Financial Statement Graph IV. 2 YIELD ON INVESTMENT 7.1 that yield on advances 2003-04 and 2006 – 07 7. Yield on investment = income earned on investment shows an increasing trend compared to 2004 – 2005 and 2005 – 2006.8 This ratio is calculated in order to determine the interest earned from the investment made by the bank.4 8. IV.67 8.2 8 7. RATIO It is evident from the table IV.6 8.2.2.6 51 . Therefore the bank should focus on improving the high yield advances.1 Yield on advances 8.

2.2. income on invest+ Year Dividend income Avg. Table IV.5 9. Investment Ratios (%) 2003 27396874 2004 30400776 2005 31417523 2006 29160874 2007 33846185 Source: Financial Statement 331256167 369234365 375140333 410998607 9. The management should take the effort to invest the funds in high income generating assets.5 Cost of deposits = Actual interest paid to customers Average deposits 52 7 . COST OF DEPOSITS 8.Average investment Table IV.51 7.18 9 Yield on investment indicates the income (interest and dividend) earned investment featured a decreasing trend for the years 2004 – 05 and 2005 – 06 compared to 2003 – 04 and 2006 – 07.51 RATIO by the bank through its various investments. 3.2 shows that yield on 8.5 8 It is the interest paid to the customers for the deposits they are having with the bank 7.77 8.2.2 Yield on investment 9.18 8.24 Graph IV.2.2 Yield on investment Int. IV.

6 53 5.Table IV.52 5.6 .2 RATIO 4.3 Cost of deposits 5.2.8 4.60 4.32 Source: Financial Statement Graph IV.2 5 4.20 4.4 5.3 Cost of deposits Interest Year 2003 2004 2005 2006 2007 expenditure on Deposits 42249439 41219037 42148516 48246267 68880677 Average Deposits Ratios (%) 792196895 915702375 1067995752 1295923419 5.2.

1 Efficiency 2003 17477057 2004 18965491 2005 21901678 2006 23471354 2007 25653054 Source: Financial Statement Year Operating Net total Income 37450814 47552684 50061308 49590203 55386269 Ratio% 46. Interest on deposits is the main expenditure for the bank and it should take all the steps to keep it in control. IV.32% on the year 2006 – 07which is a serious problem for the bank.1. 3 OPERATIONAL EFFICIENCY RATIOS These ratios are calculated to analyze the operational efficiency of the Bank. The ratios being calculated are:IV. It signifies movement in operating cost relative to income.33 46.3 shows that cost of deposits on 2003 – 04 was 5.88 43. 3 .2% which declined on 2004 – 05 and 2005 – 2006 but it increased to 5.3. Cost-Income Ratio = Operating Expenditure Net total Income Table IV.2.Table IV. Cost Income (Efficiency) Ratio Non-interest expenditure divided by net total income (total income minus interest expenses).75 47.32 54 .67 39. Global benchmark is 40 percent.

Ratio 42 IV. As an efficiency criterion. So the bank should take all the necessary measures to reduce the operating expenses.3.2.3.88 Burden Ratio = 38 Non-Interest Income Non-Interest Expenditure 36 2003 2004 55 .1 that a bank is not able to reach global benchmark of 40% in all the years except on 2003 – 04 (39. non-interest income able to cover the non-interest expenditure. 40 39.67 46 44 It is evident from the table IV. Burden Ratio Burden Ratio is the ratio of non-interest income to non-interest expenditure.88%).Graph IV.3.1 Cost Income Ratio 48 46.

69 58.57 80 Ratio 60 40 56 .93 Graph IV.2 Income 2003 14779657 2004 20729132 2005 15438273 2006 13775149 2007 15118012 Source: Financial Statement Year Non-interest Non-interest Expenditure 17477057 18965491 21089716 23471354 25653054 Ratio% 84.20 58.2 120 109.30 73.3.3 100 84.3.57 109.Table IV.

57 .It is clear from the table IV. In all the other four years non-interest income is not able to cover non-interest expenditure. The bank should take all the steps to reduce the burden ratio by reducing operating expenses and / or increasing the non-interest income.3.2 that burden ratio was the highest on 2003 – 04 as on that year only non-interest income is able to cover non-interest expenditure.

Balancesheet of Canara Bank for five years (Rs. ’000) PARTICULARS CAPITAL AND LIABILTIES Capital Reserves and surplus Deposits Borrowings Other liabilities and Provisions Total ASSETS Cash & balance with RBI Balance with bank & money at short notice Investments Advances Fixed assets Other assets Total Contingent liabilities Bills for collection 2003 2004 2005 2006 2007 4100000 37388283 720948225 938223 57174575 820549306 4100000 48416430 863445565 7548970 71882958 995393923 4100000 56989572 967959186 1141642 72861333 1103051733 4100000 67222358 116803231 9 258240 88605670 132821858 7 4100000 99439861 1423814519 15743517 116512530 1659610427 56075112 20896392 304582440 404715983 6596163 27683216 820549306 511761439 33169315 68909376 51360751 357929894 476386278 6801955 34005669 995393923 524402495 37057986 49843832 36843491 380538836 604214039 6728143 24883392 1103051733 576070268 39579579 79139957 49095590 369741830 794256998 6884717 29099495 132821858 7 549007090 44225832 90951915 72787421 452255384 985056870 28613535 29945302 1659610427 616111376 62000207 58 .

’000) PARTICULARS INCOME Interest earned Other income TOTAL EXPENDITURE Interest expended Operating expenses Provisions and contingencies TOTAL NET PROFIT FOR THE YEAR Appropriations Transfers to Statutory reserve Capital reserve Investment fluctuation reserves Revenue reserves Interim dividend Proposed dividend Dividend tax TOTAL Earnings Per Share 2003 66918885 14779657 81698542 44247728 17477057 9784838 71509623 10188919 2004 70069207 20729132 90798339 43245655 18965491 15207137 77418283 133800536 2005 75719688 15438273 91157961 44214993 21089716 14758207 800062945 11095045 2006 87115123 13155691 100270814 51300069 23471354 12067154 86838614 13432200 2007 113645562 14509497 128155059 73377305 25653054 14916600 113946959 14208100 2550000 2503 2990000 3032041 0000000 1435000 179375 10188919 20.56 3350000 1003535 5100000 1613916 1025000 1025000 262605 13380056 32.Profit and loss accounts of Canara Bank for five years (Rs.63 2800000 2027031 2300000 1406552 1025000 1230000 306462 11095045 27.76 3600000 22090 7228210 2870000 487800 14208100 34.65 59 .06 3400000 10300 -12081482 19017382 276000 380000 13432200 32.

CHAPTER V SUMMARY OF FINDINGS AND RECOMMENDATIONS • Findings • Suggestions 60 .

investors and others to form judgments about the financial position of the form and its operational efficiency. The information contained in three statements is used by managements.2 OBJECTIVES The important objective of the study is:1.2007. The problem is staked is “An Analysis of Financial Performance of Canara Bank” V. To determine its cost of deposits and yield investment 4. User of financial statements can get better insight about financial strength and weaker of the firm provided they are properly analyses the information contained in these statement. To analyze the profitability of the bank 5. So it is relevant and useful to make the analysis of financial performance of Canara Bank. Ratios are worked out for analysis from the published financial statements. To analyze and interpret the financial performance of the Bank. The various findings and conclusions of the study are stated in the relevant chapter itself.1 STATEMENT OF THE PROBLEM A form communicates financial information of the users though financial statement.CHAPTER 5 SUMMARY OF FINDINGS AND RECOMMENDATIONS V. 61 . To asses the operational efficiency of the bank 3. To suggest suitable remedial measures for better functioning of the bank V.3 FINDINGS The study covers an analysis of the financial performance of Canara Bank for a period of five years from 2003 – 2004 to 2006. 2. However it is considered suitable to provide a summary of those findings and conclusions.

which is not a good sign for the bank. The international benchmark is deemed as 1%. 7.  Burden ratio is highest in the year 2003 -04 and only on that year the non.interest income is able to cover the non – interest expenditure.18%..e.  Earning per share (EPS) indicate the ability of the bank to access the capital market and the appetite of the bank’s scrip in the market.  Book value for all the years shows an increasing which is an encouraging sign for the bank. But in the fifth year it has come down. 62 .  Return on networth shows a mixed trend.52% in 2006 and in the year 2007 it rises to 5.  Yield on investment shows a mixed trend.77% and high during the year 2004 i. It ranges from 16.  The global benchmark of cost – income ratio is 40%. such a decrease in EPS is due t the decrease in net profit in the year.91% to 8. It was low during the year 2006 ie. The main reason for this trend is due to the continuous variation in the interest rate.25% to 28. However. However the bank is not able to reach the global benchmark except on 2003 – 04.32%.  Cost of deposits declines to 4. It again declines to 4.47%.  Yield on advances varies from 7.60% in 2005 from 5. for the first four years return on assets has covered the global benchmark of 1%. The return on assets indicates the efficiency of assets’ use.20% in 2004. 9.67%. The EPS of the bank shows an increasing trend for all the years except on 2004-05.

 So as to increase the net profit operating expenses must be in control.  The bank should focus on investing its funds in high income generating assets.V. liquidity. Following are the recommendations to improve its performance. inflation and bank’s specific factors such as operational and opportunity cost. But it should be careful about the bank’s specific factors. 63 . Efforts must be taken to reach the international benchmark of 1%. personal loans etc.  The bank should encourage the lending of high yield advances such as retail.  Cost of funds is a function of demand. It has to take action to improve its performance.  The international benchmark for return on assets is deemed as 1% whereas it is not able to reach the international benchmark for the last year 2007. Most of the factors are out of control of the bank.4 RECOMMENDATION From the above study it is clear that Canara bank has to make improvements in certain areas.  The bank should take all the measures to minimize burden by reducing operating expense and / or increasing the non – interest income.

quality of their products. and efficient services. But it should be careful about the bank’s specific factors. the bank should follow the norms laid down by the RBI and render quality and timing service to the customers. and administrators. In order to maintain the growth. inflation and bank’s specific factors such as operational and opportunity cost. In the coming years . liquidity. The bank is managed by a group of professionals. In the case of banks cost of funds is a function of demand. The project entitled “An analysis of financial performance of Canara bank” is an attempt to study the financial performance of the bank for five years from 2003 to 2007.CONCLUSION The success of any organization depends on team work. The bank should also focus on improving the high yielding advances. Canara bank is a long – standing profit making bank. 64 . Most of the factors are out of control of the bank. It has developed an elaborate appraisal system where by they ensure that the funds are utilized for productive purpose. the bank expects growth in its business activities and operations. It is one of the leading institutions in the banking activity. reasonable rate.

Om Pariahs “Ratio analysis for management in new perspective” Vol. C. S.S Gupta fundamentals of management accounting: New Delhi.R Kothari Research Methodology: Methods and techniques.com  www.11 June 1989 7. National Publishing House.google.N Maheswari Management Accounting and financial control New Delhi: Sultan Chand and Sons. S.BIBLIOGRAPHY 1. I.K Ghosh and G. a practitioner’s handbook issued by Planning and Development Wing of Canara bank.N Maheswari Financial Management: New Delhi: Sultan Chand and Sons. 1990.. P. 1987 4.111 no.canarabank. 2000 Other Sources Profitability.11 June 1988. 6. Performance Highlights 2006 – 07 issued by Canara bank. Gautam Banerjee “Financial analysis for decision making: vol 11 No.com 65 .M Pandey “Financial Management” Bombay: Vikas Publishing House (p). New Delhi: Wiley Eastern Ltd. Websites  www.moneycontrol.com  www. 3. 1979 2.. 2000 5.

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