CHAPTER – 1

INTRODUCTION OF BANKING SECTOR

1.1) INTRODUCTION

Banking Regulation Act of India, 1949 defines Banking as “Accepting, for the
purpose of lending or of deposits of money from the public, repayable on demand or
Otherwise or withdrawal by cheque, draft order or Otherwise”. The RBI Act 1949
governs the banking operations in India.

1.2) BANKING STRUCTURE IN INDIA

A well-regulated banking system is a key comfort for Local and Foreign

stakeholders in any country. Prudent Banking regulation is recognized as one of the
reasons Why India was less affected by the global financial Crisis. Banks can be broadly
categorized as commercial Banks or co-operative banks. Banks which met specific
criteria are included in the second schedule of the RBI Act, 1934. These are called
scheduled banks. They may be commercial banks or co-operative banks. Scheduled
banks are considered to be safer, and are entitled to special facilities like re-finance from
RBI. Inclusion in the schedule also comes with its responsibilities of reporting to RBI
and maintaining a percentage of its demand and time liabilities as cash reserve ratio
(CRR) with RBI.

1
1.3) STRUCTURE OF BANK IN INDIA

1.4) BROAD CLASSIFICATION IN INDIA

THE RBI

The RBI is India‘s central banking Institution, Which controls the Monetary
policy of the Indian rupee. It commenced its operations on 1 April 1935 during the
British rule in accordance with the provisions of the RBI Act, 1934. The original share
capital as divided into shares of 100 each fully paid, which re initially owned entirely by
private shareholders. Following India’s independence on 15 August 1947, the RBI was
nationalized on 1 January 1949.
The RBI plays an important part in the development strategy of the Government
of India.
It is a member Bank of Asia clearing union. The general super intendance and
direction of the RBI is entrusted with the 21- member central board of directors: the
Governor, 4 Deputy Governors, 2 finance ministry representatives, 10 government –
nominated directors to represent important elements from India’s economy, and 4

2
directors to represent local boards head quartered at Mumbai, Kolkata, Chennai and new
Delhi. Each of these local boards consist of 5 members who represent regional interests,
and interest of co-operative and indigenous banks.
The bank is also active in promoting financial inclusion policy and is a leading
member of the alliance for financial inclusion.

COMMERCIAL BANK

Commercial bank comprising public sector banks, foreign banks, and private
sector banks represents the most important financial intermediary in the Indian financial
system. The changes in banking structure and control have resulted due to wider
geographical spread and deeper penetration of rural areas, higher Mobilization of
deposits, reallocation of bank Credit to priority activities, and lower operational
autonomy for a bank management. Public sector commercial banks, dominate the
Commercial banking scene in the country. The largest commercial bank in India is SBI.

1.5) CAMEL Framework

Camel is usual to measure performance of banks using financial ratios, often a

number of criteria such as profits, liquidity, asset quality, attitude towards risk, and
management strategies must be considered. In the early 1970 s, Federal regulators in
USA developed the CAMEL rating system to help structure the bank examination
process. In 1949, the uniform financial institutions rating system was adopted to provide
federal bank regulatory agencies with a framework for rating financial condition and
performance of Individual banks. The evaluation factors are as follows:
 C- Capital adequacy
 A-Asset quality
 M-Management
 E-Earnings ability
 L-Liquidity
 S-Sensitivity to market risk

3
1.6) PRIMARY FUNCTIONS INCLUDE

Commercial banks accept various types of deposits from public especially from
its clients, including saving account deposits, recurring account deposits and fixed
deposits. These deposits are returned whenever the customer demands it or after a certain
time period.
Commercial banks provide loans and advances of various forms, including an
overdraft facility, Cash credit, bill discounting, money at call etc.They give demand and
term loans to all types of clients against proper security.

1.7) AGENCY FUNCTIONS INCLUDE\

 To collect and clear cheques, dividends and interest warrant.

 To make payments of rent, insurance premium etc.
 To deal in foreign exchange transactions.
 To purchase and sell securities.
 To act as trustee, attorney, correspondent and executor.
 To accept tax proceeds and tax returns.

1.8) UTILITY FUNCTIONS INCLUDE

 To provide safety locker facility to customers.
 To provide money transfer facility.
 To issue traveler’s cheque.
 To act as referees.
 To accept various bills for payment: phone bills, gas bills, water bills, etc.
 To provide merchant banking facility.
 To provide various cards: credit cards, debit cards, smart cards etc.

1.9) LOAN TYPES

All the loans in the commercial banking, irrespective of the particular type of
bank product, are subject to be “secured” or “unsecured”.

4
i) SECURED LOAN

A secured loan is a loan in which the borrower pledges some asset (eg: a car or
property) as collateral for the loan, which then becomes a secured debt owned to the
creditor who gives the loan. The debt is thus secured against the collateral- in the event
that the borrower defaults, the creditor takes possession of the asset used as collateral and
may sell it to regain some or the entire amount originally lent to the borrower. If the sale
of collateral does not raise enough money to pay off the debt, the creditor can often
obtain a deficiency judgement against the borrower for the remaining amount. The
opposite of secured debt/ loan is unsecured debt, which is not connected to any specific
piece of property and instead the creditor may only satisfy the debt against the borrower
rather than the borrower’s collateral and the borrower.

ii) UNSECURED LOAN

Unsecured loans are monetary loans that are not secured against the borrower’s
assets (no collateral is involved). There are small business unsecured loans such as credit
cards and credit lines. These may be available from financial institutions under many
different guides or marketing packages such as:
 Bank overdrafts
 Corporate bonds
 Credit card debt
 Credit facilities or lines of credit.

5
 CHAPTER 2

ORGANISATIONAL PROFILE

2.1 INDUSTRY PROFILE

Banking in India in the modern some originated in the last decades of the 18th
century. Among the first banks were the bank of Hindustan, which was established in
1770 and liquidated in 1829-32, and the General Bank of India, established in 1786 but
failed in 1791.

The largest bank and the oldest still in existence, in the State Bank of India
(S.B.I).It originated as the Bank of Calcutta in June 1806. In 1809, it was renamed as the
Bank of Bengal. This was one of the three banks funded by a presidency government; the
other two were the Bank of Bombay and the Bank of Madras. The three banks were
merged in 1921, to form the Imperial Bank of India, which upon India’s independence,
became the State Bank of India in 1955. For many years the presidency banks had acted
as quasi-central banks, as did their successors, until the Reserve Bank of India was
established in 1935, under the Reserve Bank of India Act, 1934.

In 1960, the State Bank of India was given control of eight stat-associated banks
under the State Bank of India (Subsidiary Banks) Act, 1959. These are now called its
associate banks. In 1969 the Indian government nationalized 14 major private banks. In
1980, 6 more private banks were nationalized. These nationalized banks are the majority
of lenders in the Indian economy. They dominate the banking sector because of their
large size and widespread networks.

The Indian banking sector is broadly classified into scheduled banks and non-
scheduled banks. The scheduled banks are those which are included under the 2 nd
Schedule of the Reserve Bank of India Act, 1934.

The Scheduled banks are further classified into: Nationalized banks; State bank
of India and its associates; Regional Rural Banks (RRBs); foreign banks; and other
Indian private sector banks.

The Term commercial banks refer to both scheduled and non-scheduled

commercial banks which are regulated under the Banking Regulation Act, 1949.

6
 Generally banking in India is fairly mature in terms of supply, product merge and
reach-even though reach in rural India and to the poor still remains a challenge. The
government has developed initiatives to address this through the State Bank of India
expanding its branch network and through the National Bank for Agriculture and Rural
Development with facilities like microfinance.

2.2 COMPANY PROFILE

The bank, 'The Kumbakonam Bank Limited' as it was then called was
incorporated as a limited company on 31stOctober 1904. The first Memorandum of
Association was signed by twenty devoted and prominent citizens of Kumbakonam
including SarvashriR.SanthanamIyer, S.KrishnaIyer, V.KrishnaswamiIyengar and
T.S.Raghavachariar. T.S.Raghavachariar was the First Agent of the Bank. In 1908, he
was succeeded by ShriR.SanthanamIyer who became the Secretary of the bank under the
amended Articles of Association which created the office of a Secretary to be in charge
of the Bank's Management in the place of the Agent, which post he held till his death in
1926. He was succeeded by Shri. S. MahalingaIyer as Secretary who subsequently
became the First full-time Managing Director of the bank in tune with the amendment of
Articles in 1929. He held the position of Secretary from 1926 to 1929 and that of
Managing Director from 1929 to 1963.

The bank in the beginning preferred the role of a regional bank and slowly but
steadily built for itself a place in the Delta District Thanjavur. The first Branch of the
Bank was opened at Mannargudi on 24th January 1930. Thereafter, branches were
opened at Nagapattinam, Sannanallur, Ayyampet, Tirukattupalli, Tiruvarur, Manapparai,
Mayuram and Porayar within a span of twenty five years. The Bank was included in the
Second Schedule of Reserve Bank of India Act, 1934, on 22nd March 1945.

The Bank celebrated its Golden Jubilee on 14th November, 1954 at

Kumbakonam under the Presidentship of Shri.C.R.Srinivasan, Editor, 'Swadesmitran' &
Director, Reserve Bank of India.

In 1957, the bank took over the assets and liabilities of the Common Wealth Bank
Limited and in the process annexed to it the five Branches of Common Wealth Bank
Limited at Aduthurai, Kodavasal, Valangaiman, Jayankondacholopuram and Ariyalur.

7
 In 1963, Shri. R. A.VenkataramaniIyer took charge as the Chairman of the Bank
which position he held up to 1969.

In April, 1965, two other local banks viz., 'The City Forward Bank Limited' and
'The Union Bank Limited' were amalgamated with the Bank under a scheme of
amalgamation with the resultant addition of six more branches viz., Kumbakonam-Town,
Nannilam, Koradacherry, Tiruvidaimarudur, Tirupanandal and Kuttalam. Consequently,
the Bank's name was changed to 'The Kumbakonam City Union Bank Limited'.

In November 1965, the bank's first branch at Madras was opened at Thiyagaraya
Nagar. In May, 1969 the Bank secured the services of Shri. O.R. Srinivasan, a former
Officer   of Reserve Bank of India to be at the helm of affairs as Chairman and Chief
Executive Officer which event proved to be a turning point in the annals of the Bank.
Under the new Management the Branch Expansion got a fresh impetus and branches
were opened at Eravancheri, Sembanarkoil, Tiruchirapalli, Madurai, Thanjavur,
Dindugul, Keelapalur, Tirumakkottai, Kottur, Tiruvarur Town and Coimbatore during
the period from March, 1968 to August, 1973.

In April, 1974 the bank secured the services of Shri. K.Srinivasan, another former
Senior Officer of Reserve Bank of India, as its Secretary.  At that time, a Young
Chartered Accountant from Thippirajapuram village near Kumbakonam,   
Shri.V.Narayanan was appointed as Assistant Secretary of the Bank.

During the period 1974-1976 Branches were opened at Periyakulam, Mandaveli

(Madras), Pattukkottai, Triplicane (Madras), Cuddalore, Pudukkottai, Chidambaram and
Salem.

When Shri. O.R.Srinivasan relinquished his office in June 1977, the then
Secretary Shri. K.Srinivasan was appointed as Chairman and Chief Executive Officer of
the Bank and the then Asst.SecretaryShri. V.Narayanan was elevated to the rank of the
Secretary.

From July,1977 to September,1979 the bank has opened ten more branches
including those at George Town (Madras), Mount Road (Madras), Tirunelveli and
Karaikudi.

8
 The Bank celebrated its Platinum Jubilee on 9th December, 1979 at
Kumbakonam with Dr. Rajah Sir M.A.MuthiahChettiar, Shri. G.RengasamyMoopanar,
Shri. Kosi.Mani and Shri.M.V.Arunachalam as Guests of Honor.

In November, 1980, the then Secretary Shri.V.Narayanan, assumed charge as the

Chairman and Chief Executive Officer of the Bank with the approval of Reserve Bank of
India consequent to the completion of the term by Shri. K.Srinivasan.   The event opened
a glorious chapter in the history of the bank.

The first branch outside the state of Tamilnadu was opened at Sultanpet,
Bangalore in Karnataka in September, 1980.  Branches were also opened at the twin
cities of Hyderabad and Secunderabad in Andhrapradesh.  In tune with the national
image attached to the Bank, the Bank's name was changed to 'City Union Bank Limited'
with   effect from December, 1987.

The Bank started its own Staff Training College on 21st August, 1989 at
Kumbakonam with the avowed objective of imparting need based and result oriented
training to its Staff Members irrespective of the cadre.

Taking into account the bank's financial strength, managerial competence and
consistent progress in all spheres of its activities, Reserve Bank of India has granted an
Authorized Dealers License to deal in Foreign Exchange business with effect from
October, 1990.

The bank has introduced computerization in the year 1990 and all the Branches
have been computerized. The bank has entered into an agreement with Tata Consultancy
Services Limited for introducing Core Banking Solution [CBS] and all the branches have
been brought under Core Banking Solution [CBS] as on date.

Automated Teller Machines (ATMs) have been installed at select centres where
the Card holders can withdraw cash, make balance enquiries and obtain Statement of
accounts

The bank obtained license from Insurance Regulatory Authority of India (IRDA)

to act as Corporate Agent for selling insurance products and to provide value added
services to the public at large.

9
 The Bank has entered into Memoranda of understanding with Life Insurance
Corporation of India and National Insurance Company Limited for selling their insurance
products.

The Bank has tied up with Export Credit & Guarantee Corporation Limited
[ECGC] for marketing export credit insurance products through its branch network.

The Bank has also entered into a franchise agreement for the Money Transfer
Service Scheme of M/s UAE Exchange and Financial Service Ltd. ICICI, Doha Bank
and Bank of India for effective and speedy receipt of funds remitted form abroad.

The Bank has obtained License to function as Depository Participant under

National Securities Depository Limited.

The Bank's Centenary Celebrations were inaugurated on 27th December, 2003 at

the SaraswathiPatasala Girl's Higher Secondary School Grounds, Kumbakonam under
the Chairmanship of Shri. V.Narayanan with Shri.R.Venkataraman, Former President of
India, Dr.A.R.Lakshmanan, Judge, Supreme Court, New Delhi and Shri.N.Rengachari,
Retired Chairman, IRDA & Advisor to the Government of Andhra Pradesh as
distinguished Guests.

In the glorious history of City Union Bank Limited, nearly one third of the period
of its existence and progress centered around a key person, namely, Shri. V.Narayanan.
The enviable leadership style of Shri. V. Narayanan and his vision for the consistent
growth of the bank in all spheres, his tireless efforts in augmenting the Bank's Business,
widening the branch network, maintaining harmonious industrial relations, ensuring the
unique achievement of not loosing not even a single man-day by way of labor unrest-a
record of sort in the country has earned name and fame not only for himself but to the
bank in the entire Banking Industry in India.   His famous words of  'Take care of  the
bank; The  bank  will take care of you' have made wonders in enhancing the morale and
improving the productivity of the workforce, the facts of which can be vouchsafed by the
financial results  of the bank during his tenure as Chairman. But the bank has lost its
illustrious Chairman Shri. V.Narayanan in an unexpected car accident near Chennai on
5th November, 2004.

10
 With the irreparable loss of Shri.V.Narayanan, the mantle of leading the bank to
make his dreams a reality fell on Shri.S.Balasubramanian who had joined the bank as an
Officer in 1971 and risen to the rank of Executive Director during the Chairmanship of
Shri. V. Narayanan. The Board of Directors with the approval of Reserve Bank of India
appointed him as the Chairman & Chief Executive Officer of the Bank with effect from
31-1-2005.

In the year 2009, on receipt of approval from Reserve Bank of India,   the Board
appointed Shri. P. Vaidyanathan [ Chartered Accountant, Cost Accountant and Company
Secretary] as the Non Executive Chairman of  the Bank on 27-04-2009  and 
Shri.S.Balasubramanian as Managing Director & Chief Executive officer of the  Bank.
Shri.P.Vaidyanathan has demitted his office of Non-Executive Chairman of the Bank on
26-04-2011 on completion of two years and Shri.S.Balasubramanian has demitted his
office of Managing Director & Chief Executive Officer on 30-04-2011.

Pursuant to the approvals received from Reserve Bank of India

Shri.S.BalasubramanianM.Sc.PGDFM.CAIIB has assumed charge as Non Executive
Chairman of the bank and Dr. N. Kamakodi, B.Tech. MBA.PhD.CAIIB who joined the
services of the bank as Deputy General Manager in June 2003, subsequently elevated to
the rank of General Manager in March,2005, Executive Director in October,2006 and
that of Executive President  in January,2011  has been appointed as  the Managing
Director & Chief Executive Officer of the bank  with effect from 01-05-2011.

11
 CHAPTER – 3

OBJECTIVE AND METHODOLOGY

3.1) OBJECTIVES OF THE STUDY

 To evaluate financial performance of City Union Bank Limited
Kumbakonam.
 To analyze the financial position and performance of the City Union Bank
using CAMELS model.
 To describe the CAMELS model of banking.
 To give suggestions for improvement is necessary.
 To offer suitable measures for improving efficiency of the bank.

3.2) RESEARCH METHODOLOGY

Research methodology is a systematic way to solve the problem. It is the
description, explanation and justification of various methods of conducting research. The
idea deals with the statement of the problem, research design, sources of data collection,
statistical tools used for the data analysis and interpretation. Research methods help in
arriving at solutions by relating available data with unknown aspects of the problem.

3.3) STATEMENT OF THE PROBLEM

In the recent years the financial system especially the banks have undergone
numerous changes in the form of reforms, regulations & norms. CAMELS framework
for the performance evaluation of banks is an addition to this. The study is conducted to
analyze the strength of using CAMELS framework as a tool of performance evaluation
for City Union Bank ltd.

3.4) METHOD OF DATA COLLECTION

A. SECONDARY DATA

Secondary data is those which have already been collected by someone else. The
study is mainly based on secondary data drawn from the annual reports of the respective

12
two banks each in public,private and cooperative sectors. This data is related to 5 years
(2010-11 to 2015-16) overall balance sheet of cub at Kumbakonam.
Secondary data may collected from
 Annual reports of the City Union Bank at Kumbakonam.
 Official websites on cub ltd at Kumbakonam.

3.5) TOOLS USED FOR ANALYSIS OF DATA

CAMEL tools have been used for drawing conclusions.

3.6) LIMITATIONS OF THE STUDY

 The study is limited to a period of 5 years only.
 Data of this study has been taken from published annual reports only.

3.7) FINANCIAL PERFORMANCE OF CUB USING CAMEL MODEL

CUB Kumbakonam is a one of the leading commercial private banks; offering
credit and financial facilities for the development of the fledging Indian industry. In
India, CAMEL model is used for analyzing the performance and efficiency of banks. The
financial performance is measured through CAMEL model; and evaluated on the
following five parameters. The purpose of this project is to analyze the financial
performance of City Union Bank for the period 2011-2016 using CAMEL approach, to
evaluate City Union Bank’s capital adequacy, asset quality, management, earnings and
liquidity and to determine financial performance, operating soundness and regulatory
compliance of City Union Bank.

To do this, we first define different ratios used to evaluate City Union Bank
capital adequacy, asset quality, management, earnings and liquidity. In this project we
use following ratios to evaluate capital adequacy, asset quality, management, earnings
and liquidity:

Capital Adequacy = Debit/ Equity; this ratio represents the degree of leverage
of a bank and indicates the relative proportion of shareholders' equity and debt used to
finance a company’s assets.

Asset Quality = Loan Loss Provisions/ Total Loans; evaluate the proportion of
bad loans over total loans.
13
 Management Quality = Net Income/Total Loans; ‫܂‬measures a corporation's
profitability by revealing how much profit a company generates with the money
shareholders have invested.
Earning’s Ability =Net Income/Total Assets; measures bank’s profitability
relative to its assets and thus the bank’s overall performance.
Liquidity Position = Deposits/ Total Assets;‫܂‬estimates the proportion of
deposits over total assets and thus liquidity risk.
Due to the unavailability of the data for factor S, i.e. sensitivity to market
risk, the data has been analyzed using the rest of the 5 factors using ratios.
3.8 CHAPTER SCHEME
Chapter 1: Introduction
Chapter II:Company profile and industry profile
Chapter III:Research methodology
Chapter IV:Review of literature
Chapter V:Data analysis and interpretation.
Chapter V1: Findings, suggestions & conclusion.

14
 CHAPTER-1V
REVIEW OF LITERATURE

The analysis of banking performance has received a great deal of attention in the
banking literature. A popular framework used by regulators is the CAMELS framework,
which uses some financial ratios to help evaluate a bank’s performance (Yue, 1992).
Several studies involve the use of ratios for banks’ performance appraisal, including
Beaver (1966), Altman (1968), Maishanu (2004), and Mous (2005).

Beaver (1966) initiated the use of financial ratios for predicting bankruptcy,
considering only one ratio at a time.

Altman (1968) went further, using a multiple discriminant analysis (MDA) for
the same purpose, combining several financial ratios in a single prediction model called
the Altman’s z-score model. However, Altman’s model ignored the industry-specificity
of “healthy” indications by the financial ratios.

Maishanu (2004) studied financial health of banks, and suggested eight financial
ratios to diagnose the financial state of a bank.

Mous (2005) studied bankruptcy prediction models of banks using financial

ratios of profitability, liquidity, leverage, turnover and total assets in decision tree models
and multiple discriminant models, and found that the decision tree approach performed
better.

The CAMEL framework was originally intended to determine when to schedule

on-site examination of a bank (Thomson, 1991; Whalen and Thomson, 1988). The six
CAMELS factors, viz. Capital adequacy, Asset quality, Management soundness,
Earnings, Liquidity, sensitivity to risk indicate the increased likelihood of bank failure
when any of these five factors prove inadequate. The choice of the six CAMELS factors
is based on the idea that each represents a major element in a bank’s financial statements.
Several studies provide explanations for choice of CAMELS measures:

15
 Lane et al (1986), Looney et al (1989), Elliott et al (1991), Eccher et al (1996),
and Thomson (1991). For example, Waldron et al (2006) suggested that one of these
threats represented in camel exists in the loss of assets (A); similarly short-term liquid
assets (L) aid in covering loan payment defaults and offset the threat of losses or large
withdrawals that might occur. The CAMELS framework extends the CAMEL
framework, considering six major aspects of banking; capital adequacy, asset quality,
management soundness, earnings, and profitability, liquidity and sensitivity to market
risk.

Wirnkar and Tanko (2008) the usage of the CAMEL(S) framework in banking
studies in emerging economies in limited. Wirnkar and Tanko (2008) studied banking
performance of major Nigerian banks using the CAMEL framework.

Bank performance evaluation by CAMEL model (hirtle and lopex) Depsite

the continuous use of financial ratio analysis on bank performance evaluation by banks
regulators, opposition to it skill thrive with opponents coming up with in tools capable of
flagging with the over- all performance (efficiency) of a bank. This research paper was
carried out to find the adequacy of CAMEL in capturing overall performance of a bank.

Check the Risk taken by banks by CAMEL model The deregulation of the
U.S banking industry has fostered increased competition in banking markets, which in
turn has created incentiveness for banks to operate more efficiency and take more risk.

Bank soundness- CAMEL ratings- Indonesia (Kenton zumwalt) Bank

Indonesia’s non-public CAMEL ratings data allow the use of continuous bank soundness
measure rather than original measures.

SNB Bank of Kansas acquires deposits and loans of first national bank of
Anthony by calmetta Coleman PR newswire says that rick green, vice chairman of
SNB bank of Kansas and chief executive officer of southwest Bancorp, Inc. stated, at
southwest and bank of kanvas our banking philosophy is to provide a high level of
customer service, a wide range of financial services, and products responsive to customer
needs.

16
 Ripley, Richard. Journal of business 25.6 mar 11, 2010: Lentitle deposits top
loans in new bank reports explain that loans, listed on banks’ balance sheets as assets,
aren’t considered to be very liquid, but if a bank buys a bond, it can sell that bond and
convert it to cash if necessary Fewel says, owning more bonds increases on balance sheet
liquidity.

17
 CHAPTER-V
DATA ANALYSIS AND INTERPRETATION

ANALYSIS

 Analysis is the process of breaking a complex topic or substance into smaller

parts to gain a better understanding of it. Financial statement analysis or financial
analysis refers to an assessment of the viability, stability and profitability of a business,
sub-business or project.
 Data analysis is a process of gathering, modeling, transforming data with the
goal of highlighting useful information, suggesting, conclusions, and supporting decision
making.
 Capital Adequacy (C)
 Asset Quality (A)
 Management (M)
 Earnings Quality (E)
 Liquidity (L)
 Sensitivity to market risk (S)

18
5.1.A CAPITAL ADEQUACY RATIO
Capital adequacy ratio is used to evaluate, how CUB Ltd meets its capital
adequacy requirements.

TABLE

5.1.A - CAPITAL ADEQUACY RATIO

RESERVE SHARE
TOTAL DEBITS
SL NO YEAR CAPITAL
(in Crores)
(in Crores)

1 2013 – 2014 16689 1202

2 2014 – 2015 20781 1594

3 2015 – 2016 22321 1970

4 2016 – 2017 24243 2635

5 2017 – 2018 27270 2992

SOURCE: Annual Report

INFERENCE
The Capital adequacy is rated upon different factors inter alia: The level and
quality of capital and the overall financial condition of the institution, the ability of
management to address emerging needs for additional capital, the nature, trend, and
volume of problem assets, and the adequacy of allowances for loan and lease losses etc.

19
 CHART

5.1.A - CAPITAL ADEQUACY RATIO

30000

25000

20000

15000
TOTAL DEBITS
RESERVE SHARE CAPITAL
10000

5000

0
2013-20142014-20152015-20162016-20172017-2018

20
 TABLE

5.1.B - LEVERAGE OF BANK FOR SHARE HOLDER’S

EQUITY SHARE
TOTAL DEBTS
SL NO YEAR CAPITAL
(in Crores)
(in Crores)

1 2013 – 2014 41 349

2 2014 – 2015 48 476

3 2015 – 2016 54 304

4 2016 – 2017 60 168

5 2017 – 2018 61 112

SOURCE: Annual Report

INFERENCE
This ratio represents the degree of leverage of a bank and indicates the relative
proportion of shareholders' equity and debt used to finance a company's assets.

21
 CHART

5.1-B) LEVERAGE OF BANK FOR SHARE HOLDER’S

500

450

400

350

300

250 EQUITY SHARE CAPITAL

TOTAL DEBITS
200

150

100

50

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

22
 TABLE

5.1.C - SHARE CAPITAL ADEQUACY

EQUITY SHARE RESERVE SHARE

SL NO YEAR CAPITAL CAPITAL
(in Crores) (in Crores)

1 2013 – 2014 41 1202

2 2014 – 2015 48 1593

3 2015 – 2016 54 1970

4 2016 – 2017 60 2635

5 2017 – 2018 61 2992

SOURCE: Annual Report

INFERENCE
The Capital adequacy is also rated upon different factors like the valuation
reserves, balance sheet composition, including the nature and amount of intangible
assets, market risk, concentration risk, and risks associated with nontraditional activities,
risk exposure represented by off balance sheet activities, the quality and strength of
earnings, and the reasonableness of dividends etc.

23
 CHART 5.3

5.1-C) SHARE CAPITAL ADEQUACY

3500

3000

2500

2000
EQUITY SHARE CAPITAL
1500 RESERVE SHARE CAPITAL

1000

500

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

24
 TABLE

5.1.D - DEBT-EQUITY RATIO

DEBT EQUITY RATIO

SL NO YEAR
(%)

1 2013 – 2014 41

2 2014 – 2015 48

3 2015 – 2016 54

4 2016 – 2017 60

5 2017 – 2018 61

SOURCE: Annual Report

INFERENCE
The analysis of capital adequacy parameter (debt equity ratio), which represents
the degree of leverage of a bank and indicates the relative proportion of shareholders'
equity and debt used to finance a company's assets.High ratio indicates less protection
for depositors and creditors.

25
 CHART

5.1-D) DEBT-EQUITY RATIO

DEBIT-EQUITY RATIO(%)
16

14

12

10

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

26
 TABLE

5.2.A – ASSET QUALITY

LOAN LOSS
TOTAL LOANS
SL NO YEAR PROVISION
(in Crores)
(in Crores)

1 2013 – 2014 16689 418

2 2014 – 2015 20781 555

3 2015 – 2016 22321 647

4 2016 – 2017 24243 932

5 2017 – 2018 27270 930

SOURCE: Annual Report

INFERENCE:
Asset quality determines the healthiness of financial institutions against loss of
value in the assets as asset impairment risks the solvency of the financial institutions.
The weakening value of assets has a spillover effect, as losses are eventually written-off
against capital, which eventually expose the earning capacity of the institution. With this
framework, the asset quality is assessed with respect to the level and severity of
nonperforming assets, adequacy of provisions, distribution of assets etc.

27
 CHART

5.2.A) ASSET QUALITY

28
 30000

25000

20000

15000 TOTAL LOANS(in Crore)

LOAN LOSS PROVISIONS

10000

5000

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

5.3. A) MANAGEMENT EFFICIENCY

Management is the most important ingredient that ensures sound functioning of

banks. With increased competition in the Indian banking sector, efficiency and
effectiveness have become the rule as banks constantly strive to improve the productivity
of their employees.
TABLE

5.3.A – MANAGEMENT EFFICIENCY

TOTAL ASSETS NET INCOME

SL NO YEAR
(in Crores) (in Crores)

1 2013 – 2014 18350 1904

2 2014 – 2015 22977 2462

3 2015 – 2016 24993 2847

4 2016 – 2017 27871 3113

5 2017 – 2018 31251 3354

29
SOURCE: Annual Report

INFERENCE:
Management efficiency, another indispensable component of the CAMEL
framework, means adherence to set norms, knack to plan and be proactive in the
dynamic environment, leadership, innovativeness and administrative competence of the
bank. The Management is rated upon different factors inter alia: the level and quality of
oversight and support of all institution activities by the board of directors and
management, the ability of the board of directors and management, in their respective
roles, to plan for, and respond to, risks that may arise from changing business conditions
or the initiation of new activities or products, the adequacy of, and conformance with,
appropriate internal policies and controls addressing the operations and risks of
significant activities, the accuracy, timeliness, and effectiveness of management
information and risk monitoring systems appropriate for the institution’s size,
complexity, and risk profile, the adequacy of audits and internal controls to: promote
effective operations and reliable financial and regulatory reporting; safeguard assets; and
ensure compliance with laws, regulations, and internal policies.

CHART

5.3.A) MANAGEMENT EFFICIENCY

30
 35000

30000

25000

20000
TOTAL ASSETS
15000 NET INCOME

10000

5000

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

MANAGEMENT EFFICIENCY RATIOS

TABLE

5.3.B - INTEREST INCOME / TOTAL FUNDS

31
 INTEREST INCOME / TOTAL
SL NO YEAR
FUNDS

1 2013 – 2014 10.3

2 2014 – 2015 10.59

3 2015 – 2016 10.61

4 2016 – 2017 10.21

5 2017 – 2018 9.96

SOURCE: Annual Report

INFERENCE:
Results of management quality parameter, defined as return on equity, which
measures the profitability of a bank.

32
 CHART

5.3-B) INTEREST INCOME/TOTAL FUNDS

10.8

10.6

10.4

10.2 INTEREST INCOME/TOTAL

FUNDS(in crores)

10

9.8

9.6
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

33
MANAGEMENT EFFICIENCY RATIOS

TABLE

5.3.C – OPERATING EXPENSE / TOTAL FUNDS

OPERATING EXPENSE / TOTAL

SL NO YEAR
FUNDS

1 2013 – 2014 1.62

2 2014 – 2015 1.69

3 2015 – 2016 1.84

4 2016 – 2017 1.79

5 2017 – 2018 1.71

SOURCE: Annual Report

INFERENCE
This ratio evaluates the proportion of operating expenses to the total funds to
prove the management efficiency.

34
 CHART

5.3- C) OPERATING EXPENSE/TOTAL FUNDS

1.9

1.85

1.8

1.75

1.7 OPERATING EXPENSE/TOTAL

FUNDS
1.65

1.6

1.55

1.5
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

MANAGEMENT EFFICIENCY RATIOS

35
 TABLE

5.3.D – NET PROFIT / TOTAL FUNDS

SL NO YEAR NET PROFIT / TOTAL FUNDS

1 2013 – 2014 1.7

2 2014 – 2015 1.56

3 2015 – 2016 1.45

4 2016 – 2017 1.49

5 2017 – 2018 1.5

SOURCE: Annual Report

INFERENCES
This ratio measures a corporation's profitability by revealing how much profit a
company generates with the money shareholders have invested.

36
 CHART

5.3-D) NET PROFIT/TOTAL FUNDS

NET PROFIT/TOTAL FUNDS(in crores)

1.75

1.7

1.65

1.6

1.55 NET PROFIT/TOTAL FUNDS(in

crores)
1.5

1.45

1.4

1.35

1.3
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

37
5.4.A) EARNINGS ABILITY
Earnings and profitability, the prime source of increase in capital base, is
examined with regards interest rate policies and adequacy of provisioning. In addition, it
also helps to support present and future operations of the institutions. The single best
indicator used to gauge earning is the Return on Assets (ROA).

TABLE

5.4.A – EARNINGS ABILITY

TOTAL ASSETS NET INCOME

SL NO YEAR
(in Crores) (in Crores)

1 2013 – 2014 18350 1904

2 2014 – 2015 22977 2462

3 2015 – 2016 24993 2847

4 2016 – 2017 27871 3113

5 2017 – 2018 31251 3354

SOURCE: Annual Report

INFERENCES
The quality of earnings represents the sustainability and growth of future
earnings, value of a bank’s lucrativeness and its competency to maintain quality and earn
consistently. Earnings and profitability are examined as against interest rate policies and
adequacy of provisioning. The single best indicator used to gauge earning is the Return
on Assets (ROA), which is net income after taxes to total asset ratio.

38
 CHART

5.4. A) EARNINGS ABILITY

35000

30000

25000

20000
TOTAL ASSETS
15000 NET INCOME

10000

5000

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

39
EARNINGS ABILITY

TABLE

5.4.B – PROFIT / LOSS RATIO

TOTAL
NET INCOME
SL NO YEAR EXPENSES
(in Crores)
(in Crores)
1 2013 – 2014 1904 1623

2 2014 – 2015 2462 2140

3 2015 – 2016 2847 2500

4 2016 – 2017 3113 2719

5 2017 – 2018 3354 2909

SOURCE: Annual Report

INFERNCES:

Financial institution's earnings is rated upon different factors inter alia: the level
of earnings, including trends and stability, the ability to provide for adequate capital
through retained earnings.

40
 CHART

5.4-B) PROFIT / LOSS RATIO

4000

3500

3000

2500

TOTAL EXPENSES
2000
NET INCOME
#REF!
1500

1000

500

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

41
EARNINGS ABILITY

TABLE

5.4.C – NET PROFIT

SL NO YEAR NET PROFIT(in Crores)

1 2013 – 2014 280

2 2014 – 2015 323

3 2015 – 2016 348

4 2016 – 2017 396

5 2017 – 2018 445

SOURCE: Annual Report

INFERENCES
Financial institutions earnings is also rated upon different factors like the
quality and sources of earnings, the level of expenses in relation to operations, the
adequacy of the budgeting systems, forecasting processes, and management information
systems.

42
 CHART

5.4-C) NET PROFIT

Net Profit (in crores)

500
450
400
350
300
net profit (in crores)
250
200
150
100
50
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

43
5.5.A) LIQUIDITY POSITION

This ratio measures the liquidity available to the deposits of the bank. Total
deposit included demand deposits, the saving deposits, term deposits and deposits of
other financial instructions. Liquid assets include cash in hand, balance with the CUB,
and money at call, short notice.

TABLE

5.5.A – LIQUIDITY POSITION

TOTAL ASSETS DEPOSITS

SL NO YEAR
(in Crores) (in Crores)

1 2013 – 2014 18350 16340

2 2014 – 2015 22977 20304

3 2015 – 2016 24993 22016

4 2016 – 2017 27871 24074

5 2017 – 2018 31251 27158

SOURCE: Annual Report

INFERENCE
In case of an adequate liquidity position, the institution can obtain sufficient
funds, either by increasing liabilities or by converting its assets to cash quickly at a
reasonable cost. Liquidity is also rated based upon the adequacy of liquidity sources
compared to present and future needs and the ability of the institution to meet liquidity
needs without adversely affecting its operations or condition.

44
 CHART

5.5.A) LIQUIDITY POSITION

35000

30000

25000

20000
TOTAL ASSETS
15000 DEPOSITS

10000

5000

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

45
5.5 B) GROWTH RATIOS

TABLE

5.5.B – GROWTH RATIOS

SL NO YEAR ADVANCES GROWTH

1 2013 – 2014 31.14

2 2014 – 2015 25.61

3 2015 – 2016 5.58

4 2016 – 2017 11.61

5 2017 – 2018 17.21

SOURCE: Annual Report

INFERENCE
Liquidity is also rated based upon the availability of assets readily convertible to
cash without undue loss, access to money markets and other sources of funding, the level
of diversification of funding sources.

46
 CHART

5.5-B) GROWTH RATIOS

35

30

25

20

ADVANCES GROWTH
15

10

0
2013-20142014-20152015-20162016-20172017-2018

47
 CHAPTER-VI
FINDINGS AND SUGGESTION

6.1 FINDINGS

Sound financial health plays a significant role in the success of some companies,
particularly the banking companies. The study was focused to evaluate the financial
performance of CUB, KUMBAKONAM by applying the CAMEL model. Various
parameters like: capital adequacy, management efficiency and liquidity ratios are used to
measure its performance is found to be efficient, but is advisable for the CUB bank,
Kumbakonam.

 To frame well documented loan policy and procedures.

 The bank will be able to earn returns in the form of interest or profit; if it has
maintained 1.2% NPA by way of lending, investing or creating quality assets.

 Banks were advised to reduce their NPAs. The bank has to check over the
credit worthiness of the borrower before providing loans to them.

 Banks were advised to impart training programme among its employees for
development and improvement in their knowledge; and nominate them for
training programme in different foreign banks.

48
6.2 SUGGESTIONS

 Imparting knowledge, itself, will increase the business per employee and
profit per employee of the bank.

 It is found that the bank has considerable growth in net profits.

 In order to improve its position with regard to asset quality and capital
adequacy.

 In order to improve its position with regard to asset quality and capital
adequacy; improve its management efficiency and earning capacity.

49
 CONCLUSIONS

The CUB, Kumbakonam is taken as the sample of CUB banks, which has to
ranked on CAMEL parameters. Ranking these profitable banks is complicated to the
level, that any type of such ranking is question of ambiguity as the ratios selected for the
computation of ranking can be interpreted in the way one likes. The opted method
provides a simplistic ay of presenting difficult data concerning performance of the
banking industry. The growth of banking industry is one of the most important factors of
economic development of a country. The current study has been done to find the
economic soundness of City Union Bank, Kumbakonam uses CAMEL model during the
period 2013-2018.

The present study also depicted that through ranking of ratios is different for
different bank in CUB bank group. But there is no statistically significant difference
between the CAMEL ratios. It signifies that the overall performance of CUB bank group
is same; this may be because of the adoption of modern technology, banking reforms and
recovery mechanism. CUB, Kumbakonam needs to improve its position with regard to
asset quality and capital adequacy. The present study is limited in scope as it relates to
CUB Bank group only.

50