2) Profit and Loss Statement Analysis

Banks play a pivotal role in ensuring the sustainable and diversified growth of a country and ensuring
adequate flow of credit to all deserving sectors, industries, and borrowers. The main drivers involved
in creating income for banks are as followed

 Interest Earned- The Interest earned by the banks depends on various parameters which
involves interest charged on loans and advances/bills, income from the investments which
the banks have made, Interest on balance with Reserve Bank of India and Other interbank
funds and other factors also
 Interest Expended- The Interest Expended by Banks depends on Interest given on Deposits
by the customers, Interest on Reserve Bank of India / Inter-bank borrowings.
 Other Income- The Other income includes the income which is generated from Commission,
exchange and brokerage, Profit/(Loss) on sale/redemption of Investments, Profit/(Loss) on
revaluation of investments, Profit/(Loss) on sale of land, building and other assets,
Profit/(Loss) on exchange transactions, Income earned by way of dividends from
Subsidiaries / Associates and /or Joint Venture abroad / in India and Miscellaneous Income
 Operating Expenses-The Operating expenses play a vital role in determining the profitability
of banks if the operating expense is too high there is a chance of less profitability during
financial year. The factors involved are Payments to and provisions for employees, Rent, taxes
and lighting, Printing and stationery, Advertisement and publicity, Depreciation on Bank's
property, Director’s fees allowances and expenses, Auditors' fees and expenses, Law charges,
Postage, telegrams, telephones, etc, Repairs and maintenance, Insurance and Other
expenditure(Includes professional charges, service charges for core banking software and
ATM, traveling and other expenses)

Now let’s start to begin with the analysis of Profit and Loss Statement by calculating NET
PROFIT of the bank during FY2023 and FY2022.NET PROFIT is calculated by taking the
difference of TOTAL INCOME and TOTAL EXPENSE

NET PROFIT

4,500M 4,045 M
4,000M
3,500M
3,000M
2,500M
2,000M
1,500M
1,000M
500M 615 M
M
2023
2022

Figure : NET PROFIT comparison for FY2023-FY2022 of UTKARSH SMALL FINANCE BANK
(Source: Own based on company’s financial report)
 Despite the impact of CPI inflation on the Indian economy, which reached 6.8% in the FY
2023, as compared to 5.5% FY 2022, there is an increase of 558.14% in the net profit from
FY2022 to FY2023. The increase is because of several factors, including a growth in the gross
loan portfolio, rise in deposits, and improved operational expansion into new geographical
areas. These developments led to a rise in net interest income, which increased from
10608M (FY2022) to 15290M (FY2023), marking a 44.13% surge from FY2022 to FY2023

TOTAL INCOME

20,336 M
18,488 M 28,043M
30,000M 25,050M

25,000M
20,000M
15,000M 1,848 M
2022
10,000M 2,993M
5,000M
2023
M
INTEREST EARNED OTHER INCOME TOTAL INCOME

2023 2022
Figure :TOTAL INCOME comparison for FY2023-FY2022 of UTKARSH SMALL FINANCE BANK
(Source :Own based on company’s financial report)

 Net interest income is calculated as the difference between interest earned, which
amounted to 25050M (FY2023), and interest expended, which totalled 9759M (FY2023).
Moreover, non-interest income, encompassing commissions, exchange and brokerage,
profits or losses on the sale or redemption of investments, profits or losses on the
revaluation of investments, as well as profits or losses on the sale of land, building, and other
assets, has grown from 1848M (FY2022) to 2993M (FY2023), representing a 61.93% increase.
Consequently, the total income has risen from 20336M (FY2022) to 28043M (FY2023),
reflecting a 37.89% increase
 TOTAL EXPENSE
23,998M
25,000M
19,722 M
20,000M

15,000M
9,759M 9,900M
7,880 M 7,337 M
10,000M
4,338M 4,505 M
5,000M

M
INTEREST EXPENDED OPERATING PROVISIONS AND TOTAL EXPENSE
EXPENSES CONTENGENCIES

2023 2022
Figure : TOTAL EXPENSE for FY2023-FY2022 of UTKARSH SMALL FINANCE BANK ( Source:
Own based on company’s financial report)

 However, it is important that operating expenses, including payments to employees, rent,

taxes, and other ancillary expenses, have risen from 7337M (FY2022) to 9900M (FY2023),
marking a 34.93% increase. It is important to monitor and control operating expenses, as
high operational costs can lead to reduced profitability. As the banking industry is being
digitised with the help of different software-based solution like Finnacle, Loan Originating
System, Sales CRM which reduces the dependency on hiring a greater number of employees
leading to lowering of Operating Expense.

KEY RATIOS AS PER BANKS PROFITIBILITY

NET INTEREST MARGIN%

 NET INTEREST MARGIN % is a measure of the difference between the interest income
generated by banks and the amount of interest paid out to their customers like on Deposits,
relative to the amount of their INTEREST EARNING ASSETS. It is usually calculated as a
percentage what banks earns on loans/advances in a time period and other ASSETS minus
the interest paid on borrowed funds divided by the AVERAGE amount of the ASSETS on
which it earned income in that FY.
 NET INTEREST MARGIN % as NET INTEREST INCOME / AVERAGE EARNING ASSET. Utkarsh
Small Finance Bank’s NET INTEREST INCOME for the FY 2023 was 15,290 M. Utkarsh Small
Finance Bank's AVERAGE EARNING ASSET for FY 2023 116,485 M. Therefore, Utkarsh Small
Finance Bank’s NET INTEREST MARGIN % for FY 2023 was 13.13%.

NET MARGIN%

 Net margin is calculated as NET INCOME divided by its REVENUE. Utkarsh Small Finance
Bank's NET INCOME 4,045 M. Utkarsh Small Finance Bank's REVENUE FY2023 was 18,283 M.
Therefore, Utkarsh Small Finance Bank's net margin for the Q4 was 22.12%.