After preparation of the financial

statements, one may be interested in knowing the position of

an enterprise from different points of view. This can be

done by analyzing the financial statement with the help of

different tools of analysis such as ratio analysis, funds

flow analysis, cash flow analysis, comparative statement

analysis, etc. Here I have done financial analysis by

ratios. In this process, a meaningful relationship is

established between two or more accounting figures for

comparison.

Financial ratios are widely used for

modeling purposes both by practitioners and researchers. The

firm involves many interested parties, like the owners,

management, personnel, customers, suppliers, competitors,

regulatory agencies, and academics, each having their views

in applying financial statement analysis in their

evaluations. Practitioners use financial ratios, for

instance, to forecast the future success of companies, while

the researchers' main interest has been to develop models

exploiting these ratios. Many distinct areas of research

involving financial ratios can be discerned. Historically

one can observe several major themes in the financial

analysis literature. There is overlapping in the observable

1

themes, and they do not necessarily coincide with what

theoretically might be the best founded areas.

Financial statements are those statements

which provide information about profitability and financial

position of a business. It includes two statements, i.e.,

profit & loss a/c or income statement and balance sheet or

position statement.

The income statement presents the summary of

the income earned and the expenses incurred during a

financial year. Position statement presents the financial

position of the business at the end of the year.

Before understanding the meaning of analysis

of financial statements, it is necessary to understand the

meaning of „analysis‟ and „financial statements‟.

Analysis means establishing a meaningful

relationship between various items of the two financial

statements with each other in such a way that a conclusion

is drawn. By financial statements, we mean two statements-

(1) Profit & loss A/C.2

(2) Balance sheet.

These are prepared at the end of a given period of time.

They are indicators of profitability and financial soundness

of the business concern.

Thus, analysis of financial statements means establishing

meaningful relationship between various items of the two

financial statements, i.e., income statement and position

statement.

Parties interested in analysis of financial statements:

Analysis of financial statement has become very significant

due to widespread interest of various parties in the

financial result of a business unit.

The various persons interested in the analysis of financial

statements are:-

Short- term creditors:

They are interested in knowing whether the amounts

owing to them will be paid as and when fall due for

payment or not.

Long –term creditors:

3

They are interested in knowing whether the principal

amount and interest thereon will be paid on time

or not.

Shareholders:

They are interested in profitability, return and

capital appreciation.

Management:

The management is interested in the financial

position and performance of the enterprise as a whole

and of its various divisions.

Trade unions:

They are interested in financial statements for

negotiating the wages or salaries or bonus agreement with

management.

Taxation authorities:

These authorities are interested in financial

statements for determining the tax liability.

Researchers:

4

They are interested in the financial statements in

undertaking research in business affairs and practices.

Employees:

They are interested as it enables them to justify

their demands for bonus and increase in remuneration.

You have seen that different parties are interested in the

results reported in the financial statements. These results

are reported by analyzing financial statements through the

use of ratio analysis.

BANK PROFILE:

1. STATE BANK OF INDIA

Type - Public (BSE, NSE:SBI) & (LSE: SBID)

Founded- Calcutta, 1806 (as Bank of Calcutta)

Headquarters- Corporate Centre

Mumbai 400 021 India

Key people- Shri Pratip Chaudhuri, Chairman

State Bank of India (SBI) is the

largest bank in India. It is also, measured by the number of

5

branch offices and employees, the second largest bank in the

world. The bank traces its ancestry back through the

Imperial Bank of India to the founding in 1806 of the Bank

of Calcutta, making it the oldest commercial bank in the

Indian Subcontinent. The Government of India nationalized

the Imperial Bank of India in 1955, with the Reserve Bank of

India taking a 60% stake, and renamed it the State Bank of

India. In 2008, the Government took over the stake held by

the Reserve Bank of India.

SBI provides a range of banking products through its vast

network in India and overseas, including products aimed at

NRIs. With an asset base of $126 billion and its reach, it

is a regional banking behemoth.

The State Bank Group, with over 16000

branches, has the largest branch network in India. It has a

market share among Indian commercial banks of about 20% in

deposits and advances.

International presence:6

The bank has 52 branches, agencies

or offices in 32 countries. It has branches of the parent in

Colombo, Dhakka, Frankfurt, Hong Kong, Johannesburg, London

and environs, Los Angeles, Male in the Maldives, Muscat, New

York, Osaka, Sydney, and Tokyo. It has offshore banking

units in the Bahamas, Bahrain, and Singapore, and

representative offices in Bhutan and Cape Town. SBI operates

several foreign subsidiaries or affiliates. In 1990 it

established an offshore bank, State Bank of India

(Mauritius). It has two subsidiaries in North America, State

Bank of India (California), and State Bank of India

(Canada). In 1982, the bank established its California

subsidiary, which now has seven branches. The Canadian

subsidiary was also established in 1982 and also has seven

branches, four in the greater Toronto area, and three in

7

British Columbia. In Nigeria, it operates as INMB Bank. This

bank was established in 1981 as the Indo-Nigerian Merchant

Bank and received permission in 2002 to commence retail

banking. It now has five branches in Nigeria. In Nepal SBI

owns 50% of Nepal SBI Bank, which has branches throughout

the country. In Moscow SBI owns 60% of Commercial Bank of

India, with Canara Bank owning the rest. In Indonesia it

owns 76% of PT Bank Indo Monex. State Bank of India already

has a branch in Shanghai and plans to open one up in

Tianjin.

BANK PROFILE:

BOARD OF

DIRECTORS

1 Shri Pratip Chaudhuri (Chairman)

2 Hemant G Contractor (MD)

3 A Krishna Kumar

4 Diwakar Gupta

5 Ashok Jhunjhunwala

6 Dileep C Choksi

7 S Venkatachalam

8

8 D Sundaram

9 G D Nadaf

10 Rajiv Kumar

11 Rashpal Malhotra

12 Shashi Kant Sharma

13 Shashi Kant Sharma

9

2. INDUSTRIAL CREDIT & INVESTMENT CORPORATION OF INDIA

(ICICI BANK):-

ICICI was formed in 1955 at the

initiative of the World Bank, the government of India and

Indian industry representatives. The principal objective was

to create a development financial institution for providing

medium-term and long-term project financing to Indian

businesses. Until the late 1980s, ICICI primarily focused

its activities on project finance, providing long-term funds

to a variety of industrial projects. With the liberalization

of the financial sector in India in the 1990s, ICICI

transformed its business from a development financial

institution offering only project finance to a diversified

financial services provider that, along with its

subsidiaries and other group companies, offered a wide

variety of products and services. As India’s economy became

more market-oriented and integrated with the world economy,

ICICI capitalized on the new opportunities to provide a

wider range of financial products and services to a broader

spectrum of clients.

ICICI Bank was incorporated in 1994 as a part of the ICICI

group. ICICI Bank’s initial equity capital was contributed

75.0% by ICICI and 25.0% by SCICI Limited, a diversified

10

finance and shipping finance lender of which ICICI owned

19.9% at December 1996. Pursuant to the merger of SCICI into

ICICI, ICICI Bank became a wholly-owned subsidiary of ICICI.

ICICI’s holding in ICICI Bank reduced due to additional

capital raising by ICICI Bank and sale of shares by ICICI,

pursuant to the requirement stipulated by the Reserve Bank

of India that ICICI dilute its ownership of ICICI Bank.

Effective March 10, 2001, ICICI Bank acquired Bank of

Madura, an old private sector bank, in an all-stock merger.

The issue of universal banking, which in

the Indian context means the conversion of long term lending

institutions such as ICICI into commercial banks, had been

discussed at length over the past several years. Conversion

into a bank offered ICICI the ability to accept low-cost

demand deposits and offer a wider range of products and

services, and greater opportunities for earning non fund

based income in the form of banking fees and commissions.

ICICI Bank also considered various strategic alternatives in

the context of the emerging competitive scenario in the

Indian banking industry. ICICI Bank identified a large

capital base and size and scale of operations as key success

factors in the Indian banking industry. In view of the

benefits of transformation into a bank and the Reserve Bank

11

of India’s pronouncements on universal banking, ICICI and

ICICI Bank decided to merge.

At the time of the merger, both ICICI

Bank and ICICI were publicly listed in India and on the New

York Stock Exchange. The amalgamation was approved by each

of the boards of directors of ICICI, ICICI Personal

Financial Services, ICICI Capital Services and ICICI Bank at

their respective board meetings held on October 25, 2001.

The amalgamation was approved by ICICI Bank’s and ICICI’s

shareholders at their extraordinary general meetings held on

January 25, 2002 and January 30, 2002, respectively. The

amalgamation was sanctioned by the High Court of Gujarat at

Ahmadabad on March 7, 2002 and by the High Court of

Judicature at Bombay on April 11, 2002.

The amalgamation became effective on May

3, 2002. The date of the amalgamation for accounting

purposes under Indian GAAP was March 30, 2002.

The Sangli Bank Limited, an unlisted private sector bank

merged with ICICI Bank with effect from April 19, 2007. On

the date of acquisition, Sangli Bank had over 190 branches

and extension counters, total assets of Rs. 17.6billion (US$

440 million), total deposits of Rs. 13.2 billion (US$ 330

million), total loans of Rs. 2.0 billion(US$50million).

12

BOARD OF DIRECTORS

1 K V Kamath (Chairman)

2 Chanda Kochhar(MD & CEO)

3 N S Kannan

4 K Ramkumar

5 Rajiv Sabharwal

6 Sridar lyengar

7 Homi Khusrokhan

8 Anup K Pujari

9 M S Ramachandran

10 Tushaar Shah

11 V Sridar

13

Product &

Services

1. SBI BANKING

Personal Banking

Agricultural & Rural Banking

NRI Services

International Banking

Corporate Banking

Services

Govt. Business

SME

PERSONAL BANKING

SBI Term Deposits SBI Loan For Pensioners

SBI Recurring

Deposits

Loan Against Mortgage Of

Property

SBI Housing Loan Loan Against Shares &

Debentures

SBI Car Loan Rent Plus Scheme

SBI Educational Loan Medi-Plus Scheme 14

SBI Personal Loan Rates Of Interest

AGRICULTURAL & RURAL BANKING

State Bank of India Caters to the needs of

agriculturists and landless agricultural laborers through a

network of 6600 rural and semi-urban branches. There are 972

specialized branches which have been set up in different

parts of the country exclusively for the development of

agriculture through credit deployment .These branches

include 427 Agricultural Development Branches (ADBs) and 547

branches with Development Banking Department (DBDs) which

cater to agriculturists and 2 Agricultural Business Branches

at Chennai and Hyderabad catering to the needs of hi tech

commercial agricultural projects.

Our branches have covered a whole gamut of agricultural

activities like crop production, horticulture , plantation

crops, farm mechanization, land development and reclamation,

digging of wells, tube wells and irrigation projects,

forestry, construction of cold storages and godowns,15

processing of agri-products, finance to agri-input dealers,

allied activities like dairy , fisheries, poultry, sheep-

goat, piggery and rearing of silk worms.

The branch also has farmer's meet in

villages to explain to farmers about various schemes offered

by the bank. To give special focus to agriculture lending

Bank has set up agri business unit. Bank has also agri

specialists in various disciplines to handle projects/ guide

farmers in their agri 25 ventures. Advances are given for

very small activity covering poorest of the poor to hi-tech

activities involving large fund outlays.

We are the leaders in agri finance in the country with a

portfolio of Rs. 18,000 cars in agri advances to around 50

lac farmers.

NRI SERVICES

World Class Services from a Bank you can

Trust Indians everywhere should become enlightened16

International citizens. Wherever you are, whichever country

you live, enrich that nation, not only in financial terms,

but also with your sweat knowledge and dignity since that is

the tradition of the country from where you came. At the

same time, remember we have a common umbilical connectivity

to our motherland, India.

INTERNATIONAL BANKING

International banking services of State

Bank of India are delivered for the benefit of its Indian

customers, non-resident Indians, foreign entities and banks

through a network of 84 offices/branches in 32 countries as

on 31 March 2008, spread over all time zones. The network is

augmented by a cluster of Overseas and NRI branches within

India and correspondent links with over 522 banks, the world

over. Bank's Joint Ventures and Subsidiaries abroad further

underline the Bank's international presence.

The services include corporate lending, loan syndications,

merchant banking, handling Letters of Credit and Guarantees,

short-term financing, collection of clean and documentary

credits and remittances.

The Bank has carved a niche for itself in the Euro land with

branches located in Antwerp, Paris and Frankfurt. Indian

17

banks and corporate are able to avail single-window Euro

services from the Bank's Frankfurt branch.

CORPORATE BANKING

SBI is a one shop providing financial

products / services of a wide range for large, medium and

small customers both domestic and international.

Working Capital Financing

Assistance extended both as Fund based and Non-Fund

based facilities to Corporate, Partnership firms,

Proprietary concerns

Working Capital finance extended to all segments of

industries and services sector such as IT Term Loans to

support capital expenditures for setting up new

ventures as also for expansion, renovation etc.

18

Deferred Payment Guarantees to support purchase of

capital equipments. Corporate Loans For a variety of

business related purposes to corporate. Export Credit

To Corporate / Non Corporate Strategic Business Units

(i) Corporate Accounts Group (CAG) (ii)Project Finance

(iii) Lease Finance

An exclusive unit providing one s shopping to Corporate

A dedicated set up specialized in financing of

infrastructure and other large projects

Exclusive set up for handling large ticket leases.

Pricing

SBI's Prime Lending Rates (PLR) is among the lowest

Presently Bank has two PLR's

SBAR for loans payable on demand and up to one year

for loans payable beyond one year.

SERVICES

Listed on the left are Services, SBI offers to its

customers.

19

DOMESTIC TREASURY

INTERNET BANKING

E-PAY

E-RAIL

RBIEFT

SAFE DEPOSIT LOCKER

GIFT CHEQUES

SBI VISHWA YATRA FOREIGN TRAVEL CARD

BROKING SERVICES

REVISED SERVICE CHARGES

ATM SERVICES

GOVERNMENT BUSINESS

State Bank of India's linkage with

Government business is widespread. No wonder that out of

9315 branches in India, about 7000 branches are conducting

Government Business. The large network of our branches

provides easy access to the common man to deposit the

following Government dues and pension payments.

20

SME (small scale industries)

State Bank of India has been playing a vital role in the

development of small scale industries since 1956.The Bank

has financed over 8 lakhs SSI units in the country. It has

55 specialized SSI branches, 99 branches in industrial

estates and more than 400 branches with SIB divisions.

The Bank finances for Small Business activities which are of

special significance to a large number of people as many of

these activities can be started with relatively lower

investment and with no special skills on the part of the

entrepreneurs.

21

ICICI BANKING

PERSONAL BANKING

DEPOSITS

Safety, Flexibility, Liquidity, Returns!

ICICI Bank offers a wide Variety of Deposit Products to suit

your banking requirements.

LOANS

Simplified Documentation, Quick Processing, Hassle Free!!!

INVESTMENT22

Exclusive, Economical, Expert Advice!!!

ICICI Bank’s power-packed, feature-rich investment options

for meeting all your investment needs.

CARDS

World Class Service and Acceptanc!!!

A truly world class service as ICICI Bank cards have both

national and international acceptation.

INSURANCE

Secure, Reliable, convenient!!!

Convenience has always been synonymous with ICICI Bank and

keeping in line we offer the facility of buying insurance

policy online.

ONLINE SERVICES

Banking at your fingertips!!!

Why be inline when you can be online for paying your bills,

mobile bills, prepaid mobile recharge, shopping, credit

card, insurance premium and lots more.

23

INTERNATIONAL BANKING

In 2001, we identified international banking as a key

opportunity, aiming to cater to the cross-border needs of

clients and leveraging our domestic banking strengths to

offer products internationally. We have made significant

progress in the international business since we set up our

first overseas branch in Singapore in 2003. ICICI Bank

currently has subsidiaries in the United Kingdom, Russia and

Canada, branches in Singapore, Bahrain, Hong Kong, Sri

Lanka, Dubai International Finance Centre, Qatar Financial

Centre and the United States and representative offices in

the United Arab Emirates, China, South Africa, Bangladesh,

Thailand, Malaysia and Indonesia. The Bank‟s wholly owned

subsidiary ICICI Bank UK PLC has nine branches in the United

Kingdom and a branch each in Belgium and Germany. ICICI Bank

Canada has eight branches including three in Toronto. ICICI

Bank Eurasia LLC has six branches including three branches

in Moscow and one in St. Petersburg. Our international

strategy is focused on building a retail deposit franchise,

diverse wholesale funding sources and strong syndication

capabilities to support our corporate and investment banking

business; achieving the status of a non-resident Indian

24

(NRI) community bank in key markets; and expanding private

banking operations for India-centric asset classes. During

fiscal 2008, we focused on deepening our presence in

existing overseas locations and expanding our operations in

key markets. In line with our strategy to establish a

presence in large markets with significant savings pools, we

entered into Germany through a branch established by ICICI

Bank UK PLC. We have been able to successfully leverage our

technology advantage to create a growing international

deposit base. Total deposits of ICICI Bank UK PLC and ICICI

Bank Canada increased by 76.0% from Rs. 191.28billion at

March 31, 2007 to Rs. 335.86 billion at March 31, 2008. We

also received approval for and commenced branch operations

in the United States.

We have established a strong franchise among NRIs by

offering a comprehensive product suite, technology enabled

access, a wide distribution network in India and alliances

with local banks in various markets. Currently, we have over

500,000 NRI customers. We have undertaken significant brand-

building initiatives in international markets and have

emerged as a well-recognised financial services brand for

NRIs. We continue to maintain a market share of 25% in

inward remittances to India. During fiscal 2008, we launched

innovative products like instant money transfer and enhanced

25

our focus on customer relationship management and process

automation. Additionally, we also undertook the development

of low cost remittance products in non-India geographies

with correspondent tie-ups for disbursements in over 100

such geographies.

Through our international private banking services, we offer

various products to mass affluent and high net worth clients

based on their financial needs and risk appetite. The

offerings range from simple deposits and loans to more

sophisticated structured products, private equity and

products giving exposure to the real estate sector in India.

CORPORATE BANKING

26

Our corporate banking strategy is based on providing

comprehensive and customised financial solutions to our

corporate customers. We offer a complete range of corporate

banking products including rupee and foreign currency debt,

working capital credit, structured financing, syndication

and transaction banking products and services. Our corporate

and investment banking franchise is built around a core

relationship team that has strong relationships with almost

all of the country‟s corporate houses. The relationship team

is product agnostic and is responsible for managing banking

relationships with clients. We have also put in place

product specific teams with a view to focus on specific

areas of expertise in designing financial solutions for

clients. Through our relationship teams working in tandem

with product solution teams, we have deepened our client

relationships across our product portfolio or esulting in

significant growth in income and wallet share among all our

top corporate clients, as compared to the previous year.

We have created an integrated Global Investment Banking

Group, which is responsible for working with the

relationship team in India and our international

subsidiaries and branches, for origination, structuring and

execution of investment banking mandates on a global basis.

27

We have also restructured our delivery team for transaction

banking products by creating dedicated sales teams for trade

services and transaction banking products. This has been

done with the intent to increase our market share from

transaction banking products, which will translate into

recurring fee income for the Bank. We have also focused on

increasing market share in trade finance by leveraging and

further strengthening correspondent banking relationships.

SME BANKING

During fiscal 2008, our small enterprises customer base

increased by 26% to about 1.1 million accounts. We have

introduced our service offerings in over 400 new branches,

increasing our coverage to over 1,000 branches. During the

year, we have focused on product specialisation including

investment banking for SMEs. We have continued to focus on

shaping the small and medium enterprises sphere in India

through initiatives such as the Emerging India Awards”, the

SME CEO Knowledge Series - a platform to mentor and assist

SME entrepreneurs, and the “SME Dialogue” - a weekly feature

in a leading financial newspaper sharing SME best practices

28

and success stories. During the year, we have launched

several new products and services like the SME toolkit – an

online business

and advisory resource for SMEs.

RURAL BANKING AND AGRI-BUSINESS

We believe the rural economy has high growth potential and

offers large credit growth opportunities. Towards this end,

29

our suite of products and services is targeted to address

the needs of both the farm and non-farm sectors. Our retail

product suite encompasses loans for crop production,

purchase of farm equipment; commodity based finance as well

as various savings, investment and insurance products. We

also offer micro-finance and jewel loans. We have also

focused on enhancing credit to farmers by leveraging on

corporate partnerships. For example, we have partnered with

various dairies to provide financing to farmers for purchase

of milch cattle. We also provide credit and banking services

to SMEs active in the agricultural value chain. To enhance

our service quality and product delivery capabilities we

have developed a large network of rural branches which is

further augmented by non-branch channels. Rural banking in

India is still at a nascent stage and the deployment of

technology channels and modern banking methods for rural

lending continues to be an evolving process. In line with

our learning from our rural banking operations, we undertook

a comprehensive review of and realigned our channel

architecture, credit underwriting processes and account

management systems. We have put in place a robust risk

management structure to Mitigate and manage credit,

operational and fraud risks. Through this, we aim to create

a strong foundation for scaling up of our rural business.

30

Shobhana, V.K. and Shanthi, G. (2008) assess the operational

efficiency of foreign banks in India using the data for the

period 1996-97 to 2004-05. Analysis of clearance is used to

find that there is no significant relationship between

operational efficiency and variables such as size of assets,

branch network and staff strength, 31 foreign banks were

selected for the study. It is concluded that state bank of

Mauritius achieved the highest productivity whereas the

operational efficiency of common international bank was the

lowest.

Aggarwal, A.K., Singh, D. and Chaturvedi, N. (2007-08)

analyzed the performance of the banking sector and

considered as a proxy for the economy as a whole, due to

banks wide spectrum of exposures The paper argues that to

survive and thrive in the long run, banks need to pursuer31

strategies that enable them to develop resources that are

inimitable, rare, durable and superior to competitors, while

consolidation and convergence are no doubt necessary to

survive, they are by no means sufficient. The most important

point is that mergers and acquisitions in the banking sector

must be market led rather than prompted by government or

regulator. We are sure that our banking institutions, as in

the post, shall rise to the occasion and show the required

flexibility to absorb and adopt. The institutional changes

to consolidate their position in the world market.

Kamakodi, N. (2007) examines how computerization has

influenced the banking habits and preference of Indian

customers and which factors influence these preferences.

Changing of residence, salary account and non-availability

of the technology based services were given as the three

main reasons for changing the bank.

Srivastava, R.M. (2006) concluded that in post

nationalization period witnessed an unprecedented expansion

of banking industry in India. However accompanied32

inefficiency and poor financial health to overcome this

problem and improve he efficiency of banks, various tectonic

measures were taken since 1991. This has resulted in

improvement in productivity, profitability and strengthening

of financial position of the banks so much that they are

outshining those of advanced notions .However banks have

still o go a long way to sustain their Competitive success.

Indian Commercial Banks also need to enhance their system

and procedure to international standards and also

simultaneously fortify their financial position.

Singh, I. & Kumar, P. (2006) analyzed that deposits is a

major determinant of spread followed by borrowings and

labor. The study again concluded that average technical and

allocate efficiency are the highest in foreign banks while

of PSBs is although lower than FBs but much better than

private sector banks.

Singla & Arora (2005) studied the comparative performance of

Canara Bank and Indian Bank that both the banks have

improved their financial performance during the study period

where Canara Bank has an upper hand in growth of deposit,

advances and average working funds. In case of productivity

33

it is rising in both the banks but remained much higher in

Canara Bank.

Aggarwal, M. (2005) highlights the performance of three

sectors of banks (i.e. public, private and foreign) in the

pre liberalization period and the post- liberalization

periods in terms of growth rate of their interest income as

a %age working funds, non-interest income as a %age working

funds, operational expenses as a %age operational income,

cost of deposits, spread as a %age working funds,

operational productivity etc. The data were collected for

the period of 21 years starting from 1980 to 2001 the study

of paper reveals that the operational productivity of all

the sectors is better in post liberalization period.

Arora, U. and Verma, R. (2005) studied the performance

evolution of public sector banks in the post reforms period

on the basis of four parameters that are financial

parameters, operational parameters, profitability parameters

and productivity parameters and during this period the

performance of public sector banks is quite satisfactory.

Bhattacharya, (1997) has found public sector banks with the

highest efficiency among the three categories of bank groups

as foreign and private sector banks have much lower

efficiencies. However PSBs started showing a decline in

34

efficiency after 1987, private banks witnessed no change and

foreign banks disclosed sharp rise in efficiency.

Narayanasami, T.S. (2005) stated that rural lending is

relatively less risky and more profitable for all classes of

commercial banks. Credit plays a catalytic role at the right

time in accelerating economic development. Economic reforms

have brought about irreversible changes in several sectors

of the economy. Indian banking is also in a better position

with respect to technology, capital adequacy and credit

management, risk bearing capacity, international

competitiveness and contribution to the national economy.

B. Janki, (2002), analyzed in his article that how

technology is effecting employee’s productivity. There is no

doubt, in India particularly PSBs will need to use

technology to improve operating efficiency and customer

services. Harnessing employee technology synergy is crucial

for unleashing productivity and reaching out to the huge

base of retail customers, who are also dispersed in rural

and semi-urban areas. Banks can use technology to address

customer needs and improve their interaction with customer

keeping in touch through telephone and Internet. The focus

on technology will increase like never before to add value

35

to customer service, develop new products, strengthen risk

management, and asset liability management and improve

profitability. However technology is only an enabling tool

and whether banks actually what they want to achieve will be

determined by the drive and motivation of their work force

and response of the staff. Garg, M. (1994) studied that

Indian scheduled commercial banks have achieved remarkable

progress in last two decades under study, particularly in

branch expansion in rural areas, deposits mobilization and

credit deployment to priority sector and small borrowers but

their profits have not kept pace their growth and hence,

their share in profits have come down, whereas foreign banks

with a much smaller geographical spread and resources base,

earn almost as much by way of profits as the 20 nationalized

banks put together. There is a lot of difference in the

pattern of advances and investments and even lending rates

of Indian and foreign banks.

Ram, T.T (2002) said that business is being completely

reinvented because transaction costs are much lower on the

Internet than in traditional channels. The banks are rapidly

shifting their business functions & customers relationships

on to the Web.

36

T. Padamasai (2000) studied that productivity and

profitability of five big banks increased throughout the

post-reforms period in terms of selected ratios of each

parameter, but on account of efficiency, the performance of

the top five banks is very dismissal as inefficiency has

increased during the study period. He suggested that if the

government sells its share in the profit making banks, it

would be able to bail out the weak banks.

Satyamurty, (1994) clarified the concepts of profits,

profitability & productivity applicable to the banking

industry organized by the bank managements that the pressure

on the profitability is more due to the factors beyond their

control.

37

I took this research topic because it will be helpful in

investment decisions in the case of investors and lending

decisions in the case of bankers.

Apart from that it discloses the position of business with

different viewpoint. It discloses the position of business

with liquidity viewpoint, solvency view point, profitability

viewpoint etc. with the help of such a study, we can draw

conclusion regarding the financial health of business

enterprise.

I am also using ratio analysis, comparison of profitability

and financial soundness can be made between one industry and

another. Similarly comparison of current year figures can

also be made with those of previous years with the help of

ratio analysis and if some weak points are located, remedial

measures are taken to correct them.

38

The objective of financial reporting

analysis is to know that the financial policies adopted

by the management are efficient or not.

The purpose of financial analysis is to assess the

financial potential of business.

The purpose of financial reporting analysis is to help

the management to make the comparative study of the

profitability of various firms engaged in similar

business. Such comparison also helps the management to

study the position of their firm in respect of sales

expenses, profitability, return on investment and using

capital etc.

39

Financial analysis helps in ascertaining whether

adequate profits are being earned on the capital

invested in the business or not. It also helps in

knowing the capacity to pay the interest and dividend.

The research methodology adopted for carrying out the study

is:-

THE STUDY:

40

In this project Descriptive research methodologies are

followed.

At the first stage theoretical study is attempted.

At the second stage Historical study is attempted.

At the Third stage Comparative study of RATIO ANALYSIS

of financial report is undertaken.

THE SAMPLE:

To prepare this Project we will take one public sector &one

private sector banks of India. Those two banks are as

follows:

1. STATE BANK OF INDIA (SBI)

2. INDUSTRIAL CREDIT & INVESTMENT CORPORATION OF INDIA

(ICICI)

PERIODS: The time period of the study is 2011-2012.

THE TOOLS:

Tools for data collection:

Secondary data is used which is collected from magazines and

websites.

Tools for data analysis:

41

Ratio analysis

42

BALANCESHEET OF SBI

2011-12

……in Rs. Cr……….

Capital and Liabilities

Total Share Capital 671.04

Equity Share Capital 671.04

Share Application Money 0.00

Preference Share Capital 0.00

Reserves 83,280.16

Revaluation Reserves 0.00

Net Worth 83,951.20

Deposits 1,043,647

.36

Borrowings 127,005.5

7

Total Debt 1,170,652

.93

Other Liabilities & Provisions 80,915.09

Total Liabilities 1,335,519

43

.22

Assets

Cash & Balances with RBI 54,075.94

Balance with Banks, Money at Call 43,087.23

Advances 867,578.8

9

Investments 321,197.6

1

Gross Block 14,792.33

Accumulated Depreciation 9,658.46

Net Block 5,133.87

Capital Work In Progress 332.68

Other Assets 53,113.02

Total Assets 1,335,519

44

.24

Contingent Liabilities 698,064.7

4

Bills for collection 201,500.4

4

Book Value (Rs) 1,251.05

BALANCE SHEET OF

ICICI 2011-12

Capital & Liabilities

………in Rs Cr………..

45

Total Share Capital 1,152.77

Equity Share Capital 1,152.77

Share Application Money 2.39

Preference Share Capital 0.00

Reserves 59,250.09

Revaluation Reserves 0.00

Net Worth 60,405.25

Deposits 255,499.96

Borrowings 140,164.91

Total Debt 395,664.87

Other Liabilities &

Provisions

17,576.98

Total Liabilities 473,647.10

Asset

Cash & Balances with RBI 20,416.29

Balance with Banks, Money

at Call

15,768.02

Advances 253,727.66

Investments 159,560.04

Gross Block 9,424.39

Accumulated Depreciation 4,809.70

46

Net Block 4,614.69

Capital Work In Progress 0.00

Other Assets 19,515.39

Total Assets 473,647.09

Contingent Liabilities 858,566.64

Bills for collection 64,457.72

Book Value (Rs) 524.01

47

PROFITABILITY RATIO

A class of financial metrics that are used to assess a

business's ability to generate earnings as compared to its

expenses and other relevant costs incurred during a specific

period of time. For most of these ratios, having a higher

value relative to a competitor's ratio or the same ratio

from a previous period is indicative that the company is

doing well.

Some examples of profitability ratios are profit margin,

return on assets and return on equity. It is important to

note that a little bit of background knowledge is necessary

in order to make relevant comparisons when analyzing these

ratios. For instances, some industries experience

seasonality in their operations. The retail industry, for

example, typically experiences higher revenues and earnings

for the Christmas season. Therefore, it would not be too

useful to compare a retailer's fourth-quarter profit margin

with its first-quarter profit margin. On the other hand,

comparing a retailer's fourth-quarter profit margin with the48

profit margin from the same period a year before would be

far more informative.

RETURN ON NETWORTH

Return on Net worth (RONW) is used in finance as a measure

of a company’s profitability. It reveals how much profit a

company generates with the money that the equity

shareholders have invested. Therefore, it is also called

„Return on Equity‟ (ROE).

It is expressed as:-

RONW = NET INCOME

X 100

SHA

REHOLDER EQUITY

The numerator is equal to a fiscal year’s net income (after

payment of preference share dividends but before payment of

equity share dividends).The denominator excludes preference

shares and considers only the equity shareholding. So, RONW

measures how much return the company management can generate49

for its equity shareholders. RONW is a measure for judging

the returns that a shareholder gets on his investment as a

shareholder, equity represents your money and so it makes

good sense to know how well management is doing with it.

LIQUIDITY RATIO

A class of financial metrics that is used to determine a

company's ability to pay off its short terms debts

obligations. Generally, the higher the value of the ratio,

the larger the margin of safety that the company possesses

to cover short-term debts. Common liquidity ratios include

the current ratio, the quick ratio and the operating cash

flow ratio. Different analysts consider different assets to

be relevant in calculating liquidity. Some analysts will

calculate only the sum of cash and equivalents divided by

current liabilities because they feel that they are the most

liquid assets, and would be the most likely to be used to

cover short-term debts in an emergency. A company's ability

to turn short-term assets into cash to cover debts is of the

utmost importance when creditors are seeking payment.

Bankruptcy analysts and mortgage originators frequently use

50

the liquidity ratios to determine whether a company will be

able to continue as a going concern.

PAYOUT RATIOS

The amount of earnings paid out in dividends to

shareholders. Investors can use the payout ratio to

determine what companies are doing with their earnings.

Calculated as :

Payout Ratio : Dividend

per share

E

arnings per share

51

For example, a very low payout ratio indicates that a

company is primarily focused on retaining its earnings

rather than paying out dividends. The payout ratio also

indicates how well earnings support the dividend payments:

the lower the ratio, the more secure the dividend because

smaller dividends are easier to pay out than larger

dividends.

NET PROFIT MARGIN

52

For a business to survive in the long term it must generate

profit. Therefore the net profit margin ratio is one of the

key performance indicators for your business.

The net profit margin ratio indicates profit levels of a

business after all costs have been taken into account. It is

worth analyzing the ratio over time. A variation in the

ratio from year to year may be due to abnormal conditions or

expenses. Variations may also indicate cost blowouts which

need to be addressed. A decline in the ratio over time may

indicate a margin squeeze suggesting that productivity

improvements may need to be initiated. In some cases, the

costs of such improvements may lead to a further drop in the

ratio or even losses before increased profitability is

achieved.

The calculation used to obtain the ratio is:

Net Profit margin = Net

Profit X 100

Sales

53

Sr No. Name of Bank Ratio

1 SBI 9.73

2 ICICI 16.14

54

SBI ICICI

024681012141618

COMPARISION OF RATIO

NET PROFIT MARGIN

INTERPRETATION:

This ratio is key performance indicators for business. Key

performance means the profit level of company; from above

graph we can say that performance of ICICI is better than

SBI. So profit level of ICICI is at first rank than come

SBI.

DEBT-EQUITY RATIO:

A measure of a company's financial leverage calculated by

dividing its total liabilities by stockholders equity.

55

Debt-Equity Ratio = Total Liabilities

Share holders Equity

Note: Sometimes only interest-bearing, long-term debt is

used instead of total liabilities in the calculation. It is

also known as the Personal Debt/Equity Ratio, this ratio can

be applied to personal financial statements as well as

companies'.

A high debt/equity ratio generally means that a company has

been aggressive in financing its growth with debt. This can

result in volatile earnings as a result of the additional

interest expense. If a lot of debt is used to finance

increased operations (high debt to equity), the company

could potentially generate more earnings than it would have

without this outside financing. If this were to increase

earnings by a greater amount than the debt cost (interest),

then the shareholders benefit as more earnings are being

spread among the same amount of shareholders. However, the

cost of this debt financing may outweigh the return that the

company generates on the debt through investment and

business activities and become too much for the company to

handle. This can lead to bankruptcy, which would leave

shareholders with nothing.

56

The debt/equity ratio also depends on the industry in which

the company operates. For

example, capital-intensive industries such as auto

manufacturing tend to have a debt/equity ratio above 2,

while personal computer companies have a debt/equity of

under 0.5.

Sr No. Name of Bank Ratio

1 SBI 12.43

2 ICICI 4.23

57

SBI ICICI0

2

4

6

8

10

12

14

DEBT-EQUITY RATIO

DEBT-EQUITY RATIO

INTERPRETATION

This ratio indicates what proportion of equity and debt the

company is using to finance its assets. From above diagram

we can say that SBI has a high debt-equity ratio means it is

aggressive in financing its growth with debt. Than after

ICICI has a low debt-equity ratio as comparison with SBI.

ASSET TURNOVER RATIO:

Measure of the productivity of a firm, it indicates the

amount of sales generated by each dollar spent on fixed

assets, and the amount of fixed assets required to generate

a specific level of revenue. Changes in the ratio over time

58

reflect whether or not the firm is becoming more efficient

in the use of its fixed assets.

Formula: Sales revenue ÷ average fixed assets.

Sr No. Name of Bank Ratio

1 SBI 0.10

2 ICICI 0.09

SBI ICICI0.0840.0860.0880.090.0920.0940.0960.0980.1

0.102

ASSET TURNOVER RATIO

ASSET TURNOVER RATIO

INTERPRETATION

This ratio shows specific level of revenue by the amount of

fixed assets. SBI has a high level of revenue in comparison

with ICICI.

59

CURRENT RATIO:

This ratio is a rough indication of a firm's ability to

service its current obligations.

Generally, the higher the current ratio, the greater the

"cushion" between current obligations and your Company's

ability to pay them. The composition and quality of current

assets is a critical factor in the analysis of your

Company's liquidity. It is calculated as Total current

assets divided by total current liabilities.

Sr No. Name of Bank Ratio

1 SBI 0.05

2 ICICI 0.13

60

SBI ICICI0

0.020.040.060.080.10.120.14

CURRENT RATIO

CURRENT RATIO

INTERPRETATION

Current ratio of ICICI is higher than SBI; ICICI has a high

ability to pay for its liabilities, and then secondly comes

SBI.

QUICK RATIO:

It is also known as the "Acid Test" ratio; it is a

refinement of the current ratio and is a more conservative

measure of liquidity. The ratio expresses the degree to

which your current Company's current liabilities are covered

by the most liquid current assets. Generally, any value of

less than 1 to 1 implies a "dependency" on inventory or

other current assets to liquidate short-term debt.

It is calculated as Cash plus trade receivables divided by

total current liabilities.

61

Sr No. Name of Bank Ratio

1 SBI 12.05

2 ICICI 16.71

SBI ICICI024681012141618

QUICK RATIO

QUICK RATIO

INTERPRETATION:

ICICI has a high quick ratio means it has enough current

assets to cover its current liabilities, while SBI has a low

quick ratio.

EARNING RETANTION RATIO:

The percent of earnings credited to retained earnings. In

other words, the proportion of net income that is not paid

out as dividends.

62

Calculated as= Net income-Dividends

Net income

It can also be calculated as one minus the dividend payout

ratio.

Sr No. Name of Bank Ratio

1 SBI 77.45

2 ICICI 67.19

SBI ICICI60

65

70

75

80

EARNING RETANTION RATIO

EARNING RETANTION RATIO

INTERPRETATION:

Earning retention ratio is the opposite of the dividend

payout ratio. SBI has a high earning retention ratio, so the

Investors who are seeking high current income and limited

capital growth should be invest in SBI. ICICI has a low

63

earning retention ratio, so the investors who are seeking

capital growth should be invest in ICICI BANK.

CAPITAL ADEQUECY RATIO:

This ratio is used to protect depositors and promote the

stability and efficiency of financial system around the

world. Two types of capital are measured: tier one capital,

which can absorb losses without a bank being required to

cease trading, and tier two capital, which can absorb losses

in the event of a winding-up and so provides a lesser degree

of protection to depositors.

It is calculated as:

Sr No. Name of Bank Ratio

1 SBI 13.86

2 ICICI 18.52

64

SBI ICICI0

5

10

15

20

CAPITAL ADEQUECY RATIO

CAPITAL ADEQUECY RATIO

INTERPRETATION:

ICICI has high Capital Adequacy Ratio than SBI. It means

stability and efficiency of financial system of ICICI is

better than SBI.

65

DIVIDEND PAYOUT RATIO:

Dividend payout ratio is the fraction of net income a firm

pays to its stockholders in dividends:

Dividend Payout Ratio= Dividend

Net income for the

same period

The part of the earnings not paid to investors is left for

investment to provide for future

earnings growth. Investors seeking high current income and

limited capital growth prefer

companies with high Dividend payout ratio. However investors

seeking capital growth may prefer lower payout ratio because

capital gains are taxed at a lower rate. High growth firms

in early life generally have low or zero payout ratios. As

they mature, they tend to return more of the earnings back

to investors. Note that dividend payout ratio is a

reciprocate ratio to dividend cover,

66

which is calculated as EPS/DPS.

Sr No. Name of Bank Ratio

1 SBI 22.59

2 ICICI 32.82

67

SBI ICICI0

5

10

15

20

25

30

35

DIVIDEND PAYOUT RATIO

DIVIDEND PAYOUT RATIO

INTERPRETATION:

ICICI has a high dividend payout ratio, so the Investors who

are seeking high current income and limited capital growth

should be invest in ICICI bank.SBI has a low dividend payout

ratio, so investors who are seeking capital growth should be

invest in SBI because capital gains are taxed at a lower

rate.

DIVIDEND PER SHARE:

The sum of declared dividends for every ordinary share

issued. Dividend per share (DPS) is the total dividends paid

out over an entire year (including interim dividends but not

68

including special dividends) divided by the number of

outstanding ordinary shares issued

D – Sum of dividends over a period

SD- Special onetime dividends

S- Share outstanding for the period

Sr No. Name of Bank Ratio

1 SBI 35

2 ICICI 16.50

SBI ICICI010203040

DIVIDEND PER SHARE

DIVIDEND PER SHARE

INTERPRETATION:

SBI has a Dividend per share and the company which has high

dividend per share is better. so SBI is better than ICICI.

69

OPERATING PROFIT PER SHARE:

It is calculated as : operating Profit/ Total no. of

shares

Sr No. Name of Bank Ratio

1 SBI 289.44

2 ICICI 76.15

SBI ICICI0

50

100

150

200

250

300

350

OPERATING PROFIT PER SHARE

OPERATING PROFIT PER SHARE

INTERPRETATION:70

SBI has high operating profit per share in comparison of

ICICI.

71

INTEREST SPREAD:

The net interest spread is like a profit margin. The greater

the spread, the more profitable the financial institution is

likely to be; the lower the spread, the less profitable the

institution is likely to be. While the federal funds rate

plays a large role in determining the rate at which an

institution lends immediate funds, open market activities

ultimately shape the rate spread.

Sr No. Name of Bank Ratio

1 SBI 5.04

2 ICICI 4.44

SBI ICICI4

4.24.44.64.85

5.2

INTEREST SPREAD

INTEREST SPREAD

72

INTERPRETATION:

The net interest spread is like a profit margin. The greater

the spread, the more profitable the financial institution so

in the above graph ICICI has high Interest Spread than SBI.

It means ICICI is more profitable than SBI.

Ratio analysis is an important and age-old technique of

financial analysis. The following are some of the advantages

of ratio analysis:

Simplifies financial statements: It simplifies the

comprehension of financial statements. Ratios tell the

whole story of changes in the financial condition of

the business.

Facilitates inter-firm comparison: It provides data for

inter-firm comparison. Ratios highlight the factors

associated with successful and unsuccessful firm. They

also reveal Strong firms and weak firms overvalued and

undervalued firms.

Helps in planning: It helps in planning and

forecasting. Ratios can assist management, in its basic

functions of forecasting. Planning, co-ordination,

control and communications

Makes inter-firm comparison possible: Ratios analysis

also makes possible comparison of the performance of73

different divisions of the firm. The ratios are helpful

in deciding about their efficiency or otherwise in the

past and likely performance in the future.

Help in investment decisions: It helps in investment

decisions in the case of investors and lending decisions in

the case of bankers etc

The ratios analysis is one of the most powerful tools of

financial management. Though ratios are simple to calculate

and easy to understand, they suffer from serious

limitations.

Limitations of financial statements: Ratios are

based only on the information which has been

74

recorded in the financial statements. Financial

statements themselves are subject to several

limitations. Thus ratios derived, there from, are

also subject to those limitations.

For example, non-financial changes though important

for the business are not relevant by the

financial statements. Financial statements are

affected to a very great extent by accounting

conventions and concepts. Personal judgment plays a

great part in determining the figures for financial

statements.

Comparative study required: Ratios are useful in

judging the efficiency of the business only when

they are compared with past results of the

business. However, such a comparison only provide

glimpse of the past performance and forecasts for

future may not prove correct since several other

factors like market conditions, management

policies, etc. may affect the future operations.

Problems of price level changes: A change in price

level can affect the validity of ratios calculated

for different time periods. In such a case the

75

ratio analysis may not clearly indicate the trend

in solvency and profitability of the company. The

financial statements, therefore, be adjusted

keeping in view the price level changes if a

meaningful comparison is to be made through

accounting ratios.

Lack of adequate standard: No fixed standard can be

laid down for ideal ratios. There are no well

accepted standards or rule of thumb for all ratios

which can be accepted as norm. It renders

interpretation of the ratios difficult.

5. Limited use of single ratios: A single ratio,

usually, does not convey much of a sense. To make a

better interpretation, a number of ratios have to

be calculated which is likely to confuse the

analyst than help him in making any good decision.

6. Personal bias: Ratios are only means of

financial analysis and not an end in itself. Ratios

have to interpret and different people may

interpret the same ratio in different way.

76

Ratio analysis is an important technique of financial

analysis. It is a means for judging the financial health of

a business enterprise. It determines and interprets the

liquidity, solvency, profitability, etc. of a business

enterprise.

It becomes simple to understand various figures in the

financial statements through the use of different

ratios. Financial ratios simplify, sumarise, and

77

systemise the accounting figures presented in financial

statements.

With the help of raito analysis, comparision of

profitability and financial soundness can be made

between one industry and another. Similarly comparision

of current year figures can also be made with those of

previous years with the help of ratio analysis and if

some weak points are located, remidial masures are

taken to correct them.

If accounting ratios are calculated for a number of

years, they will reveal the trend of costs, sales,

profits and other important facts. Such trends are

useful for planning.

Financial ratios, based on a desired level of

activities, can be set as standards for judging actual

performance of a business. For example, if owners of a

business aim at earning profit @ 25% on the capital

which is the prevailing rate of return in the industry

then this rate of 25% becomes the standard. The rate of

profit of each year is compared with this standard and

the actual performance of the business can be judged

easily.

Ratio analysis discloses the position of business with

different viewpoint. It discloses the position of

78

business with liquidity viewpoint, solvency view point,

profitability viewpoint, etc. with the help of such a

study, we can draw conclusion regardings the financial

health of business enterprise.

Ratios make the related information comparable. A

single figure by itself has no meaning, but when

expressed in terms of a related figure, it yields

significant interferences. Thus, ratios are relative

figures reflecting the relationship between related

variables. Their use as tools of financial analysis

involves their comparison as single ratios, like

absolute figures, are not of much use.

Ratio analysis has a major significance in analyzing

the financial performance of a company over a period of

time. Decisions affecting product prices, per unit

costs, volume or efficiency have an impact on the

profit margin or turnover ratios of a company.

Financial ratios are essentially concerned with the

identification of significant accounting data

relationships, which give the decision-maker insights

into the financial performance of a company.

79

The analysis of financial statements is a process of

evaluating the relationship between component parts of

financial statements to obtain a better understanding

of the firm’s position and performance.

The first task of financial analyst is to select the

information relevant to the decision under

consideration from the total information contained in

the financial statements. The second step is to arrange

the information in a way to highlight significant

relationships. The final step is interpretation and

drawing of inferences and conclusions. In brief,

financial analysis is the process of selection,

relation and evaluation.

Ratio analysis in view of its several limitations

should be considered only as a tool for analysis rather

than as an end in itself. The reliability and

significance attached to ratios will largely hinge upon

the quality of data on which they are based. They are

as good or as bad as the data itself. Nevertheless,

they are an important tool of financial analysis.

Books:

80

“Basic Financial Management”- M Y Khan P K Jain

“Financial Management”- Prasanna Chandra

Ross Peter S., Commercial Bank Management, Irwin

McGraw-Hill, Boston, International Edition, 1999.

JOURNALS:-

Indian Journal of finance, January,2012

Journal of finance and accountancy, Volume 6.

Journal of accountancy, March, 2012.

Website/URL:- Web sites/ URL

www.statebankofindia.com

www.icicibank.com

www.rbi.org.in

www.moneycontrol.com

81