A

PROJECT REPORT
ON
FINANCIAL INCLUSION IN INDIA
OF
TOP THREE BANKS OF INDIA
M.J.P. ROHILKHAND
SESSION (2011-2012)

Invertis Institute of Management studies

NAME

Guided By:

(Dr.Angrish Agarwal)

CERTIFICATE
This is certify that

student of Invertis Institute of Management studies has

completed his field work report on the topic of FINANCIAL INCLUSION IN INDIA TOP
THREE BANKS OF INDIA and has submitted the field work report in partial fulfillment of
Bachelor of business Administration of the college for the academic year 2011-2012.
He has worked under our guidance and direction. The said report is based on bonafide
information.

INVERTIS INSTITUTE OF MANAGEMENT

STUDIES
DECLARATION

I hereby declare that project titled FINANCIAL INCLUSION IN INDIA TOP

THREE BANKS OF INDIA is an original piece of research work carried out by me under
the guidance and supervision of prof. Dr. Angrish Agarwal. The information has been
collected from genuine & authentic sources. The work has been submitted in partial
fulfillment of the requirement of Bachelor of business administeration to our college.

ACKNOWLEDGEMENT
Perseverance inspiration and motivation have always played a key role in success of
any venture. I hereby express my deep sense of gratitude to all the personalities involved
directly and indirectly in my project work.
I would thank to God for their blessing and my parents also for their valuable
suggestion and support in my project report.
I would also like to thank our friends and those who have helped us during this
project directly or indirectly.
Last but not the least; I would like to express my sincere gratitude to all the faculty
members who have taught me in my entire B.B.A curriculum and our Prof. Dr. Angrish
Agarwal who has always been a source of guidance, inspiration and motivation.
However, I accept the sole responsibility for any possible errors of omission and would be
extremely grateful to the readers of this project report if they bring such mistakes to my notice.

INDEX
Sr.No

Subjects

1.

Introduction

2.

Bank Profile

Page

7
10

SBI

ii

ICICI

iii

PNB

3.

Products & Services

4.

Balance Sheet

5.

Ratio Analysis

6.

Objectives

7.

Importance

8.

Advantages, Limitations

9.

Conclusion

10

Bibliography

11
15
19
24
38
42
60
62
64
67
69

INTRODUCTION

INRTODUCTION
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 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) 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
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.
8

 Taxation authorities
These authorities are interested in financial statements for determining the tax liability.
Researchers
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

10

11

1. STATE BANK OF INDIA

Type

- Public (BSE, NSE:SBIN)

& (LSE:SBID)

Founded

- Calcutta, 1806 (as Bank of Calcutta)

Corporate Centre,

Headquart Madam Cama Road,

ersMumbai 400 021 India
Key people - Pratip Chaudhuri, Chairman

State Bank of India (SBI) (LSE: SBID) is the largest bank in India. It is also, measured by
the number of 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 is ranked #292 globally in Fortune Global 500 list in
2011.
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 $370 billion and its reach, it is a regional
banking behemoth. SBI has laid emphasis on reducing the huge manpower through Golden
handshake schemes and computerizing its operations.
SBI has 21,500 branches, including branches that belong to its associate banks, has the
largest branch network in India. It has a market share among Indian commercial banks of about
20% in deposits and advances.

12

International presence

Regional office of the State Bank of India (SBI), India's largest bank, in Mumbai. The
government of India is the largest shareholder in SBI.
State Bank of India has 172 foreign offices in 37 countries across the globe. 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 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 55% 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.

13

BOARD OF DIRECTORS

Pratip Chaudhuri (Chairman)

Hemant G. Contractor (Managing Director)

Diwakar Gupta (Managing Director)

A Krishna Kumar (Managing Director)

Dileep C Choksi (Director)

S. Venkatachalam (Director)

D. Sundaram (Director)

Parthasarathy Iyengar (Director)

8
G. D. Nadaf (Officer Employee Director)
9
10

11

Rashpal Malhotra (Director)

D. K. Mittal (Director)

14

15

2. INDUSTRIAL CREDIT & INVESTMENT CORPORATION

OF INDIA (ICICI)
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 Indias 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 Banks initial
equity capital was contributed 75.0% by ICICI and 25.0% by SCICI Limited, a diversified 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. ICICIs
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 longterm 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 nonfund 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 of Indias pronouncements on universal banking, ICICI and ICICI Bank
decided to merge.
16

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
Banks and ICICIs 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 Ahmedabad 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).
In 2008, following the 2008 financial crisis, customers rushed to ATM's and branches in some
locations due to rumors of adverse financial position of ICICI Bank. The Reserve Bank of India issued
a clarification on the financial strength of ICICI Bank to dispel the rumors.

Corporate governance
Group Anti Money Laundering Policy
The ICICI Group AML Policy establishes the standards of AML compliance and is applicable to all
activities.

Code of Conduct
ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and employees.
ICICI merge the bank of rajasthan in 2010.

17

BOARD OF DIRECTORS
1.

Mr. K. V. Kamath, Chairman

2.

Mr. Sridar Iyengar

3.

Dr.Swati Piramal

4.

Mr.Homi .R. Khusrokhan

5.

Mr. Arvind Kumar

6.

Mr. M. S. Ramachandran

7.

Mr. Tushaar Shah

8.

Mr. V.sridar

9.

Ms. Chanda Kochhar, Managing Director & CEO

10.

Mr. N. S. Kannan, Executive Director & CFO

11.

Mr. K. Ramkumar , Executive Director

12.

Mr. Rajiv Sabharwal , Executive Director

18

19

3. PUNJAB NATIONAL BANK (PNB)

Punjab National Bank (PNB) was registered on May 19, 1894 under the Indian Companies
Act with its office in Anarkali Bazaar Lahore. The Bank, founded by Dyal Singh Majithia and Lala
Harkishen Lal, is the second largest government-owned commercial bank in India with about 5000
branches across 764 cities. It serves over 37 million customers. The bank has been ranked 248th
biggest bank in the world by Bankers Almanac, London. Total Business of the bank for financial
year 2007 is estimated to be approximately US$60 billion. It has a banking subsidiary in the UK, as
well as branches in Hong Kong and Kabul, and representative offices in Almaty, Shanghai, and
Dubai.
We are a leading public sector commercial bank in India, offering banking products and
services to corporate and commercial, retail and agricultural customers. Our banking operations for
corporate and commercial customers include a range of products and services for large
corporations, as well as small and middle market businesses and government entities. We offer a
wide range of retail credit products including housing loans, personal loans and automobile loans.
We cater to the financing needs of the agricultural sector and have created innovative financing
products for farmers. We also provide significant financing to other priority sectors including small
scale industries. Through our treasury operations, we manage our balance sheet, including the
maintenance of required regulatory reserves, and seek to maximize profits from our trading
portfolio by taking advantage of market opportunities.
Our revenue, which is referred to herein and in our financial statements as our income,
consists of interest income and other income. Interest income consists of interest on advances
(including the discount on bills discounted) and income on investments. Income on investments
consists of interest and dividends from securities and our other investments and interest from
interbank loan and cash deposits we keep with the RBI. Our securities portfolio consists primarily of
Government of India and state government securities. We meet our statutory liquidity reserve ratio
requirements through investments in these and other approved securities. We also hold
debentures and bonds issued by public sector undertakings and other corporations, commercial
paper, equity shares and mutual fund units.
Our interest expense consists of our interest on deposits as well as borrowings. Our interest

20

Income and expense are affected by fluctuations in interest rates as well as the volume of activity.
Our interest expense is also affected by the extent to which we fund our activities with low interest or
non-interest deposits, and the extent to which we rely on borrowings.
Our non-interest expense consists principally of operating expenses such as expenses for
wages and employee benefits, rent paid on premises, insurance, postage and telecommunications
expenses, printing and stationery, depreciation on fixed assets, other administrative and other
expenses. Provisioning for non-performing assets, depreciation on investments and income tax

is

included in provisions and contingencies

We use a variety of indicators to measure our performance. These indicators are presented in
tabular form in the section titled Selected Statistical Information on page []. Our net interest
income represents our total interest income (on advances and investments) net of total interest
expense (on deposits and borrowings). Net interest margin represents the ratio of net interest
income to the monthly average of total interest earning assets. Our spread represents the difference
between the yield on the monthly average of interest earning assets and the cost of the monthly
average of interest bearing liabilities. We calculate average yield on the monthly average of
advances and average yield on the monthly average of investments, as well as the average cost of
the monthly average of deposits and average cost of the monthly average of borrowings. Our cost of
funds is the weighted average of the average cost of the monthly average of interest bearing
liabilities. For purposes of these averages and ratios only, the interest cost of the unsecured
subordinated bonds that we issue for Tier 2 capital adequacy purposes (Tier 2 bonds) is included in
our cost of interest bearing liabilities. In our financial statements, these bonds are accounted for as
other liabilities and provisions and their interest cost is accounted for under other interest
expenses.
Since 1969, when we became a public sector bank, we have managed to continue to grow
our business while maintaining a strong balance sheet. As of September 30, 2004, our total deposits
represented 85.9% of our total liabilities. On average, interest free demand deposits and low interest
savings deposits represented 43.8% of these deposits in the first six months of fiscal 2005.These
low-cost deposits led to an average cost of funds excluding equity for the first six months of fiscal
2005 of 4.7%. As of September 30, 2004, our gross and net non-performing assets constituted
7.65% and 0.30% of our gross and net advances, respectively. In fiscal 2004 our total income was
Rs. 96.5 billion and our net profit was Rs. 11.1 billion before adjustment and Rs. 10.6billion after
adjustment as part of the restatement of our financial statements for this Issue. In the first six
months of fiscal 2005 our total income was Rs. 51.9 billion and our net profit was Rs. 7.4billion.
Between fiscal 2002 and 2004, our total income grew at a compound annual rate of12.5%, our
21

unadjusted and adjusted net profit grew at a compound annual rate of 40.4% and37.4%,
respectively, and our total deposits and total advances grew at a compound annual growth rate of
17.1% and 17.2%, respectively.
We intend to maintain our position as a cost efficient and customer friendly institution that
Provides comprehensive financial and related services. We seek to achieve this by continuing to
adopt technology which will integrate our extensive branch network. We intend to grow by cross
selling various financial products and services to our customers and by expanding geographically in
India and internationally. We are committed to excellence in serving the public and also
maintaining high standards of corporate responsibility. In line with our philosophy of aiding Indias
development we have opened branches in many rural areas.

22

BOARD OF DIRECTORS
1 Shri K.R.Kamath
.

Chairman and Managing Director

2
.

Shri Jasbir Singh

Director

3
.

Shri Pradeep Kumar

Director

4
.

Smt. Usha Ananthasubramanian

Executive Director

5
.

Shri B.B. Chaudhry

Non Official Parttime Director

6
.

Shri Rakesh Sethi

Executive Director

7
.

Shri M.P. Singh

Director

8
.

Shri Mushtaq Ataullah Antulay

Non Official Parttime Director

9
.

Shri Anurag Jain

Nominee Director

23

PRODUCTS
&
SERVICES

24

1. SBI BANKING
Personal Banking
Agricultural & Rural Banking
NRI Services
International Banking
Corporate Banking
Services
Govt. Business
SME

Personal Banking

Agricultural

Deposit Schemes

Agricultural

Personal Finance

Banking

Corp Salary

Micro Credit

Package Services

Regional Rural

NRI Services
Type of Accounts

Banks
International Trade

Corporate Banking

Finance Merchant

Corporate Accounts

Banking

Mid Corporate

Correspondent

Group

Banking

Project Finance
Products &
Services

Services

Govt.

Internet Banking

Business

Mobile Banking

Govt.

ATM Services

Accounts.

SME

25

Demat Services

Public
Provide
nt Fund.

PERSONALBANKING

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

SBI Personal Loan

Rates Of Interest

AGRICULTURAL
State Bank of India Caters to the needs of agriculturists and landless agricultural
labourers 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, 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

26

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
enlightened 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 banks and corporates 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.

27

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.
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 specialised 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.

DOMESTIC TREASURY

SBI VISHWA YATRA FOREIGN TRAVEL CARD

BROKING SERVICES

REVISED SERVICE CHARGES

ATM SERVICES
28

INTERNET BANKING

E-PAY

E-RAIL

RBIEFT

SAFE DEPOSIT LOCKER

GIFT CHEQUES

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.

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 specialised 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.

29

2. ICICI BANKING
PERSONAL BANKING

Safety, Flexibility,
Liquidity, Returns!
ICICI Bank offers a wide
Variety of Deposit
Products to suit your
banking requirements.

Simplified Documentation,
Quick Processing, Hassle
Free!!!

Exclusive, Economical,
Expert Advice!!!
ICICI Bank's power-packed,
feature-rich investment
options for meeting all your
investment needs.

30

World Class Service and

Acceptance!!!
A truly world class service as
ICICI Bank cards have both
national and international
acceptance.

Secure, Reliable,
Convenient!!!
Convenience has always
been synonymous with
ICICI Bank and keeping in
line we offer the facility of
buying Insurance policies
online.

Banking at your fingertips!!!

Why be inline when you can be
online for paying your utility
bills, mobile bills, prepaid
mobile recharge, Shopping,
Credit card, insurance premium
and lots more.

31

 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 (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.

32

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 wellrecognised 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 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
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.

33

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. 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 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.

34

 RURAL BANKING AND AGRI-BUSINESS

We believe the rural economy has high growth potential and offers large credit growth
opportunities. Towards this end, 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.

35

3 PNB BANKING

AND COMMERCIAL SECTOR CORPORATE LENDING ACTIVITIES

Term loans

Cash credit and other working capital facilities

Bill discounting

Export credits

Other credit and financing products

SERVICES RESIDENT INDIANS TO NONWe provide personal financial services for NRIs. We have established a branch in Kabul and
Representative offices in other cities overseas in order to facilitate services being provided to NRIs.
We offer foreign currency accounts to NRIs under our Foreign Currency Non-Resident Scheme and
rupee accounts for NRIs under our Non-Resident External and Non-Resident Ordinary Schemes.
We have introduced our Global Foreign Currency Scheme and Global Rupee Deposit Scheme,
which offer benefits and concessions to NRIs and their relatives provided a minimum balance of
Rs. 250,000 or US$5,000 is maintained in the account. We also offer various products for
facilitating remittances from NRIs to India. We recently entered into an arrangement to facilitate
money transfers through Western Union, which is a global leader in money transfer services. We
have also entered into an agreement with Times Online Money Ltd., a Times of India group
company, with a view to establishing an internet based international remittance service. In addition,
we also provide housing loans to NRIs.

RETAIL BANKING
In retail banking, our principal competitors are the large public sector banks, as well as
existing and new private sector banks and foreign banks in the case of retail loan products. The
other public sector banks have large deposit bases and large branch networks, including the State
Bank of India which has 13,593 branches. Private sector and foreign banks compete principally by
offering a wider range of products as well as greater technological sophistication in some cases.
36

Foreign banks, while having a small market penetration overall, has a significant presence among
non-resident Indians and also competes for non-branch based products such as auto loans and credit
cards.
In particular, we face significant competition primarily from private sector banks and to a
lesser degree from other public sector banks, in the housing, auto and personal loan segments. In
mutual fund sales and other investment related products, our principal competitors are brokers,
foreign banks and new private sector banks.

PRODUCTS AND SERVICES FOR AGRICULTURE CUSTOMERS

Agriculture contributes 22% to India s GDP and supports approximately two-thirds
of India s population. In fiscal 2004, we surpassed the stated national goal that banks should
provide at least18% of their net bank credit (which is gross credit minus Foreign Currency NonResident Bank deposits) to this segment, for which we received an award from India s Finance
Minister. Our average credit growth rate in this segment has been 32.2% over the last four years.
As of the last reporting Friday of September 2004, agricultural loans constituted 18.8% of our net

SMALL SCALE INDUSTRIES

We provide financing to small scale industries or SSIs. SSIs are defined as
manufacturing, processing and servicing businesses with up to Rs. 50 million invested in plant and
machinery for certain industries such as hosiery, hand tools, drugs and pharmaceuticals and
stationery items and up to Rs. 10 million invested in plant and machinery for other small scale
industries. SSIs are also considered a priority sector for directed lending purposes. See the section
titled Business-Directed Lending below. As of the last reporting Friday in September 2004, SSI
loans constituted 11.3% of our net bank credit. As of the last reporting Friday in September, 2004
we had an outstanding loan portfolio of Rs. 57.3 billion in this segment compared to Rs. 48.5 billion
as of the last reporting Friday in September 2003, representing growth of approximately 18.1%.We
have also received awards and recognition from the Government of India relating to our efforts in
financing SSI businesses.

37

BALANCE
SHEET

38

1. STATE BANK OF INDIA

BALANCE SHEET
AS ON 31-MARCH-2011
Assets
Net Own Assets
Net Lease Assets(After Lease Adj A/c)

Rs(mn)

%BT

33291.42
443.39

0.46
0.01

Investment

1895012.71

26.26

Advances

4167681.96

57.76

Cash & Money at call

674663.35

9.35

Other Current Assets

443749.84

6.15

7215263.12

100.00

Balance Sheet Total(BT)

Liabilities

Rs(mn)

%BT

6314.70

0.09

Reserves

484011.91

6.71

Deposits

5374039.41

74.48

Borrowings

517274.11

7.17

Other Cash liab/prov.

833622.98

11.55

7215263.12

100.00

1.87

13.47

Equity Share Capital

Balance Sheet Total(BT)

Non Performing Assets(NPA) %
Capital Adequacy Ratio(CAR) %

39

2. ICICI
BALANCE SHEET
AS ON 31-MARCH-2011
Assets
Net Own Assets

Rs(mn)

%BT

33118.26

0.83

7970.72

0.20

Investment

1114543.42

27.88

Advances

2256160.83

56.43

Cash & Money at call

380411.29

9.52

Other Current Assets

205746.26

5.15

3997950.76

100.00

Net Lease Assets(After Lease Adj A/c)

Balance Sheet Total(BT)

Liabilities

Rs(mn)

%BT

11126.79

0.28

Reserves

453575.31

11.35

Deposits

2444310.50

61.14

Borrowings

656484.34

16.42

Other Cash liab/prov.

432453.83

10.73

3997950.76

100.00

Non Performing Assets(NPA) %

1.49

Capital Adequacy Ratio(CAR) %

14.92

Equity Share Capital

Balance Sheet Total(BT)

40

3. PUNJAB NATIONAL BANK

BALANCE SHEET
AS ON 31-MARCH-2011
Assets
Net Own Assets

Rs(mn)

%BT

23149.03

1.17

6.19

0.00

Investment

539917.05

27.34

Advances

1195015.66

60.51

Cash & Money at call

188307.24

9.54

Other Current Assets

41525.21

2.10

1974846.65

100.00

Net Lease Assets(After Lease Adj A/c)

Balance Sheet Total(BT)

Liabilities
Equity Share Capital

Rs(mn)

%BT

3153.03

0.16

Reserves

104673.49

5.30

Deposits

1664572.26

84.29

54465.60

2.76

147982.29

7.49

1974846.65

100.00

Non Performing Assets(NPA) %

0.64

Capital Adequacy Ratio(CAR) %

12.96

Borrowings
Other Cash liab/prov.
Balance Sheet Total(BT)

41

RATIO
ANALYSIS

42

 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 the profit margin from the same period a year before would be far more informative.

OPERATING MARGIN
A ratio used to measure a company's pricing strategy and operating efficiency. Operating
margin is a measurement of what proportion of a company's revenue is left over after paying for
variable costs of production such as wages, raw materials, etc. A healthy operating margin is
required for a company to be able to pay for its fixed costs, such as interest on debt. It Is Also
known as "operating profit margin."
Calculated as:

Operating margin gives analysts an idea of how much a company makes (before interest and
taxes) on each dollar of sales. When looking at operating margin to determine the quality of a
company, it is best to look at the change in operating margin over time and to compare the
company's yearly or quarterly figures to those of its competitors. If a company's margin is
increasing, it is earning more per dollar of sales. The higher the margin, the better.

43

RATIO AT 31-MARCH 2011

Sr.No.

Name of Bank

SBI

Percentage

22.69 %

ICICI
2

14.45 %
PNB

21.47 %

BAR-GRAPH

INTERPRETATION
It shows that operating efficiency of SBI is better than PNB and ICICI. While operating
efficiency of ICICI is lower than PNB and SBI. So rank of operating efficiency of banks can
be given as SBI, PNB and ICICI.
44

 GROSS PROFIT MARGIN

A financial metric used to assess a firm's financial health by revealing the proportion of
money left over from revenues after accounting for the cost of goods sold. Gross profit margin
serves as the source for paying additional expenses and future savings. It is also known as "gross
margin".
Calculated as:

This metric can be used to compare a company with its competitors. More efficient
companies will usually see higher profit margins.
RATIO AT 31-MARCH 2011
Sr.No.

Name of Bank

Percentage

SBI

21.49 %

ICICI

12.99 %

PNB

20.67%
BAR-GRAPH

INTERPRETATION
This ratio shows financial position of company. Here, financial position of SBI is better than
PNB and ICICI. So SBI is at first rank by its financial position than PNB and ICICI.

45

 NET PROFIT MARGIN

The net profit margin ratio indicates profit levels of a business after all costs have been taken
into account. It is worth analysing 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
RATIO AT 31-MARCH 2011

Sr.No.

Name of Bank

Percentage

SBI

11.67 %

ICICI

10.51 %

PNB

12.68 %
BAR-GRAPH

46

 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 PNB is better than SBI and
ICICI. So profit level of PNB is at first rank than comes SBI and ICICI.

RETURN ON NETWORTH
Return on Net worth (RONW) is used in finance as a measure of a companys 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

Shareholders Equity
The numerator is equal to a fiscal years 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 generate 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.

47

RATIO AT 31-MARCH 2011

Sr.No.

Name of Bank

Percentage

SBI

13.72 %

ICICI

8.94 %

PNB

19.00 %

BAR-GRAPH

INTERPRETATION
This ratio is useful for comparing the profitability of a company to that of other firms in the
same industry. Here, profitability of PNB is more than SBI and PNB. So we can say that PNB is at
first rank by its profitability than comes SBI and ICICI

48

 LEVERAGE RATIO
Any ratio used to calculate the financial leverage of a company to get an idea of the
company's methods of financing or to measure its ability to meet financial obligations. There are
several different ratios, but the main factors looked at include debt, equity, assets and interest
expenses.
A ratio used to measure a company's mix of operating costs, giving an idea of how changes
in output will affect operating income. Fixed and variable costs are the two types of operating costs;
depending on the company and the industry, the mix will differ.
The most well known financial leverage ratio is the debt-to-equity ratio.

DEBT-EQUITY RATIO
A measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' 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.
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.
49

RATIO AT 31-MARCH
2011

Sr.No.

Name of Bank

Percentage

SBI

10.96 %

ICICI

5.27 %

PNB

15.44 %

BAR-GRAPH

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 PNB has a high debt-equity ratio means it is aggressive
in financing its growth with debt. Than after SBI has a low debt-equity ratio as comparison with
PNB and ICICI comes at third rank in debt-equity ratio.
50

 FIXED ASSETS 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 reflect whether or not the firm is becoming more efficient in
the use of its fixed assets.
Formula:

Sales revenue average fixed assets.

RATIO AT 31-MARCH 2011

Sr.No.

Name of Bank

Percentage

SBI

6.31 %

ICICI

5.61 %

PNB

4.35 %
BAR-GRAPH

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 and PNB. After SBI, ICICI has a high level of revenue
and then comes PNB at last.
51

 LIQUIDITY RATIO
A class of financial metrics that is used to determine a company's ability to pay off its shortterms 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 the liquidity ratios to determine whether a company will be able to continue as a
going concern.

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.
RATIO AT 31-MARCH 2011

Sr.No.

Name of Bank

Percentage

SBI

0.07 %

ICICI

0.10 %

PNB

0.02 %

52

BAR GRAPH

INTERPRETATION
Current ratio of ICICI is higher than SBI and PNB, means ICICI has a high ability to pay for
its liabilities and than secondly comes SBI and PNB has a low ability to pay for liabilities in
comparison with ICICI and PNB.

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.
RATIO AT 31-MARCH 2011

Sr.No Name of Bank

.

Percentage

SBI

6.15 %

ICICI

6.42 %

PNB

9.40 %
53

BAR-GRAPH

INTERPRETATION
PNB has a high quick ratio means it has enough current assets to cover its current liabilities,
while SBI and ICICI have a low quick ratio in comparison with PNB.

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:

For example, a very low payout ratio indicates that a company is primarily focused
on retaining its earnings rather than paying out dividends.

DIVIDEND PAYOUT RATIO

Dividend payout ratio is the fraction of net income a firm pays to its stockholders in
dividends:

54

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,
w hich is calculated as EPS/DPS.
RATIO AT 31-MARCH 2011
Sr.No.

Name of Bank

Percentage

SBI

22.64 %

ICICI

33.12 %

PNB

23.40 %

BAR-GRAPH

55

 EARNING RETENTION RATIO

The percent of earnings credited to retained earnings. In other words, the proportion of net
income that is not paid out as dividends.
Calculated as:

It can also be calculated as one minus the dividend payout ratio.

RATIO AT 31-MARCH 2011

Sr.No.

Name of Bank

Percentage

SBI

77.33 %

ICICI

66.35 %

PNB

76.59 %
BAR-GRAPH

56

 INTERPRETATION
Earning retention ratio is the opposite of the dividend payout ratio. SBI and PNB have a high
earning retention ratio, so the Investors who are seeking high current income and limited capital
growth should be invest in SBI and PNB. ICICI has a low earning retention ratio, so the
investors who are seeking capital growth should be invest in ICICI BANK.

PERSHARE RATIOS

EARNIG PER SHARE

The portion of a company's profit allocated to each outstanding share of common
stock. Earnings per share serve as an indicator of a company's profitability.
Calculated as:

When calculating, it is more accurate to use a weighted average number of shares

outstanding over the reporting term, because the number of shares outstanding can change over
time. However, data sources sometimes simplify the calculation by using the number of shares
outstanding at the end of the period.

57

Diluted EPS expands on basic EPS by including the shares of convertibles or warrants
outstanding in the outstanding shares number.
Earnings per share are generally considered to be the single most important variable in
determining a share's price. It is also a major component used to calculate the price-to-earnings
valuation ratio.
An important aspect of EPS that's often ignored is the capital that is required to generate the
earnings (net income) in the calculation. Two companies could generate the same EPS number, but
one could do so with less equity (investment) - that company would be more efficient at using
its capital to generate income and, all other things being equal, would be a "better" company.
Investors also need to be aware of earnings manipulation that will affect the quality of the earnings
number. It is important not to rely on any one financial measure, but to use it in conjunction with
statement analysis and other measures.
RATIO AT 31-MARCH 2011

Sr.No.

Name of Bank

Percentage

SBI

117.33 %

ICICI

42.56 %

PNB

70.38%

58

BAR GRAPH

INTERPRETATION
This ratio is an indicator of a company's profitability. From above graph we can say that SBI has a
high profitability than PNB and ICICI. So, PNB comes at second position and ICICI comes at third
position in profitability.

59

OBJECTIVES

60

OBJECTIVES
Analysis of financial statements is an attempt to assess the efficiency and performance of
an enterprise. For that there are some objectives which are described as under.

1. EARNING CAPACITY OR PROFITABILITY

The overall objective of a business is to earn a satisfactory return on the funds invested in it.
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.

2. COMPARATIVE POSITION IN RELATION TO OTHER FIRMS

The purpose of financial statements analysis is to help the management to make a
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 and using capital.etc.

3. EFFICIENCY OF MANAGEMENT
The purpose of financial statement analysis is to know that the financial policies adopted by
the management are efficient or not. Analysis also helps the management in preparing budgets by
forecasting next years profit on the basis of past earnings. It also helps the management to find out
shortcomings of the business so that remedial measures can be taken to remove these shortcomings.

4. FINANCIAL STRENGTH
The purpose of financial analysis is to assess the financial potential of business. Analysis
also helps in taking decisions;
(a) Whether funds required for the purchase of new machinery and equipments are provided from
internal resources of business or not.
(b) How much funds have been raised from external sources.

5. SOLVECNY OF THE FIRM

The different tools of analysis tells us whether the firm has suffucient funds to meet its shortterm and long-term liabilities or not.

61

IMPORTANCE

62

IMPORTANCE
Ratio analysis is an important technique of financial analysis. It is a means for judging the
financial

health

of

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, summarize, and systemize the accounting

figures presented in financial statements.

With the help of 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.
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 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.

63

ADVANTAGES
&
LIMITATIONS

64

ADVANTAGES
Ratio analysis is an important and age-old technique of financial analysis. The following are some
of the advantages of ratio analysis:
1. Simplifies financial statements: It simplifies the comprehension of financial statements.
Ratios tell the whole story of changes in the financial condition of the business.
2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios
highlight the factors associated with with successful and unsuccessful firm. They also reveal
strong firms and weak firms, overvalued and undervalued firms.
3. 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.
4. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison of
the performance of 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.
5. Help in investment decisions: It helps in investment decisions in the case of investors and
lending decisions in the case of bankers etc.

65

LIMITATIONS
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.
1. Limitations of financial statements: Ratios are based only on the information which has been
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.
2. 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.
3. 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 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.
4. 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.
7. Incomparable: Not only industries differ in their nature, but also the firms of the similar
business widely differ in their size and accounting procedures etc. It makes comparison
of ratios difficult and misleading

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CONCLUSION

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CONCLUSION

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 analysing 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.

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
firms 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.

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BIBLIOGRAPHY

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BIBLIOGRAPHY

Web sites:

www.sbi.com

www.icici.com

www.pnb.com

Books referred:

Basic Financial Management- M Y Khan

P K Jain

Financial Management-Prasanna Chandra

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