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Ashish Kumar(FT-FS-09-102)
Prashant Kumar(FT-FS-09-103)
Rahul Ojha (FT-FS-09-104)
Ram Yadav (FT-FS-09-105)

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History

Indian Overseas Bank (IOB; established 1937) is a major bank based

in Chennai (Madras), with 2018 domestic branches and six branches overseas.
Indian Overseas Bank has an ISO certified inhouse Information Technology
department, which has developed the software that 2018 branches use to provide
online banking to customers; the bank has achieved 100% networking status as
well as 100% CBS status of branches with a total number of 2018 CBS branchs
and Extension Counters. IOB also has a network of about 771 ATMs all over India
and IOB's International VISA Debit Card is accepted at all ATMs belonging to the
Cash Tree and NFS networks. IOB offers internet Banking (E-See Banking) and is
one of the banks that the Govt. of India has approved for online payment of taxes.

At the dawn of Independence IOB had 38 branches in India and 7 branches abroad.
Deposits stood at Rs.6.64 Crs and Advances at Rs.3.23 Crs at that time.

are-nationalisationera(1947-69)

During the period, IOB expanded its domestic activities and enlarged its
international banking operations. As early as in 1957, the Bank established a training
centre which has now grown into a Staff College at Chennai with 9 training centres
all over the country.

IOB was the first Bank to venture into consumer credit. It introduced the popular
Personal Loan scheme during this period.

In 1964, the Bank made a beginning in computerization in the areas of inter-branch

reconciliation and provident fund accounts.

In 1968, IOB established a full-fledged department to cater exclusively to the needs

of the Agriculture sector. .
St the time of Nationalization (1969)

IOB was one of the 14 major banks that was nationalized in 1969.

On the eve of Nationalization in 1969, IOB had 195 branches in India with
aggregate deposits of Rs. 67.70 Crs. and Advances of Rs. 44.90 Crs.

aost - nationalization era (1969-1992)

In 1973, IOB had to wind up its five Malaysian branches as the Banking law in
Malaysia prohibited operation of foreign Government owned banks. This led to
creation of United Asian Bank Berhad in which IOB had 16.67% of the paid up
capital.

In the same year Bharat Overseas Bank Ltd was created in India with 30% equity
participation from IOB to take over IOB¶s branch at Bangkok in Thailand.

In 1977, IOB opened its branch in Seoul and the Bank opened a Foreign Currency
Banking Unit in the free trade zone in Colombo in 1979.

The Bank has sponsored 3 Regional Rural Banks viz. Puri Gramya Bank, Pandyan
Grama Bank, Dhenkanal Gramya Bank

The Bank setup a separate Computer Policy and Planning Department (CPPD) to
implement the programme of computerization, to develop software packages on its
own and to impart training to staff members in this field.

aost Reform aeriod - Unprecedented developments (1992 & after)

IOB entered Web site during the month of February 1997.

IOB got autonomous status during 1997-98

IOB had the distinction of being the first Bank in Banking Industry to obtain ISO
9001 Certification for its Computer Policy and Planning Department from Det
Norske Veritas (DNV), Netherlands in September 1999. This Certification covers
Design, Development, Implementation and Maintenance of software developed in-
house, procurement and supply of hardware and execution of turnkey projects.

IOB started STAR services in December 1999 for speedy realisation of outstation
cheques. Now the Banks has 14 STARS centres and one Controlling Centre for
providing this service.

During 1999, IOB started tapping the potential of internet by enabling ABB card
holders in Delhi to pay their telephone bills by just logging on to MTNL web site
and by authorizing the Bank to debit towards the telephone bills.

A Voluntary Retirement Scheme was introduced in the Bank on the lines of IBA
package with Boards approval. The scheme was offered to Officers/Employees from
December 15, 2000.

The Bank made a successful debut in raising capital from the public during the
financial year 2000-01, despite a subdued capital market. The issue opened on
September 25, 2000 for raising Rs.111.20 crore and was oversubscribed by 1.87
times. The issue closed on September 29, 2000 - on the earliest closing day. The
allotment was made in October 2000. Consequent to the public issue, the share of
the Government in the Bank's capital came down to 75%. The shares of the Bank
have been listed on the Madras Stock Exchange (Regional), Stock Exchange at
Mumbai and the National Stock Exchange of India Ltd.

IOB bagged the NABARD's award for credit linking the highest number of Self
Help Groups for 2000-2001 among the Banks in Tamil Nadu.

IDRBT (Institute for Development and Research in Banking Technology) conferred

the Best Award under Banking Technology to IOB. The award was given for the
innovative use of banking applications on INFINET (Indian Financial Network) for
the year 2001. Mobile banking under SMS technology implemented in Ahmedabad
and Baroda. Pilot run of Phase I of the Internet Banking commenced covering 34
branches in 5 Metropolitan centres. IOB was one among the first to join Reserve
Bank of India¶s negotiated dealing system for security dialing online.

The Bank has finalized an e-commerce strategy and has developed the necessary
internet banking modules in-house. For the first time a Total Branch Automation
package developed in-house has been customized in one of the Overseas Branches
of the Bank.
Most software developed in-house.

IOBNET connects Central Office with all Regional Office.

The Bank has paid a maiden dividend of 10% p.a for 2000-01, followed by 12%
during 2001-02.

˜
   
   

c
Indian Overseas Bank currently provides specialized banking services to its retail
customers that include Any Branch Banking (ABB), ATM Banking, IOB STARS
(Indian Overseas Bank - Speedy Transfer And Realization Service) and the most
c
popular and latest one is the 8% Saving (Taxable) Bond Scheme.
The usual banking services by Indian Overseas Bank are mentioned below c
c

˜c

Uc Saving Bank Deposits

Uc No Frills SB Accounts
Uc Current Account
Uc Fixed Deposit
Uc Reinvestment Deposit
Uc Recurring Deposit Account
Uc Annuity Deposit Plan
Uc Multiple Investment Scheme
Uc Cumulative Benefit Deposit
Uc Multiple Deposit Account

×c

Uc Personal Loan
Uc Car Loan
Uc Commercial Vehicle Loan
 Uc Corporate Loans
Uc Housing Loan
Uc Home Improvement Loan
Uc Educational Loan
Uc NRI Home Loans
Uc Agricultural Loans
Uc Finance For Small, Medium And Large Enterprises

˜˜c

Uc NRE Accounts
Uc NRO Savings Account
Uc RFC Accounts
Uc FCNR Account
Uc Remittance Servicesc

˜c

Uc VISA International Credit Cards

Uc VISA Debit Card
Uc IOB Fine Gold
Uc Real Time Gross Settlement (RGTS)
Uc Forex Collection Services
Uc Agriculture and Business Consultancy Service
Uc Investment options like Mutual Funds and Shares

Besides these products and services, any info on the current interest rates, news on
shares and Forex rates, address and phone number of your nearest Indian Overseas
Bank Branch or ATM is all available on the official website of Indian Overseas
Bank. The site also provides recruitment news and the jobs vacancy in IOB. Indian
Overseas Bank provides Internet Banking Services to its customers that is an easy
and time saving access to your bank account right to your tabletop. Just login to your
net banking account available online on the home page of IOB website and get the
banking service you desire instantly. Besides this, several customer care helpdesks
are also provided in the IOB branches.
 ’S
 odel:-

’S
 FRS
ORK

During an on-site bank exam, supervisors gather private information, such as

details on problem loans, with which to evaluate a bank's financial condition and to
monitor its compliance with laws and regulatory policies. A key product of such an
exam is a supervisory rating of the bank's overall condition, commonly referred to
as a CAMELS rating. This rating system is used by the three federal banking
supervisors (the Federal Reserve, the FDIC, and the OCC) and other financial
supervisory agencies to provide a convenient summary of bank conditions at the
time of an exam.

The acronym "CAMEL" refers to the five components of a bank's condition

that are assessed: apital adequacy, sset quality, anagement, arnings, and
iquidity. A sixth component, a bank's ensitivity to market risk was added in
1997; hence the acronym was changed to CAMELS. Ratings are assigned for each
component in addition to the overall rating of a bank's financial condition. The
ratings are assigned on a scale from 1 to 5. Banks with ratings of 1 or 2 are
considered to present few, if any, supervisory concerns, while banks with ratings of
3, 4, or 5 present moderate to extreme degrees of supervisory concern

In 1995, RBI had set up a working group under the chairmanship of Shri S.
Padmanabhan to review the banking supervision system. The Committee certain
recommendations and based on such suggestions a rating system for domestic and
foreign banks based on the international CAMELS model combining financial
management and systems and control elements was introduced for the inspection
cycle commencing from July 1998. It recommended that the banks should be rated
on a five point scale (A to E) based on the lines of international CAMELS rating
model.

c C = Capital Adequacy

c A = Asset Quality

c M = Management

c E = Earning

c L = Liquidity

c S = Sensitivity to market risk

’SaITS S
US’

Capital base of financial institutions facilitates depositors in forming their

risk perception about the institutions. Also, it is the key parameter for financial
managers to maintain adequate levels of capitalization. Moreover, besides
absorbing unanticipated shocks, it signals that the institution will continue to honor
its obligations. The most widely used indicator of capital adequacy is capital to
risk-weighted assets ratio (CRWA). According to Bank Supervision Regulation
Committee (The Basle Committee) of Bank for International Settlements, a
minimum 8 percent CRWA is required.

Capital adequacy ultimately determines how well financial institutions can

cope with shocks to their balance sheets. Thus, it is useful to track capital-
adequacy ratios that take into account the most important financial risks²foreign
exchange, credit, and interest rate risks²by assigning risk weightings to the
institution¶s assets.

S ’apital Sdequacy Ratio is a measure of a bank's capital. It is expressed

as a percentage of a bank's risk weighted credit exposures.

Also known as "Capital to Risk Weighted Assets Ratio (CRAR)´.

Capital adequacy is measured by the ratio of capital to risk-weighted assets

(CRAR). A sound capital base strengthens confidence of depositors.

This ratio is used to protect depositors and promote the stability and
efficiency of financial systems around the world.
Under Capital Adequacy, we calculate following ratios:

1.c Capital adequacy ratio

2.c Debt-Equity Ratio

3.c Advances to Assets

4.c G-Secs to Total Investments

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1.c ’apital Sdequacy Ratio:-

Capital adequacy ratio is the ratio which determines the capacity of the bank
in terms of meeting the time liabilities and other risk such as credit risk,
operational risk, etc. In the simplest formulation, a bank's capital is the
"cushion" for potential losses, which protect the bank's depositors or other
lenders. Banking regulators in most countries define and monitor ’
to
protect depositors, thereby maintaining confidence in the banking system.

CAR = Tier 1 capital + Tier 2 capital

Risk weighted assets

Tier 1 Capital:-

Tier 1 Capital covers the operating loss of the bank. This is cushion for
bank¶s operating losses.

Tier 2 Capital:-

Tier 2 Capital works like a cushion for the bank in the situation of
liquidation of the bank. This capital covers the bank¶s corrupt situation.

Risk Weighted assets:-

Banks use their fund in two ways:-

a.c Investment

b.c Loans and advances

Bank weight their assets according to risk attached with them. Like
G-Sec is a ZERO risk investment and Equity market is highly risky
investment. Highly risky assets get highest weight.

arch 31, 2008 arch 31, 2009

Tier-1 capital 381.34 420.09

Tier-2 capital 121.21 129.72

 Total capital 502.55 r49.81

Risk Weighted Assets (RWA) 2,998.08 3,171.94

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c CAR is increasing and this is more than the minimum requirement by the
RBI (i.e. 15%).

c It gives a good idea about the capital soundness of the INDIAN

OVERSEAS BANKBank.
 c Bank¶s capital is able to cover its risky assets.

2.c ebt-
quity Ratio

= Debt
Equity

This ratio is calculated to assess the ability of the firm to meet its long term
liabilities. It indicates the more and more fund invested in the business is
provided by the long term lenders. Thus high ratio is danger for the lenders
because bank has less internal sources to cover the external liabilities.

DEBT:-

Deposits...................................................................................2,183,478,249 c

Borrowings.................................................................................673,236,886

2,8r6,71r,13r

EQUITY:-

Capital.......................................................................................... 14,632,898 c

Reserves and surplus...................................................................484,197,292

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c This ratio is decreasing on the yearly basis. It gives a good sign to the
investors that internal sources are able to meet with external liabilities.

c If we look the monetary value of both the items (debt and equity) we can
see that equity is almost same for the previous year, borrowing have
increased but deposits declined. It means that investor is taking back their
money. Bank has to work in this area.

3.c Sdvances to Sssets

= Net Advances
Total Assets

In total banks assets how much are the loans and advances are being made
over its total assets. It measures the soundness and credit capacity of the bank
over its advances. Higher ratio indicates that bank is highly aggressive into
lending and not parking its funds in investment for constant revenue. On the
other side high ratio gives a fear of increase in NPAs.

ADVANCES:-
 For the calculation of this ratio, we take Net Advances.

Net Advances = total advances ± refinance from apex institutions.

SSN’
 [net of provisions]

˜ c Bills purchased and discounted..........................................................40,610,992c

˜˜ c Cash credits, overdrafts and loans repayable on demand................343,94r,r09c
˜˜˜ c Term loans««........................................................................... 1,696,347,r68c
˜
c Securitization, finance lease and hire purchase receivable««......102,204,423c

TOTS SSN’
............................................................2,183,108,492

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c If we look the graph we can say that bank is aggressively into the lending.
On an average bank lend more than 50% its fund in the lending.

4.c ¯-ecs to Total Investments

As per the requirement of RBI every bank invests in Government

Securities as per the requirement of SLR. Sometimes a bank invests in these
G-Secs more than this minimum requirement. It increases liquidity as well as
Capital Adequacy for the bank. But on the other hand it decrease the
profitability for the bank because bank gets less return on these security as
compare to the loan and advances.

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c More than 50% of funds are allocated in the lending. That increases the
profitability for the bank.
c In investment more than 60% investment is in government security which
gives not only a constant income but also increase the liquidity and capital
adequacy for the bank.
c So we can say that bank is considering both profitability and liquidity
simultaneously.
S
T USIT

Loans and Advances are the main assets for a bank. Bank gives loan to
different borrowers on different rate because there is a risk attached with every
customer. Higher the risk, higher the risk premium, higher the rate of return and
ultimately higher the spread. But high risk also gives a fear of losing the loan
amount. So bank should measure the risk in such a way that their rates are able to
give them the fruit of their risk bearing.

A Bank also keeps some reserves to meet with the losses of default. Bank
makes provision for NPAs (non performing assets). NPAs are the assets which
can make a default. So bank makes provision which acts like cohesion against
these default losses.

Asset quality determines the robustness of financial institutions against loss

of value in the assets. The deteriorating value of assets, being prime source of
banking problems, directly pour into other areas, as losses are eventually written-
off against capital, which ultimately jeopardizes the earning capacity of the
institution. With this backdrop, the asset quality is gauged in relation to the level
and severity of non-performing assets, adequacy of provisions, recoveries,
distribution of assets etc. Popular indicators include nonperforming loans to
advances, loan default to total advances, and recoveries to loan default ratios.
 The solvency of financial institutions typically is at risk when their assets
become impaired, so it is important to monitor indicators of the quality of their
assets in terms of overexposure to specific risks, trends in nonperforming loans,
and the health and profitability of bank borrowers² especially the corporate
sector. Share of bank assets in the aggregate financial sector assets: In most
emerging markets, banking sector assets comprise well over 80 per cent of total
financial sector assets, whereas these figures are much lower in the developed
economies.

One of the indicators for asset quality is the ratio of non-performing loans to
total loans (GNPA). The gross non-performing loans to gross advances ratio is
more indicative of the quality of credit decisions made by bankers. Higher GNPA
is indicative of poor credit decision-making.

NaS: Non-aerforming Sssets

Advances are classified into performing and non-performing advances

(NPAs) as per RBI guidelines. NPAs are further classified into sub-standard,
doubtful and loss assets based on the criteria stipulated by RBI. An asset, including
a leased asset, becomes nonperforming when it ceases to generate income for the
Bank.

An NPA is a loan or an advance where:

1. Interest and/or installment of principal remains overdue for a period of more

than 90 days in respect of a term loan;

2. The account remains "out-of-order'' in respect of an Overdraft or Cash Credit

(OD/CC).
3. The bill remains overdue for a period of more than 90 days in case of bills
purchased and discounted;

4. A loan granted for short duration crops will be treated as an NPA if the
installments of principal or interest thereon remain overdue for two crop seasons.

5. A loan granted for long duration crops will be treated as an NPA if the
installments of principal or interest thereon remain overdue for one crop season.

The Bank classifies an account as an NPA only if the interest imposed

during any quarter is not fully repaid within 90 days from the end of the relevant
quarter.cc

This is a key to the stability of the banking sector. There should be no

hesitation in stating that Indian banks have done a remarkable job in containment
of non-performing loans (NPL) considering the overhang issues and overall
difficult environment.

Under Assets Quality, we calculate following ratios:

1.c Gross NPAs to Net Advances

2.c Net NPAs to Net Advances

3.c Total Investments to Total Assets

4.c Percentage change in Net NPAs

5.c Net NPAs to Total Assets

 2009 2008 2007

¯RO NaSs TO N
T SSN’
 0.04420 0.033r9 0.02107

N
T NaSs TO N
T SSN’
 0.02086 0.01r47 0.01017

TOTS IN
T
NT TO TOTS 0.27171 0.27878 0.26478

S
T

a
R’
NTS¯
’HSN¯
IN NaS 30.46% 7r.22%

N
T NaSs TO TOTS S
T 0.01201 0.00873 0.00r78

¯RO NaS 96493100 7r79r400 41260600

N
T NaS 4rr39400 3490rr00 19920400

N
T SSN’
2183108492 22r6160827 19r86rr996

TOTS S
T 3793009623 39979r0762 3446r81126

TOTS IN
T
NT 1030r83080 1114r4341r 912r78418

1.c ¯ross NaSs to Net Sdvances :-

= Gross NPA
Net Advances
 One of the indicators for asset quality is the ratio of Gross NPAs to Net
Advances. The gross non-performing loans to gross advances ratio is more
indicative of the quality of credit decisions made by bankers. Higher GNPA is
indicative of poor credit decision-making.

Gross NPA:-

NaSs (¯ross)

a) Opening Balance............................................................................... 7r,79r.4c

b) Additions during the year................................................................. r0,637.1c

c) Reductions during the year............................................................. (29,939.4)c

d) Closing balance................................................................................. 96,493.1c


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c Gross NPAs are increasing while Loan and Advances are decreasing due to
which this ratio is increasing.

c Its means that bank can face a huge default loss. On an average 5% loan
and advances are NPAs.
2.c Net NaSs to Net Sdvances

Bank makes provision for NPAs.

Net NPA = Gross NPA ± Prov. For NPA

Net Advances

Net NaSs

a) Opening Balance............................................................................... 34,90r.rc

b) Additions during the year................................................................. 19,824.rc

c) Reductions during the year............................................................... (9,190.6)c

d) Closing balance..................................................................................4r,r39.4

This ratio is more important because this shows that to what extent bank has
covered their NPAs by making provisions and reserves. GNPA ratio can be high
but this ratio should not be high. If this ratio is high banks ability to access the
risk is questionable along with that it can also be predicted that bank don¶t have
sufficient fund to make provision and will face a huge loss when these NPAs will
default.
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c With the help of bar diagram we can analyze that INDIAN OVERSEAS
BANKBank keeps almost 50% of Gross NPAs as provision for NPAs.

c Both the ratios are increasing year by year. Bank should take
appropriate step to control its NPAs.

3.c Total Investments to Total Sssets

= Total Investments
Total Assets

In banks total assets what is the proportion of Total Investments. Higher

ratio indicates that bank is on safe side. They are not into lending
aggressively. This will increase liquidity but on the other hand it will hamper
the profitability of the bank.
    
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c This ratio indicates that bank is also paying attention towards investments.
Almost 27.2% of total assets are contributed by investments.

c The reason behind the increase in the year 2008 can be downfall of
economy last year. At that time lending was not taking place so bank was
ought to be allocated their fund into investments to get at least some fix
income.

c In 2009 this ratio decreased, it can be said that bank is again going toward
lending.

4.c aercentage change in Net NaSs

= Closing NPA ± Opening NPA * 100

Opening NPA
 From this we can able to know that how much change occurs in NPA in
the form of increase and decrease in the NPA over its Initial NPA that is at the
beginning of the year.

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r.c Net NaSs to Total Sssets

= Net NPA
Total Assets

Important to know that how much NPA are there in the total assets of the
bank. Based on those, banks are able to know the current positions of NPA
and finally decide which sectors are given more preference for loans and
advances.
 
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c On an average 1.2% of total assets convert into Net NPA. This ratio shows
the picture of allocation of funds. If this ratio is high we can say that bank
is aggressively into lending rather than investing them into safe security.

SNS¯

NT
FFI’I
N’

Management of financial institution is generally evaluated in terms of capital

adequacy, asset quality, earnings and profitability, liquidity and risk sensitivity
ratings. In addition, performance evaluation includes compliance with set norms,
ability to plan and react to changing circumstances, technical competence,
leadership and administrative ability. In effect, management rating is just an
amalgam of performance in the above-mentioned areas.
 Sound management is one of the most important factors behind financial
institutions¶ performance. Indicators of quality of management, however, are
primarily applicable to individual institutions, and cannot be easily aggregated
across the sector.

Sound management is the key to bank performance but is difficult to

measure. It is primarily a qualitative factor applicable to individual institutions.

Several indicators, however, can jointly serve²as, for instance, efficiency

measures do²as an indicator of management soundness.c The ratio of non-interest
expenditures to total assets (MGNT) can be one of the measures to assess the
working of the management. . This variable, which includes a variety of expenses,
such as payroll, workers compensation and training investment, reflects the
management policy stance.

Under Management Efficiency, we calculate following ratios:

1.c Profit per Branch

2.c Total Advances to Total Deposits

3.c Business per Employee

4.c Profit per Employee

   

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4(,$%((0%+50-.6%%      

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1.c arofit per Branch :-

= Net Profit
No. of branches

This ratio is helpful for evaluating the performance of two banks. Two banks
have same profit but one bank has less no. of branches as compare to the other
bank, so it equally important to see the profit per branch which shows the
management soundness for the bank. Higher ratio indicates a quality of the
bank¶s management.

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c This graph shows that Profit per branch is decreasing as compare the last year.
c The reason behind this is that no. of branches is twice from last year and profit
has decreased, due to that profit per branch decreased.

2.c Total Sdvances to Total eposits

= Total Advances
Total Deposits

This ratio shows that how effectively bank is able to utilized deposits in to
advances. Higher ratios show that bank is lending more from available funds
i.e. deposits. It shows that either bank is aggressive or conservative.

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c The graph shows that bank¶s lending increases over the years. So bank is
aggressively into the lending which is a good sign for the bank¶s
profitability.

3.c Business per
mployee

This ratio indicates that on an average how much business is generated by

every employee.
 Business per employee = Total Deposits + Total Loans and Advances

No. of Employees

Deposits....................................................................................... 2,183,478,249

Advances......................................................................................2,183,108,492

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c Graph indicates that business per employee is increasing over the past year
due to decrease in no. of employees last year.

4.c arofit per
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= Net Profit
No. of Employee

This ratio indicates the profit contribution by each employee in the bank.
Higher ratio indicates the better performance of the employees in the bank.

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SRNIN¯

Earnings and profitability, the prime source of increase in capital base, is

examined with regards to interest rate policies and adequacy of provisioning. In
addition, it also helps to support present and future operations of the institutions.
The single best indicator used to gauge earning is the Return on Assets (ROA),
which is net income after taxes to total asset ratio.

Strong earnings and profitability profile of banks reflects the ability to

support present and future operations. More specifically, this determines the
capacity to absorb losses, finance its expansion, pay dividends to its shareholders,
and build up an adequate level of capital. Being front line of defense against
erosion of capital base from losses, the need for high earnings and profitability can
hardly be over emphasized.

Although different indicators are used to serve the purpose, the best and
most widely used indicator is Return on Assets (ROA).

Compared with most other indicators, trends in profitability can be more

difficult to interpret²for instance, unusually high profitability can reflect
excessive risk taking.
ROS-Return on Sssets

An indicator of how profitable a company is relative to its total assets. ROA

gives an idea as to how efficient management is at using its assets to generate
earnings. Calculated by dividing a company's annual earnings by its total assets,
ROA is displayed as a percentage. Sometimes this is referred to as µreturn on
investment¶.

ROA tells what earnings were generated from invested capital (assets). ROA
for public companies can vary substantially and will be highly dependent on the
industry. This is why when using ROA as a comparative measure, it is best to
compare it against a company's previous ROA numbers or the ROA of a similar
company.

The assets of the company are comprised of both debt and equity. Both of
these types of financing are used to fund the operations of the company. The ROA
figure gives investors an idea of how effectively the company is converting the
money it has to invest into net income. The higher the ROA number, the better,
because the company is earning more money on less investment.
Under Earnings, we calculate following ratios:

1.c Operating Profits to Average Working Funds

2.c Percentage Growth in Net Profits

3.c Spread

4.c Net Profit to Average Assets

5.c Interest Income to Total Income

 6.c Non-Interest Income to Total Income

2009 2008 2007

Operating profits to average working 0.0197 0.0162 0.0118

funds

aercentage growth in net profit -9.61% 33.68%

pread 0.021r 0.0196 0.0164

Net profit to average assets 0.0096 0.0112 0.0090

Interest income to total income 0.803r 0.777r 0.760r

Non-interest income to total income 0.196r 0.222r 0.239r

Operating income 76128610 r9727647 403r0r33

Sverage working funds 38rr927601 3682104341 3407346894

pread 83666141 73041006 r6370892

Net profit 37r81332 41r77279 31102200

Sverage assets 389r480193 372226r944 3446r81126

Interest income 31092r484 307883429 2199rr876

Noninterest income 76037271 88107628 69278726

Total income 3869627rr 39r9910r7 289234602

1.c Operating arofits to Sverage orking Funds

= Operating Profit
 Average Working Fund

Operating Profit:-

Operating Income

Interest earned ......................................................................................310,92r,484 c

Other income

Commission, exchange and brokerage....................r6,2r8,933

Income earned by way of dividends, etc. from subsidiary companies and/or

joint ventures abroad/in India ................................. 3,348,233c

Miscellaneous income (including lease income).... 3,306,440 62,913,606

Total Operating Income 373,839,090

Operating Expenses

Interest expended .................................................................................227,2r9,343c

Operating expenses ................................................................................70,4r1,137

Total Operating
penses 297,710,480

Operating arofit 

Sverage orking Funds

Working Funds = Total Assets ± Fixed Assets

Average Working Funds = (Opening balance + Closing balance)/2

 
 
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c This ratio indicates that how much bank can earn from its operations.
c High ratio indicates that bank is earning more from its investment.
c This ratio is increasing over the year as we can see in graphs. So we can
say that bank is efficient in operating activity.

2.c aercentage ¯rowth in Net arofits

= Closing Net Profit - Opening Net Profit * 100

Opening Net Profit

This ratio shows the performance of bank as compare to the previous year
on the basis of Net Profit. A high change indicates that bank has done well in
current year over the past year.

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c For the year 2008 net profit increase by 33% but for the year 2009 it
declines.
c By the results we can see that how recession affected the INDIAN
OVERSEAS BANKbank and its profits.

3.c pread

= Interest income ± Interest expenses

This ratio gives the direct picture of banks earning from the interest.
Spread is the difference between the interest received on loan and advances
and interest paid on deposits. Higher ratio shows that bank is effectively using
its fund (deposits) by giving loans and advances.
 
 
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c This graph shows the spread for the INDIAN OVERSEAS BANKbank
over the past three years.
c Bank is performing better over the year and spread is increasing year by
year. It shows that bank is effectively using its deposits into lending.


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c If we see the spread as a proportion of total assets we will get spread ratio.
c This ratio is increasing over the year. It means that bank is utilizing its
assets in a good way.
4.c Net arofit to Sverage Sssets

= Net Profit
Average Assets
This ratio is also called as Return on Assets. This ratio tells that how
effectively bank is using its assets. Higher ratio indicates a better use of assets
and vice-a-versa.


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c This ratio declined over the past year for the INDIAN OVERSEAS
BANKbecause net profit decreased this year.

r.c Interest Income to Total Income

= Interest Income

Total Income

This ratio measures the income received from the operations as a

percentage of total income. How much a bank is earning from operation
activity.
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c Above graph is showing that INDIAN OVERSEAS BANKbank is earning

its 80% income from the interest i.e. the core business of a bank.
c This is a good sign for the bank. This shows that bank is getting its interest
on time.
c It also indicates that bank is aggressively into lending rather than investing
the funds in other investments.

6.c Non Interest Income to Total Income

= Interest Income

Total Income

This ratio indicates that how much a bank is earning from its other
activities in the form of fees, commission etc.
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c Interest income as a proportion of total income is increasing, so this ratio is

declining.
IUIIT

An adequate liquidity position refers to a situation, where institution can

obtain sufficient Funds, either by increasing liabilities or by converting its assets
quickly at a reasonable Cost. It is, therefore, generally assessed in terms of overall
assets and liability Management, as mismatching gives rise to liquidity risk.
Efficient fund management refers to a situation where a spread between rate
sensitive assets (RSA) and rate sensitive a liability (RSL) is maintained. The most
commonly used tool to evaluate interest rate exposure is the Gap between RSA and
RSL, while liquidity is gauged by liquid to total asset ratio.
Initially solvent financial institutions may be driven toward closure by poor
management of short-term liquidity. Indicators should cover funding sources and
capture large maturity mismatches.
The term liquidity is used in various ways, all relating to availability of,
access to, or convertibility into cash.
9c An institution is said to have liquidity if it can easily meet its needs for cash
either because it has cash on hand or can otherwise raise or borrow cash.
9c A market is said to be liquid if the instruments it trades can easily be bought
or sold in quantity with little impact on market prices.
9c An asset is said to be liquid if the market for that asset is liquid.

The common theme in all three contexts is cash. A corporation is liquid if it

has ready access to cash. A market is liquid if participants can easily convert
positions into cash or conversely. An asset is liquid if it can easily be converted to
cash.
The liquidity of an institution depends on:
c the institution's short-term need for cash;
c cash on hand;
c available lines of credit;
c the liquidity of the institution's assets;
c The institution's reputation in the marketplace²how willing will
counterparty is to transact trades with or lend to the institution?
The liquidity of a market is often measured as the size of its bid-ask spread,
but this is an imperfect metric at best. More generally, Kyle (1985) identifies three
components of market liquidity:
c Tightness is the bid-ask spread;
c Depth is the volume of transactions necessary to move prices;
c Resiliency is the speed with which prices return to equilibrium following a
large trade.
Examples of assets that tend to be liquid include foreign exchange; stocks
traded in the Stock Exchange or recently issued Treasury bonds. Assets that are
often illiquid include limited partnerships, thinly traded bonds or real estate.
Cash maintained by the banks and balances with central bank, to total asset
ratio (LQD) is an indicator of bank's liquidity. In general, banks with a larger
volume of liquid assets are perceived safe, since these assets would allow banks to
meet unexpected withdrawals. Under Liquidity, we calculate following ratios:
1.c Liquid Assets to Total Assets

2.c G-Secs to Total Assets

3.c Liquid Assets to Demand Deposits

4.c Liquid Assets to Total Deposits

    
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1.c iquid Sssets to Total Sssets

This ratio shows the proportion of liquid assets to total assets. For a bank
liquidity and profit, both have inverse relationship, because if a bank want to
increase its profit it has to give long term loan and due to long term loan its
liquidity will decrease.
iquid Sssets:-
’SH SN BSSN’
 ITH R

R
BSNK OF INIS
I. Cash in hand (including foreign currency notes) ..................................28,rr7,0r7 c
II. Balances with Reserve Bank of India in current accounts ................146,806,28rc
TOTS «.«««««««««««««««««««««««.17r,363,342 c
BSSN’
 ITH BSNK SN ON
 ST ’S SN HORT NOTI’

I. In India
i) Balances with banks
a) In current accounts.......................................................................... 7,rr9,863 c
b) In other deposit accounts ..................................................................... 36,4r6,rrr c
ii) Money at call and short notice
a) With banks ....................................................................................... ëc
b) With other institutions ...................................................................... c
TOTS.....................................................................................................44,016,418c
II. Outside India
i) In current accounts ............................................................................... 23,r61,910c
ii) In other deposit accounts .....................................................................28,407,146 c
iii) Money at call and short notice ...........................................................28,316,822 c
TOTS.....................................................................................................80,28r,878 c
TOTS ««««««««««««««««««««««««124,302,296
Total iquid Sssets 299,66r,638c

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c This ratio is declining for the INDIAN OVERSEAS BANKbank. If we look in
monetary terms, in 2008 liquid assets increased and in 2009 it decreased
significantly (80billion).
c We can say that recession affected the liquid condition of the bank significantly.
c Liquid assets have declined significantly (in monetary term) and total assets
also declined but not in same ratio as liquid assets, so liquid ratio declined very
sharply (.095 to .079).

¯overnment ecurities to Total Sssets:

Commercial Banks invest in government bills , bonds and other debt
instruments in order to meet liquid assets requirements, obtain a stable interest
income to offset other more volatile investments, manage their short term
liquidity, and take positions on the future movement of interest rates. Government
securities are the safest assets. Bank can sell them at any time to generate the
profit.

Government securities in India............................................................... 633,774,902

Government securities outside India............................................................ 9r3,347
Total ¯overnment ecurities 634728249
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c This ratio shows the proportion of Government Security in Total Assets. This is
the most liquid and safe security of the bank. Recession also put a drastic
impact on the investment of the bank. Government Security has declined over
the time and this ratio also has declined.
c Bank has to increase its investment in government security in order to maintain
liquidity in the system.
c While investing in G-Sec. bank consider its profitability as major point to be
considered, because profit and liquidity both have inverse relationship. If bank
invest more in G-Sec, they will get the liquidity but G-Sec give less return in
compare to lending, so profitability hampers.

iquid Sssets to emand eposits:

Demand deposits are those accounts with a financial institution such as a Bank or
union where you can withdraw funds in the account without notifying the account
provider in advance. Other types of demand deposits are excess balance from
minimum balance of saving accounts and money market accounts( although these
may have some restrictions).In contrast , time deposits like CDs (Certificate
deposits) don¶t allow you to withdraw funds until the CD reaches maturity( or at
least not without incurring interest penalties and fees).A Bank has always has to
have sufficient funds on hand to meet the demand. But banks also use some of
this money to make loans .A bank has to maintain a certain ratio of cash on hand to
meet out the high liquidity needs. In other words it is the ratio of liquid assets
(cash) to non liquid assets (working money, investments or loans)

emand deposits
i) From banks....................................................................................... 7,4rr,466 c
ii) From others...................................................................................... 208,861,406
Total Demand Deposits 216316872

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c This ratio indicates that in which proportion liquid assets are able to meet with
demand deposits. This ratio is very important for the bank because if a bank is
not able to meet with its demand liabilities with its liquid assets, it give a
negative impact of bank¶s financial condition in the customers mind.
c Over the time this ratio is declining. Both, liquid assets and demand deposits are
declining.
c Due to which this ratio is declining very sharply.
c But this ratio is still more than 1. This is a good sign for the bank, because this
indicates that liquid assets are still able to meet with demand liabilities.

iquid Sssets to Total eposits:

Total deposits are the sum of Demand deposits and fixed deposits of a bank. A
high level of liquid assets will enable a bank to withstand a temporary loss of
confidence on the part of its depositors.
I. Demand deposits
i) From banks....................................................................................... 7,4rr,466 c
ii) From others...................................................................................... 208,861,406 c
II. Savings bank deposits....................................................................... 410,361,4rrc
III. Term deposits
i) From banks....................................................................................... 1r8,017,816 c
ii) From others................................................................................... 1,398,782,106 c
TOTS
aOIT.......................................................................... 2,183,478,249 c
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c Total deposits include both demand and time liabilities of the bank.

c This ratio shows that how liquid assets of a bank are able to meet with total
liabilities.

c Over the time this ratio is also declining. It means that banks efficiency to
meet with liabilities is decreasing. Liquid condition of the bank is facing a
downfall. Bank has to work in this direction.

c So if we see the overall liquid condition of the bank, we can see from the table
that liquidity in the assets is decreasing. All the measures i.e. Liquid Assets,
G-Sec, Demand Deposits, Total Deposits and Total Assets are decreasing in
FY 2009.

NITIIT TO SRK
T RIK:-
It refers to the risk that changes in market conditions can impact earnings
and capital. INISN O
R
S BSNKbank has beta of 1.r6
Market Risk encompasses exposures associated with changes
c Interest rates
c Foreign exchange rates
c Commodity prices
c Equity prices, etc.
While all of these items are important, the primary risk in most banks
is interest rate risk (IRR).
Sensitivity analysis reflects institution¶s exposure to interest rate risk,
foreign exchange volatility and equity price risks. Risk sensitivity is mostly
evaluated in terms of management¶s ability to monitor and control market risk.
Banks are increasingly involved in diversified operations, all of which are
subject to market risk, particularly in the setting of interest rates and the carrying
out of foreign exchange transactions. In countries that allow banks to make trades
in stock markets or commodity exchanges, there is also a need to monitor
indicators of equity and commodity price risk.
Business activities entail a variety of risks:-
c Liquidity risk
c Market risk
c Credit risk
c Operational risk

iquidity Risk
Liquidity risk is financial risk due to uncertain liquidity. An institution might
lose liquidity if its credit rating falls, it experiences sudden unexpected cash
outflows, or some other event causes counterparties to avoid trading with or
lending to the institution. A firm is also exposed to liquidity risk if markets on
which it depends are subject to loss of liquidity.
Liquidity risk tends to compound other risks. If a trading organization has a
position in an illiquid asset, its limited ability to liquidate that position at short
notice will compound its market risk.
Liquidity risk compounds other risks, such as market risk and credit risk. It
cannot be divorced from the risks it compounds.

arket Risk
There is a difference between market risk and business risk. Market risk is
exposure to the uncertain market value of a portfolio. Business risk is exposure to
uncertainty in economic value that cannot be marked-to market.
Market risk is the possibility of loss arising from changes in the value of a
financial instrument as a result of changes in market variables such as interest
rates, exchange rates, credit spreads and other asset prices.

’redit Risk
` Credit risk is the risk that a borrower is unable to meet its financial
obligations to the lender.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems or from external events. It includes legal
risk but excludes strategic and reputation risks.

INISN O
R
S BSNKto control over these risks

Risk management strategy for INDIAN OVERSEAS BANKis based on a clear
understanding of various risks, disciplined risk assessment and measurement
procedures and continuous monitoring. The policies and procedures established for
this purpose are continuously benchmarked with international best practices.
’redit Risk
All credit risk related aspects within the Bank are governed by the Credit
and Recovery Policy (Credit Policy). The Credit Policy outlines the type of
products that can be offered, customer categories, target customer profile, credit
approval process and limits. The Credit Policy is approved by the Board of
Directors.
INDIAN OVERSEAS BANKmeasure, monitor and manage credit risk for
each borrower and also at the portfolio level. In order to assess the credit risk
associated with any financing proposal, they assess a variety of risks relating to the
borrower and the relevant industry. INDIAN OVERSEAS BANKhave a structured
and standardized credit approval process which includes a well-established
procedure of comprehensive credit appraisal and credit rating. INDIAN
OVERSEAS BANKhave developed internal credit rating methodologies for rating
obligors.
arket Risk
Exposure of INDIAN OVERSEAS BANKto market risk is a function of their
trading and asset-liability management activities and their role as a financial
intermediary in customer-related transactions. The objective of market risk
management is to minimize the losses on earnings and equity capital due to market
risk.
Market risk policies include the Investment Policy and the Asset-Liability
Management (ALM) Policy. The policies are approved by the Board of Directors.
The Asset-Liability Management Committee (ALCO) stipulates liquidity and
interest rate risk limits, monitors adherence to limits, articulates the organization¶s
interest rate view and determines the strategy in light of the current and expected
environment.
Interest rate risk is measured through the use of re-pricing gap analysis and
duration analysis.
iquidity risk is measured through gap analysis. INDIAN OVERSEAS
BANKensure adequate liquidity at all times through systematic funds planning and
maintenance of liquid investments as well as by focusing on more stable funding
sources such as retail deposits in the long-term.

Operational Risk
Operational risks in the Bank are managed through a comprehensive internal
control framework. The control framework is designed based on categorization of
all functions into front-office, comprising business groups; mid-office, comprising
credit and treasury mid-offices; back-office, comprising operations; and corporate
and support functions.
 
 $*-6(%(cc
Return on Equity (ROE). The system uses three financial ratios to express the
ROE: Profit Margin , Asset Turnover Ratio (ATR), and Equity Multiplier (EM).


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c INDIAN OVERSEAS BANKbank is sound in capital structure and its
management is very effective.
c Assets utilization and income from operations are up to the mark.
c Interest income, deposits, loan and advances these are the core area for a bank.
c INDIAN OVERSEAS BANKis still no. 11 public bank in India and doing a
good job.
c INDIAN OVERSEAS BANKwill set up various new branches this year. One
and half years ago it had 750 branches and one year from now, once it will open
these 580 branches, it will have 2,000 branches.
c So we can see that it is expanding its business in India with a rapid growth.
Investors still have their believe in INDIAN OVERSEAS BANK.