Presented by 9164 – Jenovah Carl Fernandes 9117 – Ashwini Jadhav 9108 – Amit Bhamare 1

Balance Sheet Of A bank 2

 A Snap Shot  A photograph of financial worth of the concern at certain time.  The study of the balance sheet reveal whether the business of the bank is healthy and growing and has a promising future or not 3 What is Balance Sheet

 Liquid Assets  Loans  Marketable Securities  Investment Securities  Fixed Assets  Accrued Interest  Other Assets  Total Assets 4

 Cash included cash in hand and RBI including foreign currencies and balances with other banks.  Cash is kept in hand by the banks to meet the demand and obligation of the customer.  Cash is the primary reserve or first line of defense against depositors

 The banks advance short term loans to their customers.  These loans are advanced on a normal interest with the promise that these will be returned to the bank on short notice  The amount advanced for short period is called money at call and at short notice and is regarded.

 The bank invest funds in the govt. securities.  bonds, gold or other profitable commodities or instrument for short and long term investment  The investment in these items are quite liquid and profit yielding

 The advances includes loans, cash credits, overdrafts, bills discounted.  Advances are the largest items on the assets side of the commercial bank.  These advances have high yield but low liquidity

 Deposits  Bank Borrowings  Accrued Expenses  Other Liabilities  Shareholder’s Equity  Total Liabilities 9

Fixed deposits and saving,etc Liabilities – Borrowing  This is the amount which the bank borrows from RBI.  Loans may be obtained against securities.

 Share Capital  Reserves  Retained Earnings  Revaluation Surplus  Share Premiums  Net Income  Total S/H Equity 11

 The bank raises capital from its shareholder and the sale of ordinary shares. Reserves  This is the amount which is accumulated over the years out of net undistributed profit.

 That tries to give maximum profit to the shareholders.  That lends rationally.  That give security to their depositors

 Interest Rates  Interest Sensitivity  Due Dates  Foreign Currency breakdown  Collateral 14

 C AMEL  This system was adopted in India since 1995  Under this system the rating of individual banks is done along five key parameters.  Each of the five dimensions of performance is rated on a scale of 1 to 5, varying from fundamentally strong bank to fundamentally weak bank. 15

 Capital Adequacy  Asset Quality  Management  Earnings  Liquidity 16

17 RATIO ANALYSIS RATIO ANALYSIS

RATIO ANALYSIS CAPITAL ADEQUACY  “The Capital of a Bank protects the Bank against unexpected future losses.” 18

CAPITAL ADEQUACY  1. Is level of capital high enough ?  2. Is capital growing proportionate to assets ?  3. Can additional debt be raised if needed  4. Is there pressure to pay high dividends CHECKLIST CAPITAL ADEQUACY CHECKLIST CAPITAL ADEQUACY 19

 1. Shareholders’ Equity Total Assets  The ability of the present Capital to support the further growth of Assets 20 RATIO ANALYSIS CAPITAL ADEQUACY

 2. Shareholders’ Equity Risk Weighted Assets 21 RATIO ANALYSIS CAPITAL ADEQUACY

 TIER ONE CAPITAL: Which can absorb losses without a bank being required to cease trading Tier I Capital = Ordinary Capital+Retained Earnings& Share Premium - Intangible assets 22

 TIER TWO CAPITAL : Which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.  Tier II Capital = Undisclosed Reserves+General Bad Debt Provision+ Revaluation Reserve + Subordinate debt+ Redeemable Preference shares 23

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4.  Total Debt Shareholder’s Equity  The ability to raise additional Debt Capital 27 RATIO ANALYSIS CAPITAL ADEQUACY

5. Financial Leverage :  Total Assets Shareholder’s Equity 28 RATIO ANALYSIS CAPITAL ADEQUACY

6. Capital Formation Rate :  Retained Net Income (RNI) Average Shareholder’s Equity  RNI = Net Income - Dividends to be paid  The internal growth of Equity Capital 29 RATIO ANALYSIS CAPITAL ADEQUACY

 Minimum requirements of capital fund in India: * Existing Banks 09 % * New Private Sector Banks 10 % * Banks undertaking Insurance business 10 % * Local Area Banks 15% 30

 Asset quality is another important aspect of the evaluation of a bank’s performance under the Reserve Bank of India guidelines.  Bank managers are concerned with the quality of their loans since that provides earnings for the bank. Loan quality and asset quality are two terms with basically the same meaning. ASSET QUALITY ASSET QUALITY 31

ASSET QUALITY  1. Are net charge - off s reasonable ?  2. Is management slow to charge off loans?  3. Is loan growth reasonable ?  4. Is loan loss reserve level adequate ?  5. Do earnings comfortably cover loan losses ? 32

1. Loans Total Assets 33 RATIO ANALYSIS ASSET QUALITY

2. Non Performing Loans = a) Loans past due more than 90 days b) Loans not accruing interest c) Loans with low interest rates d) Loans on which repayment terms have been renegotiated. 34 RATIO ANALYSIS ASSET QUALITY RATIO ANALYSIS ASSET QUALITY

3. Non Performing Loans Total Loans  Indicates how much of the loan portfolio is non performing. 35 RATIO ANALYSIS ASSET QUALITY

4. Reserves for Non Performing Loans Non Performing Loans  Indicates the ability of the loan loss reserve to absorb potential losses from currently non performing loans. 36 RATIO ANALYSIS ASSET QUALITY

5. Loan Loss Provision Average Loans  Shows current income reduction in anticipation of loan losses. 37 RATIO ANALISIS ASSET QUALITY

6. Interest Earning Assets Total Assets 7. Non Interest Earning Assets Total Assets 38 RATIO ANALISIS ASSET QUALITY

A bank can not sustain itself long without a positive cash flow. Earnings are essential to : 1.Absorb loan losses 2.Finance internal growth of capital 3.Attract investors to supply capital

EARNINGS  1. Are earnings at an adequate level ?  2. Does valid reporting exist for earnings? CHECKLIST EARNINGS CHECKLIST EARNINGS

IF POOR, ASCRIBABLE TO :  1. Low asset yield  2. High cost of funds  3. Inadequate non interest income  4. High loan charge off s  5. High loan loss provisions  6. Mismanaging taxes  7. High overhead costs CHECKLIST EARNINGS CHECKLIST EARNINGS

IF STRONG, ASCRIBABLE TO :  1. Strong asset yield  2. Low cost of funds  3. Adequate non - interest income  4. High loan charge off s  5. High loan loss provisions  6. Adequate taxes  7. Low overhead costs CHECKLIST EARNINGS

1. Return on Assets ( ROA ) Net Income Total Average Assets 2. Return on Equity ( ROE ) Net Income Average Shareholder’s Equity RATIO ANALYSIS EARNINGS & EFFICIENCY

3. Net interest margin net interest Income Average Interest Earning Assets 4. Net non interest income Non interest income- non interest expenses Total average assets RATIO ANALYSIS EARNINGS & EFFICIENCY

5. Operating expense ratio Total Operating Expense Total Operating Income 6. Efficiency Ratio Non Interest Expense Net total income RATIO ANALYSIS EARNINGS & EFFICIENCY

10. Interest Rate Sensitivity Gap : Interest Rate Sensitive Assets (-) Interest Rate Sensitive Liabilities 11. Interest Rate Sensitivity Gap Ratio : Interest Rate Sensitive Assets Interest Rate Sensitive Liabilities RATIO ANALYSIS EARNINGS & EFFICIENCY

A class of financial metrics that is used to determine a bank's ability to pay off its short- terms debts obligations.

 LIQUIDITY  1. Is bank dependent on bought money ?  2. Is core deposit growth proportionate to asset growth ?  4. Is volatile funds significant to assets? CHECKLIST LIQUIDITY CHECKLIST LIQUIDITY

1.Loan- deposit ratio Loans Deposits 2.Liquid assets ratio Liquid Assets Deposits RATIO ANALYSIS LIQUIDITY

3. Liquid Assets Large Liabilities Measures the assets readily available to cover a loss of large liabilities. RATIO ANALYSIS LIQUIDITY

5. Core Deposits Earning Assets Indicates the extend to which earning assets are funded by those deposits considered stable and not subject to interest rate disintermediation. RATIO ANALYSIS LIQUIDITY

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