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Financial Analysis of banking sector of India

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Published: Thu, 28 Sep 2017

Financial Analysis of banking sector of India: Special Reference to Private Sector Banks

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. This paper is try to present all the components of balance sheet and profit and loss account in common size and analyze the individual item in Balance Sheet & Profit & Loss A/c as compare to total liabilities/Assets/Income/Expenditure.

Objectives

  1. To compare the financial position with the help of Balance Sheet and Profit and Loss Account
  2. To compare the financial performance through a common-size financial statement.

Introduction

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 Common size statement analysis, funds flow analysis, cash flow analysis, Common size/ comparative statement analysis, etc. Here I have done financial analysis by Common size financial statement analysis. Common size financial statement analysis, also called vertical analysis, is just one technique that financial managers use to analyze their financial statements. It is not another type of income statement. It is just a tool that is used to analyze the income statement and position statement. With the use of this method of common-size financial statements, the comparisons between the financial statements of different companies become easy. In this method, each of figures in the financial statements are reported in the form of percentage. This percentage is the figure of one frequent base figure. This base figure determines the percentile of all the figures in the common-size financial statements. By using this method, it is easy to compare the financial statements of the same company from different periods or comparing the companies of different size. Due to this method, the bias between the company sizes is removed, and investor can effectively compare the financial statements. The selection of base figure depends on the financial statements’ head. In income statements, the revenue can be selected as the base figure and all the incomes and expenses can be measured against it.

Moreover, in the balance sheet of the company, all the related items are divided by the total of their items. For example, if the investor wants to find out the percentage of the inventory in balance sheet, he or she will have to divide the figure of inventory with the total assets.

Methodology

For the purpose of this study individual item of balance sheet converted into common size i.e.in 100 for this purpose an individual item in balance sheet divided by total assets/total liabilities and converted into 100.This is also to profit and loss account i.e. individual item in profit and loss account divided by total income/total expenditure and converted into100.For this analysis three years Balance Sheet and Profit and loss account of top three private banks viz.ICICI bank,HDFC bank and Axis bank was analyzed.

Balance Sheets as on 31st March 2011

Capital and Liabilities

Axis(Rs.000)

 

HDFC(Rs.000)

 

ICICI(Rs.000)

 

Capital

4,105,458

0.169

4,652,257

0.167

11521129

0.283

Reserves and Surplus

185,882,797

7.658

249140426

8.982

539,388,244

13.277

Deposits

1,892,378,010

77.967

2,085,864,054

75.206

2,256,021,077

55.535

Borrowings

262,678,824

10.822

143,940,610

5.189

1,095,542,771

26.968

Other Liabilities and Provisions

82,088,627

3.382

289,928,565

10.453

159,863,467

3.935

Total

2,427,133,716

100

2,773,525,912

100

4,062,336,688

100

Assets

 

Cash and Balance with RBI

138,861,630

5.721

251,008,158

9.050

209,069,703

5.146

Balance with Banks and Money at call and Short Notice

75,224,929

3.099

45,680,191

1.647

131,831,128

3.245

Investments

719,916,208

29.661

709,293,656

25.573

1,346,859,630

33.154

Advances

1,424,078,286

58.673

1,599,826,654

57.682

2,163,659,014

53.26

Fixed Assets

22,731,456

0.936

21,706,480

0.782

47,442,551

1.167

Other Assets

46,321,207

1.908

146,010,773

5.264

163,474,662

4.024

Total

2,427,133,716

100

2,773,525,912

100

4,062,336,688

100

             
 

Axis(Rs.000)

 

HDFC(Rs.000)

 

ICICI(Rs.000)

 

Income

           

Interest Earned

151,548,058

76.589

199,282,122

82.13

259,740,528

79.62

Other Income

46,321,338

23.410

43,351,527

17.87

66,478,925

20.38

Total

197,869,396

100

242,633,649

100

326,219,453

100

Expenditure

           

Interest Expended

85,918,230

52.394

93,850,839

46.15

169,571,515

61.728

Operating Expenses

47,794,281

29.145

71,529,141

35.171

66,172,492

24.088

Provision and Contingencies

30,271,979

18.460

37,989,660

18.680

38,961,684

14.183

Total

163,984,490

100

203,369,640

100

274,705,691

100

Profit & Loss Account for the year ended 31st March 2011

Balance Sheets as on 31st March 2012

Capital and Liabilities

Axis(Rs.000)

 

HDFC(Rs.000)

 

ICICI(Rs.000)

 

Capital

4,132,039

0.144

4,693,377

0.138

11551537

0.243

Reserves and Surplus

223,953,384

7.840

294,553378

8.716

592,500,885

12.509

Deposits

2,201,043,033

77.059

2,467,064,459

73.00

2,554,999,561

53.94

Borrowings

340,716,721

11.928

238,465,086

7.057

1,401,649,073

29.592

Other Liabilities and Provisions

86,432,757

3.026

374,318,690

11.077

175,769,846

3.710

Total

2,856,277,934

100

3,379,094,990

100

4,736,470,902

100

Assets

 

Cash and Balance with RBI

107,029,214

3.747

149,910,945

4.436

204,612,935

4.319

Balance with Banks and Money at call and Short Notice

32,309,943

1.131

59,466,318

1.759

157,680,199

3.329

Investments

931,920,859

32.627

974,829,094

28.848

1,595,600,430

33.687

Advances

1,697,595,386

59.433

1,954,200,292

57.83

2,537,276,579

53.568

Fixed Assets

22,593,250

0.791

23,471,940

0.694

46,146,870

0.974

Other Assets

64,829,282

2.269

217,216,401

6.428

195,153,889

4.120

Total

2,856,277,934

100

3,379,094,990

100

4,736,470,902

100

               

Profit & Loss Account for the year ended 31st March 2012

 

Axis(Rs.000)

 

HDFC(Rs.000)

 

ICICI(Rs.000)

 

Income

           

Interest Earned

219,946,474

80.228

272,863,517

83.880

335,426,522

81.720

Other Income

54,202,163

19.771

52,436,949

16.12

75,027,598

18.279

Total

274,148,637

100

325,300,466

100

410,454,120

100

Expenditure

 

Interest Expended

139,769,024

60.316

149,895,780

54.78

228,084,964

65.958

Operating Expenses

60,070,995

25.923

85,900,571

31.393

78,504,433

22.702

Provision and Contingencies

31,886,564

13.760

37,833,208

13.826

39,212,151

11.339

Total

231,726,583

100

273,629,559

100

345,801,548

100

               

Balance Sheets as on 31st March 2013

Capital and Liabilities

Axis(Rs.000)

 

HDFC(Rs.000)

 

ICICI(Rs.000)

 

Capital

4,679,545

0.137

4,758,838

0.117

11581197

0.216

Reserves and Surplus

326,399,054

9.584

363881809

8.925

655,478,392

12.211

Deposits

2,526,135,881

74.176

2,960,917,699

72.621

2,926,136,257

54.511

Borrowings

439,510,984

12.906

394,966,127

9.687

1,453,414,944

27.076

Other Liabilities and Provisions

108,881,120

3.197

352,705,377

8.651

321,336,021

5.986

Total

3,405,606,584

100

4,077,229,850

100

5,367,946,811

100

Assets

 

Cash and Balance with RBI

147,920,883

4.343

146,308,790

3.588

190,527,309

3.549

Balance with Banks and Money at call and Short Notice

56,428,716

1.656

129,002,845

3.164

223,647,879

4.166

Investments

1,137,375,370

33.397

1,109,604,124

27.214

1,713,935,993

31.929

Advances

1,969,659,574

57.835

2,472,451,151

60.640

2,902,494,351

54.07

Fixed Assets

23,556,420

0.691

27,733,162

0.680

46,470,587

0.865

Other Assets

70,665,621

2.074

192,129,778

4.712

290,870,692

5.418

Total

3,405,606,584

100

4,077,229,850

100

5,367,946,811

100

             

Profit & Loss Account for the year ended 31st March 2013

 

Axis(Rs.000)

 

HDFC(Rs.000)

 

ICICI(Rs.000)

 

Income

           

Interest Earned

271,825,744

80.579

358,610,213

83.409

400,755,969

82.764

Other Income

65,511,063

19.420

71,329,645

16.590

83,457,012

17.235

Total

337,336,807

100

429,939,858

100

484,212,981

100

Expenditure

           

Interest Expended

175,163,111

61.343

196,954,474

54.567

262,091,848

65.366

Operating Expenses

69,142,375

24.214

115,518,963

32.005

90,128,837

22.478

Provision and Contingencies

41,236,992

14.441

48,463,621

13.427

48,737,569

12.155

Total

285,542,478

100

360,937,058

100

400,958,254

100

Capital to Total Liabilities

Year

Name of Bank

 

Axis

HDFC

ICICI

2010-11

0.16

0.16

0.28

2011-12

0.14

0.13

0.24

2012-13

0.13

0.11

0.21

       

Interpretation

Capital Common size statement of ICICI Bank was more than Axis Bank & HDFC Bank in these three years. It is also seen that in all these three years Capital Common size statement of these banks were decreased consistently.

Reserve and surplus to Total Liabilities

Year

Name of Bank

 

Axis

HDFC

ICICI

2010-11

7.68

8.98

13.27

2011-12

7.84

8.71

12.50

2012-13

9.58

8.92

12.21

       

Interpretation

Common size statement of Accumulated Reserve and Surplus of ICICI Bank was more than Axis Bank & HDFC Bank, but this Common size statement consistently decreases. This Common size statement of Axis bank consistently increases.

Deposits to Total Liabilities

Year

Name of Bank

 

Axis

HDFC

ICICI

2010-11

77.96

75.20

55.53

2011-12

77.05

73.00

53.94

2012-13

74.17

72.62

54.51

       

Interpretation

Deposit Common size statement Axis bank was more than HDFC & ICICI bank; however this Common size statement of Axis bank and HDFC bank consistently decreases.

Borrowings to Total Liabilities

Year

Name of Bank

 

Axis

HDFC

ICICI

2010-11

10.82

5.18

26.96

2011-12

11.92

7.05

29.59

2012-13

12.90

9.68

27.07

       

Interpretation

As regards to borrowings, ICICI bank has more borrowings than Axis bank and HDFC bank, it is also depicts that borrowings of Axis bank and HDFC bank consistently increases.

Other liabilities & Provisions to Total Liabilities

Year

Name of Bank

 

Axis

HDFC

ICICI

2010-11

3.38

10.45

3.93

2011-12

3.02

11.07

3.71

2012-13

3.19

8.65

5.98

       

Interpretation

Other liabilities and provisions of HDFC bank was more than Axis bank and ICICI bank and it is upto10% on an average, however the axis bank & ICICI bank maintains this Common size statement upto 3% on an average.

Cash & Balances with RBI to Total Assets

Year

Name of Bank

 

Axis

HDFC

ICICI

2010-11

5.72

9.05

5.14

2011-12

3.74

4.43

4.31

2012-13

4.34

3.58

3.54

       

Interpretation

Cash balance of HDFC bank in year 2010-11 was in highest Common size statement. Cash balance of HDFC bank and ICICI bank continuously decreases.

Balance with Banks and Money at call and Short Notice to Total Assets

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Year

Name of Bank

 

Axis

HDFC

ICICI

2010-11

3.09

1.64

3.24

2011-12

1.13

1.79

3.32

2012-13

1.65