Financial Analysis of banking sector of India

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

To compare the financial position with the help of Balance Sheet and Profit and Loss Account
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

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	3.16	4.16

Interpretation

Bank balance and money at call and short notice of ICICI bank in highest proportion.The proportion of HDFDC bank shows increased trend.

Investment to Total Assets

Year	Name of Bank
	Axis	HDFC	ICICI
2010-11	29.66	25.57	33.15
2011-12	32.62	28.84	33.68
2012-13	33.39	27.21	31.92

Interpretation

Investment of HDFC bank in these three years was less than Axis bank and ICICI bank. It is also seen that Investment of Axis bank consistently increases but this is not so to HDFC bank and ICICI bank.

Advances to Total Assets

Year	Name of Bank
	Axis	HDFC	ICICI
2010-11	58.67	57.68	53.26
2011-12	59.43	57.83	53.56
2012-13	57.83	60.64	54.07

Interpretation

Advances given by the ICICI bank was less than Axis bank and HDFC bank. Advances given by HDFC bank and ICICI bank clearly shows increased trend but this is not so as to Axis bank.

Fixed Assets to Total Assets

Year	Name of Bank
	Axis	HDFC	ICICI
2010-11	0.99	0.78	1.167
2011-12	0.79	0.69	0.97
2012-13	0.69	0.68	0.86

Interpretation

Fixed Assets of ICICI bank was more than Axis bank and HDFC bank, however fixed assets of these banks decreased consistently.

Other Assets to Total Assets

Year	Name of Bank
	Axis	HDFC	ICICI
2010-11	1.90	5.26	4.02
2011-12	2.26	6.42	4.12
2012-13	2.07	4.71	5.41

Interpretation

Other Assets of HDFC bank in higher proportion in first two years but this is decreased in last year. Other Assets of ICICI bank continuously increases

Interest Earned to Total Income

Year	Name of Bank
	Axis	HDFC	ICICI
2010-11	76.58	82.13	79.62
2011-12	80.22	83.88	81.72
2012-13	80.57	83.40	82.76

Interpretation

Interest income of HDFC bank was more than Axis bank and ICICI bank, however Interest income of Axis bank and ICICI bank shows increased trend.

Other Income to Total Income

Year	Name of Bank
	Axis	HDFC	ICICI
2010-11	23.41	17.87	20.38
2011-12	19.77	16.12	18.27
2012-13	19.42	16.59	17.23

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