bank financials 2011

8/12/2019 Bank Financials 2011

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Banks Financials@

S.Krishnamoorthy: [email protected], Cell:9821461488

@Source Data Acknowledgement: RBI & Various Internet Sources
mailto:[email protected]:[email protected]


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RBI Act 1934 governs the Reserve Bank functions

Banking Regulation Act, 1949 governs the financial sector

Public Debt Act, 1944/ Government Securities Act governs government debt market

Securities Contract (Regulation) Act, 1956 regulates government securities market

Indian Coinage Act, 1906 governs currency and coins

Foreign Exchange Management Act,1999 [previously Foreign Exchange Regulation Act,

1973] governs trade and foreign exchange market

Companies Act, 1956 governs banks as companies

Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980 relatesto nationalization of banks

Bankers' Books Evidence Act

Banking Secrecy Act

Negotiable Instruments Act, 1881

Acts and Regulations Governing Banks and Financial Sector


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State Bank of India Act, 1954

The Industrial Development Bank (Transfer of Undertaking and Repeal) Act,2003

The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993

National Bank for Agriculture and Rural Development [NABARD] Act

National Housing Bank Act

Deposit Insurance and Credit Guarantee Corporation Act

SARFAESI Act,2002- Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act

Prevention of Money Laundering Act,2002

Government Securities Act,2006 and The Government Securities Regulation Act 3

2007

Payment and Settlement Systems Act, 2007

Acts and Regulations Governing Banks and Financial Sector


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Liquidity Adjustment Facility [ LAF ] with Repo and Reverse Repo

Changes in Repo and Reverse Repo rates

Changes in SLR and CRR rates

Special liquidity facility

Marginal Standing Facility at 1% over Repo rate

Issuance of T-bills for managing liquidity and for funding government

Open Market Operations [ OMO] issuance of G-Secs

Borrowing and floating stock of bonds

Issuance of bonds on Tap to manage borrowing, liquidity

Tools with RBI to manage Financial Markets


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Tools with RBI to manage Financial Markets

Issue of G-sec thru yield based / price based auctions to manage interest

rate scenario

When issued bonds

Changes in Bank Rate & quantum of funding for refinance facility

Changes in interest rates on NRI and Fx currency deposits

Changes in rules on ECB and FCCB

Monetary Stabilization System [ MSS ] Bonds for sterilizing forex flows andmanaging liquidity

Buy-sell or Sell-buy Forex swaps


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Prudential norms refers to ideal/ responsible norms to be maintained by banks

In line wit the international practices and as per the recommendations made bythe Committee on the Financial System (Chairman M. Narasimham), the RBI

has introduced, in a phased manner, prudential norms so as to move

towards greater consistency and transparency in the published accounts

The prudential norms, inter-alia, relates to

Capital adequacy

Asset classification

Provisioning for assets

Income recognition

Classification, valuation and operation of investment portfolios

Provision for investment fluctuation reserve

Capital market exposures

Restructuring of advances by banks

Prudential Norms for Banks


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Prudential Norms for Banks

The basic premise of these norms, inter-alia, areThe policy of income recognition should be objective and based on record of recovery

rather than on any subjective considerations

The classification of assets of banks has to be done on the basis of objective criteria which

which would ensure a uniform and consistent application of the norms

The provisioning should be made on the basis of the classification of assets based on the

period for which the asset has remained nonperforming and the availability of security and

the realizable value thereof

Banks are to ensure that while granting loans and advances, realistic repayment

schedules may be fixed on the basis of cash flows with borrowers to facilitate prompt

repayment by the borrowers and thus improve the record of recovery in advances

With the introduction of prudential norms, the Health Code-based system for classificationof advances has ceased to be a subject of supervisory interest

As such, all related reporting requirements, etc. under the Health Code system also cease

to be a supervisory requirement

Banks may, however, continue the system at their discretion as a management information

tool


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It 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 most simple 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 CARto protect

depositors, thereby maintaining confidence in the banking system

CAR is similar to leverage and in the most basic formulation, it is comparable

to the inverse of debt to equity leverage formula

CAR uses equity over assets instead of debt to equity

Unlike traditional leverage , CAR recognizes that assets can have different levels

of risk

Capital adequacy ratio [CAR]


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CARalso called CR (Weighted)AR

It is the ratio of a banks capital to its riskNational regulators track a banks CAR/CRARto ensure that it can absorb

a reasonable amount of loss

Risk Weighting:

Since different types of assets have different risk profiles, CAR primarilyadjusts for assets that are less risky by allowing banks to "discount" lower-

risk assets

The specifics of CAR calculation vary from country to country, but general

approaches tend to be similar for countries that apply the Basel Accords

In the most basic application, Govt. debt is allowed a 0% "risk weighting"

that is, they are subtracted from total assets for purposes of calculating

the CAR

Capital to Risk Assets Ratio [CRAR]


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Risk weighting:

Local Regulations establish that cash and Govt bonds have a 0% riskweighting

Residential mortgage loans have a 50% risk weighting

All other types of assets (loans to customers) have a 100% risk

weighting

Bank "A "has Assets totaling 100 units, consisting of:

Cash: 10 units

Govt. Bonds: 15 units

Mortgage Loans: 20 units

Other Loans: 50 units

Other Assets: 5 units

Bank "A"has deposits [Liability] of 95 units, all of which are deposits

By definition, Equity is equal to Assets minus Debt = 5 units

Risk Weighting of Assets


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Bank A's risk-weighted assets are calculated as follows:

Cash10 * 0% = 0Government bonds15 * 0% = 0

Mortgage loans20 * 50% =10

Other loans50 * 100% = 50

Other assets5 * 100% = 5

Total riskWeighted assets= 65

Equity [10095 ] = 5CAR (Equity/RWA) = 7.69%

Even though Bank "A"would appear to have a Debt : Equity ratio of 95:5, or

Equity to assets of only 5%, its CAR is substantially higher

It is considered less risky because some of its assets are less risky thanothers

Computation of Risk Weighting


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The Basel rules recognize that different types of equity are more important than

others

To recognize this, different adjustments are made:

Tier I Capital: Actual contributed equity plus retained earnings.

Tier 2 Capital: Preferred shares plus 50% of subordinated debt

Tier 3 Capital: Short term subordinated debt

Different minimum CAR ratios are applied:

Minimum Tier 1equity to risk-weighted assets may be 4%,

While minimum CAR including Tier 2 capital may be 8%.[RBI has

prescribed 9%]

There is usually a maximum of Tier 2 capital that may be "counted towards

CAR, depending on the jurisdiction

Basel Norms on Capital


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Tier 1 capital is the core measure of a bank's financial strength from a

regulator's point of view

It is the most reliable form of capital

It consists of the types of financial capital considered the most reliable,

liquid and primarily equity

Tier 2 capital is a measure of a bank's financial strength with regard to the

second most reliable forms of financial capital, from a regulator's point of view

T2 capital shall not exceed 100% of T1 capital

Tier 3 Capital is essentially short term sub-ordinate debt for the sole purpose of

meeting a proportion of the capital requirement for market risks [ it is not yet

allowed by RBI]



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Tier 1 Tier 2Permanent shareholders equity Undisclosed reserves

Perpetual non convertible prefrence shares Revaulation reserves [only 45%]

Disclosed reserves General provisions/general loan loss reservesInnovative capital instruments [not to

exceed 15% of T1]

Hybrid debt capital instruments [with

characteristics of equity and debt]

Subordinated term debt [ only 50% of T1]Redeemable cumulative preference shares

T2 capital not to exceed 100% of T1 capital

Basel's /RBI's Prescribed Instruments for Banks Capital



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Non performing Assets [NPA]

An asset including lease asset becomes non performing when it ceases to

generate income for the bankA NPA is a loan/advance where interest and /or installment of principal remain

overdue for more than 90 days in respect of the loan/advance

Income Recognition

The policy of income recognition has to objective and based on the record of

recoveryInternationally income from NPAs is not recognized on accrual basis but is

booked as income only when it is actually received . Therefore banks should not

charge and take to income account interest on any NPA

Other Prudential Norms


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Asset Classification

Banks are required to NPAs into following three categories based on the periodfor which the asset remained NP and realisability of dues

Substandard assets [which has remained NPA for 12 months]

Loss assets [asset considered as uncollectible, has little value other

than salvage value]

Provisioning Norms

The primary responsibility for making adequate provisions for diminution in the

value of loans , investment and other assets is that of the banks management

and statutory auditors

Loss assets: to be 100% written off

Doubtful assetsUpto 1 yr : 20% provision

1 to 3 yrs: 30% provision

3 yrs: 100% provision

Sub-Standarad assets: a general provision of 10% of total outstanding to

be made without making allowance for ECGC guarantees and other

securities available

Other Prudential Norms


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Padmanabhan committee on on-site supervision of banks recommended five points [A to

E] rating scale.RBI introduced international rating model CAMELS

CAMELS model is based on

Capital adequacy

Asset quality

Management

EarningLiquidity

Systems and controls

RBI annual on-site inspection of banks assess their financial health and evaluate their

performance based on above parameters

Based on findings of the inspection banks are assigned supervisory ratings based on the

CAMELS rating

OSMOS [Offsite Surveillance and Monitoring System] requires the banks to submit

detailed and structured information periodically on which basis RBI analyzes the health of

the banks

RBIs CAMELS & OSMOS


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ICICI Bank: Balance Sheet as at 31st March 2011 2010

Assets

Cash & Balances with RBI 20,907 27,514

Balance with Banks, Money at Call 13,183 11,359

Advances 216,366 181,206

Investments 134,686 120,893

Gross Block 9,107 7,114

Accumulated Depreciation 4,363 3,901

Net Block 4,744 3,213Capital Work In Progress 0 0

Other Assets 16,347 19,215

Total Assets 406,234 363,400

Amt in Rs Cr

Banks Balance Sheet: Assets


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ICICI Bank: Profit & Loss Account for the

year ended as at 31st March 2011 2010

IncomeInterest Earned 25,974 25,707

Other Income 7,109 7,292

Total Income 33,083 32,999

Expenditure

Interest expended 16,957 17,593

Employee Cost 2,817 1,926

Selling and Admin Expenses 3,785 6,056

Depreciation 562 620

Miscellaneous Expenses 3,810 2,780

Preoperative Exp Capitalised 0 0

Operating Expenses 8,594 10,222

Provisions & Contingencies 2,380 1,160

Total Expenses 27,932 28,974

Net Profit for the Year 5,151 4,025

Extraordionary Items -2 0

Profit brought forward 3,464 2,810

Total 8,614 6,835

Amt in Rs Cr

Banks Profit & Loss Account: Income


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ICICI Bank: Profit & Loss Account for the

year ended as at 31st March 2011 2010Dividend & Dividend Tax

Preference Dividend 0 0

Equity Dividend 1,613 1,338

Corporate Dividend Tax 202 164

Per share data (annualised)Earning Per Share (Rs) 45 36

Equity Dividend (%) 140 120

Book Value (Rs) 478 463

Appropriations

Transfer to Statutory Reserves 1,780 1,867

Transfer to Other Reserves 0 1

Proposed Dividend/Transfer to Govt 1,815 1,502

Balance c/f to Balance Sheet 5,018 3,464

Total 8,614 6,835

Amt in Rs Cr

Amt in Rs Cr

Banks Profit & Loss Account: Dividend & Appropriations


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ICICI Bank: Cash Flow Statement for the

year ended as at 31st March 2011 2010

Net Profit Before Tax 6,761 5,345

Net Cash From Operating Activities -6,909 1,869

Net Cash (used in)/from Investing

Activities -2,109 6,151

Net Cash (used in)/from Financing

Activities 4,283 1,383

Net (decrease)/increase In Cash and

Cash Equivalents -4,784 8,907

Opening Cash & Cash Equivalents 38,874 29,967

Closing Cash & Cash Equivalents 34,090 38,874

Amt in Rs Cr

Banks Cash Flow Statement


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ICICI Bank: Financial Ratios for the

financial years 2011 2010

Investment Valuation Ratios

Face Value 10 10

Dividend Per Share 14 12

Operating Profit Per Share (Rs) 64 50

Net Operating Profit Per Share (Rs) 281 294

Free Reserves Per Share (Rs) 358 357

Bonus in Equity Capital -- --

Interest Spread [Times] 4 6

Adjusted Cash Margin(%) 18 14

Net Profit Margin (%) 16 12

Return on Long Term Fund(%) 43 45Return on Net Worth(%) 9 8

Adjusted Return on Net Worth(%) 9 8

Return on Assets Excluding

Revaluations 478 463

Return on Assets Including

Revaluations 478 463

Profitability Ratios

Banks Financial Ratios


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ICICI Bank: Financial Ratios for the financial years 2011 2010

Management Efficiency Ratios

Interest Income / Total Funds 8 9

Net Interest Income / Total Funds 4 4

Non Interest Income / Total Funds -- 0

Interest Expended / Total Funds 4 5

Operating Expense / Total Funds 2 3

Profit Before Provisions / Total Funds 2 1

Net Profit / Total Funds 1 1

Loans Turnover 0 0

Total Income / Capital Employed(%) 8 9

Interest Expended / Capital Employed(%) 4 5

Total Assets Turnover Ratios 0 0Asset Turnover Ratio 4 5

Profit And Loss Account Ratios

Interest Expended / Interest Earned 65.29 68.44

Other Income / Total Income 0.02 0.92

Operating Expense / Total Income 24.81 29.05

Selling Distribution Cost Composition 0.94 0.72



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ICICI Bank: Financial Ratios for the

financial years 2011 2010

Balance Sheet RatiosCapital Adequacy Ratio 19.54 19.41

Advances / Loans Funds(%) 64.96 58.57

Credit Deposit Ratio 87.81 90.04

Investment Deposit Ratio 59.77 53.28

Cash Deposit Ratio 11.32 10.72

Total Debt to Owners Fund 4.1 3.91

Financial Charges Coverage Ratio 0.44 0.33

Financial Charges Coverage Ratio Post

Tax 1.34 1.26

Leverage Ratios

Current Ratio 0.11 0.14

Quick Ratio 15.86 14.7

Dividend Payout Ratio Net Profit 35.23 37.31

Dividend Payout Ratio Cash Profit 31.76 32.33

Earning Retention Ratio 64.49 61.4

Cash Earning Retention Ratio 68.01 66.7

AdjustedCash Flow Times 39.77 44.79

Cash Flow Indicator Ratios

Debt Coverage Ratios



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Banks Financial Performance Summary


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Banks Financial Performance Summary


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Banks Capital Adequacy


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Banks Priority Sector Advances


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Banks Credit Rating


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Banks Balance Sheet Schedules


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Banks P&L Schedules


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Banks Balance Sheet Schedule


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Banks P&L Schedules


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Banks Capital Computation


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Banks Business Ratios


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Banks Asset Liability Maturity Analysis


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Banks Lending Exposure

B k C h Fl St t t


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Banks Cash Flow Statement


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2.


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bank financials 2011

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