Credit Appraisal

BANKING

A REPORT
ON
FINANCIAL ANALYSIS
OF
ALLAHABAD BANK

SUBMITTED TO :- SUBMITTED BY :-
Mr. PUNEET DUBLISH ANKIT KAPOOR
DIVYA SHRIVASTVA
VIKRAM SHARMA
MAYANK VARSHNEY
NEHA SHARMA
SHARAD RAGHAV
DECLARATION

WE hereby declare that the Project work entitled A REPORT ON FINANCIAL ANALYSIS OF ALLAHABAD BANK submitted by us for the project work of banking during the Post Graduate Diploma in Management Program to Institute for Integrated Learning in Management, Greater Noida is our own original work and has not been submitted earlier either to IILM GSM or to any other Institution for the fulfillment of the requirement for any course of study. I also declare that no chapter of this manuscript in whole or in part is lifted and incorporated in this report from any earlier / other work done by me or others.

Place: GREATER NOIDA
Date: August 10, 2010 Signature of Student

ACKNOWLEDGEMENT
In order to complete a project like this, one needs intellectual nourishment, professional help and constant encouragements from many quarters.

At the onset we would like to extend my sincere gratitude to, IILM – Graduate School of Management, Greater Noida for providing me the opportunity to pursue our project work in banking subject. We earnestly acknowledge the opportunity provided by Mr. PUNEET DUBLISH to comprehend our project under his guiding influence.
He has not only provided me with his valuable inputs out of his experience but has also been a source of inspiration throughout our association with him.
We would take this opportunity to thank our Faculty for guiding us during the project and giving the inputs whenever necessary. We are indebted to him for not only facilitating us to take a meaningful project but also, providing the necessary academic and professional guidance right from the ???definition of the work content??? till date.
We owe my gratitude to our family and friends for their encouragement and co-operation from the start of the project unto the end.

INTRODUCTION
Allahabad Bank, which began operations in 1865, now has its head-quarters in? Kolkata. Currently the bank has 2278 branches across the country.[1]? The Chairman and Managing Director of the bank is Shri J P Dua. The bank has a branch in Hong Kong and a representative office in Shenzen. The banks internet banking is maintained by EBankWorks Team of TCS.

Listing Details |
Industry | Bank – Public ?  |
House | PSU ?  |
BSE Code | 532480 ?  |
NSE Symbol | ALBK ?  |
ISIN NO | INE428A01015 ?  |
Face Value | 10 ?  |
Listing | BSE,NSE ?  |
BSE Group | A ?  |
Indices | BSE200, BSE500, BSEPSU, MIDCAP , CNXMIDCAP, CNX500, MIDCAP50 |
Reuters Code | ALBK.BO ?  |
Bloomberg Code | ALBK IN |

CRITICAL FACTS
* 24 April 1865: A group of Europeans at Allahabad founded Allahabad Bank. Allahabad Bank is therefore now the oldest joint stock bank in India.
* 1920:? P & O Banking Corporation? acquired Allahabad Bank with a bid price of Rs.436 per share.
* 1927:? Chartered Bank of India, Australia and China? acquired P&O Bank. However, Chartered Bank continued to operate Allahabad Bank as a separate entity.
* 19 July 1969: The Government nationalized Allahabad Bank, together with 13 other banks.
* October 1989: Allahabad Bank acquired United Industrial Bank, a Calcutta-based bank that had been established in 1940.
* 1991: The Bank established AllBank Finance Ltd., a wholly owned? Merchant Banking? subsidiary.
* October 2002: Bank came out with an? Initial Public Offering? (IPO) of 10 crores of shares, each with a face value Rs.10 each. The IPO reduced the Governments shareholding to 71.16%.
* April 2005: Bank conducted a second public offering of 10 crores of shares, each with a face value Rs.10 and selling at a premium of Rs.72. This offering reduced the Governments ownership to 55.23%.
* June 2006:Bank opened its first office outside India when it opened a representative office in? Shenzen, China.
* February 2007: Bank opened its first overseas branch, in Hong Kong.
* March 2007: Banks business crossed Rs.1,00,000 crores mark.

EXECUTIVE SUMMARY

1.1 The distinguishing features of state-owned banks, whether agricultural, industrial or multipurpose are their dependence on Government and external donors for resources at concessional interest rates, availability of larger subsidy than non-public banks, offer of narrow range of financial services (for example, they do not accept demand deposits on a significant scale, do not provide money transfer services and do not have safe custody facilities) and political pressure to lend to risky or uncreditworthy borrowers with consequent default rates running high. They also have ready access to government resources generally at low cost. As a result, they feel little pressure to be operationally efficient, to strictly enforce loan recovery or to mobilize savings of rural populations. They serve generally as intermediaries between the Government and the rural sector instead of savers and borrowers.

1.2 Given their wider social responsibilities and the use governments make of them in carrying out macroeconomic policies (both of which are likely to conflict with profitability), it is unsatisfactory to assess their performance solely or even mainly in terms of earnings performance. In a private sector bank, profitability may be an acceptable way of assessing both efficiency and effectiveness but it is a very partial measure in a state-owned bank, whether agricultural or otherwise.

1.3 The degree of earnings in these banks is determined mainly by the margin between the funding costs and lending rates, which in turn are strongly influenced by the policies of the government. The capital of the bank is contributed by the government, and the central bank supplements this funding with low-cost funds to finance its lending business. These lower costs are designed to reduce the impact for higher costs and greater risks of agricultural lending on the ultimate profitability of the bank. Assessment of the banks performance in terms of earnings level may thus reveal more about government policy than about the banks own efficiency. Further, it ignores the wider economic and social responsibilities of the banks. It is therefore important to get away from the idea that it is possible to encapsulate an agricultural banks performance as a whole in a single figure of profitability. A variety of performance indicators would be necessary to reveal the different aspects of its performance. These indicators would be built around the concept of prudent banking.

1.4 Prudent banking, agricultural or otherwise, involves the development of
adequately diversified portfolios of loans and investments (which are generally the risk assets) through the avoidance of over-concentration, either geographically and/or by sector, in loan portfolios, and liabilities, on a large enough capital base, and with sufficient liquidity to ensure the protection of depositors and investors and an adequate supply of funds to borrowers and profits to investors.

1.5 This paper is intended to provide an improved analytical framework to present the different aspects of performance. The framework divides the analysis into five different but interrelated aspects of the health of the institution, and uses a time-series to analyse any positive or negative trends. The five divisions are:
(i) Deposit mobilization which is central to the success of a financial institution. It provides independence from the political pressures associated with government funding. Apart from contributing to sustainability and mobilization of investment resources, deposits provide security to depositors against future adversities and help build financial discipline and creditworthiness of individuals (regular transactions build up a lender-borrower history, and
accumulated deposits can be used to support loans).
(ii) Quality of lending which focuses on the most critical part of the banks financial analysis and requires uniform supplementary data usually not provided in the published accounts. The main points to be reviewed are access to formal credit, risk concentration, portfolio classification, interest accrual and provision for loan losses.
(iii) Capital adequacy analysis which determines the quality of assets and the adequacy of provisions since any overvaluation of assets or shortfalls in loan loss provisions will overstate capital. It expresses capital as a percentage of total risk-weighted assets and shows the margin of protection available to both depositors and creditors against unanticipated losses that may be experienced by the bank.

(iv) Liquidity analysis which quantifies the ability of the banks to meet debts as they fall due. This ability depends not only on the extent of conversion of assets without loss but also on the banks ability to raise loans in the market to meet debts, that is the broader aspects of asset and liability management.

(v) Earnings performance analysis which determines if the banks operation is generating adequate returns on the assets and equity. As most of the agricultural banks are in the public sector, the analyst may not generally pay much attention to return on equity. Considering the emerging trends towards privatisation, however, it is appropriate to introduce emphasis on return on equity.

1.6 For the purpose of a banks financial analysis, it is important to use a consistent framework for developing its performance indicators. The analytical Financial Analysis of Banking Institutions framework normally used in this process is a set of financial accounts. Financial statements are therefore the starting point of bank financial appraisal. The term
financial statements refers to balance sheets, profit and loss (or income) statements, cash flow statements and other statements and material which collectively are intended to give a true and fair view of the financial position and results of operations of a bank. A true and fair view implies appropriate classification and grouping of the items in the financial statements. It also implies the consistent application of generally accepted accounting principles. Before starting an analysis of the financial statements, their usefulness and reliability must be checked by their consistency with generally accepted accounting principles (as defined by the
International Accounting Standards Committee [IASC]); national accounting policies; the legal and regulatory framework; inflation accounting standards based on Accounting Standard 29 of the IASC; an auditors report, particularly when qualified, for example, in respect of a change in accounting policies, inadequate provisions for losses and unrealistic revaluation of assets; and the reasons for change of auditor, if any.

1.7 To ensure reliability of these statements, it is necessary to have them audited by auditors who are independent (of the control of the entity to be audited and of the person appointing them), experienced, competent and reputable, using procedures and methods that conform with the relevant national standards or practices established within the country on the entitys annual financial statements which are prepared in accordance with International Accounting Standards or relevant national standards for banks. This process of examination and verification (i.e. audit) normally results in a written opinion and report by the auditor, indicating the extent to which the financial statements and supporting information reports
provide a true and fair view of the financial condition and the financial performance of the bank. Audited statements for at least three to five financial years and the accompanying notes would be detailed enough to allow meaningful analysis. Provisional financial statements can be accepted pending audit provided they are certified by the management. It must, however, be remembered that the publication
of financial statements generally takes place 6-9 months after the close of the financial year and the exclusive dependence on these statements may not reflect a realistic up to date performance, unless supplemented by internal management accounts.

1.8 The overall analysis presented in this paper is largely based on the
financial statements of a ALLAHABAD BANK. The balance sheet profit and loss
statement and the cash flow statement of the ALLAHABAD BANK are taken from the annual report of the bank for the analysis purpose.

ROLE OF FINANCIAL ANALYSIS IN FINANCIAL
MANAGEMENT

Financial analysis today is performed by various users of financial statements. Investors and Management perform the financial analysis to understand how profitably or productively the assets of the company are used. Lenders and Suppliers of goods look for the ability of the firm to repay the dues on time. For instance, as a deposit holder of a Bank, you would be interested in liquidity of the Bank and would expect the Bank to pay you the amount when you need. Customers would like to know the long-term solvency of the Bank to get continued support. For example, as a borrower, you would like your bank to be healthy and profitable since you will be depending on the Bank for your future needs. Of course, employees would be interested in the profitability as well as liquidity of the bank. Financial managers not
only prepare financial statements but also analyse the same to get further insight on the performance of the Organisation. They need to examine the organisation from the perspective of several users so that they can follow the needs of them and satisfy several stakeholders. Sometimes, profitability might be affected when the managers try to satisfy the needs of various stakeholders but if you focus too much on profitability, it might affect the organisation in other ways. For instance, we would expect that our deposit holders need liquidity. If we plan for more liquidity, it might affect profitability. On the other hand, if we continue to have low liquidity, we may not get funds or we need to pay more interest to attract funds. While financial analysis is often used for evaluating current or historical performance, management uses the input of such analysis for future planning exercise. For instance, in preparing budgets, the inputs of financial analysis are extensively used. Financial
analysis provides linkage between operating activities and funding activities. Normally, top management sets the goal and operational managers then determine the level of operations required to achieve the goal. It would be difficult to increase the level of operations without any investments unless there is a huge idle capacity. Thus increased activity demands more addition to assets and this in turn puts a demand for capital. The first step in this process is to know how much of additional assets we need and how much of capital we need to mobilise from various sources. Financial analysis, which provides historical linkage between various financial components, is useful. Suppose the top management fixes a goal to increase the net income by another 20% for the coming year. Using profit to sales linkage, we can estimate additional turnover required to achieve the goal. Once we know additional turnover, it is possible for us to assess how much of additional assets are required (fixed and current assets in the case of manufacturing companies) and then additional funds that are required to
buy the assets. Thus financial analysis is a prerequisite for financial planning.

SCOPE AND METHODLOGY

SCOPE ??“ The scope of our analysis is broad one, we want to analyse the complete situation about the Allahabad bank and we tried to provide our views on the position we analysed.

METHODOLOGY ??“ We did complete analysis of 4 years performance of Allahabad bank based on the annual report of the bank. Each and every ratio and calculation is done self for deeper understanding and making critical comments about the bank performance. The calculation of figure in the project report is based on the figures and data stated in the annual reports of the Allahabad bank. We did analysis based on the DU-PONT MODEL and CAMELS MODEL.

CAMELS Model:-
CAMELS FRAMEWORK
During an on-site bank exam, supervisors gather private information, such as details on problem loans, with which to evaluate a banks 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 banks 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 banks condition that are assessed: Capital adequacy, Asset quality, Management, Earnings, and Liquidity. A sixth component, a banks Sensitivity 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 banks 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 = Capital Adequacy
* A = Asset Quality
* M = Management
* E = Earning
* L = Liquidity
* S = Sensitivity to market risk

CAPITAL ADEQUACY
Introduction
Capital acts as a buffer in times of crisis or poor performance by a bank. Sufficiency of capital also instills depositors??™ confidence. As such, adequacy of capital is one of the pre-conditions for licensing of a new bank as well as its continuance in business.
Capital Adequacy Norms
The traditional approach to sufficiency of capital does not capture the risk elements in various types of assets in the balance sheet as well as in the off-balance sheet business and compare the capital to the level of the assets.
The Basel Committee on Banking Supervision had published the first Basel Capital Accord (popularly called as Basel I framework) in July, 1988 prescribing minimum capital adequacy requirements in banks for maintaining the soundness and stability of the International Banking System? and to diminish existing source of competitive inequality among international banks. ? The basic features of the Capital Accord of 1988 are as under:
(i) Minimum Capital Requirement of 8 % by end of 1992.
(ii) Tier approach to capital:
* Core Capital: Equity, Disclosed Reserves
* Supplementary Capital: General Loan Loss Reserves, Other Hidden Reserves, Revaluation Reserves, Hybrid Capital Instruments and Subordinate Debts
* 50% of the capital to be reckoned as core capital.
(iii) Risk Weights for different categories of exposure of banks ranging from? ? 0% to 127.5% depending upon the riskiness of the assets as indicated in Annex 1. While commercial loan assets had a risk weight of 100%, inter-bank assets were assigned 20% risk weight; sovereign paper carried 0% risk weight.?  In 2002, maintenance of capital funds as a percentage of risk weighted assets was extended to all UCBs.?  Since 2005, the minimum Capital to Risk Assets Ratio that is expected to be maintained is 9 percent. Further, vide 1996 amendment to the original Basel Accord; capital charge was prescribed for market related exposures.
? Basel II is an international business standard that requires financial institutions to maintain enough cash reserves to cover risks incurred by operations. The Basel accords are a series of recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision (BSBS). Basel II improved on Basel I, first enacted in the 1980s, by offering more complex models for calculating regulatory capital. Essentially, the accord mandates that banks holding riskier assets should be required to have more capital on hand than those maintaining safer portfolios.
The three essential requirements of Basel II are:
1. Mandating that capital allocations by institutional managers are more risk sensitive.
2. Separating credit risks from operational risks and quantifying both.
3. Reducing the scope or possibility of regulatory arbitrage by attempting to align the real or economic risk precisely with regulatory assessment.

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

Under Capital Adequacy, we calculate following ratios:

1. Capital adequacy ratio
2. Debt-Equity Ratio
3. Advances to Assets
4. G-Secs to Total Investments

1. Capital Adequacy Ratio:- It is ratio of capital fund to risk weighted assets expressed in percentage terms
Objectives of CAR:? The fundamental objective behind the norms is to strengthen the soundness and stability of the banking system.
Use:-
* Capital adequacy ratio is the ratio which determines the? capacity? of the bank in terms of meeting the time liabilities and other risks such as? credit? risk, operational risk, etc.
* A banks capital is the “cushion” for potential losses, which protects the banks depositors or other lenders
* 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.

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. Investment
b. 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.

| 2010(amount in crores) | 2009(amount in crores) | 2008(amount in crores) |
Tier-1 capital | 6175.58 | 5106.69 | 4344.88 |
Tier-2 capital | 4189.60 | 3252.15 | 2393.98 |
Total capital | 10365.18 | 8358.84 | 6738.86 |
Risk weighted assets | 76102.64 | 63759.26 | 53313.76 |
CAR | 13.62% | 13.11% | 12.64% |

Implications of CAR ratio:-
* CAR is increasing and this is more than the minimum requirement by the RBI (i.e. 9%).
* It gives a good idea about the capital soundness of the Allahabad Bank.
* Bank??™s capital is able to cover its risky assets.

2.Debt-Equity Ratio
= Debt
Equity

Debt-to-Equity ratio? indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds.
The proportion of debt ratios indicate what proportion of the firms capital is derived from debt compared to other sources of capital such as common stock, preferred stock and retained earnings. The extent to which a firm uses financial leverage defines if the firm earns more on investments financed with borrowed funds than it pays in interest. This means that its financial risk increases to the extent that creditors look up on the firms equity to provide a margin of safety.

| 2010 (Rs. in thousand) | 2009 (Rs. in thousand) | 2008 (Rs. in thousand) | 2007 (Rs. in thousand) |
Deposits | 1060557540 | 849717887 | 716163831 | 595436580 |
Borrowings | 54354751 | 38489367 | 17919987 | 2571474 |
Total debt | 1114912291 | 888207254 | 734083818 | 598008054 |
Capital | 4467000 | 4467000 | 4467000 | 4467000 |
Reserves and surplus | 63062524 | 54052496 | 48004799 | 40301288 |
Total equity | 67529524 | 58519496 | 52471799 | 44768288 |
Debt-equity ratio | 16.51 | 15.18 | 13.99 | 13.36 |

Implications of Debt-equity ratio:-
* This ratio is increasing on the yearly basis.
* A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt.
* This can result in volatile earnings as a result of the additional interest expense.
* If a lot of? debt is? used to finance increased? operations (high debt to equity), the company could potentially generate more earnings? than it would have without this? outside financing.
* If this leads to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as? more? earnings are being spread among the same amount of shareholders.
* A higher proportion of debt capital compared to equity capital indicates higher financial risk and increases the probability that the firm could default on the debt.
* If the cost of this debt financing may? outweigh the return that? the company? generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing.

Reasons for continuously increase in Debt-equity ratio:-
* Due to continuously increase in deposits, which is a good signal for the bank since this indicates their acceptability in the market.
* Due to increase in borrowings from India as well as from outside India because of increase in demand for lending purpose.
* Equity is same for all the four years.
* Reserves and surplus are increases but not to the extent as deposits and borrowings.
3. Advances to Assets
= 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.

| 2010(Rs.in thousands) | 2009(Rs.in thousands) | 2008(Rs.in thousands) | 2007(Rs.in thousands) |
Advances | 716048718 | 588017634 | 497204661 | 412900348 |
From apex institutions | 17057949 | 19095088 | 28802751 | 31848112 |
Net advances | 698990769 | 568922546 | 468401910 | 381052236 |
Total assets | 1216992130 | 976480078 | 829393236 | 676637413 |
Net advance-total assets ratio | .582 | .574 | .564 | .563 |

Implications of advances-total assets ratio:-
* 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.
* Often associated with lending,? Credit risk arises whenever a party enters into an obligation to make payment or deliver value to the bank.? 
* The nature and extent of credit risk depend on the quality of loan assets and soundness of investments which is the main focus of bank.

Reasons for continuously increase in Debt-equity ratio:-
* Due to increase in lending yearly to priority sector and public sector.
* Due to continuously increase in
* Bills purchased and discounted
* Cash credits, Overdrafts and loans repayable on demand
* Term Loans
* Due to decrease in refinancing from apex institutions.

4. G-Secs to Total Investments
As per the requirement of RBI every bank invests in Government Securities as per the requirement of SLR.According to current guidelines by RBI minimum requirement is 25%. 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.

| 2010(Rs. In thousand) | 2009(Rs. In thousand) | 2008(Rs. In thousand) | 2007(Rs. In thousand) |
G-securities | 309829425 | 213832542 | 174348833 | 146440644 |
Total investments | 384286239 | 296510497 | 234002500 | 187460718 |
G-sec-total investment | .81 | .75 | .72 | .78 |

Implications of G-sec-total investment ratio:-
* 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.
* So we can say that bank is considering both profitability and liquidity simultaneously.
* ? There is no need to pay state or local taxes. That means a higher return on security investment.
* The main risk is the cost of opportunity. Since this kind of securities offer a very low risk, the interest rate is also lower than the ones offered by private entities.
* No default risk as the securities carry sovereign guarantee.

Reasons for increase in G-sec-total investment ratio:-
* Due to increase in investment by bank in g-securities
* Due to increase in investment in
* Shares
* Investments in Subsidiaries and / or Joint Ventures
* Due to decrease in provision for Depreciation.

ASSETS QUALITY

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 borrowers??” 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.

NPA: Non-Performing Assets
Advances are classified into performing and non-performing advances (NPAs) as per RBI guidelines. NPAs are further classified into
* Sub-standard-the account holder comes in this category when they don??™t pay three installments continuously after 90 days and up to 1 year. Bank has made provision of 10% from their profit.
* Doubtful- there are three sub-categories:-
* D1 i.e. up to 1 year: 20% provision is made by the bank.
* D2 i.e. up to 2 years: 30% provision is made by the bank.
* D3 i.e. up to years: 100% provision is made by the bank.
* Loss assets-under this 100% provision is made. When account holder comes in this category their accounts can be written-off by the bank.
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.
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. Gross NPAs to Net Advances
2. Net NPAs to Net Advances
3. Total Investments to Total Assets
4. Percentage change in Net NPAs
5. Net NPAs to Total Assets

1. Gross NPAs to Net Advances:-
= 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.

| 2010(amount in Rs.thousand) | 2009(amount in Rs.thousand) | 2008(amount in Rs.thousand) | 2007(amount in Rs.thousand) |
Gross NPA | 12218000 | 10782500 | 10105100 | 10935900 |
Net advances | 698990769 | 568922546 | 468401910 | 381052236 |
Gross NPA??™s-total advances ratio | .017 | .019 | .022 | .028 |

Implications of Gross NPA??™s-Net advances ratio:-
* Ratio is continuously decreasing which is a good sign for bank. On an average 5% loan and advances are NPAs.
* This means that quality of most of the assets that a bank possesses is free from default risk.
* The asset quality of banks has improved further last year and is reflected in the decline in their gross and net non-performing assets (NPA).
* Profitability and Viability of Development Financial Institutions are directly affected by quality and performance of advances.

Reasons for decline in Gross NPA??™s-net advances ratio:-
* The strengthening of the various channels of NPA recovery such as debt recovery tribunals, Lok Adalats and corporate debt restructuring mechanism and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act have helped the banks to bring down the amount of NPA substantially over the past years.? 
* Bank invests more in government securities.
* ? Because of the relaxation in infrastructure-lending norms announced by the? Reserve Bank of India? (RBI) in its annual monetary policy statement.? 
* Reduction in NPA through invocation of SARFAESI Act and application of other legal measures.
* Settlement scheme for different segment of borrowers like; small & marginal farmers. Govt, sponsored loans, agricultural credit etc

2. Net NPAs to Net Advances
Since in India, bank??™s balance sheet contains huge amount of NPA??™s and the process of recovery and writes off of loans is very time consuming the provisions the bank have to make against NPA??™s according to the central bank??™s guidelines are quite significant.
Net NPA = Gross NPA ??“ Prov. For NPA
Net Advances
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.

| 2010(amount in Rs. thousand) | 2009(amount in Rs. thousand) | 2008(amount in Rs. thousand) | 2007(amount in Rs. thousand) |
Gross NPA | 12218000 | 10782500 | 10105100 | 10935900 |
Provision | 7516500 | 6561400 | 6107000 | 6534000 |
Net NPA | 4701500 | 4221100 | 3998100 | 4401900 |
Net advances | 698990769 | 568922546 | 468401910 | 381052236 |
Net NPA??™s-total advances ratio | .006 | .007 | .008 | .012 |

Implications of Net NPA??™s-net advances ratio:-
* With the help of bar diagram we can analyze that Allahabad Bank keeps more than 50% of Gross NPAs as provision for NPAs.
* It??™s because of the stringent provisioning norms that have been followed by banks ever since the Narasimham Committee recommendations on this matter were prescribed for banks in 1991.
* There is not a continuous trend of declining Net NPA??™s so bank has to take proper actions to safeguard the assets.
* The ratio is declining only marginally so bank needs to be more careful.

Reasons for decreasing Net NPA-net advances ratio:-
* The bank take utmost care in ensuring the enterprise and borrower is capable of carrying it out successfully.

3. Total Investments to Total Assets
= 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.

| 2010(amount in Rs.thousand) | 2009(amount in Rs.thousand) | 2008(amount in Rs.thousand) | 2007(amount in Rs.thousand) |
Total investment | 384286239 | 296510497 | 234002500 | 187460718 |
Total assets | 1216992130 | 976480078 | 829393236 | 676637413 |
Total investment-total assets ratio | .32 | .30 | .28 | .27 |

Implications of increase in Total investment-total assets ratio:-
* This ratio indicates that bank is also paying attention towards investments. Around 30% of total assets are contributed by investments.
* This implies that bank??™s profitability increases, since bank can earn more return on investments then it earns in lending.

Reasons for increase in Total investment-total assets ratio:-
* Due to increase in investments in government securities.
* Due to increase in investment in
* Shares
* Investments in Subsidiaries and / or Joint Ventures
* Assets other than investments are not increasing much.

4. Percentage change in Net NPAs
= 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.

| 2010(amount in crores) | 2009(amount in crores) | 2008(amount in crores) | 2007(amount in crores) |
Opening NPA | 422.11 | 399.81 | 440.19 | 246.09 |
Closing NPA | 470.15 | 422.11 | 399.81 | 440.19 |
%age change in NPA | 11.38% | 5.58% | -9.17% | 78.87% |

Implications of %age change in Net NPA??™s:-
* There is no continuous decreasing or increasing trend.
* Bank should be more conscious so that it can safeguard its profitability.

Reasons:-
* In 2008 %age in Net NPA is negative because in 2008 Bank launched special Recovery Campaign from September, 2008 for recovery in live NPA and written-off accounts.

5. Net NPAs to Total Assets:-
= 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.

| 2010(amount in thousand) | 2009(amount in thousand) | 2008(amount in thousand) | 2007(amount in thousand) |
Net NPA | 4701500 | 4221100 | 3998100 | 4401900 |
Total assets | 1216992130 | 976480078 | 829393236 | 676637413 |
Net NPA-total assets ratio | .003 | .004 | .005 | .006 |

Implications of Net NPA-total assets ratio:-
* On an average 0.3% of total assets convert into NPA.
* This implies that bank is investing more than lending.

Management Quality

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 serve??”as, for instance, efficiency measures do??”as an indicator of management soundness. 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. It signals the ability of the Board of Directors and Senior Managers to identify, measure, monitor and control risks associated with banking, this qualitative measure uses risk management policies and processes as indicators of sound management.

1: Profit per Branch

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.
Profit per Branch = Net ProfitTotal no.Of Branches

| 2010 | 2009 | 2008 | 2007 |
Net Profit(in Rs. Cr) | 120633 | 76860 | 97474 | 75014 |
No. of Branches | 2287 | 2260 | 2155 | 2061 |
Profit per Branch(Rs. Cr) | 52.75 | 34.01 | 45.23 | 36.40 |

IMPLICATIONS :
* It has shown mix trend in last four years. But in 2010 it has increased from Rs. 34.01 Cr per branch to Rs. 52.75 Cr that is a significant change in a year in spite of that bank has opened 27 new branches in 2010.
* It shows bank??™s branches performing well and ultimately bank is performing well.
REASONS :
Reason is clear that net profit has been increased in 2010 as compared to 2009 ,that??™s why this ratio is increased in spite of increase in no. of branches.
2. Total Advances to 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.
Total Advances to Total Deposits = Total AdvancesTotal Deposits

| 2010 | 2009 | 2008 | 2007 |
Total Advances(In Rs. Cr) | 72437.31 | 59443.4 | 50312.16 | 41914 |
Total Deposits( In Rs. Cr.) | 106055.75 | 84971.79 | 71616.38 | 59544 |
Total Advances to Total Deposits | 0.6830 | 0.6996 | 0.7025 | 0.7039 |

IMPLICATIONS :
* As it is clearly shown by the graph that this ratio has shown decreasing trend for last 4 years. That means bank has adopted conservative approach .

REASON :
* Increase in Total Deposits because of increase in Demand Deposit, Term Deposits and saving deposits.
* Relatively less increase in Advances (Bills purchased and discounted ,Cash Credit ,overdraft and term loans.

3. Business per Employee
This ratio indicates that on an average how much business is generated by every employee.
Business per employee = Total BusinessTotal No.Of Employees

| 2010 | 2009 | 2008 | 2007 |
Total Business( In Rs. Cr ) | 178493.06 | 144415.19 | 121928.54 | 101458 |
Total no. of Employees | 20959 | 20457 | 20079 | 20379 |
Business per Employee( In Rs. Cr ) | 8.5163 | 7.0595 | 6.0724 | 4.9786 |

IMPLICATIONS:
* This graph shows the increasing trend that means business per employee has increased year by year in spite of that no. of employees is increasing .
* Above trend shows that employees are performing well so as management of the bank.

REASON:
* Total Deposits and Loans & Advances has increased at much more pace as compare to increase in no. of employees .

4. Profit per 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.
Profit per Employee = Net Profit Total no.of Employee
| 2010 | 2009 | 2008 | 2007 |
Net Profit (In Rs. Thousand ) | 12063271 | 7685981 | 9747424 | 7501413 |
Total no. of Employees | 20959 | 20457 | 20079 | 20379 |
Profit per Employee(In Rs. Thousand) | 585.738 | 375.714 | 485.45 | 368.10 |

IMPLICATIONS
Though graph is showing mix trend but it has increased in year 2010 in spite of that no. of employees has been increased from 20457 to 20959. That shows the good performance by employees .
REASON:
Net profit has been increased ,as interest and other income increased ,at much more rate than increase in no. of employees.

Earning Quality

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 interpret??”for instance, unusually high profitability can reflect excessive risk taking.
ROA-Return on Assets
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 companys annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as ???return 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 companys 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. Operating Profits to Average Working Funds
2. Percentage Growth in Net Profits
3. Spread
4. Net Profit to Average Assets
5. Interest Income to Total Income
6. Non-Interest Income to Total Income

1. Operating Profit to Avg. Working Fund
Operating Profit to AWF = Operating ProfitAvg.Total Assets
| 2010 | 2009 | 2008 | 2007 |
Operating Profit( In Rs. Cr) | 2548.55 | 1901.15 | 1479.51 | 1099.91 |
Avg. Total Assets(In Rs. Cr) | 109868 | 90384 | 75301.53 | 61477.86 |
OP to ATA | 0.0232 | 0.0210 | 0.0196 | 0.0179 |

IMPLICATIONS:
* This ratio indicates that how much bank can earn from its operations.
* High ratio indicates that bank is earning more from its investment.
* This ratio is increasing over the year as we can see in graphs. So we can say that bank is efficient in operating activity.
REASON:
* Increase in Wholesale Banking, Retail Banking and other banking business leads to increase in Operating Profit .
2. Percentage Growth in Profit
Percentage Growth in Profit =(Current year Profit ??“ Previous year Profit ) * 100Previous Year Profit
| 2010 | 2009 | 2008 | 2007 | 2006 |
Net Profit( In Rs. Cr) | 1206.33 | 768.60 | 974.74 | 750.14 | 706.13 |
% Growth | 56.95 % | -21.15 % | 29.94% | 6.23% | 30.33% |

IMPLICATIONS
* Net profit growth increased from -21.15% to 56.95% that is a very high growth in a single year that shows that bank is doing very well.
REASON :
* Sharp change in interest income and other income as compare to expenditure lead to increase in net profit and bank gained a 56.95% growth in net profit.
* It is because that in 2009 bank??™s business affected by recession and net profit down by 21.15% in that year.
3. SPREAD
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.
Spread = Interest Earned ??“ Interest Paid

| 2010 | 2009 | 2008 | 2007 |
Interest Earned(In Rs. Cr) | 8369.20 | 7364.73 | 6279.67 | 4883.62 |
Interest Paid(In Rs. Cr) | 5718.72 | 5206.06 | 4498.88 | 3133.12 |
Spread( In Rs. Cr) | 2650.48 | 2158.67 | 1780.79 | 1750.50 |

IMPLICATION :
* Above graph shows the increasing trend in spread that is very good indication that bank??™s core source of income is increasing that shows stability in earning quality of bank.
* This ratio is increasing over the year. It means that bank is utilizing its assets in a good way.
REASON:
* Interest/discount on bills & advances ,Interest on balance with RBI has been increased significantly that leads to more interest based income.
* Interest expend on RBI and inter bank borrowings has been decreased that lead less interest expenditure and finally increase in spread.

4. Net Profit to Avg. Total 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.
Net Profit to Avg. Total Assets = Net ProfitAvg.Total Assets
| 2010 | 2009 | 2008 | 2007 |
Net Profit | 1206.33 | 768.60 | 974.74 | 750.14 |
Avg. Total Assets | 109868 | 90384 | 75301.53 | 61477.86 |
Net Profit to Avg. Total Assets | 0.01098 | 0.0085 | 0.0129 | 0.0122 |

IMPLICATIONS :
This ratio shows a mix type of trend because of change decrease in net profit in 2009 .but in 2010 it came back on track.

5. INTEREST INCOME TO 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.
Interest Income to Total Income = Interest IncomeTotal Income

| 2010 | 2009 | 2008 | 2007 |
Interest Income(in Rs. Cr.) | 8369.20 | 7364.73 | 6279.67 | 4883.86 |
Total Income(In Rs. Cr.) | 9885.10 | 8506.65 | 7135.97 | 5260.27 |
Interest Income to Total Income | 0.8466 | 0.8658 | 0.8800 | 0.9284 |

IMPLICATIONS :
* As per the graph this ratio is declining though total income is increasing but because of non-interest income, bank??™s spread is increasing that means bank is taking care of this issue.
REASON:
* The reason is clear that proportion of non interest income has been increased in total income as compared to interest income.

6. Non Interest Income to Total Income
This ratio indicates that how much a bank is earning from its other activities in the form of fees, commission etc.
Non Interest Income to Total Income = Non Interest IncomeTotal Income

| 2010 | 2009 | 2008 | 2007 |
Non Interest Income(In Rs. Cr) | 1515.90 | 1141.92 | 964.76 | 376.40 |
Total Income(In Rs. Cr.) | 9885.10 | 8506.65 | 7135.97 | 5260.27 |
Ratio | 0.1534 | 0.1342 | 0.1352 | 0.0716 |

IMPLICATION :
* Other income proportion is increasing by year that can be good for bank as it contribute to increase in net profit but as it is not a stable income therefore bank can be marginally happy by this trend.
REASON:
* Increase in Commission, Brokerage, exchange ,profit on sale in investment ,profit on exchange transactions , Income earned by way of dividends etc from Subsidiaries / company / JV that lead increase in non interest based income .
LIQUIDITY
Cash maintained by the banks and balances with central bank, to total asset ratio (LQD) is an indicator of banks liquidity. In general, banks with a larger volume of liquid assets are perceived safe, since these assets would allow banks to meet unexpected withdrawals.
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 liabilities (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. 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. 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. 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:
* The institutions short-term need for cash;
* Cash on hand;
* Available lines of credit;
* The liquidity of the institutions assets;
* The institutions reputation in the marketplace??”how willing will counterparty is to
transact trades with or lend to the institution

In Liquidity, we calculate the following ratios:
a) Liquid Assets to Total Assets.
b) Govt. Securities to Total Assets.
c) Liquid Assets to Demand Deposits.
d) Liquid Assets to Total Deposits.

a) Liquid Assets to Total Assets
= Liquid Assets
Total Assets
Liquidity for a bank means the ability to meet its financial obligations as they come due. Bank lending finances investments in relatively illiquid assets, but it fund its loans with mostly short term liabilities. Thus one of the main challenges to a bank is ensuring its own liquidity under all reasonable conditions. Liquid assets include cash in hand, balance with the RBI, balance with other banks (both in India and abroad), and money at call and short notice. Total asset include the revaluations of all the assets. The proportion of liquid asset to total asset indicates the overall liquidity position of the bank.

| 2010 (Rs. in thousands) | 2009 (Rs. in thousands) | 2008 (Rs. in thousands) | 2007 (Rs. in thousands) |
Cash and Balances with RBI | 71,837,784 | 51,153,786 | 62,888,552 | 40,679,400 |
Balances with money at call and short notice | 19,844,466 | 15,213,849 | 7,532,410 | 8,740,288 |
Liquid Assets | 91,682,250 | 66,367,635 | 70,420,962 | 49,419,688 |
Total Assets | 1,216,992,130 | 976,480,079 | 829,393,236 | 676,637,413 |
Liquid Assets/ Total Assets | 0.075 | 0.067 | 0.084 | 0.073 |

Implications of Liquid Assets to Total Assets Ratio:
* A high ratio indicates that excess of bank??™s total assets are liquid and hence bank??™s liquidity position is good.
* Compared to growth in total assets in 2008 over 2007 which was 22.5%, growth in liquid assets was 42.4% which is indicative of the fact that despite high liquidity, bank was not excessively into lending.
* A higher ratio in 2008 indicates that percentage of liquid assets to its total assets increased over that in 2007.
* The impact of global financial crisis also impacted the bank??™s liquidity position and this is evident by the decline in the ratio during 2008-2009.
* With the revision of monetary policies by RBI during Sept??™08- Mar??™09, where RBI reduced Repo Rate from 9.0% to 5.0%, Reverse Repo Rate from 6.00% to 3.50% and Cash Reserve Ratio (CRR) from 9.00% to 5.00%, indicating a softer interest rate regime, the effect can be seen on the bank??™s liquidity which improved considerably in 2009-10.
* Because of reduction in key policy rates bank was able to easily liquidate its available assets and enhance its position.

Reasons :
* Liquid assets are increasing with a dip only in 2009.
* Total assets are on an increasing trend which is a good indicator of increasing investments and increase in advances.
* Cash and balances with RBI increases during 2010 due to easy key policy rates.
* Due to increase in current account deposits.
b) Government Securities to Total Assets
= Govt. Secs.
Total Assets
Government Securities are the most liquid and safe investments. This ratio measures the government securities as a proportion of total assets. Banks invest in government securities primarily to meet their SLR requirements, which are around 25% of net demand and time liabilities. This ratio measures the risk involved in the assets hand by a bank.

| 2010 (Rs. in thousands) | 2009 (Rs. in thousands) | 2008 (Rs. in thousands) | 2007 (Rs. in thousands) |
G-Secs | 309,829,425 | 213,832,542 | 174,348,833 | 146,440,644 |
Total Assets | 1,216,992,130 | 976,480,079 | 829,393,236 | 676,637,413 |
G- Secs/ Total Assets | 0.254 | 0.218 | 0.210 | 0.216 |

Implications of Govt. Securities to Total Assets Ratio:
* High ratio indicates that bank is risk averse and hence investing into highly secure government securities.
* Around 21% of its total assets contributed to investment in government securities which means that bank has maintained liquidity.
* Here the bank has maintained the ratio which indicates that bank is investing similar proportions of its total assets into Government securities.
Reasons:
* Gross and net value of investments is increasing.
* Decrease in provision for depreciation.
* Also the investment in Govt. Securities is increasing.

c) Liquid Assets to Demand Deposits
= Liquid Assets
Demand Deposits
This ratio measures the ability of a bank to meet the demand from deposits in a particular year. Demand deposits offer high liquidity to the depositor and hence banks have to invest these assets in a highly liquid form.
| 2010 (Rs. in thousands) | 2009 (Rs. in thousands) | 2008 (Rs. in thousands) | 2007 (Rs. in thousands) |
Cash and Balances with RBI | 71,837,784 | 51,153,786 | 62,888,552 | 40,679,400 |
Balances with money at call and short notice | 19,844,466 | 15,213,849 | 7,532,410 | 8,740,288 |
Liquid Assets | 91,682,250 | 66,367,635 | 70,420,962 | 49,419,688 |
Demand Deposits | 83,155,464 | 66,231,621 | 57,803,228 | 54,918,214 |
Liquid Assets/ Demand Deposits | 1.102 | 1.002 | 1.218 | 0.899 |

Implications of Liquid Assets to Demand Deposits Ratio:
* A high ratio of liquid assets to demand deposits indicate higher portion of banks demand deposits is liquid able.
* This means that the liquidity position of the bank improved in 2007-08 over that in 2006-07.
* This also indicates that bank has higher investment opportunities however bank is not into excessive lending and credit.
* A dip in the ratio during 2008-09 is due to tight liquidity.
* However bank??™s position improves in 2009-10 due to ease in interest rates and key policy rates by RBI.
* Since the ratio is constantly more than one bank is in sound position to meet the demand of its borrowers.
Reasons:
* Increase in demand deposits over the years is indicative of sound position of the bank in market.
* Liquid assets are continuously increasing and more than the demand deposits which suggests that bank has enough funds.
* Cash in hand as well as that with RBI has increased.
d) Liquid Assets to Total Deposits
= Liquid Assets
Total Deposits
This ratio measures the liquidity available to the deposits of a bank. Total deposits include demand deposits, savings deposits, term deposits and deposits of other financial institutions. Liquid assets include cash in hand, balance with the RBI, balance with other banks (both in India and abroad), and money at call and short notice.

| 2010 (Rs. in thousands) | 2009 (Rs. in thousands) | 2008 (Rs. in thousands) | 2007 (Rs. in thousands) |
Cash and Balances with RBI | 71,837,784 | 51,153,786 | 62,888,552 | 40,679,400 |
Balances with money at call and short notice | 19,844,466 | 15,213,849 | 7,532,410 | 8,740,288 |
Liquid Assets | 91,682,250 | 66,367,635 | 70,420,962 | 49,419,688 |
Demand Deposits | 83,155,464 | 66,231,621 | 57,803,228 | 54,918,214 |
Saving Bank Deposits | 282,711,836 | 227,743,903 | 200,284,194 | 171,196,690 |
Term Deposits | 694,690,240 | 555,742,363 | 458,076,409 | 369,321,676 |
Total Deposits | 1,060,557,540 | 849,717,887 | 716,163,831 | 595,436,580 |
Liquid Assets/ Total Deposits | 0.086 | 0.078 | 0.098 | 0.082 |

Implications of Liquid Assets to Total Deposits Ratio:
* The ratio was on the increasing trend however due to global financial crisis during 2008 the percentage of liquid assets of the total deposits went down.
* Higher ratio means that of the total deposits bank has sufficient liquid able funds and hence the liquidity position is good.
* The ratio went down in 2008 because of higher key policy rates accompanied with global financial

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