A STUDY ON THE PERFORMANCE OF DEPOSIT SCHEMES IN KARNATAK BANK LIMITED CHAPTER 1 INTRODUCTION

1.1 ABOUT THE INDUSTRY

Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955.

HISTORY OF BANKING
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though. That honour belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. When the American Civil War stopped the supply of cotton to Lancashire from

the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking centre.
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The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally undercapitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara

Bank and Central Bank of India. The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking". During the First World War (19141918) through the end of the Second World War (1939 1945), and two years thereafter until the independence of India were challenging for Indian banking.

POST INDEPENDENCE
The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included:

 The Reserve Bank of India, India's central banking authority, was established in April 1934, but was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).[Reference www.rbi.org.in] In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

NATIONALISATION
Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The meeting received the paper with enthusiasm. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

LIBERLIZATION
In the early 1990s, the then Narasimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI

Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.

The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. Currently (2010), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks.

ADOPTION OF BANKING TECHONOLGY

The IT revolution had a great impact in the Indian banking system. The use of computers had led to introduction of online banking in India. The use of the modern innovation and computerisation of the banking sector of India has increased many folds after the economic liberalisation of 1991 as the country's banking sector has been exposed to the world's market. The Indian banks were finding it difficult to compete with the international banks in terms of the customer service without the use of the information technology and computers.

RESERVE BANK OF INDIA

RESERVE BANK OF INDIA Central bank and supreme monetary authority

Scheduled banks Commercial banks Co-operative banks

Foreign banks (40)

Regional rural banks (196)

Urban Cooperatives (52)

State Cooperatives (16)

Public Sector banks (27)

Private Sector banks (30)

State bank of India and Associate banks (8)

Other Nationalised banks (19)

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Old (22)

New (8)

Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. Though initially RBI was privately owned, it was nationalized in 1949. Its central office is in Mumbai where the Governor of RBI sits. India has a well developed banking system. Most of the banks in India were founded by Indian entrepreneurs and visionaries in the pre-independence era to provide financial assistance to traders, agriculturists and budding Indian industrialists. The origin of banking in India can be traced back to the last decades of the 18th century. The role of central banking in India is looked by the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India. Reserve Bank was nationalized in 1947 and was given broader powers. In 1969, 14 largest commercial banks were nationalized followed by six next largest in 1980. But with adoption of economic liberalization in 1991, private banking was again allowed. The commercial banking structure in India consists of: Scheduled Commercial Banks and Unscheduled Banks. Scheduled commercial Banks constitute those banks, which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. Indian banks can be broadly classified into public sector banks (those banks in which the Government of India holds a stake), private banks (government does not have a stake in these banks; they may be publicly listed and traded on stock exchanges) and foreign banks. India has a strong and vibrant banking sector comprising state-owned banks, private sector banks, foreign banks, financial institutions and regional banks including cooperative banks, rural banks and local area banks. In addition there are non-banking financial companies (NBFCs), housing finance companies, Nidhi companies and chit fund companies which play the role of financial intermediaries. India is also committed to further open the banking sector for foreign investment in pursuance to its commitment to the World Trade Organisation (WTO). As monetary authority of the country, the Reserve Bank of India (RBI) regulates the banking industry and lays down guidelines for day-to-day functioning of banks within the overall framework of the Banking Regulation Act, 1949, Foreign Exchange Management Act, 1999 and Foreign Direct Investment (FDI) policy of the government.

STATE-OWNED BANKS
The Indian banking sector is dominated by 28 state-owned banks which operate through a network of about 50,000 branches and 13,000 ATMs. The State Bank of India (SBI) in the largest bank in the country and along with its seven associate banks has an asset base of about Rs. 7,000 billion

(approximately US$150 billion). The other large public sector banks are Punjab National Bank, Canara Bank, Bank of Baroda, Bank of India and IDBI Bank.

PUBLIC SECTOR BANKS

The public sector banks have overseas operations with Bank of Baroda topping the list with 51 branches, subsidiaries, joint ventures and representative offices outside India, followed by SBI (45 overseas branches/offices) and Bank of India (26 overseas branches/offices). Indian banks, including private sector banks, have 171 branches/offices abroad. SBI is present in 29 countries followed by Bank of Baroda (20 countries) and Bank of India (14 countries).

PRIVATE SECTOR BANKS

Private sector banks India has 29 private sector banks including nine new banks which were granted licences after the government liberalised the banking sector. Some of the well known private sector banks are Karnataka Bank, ICICI Bank, HDFC Bank and IndusInd Bank. Yes Bank is the latest entrant to the private sector banking industry. In terms of reach the private sector banks with an asset of over Rs 5,700 billion (about US$124 billion) operate through a network of 6,500 branches and over 7,500 ATMs.

FOREIGN BANKS
Foreign banks have brought latest technology and latest banking practices in India. They have helped made Indian Banking system more competitive and efficient. Government has come up with a road map for expansion of foreign banks in India. Foreign banks As many as 29 foreign banks originating from 19 countries are operating in India through a network of 258 branches and about 900 ATMs. With total assets of more than Rs 2,000 billion (about 44 billion US dollars) they are present in 40 centres across 19 Indian states and Union Territories. Some of the leading international banks that are doing brisk business in India include Standard Chartered Bank, HSBC Bank, Citibank N.A. and ABN-AMRO Bank.

REGIONAL BANKS
Rural areas in India are served through a network of Regional Rural Banks (RRBs), urban cooperative banks, rural cooperative credit institutions and local area banks. Many of these banks are not doing well financially and the government is currently engaged in restructuring and consolidating them.

Local area banks were of recent origin and as on March 31, 2006 four such banks were operating in the country.

NATIONALISED BANKS
Nationalised banks dominate the banking system in India. The history of nationalised banks in India dates back to mid-20th century, when Imperial Bank of India was nationalised (under the SBI Act of 1955) and re-christened as State Bank of India (SBI) in July 1955.

FINANCIAL INSTITUTIONS
Financial institutions India has seven major state-owned financial institutions which include Industrial Development Bank of India (IDBI), Industrial and Financial Corporation of India (IFCI), Tourism Finance Corporation of India (TFCI), Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD) and National Housing Bank (NHB). These institutions provide term loans and arrange refinance. There are also specialised institutions like the Power Finance Corporation (PFC), Indian Railway Finance Corporation (IRFC), and Infrastructure Development Finance Company (IDFC) and state-level financial corporations.

1.2 ABOUT THE COMPANY

Karnataka Bank Ltd, a premier private sector bank, is a leading 'A' Class Scheduled Commercial Bank in India. The Bank offers a total value package, a one-stop shop for all the banking needs. They provide Working Capital Finance, Term Loans and Infrastructure Finance to help the Business grow. The Bank operates in four business segments, namely treasury, corporate and wholesale banking, retail banking and other banking operations. Karnataka Bank Ltd was incorporated on February 18, 1924 as The Karnataka Bank Ltd at Mangalore in Karnataka. The Bank was established to cater to the banking needs of the South Kanara Region. In May 23, 1924, the Bank obtained the certificate to commence business. In April 4, 1966, they received their license to carry on the banking business in India. The Bank was promoted by B R Vysarayachar and other leading members of the South Kanara Region. Under the table guidance of K S N Adiga, the second chairman of the Bank who held the post for a period of 21 years, the Bank made significant progress thereby providing a strong foundation and as a result grew in stature in terms of number of branches, deposits, advances etc. In the year 1964, the Bank took over the assets and liabilities of the Chitaldurg Bank Ltd. In the 1966, they took over the assets and liabilities of the Bank of Karnataka Ltd, Hubli and opened 14 new branches in places where the Bank of Karnataka Ltd was formerly functioned. In the year 1997, the Bank became an authorized dealer of foreign exchange and established specialized branches for financing foreign exchange, industry and agriculture, etc. In the year 1989, they opened a merchant banking division. In the year 1995, the Bank came out with the public cum right issue aggregating Rs 81 crore. In the year 2000, they signed a MoU with Infosys Technologies Ltd for implementation of Finacle, a Core Banking Solution. In the year 2002, they made a pact with Corporation Bank for sharing ATM's. Also, they made a tie-up with MetLife India for the distribution of insurance products as a corporate agent. In the year 2003, the Bank took up Corporate Agency for distribution of products of Bajaj Allianz General Insurance Co Ltd. The Bank in association with MetLife India launched K-Life a term product designed for SB/current account holders of the bank. Also, the Bank launched a credit product 'KBL Insta Cash' for consumption purposes, and 'KBL Vahana Mitra' for the purchase of new vehicles. The Bank along with Western Union Financial Services made tie-up with Bharat Overseas Bank to provide inbound money transfer services. In the year 2004, the Bank launched the 'Gold Card Scheme' for the exporters. In the year 2005, the Bank launched real time gross settlement (RTGS) system under the name of Money Quick. Also, they inked an agreement with National Financial Switch for ATM connectivity and launched 'no frills' accounts.
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In the year 2006, they made a tie up with Franklin Templeton (I) Private Limited for distribution of their mutual funds. They launched CDSL-DP services at select branches. In the year 2007, the Bank signed MoU with Allahabad Bank, Indian Overseas Bank, Sompo Japan Insurance Inc. and Dabur Investment Corporation to form a joint venture for undertaking General Insurance business. During the year 2008-09, the Bank opend 16 branches at Moradabad, New Delhi - Karol Bagh, Thane, Mumbai - Vile Parle, Bommasandra, Bangalore - Chandra Layout, Bangalore Sadashivanagar, Mysore - J P Nagar, Belgaum - Udyambag (Extension Counter upgraded), New Delhi East of Kailash, Bangalore -Yelahanka New Town, Pune-Dhankawadi, Doddaballpur, Uppal Kalan, Bellandur and Hoskote. The Bank added 30 ATM outlets at various locations. Also, they shifted 15 branches/ offices to new premises. The Bank won the prestigious Sun and NDTV Green IT award instituted by Sun Microsystems and NDTV, for use of eco efficient green technologies to run business. During the year 2009-10, the Bank opened 17 branches in Patna, Kanakapura, Tambaram, Vellore, Dhanbad, Kolkata Bhowanipore, Naganathapura, Gundlupet, New Delhi - Ashokvihar, Ujjain, Ghaziabad, Kancheepuram, Chennai - Annanagar (West), Brahmapur, Serillingampally, Durg and Rajarhat - Kolkata. The Bank added 46 ATM outlets at various locations. Also, they shifted 16 branches/offices to new premises. In April 2010, the opened their 9th Regional Office at Hyderabad. The Bank bagged 'Special Award for use of IT for Internal effectiveness' for the year 2009, instituted by Institute for Development and Research in Banking Technology (IDRBT). As on March 31, 2010, the Bank had 464 branches, 217 ATM outlets, 8 Regional Offices, one International Division, one Data Centre, one Customer Care Centre, 5 Service branches, 2 Currency Chests, 6 Extension Counters and two Central processing centers, spread across 20 states and 2 Union Territories. Further, for better ambience and improved customer service. In September 2010, the Bank launched a new product exclusively for women, i.e. the new saving bank account for women named KBL Vanitha to encourage saving habit among the womenfolk and also to allay the fear of managing their wealth. The Bank plans to increase their total number of business units to 780, by increasing the total number of branches to 480 and own ATM network to 300 by March 2011.

MISSION
"Our mission is to be a technology savvy, customer centric progressive bank with a national presence, driven by the highest standards of corporate governance and guided by sound ethical values."

BRANCHES AND BUSINESS

Karnataka bank has expanded its reach to various parts of India, over the 85 years of its existence. Today, the bank has a total of 447 branches, spread across 19 states and 2 Union Territories, with a total business of about Rs. 31248 Crore. The bank presently employs over 4,900 employees and is answerable to about 71,822 shareholders and over 3.7 million customers. The bank has specialized branches like Agricultural Development Branch, Overseas Branches, Foreign Exchange Branches, Specialized SSI Branches, Asset Recovery Management Branches, Currency Chests, Central Processing Centre spread across the length and breadth of the country.

FACILITIES AND CUSTOMER SERVICE

Karnataka Bank provides a broad range of customized products and services suitable for all kinds of market, trade and perceived requirements, be it business or personal. It deals in personalized banking, business banking, money transfer, internet banking and insurance services. The facilities include borrowing facilities, deposits, optimum returns on surplus funds and helping with smooth overseas transactions. As a part of personalized banking, Karnataka Bank provides services for high earning deposits, simple & convenient loans, life insurance, money transfer, utility bill payments and thus, efficiently keeps a track of your finances.

BOARD OF DIRECTORS

Chairman Managing Director & CEO

Ananthakrishna P Jayarama Bhat S R Hegde R V Shastri U R Bhat T S Vishwanath

Director

Sitarama Murty M S V Manjunath D Harshendra Kumar H Ramamohan T R Chandrasekaran

Company Secretary
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Y V Balachandra

MULTI BRANCH BANKING

Multi Branch Banking facility is a value added service to our customers taking advantage of "Core Banking Solution". It is a 'technology driven-anywhere banking' facility and 'at par' facilities for Savings Bank and Current account with structured schedule of services and charges. Now the customer can access his account at all branches of the Bank. The salient features of the scheme are as under: 1. The concept of 'anywhere' banking is extended to all domestic SB and Current Accounts except

NO Frills Accounts. Even SB-General and Current-General accounts are eligible for MBB facility with Multicity Cheques. 2. SB-General (SBGEN),SB-Money Sapphire, SB-Money Platinum, Current A/c General Money Pearl, CA Money Ruby, free CAMoney Diamond, CA-Money

(CAGEN),CA-

Platinum, are MBB accounts

with

structured

services

and Multicity Cheque facility

with cheques payable at par at all Branches.

FACILITIES AVAILABLE UNDER MBB PAYMENT SERVICES:

Any where Cash withdrawal for self cheques only Multicity Cheques Funds Transfer Funds Transfer through RTGS/NEFT

COLLECTION SERVICES:
Any where Cash Deposit- By self only Collection of out station cheques Any where Deposit of cheques for collection

OTHER FACILITIES:
Internet Banking Mobile Banking (SMS alerts) Demat Account 'MoneyPlant' Visa International Debit Card

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INTERNET BANKING
Karnataka bank has been introduced Internet Banking facility MoneyClick TM to manage our finances in the comfort of our home or our office as per our convenience. MoneyClickTM is a SelfService Channel, which is available 24 hours a day and 365 days a year in an absolutely simple, friendly but secured environment. In MoneyClickTM, a mere touch of a button or click of a mouse makes you accessible to a host of Banking Services, called Fingertip Banking. We can carry out your banking transactions safely and with total confidentiality by enjoying online banking without wasting your time or losing your peace of mind. Money ClickTM Retail It offers different online services to our retail/individual customers, like balance enquiry, requests for Chequebooks, recording stop-payment instructions, balance transfer instructions, account opening and other forms of traditional banking services. This also offers utility bill payment services to our valued customers for payment of BSNL Mobile, Electricity, Water bills etc. MoneyclickTM Corporate In addition to the above services, our Corporate Customers can avail Trade Finance Facilities such as Import/ Export Credit facilities, Requests for Forward Contracts, Inland Trade, and Bank Guarantee etc. Also MoneyclickTM facilitates access control at Corporate User level wherein various users at different hierarchy levels have varying powers to operate a corporate account. MoneyClickTM Cyber Kids Children between 12-18 years who are having Account with us are eligible for this special ebanking facility.

MOBILE BANKING
Karnataka Bank offers Mobile Banking for the convenience of paying for utility bills, mobile recharge, movie tickets, online purchases, retail shopping and much more at over 15,000 merchants directly from our mobile. Karnataka Bank mobile payment service is independent of the handset model and service providers and works on even the most basic handsets and across all telecom operators (GSM or CDMA).
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FEATURES
Mobile payment facility will be an additional facility to our customer for making Payment through their mobile for the goods purchased by them. On registration for Mobile Payment solution, the customer will be enabled to make secured payments directly from their registered mobile phone, authorized by using their ATM PIN. Customers can use this facility round the clock. This facility is extended to the users free of cost. This facility saves time; avoid hassles of travelling, waiting in long queues to make bill payment, ticket booking etc. At present the facility will be extended to customers subject to a daily cap of Rs.50, 000/- per customer for transaction involving purchase of goods/services (as per RBI guidelines).

BENEFITS EASY:
Works on even the simplest mobile handsets across all operators (GSM or CDMA) Doesn't require GPRS connectivity, SIM change or application download SMS & Interactive Voice based transaction platform makes it very easy-to-use

SECURE:
Confidential PIN Based Transaction PIN entry only through an IVR call where the PIN is transmitted in a DTMF format(Just as the PIN entry system for tele banking) No financial details divulged during the transaction process

CONVENIENT:
Transact over-the-counter, online, on the telephone or from just about anywhere Save time and effort by paying bills from anywhere, anytime Turn your mobile phone into a debit card

REGISTRATION:
Existing Debit Card holders (Classic/GOLD) who are above 18years are eligible for mobile banking facilities. In case existing customers do not have debit cards, they have to first apply for Debit Cards and upon receipt of the same they can register for Mobile Payment facility. A customer would be able to register to use Pay mate services in any one of the following:
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DEMAT ACCOUNT
A Bank where its Head Office provides the facility of opening and conduct of Accounts through its branches, a Depository institution extends various services to the investors through its agents known as Depository Participant. In India, now there are two Depositories. They are CDSL and NSDL. Participant can be anybody who complies with the eligibility requirements. Participant (DP) can be a Bank also. All the various functions undertaken and enabled through Demat accounts are referred to as DP activity. Under the depository system, a demat account holder or holder/owner of securities who is entitled to all the benefits (such as dividend or interest/bonus or right shares etc), is known as a Beneficial Owner (BO).

PREREQUISITES OF OPENING A DEMAT ACCOUNT:

The formalities involved in opening a bank account and a demat account are similar. An investor desirous of holding his securities in electronic form can open a demat account with a DP of his choice by completing necessary account opening formalities after furnishing proof of his/her identity, photograph and proof of address. An agreement with the DP in the prescribed format is to be executed by paying requisite stamp duty.

DEMATERIALISATION OF SECURITIES:
After getting the demat account number from the DP, the BO can cause credit of fresh purchases of securities to his demat account and/or transfer the balances held in demat account held with other DP to this newly opened demat account. He can also tender the securities held by him/her in physical form to DP for dematerialization and credit to the demat account. After necessary verification, DP forwards the physical securities (duly defaced) either to the company or to their duly appointed RTA (Registrar and Transfer Agent) who, after necessary scrutiny, destroys the certificates in physical form and authorizes the depository to give corresponding (electronic) credit to the subject demat account.

FREE FACILITIES BY CDSL TO ITS DEMAT ACCOUNT HOLDERS:

The evolution of the Indian capital market has seen several enhancements during the past few years and this has been a result of innovative use of newer technologies. In the reduced settlement cycle era, investors require updated demat account information at a much faster pace than ever before. In other words, the quest for account status information has raised manifold. In order to facilitate a CDSL demat account holder to easily adapt to the fast reducing settlement cycle, CDSL has introduced Internet-enabled services called "easi" and "easiest" to empower a demat account holder in managing his securities 'anytime-anywhere' in an efficient and convenient
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manner, all in a state-of-the-art secure environment. Further to effective risk control mechanism for monitoring of demat account, CDSL has also introduced "smart" facility.

MONEY PLANT ATM

Karnataka Bank has entered into ATM sharing arrangement with NPCI-NFS and CashTree ATM network. The NFS network with NPCI has 66 Member Banks and covers around 86,793 ATMs while CashTree network has 13 member Banks and covers around 7400 ATMs. All Debit & MoneyplantTM International Visa Debit Card/MoneyplantTM ATM card holding customers of Karnataka Bank can avail the facility of withdrawal through Banks' MoneyPlant TM ATMs and shared network ATMs.

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1.3

ABOUT THE STUDY

One of the important functions of the Bank is to accept deposits from the public for the purpose

of lending. In fact, depositors are the major stakeholders of the Banking System. The depositors and their interests form the key area of the regulatory framework for banking in India and this has been enshrined in the Banking Regulation Act, 1949. The Reserve Bank of India is empowered to issue directives advices on interest rates on deposits and other aspects regarding conduct of deposit accounts from time to time. With liberalization in the financial system and deregulation of interest rates, banks are now free to formulate deposit products within the broad guidelines issued by RBI. This policy document on deposits outlines the guiding principles in respect of formulation of various deposit products offered by the Bank and terms and conditions governing the conduct of the account. The document recognises the rights of depositors and aims at dissemination of information with regard to various aspects of acceptance of deposits from the members of the public, conduct and operations of various deposits accounts, payment of interest on various deposit accounts, closure of deposit accounts, method of disposal of deposits of deceased depositors, etc., for the benefit of customers. While adopting this policy, the bank reiterates its commitments to individual customers outlined in 'Code of Banks' Commitment to Customers'. The various deposit products offered by the Bank can be categorised broadly into the following types. Definitions of major deposits schemes are as under: "Demand deposits" means a deposit received by the Bank which is withdrawable on demand. "Savings deposits" means a form of demand deposit which is subject to restrictions as to the number of withdrawals as also the amounts of withdrawals permitted by the Bank during any specified period. "Term deposit" means a deposit received by the Bank for a fixed period withdrawable only after the expiry of the fixed period. "Current Account" means a form of demand deposit wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount and will also include other deposit accounts which are neither Savings Deposit nor Term Deposit.

ACCOUNT OPENING AND OPERATION OF DEPOSIT ACCOUNTS

The Bank before opening any deposit account will carry out due diligence as required under "Know Your Customer" (KYC) guidelines issued by RBI Anti-Money Laundering rules and regulations and or such other norms or procedures as per the "Know Your Customer"(KYC)
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policy of the bank. If the decision to open an account of a prospective depositor requires clearance at a higher level, reasons for any delay in opening of the account will be informed to the customer and the final decision of the Bank will be conveyed at the earliest to the customer. The bank is committed to providing basic banking services to disadvantaged sections of the society. Banking services will be offered to them through 'no frill' accounts and accounts will be opened with relaxed customer acceptance norms as per regulatory guidelines. The account opening forms and other material would be provided to the prospective depositor by the Bank. The same will contain details of information to be furnished and documents to be produced for verification and/or for record, it is expected of the Bank official opening the account, to explain the procedural formalities and provide necessary clarifications sought by the prospective depositor when he approaches for opening a deposit account. The regulatory guidelines require banks to categorize customers based on risk perception and prepare profiles of customers for the purpose of transaction monitoring. Inability or unwillingness of a prospective customer to provide necessary information/details could result in the bank not opening an account. Inability of an existing customer to furnish details required by the bank to fulfil statutory obligations could also result in closure of the account after due notice(s) is provided to the customer. For deposit products like Savings Bank Account and Current Deposit Account, the Bank will normally stipulate certain minimum balances to be maintained as part of terms and conditions governing operation of such accounts. Failure to maintain minimum balance in the account will attract levy of charges as specified by the Bank from time to time. For Saving Bank Account, the Bank may also place restrictions on number of transactions, cash withdrawals, etc., for a given period. Similarly, the Bank may specify charges for issue of cheque books, additional statement of accounts, duplicate passbook, folio charges, etc. All such details, regarding terms and conditions for operation of the accounts and schedule of charges for various services provided will be communicated to the prospective depositor while opening the account. Savings Bank Accounts can be opened by eligible person/ persons and certain organizations/ agencies (as advised by Reserve Bank of India (RBI) from time to time). Current Accounts can be opened by individuals/partnership firms/ Private and Public Limited Companies/HUFs/ Specified Associates/Societies/ Trusts, Departments of Authority created by Government (Central or State), Limited Liability Partnership etc. Term Deposits Accounts can be opened by individuals/partnership firms/ Private and Public Limited Companies/HUFs/ Specified Associates/Societies/ Trusts, Departments of Authority created by Government (Central or State), Limited Liability Partnership etc.
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 The due diligence process, while opening a deposit account will involve satisfying about the identity of the person, verification of address, satisfying about his occupation and source of income. Obtaining introduction of the prospective depositor from a person acceptable to the Bank and obtaining recent photograph of the person/s opening/ operating the account are part of due diligence process. In addition to the due diligence requirements under KYC norms, the Bank is required by law to obtain Permanent Account Number (PAN) or General Index Register (GIR) Number or alternatively declaration in Form No. 60 or 61 as specified under the Income Tax Act/ Rules. Deposit accounts can be opened by an individual in his own name (status: known as account in single name) or by more than one individual in their own names (status: known as Joint Account). Savings Bank Account can also be opened by a minor jointly with natural guardian or with mother as the guardian (Status: known as Minors Account). Minors above the age of 10 will also be allowed to open and operate saving bank account independently. However no overdrafts will be granted to these minors. Operation of Joint Account: The Joint Account opened by more than one individual can be operated by single individual or by more than one individual jointly. The mandate for operating the account can be modified with the consent of all joint account holders. The Savings Bank Account opened by minor jointly with natural guardian/guardian can be operated by natural guardian only till the minor attains majority. The term deposit account holders at the time of placing their deposits can give instructions with regard to closure of deposit account or renewal of deposit for further period on the date of maturity. In the absence of such mandate, the Bank will seek instructions from the depositor/s as to the disposal of the deposit by sending intimation before 15 days of the maturity date of term deposit by post or courier at the last known address of the depositor. Nomination facility is available on all deposit accounts opened by individuals. Nomination is also available to a sole proprietary concern account. Nomination can be made in favour of one individual only. Nomination so made can be cancelled or changed by the account holder/s any time. While making nomination, the signature of the account holder/s in the nomination forms (DA1, DA2 & DA3) need not be attested by witnesses. However, thumb impression of the accountholder/s is required to be attested by two witnesses. Nomination can be modified by the consent of account holder/s. Nomination can be made in favour of a minor also. Nomination facility is also available for joint deposit accounts and in such cases nomination should be made by all depositors jointly.
18

NRI SERVICES
An Indian citizen or a foreign citizen of Indian origin who stays abroad for employment/carrying on business or vocation or under circumstances indicating an intention for an uncertain duration of stay abroad is a Non-Resident Indian (NRI). (Those who stay abroad on business visit, medical treatment, study or such other purposes which do not indicate an intention to stay there for an indefinite period will not be considered as NRIs). An NRI is a person resident outside India who is a citizen of India or is a person of Indian origin. Under the Foreign Exchange Management Act (FEMA), generally, a person is resident outside India if he is in India for less than 182 days during the course of the preceding financial year and also includes any person who stays abroad: For the purposes of carrying out employment or any business or vocation; Under circumstances indicating an intention to stay outside India for an uncertain duration; Any Indian citizen deputed outside India for a temporary period in connection with employment For education Bank offers vide range of deposit schemes for Non Resident Indians which includes Non Resident Rupee account (NR (E) RA), Foreign Currency Non-Resident Account (FCNR), Non-Resident Ordinary Account (NRO), and Resident Foreign Currency (Domestic) Account (RFCD). Opening and maintaining of Bank Accounts of Non- Resident Indian is guided by the Foreign Exchange Management Act-1999 (FEMA) and interest on terms deposits are revised based on LIBOR rates from time to time.

19

1.3.1 OBJECTIVES OF THE STUDY PRIMARY OBJECTIVE

To study the performance of deposit schemes in Karnataka Bank

SECONDARY OBJECTIVES
1) 2) 3) 4) 5) To evaluate the performance of cash inflow in the form of deposits To analyze the return on investment of deposit schemes To find out the performance of demand deposits, savings bank deposits and term deposits To analyze the efficiency of management To find out the relationship between the deposits and loans

20

1.3.2 SCOPE OF THE STUDY

The present study attempts to obtain a general view of deposit schemes practice in Karnataka bank. The study to know their increase or decrease of various schemes is also analyzed in order to give a true and clear picture of its performance. The present study aims at studying deposits of the Karnataka bank. The study focuses only the views of the bank. But it does include the views of the others who are directly or indirectly associated with the bank. It is concerned to the administration of assets & liabilities to analysis the profitability liquidity of the organization with the help of ratios.

21

1.3.3 IMPORTANCE OF THE STUDY

Cash flow statement shows efficiency of a firm in generating cash inflows from its regular operations. Return on investment can be used to measure the value of the bank or of a specific investment that they might make. Percentage analysis is help to evaluate and compare the deposits. Ratio analysis is an important technique of financial statement analysis. Accounting ratios are useful for understanding the financial position of the company. Different users such as investors, management, bankers and creditors use the ratio to analyze the financial situation of the company for their decision making purpose. The effect of correlation is to reduce the range of uncertainty. The prediction based on correlation analysis is likely to be more variable and near to reality.

22

1.3.4 LIMITATIONS OF THE STUDY

The analysis is based on the secondary data. Hence there is a limitation of doubtful accuracy. The data collected is limited to 5 years and hence it does not give the whole picture. As the present business moves from the cash basis to accrual basis, the prepaid and credit transactions might be represented an increase in working capital and it would be misleading to equate net income to cash flow because a number of non cash items would affect the net income. Return of investment does not take into account the time value of money. It does not account for the variable nature of annual net cash inflows. The ratios are generally calculated from past financial statements and thus are no indicator of future.

23

CHAPTER 2 REVIEW OF LITERATURE

Mr. Joseph (2005) studied the performance of Lead Bank Scheme in Kerala, the mobilisation of bank deposits in Kerala by commercial Banks. He observed that competition from co-operative and other institutions was the main obstacles to achieving the deposit mobilisation target. The popularity of private financial institutions was due to their personal relations with local people. 56.4 percent of the customers (self employed) surveyed had their first percent dealing with banks for taking loans.

Mr. Laurent (2006) studied the perception of customers on five competing banks in a medium size city in UK for private deposits. He observed that these five banks differed from each other as a result of oligopolistic market situation only on seven attributes i.e., friendliness, quality of service, community spirit, modem facilities, convenience, range of services and ownership. These seven attributes accounted for 91 percent of the overall differences between the five banks. The study revealed that on the basis of perception of overall image of the five banks relative to each other, there existed the different market segments.

K. Avadhani (2007) studied the performance of rural branches of some commercial banks in order to identify the factors influencing deposit mobilisation in rural areas in different states. He came out with the opinion that there existed sufficient relationship between the deposits of a rural branch and its age. The growth of deposits is at a faster rate in the first six years and tapers off subsequently. The growth rate in deposits of commercial banks cannot be explained in terms of price differentials as cooperatives offer high rates of interest. Therefore product differentials would offer a better explanation of the disparate growth rates in deposits.

Mr. Nag and Mr. Shivaswamy (2008) studied the comparative performance of foreign and Indian banks and observed that there was a distinct preference of bank customers to bank with foreign banks notwithstanding the fact that foreign banks stipulate relatively high levels of minimum amounts to be maintained as deposits and charge relatively high interest rates and service costs. In respect of deposit supplies, their strategy had been to procure from a segmented part of the total supplies of deposits of large size from a relatively small number of depositors. Large accretion of non-resident deposits with foreign banks was mainly because of the familiarity of the names of foreign banks operating in India to banks abroad.

24

Raju (2009) studied the levels of savings and the manner of their distribution among different physical and financial assets of household sector in Kerala and identified the factors influencing their savings behaviour. He found that major portions of the savings of households in Kerala were in the form of financial savings and that too in the form of bank deposits.

Subramanian (2010) analyzed the empirical analysis on dis-intermediation from the household sectors portfolio preferences point of view based on demand model of five assets including bank deposits The study revealed that the household sectors preferences between bank deposits and lending to private corporate sector tended to be in favour of the latter and against the former.

Nalini (2011) studied on the impact of mutual funds on the deposit mobilisation of commercial banks examined the awareness level and adoption level of mutual funds among household investors in Thiruvananthapuram district. She found that the advent of mutual funds has brought in expected changes in the growth of bank deposits and their ownership pattern, but the changes were not of a significant magnitude.

25

CHAPTER 3 RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the research problem. It may be understand as a science of studying as research is done scientifically in this we study various steps that are generally adopted by a researcher in studying the research problem along with logic behind them.

RESEARCH DESIGN
A Research design is a system of conditions for collection and analysis of data which aims to provide the precise information. Research is a systematic way of exploring, analysing and conceptualizing social life in order to extend and verify knowledge to see this research helps to construct a theory. This method is simply a systematically planned way of doing things to achieve the desired result. A Research design of this study is analytical in nature. It is an arrangement of condition of collection and analysis of data in a proper that aims to combine relevance to the research purpose with economy in procedure.

DATA DESIGN
Collection of data is the process remuneration together with the proper record of research. Those data which are already been passed through the statistical process. In this study is based on the secondary sources. Secondary data is the data that have been already collected by and readily available from other sources. Such data are cheaper and more quickly obtainable than the primary data and also may be available when primary data cannot be obtained at all. It is economical. It saves efforts and expenses It helps to make primary data collection more specific since with the help of secondary data, we are able to make out what are the gaps and deficiencies and what additional information needs to be collected It helps to improve the understanding of the problem It provides a basis for comparison for the data that is collected by the researcher The secondary data for the study is mainly collected through Annual reports Circulars Internet
26

TOOLS USED FOR ANALYSIS

RETURN OF INVESTMENT:
A performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. To calculate ROI, the return on an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. Return on investment is a popular metric because it is versatile and simple to use. If an investment does not have a positive ROI or if there are alternative investment opportunities with a higher ROI, the investment should not be undertaken.

EBIT Return of Investment = __________________ Capital Employed

PERCENTAGE ANALYSIS
Percentage analysis consists of reducing a series of related amounts to a series of percentages of a given base. Two approaches are often used. The first, called horizontal analysis, indicates the proportionate change in financial statement items over a period of time, such analysis is most helpful in evaluating trends. Vertical analysis (common-size analysis) is proportional expression of each item on the financial statements in a given period to a base amount. It analyzes the composition of each of the financial statements from different years (a) To detect trends not evident from the comparison of absolute amounts and (b) To make intercompany comparisons of different sized enterprises.

100 PERCENTAGE = __________________ BASE YEAR CURRENT YEAR

27

RATIO ANALYSIS:
Ratio analysis is the process of determining and presenting the relationship of items and group of items in the statements. According to Batty J. Management Accounting Ratio can assist management in its basic functions of forecasting, planning coordination, control and communication. It is helpful to know about the liquidity, solvency, capital structure and profitability of an organization. It is helpful tool to aid in applying judgement, otherwise complex situations. According to Accountants Handbook by Wixon, Kell and Bedford, a ratio is an expression of the quantitative relationship between two numbers. A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.

CURRENT RATIO
This ratio explains the relationship between current assets and current liabilities of a business.

Current Assets Current Ratio = __________________ Current Liabilities

Current Assets:-Current assets includes those assets which can be converted into cash with in a years time. Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment + Debtors (Debtors Provision) + Stock(Stock of Finished Goods + Stock of Raw Material + Work in Progress) + Prepaid Expenses. Current Liabilities: - Current liabilities include those liabilities which are repayable in a years time. Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation + Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable within a Year.

Significance:
According to accounting principles, a current ratio of 2:1 is supposed to be an ideal ratio.
28

It means that current assets of a business should, at least, be twice of its current liabilities. The higher ratio indicates the better liquidity position; the firm will be able to pay its current liabilities more easily. If the ratio is less than 2:1, it indicates lack of liquidity and shortage of working capital.The biggest drawback of the current ratio is that it is susceptible to window dressing. This ratio can be improved by an equal decrease in both current assets and current liabilities.

RATIO OF CURRENT LIABILITIES TO PROPRIETORS FUND:

This ratio explains the relationship between current liabilities and shareholders fund of a business.

Current Liabilities Ratio of Current Liabilities to Proprietors fund = __________________ Shareholders fund

Significance:
This ratio should be 33% or more than that. In other words, the proportion of shareholders funds to total funds should be 33% or more. A higher proprietary ratio is generally treated an indicator of sound financial position from long-term point of view, because it means that the firm is less dependent on external sources of finance. If the ratio is low it indicates that long-term loans are less secured and they face the risk of losing their money.

INTEREST COVERAGE RATIO

This ratio is also termed as Debt Service Ratio. This ratio is calculated as follows:

EBIT Interest Coverage Ratio = ______________________________________ Fixed Interest Charges

Significance:
This ratio indicates how many times the interest charges are covered by the profits available to pay interest charges. This ratio measures the margin of safety for long-term lenders. This higher the ratio, more secure the lenders is in respect of payment of interest regularly.
29

If profit just equals interest, it is an unsafe position for the lender as well as for the company also, as nothing will be left for shareholders. An interest coverage ratio of 6 or 7 times is considered appropriate.

DEBT EQUITY RATIO

This ratio expresses the relationship between outsiders fund and shareholders fund.

Outsiders fund Debt Equity Ratio = ________________________________________ Shareholders fund

Outsiders Funds: - These refer to long term liabilities which mature after one year. These include Debentures, Mortgage Loan, Bank Loan, and Loan from Financial institutions and Public Deposits etc. Shareholders Funds: - These include Equity Share Capital, Preference Share Capital, Share Premium, General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit & Loss Account.

Significance:
This Ratio is calculated to assess the ability of the firm to meet its long term liabilities. Generally, debt equity ratio of is considered safe. If the debt equity ratio is more than that, it shows a rather risky financial position from the long-term point of view, as it indicates that more and more funds invested in the business are provided by long-term lenders. The lower this ratio, the better it is for longterm lenders because they are more secure in that case. Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders.

WORKING CAPITAL RATIO

This ratio shows the difference between the current assets and current liabilities.

Working Capital Ratio

Current Assets

Current Liabilities

30

Significance:
This ratio is of particular importance in non-manufacturing concerns where current assets play a major role in generating sales. It shows the number of times working capital has been rotated in producing sales.A high working capital turnover ratio shows efficient use of working capital and quick turnover of current assets like stock and debtors. A low working capital turnover ratio indicates underutilisation of working capital.

CASH FLOW STATEMENT

The cash flow statement is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. The cash flow statement is distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit. Therefore, cash is not the same as net income, which, on the income statement and balance sheet, includes cash sales and sales made on credit. The money coming into the business is called cash inflow, and money going out from the business is called cash outflow.

CORRELATION
The correlation is one of the most common and most useful statistics. A correlation is a single number that describes the degree of relationship between two variables.

31

CHAPTER 4 DATA ANALYSIS AND INTERPRETATIONS

4.1 RETURN OF INVESTMENT

A performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. Return on investment is a popular metric because it is versatile and simple to use. If an investment does not have a positive ROI or if there are alternative investment opportunities with a higher ROI, the investment should not be undertaken.

EBIT Return of Investment = __________________ Capital Employed

TABLE 4.1.1 RETURN ON INVESTMENT (RS.IN CRORES)

YEARS EBIT CAPITAL EMLOYED 2007 2008 2009 2010 2011 Source: Secondary data 0.18 0.25 0.27 0.17 0.21 1.66 1.52 1.57 2.17 3.52 0.11 0.16 0.17 0.08 0.06 ROI

INTERPRETATION:
The above table shows that the performance of return on investment is based on deposits. The return on investment has been increased up to 2009. In 2010, the earning before in tax
32

started to decrease, so the return on investment also started to decrease in the year. The highest rate of return on investment is 0.17 Crores in the year 2009.

CHART 4.1.1 RETURN ON INVESTMENT

0.18 0.16 0.14 Rs. In Crores 0.12 0.1 0.08 0.06 0.04 0.02 0 2007 0.11

0.16

0.17

0.08 0.06

2008

2009 Years

2010

2011

33

4.2 PERCENTAGE ANALYSIS

Percentage analysis consists of reducing a series of related amounts to a series of percentages of a given base. Two approaches are often used. The first, called horizontal analysis, indicates the proportionate change in financial statement items over a period of time, such analysis is most helpful in evaluating trends. Vertical analysis (common-size analysis) is proportional expression of each item on the financial statements in a given period to a base amount. It analyzes the composition of each of the financial statements from different years (a) To detect trends not evident from the comparison of absolute amounts and (b) To make intercompany comparisons of different sized enterprises.

100 PERCENTAGE = __________________ BASE YEAR CURRENT YEAR

TABLE 4.2.1 DEMAND DEPOSITS

YEARS 2007 2008 2009 2010 2011 AMOUNTS (Rs) 10,806,889 11,192,915 11,570,171 17,064,834 18,560,921 PERCENTAGE 100 103.57 107.06 157.91 171.75

Source: Secondary data

INTERPRETATION:
The percentage analysis about demand deposits will be presented in the above table. The year 2007 was taken as the base year for find out the percentage of deposits increased for remaining
34

years (i.e., 2008 to 2011). The percentage of deposits increased compare to previous years because of increasing customers year by year.

CHART 4.2.1 DEMAND DEPOSITS

200 180 160 140 Percentage 120 100 100 80 60 40 20 0 2007 2008 2009 Years 2010 2011 103.57 107.06 157.91 171.75

35

TABLE 4.2.2 SAVINGS BANK DEPOSITS

YEARS 2007 2008 2009 2010 2011 AMOUNTS (Rs) 21,998,110 26,483,683 28,994,262 38,136,801 49,465,383 PERCENTAGE 100 120.39 131.80 173.36 224.86

Source: Secondary data

INTERPRETATION:
The above table shows the performance of savings bank deposits for the last five years with the help of percentage analysis. The year 2007 was taken as the base year for find out the percentage of deposits increased for remaining years (i.e., 2008 to 2011). The percentage of deposits increased compare to previous years because of increasing customers year by year.

CHART 4.2.2 SAVINGS BANK DEPOSITS

250 200 Percentage 150 100 100 50 0 2007 2008 2009 Years 2010 2011 131.8 224.86 173.36 120.39

36

TABLE 4.2.3 TERM DEPOSITS

YEARS 2007 2008 2009 2010 2011 Source: Secondary data AMOUNTS (Rs) 107,569,355 132,485,325 162,768,420 182,104,853 205,338,159 PERCENTAGE 100 123.16 151.31 169.29 190.89

INTERPRETATION:
The above table shows the performance of term deposits for the last five years with the help of percentage analysis. The year 2007 was taken as the base year for find out the percentage of deposits increased for remaining years (i.e., 2008 to 2011). The percentage of deposits increased compare to previous years because of increasing customers year by year.

CHART 4.2.3 TERM DEPOSITS

250 190.89 169.29 Percentage 151.31 150 100 100 123.16

200

50

0 2007 2008 2009 Years 2010 2011

37

4.3 RATIO ANALYSIS

Ratio analysis is the process of determining and presenting the relationship of items and group of items in the statements. According to Batty J. Management Accounting Ratio can assist management in its basic functions of forecasting, planning coordination, control and communication.

4.3.1 CURRENT RATIO

Current Assets Current Ratio = __________________ Current Liabilities

TABLE 4.3.1 CURRENT RATIO (RS.IN CRORES)

Years 2007 2008 2009 2010 2011 Current Assets 10.71 12.83 13.27 16.24 19.33 Current Liabilities 4.22 4.71 5.01 6.99 8.73 Current Ratio 2.53 2.72 2.65 2.32 2.21

Source: Secondary data

INTERPRETATION:
The current ratio of the company this shows that the current ratio is more than the standard level 2:1 so they should maintain this for future
38

CHART 4.3.1 CURRENT RATIO

3 2.53 2.5 2 Rs.In Crores 1.5 1 0.5 0 2007

2.72

2.65 2.32 2.21

2008

2009 Years

2010

2011

39

4.3.2 RATIO OF CURRENT LIABILITIES TO PROPRIETORS FUND:

This ratio explains the relationship between current liabilities and shareholders fund of a business.

Current Liabilities Ratio of Current Liabilities to Proprietors fund = __________________ Shareholders fund

TABLE 4.3.2 RATIO OF CURRENT LIABILITIES TO PROPRIETORS FUND (RS.IN CRORES)

Years Shareholders fund Current Liabilities Ratio of Current Liabilities to Proprietors fund 2007 2008 2009 2010 2011 1.24 1.38 1.57 1.83 2.43 4.22 4.71 5.01 6.99 8.73 3.40 3.41 3.19 3.82 3.59

Source: Secondary data

INTERPRETATION:
The above table reveals that ratio of current liabilities to Proprietors fund does not have same level of ratio. In 2008, the ratio has been increased when compare to the previous year. But in 2009, the ratio has decreased. Then again the ratio has started to increase in 2010 and decrease in 2011.

40

CHART 4.3.2 RATIO OF CURRENT LIABLITIES TO PROPRIETORS FUND

3.9 3.8 3.7 3.6 3.5 Rs. In Crores 3.4 3.4 3.3 3.2 3.1 3 2.9 2.8 2007 2008 2009 Years 3.19 3.41

3.82

3.59

2010

2011

41

4.3.3 INTEREST COVERAGE RATIO

This ratio is also termed as Debt Service Ratio. This ratio is calculated as follows:

EBIT Interest Coverage Ratio = ______________________________________ Fixed Interest Charges

TABLE 4.3.3 INTEREST COVERAGE RATIO (RS.IN CRORES)

Years EBIT Fixed Interest Charges 2007 2008 2009 2010 2011 0.18 0.26 0.28 0.17 0.21 0.83 1.10 1.44 1.71 1.76 Interest Coverage Ratio 0.22 0.24 0.19 0.10 0.12

Source: Secondary data

INTERPRETATION:
The above table reveals that ratio of current liabilities to Proprietors fund does not have same level of ratio. In 2008, the ratio has been increased when compare to the previous year. But in 2009, the ratio has decreased. Then again the ratio has started to increase in 2010 and decrease in 2011.

42

CHART 4.3.3 INTEREST COVERAGE RATIO

0.3 0.25 0.2 0.15 0.1 0.1 0.05 0 2007 2008 2009 Years 2010 2011 0.24 0.22 0.19

Rs. In Crores

0.12

43

4.3.4 DEBT EQUITY RATIO

This ratio expresses the relationship between outsiders fund and shareholders fund.

Outsiders fund Debt Equity Ratio = ________________________________________ Shareholders fund

Outsiders Funds: - These refer to long term liabilities which mature after one year. These include Debentures, Mortgage Loan, Bank Loan, and Loan from Financial institutions and Public Deposits etc. Shareholders Funds: - These include Equity Share Capital, Preference Share Capital, Share Premium, General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit & Loss Account.

TABLE 4.3.4 DEBT EQUITY RATIO (RS.IN CRORES)

Years 2007 2008 2009 2010 2011 Source: Secondary data Outsiders fund 0.94 0.94 0.96 1.47 1.93 Shareholders fund 1.24 1.38 1.57 1.83 2.43 Debt Equity Ratio 0.76 0.68 0.61 0.80 0.79

INTERPRETATION:
The above table reveals that interest coverage ratio during the year 2007 was 0.76 and it is gradually decreasing to 0.68 and 0.61 in the next years. But in 2010, the ratio is increasing to 0.80. And again the ratio is decreasing to 0.79.
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CHART 4.3.4 DEBT EQUITY RATIO

0.9 0.8 0.7 Rs. In Crores 0.6 0.5 0.4 0.3 0.2 0.1 0 2007 2008 2009 Years 0.76 0.68 0.61

0.8

0.79

2010

2011

45

4.3.5 WORKING CAPITAL RATIO

This ratio shows the difference between the current assets and current liabilities.

Working Capital Ratio

Current Assets

Current Liabilities

TABLE 4.3.5 WORKING CAPITAL (RS.IN CRORES)

Years 2007 Current Assets 10.71 Current Liabilities 4.22 Working Capital 6.49

2008

12.83

4.71

8.12

2009

13.27

5.01

8.26

2010

16.24

6.99

9.25

2011

19.33

8.73

10.6

Source: Secondary data

INTERPRETATION:
The above table reveals that working capital has been increasing every year. It shows this ratio have more value in the future.

46

CHART 4.3.5 WORKING CAPITAL

12 10.6 10 8.12 8 Rs. In Crores 6.49 6 8.26 9.25

0 2007 2008 2009 Years 2010 2011

47

4.4 CASH FLOW STATEMENT TABLE 4.4.1 CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2007

March 31, Particulars Rs 2007 Rs

A.CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax and extra ordinary items Adjustments for : Depreciation on Fixed Assets including Least Adjustment charges Provisions and Contingencies Amortisation of premium on Held to Maturity Investments Rights Issue Expenses Operating profit before working capital changes Adjustment for : 166,081 837,800 107,220 0

2,730,376

1,111,101 3,841,477

Advances & Other Assets Investments Deposits, Borrowings & Other Liabilities

-16,552,492 4,509,462 9,484,091 -2,558,939

Cash generated from operations Direct taxes paid Net cash flow from operating activities (A) Source: Secondary data

1,282,538 1,212,431 70,107

INTERPRETATION:
The above table shows the performance of cash inflow and outflow of March 31st 2007, the total amount of deposits was 9,484,091. It evaluates the cash inflow and outflow is based on deposits.
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TABLE 4.4.2 CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2008
March 31, Particulars Rs Rs 2008

A.CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax and extra ordinary items Adjustments for : Depreciation on Fixed Assets including Least Adjustment charges Provisions and Contingencies Amortisation of premium on Held to Maturity Investments Rights Issue Expenses Operating profit before working capital changes Adjustment for : 174,558 577,000 103,505 0

3,435,443

855,063 4,290,506

Advances & Other Assets Investments Deposits, Borrowings & Other Liabilities

-12,493,493 -8,994,232 27,882,669 6,394,944

Cash generated from operations Direct taxes paid Net cash flow from operating activities (A)

10,685,450 1,662,277 9,023,173

Source: Secondary data

INTERPREATION:
The above table shows the performance of cash inflow and outflow of March 31st 2008, the amount of deposits has been increased when compare to March 31st 2007.
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TABLE 4.4.3 CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2009
March 31, Particulars Rs Rs 2009

A.CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax and extra ordinary items

4,061,484

Adjustments for : Depreciation on Fixed Assets including Least Adjustment charges Provisions and Contingencies Amortisation of premium on Held to Maturity Investments Rights Issue Expenses Operating profit before working capital changes Adjustment for : 198,281 805,000 119,484 0 1,122,765 5,184,249

Advances & Other Assets Investments Deposits, Borrowings & Other Liabilities

-9,192,728 -26,504,345 31,663,643 -4,033,430

Cash generated from operations Direct taxes paid Net cash flow from operating activities (A)

1,150,819 1,681,016 -530,197

Source: Secondary data

INTERPRETATION:
The above table shows the performance of cash inflow and outflow of March31st 2009, the amount of deposits has been increased when compare to March 31st 2008.
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TABLE 4.4.4 CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2010
March 31, Particulars Rs Rs A.CASH FLOW FROM OPERATING ACTIVITIES 2010

Net profit before tax and extra ordinary items

1,930,483

Adjustments for : Depreciation on Fixed Assets including Least Adjustment charges Provisions and Contingencies Amortisation of premium on Held to Maturity Investments Rights Issue Expenses Operating profit before working capital changes Adjustment for : 221,451 710,830 288,649 0 1,220,930 3,151,413

Advances & Other Assets Investments Deposits, Borrowings & Other Liabilities

-26,628,891 -10,412,005 37,932,753 891,857

Cash generated from operations Direct taxes paid Net cash flow from operating activities (A)

4,043,270 1,025,830 3,017,440

Source: Secondary data

INTERPRETATION:
The above table shows the performance of cash inflow and outflow of March31st 2010, the amount of deposits has been increased when compare to March 31st 2009.
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TABLE 4.4.5 CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2011
March 31, Particulars Rs Rs 2011

A.CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax and extra ordinary items Adjustments for : Depreciation on Fixed Assets including Least Adjustment charges Provisions and Contingencies Amortisation of premium on Held to Maturity Investments Rights Issue Expenses Operating profit before working capital changes Adjustment for : Advances & Other Assets Investments Deposits, Borrowings & Other Liabilities -27,235,702 -15,603,686 34,360,220 229,918 1,203,520 71,445 0

2,354,458

1,504,883 3,859,341

8,479,168 -4,619,827 1,274,120 -5,893,947

Cash generated from operations Direct taxes paid Net cash flow from operating activities (A)

Source: Secondary data

INTERPRETATION:
The above table shows the performance of cash inflow and outflow of March31st 2011, the amount of deposits has been decreased when compare to March 31st 2010.

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TABLE 4.4.6 NET CASH FLOW FROM OPERATING ACTIVITIES (RS.IN LAKHS)
Years 2007 2008 2009 2010 2011 Source: Secondary data Net Operating activities 0.7 90.23 -5.3 30.17 -58.93

INTERPRETATION:
The above table shows the deposits are one of the main factors of net cash flow from operating activities. The cash inflow is based on the deposits. If the amount of deposits increased, the net cash flow also increased.

CHART 4.4.1 NET OPERATING ACTIVITIES

90.23 100 80 60 40 Rs. In Lakhs 20 0.7 0 -20 -40 -60 -58.93 -80 Years 2007 2008 2009 -5.3 2010 2011 30.17

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4.5 CORRELATION
The correlation is one of the most common and most useful statistics. A correlation is a single number that describes the degree of relationship between two variables.

TABLE 4.5.1 CORRELATION: (RS.CRORES)

Years 2007 2008 2009 2010 2011 Deposits(x) 14 17 20 24 27 Loans(y) 10 11 12 14 17

Source: Secondary data

RESULT: r = 0.98

INTERPRETATION:
The above calculation shows the positive correlation. So there is significant relationship between two variables.

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CHAPTER 5 FINDINGS AND SUGGESTIONS

5.1 FINDINGS
The deposits of Karnataka bank have been increasing every year The highest net cash flow from operating activities is 90.23 lakhs in the year 2008 and the lowest net cash flow from operating activities -58.93 lakhs in the year 2011 The percentage analysis helps to identify the percentage of demand deposits, savings bank deposits and term deposits have been increasing every year The percentage of savings bank deposits has been doubled in the year 2011 The current ratio of the bank from the year, 2007-2011 is to be above 2:1and it is satisfactory The highest ratio of current liabilities to proprietors fund is 3.82 crores in the year 2010 The lowest interest coverage ratio is 0.10 crores in the year 2010 The highest debt equity ratio is 0.80 crores in the year 2010 The working capital of the bank have been increasing every year, so the bank shall use the capital effectively The result of correlation shows positive correlation.

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5.2 SUGGESTIONS
The deposit schemes are showing an unconstructive sign. So the bank keeps in control for the future period The percentage analysis are essentially concerned with the identification of significant accounting data relationships, which give the decision-maker insights into the financial performance of a company Ratio analysis has a major significance in analysing the financial performance of a company over a period of time. The bank shall improve their level of cash and bank balances because it is playing a vital role for additional improvement The result of correlation shows positive correlation. So there is a good relationship between deposits and loans in the bank

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CONCLUSION
The study is made on the topic deposit schemes by using financial tools & with five years data at Karnataka bank Ltd. This tools used for the study helped in determining the position of the concern consequently for the past five years. The analysis of financial statements is a process of evaluating the relationship between component parts of financial statements to obtain a better understanding of the firms position and performance. The banks overall financial position is satisfactory. The bank deposit schemes have been increasing year by year, so the bank gets more growth in every year.

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BIBLIOGRAPHY Web sites www.karnatakabank.com www.wikipedia.org www.google.com Books referred

Basic Financial Management MY Khan & PK Jain Financial Management Prasanna Chandra Financial Accounting Jon Ben Hoyle & CJ Skender

Annual reports
Annual report 2006 2007 Annual report 2007 2008 Annual report 2008 2009 Annual report 2009 2010 Annual report 2010 2011

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APPENDIX KARNATAKA BANK (P) LTD

MARCH-11 MARCH-10 MARCH-09 MARCH-08 MARCH-07

CAPITAL AND LIABILITIES Capital Reserves and Surplus Deposits Borrowings Other Liabilities and Provision 8,411,403 11,301,159 9,535,209 8,018,267 5,257,148 22,408,866 273,364,463 10,863,339 16,987,632 237,306,488 3,416,403 14,454,423 203,332,853 39,728 12,582,500 170,161,923 1,421,955 11,172,744 140,374,354 4,207,383 1,882,004 1,339,861 1,215,847 1,213,533 1,213,533

TOTAL

316,930,075

270,351,543

228,578,060

193,398,178

162,225,162 316,930,0

ASSETS Cash & balances with RBI Balances with Banks and Money at Call & Short Notice Investments Advances Fixed Assets Other Assets TOTAL Contingent Liabilities 462,519 115,063,393 173,480,709 1,455,268 7,070,131 316,930,075 90,358,016 9,628,992 624,503 99,920,463 144,356,833 1,480,758 6,538,007 270,351,543 101,192,384 10,322,427 957,539 89,614,883 118,100,450 1,384,876 4,870,482 228,578,060 100,427,447 9,289,287 5,020,429 59,637,087 108,419,746 1,197,731 4,301,126 193,398,178 69,590,090 7,646,757 3,346,911 50,481,644 95,526,799 1,068,216 3,533,355 162,225,162 34,279,000 6,728,849 19,398,055 17,430,979 13,649,830 14,822,059 8,268,237

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