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2011-12

A Report on Financial Analysis of Bank Of Baroda

Preface
Knowledge is not power but the applied knowledge is power As the above line suggests the importance of application of knowledge, this report contains the pragmatic approach of financial concepts and its applicability in banking that is through financial analysis of Bank Of Baroda. The practical approach is much more important to have an exposure of concepts which have been learnt in the class room teaching. This report contains the financial analysis of a Bank named Bank of Baroda in vis--vis comparison with HDFC Bank Ltd.

G.H.Patel P.G. Institute of Business Management

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Acknowledgement
We would like to pay our thanks to all who helped me while doing this project work. Without the support of colleague and guide this project would have not been prepared. We would like to pay our special thanks to Dr. A. C. Mehta who helped us in clearing the concepts of management of financial institutions and principles and practices of Banking. We would also pay our thanks to our friends who helped us in preparing this report.

G.H.Patel P.G. Institute of Business Management

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Index

Sr.No.
1 2 3 4 5 6 7 8 9 Introduction

Particulars

Page No.
5 6 8 9 10 11

History of the Bank of Baroda The profit and loss Account of company The Balance sheet of the company Bank of Baroda: Key Strengths The ratio analysis : CAMEL analysis The Stock Price analysis Conclusion Bibliography

G.H.Patel P.G. Institute of Business Management

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1. Introduction
The financial institution i.e. banking industry is the Back Bone of any Economy. And the public sector banks especially in India have given a considerable contribution in financing and investment part of economy. This report contains the financial over view and analysis of a giant public sector bank i.e. Bank of Baroda. Starting from a city like Baroda now it has travelled through the entire globe and has became Indias international bank. This report contains the CAMEL Rating Analysis of Bank of Baroda in vis--vis comparison with HDFC Bank Ltd. Generally it is believed that public sector units are less competitive as compared to private sector units thats why it is very interesting to have a comparison between two big Bs i.e. Banks one is public sector Lion (BoB) and the another one is private sector Tiger (HDFC).

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2. History of the Bank of Baroda 2.1. History.


Prior to independence from the British Rule, the ancient India was ruled by princely states, scattered over the width and breadth of the large Indian nation. The Maharajas of the inner States of colonial India contributed to the welfare of their respective regions as well as the Indian nation as a whole. Their vision and foresight in founding various financial, charitable, social and philanthropic organizations during their time is still cherished by any one going into the history of modern India and its achievements in every walk of life. The Maharaja of Baroda, a princely state of British India, by name Sir Sayyajirao Gaekwad III, had the same vision in establishing a bank for servicing the public at large and the citizens of Baroda State, a Gujarati population in particular. On 20th July 1908, Bank of Baroda was established under the rules of Companies Act 1897, in a small building at Baroda, by the Maharaja with a paid up capital of Rs.10 lakhs. The guidelines set by the Maharaja for the bank was to serve the people of the State of Baroda as well as the neighboring regions with money lending, saving, transmission and encouraging the development of arts, science, commerce and trade for the people. Even during the worst financial disaster caused by the First World War, during the period 1913 to 1917, when as many as 87 banks closed their shutters, Bank of India survived the turbulence with its clear vision, ethical standards and financial prudence to grow from strength to strength. There were heroes to sustain the development of this bank to its present glory, from ordinary people as customers and the heirs of the Royal family of Baroda. The success story of the Bank of Baroda is studded with many a leaps and strides it made in the International presence, apart from establishing branches all over the Indian nation, by acquisition of already popular banking entities, as also commencing new commercial banking establishments, in the unique Gujarathi style. During the years of 1908 to 2007 (and the century year being round the corner) Bank of Barodas growth owes to the excellence in rendering financial products and services to the national and international population.

G.H.Patel P.G. Institute of Business Management

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2.2 The Profile of Bank of Baroda

Name: Type Traded as Industry Founded Headquarters Area served Key people Products

Bank Of Baroda Public BSE: 532134 Banking, Financial services 1908 Vadodara, India ,Mumbai, india Worldwide M. D. Mallya (Chairman & MD) Credit cards, consumer banking, corporate banking, finance and insurance, investment banking, mortgage loans, private banking, private equity, wealth management INR25,800 crore (US$5.15 billion) (2011)[1] INR4,433 crore (US$884.38 million) (2011)[2] INR355,826 crore (US$70.99 billion) (2011)[3] www.bankofbaroda.com

Revenue Net income Total assets Website

Source: http://en.wikipedia.org/wiki/Bank_of_Baroda

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3. The profit and loss Account of Bank of Baroda

Source: Annual Report, Bank of Baroda:2010-11

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4. The Balance sheet of the Bank of Baroda

Source: Annual Report, Bank of Baroda:2010-11

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5. Bank of Baroda: Key Strengths

Source: The corporate presentation, Bank of Baroda:2010-11

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6. The ratio analysis: CAMEL analysis

Ratio analysis is a powerful tool for the interpretation of the financial statement. A ratio can be defined as the indicated quotient of two mathematical expressions in financial analysis the ratio is used as the benchmark for evaluating the financial position and performance of a firm. The relation between two accounting figures, expressed mathematically, is known as financial ratios. The financial performance analysis in the banking industry is done through the help of stereotype ratios i.e. CAMEL analysis. Banks are rated on various parameters, based on financial and non financial performance. One of the popular technique to measure the performance. CAMEL, each letter refers to the specific category of performance. Capital Adequacy Assets Quality Management Quality Earnings Liquidity

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6.1 Capital Adequacy


Capital Adequacy is a measure of an FI's financial strength, in particular its ability to cushion operational and abnormal losses. An FI should have adequate capital to support its risk assets in accordance with the risk-weighted capital ratio framework. It has become recognized that capital adequacy more appropriately relates to asset structure than to the volume of liabilities. This is exemplified by central banks' efforts internationally to unify the capital requirements of commercial banks and to generate worldwide classification formulae such as the one proposed here. This indicator requires that assets be classified by reference to their demands on the equity structure of financial institution. The CAR indicator is derived by comparing the ratio of an entity's equity to its assets-at-risk. The covenant specifies that the borrower/EA/FI should not make an advance to a sub borrower, if after making the advance, the ratio (the performance indicator) of its equity to its assets-at-risk would be greater than that specified in the covenant.
Risk-free assets should include: (i) Cash on hand; (ii) Due from Banks; (iii) Interbank loans; (iv) Government-guaranteed Divided By loans; and (v) Investments in government securities, Total Assets - Loan loss etc. Provision - Risk-free Assets [Paid in Capital + Reserve Funds + Net Profits] x 100

Capital Adequacy Ratio (%) =

Source: Reserve Bank of India, Glossary of Financial Terms.

Assets-at-risk are defined as the total of the impaired values of assets at the date of making the advance to the sub borrower. Assets are typically classified as: (i) risk-free; (ii) minimum risk; (iii) general risk; (iv) substandard; (v) "workout" (or minimal chance of recovery); and (vi) fixed assets, furniture and office equipment, computers, etc. To each of these classifications is awarded a percentage of their values for which an FI's capital is needed to cover risk of losses. It includes three ratios
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1) CAR i.e. Capital Adequacy Ratio 2) Debt to Equity Ratio(Financial leverage) 3) Credit Extended Ratio

6.1.1. Capital Adequacy Ratios of Bank of Baroda

Capital Adequacy Ratio


18 16 14 12

in %

10 8 6 4 2 0 BOB HDFC 2007 14.52 13.8 2008 14.36 13.6 2009 14.05 15.09 2010 12.91 16.45 2011 11.8 15.32

Source: www.moneycontrol.com

The capital Adequacy ratio of Bank of Baroda has been improving from FY 2007 to FY 2010. But it has reduced in the FY 2011. CAR of BoB has been more than the HDFC Bank in initial years but it is less than that of HDFC bank in last two years.

G.H.Patel P.G. Institute of Business Management

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6.1.2. Debt to Equity


The debt to equity ratio shows the financial leverage factor which multiplies the income of equity holders. The financial leverage is defined as the use of fixed income bearing fund s to multiply the income of equity holders or earning per share. ROE = ROCE * Equity multiplier (financial leverage) Debt to Equity Ratio of Bank of Baroda

Debt to Equity Ratio


18 16 14 12 in times 10 8 6 4 2 0 BOB HDFC 2007 14.57 10.98 2008 14.12 9.12 2009 15.43 10.34 2010 16.8 8.35 2011 15.6 8.71

Source: www.moneycontrol.com

Banking industry is highly levered industry as compared to other manufacturing industry. Bank of Baroda being a public sector bank is having higher portion of debt in its capital structure as compared to the private player i.e. HDFC bank. Higher the financial leverage higher the return on equity and vice versa but at the same time financial leverage is a double edged sword which can cause a bankruptcy in case of situation of fluctuating income of the bank. But being a public sector bank, BoB can afford higher degree of leverage because support of RBI.

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6.1.3. Credit Extended Ratio


The credit extended ratio is being calculated by dividing the advances by total assets.

Credit Extended Ratio


70 60 50 In % 40 30 20 10 0 BOB HDFC 2007 58.42 51.36 2008 59.41 47.59 2009 63.32 53.97 2010 62.89 56.56 2011 63.81 57.84

Source: www.moneycontrol.com

The credit extended ratio of BoB has consistently been more than HDFC bank. The higher the ratio more aggressive the bank is. BoB is more aggressive in lending than HDFC bank.

G.H.Patel P.G. Institute of Business Management

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6.2. Assets Quality


The type of assets in the banking industry is different than that of other industries. The banks have financial assets like loans and advances. These assets should generate the income which must be adequate as well as regular. NPAs. i.e. Non Performing Assets is a tree letter terror in the banking industry. Because it not only impacts the profitability but also impacts the liquidity and credibility of the bank and it ruins the reputation as well. Asset quality has direct impact on the financial performance of an FI. The quality of assets particularly, loan assets and investments, would depend largely on the risk management system of the institution. The value of loan assets would depend on the realizable value of the collateral while investment assets would depend on the market value.

Two ratios are been calculated to measure the assets quality. 1) Net NPAs to Net Advances ratio 2) Net NPAs to Total Assets Ratio

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6.2.1. Net NPAs to Net Advances ratio


Net NPAs to Net advances ratio is calculated by dividing Net NPAs i.e. total NPAs minus provisions for NPAs by Net Advances i.e. total advances minus provisions made for NPAs.

Net NPAs to Net advances ratio


0.7 0.6 0.5 0.4 In % 0.3 0.2 0.1 0 BOB HDFC

2009 0.31 0.63

2010 0.34 0.31

2011 0.35 0.19

Source: Banking survey by Business Standard, 2011

The net NPAs to Net advances ratio in BoB in FY 2009 is lower than HDFC Bank while it is higher in the year 2011 because of liberal recovery and expansion of operation The lower the ratio more efficient the bank is.

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6.2.2. Net NPAs to Total Assets Ratio


This ratio is calculated by dividing Net NPAs by Total Assets.

Net NPAs to Total assets ratio


0.4 0.35 0.3 0.25 In % 0.2 0.15 0.1 0.05 0 BOB HDFC 2009 0.197 0.342 2010 0.216 0.176 2011 0.221 0.107

Source: Banking survey by Business Standard, 2011

The Net NPAs to Total assets ratio of BoB was lower than that of HDFC bank in the year 2009 but again it is higher than that of HDFC bank in FY 2011. The lower the Ratio more efficient the Bank is. The higher % of NPAa eats out the productivity of performing assets so NPAs are as dangerous for the Bank as the terror for mankind.

G.H.Patel P.G. Institute of Business Management

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