a summer training project report on “financial

A Summer Training

Project ReportOn

“FINANCIAL STATEMENT ANALYSIS”

OF

ORISSA STATE CO-OPERATIVE BANK LTD.BHUBANESWAR.

SUBMITTED TO RIMS, ROURKELA (B.P.U.T)

In partial fulfillment of the requirement for the award of degree of Master of Business Administration.

(2008-2010)UNDER THE GUIDANCE OF

Corporate Guide : Internal Guide :

Mr. Sarada Kanta Das Prof. Narayan Chandra SamalFaculty of ACSTI, Lecture in FinanceOrissa State Cooperative Bank Ltd. RIMS, Rourkela. Bhubaneswar.

SUBMITTED BY:

JYOTI PRAKASH BARIK Regd. No.:0806260005

Session: 2008-2010 RIMS, Rourkela.

.

BIJU PATNAIK UNIVERSITY OF TECHNOLOGY, ROURKELARourkela Institute of Management Studies, Rourkela Page |

1

Rourkela Institute of Management Studies, Rourkela Page | 2

CERTIFICATE OF THE INTERNAL GUIDE:

This is to certify that the project entitled “Financial Statement Analysis of Orissa State Co-operative Bank Ltd.” is a bonafide record of interim report carried out by Mr. Jyoti Prakash Barik a student of Rourkela Institute of Management Studies, Rourkela, bearing University Registration Number 0806260005 (Session 2008-2010), has successfully completed his Summer Project for the partial fulfillment of the requirements of the award of the degree of Master of Business Administration of Biju Patnaik University of Technology, Orissa, Rourkela. To the best of my knowledge and belief, this project is the original effort and contribution which he has worked sincerely under my guidance in this duration. The summer project report has not been submitted earlier to this University or to any other University/Institutions.

Wishing him good luck for a successful career and all future endeavors.

Date: Name and Signature of the Guide

Prof. Narayan Chandra Samal

Lecture in Finance

RIMS, Rourkela.


DECLARATION

I JYOTI PRAKASH BARIK, bearing Registration Number: 0806260005, a student of MBA of Rourkela Institute of Management Studies, under BIJU PATNAIK UNIVERSITY OF TECHNOLOGY, Rourkela, Orissa, (2008-2010) do hereby declare that the Summer Training Project Report entitled “Financial Statement Analysis of Orissa State Co-operative Bank Ltd.” is the outcome of my own work and submitted by me for the partial fulfillment of the requirement of the degree of MBA. The record is my own work and was neither published nor submitted before for the award of any degree or any Professional diploma to any other University or Institute.

Date- Name: JYOTI PRAKASH BARIK

Place: Regd. No.:0806260005


ACKNOWLEDGEMENT

I sincerely thank my corporate guide Mr. Sarada Kanta Das (Faculty of ACSTI, Orissa

State Cooperative Bank Ltd. Bhubaneswar) for giving me this opportunity to work in their

esteemed organization and helping me for completing the project in a successful manner.

Without their encouragement and help, this project would have been incomplete.

I also want to say my sincere thanks to my team members for their co-operation and co-

ordination during the training.

I extend my thanks and gratitude to my internal faculty guide Prof. Prof. Narayan Chandra Samal who has provide me continuous and constant support in the way of the accomplishment of my project . Last but not the least I am thankful to almighty God, my family and my friends for their

love and moral support.

Place: JYOTI PRAKASH BARIK

Date: Regd.No-0806260005


CONTENTSSerial. No. TITLE PAGE NO.

Chapter-1 INTRODUCTION

1.1 –Introduction of the Study 9

1.2- Purpose of Study 91.3 -Place of Study 10

1.4 -Scope of Study 10 1.5 -Objective of the study 11 1.6 –Methodology 11 1.7 -Data collection 12 1.8 –Tools 12

1.9 –Limitation 12

Chapter-2 PROFILE OF BANK 2.1 –Introduction to Banking Industry 14 2.2 –Growth of Indian Financial Sector 18 2.3 –Co-operative Banks in India 19 2.4 -About Orissa State Co-operative Bank Ltd. 20 2.5 –Financial Highlights of OSCB Ltd. 30 2.6 –Retail Banking of OSCB Ltd. 39 2.7 –Introduction of Corporate Governance 40

Chapter-3 PROJECT OVERVIEW 3.1 –Introduction of Financial Statement 43 3.2 -Meaning and Concept of Financial Analysis 43 3.3 - Objective of Financial Statement Analysis 44 3.4 -Types of Financial Analysis 44

3.5 -Procedure of Financial Statement Analysis 46 3.6 -Methods and Devices of Financial Analysis 47 3.7 -Limitation of financial Analysis 50 3.8 -Overview of Ratio Analysis 51


Chapter-4 ANALYSIS AND INTERPRETATION 4.1 -Comparative Balance Sheet 564.2 -Comparative Income Statement 604.3 -Ratio Analysis 62

Chapter-5 FINDINGS AND SUGGESTIONS 5.1 -Findings 68 5.2 –Suggestions 69

Serial. No. TITLE PAGE NO.

Chapter-6 CONCLUSION 71

BIBLIOGRAPHY 72


CHAPTER-1

Introduction 1.1 –Introduction of the Study

1.2- Purpose of Study 1.3 -Place of Study

1.4 -Scope of Study 1.5 -Objective of the study 1.6 -Methodology 1.7 -Data collection 1.8 -Tools

1.9 -Limitation


INTRODUCTION

1.1 –Introduction of the Study:

Finance is defined as the provision of money when it is required. Every enterprise needs finance to start and carry out its operation. Finance is the lifeblood of an organization. So, finance should be managed effectively. Financial statements are prepared primarily for decision making. Financial Statement Analysis refers to the process of determining financial strength and weakness of the firm by properly establishing strategic relationship between the items of the balance sheet and profit and loss account. There are various methods and techniques used in analyzing financial statements, such as comparative statements, trend analysis, common size statements, schedule of changes in working capital, funds flow and cash flow analysis, cost volume profit analysis and ratio analysis and other operative data. The analysis of financial statement is used for decision making by various parties.

First task is to analyze and select the information which is requiring taking decision.

Second task is to arrange the information in a way to highlight significant relationship.

Final task is the interpretation and drawing of inferences and conclusions.

1.2 -Purpose of Study

The present study is made as a part of the MBA programme for training in the form of on the job training with the following activities.


To know the financial position of the OSCB ltd.

The bank has the strength to fulfill its obligation or not. Find out strength and weakness of OSCB ltd.

Performance of OSCB ltd. for granting credit, providing loan and making investment.

Growth rate of OSCB ltd.

Know the liquidity position of OSCB ltd.

Know the long term solvency of OSCB ltd.

Know the operating efficiency of OSCB ltd.

Know the overall profitability of OSCB ltd.

1.3- Place of Study

All the activities are carried out in the Orissa State Co-operative

Bank Ltd. Bhubaneswar.

1.4- Scope of Study

The data and information were gathered during training.

The scope is limited to the secondary data only.

The scope is delimited to the year 2001-02 to 2007-08.


1.5- Objectives of the study:

The role objective of the project is to help the management of the organization in decision making, regarding the subject matter.

Calculation of financial statement and ratio is only the clerical task whereas the interpretation of its needs immense skill, intelligence and foresightedness.

One of the easiest and most popular ways of evaluating performance of the organization is to compare its present ratios with the past ones called comparison and through development action plan.

It gives an indication of the direction of change and reflects whether the oraganisation’s financial position and performance has improved, deteriorated or remained constant over period of time.

Here much emphasis is given to historical comparison and on forecasting the immediate future trends.

1.6- Methodology:

The research involved extensive and intensive studies of Orissa State

Co-operative Bank ltd. Bhubaneswar. In this project report a

sincere effort has been made to study the financial statements

analysis of the bank. During this study, I study the financial

position and performance of the bank. At last, I have given interpretation and

conclusion of the study.


1.7- Data collection: The whole of my study is based on secondary data of OSCB Ltd. I have not taken any primary data for my study because primary data would not have been helpful to my study. During the tenure of my study I have taken help of the following secondary data.

Annual report of OSCB Ltd.

Annual audit report of OSCB Ltd.

Balance sheet of OSCB Ltd.

Development action plan of OSCB Ltd.

Profit and Loss account of OSCB Ltd.

1.8- Tools:

There are some of the tools, which are relevant for the study of ratio analysis

and performance of OSCB Ltd. are

Comparative statements;

Trend Analysis;

Common-size statements;

Funds flow Analysis;

Cash flow Analysis;

Cost volume profit Analysis;

Ratio analysis.

1.9- Limitation:


It is only based on mathematical interpretation of the figures and ignores the

factors such as management style, motivation of workers, leadership etc.

It is affected by the price level changes.

It does not give any clue for future.

CHAPTER-2

Profile of bank

2.1 –Introduction to Banking Industry 2.2 –Growth of Indian Financial Sector 2.3 –Co-operative Banks in India 2.4 -About Orissa State Co-operative Bank Ltd. 2.5 –Financial Highlights of Orissa State Co-operative Bank Ltd. 2.6 –Retail Banking of Orissa State Co-operative Bank Ltd.

2.7 –Introduction of Corporate Governance by OSCB Ltd.


2.1-Introduction to Banking Industry

Introduction: Modern banking in India is said to be developed during the British era. In the 1st half of the 18th century, the British East India Company established three banks -the Bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in 1843. But in the course of time these three banks were amalgamated to a new bank called Imperial Bank and later it was taken over by the State Bank of India in 1955. Allahabad Bank was the first fully Indian owned bank. The Reserve Bank of India was established in 1935 followed by other banks like Punjab National Bank, Bank of India, Canara Bank and Indian Bank. In 1969, 14 major banks were nationalized and in 1980, 6 major private sector banks were taken over by the government. Today, commercial banking system in India is divided into following categories.

Types of Banking:

1. Central Bank

The Reserve Bank of India is the central Bank that is fully owned by the government. It is governed by a central board (Headed by a Governor) appointed by the Central Government. It issues guidelines for the functioning of all banks operating within the country.2. Public Sector Banks

A. State Bank of India and its associate banks called the State Bank Group B. 19 Nationalized Banks C. Regional Rural Banks mainly sponsored by public sector banks

3. Private Sector Banks

A. Old generation private banks B. New generation private banks C. Foreign banks operating in India


D. Scheduled co-operative banks E. Non-scheduled banks

4. Co-operative Sector The co-operative sector is very much useful for rural people. The co-operative banking sector is divided into the following categories: A. State co-operative Banks B. Central co-operative banks C. Primary Agriculture Credit Societies

5. Development Banks/Financial Institutions

A. IFCIB. IDBIC. ICICID. IIBIE. SCICI Ltd.F. NABARDG. Export-Import Bank of IndiaH. National Housing BankI. Small Industries Development Bank of IndiaJ. North Eastern Development Finance Corporation

Banking Services:Banking in India is so convenient and hassle free that one (individual, groups or whatever

the case may be) can easily process transactions as and when required. The most common services offered by banks in India are as follow:

" Bank Accounts: It is the most common service of the banking sector. An individual can open a bank account which can be either savings, current or term deposits." Loans: You can approach all banks for different kinds of loans. It can be a home loan, car loan, and personal loan, loan against shares and educational loans." Money Transfer: Banks can transfer money from one corner of the globe to the other by issuing demand drafts, money orders or cheques." Credit and Debit cards: Most of the banks offer credit cards to their customer which can be used to purchase goods and services on credit. On the other hand debit card also used to draw cash easily." Lockers: Most banks have safe deposit lockers which can be used by the customers for storing valuable, important documents or jewellery.Banking Services for NRIs:Non Resident Indians or NRIs can open accounts in almost all Indian banks. The three types of accounts that NRIs can open are:" Non-Resident (Ordinary) Account - NRO A/c


" Non-Resident (External) Rupee Account - NRE A/c" Non-Resident (Foreign Currency) Account - FCNR A/c

Banking and Finance:

Banking industry in India has evolved lately under the impact of the stimulus packages announced by the Government. According to the Annual Policy 2008-09 of the Reserve Bank of India (RBI), the central bank, key monetary aggregates have witnessed some growth in 2008-09. This is reflected in the changing liquidity positions arising from domestic and global financial conditions and the policy initiatives taken by the government. Also, reserve money variations during 2008-09 have largely reflected an increase in currency in circulation and reduction in the cash reserve ratio (CRR) of banks.

According to a study by Dun & Bradstreet (an international research body)-"India's Top Banks 2008"-there has been a significant growth in the banking infrastructure. Taking into account all banks in India, there are overall 56,640 branches or offices, 893,356 employees and 27,088 ATMs. Public sector banks made up a large chunk of the infrastructure, with 87.7 per cent of all offices, 82 per cent of staff and 60.3 per cent of all automated teller machines (ATMs).The Credit Scenario The year-on-year (y-o-y) aggregate bank deposits stood at 21.2 per cent as on January 2, 2009. Bank credit touched 24 per cent (y-o-y) on January 2, 2009 as against 21.4 per cent on January 4, 2008. The year-on-year (y-o-y) growth in non-food bank credit at 23.9 per cent as on January 2, 2009 was higher than that of 22.0 per cent as on January 4, 2008. Increase in total flow of resources from the banking sector to the commercial sector was also higher at 23.4 per cent as compared with 21.7 per cent a year ago. The incremental credit-deposit ratio rose to 81.4 per cent as on January 2, 2009, as against 63.1 per cent as on January 4, 2008. Also, during 2008-09 so far, the total flow of resources to the commercial sector from banks stood at US$ 58.83 billion up to January 2, 2009. Scheduled commercial banks' credit to the commercial sector expanded by 27.0 per cent (y-o-y) as on November 21, 2008, as compared with 23.1 per cent a year ago.

There has been variation in credit expansion across bank groups. Credit expansion as on January 2, 2009 for public sector banks stood at 28.6 per cent, scheduled commercial banks (SCBs) including the regional rural banks (RRBs) at 24 per cent, foreign banks at 6.9 per cent and private sector banks at 11.8 per cent, according to the Annual Policy for 2008-09 of Reserve Bank of India.

Several measures initiated by the Reserve Bank have resulted in banks reducing their deposit and lending rates between November 2008 and January 2009. The range for deposit rates for public sector banks varied from 5.25 to 8.5 per cent, foreign at 5.25 to 7.75 per cent and private sector banks at 4 to 8.75 per cent. In the post-crisis quarter caused due to collapse of Lehman Brothers, large corporate like Infosys moved their deposits to State Bank of India (SBI), the country's


largest bank. Infosys has revealed that it transferred deposits of nearly US$ 200.61 million from ICICI Bank to SBI last year.

Deposits as on January 2, 2009 for public sector banks stood at 24.2 per cent, scheduled commercial banks (SCBs) including the regional rural banks (RRBs) at 21.2 per cent, foreign banks at 12.1 per cent and private sector banks at 13.4 per cent, according to the Annual Policy for 2008-09 of the Reserve Bank of India.

The prime lending rates of public sector banks stood at 12 to 12.5 per cent, private sector banks at 14.75 to 16.75 per cent and foreign banks 14.25 to 15.50 per cent as on January 2009.

Bank loans rose 18.1 per cent on year-on-year basis as on March 13, the RBI has said in its Weekly Statistical Supplement released on March 27, 2009. Outstanding loans rose to US$ 541.82 billion in the two weeks to March 13. The non-food credit rose to US$ 530.19 billion in the two weeks, while food credit stood at US$ 9.61 billion in the same period.

Since October 2008, the central bank has cut the cash reserve ratio, or the proportion of deposits that banks set aside, and the repo rate, or the rate at which it lends to banks, by 400 basis points each to inject liquidity into the system and activate a lower interest rate regime. Also, the reverse repo rate has been lowered by 200 basis points to discourage banks from parking surplus funds with RBI. Till April 7, 2009, the CRR had further been lowered by 50 basis points, while the repo and reverse repo rates have been lowered by 150 basis points each. Public sector banks have pruned their benchmark prime lending rates (BPLRs) by 150-200 basis points. Also, in April 2009, private sector banks such as Axis and Bank of Rajasthan have reduced their BPLRs by 50 basis points. Only few foreign banks such as Citibank have pared home loan rates by 50 basis points to 13.75 per cent.

The rupee depreciated during 2008-09, reflecting varied developments in international financial markets and portfolio outflows by foreign institutional investors (FIIs). The rupee exchange rate was between 48.37 to 49.19 against the US dollar and 63.60-68.09 against the Euro in January 2009.

Government InitiativesApart from the bank rate cuts announced in the stimulus packages, cash withdrawals from bank will not attract tax from April 1, 2009 following abolition of the banking cash transaction tax (BCTT) in the Union Budget 2008-09. The total collection of BCTT stood at US$ 120.36 million in 2008-09. Also, inter-ATM usage transaction became free of charges effective April 1, 2009.Exchange rate used: 1 USD = 49.8417 INR


2.2-GROWTH OF INDIAN FINANCIAL SECTOR

The Indian economy continued to record strong growth during 2007-08, albeit with some moderation. Real gross domestic product (GDP) growth rate at 9.0 per cent during 2007-08 moderated from 9.6 per cent during 2006-07, reflecting some slow down in industry and services. A positive feature during the year was a recovery in the growth of real GDP originating in the agricultural sector, after the slowdown experienced in the previous year. Despite this moderation, the overall growth rate of the Indian economy during 2007-08 was noteworthy in the global context.

During 2007-08, the growth of real GDP originating from the industrial sector decelerated to 8.2 per cent as against 10.6 per cent in 2006-07. In terms of Index of Industrial Production (IIP), industrial growth was at 8.5 per cent as against 11.5 per cent in 2006-07. Manufacturing sector growth at 9.0 per cent during 2007-08 (12.5 per cent during 2006-07) was the lowest in the last four years. The mining and electricity sectors also grew at a slower pace during 2007-08. In terms of use-based classification, the performance of the capital goods sector was particularly impressive with 18.0 per cent growth.

However, the basic goods, intermediate goods and consumer goods sectors recorded decelerated growth of 7.0 per cent, 8.9 per cent and 6.1 per cent, respectively, during 2007-08. The performance of the industrial sector was also affected by the subdued performance of the infrastructure sector, registering 5.6 per cent growth during 2007-08. The services sector recorded double digit growth consistently in the last three years. It grew by 10.7 per cent during 2007-08, on top of 11.2 per cent growth in 2006-07

The Reserve Bank during 2007-08 had to contend with large variations in liquidity not only due to swings in cash balances of the Central Government, but also on account of large and volatile capital flows. The Reserve Bank judiciously used the CRR, LAF and MSS to manage such swings in liquidity conditions, consistent with the objectives of price and financial stability. As a whole, there was a net absorption of liquidity on 171 days and net injection of liquidity on 75 days during 2007- 08. The average daily net outstanding balances under LAF varied between injection of Rs.10,804 crore during December 2007 to absorption of Rs.36,665 crore in October


2007. Net issuances under the Market Stabilisation Scheme (MSS) during 2007-08 amounted to Rs.1,05,691 crore.

In the foreign exchange market, the Indian rupee exhibited two-way movements in the range of Rs.39.26-43.15 per US dollar during 2007-08. The Indian rupee depreciated to Rs.41.58 per US dollar on August 17, 2007 from Rs.40.43 per US dollar on July 31, 2007. The exchange rate of the rupee appreciated thereafter up to January 2008. The rupee moved in a range of Rs.39.26-39.84 per US dollar during October 2007- January 2008. However, the rupee started depreciating against the US dollar from the beginning of February 2008 on account of FII outflows, rising crude oil prices and heavy dollar demand by oil companies. The exchange rate of the rupee was Rs.39.99 per US dollar at end-March 2008.

2.3-Co-operative Banks in India

The Co operative banks in India started functioning almost 100 years ago. The Cooperative bank is an important constituent of the Indian Financial System, judging by the role assigned to co operative, the expectations the co operative is supposed to fulfil, their number, and the number of offices the cooperative bank operate. Though the co operative movement originated in the West, but the importance of such banks have assumed in India is rarely paralleled anywhere else in the world. The cooperative bank in India plays an important role even today in rural financing. The businesses of cooperative bank in the urban areas also have increased phenomenally in recent years due to the sharp increase in the number of primary co-operative banks. Co operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Cooperative banks in India finance rural areas under: i. Farmingii. Cattleiii. Milkiv. Hatcheryv. Personal finance

Cooperative banks in India finance urban areas under: i. Self-employment ii. Industriesiii. Small scale unitsiv. Home financev. Consumer financevi. Personal finance

Some facts about Cooperative banks in India


i. Some cooperative banks in India are more forward than many of the state and private sector banks.ii. According to NAFCUB the total deposits & landings of Cooperative Banks in India is much more than Old Private Sector Banks & also the New Private Sector Banks.iii. This exponential growth of Co operative Banks in India is attributed mainly to their much better local reach, personal interaction with customers, and their ability to catch the nerve of the local clientele.

2.4-About Orissa State Co-operative Bank Ltd. The Orissa State Co-operative Bank, a Scheduled Bank under RBI Act was registered in the year 1948 as the Apex Bank of the short term Coop. Credit structure of Orissa with an objective of Development of the agrarian economy of Orissa by catching the credit equipment of the terms of the state. The OSCB had made a humble beginning with a Share Capital of Rs. 1.76 lakhs and a borrowing of Rs.25.50 lakhs to address the problem of farm credit dispensation. The OSCB, in its own way has contributed in providing farm credit and inputs to bring the desired change over the years. The Bank has been trying to develop the primary societies viz. PACS (Primary Agricultural Co-operative Society) which constitutes of schemes as LAMPS (Large Scale Agriculture Multipurpose Co-operative Society) / FSS (Farmers Service Co-operative Society). The activities of the OSCB are not confined to dispensation of farm credit alone. As a schedule bank, it has responded to the sweeping change in banking service in view of advancement in Information Techchnology. The Bank has assumed the role of leader of the Coop - Credit Structure to develop the lower tiers to cope with the emerging challenges of banking activities. The activities of OSCB are

General Banking Business Re-finance to the DCCB Dispensation of farms credit Production Credit

Who's Who

MEMBERS OF THE MANAGING COMMITTEE OF ORISSA STATE CO-OPERATIVE BANK LIMITED, BHUBANESWAR



Sri Jagneswar President

Smt. Kamalini MohantySri R.N. Dash, IAS

Vice President

Managing Director


Our Inception and Corporatization

General Banking Business:

The Bank has been accepting deposits from the public and offering all banking facilities to its customers through its fully computerized branches and extension counts at Bhubaneswar, Cuttack, Paradeep, Sambalpur. The Banking services offered by the banks include acceptance of all types of deposits, bills, and exchange, issues of letter of credit, advancing loans to farm and non-farm sector.

Provision of locker facilities. The bank has made a humble beginning in providing ATM facility in its Main Branch at Pandit Jawarharlal Nehru Marg.Bhubaneswar for providing Any Time Banking. This facility shall be provided in all the served cities soon. Integration of all the branches and extension counters are on the anvil to provide Anywhere Banking Services.

Refinance to DCCBs:

The OSCB came into existence to support the lending activities of its affiliated DCCBs. The Bank provides refinance to them to pursue the following activities.

(i) Dispensation of farm Credit:

Product Credit:

In Orissa, 39.48 lakh farmers have been enrolled as members of the primary Agriculture Coop. Societies (PACS)/Large Sized Agriculture

And Multi Purpose Co-operative Societies (LAMPS)/Farmers Services Societies (FSS).The Farm credit requirement of the farmer is met by these societies by availing loans from the DCCBs. The OSCB extends

Refinance facilities to the DCCBs for financing the PACS. During 1999-2000, Rs. 426.23 Crores were disbursed to 6.76 lakhs farmers in the state.

Investment Credit:

The Bank has been dispensing investment credit for Minor Irrigation, Farm Mechanization, Dairy, Poultry, Horticulture, Plantation, Sericulture etc. through the

The Indian Banking Scenario:

SCB (State Co-operative Bank)

CCB (Cental Co-operative Bank)

UCB (Urban Co-operative Bank)

PCB (Primary Co-operative Bank)

SCARDB (State Co-operative Agro-Rural Development Bank)

Direct Finance by OSCB

The OSCB has directly financed the Sugar Industries in the state to help the cultivators to get remunerative prices for their sugarcane crop. It has also financed the Orissa State Coop Marketing Federation for fertilizers business. Besides the following large units are also financed by the bank.

a. Neelachal Ispat Nigam –Large Scale Steel Industryb. Kalinga Hospital- Corporate Hospitalc. Bilati (Orissa) Ltd. – Tropical Food processing

Unit.d. Flour Millse. Press

f. Mass Media

Chairman and MD of OSCB in a discussion with MD NABARD Mr. Y.C. Nanda about Credit Expantion


Our Inception and Corporatization

General Banking Business:

The Bank has been accepting deposits from the public and offering all banking facilities to its customers through its fully computerized branches and extension counts at Bhubaneswar, Cuttack, Paradeep, Sambalpur. The Banking services offered by the banks include acceptance of all types of deposits, bills, and exchange, issues of letter of credit, advancing loans to farm and non-farm sector.

Provision of locker facilities. The bank has made a humble beginning in providing ATM facility in its Main Branch at Pandit Jawarharlal Nehru Marg.Bhubaneswar for providing Any Time Banking. This facility shall be provided in all the served cities soon. Integration of all the branches and extension counters are on the anvil to provide Anywhere Banking Services.

Refinance to DCCBs:

The OSCB came into existence to support the lending activities of its affiliated DCCBs. The Bank provides refinance to them to pursue the following activities.

(i) Dispensation of farm Credit:

Product Credit:

In Orissa, 39.48 lakh farmers have been enrolled as members of the primary Agriculture Coop. Societies (PACS)/Large Sized Agriculture

And Multi Purpose Co-operative Societies (LAMPS)/Farmers Services Societies (FSS).The Farm credit requirement of the farmer is met by these societies by availing loans from the DCCBs. The OSCB extends

Refinance facilities to the DCCBs for financing the PACS. During 1999-2000, Rs. 426.23 Crores were disbursed to 6.76 lakhs farmers in the state.

Investment Credit:

The Bank has been dispensing investment credit for Minor Irrigation, Farm Mechanization, Dairy, Poultry, Horticulture, Plantation, Sericulture etc. through the

http://www.oscb.coop/aboutUs/who.asp

Promotional and Development Role

As The Apex Bank of the Coop Credit Structure, the bank has assumed the role of leadership to develop the structure to face the emerging challenge in banking business. The Following activities have been taken by the bank in these regards.

i. Introduction of Kisan Credit Card: - The OSCB has been facilitated dispensation of entire farm credit through Kisan Credit Card only to enable the farmer members to get instant credit. The DCCBs with the help of the Bank have transformed 813 primary societies as Mini Banks who have mobilized Rs. 250 crores from the rural areas.

ii. Information Technology in DCCBs :- The OSCB has taken the responsibility to computerize the operation of the DCCBs to face the challenge from their commercial counterparts. The software package is finalized for the purpose.

iii. Face lift of the branches of DCCBs and the Mini Bank: - The Bank has been providing regular assistance for the face-lift of the DCCB Branches and PACS. The NABARD has also help 200 PACS with financial assistance for improvement of infrastructure facilities.

iv. Organization and linkage of self-help Groups:-The Banks has been patronizing and close monitoring organization of self help groups at primary level and monitoring the progress.

v. Human Resources Development: - The OSCB has been maintaining a Training Institute to impart training to the personnel of DCCBs and PACS/ LAMPS/FSS. Regular Training programs is conducted by the institute for the purpose.

vi. Conduct of Study:- To find out the reasons for low off- take of farm Credit, the bank had appointed all four Universities of the states. They have given their reports basing on which corrective actions have been taken. The bank has also undertaken a study on functioning of SHGs in West Bengal to emulate their experience in the state.


vii. Preparation of development Action Plan and Signing Of MOU:-At the behest of OSCB, the DCCBs have been preparing DAPs and Signing MOU with the Bank and NABARD. This effort of the banks has created a cost consciousness among the lowest tiers and their turn over has increased manifold.

viii. Image Building: The Bank has been undertaking advertisement through hoarding and electronics media to boost up the images of the entire credit structure.

ix. NABARD as partner of the Bank: - The NABARD has been extending required support to the Bank to accomplish its objectives.The assistance include liberal and confessional refinance, assistance from Coop Development Fund, Support to the women Development cell, Technical, monitoring and Evaluation Cell, Faculty support to the Training Institute Etc.

x. Excellence Recognized:- The National Federation of state Coop Banks (NAFSCOB) has awarded the Bank for its outstanding performance for consecutive four years. The NABARD has also awarded the bank for its performance during 1997-98. The Bank has been achieving all the MOU Parameters.

xi. Profits since Inception: - The Bank has been earning profit since its inception and paying divided to its shareholders uninterruptedly.

xii. Corporate Vision:- The Bank aims at a vibrant Coop. Credit Structure by strengthening PACS and DCCBs , best customer services through computerization and anytime-anywhere Banking and above all a satisfied clientele.

OSCB Ltd. Network


Angul United CCB Aska CCB Balasore Bhadrak CCB Banki CCB Berahampur CCB Bhawanipatana CCB Bolangir DCCB Boudh CCB

Cuttack CCB

Keonjhar CCB Khurda CCB Koraput CCB


http://www.oscb.coop/network/Anugulnew.asp

http://www.oscb.coop/network/koraput.asp

http://www.oscb.coop/network/khurda.asp

http://www.oscb.coop/network/Keonjhar.asp

http://www.oscb.coop/network/cuttacknew.asp

http://www.oscb.coop/network/Boudh.asp

http://www.oscb.coop/network/bolangir.asp

http://www.oscb.coop/network/Bhabanipatana.asp

http://www.oscb.coop/network/oscbnetwork.asp

http://www.oscb.coop/network/Banki.asp

http://www.dccb-balasore.com/

http://www.oscb.coop/network/aska.asp

Mayurbhanj CCB Nayagarh CCB Sambalpur DCCB Sundaragarh CCB United Puri Nimapara CCB

Short Term Credit Co-operative Banking Sector

STATUS PAPER ON SHORT TERM COOPERATIVE CREDIT STRUCTURE IN ORISSA


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The short term cooperative credit in Orissa comprising 2714 PACS (including 218 LAMPS and 6 FSS) at the grass roots level, 17 District Central Cooperative Banks at the middle rung and Orissa State Cooperative Bank at the apex level have been rendering yeomen’s service to the farming community. From out of around 50 lakh agricultural families, 44.98 lakh families have become members of the PACS taking the coverage to 90%.

Progress in coverage of members during past 5 years :

(No. in lakhs)


(* As per the 2001 census) Mobilisation of resources and strategy to minimize resource cost:

Although the short term cooperative credit structure in Orissa is dispensing 66% of the crop loan disbursed in the State, the market share in total deposit resources mobilised in the State is only 5%. When the credit deposit ratio of the banks of the entire State was 81.42% as on 31.12.2006, the same is 154% in case of OSCB and DCCBs together. The picture clearly tells that whereas the entire deposits mobilised by the OSCB and DCCBs are deployed inside the State, other banks deploy only a part of their resources. Although the Chief Secretary has advised all govt. departments and PSUs to deploy their surplus resources with OSCB, the response has not been very positive. The comparative picture is given below:

Market share of Cooperative Banks/Commercial Banks in Deposit Mobilisation.

(Rs. In crores)


Year No. of Agril. families)

No. of members enrolled

% of coverage of membership to total no. of Agril. families

No. of indebted members

1997-98

39.48 34.60 87.06 13.66

1998-99

39.48 36.58 92.65 14.78

1999-00

39.48 37.72 95.50 14.97

2000-01*

50.14 38.89 77.78 16.10

2001-02*

50.14 39.33 78.66 16.09

2002-03

50.14 39.33 79.44 15.57

2003-04

50.14 40.56 80.89 17.21

2004-05

50.14 44.75 89.25 22.91

2005-06

50.14 44.98 89.70

2006-07

50.14 44.98 89.70

Year Commercial Banks

Coop. Bank Total Deposit

Share of Coop. Banks

Share of Commercial Banks.

1998-99 10640.75 766.21 11406.96 6.71% 93.28%

1999-00 12653.12 951.33 13604.45 6.99% 93.01%

2000-01 14818.66 1180.95 15999.61 7.38% 92.62%

2001-02 18689.18 1406.85 20112.91 7.08% 92.92%

2002-03 21006.85 1591.85 22598.70 7.04% 92.95%

2003-04 23359.86 1761.25 25121.11 7.01% 92.99%

2004-05 27372.64 1863.49 29226.13 6.38% 93.62%

2005-06 31966.97 1955.75 33922.72 5.76% 94.22%

2006-07 (31.12.06)

36434.39 1985.96 38420.35 5.16% 94.84%

CD Ratio (As on 31.12.2006):

CD Ratio

Entire State 81.42

Commercial Banks 75.94

OSCB/ CCBs 154.29

2.5-Financial Highlights Orissa State Co-operative Bank Ltd.


The Orissa State Co-operative Bank has made strides in many key areas and achieved all targets setup in the Development Action Plan (DAP). The funds comprising of paid of capital and resource, deposit and borrowing are the main resource of the bank. A Major chunk of this resources are deployed under the loans and advances to the affiliated central Cooperative Banks, Member society and individuals for different purpose under farm and non-farm sectors.

The Statutory investment requirement under RBI Act and BR Act are met by investment in Central/State Governance Securities and others approved trustee securities, seasonal investible surpluses are deployed in call and short term deposits with commercial banks, to maximize as yield on assets.

Besides remaining vigilant over judicious deployment of funds, the banks is also making concerted efforts to bring down the level of non earning assets of the banks and increase the financial margin.

Seasonal investible surplus are deployed in call and short terms deposits with commercial banks and DFHI etc. to maximise the yields on assets. Beside remaining vigilant over judicious deployment of funds, the bank is also making concerted efforts to bring down the level of non-earning assets of the bank and increase the financial margin. Also see the Profit & Dividend of OSCB

The Bank since its inception operated above the break even level and attained sustainable viability long since. As a result the bank continued to build up its Reserves and Funds as per the provision of the bye-laws. The total Reserves at the end of 1997-1998 stood at Rs.5752.52 Lakh as against Rs.4711.00 Lakh in 1996-97 .Quantumwise, the reserves incresed by Rs.1041.52 Lakh during the year, recording growth rate of 22.11 % .

Sources And Uses of Funds


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Important financial indicators of OSCB and DCCBs during past 4 years.

OSCB (Rs. in Lakhs)

Sl. Particulars 2003-04 2004-05 2005-06 2006-07 (Provisional)

2007-08 Percentage of growth

over previous

year

1 Share Capital 4958.32 5168.62 6437.98 6976.86 7137.58 8.37%

2 Reserve Fund 13917.91 16749.31 18492.47 20173.87 21530.15 9.09%

3 Own Fund 18876.23 21917.93 24930.45 27150.73 -- 8.91%

4 Deposits 102601.38 107850.94 121315.98 129586.23 156626.80 6.82%

5 Borrowings 75573.56 69151.18 95434.17 125141.36 166593.24 31.13%

6 Working Fund

212573.39 214139.32 257252.88 295086.90 --14.71%

7 Loans outstanding

109908.08 127898.44 168220.52 193761.25 --15.18%

8 Investments 83288.41 68195.11 71145.27 88822.10 56455.67 24.84%

9 Per employee business

952.96 1106.80 1385.34 1562.06 --12.76%

10 Net profit 1347.51 1744.43 1969.39 916.00 -- 8.37%

11 Dividend 6% 7% 7%

CCBs (Rs. in Crores

Particulars 2002-03 2003-04 2004-05 2005-06

1. Own fund2. Deposits3. Loans & Advances4. Working Capital5. Cost of Management(COM)6. % of COM to WC7. CCBs earning operating profit8. Profit/Loss

9. Accumulated Losses

181.571569.251820.992897.44

49.631.71

13-7.25/ +9.75

105.95

212.181749.582102.263224.43

51.721.60

15-1.95+17.25

94.77

231.131830.352346.143577.53

53.831.50

17+46.33

53.90

266.231940.352746.354141.60

55.561.34

16-2.40 +13.23

46.61


Reserves: The Bank since its inception operated above the break even level and attained sustainable viability long since. As a result, the bank continued to build up its Reservers and Funds as per the provision of the bye-laws. The total Reserves at the end of 1998-99 stood at Rs.7092.22 Lakh as against Rs. 5752.52 Lakh in 1997-98. Quantumwise, the reserves increased by Rs. 1339.70 Lakh during the year, recording growthrate of 23.29 % .

Composition of Reserves and Funds of the Bank from 1996-97 along with year-wise growth rate are indicated below.

Types of Reservers Rs in Lakh

1996-97 1997-98 1998-99

Statutory Reserve Fund 404.07 439.18 484.68

Agril,Credit Stabilisation

1803.83 1966.45 2050.64

Other Reservers 2503.10 3346.89 4556.90

Total : 4711.00 5752.52 7092.22

Year Growth Rate of Reserves ( In Lakh)

Amount Amount wise Increase over Last Year

Percentage of Growth

1996 - 97 4711.00 193.25 4.28%

1997 - 98 5752.52 1041.52 22.11%

1998 - 99 7092.22 1339.70 23.29%


Deposits

Deposit Mobilisation. (Rs. in Crores

Year PACS CCB OSCB

Total Deposit % of Growth during the yr.

Total Deposit

% of Growth during the yr.

Total Deposit

% of Growth during the yr.

1999-2000

238.97 42 951.33 24 560.06 34

2000-2001

321.58 30 1188.96 25 731.27 31

2001-2002

425.47 10 1406.85 18 874.82 20

2002-2003

432.75 2 1569.25 13 886.12 1

2003-2004

446.82 3 1761.25 12 1026.01 16

2004-2005

494.85 11 1853.48 5 1078.32 5

2005-2006

516.33 4 1955.75 6 1213.16 12

2006-2007

557.07 8 2126.80 9 1295.86 7


Borrowings

Disbursement of schematic loans:

The short term cooperative credit structure is not lagging behind in financing investment credit for acquisition of capital assets by the farmer members to increase agriculture production and productivity by adopting modern technology. The DCCBs and PACS with the assistance of OSCB have been financing activities like plantation and horticulture, sericulture, pisciculture, farm mechanisation, small road transport operators, small business, small scale industries, etc. both under farm and non farm sector. The financing for the purpose during last 8 years is given as follows:

Schematic finance during last five years (Rs. in Crores

Year Finance under Farm Sector

Finance under Non-farm Sector

Total

Target Achievement Target Achievement Target Achievement

No. Amt. No. Amt. No. Amt.

1999-00 4700.00 6430 2031.88 5300.00 3153 2092.69 10000.00 9583 4124.57

2000-01 6300.00 13291 3765.41 3700.00 3581 1905.20 10000.00 16872 5670.61

2001-02 5560.00 13287 2793.90 2440.00 4677 1219.39 8000.00 17964 4013.29

2002-03 5310.00 5330 2001.55 2095.00 70.72 1950.73 7405.00 12342 3952.28

2003-04 5000.00 2566 1114.54 2500.00 13306 3402.41 7500.00 15872 4516.95

2004-05 5000.00 5661 1693.82 5000.00 24225 3247.66 10000.00 29886 4941.48

2005-06 9500.00 8672 2736.39 5000.00 15679 3717.40 14500.00 24351 6453.79

2006-07 12800.00 10766 3937.78 10000.00 19030 3992.71 22800.00 29796 7930.49

Crop Loan


Dispensation of crop loan:In Orissa, around 79% of the population depend on agriculture and allied activities for their livelihood. Large number of farmers requires farm credit for their seasonal agricultural operations. The short term cooperative credit structure has been providing the major chunk of crop loan over the years and supporting the farmer members at the time of natural calamities to raise fresh crops. The details are as under: Market share in crop loan financing by cooperative banks versus commercial banks:

(Rs. in Crores

Year Target as per annual credit plan

Achievement Market share

Coop. Banks

Commercial Banks/ RRBs

Total Coop. Banks

Commercial Banks

Total Coop. Banks

Commercial Banks

1998-99

265.26 132.15 397.41 329.02 133.98 463.00 71% 29%

1999-00

373.96 150.85 524.81 426.24 168.54 594.78 72% 28%

2000-01

492.78 167.77 660.55 438.36 189.85 628.21 70% 30%

2001-02

550.55 189.89 740.44 537.23 240.92 778.15 69% 31%

2002-03

688.77 213.19 909.96 615.54 283.47 899.01 68% 32%

2003-04

718.15 255.41 973.56 742.49 331.66 1074.15 69% 31%

2004-05

903.51 467.49 1371.00 959.67 539.98 1499.65 64% 36%

2005-06

1283.36 570.84 1854.20 1394.53 728.93 2123.46 66% 34%

2006-07

1545.82 790.15 2335.97 1559.16 678.80(as on 31.01.07)

2237.96

The season-wise disbursement of crop loans by the PACS with effect from 1998-99 is given below for the appreciation of the pivotal role played by the structure.


Year Khariff Rabi Total Growth rateTarget No. of

MembAmt. Target No. of

MembAmt. Target No. of

MembAmt.

1994-95

70.00 2.41 66.29 35.00 1.36 34.44 105.00 3.77 100.73

1995-96

81.20 3.82 116.53 46.00 1.01 39.54 127.20 4.83 156.07

1996-97

127.35 3.30 116.91 63.70 1.12 46.38 191.05 4.42 163.29

1997-98

150.00 3.44 133.12 75.00 1.44 68.65 225.00 4.88 201.77

1998-99

230.00 4.20 206.44 125.00 1.95 112.75 355.00 6.15 319.19

1999-00

305.30 3.97 262.51 283.00 2.79 163.73 588.50 6.76 426.24 36%

2000-01

352.00 4.63 310.87 200.00 1.77 127.49 552.00 6.40 438.36 3%

2001-02

400.00 4.58 313.24 220.00 2.87 223.99 620.00 7.45 537.23 23%

2002-03

350.00 5.16 429.66 290.00 2.14 185.88 640.00 7.30 615.54 15%

2003-04

450.00 5.12 426.36 252.00 3.60 316.13 702.00 8.72 742.49 21%

2004-05

500.00 6.24 568.49 425.00 3.62 391.18 925.00 9.86 959.67 29%

2005-06

750.00 7.51 764.35 600.00 5.53 630.18 1350.00 13.04* 1394.53 44%

2006-07

850.00 7.30 837.47 650.00 5.74 721.70 1500.00 13.04 1559.16


Season wise credit delivery/short term (seasonal agricultural operation) [ST(SAO)]

(Rs. In crores) (Membership in lakhs


Facilities

After careful cosideration of the trend and to mobile sizeable deposits as per target, the rate of intrest on term deposit has been revised. The revised rate of intres shall be effect to from 11.02.2002. The eisting rate of intrest is given as under :

Deposits Rate of Interest

Current Deposits 0.05 %

Saving Bank Deposits 4.00 %

Period Existing rate Revised Rate

a. 15 day to 29 days 5.00 % 5.00 %

b. 31 days to 45 days 5.50 % 5.50 %

c. 46 days to 90 days 6.75 % 7.00 %

d. 91 days to 180 days 7.50 % 8.25 %

e. 181 days to 1 year 8.25 % 8.50 %

f. Above 1 years & below 2 years 8.50 % 9.00 %

g. Above 2 years 9.00% 9.25 % Additional intrest @ 0.25% on single deposit of Rs 255.00 lakhs and above in the term deposit slab of 91 days shall be admissible w.e.f. 11.02.2002. Months Payble

12 1268

24 2679

36 4241

48 5974

60 7896

72 10029

84 12394

96 15017

108 17927

120 21155

Reinvestiment Deposit Scheme ( with a deposit of Rs. 100)

2.6-Retail Banking of Orissa State Co-operative Bank Ltd. :

Housing loans : The bank is financing Housing Loan under its "APNA GHAR " scheme. Maximum amount under this head is Rs.500000.00 for purchase of readymade house or construction. For repair, renovation or addition/ alteration the limit is Rs.50000.00. The rate of interest is 13% on reducing balance. Maximum repayment period is 15 years with 18 months moritorium period. Consumer Durable Requirement / Formalities

1. Maximum limit Rs. 50000.00 or 75% of the cost of the item. 2. Subject to five times monthly gross income. 3. Repayable in maximum 40 monthly installments in reducing balance.

Motor Vehicle Finance For any sort of Surface Transport and Water Transport vehicle both for commercial and personal pupose. Requirement / Formalities

1. 75% of the total cost of vehicle, including insurance and registration. 2. Repayable in 60 monthly installments reducing balance.

Business Enterprise

Terms Loan for

1. Fixed Assets for Projects. 2. Commercial Complex and Kalyan Mandap 3. Hotels, Tourist Resorts, Health Care units. 4. Equipment and Machinaries.

Requirement / Formalities

1. Maximum 75% of the fixed Assets 2. Maximum repayable periods – 10 years. 3. Interest in reduced balance method.

Working Capital Loans

1. Retail Business 2. Trader 3. Wholesaler


Facilities

After careful cosideration of the trend and to mobile sizeable deposits as per target, the rate of intrest on term deposit has been revised. The revised rate of intres shall be effect to from 11.02.2002. The eisting rate of intrest is given as under :

Deposits Rate of Interest

Current Deposits 0.05 %

Saving Bank Deposits 4.00 %

Period Existing rate Revised Rate

a. 15 day to 29 days 5.00 % 5.00 %

b. 31 days to 45 days 5.50 % 5.50 %

c. 46 days to 90 days 6.75 % 7.00 %

d. 91 days to 180 days 7.50 % 8.25 %

e. 181 days to 1 year 8.25 % 8.50 %

f. Above 1 years & below 2 years 8.50 % 9.00 %

g. Above 2 years 9.00% 9.25 % Additional intrest @ 0.25% on single deposit of Rs 255.00 lakhs and above in the term deposit slab of 91 days shall be admissible w.e.f. 11.02.2002. Months Payble

12 1268

24 2679

36 4241

48 5974

60 7896

72 10029

84 12394

96 15017

108 17927

120 21155

Reinvestiment Deposit Scheme ( with a deposit of Rs. 100)

http://www.oscb.coop/Deposit&Advance/fasclities.asp

4. Project Solution

Requirement / Formalities

1. Maximum 75% of working capital requirement subject to Stock Holding. 2. Quarterly Interest on days balance.

2.7-Introduction of Corporate Governance by Orissa State Co-operative Bank Ltd. :

Orissa State Cooperative Bank is the first bank in the cooperative sector in the country to introduce sound practices of corporate governance to ensure transparency in its functioning. During the last three years, the following initiatives have been taken to follow good corporate practices by addressing a range of issues such as, protection of shareholders rights, enhancing shareholders value, disclosure requirements, integrity of accounting practices and strengthening the control system.

The employees of the bank can now expose any wrongdoing of the top management of the bank without any fear of reprisal. The Board of Management of the bank in its meeting held on 30.06.2003 has accepted the system for protection of whistleblowers adopted in USA and in Indian Companies like Wipro and Infosys. This facility would give protection to the staff, who expose irregularities, corruption, mal-practices etc. by the top management of the bank. Under this system, where any staff of the bank discovers information, which he believes shows serious mal-practice, impropriety, abuse or wrongdoing, then the information should be disclosed without fear of reprisal. Following the spirit of the Sarbanes Oxley Act of the USA, which envisages protection for whistleblowers (staff who expose corruption), a similar policy has been adopted to enable the employees to raise concern about any irregularity and impropriety at an early stage and in the right way without fear of victimisation, subsequent discrimination or disadvantage. OSCB has become the first bank in the country to have adopted such a policy. Employees are normally the first to realise that there are irregular or illegal practices being followed by any colleague/ management. Hence a policy which affords protection to the employees who expose irregularities, corruption, malpractice etc. will go a long way in ensuring transparent management, setting standards, which the DCCBs shall be encouraged to emulate.

Besides, the Orissa State Cooperative Bank has adopted the following sound practices of corporate governance.

1. Timely audit of accounts has been ensured. The audit for the year 2005-06 was completed by 30.06.06.

2. The bank has been paying uninterrupted dividend to the shareholders.3. Common coding of accounting heads has been introduced in the State to integrate the

accounting practices of the OSCB and all affiliated DCCBs. This has facilitated the computerisation process in the Central Cooperative Banks.


4. Organisation of annual customer meets to understand their changed perception and to reorient the policies and procedures of the bank. Such meets are also being organised at the level of the DCCBs as well as the PACS.

5. A transparent transfer policy have been formulated and adopted in the bank. Transfers are now being effected on the basis of the policy without any other consideration.

6. A bi-monthly house journal entitled “Sampark” is published with effect from January, 2001, which not only provides a forum to the employees to express their views, but also the management is also able to explain the justification for taking important decisions.

7. Each branch of the OSCB, DCCBs as well as the PACS is being visited by a supervisory officer every month to inspect the functioning and also impart guidance.

8. Loans Manual for the Bank has been prepared by NABCON- the consultancy arm of NABARD.

9. Systems Audit of the Bank has been conducted by M/s Haribhakti & Co., Mumbai.10. A comprehensive HRD policy is being evolved for the Bank by the National Institute of

Bank Management, Pune.


CHAPTER-3

PROJECT OVERVIEW

3.1 –Introduction of Financial Statement 3.2 -Meaning and Concept of Financial Analysis 3.3 - Objective of Financial Statement Analysis 3.4 -Types of Financial Analysis

3.5 -Procedure of Financial Statement Analysis 3.6 -Methods and Devices of Financial Analysis 3.7 -Limitation of financial Analysis 3.8 -Overview of Ratio Analysis


3.1 –Introduction of Financial Statement : - Finance is defined as the provision of money when it is required. Every enterprise needs finance to start and carry out its operation. Finance is the lifeblood of an organization. So, finance should be managed effectively. Financial statements are prepared primarily for decision making. Financial Statement Analysis refers to the process of determining financial strength and weakness of the firm by properly establishing strategic relationship between the items of the balance sheet and profit and loss account. There are various methods and techniques used in analyzing financial statements, such as comparative statements, trend analysis, common size statements, schedule of changes in working capital, funds flow and cash flow analysis, cost volume profit analysis and ratio analysis and other operative data. The analysis of financial statement is used for decision making by various parties.

3.2MEANING AND CONCEPT OF FINANCIAL ANALYSIS:- The term ‘financial analysis’ , also known as analysis and interpretation of financial statements’, refers to the process of determining financial strengths and weakness of the firm by establishing strategic relationship between the items of the balance sheet, profit and loss account and opposite data.”Analysing financial statements,” according to Metcalf and Titard, “is a process of evaluating the relationship between component parts of a financial statements to obtain a better understanding of a firm’s position and performance”. In the words of Myers, “Financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set-of statement, and a study of the trend of these factors as shown in a series of statements.” The purpose of financial analysis is to diagnose the information contained in financial statements so as to judge the profitability and financial soundness of the firm. Just like a doctor examines his patient by recording his body temperature, blood pressure, etc. before making his conclusion regarding the illness and before giving his treatment, a financial analyst analysis the financial statements with various tools of analysis before commenting upon the financial health or weaknesses of an enterprise. The analysis and interpretation of financial statements is essential to bring out the mystery behind the figures in financial statements. Financial statements analysis is an attempt to determine the significance and meaning of the financial statement data so that forecast may be made of the future earnings, ability to pay interest and debt maturities (both current and long-term) and profitability of a sound dividend policy. The term ‘financial statement analysis’ includes both ‘analysis’, and ‘interpretation’. A distinction should, therefore, be made between the two terms. While the term ‘analysis’ is used to mean the simplification of financial data by methodical classification of the data given in the financial statements, ‘interpretation’ means, ‘explaining the meaning and significance of the data so simplified.’ However, both ‘analysis and interpretation’ are interlinked and complimentary to each other Analysis is useless without interpretation and interpretation without analysis is difficult or even impossible. Most of the authors have used the term ‘analysis’ only to cover the


meaning both analysis and interpretation as the objective of analysis is to study the relationship between various items of financial statements by interpretation. We have also used the terms ‘Financial statement Analysis’ or simply ‘Financial Analysis’ to cover the meaning of both analysis and interpretation.

3.3-Objective and Importance of Financial Statements Analysis:The primary objective of financial statements analysis is to understand and diagnose the information contained in financial statement with a view to judge the profitability financial soundness of the firm, and to make forecast about future prospects of the firm. The purpose of analysis depends upon the person interested in such analysis and his object. However, the following purposes or objectives of financial statements analysis may be stated to bring out significance of such analysis :

1. To assess the earning capacity or profitability of the firm.2. To assess the operational efficiency and managerial effectiveness.3. To assess the short term as well as long term solvency of the firm.4. To identify the reasons for change in profitability and financial position of the firm.5. To make inter-firm comparisons.6. To make forecasts about future prospects of the firm.7. To assess the progress of the firm over a period of time.8. To help in decision making and control.9. To guide or determine the dividend action.10. To provide important information for granting credit.

3.4-Types of Financial Analysis:We can classify various types of financial analysis into different categories depending upon:

1. On the basis of material used,2. On the basis of modus operandi,3. On the basis of entities used,4. On the basis of time horizon.


1. On the basis of Material Used : According to material used, financial analysis can be two types

a. EXTERNAL ANALYSISb. INTERNAL ANALYSIS

a. EXTERNAL ANALYSIS: This analysis is done by outsiders who do not have access to the detailed internal accounting records of the business firm. These outsiders include investors, potential investors, creditors, potential creditors, credit agencies, government agencies and general public. For financial analysis, thus serves only a limited purpose. However, the recent changes in the government regulations requiring business firms to make available more detailed information to the public through audited published accounts have considerably improved the position of the external analysis.

b. INTERNAL ANALYSIS: This analysis is done by persons who have access who have access to the detailed internal accounting records of the business firm is known as internal analysis. Such an analysis can, therefore, be performed by executives and employees of the employees of the organization as well as government agencies which have statutory powers vested in them. Financial analysis for managerial purposes is the internal type of analysis that can be effected depending upon the purpose to be achieved.

2. On the basis of Modus Operandi: According to the method of operation followed in the analysis can be two types

(a) Horizontal Analysis


(b) Vertical Analysis

(a) Horizontal Analysis: It refers to the comparison of financial data of a company for several years. The figures of this type of analysis are presented horizontally over a number of columns. The figures of the various years are compared with standard or base year. A base year is a year chosen as beginning point. It is also called “Dynamic Analysis”. This analysis makes it possible to focus attention on items that have changed significantly during the period under review. Comparative statements and trend percentages are two tools employed in horizontal analysis.(b)Vertical Analysis: It refers to the study of relationship of the various items in the financial statements of one accounting period. In this type of analysis the figures from financial statements of a year are compared with a base year selected from the same year’s statement. . It is also called “Static Analysis”. Common size financial statements and financial ratios are the two tools employed in vertical analysis. Since vertical analysis considers data for one time period only, it is not vary conducive to a proper analysis financial statements. However, it may be used along with horizontal analysis to make it more effective and meaningful.

3. On the basis of entities involved: According to the method of operation followed in the analysis can be two types

(a) Inter-firm or Cross Sectional Analysis(b) Intra-firm or Time Series Analysis

(a)Inter-firm or Cross Sectional Analysis: Cross sectional analysis involves comparison of financial data of a firm with other firms (competitors) or industry averages for the same time period.(b)Intra-firm or Time Series Analysis: Time series analysis involves the study of performance of the same firm over a period of time.

4. On the basis of time horizon: According to the method of operation followed in the analysis can be two types

(a) Short term Analysis(b) Long term Analysis

(a)Short term Analysis: Short term analysis measures the liquidity position of a firm, i.e. short term paying capacity of a firm or the firm’s ability to meet the current obligations. (b)Long term Analysis: Long term analysis involves the of the firm’s ability to meet the interest costs and repayment schedules of its long term obligations. The solvency, stability and profitability are measured under this type of analysis.


3.5-Procedure of Financial Statements Analysis: Broadly speaking there are three steps involved in the analysis of financial statements. These are

(i) Selection(ii) Classification(iii) Interpretation

The first step involves selection of information (data) relevant to the purpose of analysis of financial statements. The second step involved is the methodical classification of the data and the third step includes drawing of inferences and conclusions. The following procedure is adopted for the analysis and interpretation of financial statements.

1. The analyst should acquaint himself with principles and postulates of accounting. He should know the plans and policies of the management so that he may be able to find out whether these plans are properly executed or not.

2. The extent of analysis should be determined so that the sphere of work may be decided. If the aim is to find out the earning capacity of the enterprise then analysis of income statement will be undertaken. On the other hand, if the financial position is to be studied then balance sheet analysis will be necessary.

3. The financial data given in the statements should be re-organised and re-arranged. It will involve the grouping of similar data under same heads, breaking down of individual components of statements according to nature. The data is reduced to a standard form.

4. A relationship is established among financial statements with the help of tools and techniques of analysis such as ratios, trends, common size, funds flow etc.

5. The information is interpreted in a simple and understandable way. The significance and utility of financial data is explained for helping decision-taking.

6. The conclusions drawn from interpretation are presented to the management in the form of reports

3.6-Methods or Devices of Financial Analysis: A Number of methods or devices are used to study the relationship between different statements. The following methods of analysis are generally used:

i. Comparative statements ii. Trend analysisiii. Common –size statementsiv. Funds flow analysisv. Cash flow analysisvi. Ratio analysis


vii. Cost-volume-profit analysis

In this project the Comparative Statement and Ratio Analysis is used to study the financial statement of Orissa State Co-operative Bank Ltd.

Comparative statements: The comparative financial statements are statements of the financial position at different periods of time. The elements of financial position are shown in a comparative form so as to give an idea of financial position at two or more periods. Any statement prepared in a comparative form will be covered in comparative statements. From practical point of view generally, two financial statements 1. Balance Sheet 2. Income Statement Comparative balance sheet The comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items, group of items and computed items in two or more balance sheets of the same business enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of a business. The changes can be observed by comparison of the balance sheet at the beginning and at the end of a period and these changes can help in forming an opinion about the progress of an enterprise. The comparative balance sheet has two columns for the data of original balance sheets. A third column is used to show this increase in figures. The fourth column may be added for giving percentage of increases and decreases. Guidelines for Interpretation of Comparative Balance Sheet: While interpreting comparative balance sheet the interpreter is expected to study the following aspects:

1. Current Financial Position and Liquidity Position2. Long term Financial Position3. Profitability of the Concern

1. For studying the Financial Position and short term Financial Position of a concern, one sees the working capital in both the years. The excess of current assets over current liabilities will give the figure of working capital. The increase in working capital means improvement in the current financial position of the business. An increase in current assets accompanied by the increase in current liabilities of the same amount will not show any improvement in short term financial position. One should study the increase or decrease in current assets and current liabilities and this will enable him to analyse the current financial position. The second aspect which should be studied in current financial position is the liquidity position of the concern. If liquid assets like cash in hand, cash at bank, bills receivable, debtors, etc. show an increase in the second year over the first year, this will improve the liquidity position of the concern. The increase in inventory can be on


account of accumulation of stocks for want of customers, decrease in demand or inadequate sales promotion efforts. An increase in inventory may increase working capital of the business but it will not be good for business.

2. The long term financial position of the concern can be analysed by studying the changes in fixed assets, long term liabilities and capital. The proper financial policy of concern will be to finance fixed assets by the issue of either long-term securities such as debentures, bonds, loans from financial institutions or issue of fresh share capital. An increase in fixed assets should be compared to the increase in long term loans and capital. If the increase in fixed assets is more than the long term securities then parts of fixed assets have not only been financed from long term sources. A wise policy will be to finance fixed assets by raising long term funds.

3. The new aspects to be studied in a comparative balance sheet questions is the profitability of the concern. The study of increase or decrease in retained earnings, various resources and surpluses, etc. will enable the interpreter to see whether the profitability has improved or not. An increase in the balance of profit and loss account and the other resources created from profits will mean an increase in profitability to the concern. The decrease in such accounts may mean issue dividend, issue of bonus share or deterioration in profitability of the concern.

4. After studying various assets and liabilities an opinion should be formed about the financial position of the concern. One cannot say if short term financial position is good then long term financial position will also be good or vice versa. A concluding word about the overall financial position must be given at the end.

Comparative Income Statement: The income statement gives the results of the operation of a business. The comparative income statement gives an idea of the progress of a business over a period of time. The changes in absolute data in money values and percentages can be determined to analyse the profitability of the business. Like comparative balance sheet income statement also has four columns. First two columns give figures of various items for two years. Third and fourth columns are used to show increase or decrease in figures in absolute amounts and percentages respectively.

Guidelines for Interpretation of Comparative Income Statement:

The analysis and interpretation of income statement will involve the following steps:

1. The increase or decrease in sales should be compared with the increase or decrease in costs of goods sold. An increase in sales will not always mean an increase in profit. The profitability will improve if increase in sales is more than increase in costs of goods sold. The amount of gross profit should be studied in the first step.

2. The second step of analysis should be the operational profits. The operating expenses such as office and administrative expenses, selling and distribution expenses should be deducted from gross profit to find out operating profits. An increase in operating profit will result from the increase in sales position and control of operating expenses. A decrease in operating profit may be due to an increase in operating expenses or decrease


in sales. The change in individual expenses should also be studied. Some expenses may increase due to the expansion of business activities while others may go up due to managerial inefficiency.

3. The increase or decrease in net profit will give an idea about the overall profitability of the concern. Non operating expenses such as interest paid, losses from sales of assets, writing off deferred expenses, payment of tax, etc. decrease the figure of operating profit. When all non-operating expenses are deducted from operational profit, we get a figure of net profit. Some non operating incomes may also be there which will increase net profit. An increase in net profit will gave us an idea about the progress of the concern.

4. An opinion should be formed about profitability of the concern and it should be given at the end. It should be mentioned whether the overall profitability of the concern is good or not.

Focus of Financial Statement Analysis:

Financial statement analysis involves evaluating different aspects of a business enterprise, which are of great importance to different users such as management, investors, creditors, bankers, analyst, investment advisers, etc. generally, the following analyses are made while making Financial Statement Analysis.

1. Liquidity or short term solvency analysis2. Profitability analysis3. Capital structure or gearing analysis4. Market strength or investor analysis5. Growth and stability analysis

Application of Financial Analysis: Following are the application of financial analysis:

1. Assessing Corporate Excellence2. Judging credit worthiness3. Forecasting bankruptcy4. Valuing equity shares5. Predicting bonds ratings6. Estimating market risk

3.7-Limitations of Financial Statement Analysis: Financial analysis is a powerful mechanism of determining financial strengths and weakness of a firm. But, the analysis is based on the information available in the financial statements. Thus, the financial analysis suffers from serious inherent limitations of financial statements. The financial analyst has also be careful about the impact of price level changes, windows dressing of financial statements, changes in the accounting policies of a firm, accounting concepts and conventions, and personal judgement, etc. The readers are advised to relate the limitations of financial statements as given in the previous chapter and also the limitations of ratios as a tool of financial analysis as discussed in Ratio Analysis. Some of the important limitations of financial analysis are, however, summed up as below:


i. It is only a study of interim reports.ii. Financial analysis is based upon only monetary information and non-monetary factors

are ignored.iii. It does not consider changes in price levels.iv. As the financial statements are prepared on the basis of a going concern, it does not

give exact position. Thus accounting concepts and conventions cause a serious limitation to financial analysis.

v. Changes in accounting procedure by a firm may often make financial analysis misleading.

vi. Analysis is only a means and not an end in itself. The analyst has to make interpretation and draw his own conclusions. Different people may interpret the same analysis in different ways.

3.8-Overview of Ratio AnalysisIntroduction: Ratio analysis is one of the techniques used to analyse the financial statements. It is one of the most powerful tools of financial analysis. It is the process of establishing and interpreting various ratios (quantitative relationship between figures and group of figures). Through ratio analysis financial statement can analyse more clearly and decision made from such analysis. According to Accountant’s Handbook by Wixon Kell and Bedford, a ratio “is an expression, of the quantitative relationship between the numbers”.

Nature of Ratio Analysis: Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decision. However, ratio analysis is not an end in itself. It is only a means of better understanding of financial strength and weaknesses of affirm. Calculation of mere ratios does not serve any purpose, unless several appropriate ratio are analysed and interpreted. There are a number of ratios which can be calculated from the information given in the financial statements, but the analyst select the appropriate data and calculate only a few appropriate ratios from the same keeping in mind the objective of analysis. The ratios may be used as a symptom like blood pressure, the pulse rate or the body temperature and their interpretation depends upon the caliber and competence of the analyst. The following are the four steps involved in the ratio analysis:

i. Selection of relevant data from the financial statements depending upon the objective of the analysis.


ii. Calculation of appropriate ratios from the above data.iii. Comparison of the calculated ratios with the ratios of the same firm in the past, or the

ratios developed from projected financial statements or the ratio of some other firms or the comparison with ratios of the industry to which the firm belongs.

iv. Interpretation of the ratios.

Use and Significance of Ratio Analysis: Helpful in decision making.

Helpful in financial forecasting and planning.

Helpful in communication.

Helpful in co-ordination.

Helpful in Control.

Helpful in efficiency appraisal.

Helpful in evaluation of financial position.

Helpful to investors, financial institution, employee.

Limitations of Ratio Analysis:The ratio analysis is one of the most powerful tools of financial management. Though ratios are simple to calculate and easy to understand, they suffer from some serious limitations:

1. Limited Use of Single Ratio. A single ratio, usually, does not convey much of a sense. To make a better interpretation a number of ratios have to be calculated which is likely to confuse the analyst than help him ion making any meaningful conclusion.

2. Lack of Adequate Standards. There are no well adapted standards or rules of thumb for all ratios which can be accepted as norms. It renders interpretation of the ratios difficult.

3. Inherent Limitations of Accounting. Like financial statements, ratios also suffer from the inherent weakness of accounting records such as their historical nature. Ratios of the past are not necessarily true indicators of the future.

4. Change of Accounting Procedure. Change in accounting procedure by a firm often makes ratio analysis misleading. e.g; a change in the valuation of methods of inventories, from FIFO to LIFO increases the cost of sales and reduces considerably the value of closing stocks which makes stock turnover ratio to be lucrative and an unfavourable gross profit ratio.

5. Window Dressing. Financial statements can easily be window dressed to present a better picture of its financial and profitability position to outsiders. Hence, one has to be very


careful in making a decision from ratios calculated from such financial statements. But it may be very difficult for an outsider to know about the window dressing made by a firm.

6. Personal Bias. Ratio are only means of financial analysis and not an end in itself. Ratios have to be interpreted and different people may interpret the same ratio in different ways.

7. Incomparable. Not only industries differ in their nature but also the firms of the similar business widely differ in their size and accounting procedures, etc. It makes comparison of difficult and misleading. Moreover comparisons are made difficult due to differences in definitions of various financial terms used in the ratio analysis.

8. Absolute Figures Distortive. Ratios devoid of absolute figures may prove distortive as ratio analysis is primarily a quantitative analysis and not a qualitative analysis.

9. Price Level Changes. While making ratio analysis, no consideration is made to the changes in price levels and this makes the interpretation of ratio invalid.

10. Ratios no Substitutes. Ratio analysis is merely a tool of financial statements. Hence, ratios become useless if separated from the statements from which they are computed.

11. Clues not Conclusions. Ratios provide only clues to analysts and not final conclusions. These ratios have to be interpreted by these experts and there are no standard rules for interpretation.

Classification of Ratios: The use of ratio analysis is not confined to financial manager only. There are different parties interested in the ratio analysis for knowing the financial position of a firm for different purposes. In view of various users of ratios, there are many types of ratios which can be calculated from the information given in the financial statements. The particular purpose of the user determines the ratios that might be used for financial analysis.

Various accounting ratios can be classified as follows


Functional Classification in View of Financial Management or Classification According to Tests:

Liquidity Ratios:(A) .1. Current Ratio2. Liquid Ratio3. Cash Ratio


4. Interval Measure(B) .1. Debtors Turnover Ratio2. Creditors Turnover Ratio3. Inventory Turnover Ratio

Long-term solvency and Leverage Ratios:1. Debt/Equity Ratio2. Debt to total capital Ratio3. Invest Coverage4. Cash Flow/Debt5. Capital Gearing

Activity Ratios or Asset Management Ratios:1. Inventory Turnover Ratio2. Debtors Turnover 3. Fixed Assets Turnover Ratio4. Total Assets Turnover Ratio5. Working Capital Turnover Ratio6. Payables Turnover Ratio7. Capital Employed Turnover

Profitability Ratio:(A)In relation to Sales

1. Gross Profit Ratio2. Operating Ratio3. Operating Profit Ratio4. Net Profit Ratio5. Expense Ratio

(B) In relation to investments1. Return on investments2. Return on capital3. Return on Equity Capital4. Return on Total Resources5. Earnings per share6. Price-Earning Ratio


CHAPTER-4

Analysis and Interpretation 4.1 -Comparative Balance Sheet4.2 -Comparative Income Statement4.3 -Ratio Analysis

Rourkela Institute of Management Studies, RourkelaPage | 57

4.1-Analysis and Interpretation: I have studied the financial statements of Orissa State Co-operative Bank Ltd. by using comparative statements device. It shows as under:

Comparative Balance Sheet:As on 31st March 2007-08

Assets 31st March 2007 31st March 2008 Increase/DecreaseRs.

Increase/DecreasePercentage

Current Assets:

Cash in hand with RBI/SBI/Other Banks

Current Accounts with other Banks

Money at call & Short notice

Investment in Govt. Securities for Trading

Short term loan Cash credit and overdraft

Gold Loan

Interest Receivable

Bills Receivable

Branch Adjustment

Stationary in Stock

Suspense Recoverable

House rent Receivable

1095019529.56

5219215.66

2192908958.42

2151138000.00

12167837429.00

4251114.58

978103360.85

3813252.31

1498320.86

1050158.76

20898765.03

660364.00

1389999078.42

9127364.90

8677832820.00

2091138000.00

13971051846.50

7349503.58

871631464.52

4173480.78

28665848.26

1096042.53

21029433.80

807664.00

294979548.86

3908149.24

6484923861.58

(60000000.00)

1803214417.50

3098389.00

(106471896.33)

360228.47

27167527.40

45883.77

130668.77

147300.00

26.94

74.88

295.72

(2.79)

14.82

72.88

(10.89)

9.45

1813.20

4.37

0.63

22.30

Bills purchase account

Income Tax refund receivable

Unspent postage

Audit & other recovery

DD Ex-advice

Sundry debtor

Total Current Asset

Fixed Assets:

Premises

Furniture &Fittings

Total Fixed Assets

Other Assets:

Investment

LT Loans

MT Loans

Library

Vehicle Account

Total Other Assets

Total Other Assets

9097762.54

16743011.00

1271.00

2162365.61

1387813.00

35411988.68

9102314.54

15776950.00

---

2162365.61

1387813.00

35423563.68

4552.00

(966061.00)

(1271.00)

---

---

11575.00

0.05

(5.77)

(100)

---

---

0.03

18687202680.86 27137755554.12 84505528073.26 45.22

33528111.85

37170507.19

32629127.31

34150138.26

(898984.00)

(3020368.93)

(2.68)

(8.13)

70698619.04 66779265.57 (3919353.47) (5.54)

5666979089.00

2718261125.03

4485775141.33

128198.26

1059112.27

5645567938.00

3266842342.09

2818531526.76

131778.42

856526.96

(21411151.00)

548581217.06

(1667243615.43)

3580.16

(202585.31)

(0.38)

20.18

(37.16)

2.79

(19.13)

12872202665.89 11731930112.12 (1140272554.52) (8.86)

31630103975.79 38936464931.92 7306360965.27 23.1

Liabilities and Capital

31st March 2007 31st March 2008 Increase/DecreaseRs.


Current Liabilities:

Saving Bank Deposit

Current Deposit

Short-term Loan From RBI/NABARD

Bill for Collection

Branch Adjustment

Over due interest reserve

Interest Payable

Other Liabilities

Total Current Liabilities

Fixed Deposit

Borrowings

Total Liabilities

Share Capital

Reserve Fund and Other Reserve

Profit & Loss A/c

Total

694462338.36

437312561.68

5658399000.00

3813252.31

0.00

554822000.00

505014456.00

151770520.83

681158815.02

659441341.04

8878069000.00

4173480.78

0.00

483003000.00

916358147.00

156146042.37

(13303523.34)

222128779.36

3219670000.00

360228.47

-

(71819000.00)

411343691.00

4375521.54

(1.91)

50.80

56.90

9.45

(12.94)

81.45

2.88

8005594129.00

11826847907.14

12514136802.89

11778349826.21

14322080095.48

16659324848.00

3772755697.00

2495232188.00

4145188045.11

47.12

21.09

33.12

32346578839.30

697685925.00

2017387326.74

91603261.57

42759754769.69

713758300.00

2153015911.18

97231865.85

10413175930.11

16072375.00

135628584.44

5628604.28

32.19

2.30

6.72

6.14

35153255352.61 45723760847.72 10570505493.83 30.06

Interpretation of Comparative Balance Sheet:

1. The Comparative Balance Sheet reveals that during 2008 there has been an increase

in current assets of Rs.84505532873.26 i.e. 45.22% in the current liabilities have

increased by Rs.3772755697.00 i.e. 47.12%. So the current financial position has

increased.

2. The liquid assets that is cash in hand, cash in bank shows an increase in 2008 over

2007. This will improve the liquidity position of the concern.

3. The other assets have decreased by Rs.1140272554.52 and the long term liabilities to

outsiders have decreased but the share capital has increased. It shows that the Bank

depends on fresh share capital.

4. Reserve and Surplus have increased from Rs.2017387326.74 to Rs.2153015911.18

and the profit has increased from Rs.91603261.57 to Rs.97231865.85 i.e. 6.14%. It

shows that the profitability of the bank has improved.

5. The overall financial position of the Bank is satisfactory.

4.2-COMPARATIVE INCOME STATEMENT:

For the year ending 31st March 2007 and 2008

31st March 2007 31st March 2008 Increase/DecreaseRs.


Expenditure:Interest paid on deposits and borrowings

Salary and Allowances

Directors And local committee members fees & allowances

Rent, Taxes, & Insurance Expenses

Law charges & Legal expenses

Postage, Telegram & Telephone charges

Audit fees

Depreciation & repair to Property

Stationary, Printing & Advertisement

Other Expenditure

1395937255.58

94960048.95

215659.00

14894381.83

1241822.90

1590337.13

159142.00

17964933.26

3447826.96

119142242.98

1742121619.02

144470099.70

577892.96

18936824.89

1206672.00

2010979.47

331484.00

17201877.68

3529339.49

79578931.58

346184363.44

49510050.75

362233.96

4042443.06

(35150.90)

420642.34

172342.00

(763055.58)

81512.53

(39563311.40)

24.80

52.14

167.97

27.14

2.83

26.45

108.29

(4.25)

2.36

(33.20)

Total Expenditure

Balance of Profit

1649553650.59

91603261.57

2009965720.79

97231865.85

360412070.20

5628604.28

21.85

6.14Total 1741156912.16 2107197586.64 366040674.50 21.00

Income:Interest & Discount

Commission, Exchange & Brokerage

Other receipt

1691129945.33

8295349.24

41731617.59

2085494315.36

10936979.41

10766291.87

394364370.03

2641630.17

(30965325.72)

23.32

32.00

(74.20)

Total 1741156912.16 2107197586.64 366040674.50 21.00

Interpretation of the Comparative Income Statement:

1. The comparative income statement reveals that there has been increase in interest

paid on deposit and borrowings by 24.80%, salary and allowances by 52.14%, rent,

tax and insurance expense by 27.14%. Postage and telegram expenses increases by

26.45%, but the other expenditure are relatively decreased. So the total expenditure

is increased by Rs.21.88%.

2. The total income of the bank has increased by 21.85% and the bank earn the profit of

Rs.97231865.85 which is 6.14% more than the previous year.

3. There is a sufficient progress in the bank and the overall profitability of the bank is

good.

4.3 -Ratio AnalysisProfitability Ratio:

The primary objective of business undertaking is to earn profit in the words of Lord Keynes “Profit is the engine that drives the Business enterprise”. Profit is not only needed for its existence but also for its expansion and diversification. The investors want an adequate return on their investment; workers want higher wages, creditor want high security for their interest and loan soon. Following are the important overall profitability ratios, which relevant to the Business Concerns are:

1. Return on Assets2. Return on Capital Employed3. Return on Equity Capital4. Earning per Share(EPS)

1. Return on Assets: It states the relationship between net profit and total assets.

Return on assets = Net Profit * 100 / Total asset

YEAR NET PROFIT TOTAL ASSET PERCENTAGE2000-01 64924131 16944362857 0.38%2001-02 74953072 16743339649 0.45%2002-03 84731646 17918499832 0.47%2003-04 134751259 21297744258 0.63%2004-05 174443023 21453862751 0.81%2005-06 169964997 25773075463 0.66%2006-07 91603261 29510930212 0.31%2007-08 97231865 36860908079 0.33%

Interpretation: The return on assets of OSCB is not satisfactory. The assets are not utilized properly. 2. Return on Capital Employed

It is widely used to measure the overall profitability and the efficiency of the business.

Return on Capital Employed = Net Profit * 100 / Total capital employed

Capital Employed: Share Capital

Reserve fund & other reserves

YEAR NET PROFIT CAPITAL

EMPLOYED

PERCENTAGE

2000-01 64924131 1206388387 5.38%

2001-02 74953072 3326568012 2.25%

2002-03 84731646 3696509930 2.29%

2003-04 134751259 1887613988 7.14%

2004-05 174443023 2191252452 7.96%

2005-06 169964997 2578915623 6.59%

2006-07 91603261 2715073251 3.37%

2007-08 97231865 2866774211 3.39%

Interpretation:

The return on capital employed of OSCB is in good trend.

3.Return on Equity Capital:

The equity share holders are the real owner of the company. They assume high risk in

the company.

Return on Equity Capital = Net Profit * 100 / Equity capital

YEAR NET PROFIT EQUITY CAPITAL PERCENTAGE2000-01 64924131 310104800 20.9%2001-02 74953072 375228000 19.97%2002-03 84731646 438206575 19.33%2003-04 134751259 495832675 27.17%2004-05 174443023 516861625 33.75%2005-06 169964997 643789225 26.4%2006-07 91603261 697685925 13.12%2007-08 97231865 713758300 13.62%

Interpretation:

The return on equity share capital of OSCB provides a higher rate of dividend to its

equity share holders.

4.Earning per Share(EPS): It is small variation of return on equity capital. It shows the profit available to each share holder.

Earning per Share = Net Profit / Equity Share Holders

YEAR NET PROFIT NO. OF EQUITY SHARES

PERCENTAGE

2000-01 64924131 5645770 11.50%

2001-02 74953072 4500000 16.65%

2002-03 84731646 4500000 18.83%

2003-04 134751259 4500000 29.94%

2004-05 174443023 4500000 38.76%

2005-06 169964997 4500000 37.76%

2006-07 91603261 4500000 20.35%

2007-08 97231865 4500000 21.60%

Interpretation:

The EPS of OSCB is satisfactory to the equity share holders.

CHAPTER-5 Findings and Suggestions

5.1 -Findings 5.2 -Suggestions

5.1-FINDINGS:I. The current assets have increased in 2008 by Rs.8450552873.26 i.e.

45.22%.

II. The cash in hand ha increased by 26394%.

III. The DD Ex-advice, Audit & other recoveries and house rent

receivable are not recovered.

IV. The premises and furniture and fittings are decreased by 2.68% and

8.13% respectively.

V. The fixed deposit liabilities have increased by 21.09%.

VI. The current liabilities have increased by 47.12%.

VII. The number of defaulter is going up year after year.

VIII. Released the house journal “SAMPARK”.

IX. Strengthening of Kissan Credit Card Scheme.

X. Introduction of Swarojagar Credit Card Scheme.

XI. The NPA position has been come down compared to previous year.

XII. The total income has increased by Rs.366040674.50 i.e. 21.00%.

XIII. The Bank has introduced sound practices of corporate governance.

XIV. The profit has been increased by 6.14%.

5.2-Suggestions:

From all the studies we can suggest some point to improve the

profitability of the organization.

The bank should focus more on advancing loans and money from

depositors.

It should reduce the cost of management.

It should recover its money from defaulters in a limited time.

It should control the non operation expenses and other expenditure.

It should ready for the coming competitive as all banks are going to be

privatized.

It should diversify its business and should give loans to non agricultural

sectors.

To increase the net profit at higher rate, carefully designed risk

management systems and increasingly higher aspiration levels of

customer services should be taken.

CHAPTER-6

Conclusion

Conclusion:

If properly analyzed and interpreted, financial statements can provide

valuable insight into a firm’s performance. Analysis of financial statements is

of interest to lenders (short term as well as long term) investors, security

analysts, managers and others. Financial statement analysis may be done for a

variety of purpose, which may range from a simple analysis of the short term

liquidity position of the firm to a comprehensive assessment of the strength and

weakness of the firm in various areas. It is helpful in assessing corporate

excellence, judging credit worthiness, forecasting bond ratings, predicting

bankruptcy and assessing market risk.

I have studied the attached Balance Sheet and Profit and Loss Account of

Orissa State Co-operative Bank Ltd. as at 31st March 2008.

The financial Statements are the responsibility of the banks management.

The analysis and interpretation of financial statements is essential to bring out

the mystery behind the figure in financial statement.

The transactions of Bank, which have come to my notice, have been

within the powers of Bank.

Proper books of account as require by law have been kept by the Bank

in so far as it appears from my observation of those books.

Proper returns have been received from the Bank’s branches.

The balance sheet and profit and loss account are in agreement with the

books of account.

BIBILIOGRAPHY

Reference Books:

1. Gupta Shashi K. & Sharma R. K.: Management Accounting ;

Kalyani Publisher, New Delhi.

2. Prasanna Chandra: Financial Management Theory and Practice; Hill

Publishing Company Ltd, New Delhi.

3. Jawahar Lal & Srivastava Seema,: Financial Accounting;

Sultan Chand & Company Ltd.New Delhi.

4. Gordon E. & Natarajan K.: Banking Theory Law & Practice; Himalaya

Publishing House.

Reference From Journal, Magazine,Newspaper,Annual Report:

1. Annual Report of Orissa State Co-operative Bank Ltd. Bhubaneswar.

WEBSITE

www.oscb.coop/

www.rbi.com

www.managementparadise.com

http://www.managementparadise.com/

http://www.rbi.com/

http://www.oscb.coop/

a summer training project report on “financial

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