comparative study of financial report of (1) (1)

APROJEC

TREPORT

ON

“COMPARATIVESTUDYOFFINANCIALREPORT

OF

TOPTHREEBANKSOFINDIA”

SUBMITTEDT

OTILAKMAHARASHTRAUNIVERSITYINPARTIALFULFILLM

ENTOF2YEARSFULLTIMECOURSE

MASTEROFBUSINESSADMINISTRATION(

MBA)

SubmittedBy

:KAATRAFIKO.

(Batch2008-09)

Guide

dBy:Prof.R.GANES

HAN

MAHARASHTRACOSMOPOLITANEDUCATIONSOCIETY‟S

PAIINTERNATIONALCENTREFORMANAGEMEN

TEXCELLENCECAMP-PUNE-4110011

CERTIFICATE

Thisi

scertifythatKAATRAFIKOSMANBHAIstudentofPAIinternationalcentreformanagementexcellence,

MaharashtraCosmopolitanEducationsociety,PunehascompletedhisfieldworkreportonthetopicofCOM

PARATIVESTUDYOFFINANCIALREPORTOFTOPTHREEBANKSOFINDIAandhassubmittedth

efieldworkreportinpartialfulfillmentofMBAofthe collegeforthe academicyear 2008-2009.

Hehas worked under our guidance anddirection.Thesaid report is basedon

bonafideinformation.

Projectguide name Prof. R Ganesan

Designation Director

2

3

PAIINTERNATIONALCENTR

EFOR

MANAGEMENTEXCELLENCE

MaharashtraCosmopolitanEducationSociety

DECLARATION

Iherebydeclaretha

tprojecttitled“COMPARATIVESTUDYOFFINANCIALREPORTOFTOPTHREEBANKSOFINDI

A”isanoriginalpieceofresearchworkcarriedoutbymeundertheguidanceandsupervisionofprof.RGanesa

n.Theinformationhasbeencollectedfromgenuine&authenticsources.Theworkhasbeensubmittedinparti

alfulfillmentoftherequirementof MBA to ourcollege.

Place: Signature:

Date: Name ofthe students:

4

ACKNOWLEDGEMENT

“Perseveranc

einspirationandmotivationhavealwaysplayedakeyroleinsuccessofanyventure”.Iherebyexpressmydee

psenseofgratitudetoallthepersonalitiesinvolveddirectlyandindirectlyin myprojectwork.

IwouldthanktoGodfortheirblessingandmyparentsalsofortheirvaluablesuggestionand support

in myproject report.

Iwoul

dalsoliketothankourfriendsandthosewhohavehelpedusduringthisprojectdirectlyorindirectly.

Lastbut not theleast;Iwould like to expressmysinceregratitudeto all

thefacultymemberswh

ohavetaughtmeinmyentireMBAcurriculumandourDirectorProf.R.GANESANwhohasalwaysbeenaso

urceofguidance,inspirationandmotivation.However,Iacceptthesoleresponsibilityforanypossibleerrors

ofomissionandwouldbeextremelygratefultothereadersofthis projectreport if theybringsuch mistakes

to mynotice.

KAATRAFIKO.

5

INDEX

Sr.No

Subjects

Page

1. Introduction7

2. BankProfile1

0i. SBI

1

1ii. ICICI

1

4iii. PNB

1

73. Products& Services

2

14. BalanceSheet

3

65. RatioAnalysis

4

06. Objectives

6

27. Importance

6

4

6

8. Advantages, Limitations

7

6

6

9. Conclusion6

9

10

.Bibliography

7

1

INTRODUCTION

8

INRTODUCTION

Afterpreparatio

nofthefinancialstatements,onemaybeinterestedinknowingthepositionofanenterprisefromdiffer

entpointsofview.Thiscanbedonebyanalyzingthefinancialstatementwiththehelpofdifferenttools

ofanalysissuchasratioanalysis,fundsflowanalysis,cashflowanalysis,comparativestatementanal

ysis,etc.HereIhavedonefinancialanalysisbyratios.Inthisprocess,ameaningfulrelationshipisesta

blishedbetweentwoormoreaccounting figuresfor comparison.

Financialratio

sarewidelyusedformodelingpurposesbothbypractitionersandresearchers.Thefirminvolvesman

yinterestedparties,liketheowners,management,personnel,customers,suppliers,competitors,reg

ulatoryagencies,andacademics,eachhavingtheirviewsinapplyingfinancialstatementanalysisint

heirevaluations.Practitionersusefinancialratios,forinstance,toforecastthefuturesuccessofcomp

anies,whiletheresearchers'maininteresthasbeentodevelopmodelsexploitingtheseratios.Manydi

stinctareasofresearchinvolvingfinancialratioscanbediscerned.Historicallyonecanobservesever

almajorthemesinthefinancialanalysisliterature.Thereisoverlappingintheobservablethemes,andt

heydonotnecessarilycoincidewithwhattheoreticallymightbethe bestfoundedareas.

Financia

lstatementsarethosestatementswhichprovideinformationaboutprofitabilityandfinancialpositio

nofabusiness.Itincludestwostatements,i.e.,profit&lossa/corincomestatementandbalance sheet

or position statement.

The

incom

estatementpresentsthesummaryoftheincomeearnedandtheexpensesincurredduringafinancialye

9

ar.Positionstatementpresentsthefinancialpositionofthebusinessatthe end oftheyear.

Beforeunderstandingthemeaningofanalysisoffinancialstatements,itisnecessaryto

understandthemeaningof„analysis‟and„financialstatements‟.

Analysismeansestablishin

gameaningfulrelationshipbetweenvariousitemsofthetwofinancialstatementswitheachotherinsu

chawaythataconclusionisdrawn.Byfinancialstatements,wemeantwostatements-

(1

)profit&lossa/

c

(2)balancesheet.Thesearepreparedattheendofagivenperiodoftime.Theyareindicatorsofprofitab

ilityandfinancialsoundness of the businessconcern.

Thus

,analysisoffinancialstatementsmeansestablishingmeaningfulrelationshipbetweenvariousitems

of the twofinancialstatements, i.e.,income statementand position statement

Partiesinterested in analysis of financial statements

Analysi

soffinancialstatementhasbecomeverysignificantduetowidespreadinterestofvariouspartiesinthefinancia

lresultofabusinessunit.Thevariouspersonsinterestedintheanalysisoffinancial statements are:-

Short- termcreditors

Theyare interested in knowingwhethertheamounts owingto them will be paid as

andwhenfall dueforpayment or not.

Long–term creditors

Theyare interested inknowingwhetherthe principal amount and interest thereon will bepaid

on timeor not.

Shareholders

Theyare interested in profitability,returnandcapitalappreciation.

Management

Themanagement is interested in the financial position andperformanceof theenterprise

asawhole andof its various divisions.

Trade unions

Theyare interested in financial statements for negotiatingthe wages or salaries or

bonusagreement with management.

8

Taxationauthorities

These authorities areinterested in financial statements fordeterminingthe taxliability.

Researchers

Theyare interested in thefinancialstatements in undertakingresearch in business

affairsandpractices.

Employees

Theyare interestedas it enables them to justifytheir demands for bonus and increase

inremuneration.

You have seen that different parties are interestedin the resultsreported inthe

financialstatements.These results are reportedbyanalyzingfinancialstatementsthrough the useof

ratioanalysis.

9

BANK PROFILE

11

1. STATEBANK OF INDIA

Type-

Publi

c(BSE,NSE:SBI)&(LSE:

SBID)

Founded- Calcutta, 1806 (asBankof Calcutta)

Headquarters-

CorporateCentre

,MadamCamaRoad,M

umbai400 021India

Keypeople- Om PrakashBhatt,Chairman

StateBankofIndia(SBI)

(

LSE:SBID)isthelargestbankinIndia.Itisalso,measuredbythenumberofbranchofficesandemployees,thes

econdlargestbankintheworld.ThebanktracesitsancestrybackthroughtheImperialBankofIndiatothefoun

dingin1806oftheBankofCalcutta,makingittheoldestcommercialbankintheIndianSubcontinent.TheGov

ernmentofIndianationalizedtheImperialBankofIndiain1955,withtheReserveBankofIndiatakinga60%st

ake,andrenamedittheStateBankofIndia.In2008,theGovernmenttookoverthestakeheldbythe

ReserveBankof India.

SB

IprovidesarangeofbankingproductsthroughitsvastnetworkinIndiaandoverseas,includingproductsaime

datNRIs.Withanassetbaseof$126billionanditsreach,itisaregionalbankingbehemoth.SBIhaslaidemphas

isonreducingthehugemanpowerthroughGoldenhandshakeschemes andcomputerizingits operations.

The StateBankGroup,withover16000branches,hasthelargestbranchnetworkinIndia.Ithas a

marketshareamong Indiancommercial banks of about 20% in deposits and advances.

13

International presence

RegionalofficeoftheStateBankofIndia(SBI),India'slargestbank,inMumbai.Thegovernment

ofIndia is the largestshareholderin SBI.

Th

ebankhas52branches,agenciesorofficesin32countries.IthasbranchesoftheparentinColombo,Dhakka,Fr

ankfurt,HongKong,Johannesburg,Londonandenvirons,LosAngeles,MaleintheMaldives,Muscat,New

York,Osaka,Sydney,andTokyo.Ithasoffshorebankingunitsin

theBahamas,Bahrain,andSingapore,andrepresentativeoffices inBhutanandCape Town.

SBIoperate

sseveralforeignsubsidiariesoraffiliates.In1990itestablishedanoffshorebank,StateBankofIndia(Mauriti

us).IthastwosubsidiariesinNorthAmerica,StateBankofIndia(California),andStateBankofIndia(Canada

).In1982,thebankestablisheditsCaliforniasubsidiary,whichnowhassevenbranches.TheCanadiansubsidi

arywasalsoestablishedin1982andalsohassevenbranches,fourinthegreaterTorontoarea,andthreeinBritis

hColumbia.InNigeria,itoperatesasINMBBank. This bankwasestablishedin 1981as theIndo-

NigerianMerchantBankan

dreceivedpermissionin2002tocommenceretailbanking.ItnowhasfivebranchesinNigeria.InNepalSBIo

wns50%ofNepalSBIBank,whichhasbranchesthroughoutthecountry.InMoscowSBIowns60%ofComm

ercialBankofIndia,withCanaraBankowningtherest.InIndonesiaitowns76%ofPTBankIndoMonex.State

BankofIndiaalreadyhasabranch in Shanghaiand plans to open oneup inTianjin.

14

BOARD OF DIRECTORS

1 ShriO.P.Bhatt(Chairman)

2 Shri S.K. Bhattacharyya(MD&CC&RO)

3 Shri Suman KumarBery

4 Dr.Ashok Jhunjhunwala

5 ShriDileep C. Choksi

6 Shri S.Venkatachalam

7 Dr. DevaNand Balodhi

8 Prof. Mohd. SalahuddinAnsari

9 Dr.(Mrs.)VasanthaBharucha

10 ShriArunRamanathan

11 Smt. Shyamala Gopinath

15

2. INDUSTRIALCREDIT&INVESTMENTCORPORATIO

N OF INDIA(ICICI)

ICICIwasforme

din1955attheinitiativeoftheWorldBank,thegovernmentofIndiaandIndianindustryrepresentatives.Thep

rincipalobjectivewas to createadevelopmentfinancialinstitutionforprovidingmedium-termandlong-

termprojec

tfinancingtoIndianbusinesses.Untilthelate1980s,ICICIprimarilyfocuseditsactivitiesonprojectfinance,

providinglong-

termfundstoavariet

yofindustrialprojects.WiththeliberalizationofthefinancialsectorinIndiainthe1990s,ICICItransformedit

sbusinessfromadevelopmentfinancialinstitutionoffering

onl

yprojectfinancetoadiversifiedfinancialservicesproviderthat,alongwithitssubsidiariesandothergroupco

mpanies,offeredawidevarietyofproductsandservices.AsIndia‟seconomybecamemoremarket-

orientedandintegratedwiththeworldeconomy,ICICIcapitalizedonthenewopportunitiesto providea

widerrangeof financial products andservices to a broader spectrum of clients.

ICICIBankwa

sincorporatedin1994asapartoftheICICIgroup.ICICIBank‟sinitialequitycapitalwascontributed75.0%b

yICICIand25.0%bySCICILimited,adiversifiedfinanceandshippingfinancelenderofwhichICICIowned

19.9%atDecember1996.PursuanttothemergerofSCICIintoICICI,ICICIBankbecameawholly-

ownedsubsidiaryofICICI.ICICI‟sholdinginICICI Bankreduced duetoadditionalcapital raisingby

ICICI Bankandsale of shares

b

yICICI,pursuanttotherequirementstipulatedbytheReserveBankofIndiathatICICIdiluteitsownershipofI

CICIBank.EffectiveMarch10,2001,ICICIBankacquiredBankofMadura,anoldprivate sector bank, in

anall-stockmerger.

Theissueofuniversalbanking,whichintheIndiancontextmeanstheconversionoflong-

ter

mlendinginstitutionssuchasICICIintocommercialbanks,hadbeendiscussedatlengthoverthepastseveraly

ears.ConversionintoabankofferedICICItheabilitytoacceptlow-

16

costdemanddepositsandofferawiderrangeofproductsandservices,andgreateropportunitiesfor earning

non-

fun

dbasedincomeintheformofbankingfeesandcommissions.ICICIBankalsoconsideredvariousstrategicalt

ernativesinthecontextoftheemergingcompetitivescenariointheIndianbankingindustry.ICICIBankident

ifiedalargecapitalbaseandsizeandscaleofoperationsaskeysuccessfactorsintheIndianbankingindustry.In

viewofthebenefitsoftransformationintoabankandtheReserveBankofIndia‟spronouncementsonunivers

albanking,ICICIandICICIBankdecided to merge.

16

Atthetimeofth

emerger,bothICICIBankandICICIwerepubliclylistedinIndiaandontheNewYorkStockExchange.Thea

malgamationwasapprovedbyeachoftheboardsofdirectorsofICICI,ICICIPersonalFinancialServices,ICI

CICapital ServicesandICICIBankat

thei

rrespectiveboardmeetingsheldonOctober25,2001.TheamalgamationwasapprovedbyICICIBank‟sandI

CICI‟sshareholdersattheirextraordinarygeneralmeetingsheldonJanuary25,2002andJanuary30,2002,re

spectively.The amalgamationwassanctioned

b

ytheHighCourtofGujaratatAhmedabadonMarch7,2002andbytheHighCourtofJudicatureatBombayon

April11,2002.TheamalgamationbecameeffectiveonMay3,2002.Thedateoftheamalgamationforaccoun

tingpurposesunderIndian GAAP wasMarch 30, 2002.

Th

eSangliBankLimited,anunlistedprivatesectorbankmergedwithICICIBankwitheffectfromApril19,2007

.Onthedateofacquisition,SangliBankhadover190branchesandextensioncounters,totalassetsofRs.17.6b

illion(US$440million),totaldepositsofRs.13.2billion (US$ 330 million), total loans ofRs. 2.0

billion(US$ 50million).

17

BOARD OF DIRECTORS

1. N. Vaghul,Chairman

2. SridarIyengar

3. L. N. Mittal

4. NarendraMurkumbi

5. Anupam Puri

6. ArunRamanathan

7. M. K. Sharma

8. P. M. Sinha

9. Marti G. Subrahmanyam

10. T. S. Vijayan

11. V. Prem Watsa

12. K. V.Kamath,ManagingDirector&CEO

18

3. PUNJABNATIONALBANK(PNB)

Punja

bNationalBank(PNB)wasregisteredonMay19,1894undertheIndianCompaniesActwithitsofficeinAnar

kaliBazaarLahore.TheBank,foundedby

DyalSinghMajithiaandLalaHarkishenLal,isthesecondlargestgovernment-

owne

dcommercialbankinIndiawithabout4,500branchesacross764cities.Itservesover37millioncustomers.Th

ebankhasbeenranked248thbiggestbankintheworldbyBankersAlmanac,London.TotalBusinessoftheba

nkforfinancialyear2007isestimatedtobeapproximatelyUS$60billion.IthasabankingsubsidiaryintheUK

,aswellasbranchesinHongKongandKabul,andrepresentativeofficesinAlmaty,Shanghai,andDubai.

W

earealeadingpublicsectorcommercialbankinIndia,offeringbankingproductsandservicestocorporateand

commercial,retailandagriculturalcustomers.Ourbankingoperationsforcorporateandcommercialcustom

ersincludearangeofproductsandservicesforlargecorporations,aswellassmallandmiddlemarketbusiness

esandgovernmententities.Weofferawiderangeofretailcreditproductsincludinghousingloans,personallo

ansandautomobileloans.Wecatertothefinancingneedsoftheagriculturalsectorandhavecreatedinnovativ

efinancingproductsforfarmers.Wealsoprovidesignificantfinancingtootherprioritysectorsincludingsma

llscaleindustries.Throughourtreasuryoperations,wemanageourbalancesheet,includingthemaintenance

ofrequiredregulatoryreserves,andseektomaximizeprofitsfromourtradingportfoliobytakingadvantageo

f marketopportunities.

Ou

rrevenue,whichisreferredtohereinandinourfinancialstatementsasourincome,consistsofinterestincomea

ndotherincome.Interestincomeconsistsofinterestonadvances(includingthediscountonbillsdiscounted)a

ndincomeoninvestments.Incomeoninvestmentsconsistsofinterestanddividendsfromsecuritiesandourot

herinvestmentsandinterestfrominterbankloanandcashdepositswekeepwiththeRBI.Oursecuritiesportfo

lioconsistsprimarilyofGovernmentofIndiaandstategovernmentsecurities.Wemeetourstatutoryliquidity

reserveratiorequirementsthroughinvestmentsintheseandotherapprovedsecurities.Wealsoholddebentur

esandbondsissuedbypublicsectorundertakingsandothercorporations,commercialpaper, equityshares

andmutual fund units.

19

Ourinterest expense consists of our interest on deposits as wellasborrowings.Ourinterest

Incomean

dexpenseareaffectedbyfluctuationsininterestratesaswellasthevolumeofactivity.Ourinterestexpenseisal

soaffectedbytheextenttowhichwefundouractivitieswithlowinterestor non-interest deposits,and the

extentto which we relyon borrowings.

Ournon-

interes

texpenseconsistsprincipallyofoperatingexpensessuchasexpensesforwagesandemployeebenefits,rentp

aidonpremises,insurance,postageandtelecommunicationsexpenses,printingandstationery,depreciation

onfixedassets,otheradministrativeandotherexpenses.Provisioningfornon-

performingassets,depreciationoninvestmentsandincometaxisincluded in provisions

andcontingencies

Weuse avarietyofindicators to measure ourperformance.Theseindicatorsare presented

i

ntabularforminthesectiontitled“SelectedStatisticalInformation”onpage[·].Ournetinterestincomerepres

entsourtotalinterestincome(onadvancesandinvestments)netoftotalinterestexpense(ondepositsandborr

owings).Netinterestmarginrepresents

theratioofne

tinterestincometothemonthlyaverageoftotalinterestearningassets.Ourspreadrepresentsthedifferencebe

tweentheyieldonthemonthlyaverageofinterestearningassetsandthecostofthemonthlyaverageofinterest

bearingliabilities.Wecalculateaverageyieldonthemonthlyaverageofadvancesandaverageyieldonthemo

nthlyaverageofinvestments,aswellastheaveragecostofthemonthlyaverageofdepositsandaveragecostoft

hemonthlyaverage of borrowings.Our

cos

toffundsistheweightedaverageoftheaveragecostofthemonthlyaverageofinterestbearingliabilities.Forpu

rposesoftheseaveragesandratiosonly,theinterestcostoftheunsecuredsubordinatedbondsthatweissuefor

Tier2capitaladequacypurposes(“Tier2bonds”)isincludedinourcostofinterestbearingliabilities.Inourfin

ancialstatements,thesebondsareaccountedforas“otherliabilitiesandprovisions”andtheirinterestcostisac

countedforunderotherinterestexpenses.

Since1969

,whenwebecameapublicsectorbank,wehavemanagedtocontinuetogrowourbusinesswhilemaintaininga

strongbalancesheet.AsofSeptember30,2004,ourtotaldepositsrepresented85.9% of

ou

rtotalliabilities.Onaverage,interestfreedemanddepositsandlowinterestsavingsdepositsrepresented43.8

%ofthesedepositsinthefirstsixmonthsoffiscal2005.Theselow-

costdeposit

sledtoanaveragecostoffundsexcludingequityforthefirstsixmonthsoffiscal2005of4.7%.AsofSeptember

30,2004,ourgrossandnetnon-

performin

gassetsconstituted7.65%and0.30%ofourgrossandnetadvances,respectively.Infiscal2004ourtotalincom

ewasRs.96.5billionandournetprofitwasRs.11.1billionbeforeadjustmentandRs.10.6billionafteradjustm

entaspartoftherestatementofourfinancialstatementsforthisIssue.Inthefirstsixmonthsoffiscal2005ourtot

alincomewasRs.51.9billionandournetprofitwasRs.7.4billion.Betweenfiscal2002and2004,ourtotalinco

megrewatacompoundannualrateof12.5%,our

19

20

unadjustedan

dadjustednetprofitgrewatacompoundannualrateof40.4%and37.4%,respectively,andourtotaldepositsan

dtotaladvancesgrewatacompoundannualgrowthrateof17.1% and17.2%,respectively.

We intend to maintainour position as a costefficientandcustomer friendlyinstitution

tha

tProvidescomprehensivefinancialandrelatedservices.Weseektoachievethisbycontinuingtoadopttechnol

ogywhichwillintegrateourextensivebranchnetwork.Weintendtogrowbycrossselling

variou

sfinancialproductsandservicestoourcustomersandbyexpandinggeographicallyinIndiaandinternationally

.We are committedto excellencein serving the public andalsomaintaining

highstandardsofcorporateresponsibility.InlinewithourphilosophyofaidingIndia‟sdevelopment

wehaveopened branches in manyruralareas.

21

BOARD OF DIRECTORS

1. DrK.C Chakrabarty

2. Smt. RavneetKaur

3. ShriL.M.Fonseca

4. Shri.S.R.Khurana

5. Shri P.K. Nayar

6. ShriMohanLalBagga

7. Shri Mushtaq AAntulay

8. ShriGautam P. Khandelwal

9. Shri Vinod KumarMishra

10. ShriTribhuwanNathChaturvedi

11. Shri G R Sundaravadivel

12. ShriDevinderKumar Singla

22

PRODUCTS

&

SERVICES

23

1. SBIBANKING

PersonalBanking

Agricultural& RuralBanking

NRIServices

InternationalBanking

CorporateBanking

Services

Govt. Business

SME

PersonalBankin

gDepositScheme

sPersonalFinanc

eCorp

Salar

yPackageService

s

Agricultura

lAgriculturalB

ankingMicroC

reditRegionalR

uralBanks

NRIServicesType

ofAccounts

Internationa

lTradeFinance

MerchantBanking

Corresponden

tBanking

CorporateBankin

gCorporateAccount

sMid

CorporateGroup

ProjectFinanc

eProducts&Ser

vices

Services

InternetBankin

gMobile

Bankin

gATM

Services

Govt

.Busines

sGovt.

24

Accounts. SME

25

DematServices

PERSONALBANKING

Publi

cProvide

ntFund.

SBITerm Deposits SBI LoanFor Pensioners

SBIRecurringDeposits LoanAgainstMortgageOfProperty

SBIHousing Loan LoanAgainstShares&Debentures

SBICarLoan Rent Plus Scheme

SBIEducationalLoan Medi-PlusScheme

SBIPersonalLoan RatesOfInterest

AGRICULTURA

L

Stat

eBankofIndiaCaterstotheneedsofagriculturistsandlandlessagriculturallabourersthroughanetworkof66

00ruralandsemi-

urba

nbranches.Thereare972specializedbrancheswhichhavebeensetupindifferentpartsofthecountryexclusiv

elyfor

th

edevelopmentofagriculturethroughcreditdeployment.Thesebranchesinclude427AgriculturalDevelop

mentBranches(ADBs)and547brancheswithDevelopmentBankingDepartment(DBDs)whichcatertoagr

iculturistsand2AgriculturalBusinessBranchesatChennaiandHyderabadcateringtotheneedsofhi

techcommercialagriculturalprojects.

Ou

rbrancheshavecoveredawholegamutofagriculturalactivitieslikecropproduction,horticulture,plantation

crops,farmmechanization,landdevelopmentandreclamation,diggingofwells,tubewellsandirrigationpro

jects,forestry,constructionofcoldstoragesandgodowns,processingofagri-products,financetoagri-

26

inputdealers,alliedactivitieslikedairy,fisheries,poultry,sheep-goat, piggeryand rearingof silk worms.

Thebranchalsohasfarmer'smeetinvillagestoexplaintofarmersaboutvariousschemesofferedby

thebank.T

ogivespecialfocustoagriculturelendingBankhassetupagribusinessunit.Bankhasalsoagrispecialistsinvar

iousdisciplinestohandleprojects/guidefarmersintheiragri

27

ventures.Advancesaregivenforverysmall activitycoveringpoorestofthepoortohi-techactivities

involvinglargefund outlays.

WearetheleadersinagrifinanceinthecountrywithaportfolioofRs.18,000carsinagriadvances to

around 50 lac farmers.

NRISERVICES

WorldClas

sServicesfromaBankyoucanTrustIndianseverywhereshouldbecomeenlightenedInternationalcitizens.

Whereveryouare,whichevercountryyoulive,enrichthatnation,notonlyinfinancialterms,butalsowithyour

sweatknowledgeanddignitysincethatisthetraditionofthecountryfromwhereyoucame.Atthesametime,re

memberwehaveacommonumbilical connectivitytoour motherland,India.

INTERNATIONALBANKING

Internationa

lbankingservicesofStateBankofIndiaaredeliveredforthebenefitofitsIndiancustomers,non-

residentIndians,foreignentitiesandbanksthroughanetworkof84offices/branchesin

3

2countriesason31March2008,spreadoveralltimezones.ThenetworkisaugmentedbyaclusterofOverseas

andNRIbrancheswithinIndiaandcorrespondentlinkswithover

52

2banks,theworldover.Bank'sJointVenturesandSubsidiariesabroadfurtherunderlinetheBank'sinternatio

nalpresence.

Th

eservicesincludecorporatelending,loansyndications,merchantbanking,handlingLettersofCreditandGu

arantees,short-termfinancing,collectionofcleananddocumentarycreditsandremittances.

Th

eBankhascarvedanicheforitselfintheEurolandwithbrancheslocatedinAntwerp,ParisandFrankfurt.India

nbanksandcorporatesareabletoavailsingle-windowEuroservicesfromtheBank'sFrankfurtbranch.

CORPORATE BANKING

28

SBIisaone shopprovidingfinancialproducts/servicesofawiderangeforlarge,mediumandsmall

customers both domestic andinternational.

WorkingCapitalFinancing

Assistance extended both as Fund based and Non-Fund basedfacilities

toCorporate,Partnershipfirms, Proprietaryconcerns

WorkingCapital financeextended to all segmentsofindustries

andservicessectorsuch asIT TermLoans

to support capitalexpenditures forsettingup newventures as

alsoforexpansion,renovationetc.

DeferredPaymentGuarantees

to support purchase ofcapital

equipments.CorporateLoans

For avarietyof businessrelated purposes

tocorporate.Export Credit

To Corporate / Non

CorporateStrategicBusiness

Units

(i) CorporateAccounts Group (CAG)

(ii)ProjectFinance

(iii)LeaseFinance

An exclusiveunit providingones shoppingtoCorporate

A dedicatedset up specialised in financingof infrastructure and other large

projectsExclusiveset up for handlinglarge ticket leases.

Pricing

SBI's PrimeLending Rates(PLR) is amongthe

lowestPresentlyBankhas two PLR's

SBAR forloans payable on demandandup to

oneyearfor loanspayable beyond oneyear.

SERVICES

Listed on the left areServices, SBIoffersto its customers.

DOMESTIC TREASURY

SBIVISHWAYATRAFOREIGN TRAVELCARD

BROKINGSERVICES

REVISEDSERVICE CHARGES

ATM SERVICES26

INTERNETBANKING

E-PAY

E-RAIL

RBIEFT

SAFEDEPOSITLOCKER

GIFT CHEQUES

GOVERNMENT BUSINESS

Stat

eBankofIndia'slinkagewithGovernmentbusinessiswidespread.Nowonderthatoutof9315branchesinIndi

a,about7000branchesareconductingGovernmentBusiness.Thelargenetworkof our

branchesprovideseasy accessto the commonman to depositthefollowingGovernmentdues and

pension payments.

SME(smallscaleindustries)

Stat

eBankofIndiahasbeenplayingavitalroleinthedevelopmentofsmallscaleindustriessince1956.TheBankh

asfinancedover8lakhsSSIunitsinthecountry.Ithas55specialisedSSIbranches, 99 branches inindustrial

estates andmorethan400 brancheswith SIB divisions.

Th

eBankfinancesforSmallBusinessactivitieswhichareofspecialsignificancetoalargenumberofpeopleasm

anyoftheseactivitiescanbestartedwithrelativelylowerinvestmentandwith no special skills on the part

of theentrepreneurs.

2. ICICIBANKING

PERSONAL

BANKING

Safety,Flexibility,Liquidi

ty, Returns!ICICI Bank

offers awideVarietyof

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29

Bankingatyourfingertips!!!

Whybeinline

whenyoucanbeonline for

payingyourutilitybills,

mobilebills,prepaid mobile

recharge

,Shopping,Creditcard,insuranc

e premium and lotsmore.

INTERNATIONALBANKING

In2001,weidentifiedinternationalbankingasakeyopportunity,aimingtocatertothecross-

borderneed

sofclientsandleveragingourdomesticbankingstrengthstoofferproductsinternationally.Wehavemadesig

nificantprogressintheinternationalbusinesssincewesetupourfirstoverseasbranchinSingaporein2003.IC

ICIBankcurrentlyhassubsidiariesintheUnitedKingdom,RussiaandCanada,branchesinSingapore,Bahra

in,HongKong,SriLanka,DubaiInternationalFinanceCentre,Qatar

FinancialCentrean

dtheUnitedStatesandrepresentativeofficesintheUnitedArabEmirates,China,SouthAfrica,Bangladesh,

Thailand,MalaysiaandIndonesia.TheBank‟swhollyownedsubsidiaryICICIBankUKPLChasninebranc

hesintheUnitedKingdomandabrancheachinBelgiumandGermany.ICICIBankCanadahaseightbranches

includingthreeinToronto.ICICIBankEurasiaLLChassixbranchesincludingthreebranches in Moscow

andonein St. Petersburg.

30

Ou

rinternationalstrategyisfocusedonbuildingaretaildepositfranchise,diversewholesalefundingsourcesand

strongsyndicationcapabilitiestosupportourcorporateandinvestmentbankingbusiness;achievingthestatu

sofanon-

residentIndian(NRI)communitybankinkeymarkets;andexpandingprivatebankingoperationsforIndia-

centri

cassetclasses.Duringfiscal2008,wefocusedondeepeningourpresenceinexistingoverseaslocationsande

xpandingouroperationsinkeymarkets.Inlinewithourstrategytoestablishapresenceinlargemarketswithsi

gnificantsavingspools, weentered into Germanythrougha branchestablished by ICICIBank

U

KPLC.Wehavebeenabletosuccessfullyleverageourtechnologyadvantagetocreateagrowinginternationa

ldepositbase.TotaldepositsofICICI

Ban

kUKPLCandICICIBankCanadaincreasedby76.0%fromRs.191.28billionatMarch31,2007toRs.335.86

billionatMarch31,2008.Wealsoreceivedapproval for andcommencedbranchoperations in the

UnitedStates.

WehaveestablishedastrongfranchiseamongNRIsbyofferingacomprehensiveproductsuite,

technologyenabledaccess,awidedistribution networkinIndiaandalliances with local

banksi

nvariousmarkets.Currently,wehaveover500,000NRIcustomers.Wehaveundertakensignificantbrand-

buildinginitiativesininternationalmarketsandhaveemergedasawell-

recognisedfinancia

lservicesbrandforNRIs.Wecontinuetomaintainamarketshareof25%ininwardremittancesto

India.Duringfisca

l2008,welaunchedinnovativeproductslikeinstantmoneytransferandenhancedourfocusoncustomerrelat

ionshipmanagementandprocessautomation.Additionally,wealsoundertookthedevelopmentoflowcostr

emittanceproductsinnon-Indiageographies withcorrespondenttie-ups fordisbursements in over100

suchgeographies.

Throug

hourinternationalprivatebankingservices,weoffervariousproductstomassaffluentandhighnetworthclie

ntsbasedontheirfinancialneedsandriskappetite.Theofferingsrangefromsimpledepositsandloanstomore

sophisticatedstructuredproducts,privateequityandproducts givingexposure to the real estatesector

inIndia.

CORPORATE BANKING

Ou

rcorporatebankingstrategyisbasedonprovidingcomprehensiveandcustomisedfinancialsolutionstoourcor

poratecustomers.Weofferacompleterangeofcorporatebankingproductsincludingrupeeandforeigncurren

cydebt,workingcapitalcredit,structuredfinancing,

syndicationand transaction bankingproducts andservices.31

Ou

rcorporateandinvestmentbankingfranchiseisbuiltaroundacorerelationshipteamthathasstrongrelationsh

ipswithalmostallofthecountry‟scorporatehouses.Therelationshipteamisproductagnosticandisresponsi

bleformanagingbankingrelationshipswithclients.Wehavealsoputinplaceproductspecificteamswithavie

wtofocusonspecificareasofexpertiseindesigningfinancialsolutionsforclients.Throughourrelationshipt

eamsworkingintandemwithproductsolutionteams,we

hav

edeepenedourclientrelationshipsacrossourproductportfoliooresultinginsignificantgrowthinincomeand

walletshareamongallourtopcorporateclients,ascomparedtothe previousyear.

W

ehavecreatedanintegratedGlobalInvestmentBankingGroup,whichisresponsibleforworkingwiththerela

tionshipteaminIndiaandourinternationalsubsidiariesandbranches,fororigination,structuringandexecuti

onofinvestmentbankingmandatesonaglobalbasis.Wehavealsorestructuredourdeliveryteamfortransacti

onbankingproductsbycreatingdedicatedsalesteamsfortradeservicesandtransactionbankingproducts.Th

ishasbeendonewiththeintenttoincreaseourmarketsharefromtransactionbankingproducts,whichwilltran

slateintorecurringfeeincomefortheBank.Wehavealsofocusedonincreasingmarketshareintradefinanceb

yleveragingandfurtherstrengthening correspondent bankingrelationships.

SME BANKING

Durin

gfiscal2008,oursmallenterprisescustomerbaseincreasedby26%toabout1.1millionaccounts.Wehaveint

roducedourserviceofferingsinover400newbranches,increasingourcoveragetoover1,000branches.Duri

ngtheyear,wehavefocusedonproductspecialisationincludinginvestmentbankingforSMEs.Wehavecont

inuedtofocusonshapingthesmallandmediumenterprisessphereinIndiathroughinitiativessuchastheEmer

gingIndiaAwards”,theSMECEOKnowledgeSeries-

aplatformtomentorandassistSMEentrepreneurs,andthe“SMEDialogue”-

aweekl

yfeatureinaleadingfinancialnewspapersharingSMEbestpracticesandsuccessstories.Duringtheyear,we

havelaunchedseveralnewproductsandservicesliketheSMEtoolkit– an online business and

advisoryresourceforSMEs.

RURAL BANKINGAND AGRI-BUSINESS

W

ebelievetheruraleconomyhashighgrowthpotentialandofferslargecreditgrowthopportunities.Towardsth

isend,oursuiteofproductsandservicesistargetedtoaddresstheneedsofboththefarmandnon-

far

msectors.Ourretailproductsuiteencompassesloansforcropproduction,purchaseoffarmequipment;com

moditybasedfinanceaswellasvarioussavings,investmentandinsuranceproducts.Wealsooffermicro-

financ

eandjewelloans.Wehavealsofocusedonenhancingcredittofarmersbyleveragingoncorporatepartnership

s.Forexample,wehavepartneredwithvariousdairiestoprovidefinancingtofarmersforpurchaseofmilchcat

tle.WealsoprovidecreditandbankingservicestoSMEsactiveintheagriculturalvaluechain.Toenhanceours

ervicequalityandproductdeliverycapabilitieswehavedevelopedalargenetworkofruralbrancheswhich is

furtheraugmentedbynon-branch channels.

Ruralbankin

ginIndiaisstillatanascentstageandthedeploymentoftechnologychannelsandmodernbankingmethodsfor

rurallendingcontinuestobeanevolvingprocess.Inlinewithourlearningfromourruralbankingoperations,

weundertookacomprehensivereviewofandrealignedourchannelarchitecture,creditunderwritingprocess

esandaccountmanagementsystems.WehaveputinplacearobustriskmanagementstructuretoMitigateand

managecredit,operationalandfraud risks. Through this,weaim to create astrongfoundation

forscalingup ofour ruralbusiness.

3. PNBBANKING

CORPORATE ANDCOMMERCIAL SECTORLENDING ACTIVITIES

Termloans

Cashcreditand other workingcapitalfacilities

Billdiscounting

Export credits

Othercreditandfinancingproducts

SERVICESTO NON-RESIDENT INDIANS

We providepersonal financial services forNRIs.We have established abranch in Kabul

an

dRepresentativeofficesinothercitiesoverseasinordertofacilitateservicesbeingprovidedtoNRIs.Weoffer

foreigncurrencyaccountstoNRIsunderourForeignCurrencyNon-

ResidentSchemeandrupeeaccountsforNRIsunderourNon-ResidentExternalandNon-

ResidentOrdinarySchemes.W

ehaveintroducedourGlobalForeignCurrencySchemeandGlobalRupeeDepositScheme,whichofferbene

fitsandconcessionstoNRIsandtheirrelativesprovidedaminimumbalanceofRs. 250,000 or US$5,000is

maintainedin theaccount.We alsooffervarious

product

sforfacilitatingremittancesfromNRIstoIndia.Werecentlyenteredintoanarrangementtofacilitatemoneytr

ansfersthroughWesternUnion,whichisagloballeaderinmoneytransferservices.Wehavealsoenteredinto

anagreementwithTimesOnlineMoneyLtd.,aTimesofIndiagroupcompany,withaviewtoestablishingani

nternetbasedinternationalremittanceservice.Inaddition,wealso provide housingloans to NRIs.

RETAIL BANKING

I

nretailbanking,ourprincipalcompetitorsarethelargepublicsectorbanks,aswellasexistingandnewprivate

sectorbanksandforeignbanksinthecaseofretailloanproducts.Theotherpublicsectorbankshavelargedepo

sitbasesandlargebranchnetworks,includingtheStateBankofIndiawhichhas13,593branches.Privatesect

orandforeignbankscompeteprincipallybyofferingawiderrangeofproductsaswellasgreatertechnological

sophisticationinsomecases.

34

Foreignbanks,whilehavingasmallmarketpenetrationoverall,hasasignificantpresenceamongnon-

residentIndiansandalsocompetesfornon-branchbasedproductssuchasautoloansandcreditcards.

I

nparticular,wefacesignificantcompetitionprimarilyfromprivatesectorbanksandtoalesserdegreefromot

herpublicsectorbanks,inthehousing,autoandpersonalloansegments.Inmutualfundsalesandotherinvest

mentrelatedproducts,ourprincipalcompetitorsarebrokers,foreignbanksandnew private sector banks.

PRODUCTSANDSERVICESFORAGRICULTURE CUSTOMERS

Agriculturecontributes22%toIndia‟sGDPandsupportsapproximatelytwo-

thirdsofIndia‟spopulation. Infiscal2004,wesurpassedthestated nationalgoalthat

banksshouldprovideatleast18%oftheirnetbankcredit(whichisgrosscreditminusForeignCurrencyNon-

ResidentBan

kdeposits)tothissegment,forwhichwereceivedanawardfromIndia‟sFinanceMinister.Ouraveragecredit

growthrateinthissegmenthasbeen32.2%overthelastfouryears.AsofthelastreportingFridayof

September2004, agriculturalloansconstituted 18.8%of ournet bankcredit.

SMALL SCALE INDUSTRIES

W

eprovidefinancingto“smallscaleindustries”or“SSIs”.SSIsaredefinedasmanufacturing,processingandse

rvicingbusinesseswithuptoRs.50millioninvestedinplantandmachineryforcertainindustriessuchashosie

ry,handtools,drugsandpharmaceuticalsandstationeryitemsanduptoRs.10millioninvestedinplantandma

chineryforothersmallscaleindustries.SSIsarealsoconsideredaprioritysectorfordirectedlendingpurpose

s.Seethesectiontitled“Business-

DirectedLending”below

.AsofthelastreportingFridayinSeptember2004,SSIloansconstituted11.3%ofournetbankcredit.Asofthel

astreportingFridayinSeptember,2004wehadan outstandingloan portfolio of Rs. 57.3 billion in this

segmentcompared to Rs. 48.5

billio

nasofthelastreportingFridayinSeptember2003,representinggrowthofapproximately18.1%.Wehaveals

oreceivedawardsandrecognitionfromtheGovernmentofIndiarelatingtooureffortsinfinancingSSIbusine

sses.

36

BALANCE

SHEET

37

1. STATEBANK OF INDIA

BALANCE

SHEETASON 31-

MARCH-2008

Assets Rs(mn) %BT

Net Own Assets 33291.42 0.46

NetLease Assets(AfterLease Adj A/c) 443.39 0.01

Investment 1895012.71 26.26

Advances 4167681.96 57.76

Cash&Moneyatcall 674663.35 9.35

OtherCurrent Assets 443749.84 6.15

Balance SheetTotal(BT) 7215263.12 100.00

Liabilities Rs(mn) %BT

EquityShareCapital 6314.70 0.09

Reserves 484011.91 6.71

Deposits 5374039.41 74.48

Borrowings 517274.11 7.17

OtherCashliab/prov. 833622.98 11.55


Non PerformingAssets(NPA)% 1.87 -

Capital AdequacyRatio(CAR) % 13.47 -

38

2. ICICI

BALANCE

SHEETASON 31-

MARCH-2008

Assets Rs(mn) %BT



Investment 1114543.42 27.88

Advances 2256160.83 56.43






Reserves 453575.31 11.35

Deposits 2444310.50 61.14

Borrowings 656484.34 16.42





39

3. PUNJABNATIONALBANK

BALANCE

SHEETASON 31-

MARCH-2008

Assets Rs(mn) %BT



Investment 539917.05 27.34

Advances 1195015.66 60.51






Reserves 104673.49 5.30

Deposits 1664572.26 84.29

Borrowings 54465.60 2.76





40

RATIO

ANALYSIS

41

PROFITABILITYRATIO

A classoffinancialmetricsthatare

usedtoassessabusiness'sabilitytogenerateearningsascomparedto

itsexpense

sandotherrelevantcostsincurredduringaspecificperiodoftime.Formostoftheseratios,havingahighervalu

erelativetoacompetitor'sratioorthesameratiofromapreviousperiod is indicative that thecompanyis

doingwell.

Som

eexamplesofprofitabilityratiosareprofitmargin,returnonassetsandreturnonequity.Itisimportanttonoteth

atalittlebitofbackgroundknowledgeisnecessaryinordertomakerelevant comparisons

whenanalyzingtheseratios.

Forinstances

,someindustriesexperienceseasonalityintheiroperations.Theretailindustry,forexample,

typicallyexperienceshigherrevenuesandearnings fortheChristmasseason.Therefore,itwould not be too

usefulto comparea retailer'sfourth-quarter profit marginwithits first-

quarterprofitmargin.Ontheotherhand,comparingaretailer'sfourth-quarterprofitmargin with

theprofitmarginfrom thesameperiod ayear beforewould be far more informative.

OPERATING MARGIN

A

ratiousedtomeasureacompany'spricingstrategyandoperatingefficiency.Operatingmarginisameasureme

ntofwhatproportionofacompany'srevenueisleftoverafterpayingforvariablecostsofproductionsuchaswa

ges,rawmaterials,etc.Ahealthyoperatingmarginisrequiredforacompanytobeabletopayforitsfixedcosts,

suchasinterestondebt.ItIsAlsoknown as"operatingprofit margin."

Calculatedas:

43

Operatingmargingives analystsanideaofhowmuchacompany

makes(beforeinterestan

dtaxes)oneachdollarofsales.Whenlookingatoperatingmargintodeterminethequalityofacompany,it is

best to look at thechangein operatingmargin overtimeandtocomparethecompany'syearlyor

quarterlyfiguresto those of its competitors.Ifa company'smarginisincreasing,it is earningmore

perdollarofsales.The higherthe margin,the better.

For example,ifacompanyhasanoperatingmarginof12%,thismeansthat

i

tmakes$0.12(beforeinterestandtaxes)foreverydollarofsales.Often,nonrecurringcashflows,suchascashp

aidoutinalawsuitsettlement,areexcludedfromtheoperatingmargincalculationbecausetheydon'trepresen

t a company's trueoperatingperformance.

RATIOAT31-MARCH2008

Sr.No. Name of Bank Percentage

1 SBI 22.69 %

2 ICICI 14.45 %

3 PNB 21.47 %

44

BAR-GRAPH

INTERPRETATION

I

tshowsthatoperatingefficiencyofSBIisbetterthanPNBandICICI.WhileoperatingefficiencyofICICIislo

werthanPNBandSBI.SorankofoperatingefficiencyofbankscanbegivenasSBI, PNBandICICI.

GROSS PROFIT MARGIN

A

financialmetricusedtoassessafirm'sfinancialhealthbyrevealingtheproportionofmoneyleftoverfromreve

nuesafteraccountingforthecostofgoodssold.Grossprofitmarginservesasthesourceforpayingadditionale

xpensesandfuturesavings.Itisalsoknownas"grossmargin".

Calculatedas:

45

Forexample,supposethatABCCorp.earned$20million

inrevenuefromproducingwidgetsandincurred$10millioninCOGS-

relate

dexpense.ABC'sgrossprofitmarginwouldbe50%.ThismeansthatforeverydollarthatABCearnsonwidget

s,itreally hasonly$0.50attheendofthe day.

Thismetric canbe usedtocompareacompanywithitscompetitors.Moreefficientcompanies will

usuallysee higherprofitmargins.

RATIOAT31-MARCH2008


1 SBI 21.49 %

2 ICICI 12.99 %

3 PNB 20.67%

46

BAR-GRAPH

INTERPRETATION

Thi

sratioshowsfinancialpositionofcompany.Here,financialpositionofSBIisbetterthanPNBandICICI. So

SBIis at firstrankbyits financial position than PNBandICICI.

NET PROFIT MARGIN

Forabusinesstosurviveinthelongtermitmustgenerateprofit.Thereforethenetprofitmarginratio is

oneof the keyperformance indicators foryourbusiness.

The

ne

tprofitmarginratioindicatesprofitlevelsofabusinessafterallcostshavebeentakenintoaccount.Itisworthan

alysing theratioovertime.Avariationintheratiofromyeartoyear

maybeduetoabnormalconditionsorexpenses.Variationsmayalsoindicatecostblowoutswhichneedto be

addressed.

A

47

declineintheratioovertimemayindicateamarginsqueezesuggestingthatproductivityimprovementsmayn

eedtobeinitiated.Insomecases,thecostsofsuchimprovementsmayleadtoa furtherdrop in the ratioor

evenlossesbefore increased profitabilityis achieved.

48

Thecalculationused to obtain the ratio is:

NetProfitMargin = Net Profit x100

Sales

RATIOAT31-MARCH2008


1 SBI 11.67 %

2 ICICI 10.51 %

3 PNB 12.68 %

49

BAR-GRAPH

INTERPRETATION

Thi

sratioiskeyperformanceindicatorsforbusiness.Keyperformancemeanstheprofitlevelofcompany;froma

bovegraphwecansaythatperformanceofPNBisbetterthanSBIandICICI. So profit level ofPNBis at

firstrank thancomes SBI andICICI.

RETURN ONNETWORTHRetur

nonNetworth(RONW)isusedinfinanceasameasureofacompany‟sprofitability.Itrevealshowmuchprofit

acompanygenerateswiththemoneythattheequityshareholdershaveinvested.Therefore,itisalsocalled„Re

turnonEquity‟(ROE)

It is expressedas:-

NetIncome

RONW= ------------------------------------------- X 100

Shareholder‟sEquity

Thenumeratorisequaltoafiscalyear‟snetincome(afterpaymentofpreferenceshare

50

dividendsbutbeforepaymentofequitysharedividends).Thedenominatorexcludespreference

51

sharesan

dconsidersonlytheequityshareholding.So,RONWmeasureshowmuchreturnthecompanymanagement

can generate for its equityshareholders.

RON

Wisameasureforjudgingthereturnsthatashareholdergetsonhisinvestmentasashareholder,equityreprese

ntsyourmoneyandsoitmakesgoodsensetoknowhowwellmanagement is doing with it.

RATIO AT 31-MARCH 2008


1 SBI 13.72 %

2 ICICI 8.94 %

3 PNB 19.00 %

BAR-GRAPH

53

INTERPRETATION

Thi

sratioisusefulforcomparingtheprofitabilityofacompanytothatofotherfirmsinthesameindustry.Here,pro

fitabilityofPNBismorethanSBIandPNB.SowecansaythatPNBisatfirstrankbyits profitabilitythan

comes SBIandICICI.

LEVERAGERATIO

Anyratiousedto calculatethe

financialleverageofacompanytogetanideaofthecompany'smethodsoffinancing

ort

omeasureitsabilitytomeetfinancialobligations.Thereareseveraldifferentratios,butthemainfactorslooke

datincludedebt,equity,assetsandinterestexpenses.

A

ratiousedtomeasureacompany'smixofoperatingcosts,givinganideaofhowchangesinoutputwillaffectop

erating income.Fixedandvariablecostsarethetwotypesofoperating costs;dependingon the

companyand the industry, themixwilldiffer.

Themostwellknownfinancialleverageratioisthedebt-to-

equityratio.Forexample,ifacompanyhas$10Mindebtand$20Minequity,ithas adebt-to-

equityratioof0.5($10M/$20M).Companieswithhighfixedcosts,afterreachingthebreakevenpoint,seeagr

eaterincreaseinoperatingrevenuewhenoutputisincreasedcomparedtocompanieswithhighvariablecosts.

Thereasonforthisisthatthecostshavealreadybeenincurred,soeverysaleafterthebreakeventransferstotheo

peratingincome.Ontheotherhand,ahighvariablecostcompanyseeslittleincreaseinoperatingincomewitha

dditionaloutput,becausecostscontinuetobeimputedintotheoutputs.Thedegreeofoperatingleverageisthe

ratiousedtocalculatethismixanditseffectsonoperatingincome.

DEBT-EQUITY RATIO

Ameasureofa company'sfinancialleveragecalculated bydividingits

totalliabilitiesbystockholders'equity.

54

Note:Sometimesonlyinterest-bearing,long-

termdebtisusedinsteadoftotalliabilitiesinthecalculation.ItisalsoknownasthePersonalDebt/Equity

Ratio,thisratiocanbeappliedtopersonalfinancialstatements aswell ascompanies'.

Ahighdebt/equityratiogenerally

mean

sthatacompanyhasbeenaggressiveinfinancingitsgrowthwithdebt.Thiscanresultinvolatileearningsasare

sultoftheadditionalinterestexpense.

Ifalotof

deb

tisusedtofinanceincreasedoperations(highdebttoequity),thecompanycouldpotentiallygeneratemoreear

ningsthanitwouldhavewithoutthisoutsidefinancing.Ifthisweretoincreaseearningsbyagreateramounttha

nthedebtcost(interest),thentheshareholdersbenefitas

mor

eearningsarebeingspreadamongthesameamountofshareholders.However,thecostofthisdebtfinancingm

ayoutweighthereturnthatthecompanygeneratesonthedebtthroughinvestmentandbusinessactivitiesandb

ecometoomuchforthecompanytohandle.Thiscanleadto bankruptcy,which wouldleave shareholders

with nothing.

Thedebt/

equityratioalsodependsontheindustryinwhichthecompanyoperates.Forexample,capital-

intensiveindustriessuchasautomanufacturingtendtohaveadebt/equityratioabove 2, while personal

computer companies haveadebt/equityofunder 0.5.

RATIOAT31-MARCH2008


1 SBI 10.96 %

55

2 ICICI 5.27 %

3 PNB 15.44 %

comparative study of financial report of (1) (1)

Documents