Application of financial analysis in evaluation of financial position of IDBI

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1 Application of financial analysis in evaluation of financial position of IDBI #Dr. Partap Singh Chahal (First& Corresponding Author) Associate Professor, Deptt. Of Management Studies, amalkha Group of Institutions (SGI) Samalkha, Panipat, Haryana Abstract- IDBI Bank signed MoUs with 14 state Governments for credit linkage of SHGs under the State Rural Livelihood s Mission (SRLM). IDBI Bank initiated Project Nishchay Resolve to succeed in partnership with The Boston Consulting Group (BCG) to accelerate its turnaround programmer and improve financial performance. IDBI stands for Industrial Development Bank of India. It is an Indian government-owned financial service company, headquartered in Mumbai. It was formerly known Industrial Development Bank of India. It was established in 1964 to provide credit and other financial facilities for the development of Indian industry. The paper analyzes business position and financial position of IDBI bank and gives a true picture of application of Financial Analysis to analyze the business position and financial position of an organization. Keywords: Financial Analysis, Profitability, Solvency, Net Worth, Total Debt, Advances, Total Assets and Total Liabilities. I.INTRODUCTION An IDBI stand for Industrial Development Bank of India was established in 1964 by an Act of Parliament to provide credit and other financial facilities for the development of the fledgling Indian industry. It is one among the public sector banks in India and is a nationalized bank to be treated on par with SBI and other nationalized banks with reference to the notification dated 26th February At present Govt holds 77% stake in IDBI Bank, has reported yet another surge in bad loans in the April-June quarter. The lender now has the highest proportion of bad loans, with nearly a quarter of its book having turned bad. For the first quarter of the current financial year, the bank reported a net loss of Rs 853 crore compared to a profit of Rs 241 crore in the year-ago period. In the fourth quarter of financial year , the bank had reported a loss of Rs 3,200 crore. While the reported loss was lower than the preceding quarter, bad loans continued to surge. In the quarter ending July-September (FY18) the bank bounced back with a loss of Rs.198 Crore compared to a loss of over Rs.2000 Crore in the previous quarter. The Bank is expected to return to profit in near future. It is currently has 3817 ATMs, 1995 branches, including one overseas branch at Dubai, and 1382 centers. The Bank has an aggregate balance sheet size of INR 3.74 trillion as on 31 March II.OBJECTIVES OF THE PAPER 1. To analyzes business position and financial position of IDBI bank to know the profitability, liquidity, solvency, and stability of the bank 2. To workout the application of Financial Analysis to analyze the business and financial position of an organization III.RESEARCH METHODOLOGY The paper is based on secondary data only. It uses the data of 5 years from the Annual Report of IDBI Trend ration and trend analysis, Comparative financial Statements and Common-size statement the three techniques of financial analysis has been used to know the profitability, liquidity, solvency, and stability of the bank. 302

2 Financial analysis (also referred to as financial statement analysis or accounting analysis or Analysis of finance) is an assessment of the viability, stability and profitability of a firm. It is the process of using financial statements to analyze a firm s financial position and performance as well as future financial performance. It mainly involves three analysisprofitability analysis, Risk analysis, and analysis of sources and uses of funds. The following are some of the common analytical tools of the analysis of financial statements: Trend ration and trend analysis Comparative financial Statements Common-size statement Ratio Analysis Fund-flow analysis Cash Flows Analysis IV. REVIEW OF LITERATURE Dr. Ashok Kumar Rath(2016) has studied that the impact of working capital management on profitability in Tata Steel Odisha Project, Kalinga Nagar with the help of some statistical tools and techniques. The study revealed that, out of the nine ratios relating to working capital management five ratios registered positive association and the remaining four ratios showed negative correlation with the profitability indicator. R.Idhayajothi (2014) found that relationship between efficiency of working capital management and corporate profitability of selected companies in the Ashok Leyland Limited at Chennai.. The companies should focus on working capital management in order to increase their profitability by seriously and professionally considering the issues on their cash conversion cycle which was derived from the number of days accounts payable, the number of day's accounts receivable and the number of days of inventories. The findings suggested that it may be possible to increase profitability by improving efficiency of working capital. Gangadevi (2008) studied the leverage and financing decision for the selected 30 electronic companies for the five years period ranging from1998 to In his study he found that the company has a high operating leverage should kept low financial leverage and vice-versa. So, it is desirable that a company has low operating leverage and a high financial leverage M.Kabir Hassan and Dr.Shari Lawrance (2007) conducted a survey on An Analysis of Financial preparation for Retirement ''. In this study, the researcher analyzes the financial preparation for retirement. Regarding retirement plan contributions, the findings indicate significant positive effects regarding income and womanhood.education is significant and positive as a predictor for the decision to contribute to a pension plan for women in their their thirties, Thus supporting the hypothesis of a significant positive relationship between education and pension plan Contributions. Henry W. Collier (2004) workout that ratios relating to working capital management were selected. Out of these indicators, positive association was noticed only in three. It was evaluated the relationship between working capital and profitability and inadequacy of working capital may lead to the firm to insolvency, whereas excessive working capital implies an idle fund which earns no profits. Nissim and Penman (2003) stated that the financial statement analysis distinguishes leverage in financing activities from leverage in operations. 303

3 Table I showing Financial Position of IDBI bank V.RESULTS AND DISCUSSION Balance Sheet of IDBI Bank in Rs. Cr Mar '16 12 months Mar '15 Mar '14 Mar '13 Mar '12 12 months 12 months 12 months 12 months Capital and Liabilities: Total Share Capital 2, , , , , Equity Share Capital 2, , , , , Share Application Money Reserves 20, , , , , Net Worth 22, , , , , Deposits 265, , , , , Borrowings 69, , , , , Total Debt 335, , , , , Other Liabilities & Provisions 11, , , , , Total Liabilities 368, , , , , Mar '16 Mar '15 Mar '14 Mar '13 Mar '12 12 months 12 months 12 months 12 months 12 months Assets Cash & Balances with RBI 13, , , , , Balance with Banks, Money at Call 2, , , , , Advances 215, , , , , Investments 98, , , , , Gross Block 7, , , , , Revaluation Reserves 5, , , , , Net Block 1, , , , , Capital Work In Progress Other Assets 35, , , , , Total Assets 368, , , , , Contingent Liabilities 212, , , , , Book Value (Rs) Source : Compiled data from Annual Report of IDBI 304

4 Application of Trend Analysis Table 1: Application of Trend Analysis to analyze financial position& performance of IDBI bank 2012 (base year) Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Reserves Net worth(a) Deposits Borrowings Total debts(b) , Other Liabilities and Provisions(c) Total Liabilities(a+b+c) Assets: Cash& Balances with RBI Balances with banks& Money at Call Advances Investment Gross Block Revaluation Reserves Net Block Capital Work in Process Other Assets Total Assets Table1 exhibits the upward trend has been registered in total assets and total liabilities during the study period. The total liabilities includes net worth, total debt, and other liabilities& provisions that shows upward trend in all the items of total liabilities in all the years. On the other hand, the total assets include the cash and balances with RBI, balances with banks& money call, advances, investment, net block, capital work in process and other assets. The cash and balances with RBI has increased continuously while balances with banks& money call has registered a downward trend with a hike in the year 2013, decline in the year 2014 & 2015, and in the year The advances, investment, net block, capital work in process, and other assets has shown continuous growth and have upward trend. So, trend analysis has analyzed that the performance of financial position of IDBI bank has been found satisfactory. 305

5 Application of Comparative Financial Statement: Comparative balance Sheet Table II: Exhibiting Application of Comparative balance Sheet to analyze financial position & performance of IDBI bank Comparative Balance Sheet As on 31 st march (Rs. Crore) 2016 (Rs. Crore) 2016 (Increase/decrease in Rs.) 2016 Increase/decrease in %) Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Reserves Net worth(a) Deposits Borrowings 210, , , , Total debts(b) 263, , Other Liabilities and 6, , Provisions(c) Total Liabilities(a+b+c) 288, , Assets: Cash& Balances with RBI Balances with banks& Money at Call 13, , , , Advances 180, , , Investment 83, , Gross Block Revaluation Reserves 2, , , , Net Block 1, , Capital Work in Process Other Assets 5, , Total Assets 288, , Table II exhibits that total liabilities has registered 27.84% increase in the year 2016 as compared to the year 2012 and the assets has also shown the same results. The total liabilities includes net worth, total debt, and other liabilities& provisions that has shown increase in all the items of total liabilities in the year 2016 as compared to 2012 year. All items of net worth have registered increase except the Share Application Money which shows % decline. The Other Liabilities and Provisions have registered greatest increase in amongst the items of total liabilities. The advances, investment, net block, capital work in process, and other assets have upward trend. The greatest increase in capital work in process and lowest increase in Balances with banks& Money at Call has been observed. So, the Comparative Balance Sheet has studied that the performance of financial position of IDBI bank has been found satisfactory. 306

6 Application of Common-size Comparative Statement Table III: Application of Common-size Comparative Statement to analyze Financial Position Common-size Comparative Balance Sheet As on 31 st March, (Rs. Crore) 2016 (Rs. Crore) Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Reserves Net worth(a) Deposits 210, , Borrowings 53, , Total debts(b) 263, , Other Liabilities and Provisions(c) Total Liabilities(a+b+c) Assets: Cash& Balances with RBI Balances with banks, Money at Call 6, , , , , , , , Advances 180, , Investment 83, , Gross Block Revaluation Reserves 2, , , , Net Block 1, , Capital Work in Process Other Assets 5, , Total Assets 288, , Table III shows that the proportion of total debts is 91.50% in the total liabilities is greatest component of total liabilities during the year On the other hand, net worth is 6.09%; other liabilities and provisions are 2.09% of the total liabilities which is the lowest component of total liabilities during the year The deposits are 72.96% and borrowings are18.53 during the year 2012.The net worth has reduced to 6.00% in the year 2106 from 6.09% in the year The total debt has decreased to 90.92% in the year 2016 from 91.50% in the year The deposits have decreased in the year 2016 while borrowings have increased in the same year. 307

7 The advances is the greatest component of total assets during the year 2012 and 2016 while capital work in process is the lowest component of total assets in the year 2012 and The advances, investment, and net block have declined in the year 2016 as compared to the year On the other hand, capital work in process and other assets have increased in the year 2016 as compared to the year So, the Common-size Comparative Balance Sheet has studied that the performance of financial position of IDBI bank has been satisfactory VI. FINDINGS OF THE PAPER The trend analysis has analyzed that the performance of financial position of IDBI bank has been found satisfactory. The upward trend has been registered in both total assets and total liabilities during the study period. The advances, investment, net block, capital work in process, and other assets has shown continuous growth and have upward trend. The Comparative Balance Sheet has studied that the performance of financial position of IDBI bank has been found satisfactory. It has found that there is 25.83% increase in net worth from 2012 to 2016 year and 27.01% growth in total debt from 2012 to 2016 year. The total liabilities have registered 27.84% increase in the year 2016 as compared to the year 2012 and the assets have also shown the same results. The Common-size Comparative Balance Sheet has studied that the performance of financial position of IDBI bank has been found satisfactory. The total debts are 91.50% of total liabilities which are greatest component of total liabilities during the year 2012 have declined to % during the 2016 year.the net worth has reduced to 6.00% in the year 2106 from 6.09% in the year The advances is which is the greatest component of total assets during the year 2012 has declined to in the year It has been observed that the rising proportion of total debt in the total liabilities is critical. In overall, the performance of financial position of IDBI bank has been found satisfactory. V. CONCLUSION From the above discussions it is concluded that in overall, the performance of financial position of IDBI bank has been found satisfactory. The application of Financial Analysis to analyze the business position and financial position of IDBI bank and the different stakeholders of the bank can easily understand the profitability, liquidity, solvency, and stability position of the bank The bank has its key strength in advances and the key weaknesses have also been observed regarding the major proportion of total debt in total liabilities. There is need to focus on the reduction of total debt. However, the effectiveness of Financial Analysis depends on the user and reliability of financial data. REFERENCES [i]. ]Dr. Ashok Kumar Rath(2016) A Study on Financial Statement Analysis of Tata Steel Odisha Project, Kalinga Nagar.Journal of Research in Business and Management.Volume 4 ~ Issue 10 (2016) pp: SSN(Online) : [ii]r.idhayajothi (2014).A Study on Financial Performance of Ashok Leyland Limited at Chennai. OSR Journal of Business and Management (IOSR-JBM) e-issn: X, p-issn: Volume 16, Issue 6. Ver. I (Jun. 2014), PP [iii]singh Partap(2014).Managing Corporate Liquidity of TISCO LTD: An Empirical Study, International Journal of Latest Trends in Engineering and Technology (IJLTET), Vol. 3 Issue 3 January , (ISSN: X) 308

8 [iv] Singh Partap(2012).An Evaluation of Performance of Indian Banking Sector (With Special Reference to NPAs of Some Indian Public Sector Banks), APJRBM, Vol.2, No.5, 2012; (ISSN ) [v] Henry W. Collier(2004).An example of the use of financial ratio analysis: the case of Motorola. p1&type=pdf [vi] "IDBI Bank Wins Dun & Bradstreet Banking Awards 2011 for Overall Best Bank & Best Public Sector Bank". Business Standard. 5 September Retrieved 22 February2014. [vii] (a) Annual Report of IDBI (b) Annual Report of IDBI (c) Annual Report of IDBI (d) Annual Report of IDBI [viii]websites: [a]. [b]. [c]. Financial management, I M Pandey. [d] [e] control.com 309