ANALYTICAL STUDY OF THE FINANCIAL PERFORMANCE OF CANARA BANK Dr. C. SRIKANT 1 Dr. RAVISHA N.S. 2 SOMYA AGARWAL 3 1 Associate Professor & Head, Department of Management Studies, J.N.N. College of Engineering, Shimoga-577204 2 Assistant Professor, Department of Management Studies, College of Engineering, Shimoga-577204 3 Research Scholar, Department of Management Studies, College of Engineering, Shimoga-577204 ABSTRACT Banks have exhibited tremendous progress in deposit mobilisation, credit distribution, and service diversification with the concept of universal banking and have made a shift from wholesale banking to retail banking. Hence, it is imperative to appraise the performance of the banks in the light of the new objectives set before them with the ever growing demands. This paper focuses on analysing the financial performance of Canara Bank (public sector bank) with 2009-2010 to 2013-2014 taken as reference period in the immediate post recessionary phase. Prominent tools of financial analysis i.e. Descriptive Statistics have been employed on certain parameters to evaluate the performance of the bank. Keywords : Performance evaluation, growth pattern, Advances, Deposits, Priority sector advances, Financial variables INTRODUCTION The financial crisis that erupted in the subprime mortgage markets in the USA in 2008 impacted the economies worldwide. Public sector banks of India have not only been able to withstand the effects of global recession but also able to moderate its impact on the country s economy. An analytical study of the financial performance of public sector banks in India aims to throw light on the stability of the Indian Banking system achieved as a result of the stringent norms imposed by the Reserve Bank of India. Evaluating the performance of Canara Bank would throw a light not only on the financial health of the bank but would also reflect the status of public sector banks in India. STATEMENT OF THE PROBLEM The global meltdown as well as the economic developments in India had profound impacts on the banking sector nationwide. An in-depth analysis of the financial performance of a public sector bank would highlight its position in the post recessionary phase and hence the problem has been identified as Analytical Study of the Financial Performance of Canara Bank. CONCEPTUAL FRAMEWORK For any organisation, performance evaluation has become imperative to reach the final targets and goals and to face stiff competition. It aids in pointing out the bottlenecks in the functioning or working of any activity leading to improvement in the system. In order to evaluate the trends in the overall performance of Canara bank, the parameters such as Advances, Deposits, Total Business, Priority sector advances, Interest Income, Interest expenditure and NPAs have been selected. The analysis is based on absolute as well as relative parameters as Credit Deposit Ratio. www.icmrr.org 55 icmrrjournal@gmail.com
REVIEW OF LITERATURE In India, various recommendations were made to bring effectiveness in the working and operations of banks. Padamanabhan Committee (1995) proposed CAMEL rating (in the form of ratios) to evaluate financial efficiency whereas the Basel committee (1998 and revised in 2001) advocated capital adequacy norms. The following articles throw a light on the performance and the measures adopted by the Indian banks in the post recessionary period. Eichengreen and Gupta (2012) state that the Indian banking system was initially thought to be insulated from the global financial crisis owing to heavy public ownership and conservative management. However, some banks experienced a deposit flight, as depositors reallocated their money towards government-owned banks, specifically towards the State Bank of India, the largest public sector bank. After 2010, public banks thus experienced slower credit growth, lower returns, deteriorated asset quality and higher provisioning after the financial crisis. Hence, there is no sign of greater stability or returns for public sector banks in the recovery period following the crisis. Subbarao (2013) mentions that in a rapidly globalising world, financial stability of national and international economies is interlinked. The most significant and broad based reforms at the global level have been the Basel III package for banking regulation which is an attempt to reform the capital, leverage and liquidity regulations for banks. The Reserve Bank of India has imposed minimum requirements for common Equity, Tier I Capital and Total Capital as 1% higher than the stipulated Basel III international norms suggesting that the additional capital requirements would be Rs. 5 trillion for the Indian banks. Sinha (2012) opines that the Indian banking sector withstood the spill over effects of the global financial crisis as was evident in the robust CRAR (13.58 %) and Tier 1 CRAR (Capital to Risk Weighted Assets Ratio) which remained far above the stipulated regulatory minimum of 9 %. However the effects of the crisis were visible in the credit growth of banking sector as the Y-o-Y growth in advances fell from 28.5 % in March 2007 to 12.3 % by Sept 2009 while the figures for assets were 22.9 % and 15.1 % during the same period. Batra, Srinivasan and Maheshwari (2011) put forward that the Indian banks, the leading financial intermediaries in India, have made good progress over a 5 year period spanning from 2006-2011, as is evident from several parameters including annual credit growth, profitability and movement in gross non-performing assets. Good internal capital generation, swift capital markets and governmental support ensured good capitalisation for most banks during the period, with overall capital adequacy touching 14% as on March 31, 2011. Khan and Fozia (2013) state that during the period 2010-2011, the public sector banks, registered a growth of 18.4% for deposits and the figures were 22.3% for advances, 19% for growth in investment and 19.2% for bank assets, which implied that they were attempting to mitigate the effects of the financial crisis in the post recessionary period. OBJECTIVES OF THE STUDY To identify important financial variables of Canara bank. To study the growth pattern of identified selected financial variables for the study period: 2009-2010 to 2013-2014. To suggest measures for improvement of the identified financial variables. SCOPE OF THE STUDY The study is designed to assess the financial performance of Canara Bank through modern tools and techniques of financial analysis. The study is based on the financial statements and data of www.icmrr.org 56 icmrrjournal@gmail.com
Canara Bank, Kalaburagi such as performance highlights, annual report and internal reports of the bank. The reference period has been taken as 5 financial years in the post recessionary phase: 2009-2010 to 2013-2014. The study apart from the published data has relied on the internal records and reports made available by Canara Bank, Circle office, Kalaburagi. METHODOLOGY The study is based upon both primary and secondary data and is conducted in Canara Bank, Circle Office, Kalaburagi. Financial variables selected for the study are: Advances, Deposits, Total Priority Sector Advances and NPA. LIMITATIONS OF THE STUDY Conclusions are drawn on the basis of limited secondary data available. The period taken into consideration for this study is only 5 financial years which restricts the analysis conducted thereupon. DATA ANALYSIS AND INTERPRETATION In accordance with the objectives of the study, the data collected from primary and secondary sources has been analysed and interpreted to study the trends and growth in financial performance indicators of the Circle Office. 1. ADVANCES Table-1:Trend in Advances and Year-Over-Year Growth Year Advances Year Over Year (Y-O-Y) Growth % Trend values 2010 1392 NIL 1198 2011 1259-9.55 1407 2012 1509 19.86 1617 2013 1711 13.39 1826 2014 2213 29.34 2036 Slope Value 209.4 Intercept Value 1616.8 RSQ 0.79 2. DESCRIPTIVE STATISTICS FOR ADVANCES Table-2: Results of Descriptive Statistics Advances Mean 1616.80 Standard Error 166.51 Median 1509.00 Standard Deviation 372.33 Sample Variance 138626.20 Kurtosis 1.46 Skewness 1.25 Range 954.00 www.icmrr.org 57 icmrrjournal@gmail.com
3. COMPOSITION OF ADVANCES Table-3: Composition of Advances Year Priority Non Priority 2010 1123 269 2011 1096 163 2012 1345 164 2013 1547 164 2014 1922 291 4. ADVANCES vs. INTEREST INCOME Table-4: Growth of Interest Income with Advances Interest Income/Advances Year Interest Income Advances (in Percentage) 2010 94 1392 6.75 2011 106 1259 8.42 2012 145 1509 9.61 2013 164 1711 9.59 2014 209 2213 9.44 5. ADVANCES vs. DEPOSITS Table-5: Comparing Growth of Advances with Deposits Year Advances Deposits C D Ratio (Credit Deposit Ratio) % 2010 1392 922 150.98 2011 1259 1122 112.21 2012 1509 1228 122.88 2013 1711 1342 127.50 2014 2213 1635 135.35 6. COMPOSITION OF PRIORITY SECTOR ADVANCES Table-6: Showing the Composition of Priority Sector Advances Year Total Other Agriculture SME Housing Education Priority priority 2010 1123 824 231 38 30 0 2011 1096 813 207 44 32 0 2012 1345 984 257 61 37 6 2013 1547 1155 276 65 44 7 2014 1922 1375 413 81 53 0 www.icmrr.org 58 icmrrjournal@gmail.com
7. PRIORITY SECTOR vs. TOTAL ADVANCES Table-7: Showing Priority Sector Advances vs. Total Advances Year Total Priority Advances Priority/Advances (in Percentage) 2010 1123 1392 80.68 2011 1096 1259 87.05 2012 1345 1509 89.13 2013 1547 1711 90.41 2014 1922 2213 86.85 8. NPA vs. CASH RECOVERY Table-8: Showing NPA vs. Cash Recovery Year NPA Cash Recovery 2010 136 47 2011 143 56 2012 146 62 2013 141 86 2014 166 62 9. COMPARISON BETWEEN INTEREST INCOME AND INTEREST EXPENDITURE Table-9: Showing Comparison between Interest Income and Interest Expenditure Year Interest Income Interest Expenditure 2010 94 35 2011 106 41 2012 145 56 2013 164 65 2014 209 83 10. TARGETS ACHIEVED Table-10: Showing Actual Priority Sector Advances vs. Target Achieved Year Priority Sector Advances Priority Sector Target Target achieved in Percentage 2010 1123 1178 95.33 2011 1096 1480 74.05 2012 1345 1503 89.49 2013 1547 1777 87.06 2014 1922 1959 98.11 www.icmrr.org 59 icmrrjournal@gmail.com
FINDINGS OF THE STUDY The following observations were made after analysing and interpreting the data: 1. The Credit Deposit ratio shows that the Advances outnumber the Deposits every year (the ratio being greater than 100) though the Deposits (77.33%) are increasing at a faster pace than the Advances (58.98%). It implies that the savings from other regions are being channelised to Kalaburagi. 2. The increase in interest income (more than double) is at a faster pace than the advances (1.6 times) signifying that the interest rates have been increased during the last 5 years. (Increase in interest rates from a base rate of 6-7% in 2009-10 to 10% in 2013-14). 3. The NPAs have steadily increased with a growth rate of less than 6% (except in the year 2013-14 when it increased by 17.73%). The year 2012-13 is notable as NPAs reduced showing a negative growth rate of -3.42%, while the cash recovery increased by Rs. 24 crores. 4. The priority sector advances have been growing in-line with the total advances comprising of 80% and above of the total advances and is therefore, a positive trend for the development of the region. 5. Both interest income and interest expenditure show incremental movement during the study period (122.34% and 137.14% respectively). However the interest income surpasses the interest expenditure, showing that the circle has more thrust on advances than deposits. 6. The share of Priority sector in total Advances has increased from 81% in 2009-10 to 87% in 2013-14. It shows a thrust on Priority sector which is a healthy trend for the region. 7. The composition of priority sector advances has remained constant in 2013-14 as compared to 2009-10 with just 1% transition from Agriculture to Housing loans in 2013-14. 8. The bank is showing satisfactory performance as it is able to reach more than 85% of the target set for Priority sector and Agricultural advances almost every year. It reflects upon the bank s efforts towards aggressive lending. SUGGESTIONS Based on the empirical study and the analysis done, the following recommendations are made at the Circle Office level: The Circle should be cautious of its rising NPAs in its bid to increase its market share in the region. The NPAs have shown a rising trend in 2013-14, when the overall banking industry is in the process of controlling and thereby reducing the NPAs on its books. The CD ratio of the Circle is showing an increasing trend over the last three years and has consistently been over 100%. As a result, the Circle needs to focus more on raising deposits from the region. It must not entirely depend upon the Central office for surplus funds in order to lend and thereby increase its balance sheet size. In order to ensure long term growth, it is important to increase deposits, which will also help the Circle gain market share in the region. The branch penetration in the Kalaburagi circle is low. The Hyderabad Karnataka region being a backward region, the bank must increase its branch coverage and should thereby become a more prominent partner in the region s progress. CONCLUSION The strengths as well as weaknesses of the bank with respect to its financial health have been highlighted, which in turn paves the way for suggesting improvements and gaps to be bridged. Canara bank stands at III position in terms of market share in Kalaburagi Circle with State Bank of Hyderabad leading the market followed by the State Bank of India. The Kalaburagi circle is adhering to all RBI stipulated norms with regard to the priority sector lending. However, the overall composition of the priority sector lending has remained the same over the past few years. www.icmrr.org 60 icmrrjournal@gmail.com
The advances given by the Circle are more than deposits raised, thereby reflecting positive channelisation of funds from other Circles of the Bank to the Kalaburagi Circle. There was a reduction in the overall business in 2010-11 due to loss of certain large customer accounts to competition. However, the Circle business growth has been consistent since then. However, there was a significant growth in advances, deposits and the overall business in 2013-14 due to the internal strategy to gain market share in the region. Aggressive lending has resulted in larger NPA in 2013-14 and also reduced cash recovery. REFERENCES Batra, Srinivasan and Maheshwari (2011), ICRA Research Indian Banking Sector: Challenges unlikely to derail the progress made, retrieved on 09. 01.2015 http://www.icra.in/files/ticker/banking%20note-final.pdf Eichengreen, Barry and Gupta, Poonam (2012), The Global Financial Crisis and Indian Banks: Survival of the Fittest?, retrieved on 15.12.2014 http://mpra.ub.unimuenchen.de/43365/1/mpra_paper_43365.pdf Canara Bank: Manual of Instructions on Agricultural Finance [Procedural] (Pg. 55-73) Canara Bank (2012, July) PrioritySecClassify--HO Cir 232-2012-Master Circular. Unpublished internal document, Canara Bank Head Office Bangalore. Kothari, C. R. (2010). Business Research Methods. New Delhi: Vikas Publications. (Pg. 245-250) Khan, Nafees A. and Fozia (2013), Growth and Development in Indian Banking Sector, retrieved on 5.4.2015 http://www.academia.edu/5450414/growth_and_development_in_indian_ban KING_SECTOR_INTRODUCTION Sinha, Anand (2012), Changing Contours of Global Crisis- Impact on Indian Economy (Address by Deputy Governor, Reserve Bank of India at the Finance Summit), retrieved on 07.01.2015 http://rbidocs.rbi.org.in/rdocs/speeches/pdfs/ccgcief200312.pdf Subbarao, Duvvuri (2013), The Global Financial Crisis and the Indian Financial Sector What Have We Learnt and How Have We Responded? (Address by the Governor, Reserve Bank of India at the 7th International Banking and Finance Conference 2013), retrieved on 24.12.2014 http://rbi.org.in/scripts/bs_speechesview.aspx?id=812 www.icmrr.org 61 icmrrjournal@gmail.com