AN APPRAISAL OF THE FINANCIAL PERFORMANCE OF THE GDCCB - A CAMEL ANALYSIS

CHAPTER V AN APPRAISAL OF THE FINANCIAL PERFORMANCE OF THE GDCCB A CAMEL ANALYSIS

AN APPRAISAL OF THE FINANCIAL PERFORMANCE OF THE GDCCB - A CAMEL ANALYSIS 5.1 Introduction: In this chapter an attempt is made to appraise the financial performance of the Guntur District Central Co-operative Bank (GDCCB), during the study period from 2000-01 to 2008-09. Capital Adequacy, Asset Quality, Management Quality, Earnings and Liquidity s (CAMEL Model) is used to analyze the financial performance of the GDCCB. 5.2 Financial Performance of the GDCCB: As per the parameters indicated by NABARD a Weak Co-operative Central Bank has been defined as a bank whose bad and doubtful debts, accumulated losses and other overdues over three years together, exceed 50 per cent of its Own Funds. The Government or NABARD takes the Rehabilitation work, for weak bank with the main emphasis of reviving it from its weak condition to attain economically viable status over a phase of period. Table 5.1 presents an analysis of the financial performance of the GDCCB during the period from 2000-01 to 2008-09. In the light of the parameters indicated by NABARD, the GDCCB shows that during the study period, the sum of the Bad & doubtful debts and accumulated losses had been below 50 percent of the owned funds of the bank. It is thus evident from the analysis that the GDCCB does not fell in the category of weak Bank. 125

Table 5.1 Financial Performance of the GDCCB ( in Lakhs) S.No Item 2000-01 2004-05 2008-09 I Owned Funds II III a. Paid up Share Capital 3,395 3,659 4,185 b. Reserve Fund 539 1,121 1,636 c. Total (a+b) 3,934 4,780 5,821 Erosion in Owned Funds a. Bad& Doubtful (Overdues Over 3 Years) 1,097 2,040 366 b. Accumulated Losses - - - c. Total 1,097 2,040 366 50% of Owned funds i.e 50% of I(c) 1,967 2,390 2,911 IV a. III-II(c) 870 350 2,545 b. Exceeds to III NIL NIL NIL Source: Annual Reports of the GDCCB 5.3 Financial Performance of the GDCCB - A CAMEL Analysis: For this purpose a widely accepted analytical model CAMEL Analysis is adopted and results are obtained. CAMEL Analysis focuses on the following parameters. a) Capital Adequacy s b) Asset Quality s c) Management Quality s d) Earnings s e) Liquidity s Annual growth rates were calculated for three phases of banking operation. CAMEL Model recommended by Padmanbhan working 126

group 1995 has been employed to assess and appraise the financial performance of GDCCB. 5.3.1 Capital Adequacy s: Capital adequacy has emerged as one of the major indicators of the financial health of a banking entity. It is measured as a ratio of bank s own capital (new equity, retained earnings, etc.) to its risk-weighted assets (loans, investments in stock markets, guarantees, etc). Well adherence to capital adequacy regime does play a vital role in minimizing the cascading effects of banking and financial sector crises. 5.3.1.1 Capital to Risk Weighted Assets (CRAR) of the GDCCB: Capital adequacy is an indicator of the financial health of the banking system. It explains the relation between net capital funds and risk weighted assets. If the ratio is high, it is good for the organization. In table 5.2 the ratio is calculated and examined for the data pertaining to the GDCCB for the study period. It is calculated by using following formula. CRAR= (Net Capital Funds/Risk Weighted Assets) 100 Net Capital Funds=(Paid up Capital+ Reserves+ Profit& Loss A/C (Cr)) - (Accumulated Losses +Short Fall in Provisions) Risk Weighted Assets=Current Assets+ Investments+ Loans and Advances. 127

As is shown in the table 5.2, the growth rate of net capital funds of the GDCCB had achieved steady increase during the years 2006-07 to 2008-09. It had increased by 3.22% in 2007-08 and further by 4.42% in 2008-09, which is a progressive sign. Interestingly, the growth rate of risk weighted assets of GDCCB had got declined considerably during the given period. This decline in the value of risk weighted assets indicates that the GDCCB has got good solvency position. As per the prudential norms, the banks being operated in India are required to achieve 9% CRAR. The table shows that the GDCCB has well exceeded the stipulated level. Similarly, the CRAR was 10.68% in 2007-08 which had gone up and touched 20% mark in 2008-09. All this explains the strength of GDCCB in terms of sound capital base and its adequacy. Sl. No. Year Table 5.2 CRAR Position of the GDCCB ( in Lakhs) Net Capital Funds Risk Weighted Assets (in % ) 1. 2006-07 5590 52337 10.68 2. 2007-08 5770 51982 11.10 (3.22) (-0.68) 3. 2008-09 6025 (4.42) 31352 (-39.69) 19.22 Source: Audit Reports of the GDCCB Note: Due to non-availability of previous data, the value of capital adequacy ratios of the years 2006-07 and 2007-08 are given in the table. Note: Figures in brackets show the Annual Growth Rates 128

Chart 5.1 CRAR Position of the GDCCB 20 15 10 5 0 2000-01 2004-05 2008-09 10.68 11.1 19.22 5.3.1.2 Net Non Performing Assets (NPAs) to Net worth of the GDCCB: Another important ratio that indicates the status of capital adequacy is net NPAs to net worth ratio. It explains the relation between net non performing assets to net worth of the organization. Non performing assets means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful and loss assets, in accordance with the directions or guidelines relating to asset classification issued by The Reserve Bank of India. Net Worth means, it is permanent liability owned by the company/firm to the proprietor, partners or share holders. If the net NPA to Net worth is less, it indicates that non performing assets are less and that is good sign for organization. Net NPA to Net worth is calculated by using following formula. Net NPA to Net Worth = (Net NPAs/Net Worth) 100 Net NPAs= Gross NPAs Provisions held in respect of the Non Performing Assets. 129

Net Worth= Share Capital + Reserves and Surplus It is gratifying to note that the annual average growth rate of net NPAs of GDCCB has tremendously declined over the ten years study period and registered finally a negative rate of -83.76% in 2008-09. The growth rate was alarmingly large at 244.22% between 2000-01 and 2004-05. Similarly, the growth rate of net worth had gradually improved from 21.46% in 2004-05 to 21.88% in 2008-09. Accordingly, the Net NPAs to Net worth ratio has also shown an impressive trend over the study period. While the ratio was uncomfortably large at 152.22% in 2004-05, it tumbled down considerably in 2008-09 to 20.29%. It also indicates a healthy and sound financial performance of the GDCCB. The trend also demonstrates that the capital adequacy requirement of the bank is sailing on positive lines. Table 5.3 Net NPAs to Net Worth of the GDCCB ( in Lakhs) Sl. No. Year Net NPAs Net Worth (in % ) 1. 2000-01 2,112 3,932 53.71 2. 2004-05 7,270 (244.22) 4,776 (21.46) 3. 2008-09 1,181 5,821 (-83.76) (21.88) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 152.22 20.29 130

Chart 5.2 Net NPAs to Net worth of the GDCCB 200 150 100 50 0 2000-01 2004-05 2008-09 53.71 152.22 20.29 5.3.2 Asset Quality s: Asset quality signifies the degree of financial strength of and risks in a bank s assets, mainly loans and investments. The maintenance of asset quality is a fundamental feature of banking. A broad evaluation of asset quality is one of the most important components in assessing the current situation and future viability of a bank. Under CAMEL Model of analysis, the asset quality ratios command significant recognition. Some of the important Asset Quality ratios are adopted for analyzing the data of the GDCCB. 5.3.2.1 Government Securities to Total Investments of the GDCCB: Government securities to total investments ratio measures the risk involved in total investments. Government securities are deemed to be the risk free securities and thus it is generally believed that higher proportion of this kind of securities in total investment carry 131

the minimum risk as compared to other securities. In other words, higher the ratio lower is the risk and vice-versa. This ratio is calculated by the following formula Government Securities to Total Investments = (Government Securities/Total Investments) 100 From table 5.4 it is observed that the ratio had touched the far lower level of just 3.46% in 2008-09, when compared with the ratio of about 11.32% in 2004-05. Here government securities value was constant, but total investments were increased in the study period. It indicates that from 2004-05 to 2008-09, GDCCB did not invest any extra amount in government securities. It invested in other investment avenues. So the Government Securities to Total Investments ratio is declined in 2008-09. It indicates risk involvement position of the investments. Table 5.4 Government Securities to Total Investments of the GDCCB ( in Lakhs) Sl. No. Year Government Securities Total Investments (in % ) 1. 2000-01 -- 6,515 -- 2. 2004-05 688 6,079 (-6.69) 3. 2008-09 688 19,886 (227.13) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 11.32 3.46 132

Chart 5.3 Government Securities to Total Investments of the GDCCB 12 10 8 6 4 2 0 2000-01 2004-05 2008-09 0 11.32 3.46 5.3.2.2 Net Non Performing Assets (NPAs) to Net Advances of the GDCCB: Net Non Performing assets to Net Advances ratio measures the position of non performing assets out of total advances sanctioned. If this ratio is high, it is not good for the organization. It is measured by using following formula. Net Non Performing Assets to Net Advances = (Net NPAs/Net Advances) 100 Net Advances=Gross Advances- Provisions The data presented in the table 5.5 shows that GDCCB suffered a large level of net NPAs in 2004-05 when compared to that recorded in 2000-01 and 2008-09. As regards to the net advances, it had experienced declining trend. 133

The net NPAs to net advances ratio indicates fluctuating trend. It was 7.44% in 2000-01, 38.78% in 2004-05, which appreciably declined to below 9.35% by 2008-09. Table 5.5 Net NPAs to Net Advances of the GDCCB ( in Lakhs) Sl. No. Year Net NPAs Net Advances (in % ) 1. 2000-01 2,112 28,382 7.44 2. 2004-05 7,270 (244.22) 3. 2008-09 1,181 (-83.76) 18,746 (-33.95) 12,631 (-32.62) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 38.78 9.35 Chart 5.4 Net NPAs to Net Advances of the GDCCB 40 30 20 10 0 2000-01 2004-05 2008-09 7.44 38.78 9.35 134

5.3.2.3 Priority Sector Advances to Total Advances of the GDCCB: Priority sector advances to Total Advances helps to know the importance that the bank is giving to priority sector and how amount is sanctioned to that sector out of total advances. If this ratio is high, it indicates the bank is giving more amounts for priority sector. Priority sector advances includes advances given to agriculture, small scale industries, housing finance, self employment education loans, self help Groups etc., This ratio is calculated by the following this formula Priority Sector Advances to Total Advances = (Priority Sector Advances/Total Advances) 100 The growth rate of priority sector advances by GDCCB had shown a negative trend, showing -30.63% in 2008-09, while it had shown an ascending trend up to 2004-05. As regards the total advances also the same trend is observed. It had shown decreasing trend with -29.93% in 2004-05 again declined to 26.25% in 2008-09. Though the ratio of priority sector advances to total advances has been fluctuating, i.e., 92.88% in 2000-01, 98.21% in 2004-05, and 92.38% in 2008-09, it has been considerably and appreciably large. 135

Table 5.6 Priority Sector Advances to Total Advances of the GDCCB ( in Lakhs) Sl. No. Year Priority Sector Advances Total Advances (in % ) 1. 2000-01 28,816 31,026 92.88 2. 2004-05 21,351 (-25.91) 21,741 (-29.93) 3. 2008-09 14,812 16,033 (-30.63) (-26.25) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 98.21 92.38 Chart 5.5 Priority Sector Advances to Total Advances of the GDCCB 100 98 96 94 92 90 88 2000-01 2004-05 2008-09 92.88 98.21 92.38 5.3.2.4 Asset Utilization of the GDCCB: Asset Utilization ratio is useful to know how effectively the assets are utilized and how much income is generated from that assets. So it is the relation between the total income and total assets of an organization. This ratio is calculated by the following this formula Asset Utilization = (Total Income/Total Assets) 100 136

The growth rate of total income of GDCCB had shown a declining trend between 2000-01 and 2004-05, and thereafter rose marginally. The total assets were changed slightly. Assets were increased by 1.58% in 2004-05 and decreased by 0.65% in 2008-09. The Asset utilization ratio of the bank under study had slightly reduced in 2004-05 and registered an increasing trend in 2008-09. Table 5.7 Asset Utilization of the GDCCB ( in lakhs) Sl. No. Year Total Income Total Assets (in % ) 1. 2000-01 5,417 54,401 9.96 2. 2004-05 5,299 (-2.18) 3. 2008-09 6,248 (17.91) 55,259 (1.58) 55,617 (0.65) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 9.59 11.23 Chart 5.6 Asset Utilization of the GDCCB 11.5 11 10.5 10 9.5 9 8.5 2000-01 2004-05 2008-09 9.96 9.59 11.23 137

5.3.3 Management Quality s: Management efficiency is another vital component of the CAMEL model that ensures the survival and growth of a bank. It is the management which sets vision and goals for the organization and ensures that it achieves them. In the process of achieving their goals, management takes certain crucial decisions depending on its risk perception. Hence, analysts and investors use this parameter to evaluate management efficiency as to assign premium to better managed banks and discount to poorly managed ones. While the other factors of CAMEL model can be quantified fairly easily from current financial statements, management quality is a somewhat elusive and subjective measure, yet one that is crucial to institutional success. As management quality is inextricably tied to a bank s success or failure, it is important to develop and improve methods of grading management efficacy. Besides this, the banking sector reforms also reinforce the need to improve productivity of the banks through appropriate measures which aim at reducing the operating cost and improving the profitability of the banks. 5.3.3.1 Profit per Employee of the GDCCB: Net profit per employee is the amount of profit earned per an employee. The range of profit determines the quality of management. Higher the quality of management, higher the profits per employee. It calculated by the following this formula Profit per Employee of GDCCB= (Net Profit/No. of Employees) 138

The profit per employee had experienced fluctuations, as it was 0.82 lakhs in 2000-01, 0.44 lakhs in 2004-05 and 0.75 lakhs in 2008-09. The number of employees was reduced by -24.48% in 2004-05 and -21.03% in 2008-09. Table 5.8 Profit per Employee of the GDCCB ( in Lakhs) Sl. No. Year Net Profit No. Of Employees Profit Per Employee 1. 2000-01 315 384 0.82 2. 2004-05 128 (-59.37) 3. 2008-09 173 (35.16) 290 (-24.48) 229 (-21.03) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 0.44 0.75 Chart 5.7 Profit per Employee of the GDCCB Profit Per Employee 1 0.8 0.6 0.4 0.2 0 2000-01 2004-05 2008-09 Profit Per Employee 0.82 0.44 0.75 139

5.3.3.2 Productivity Per Employee of the GDCCB: Productivity of the bank can be measured as a relation between total business and total number of employees. So it can understand how effectively the employees are contributing to total business. If it is high, it is good for organization. This ratio is calculated by the following this formula Productivity Per Employee of the Bank= (Total Business/No. of Employees) 100 Total Business=Total Credit + Total Deposits The total business of GDCCB had fluctuating trend with -20.53% in 2004-05, when compared to an increased trend of 10.98% in 2008-09. Regarding number of employees there had been negative and declining trend recording -24.48% in 2004-05 and -21.03 % in 2008-09. Regarding productivity of GDCCB, it can be stated that this had increased satisfactorily to 180 lakh in 2008-09 when compared to the given previous years. By 2008-09 number of employees had decreased but the productivity had shown increasing trend. Table 5.9 Productivity Per Employee of the GDCCB ( in Lakhs) Sl. No. Year Total Business No. Of Employees Per Employee Productivity 1. 2000-01 46,754 384 122 2. 2004-05 37,155 (-20.53) 290 (-24.48) 3. 2008-09 41,233 229 (10.98) (-21.03) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 128 180 140

Chart 5.8 Productivity Per Employee of the GDCCB Employee Productivity 200 150 100 50 0 Employee Productivity 2000-01 2004-05 2008-09 122 128 180 5.3.4 Earnings s: Earnings quality reflects quality of a bank s profitability and its ability to earn consistently. The two most important parameters that is reviewed during inspection to assess the earning performance of the bank are a. The net interest margin. b. The net margin The Net Interest Margin (NIM) is the difference between the total interest paid by the bank on its deposits and borrowings and the total interest earned on its loan/advances and investments. The Net Margin is arrived at after deducting all the other expenses from the NIM and than adding all other income of the bank to it. It is usually expressed as a percentage to total assets. 141

5.3.4.1 Non Interest Income to Total Income of the GDCCB: Non interest income to total income ratio is a ratio that measures the earning capacity of a banking company. The earning performance mainly depends on how worthy the manager manages the assets liability of the bank, which determines the earning capacity of the banking company. This ratio is calculated by the following this formula Non Interest Income to Total Income = (Non-Interest Income/Total Income) 100 Non Interest Income=Total Income - Interest Income The non interest income of GDCCB had shown a declining trend between 2000-01 and 2004-05, and thereafter rose marginally. The same trend was found with the growth of the total income also, with -2.18% in 2004-05, and 17.91% in 2008-09. The non interest income to total income ratio thus has shown a declining trend, though marginally during the given years. Table 5.10 Non Interest Income to Total Income of the GDCCB ( in Lacks) Sl. No. Year Non-Interest Income Total Income (in % ) 1. 2000-01 4,563 5,417 84.23 2. 2004-05 4,233 (-7.23) 5,299 (-2.18) 3. 2008-09 4,904 6,248 (15.85) (17.91) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 79.88 78.49 142

Chart 5.9 Non Interest Income to Total Income of the GDCCB 86 84 82 80 78 76 74 2000-01 2004-05 2008-09 84.23 79.88 78.49 5.3.4.2 Return on Assets of the GDCCB: The earning capacity of a banking company is also measured by using return on assets ratio. The return on assets may also be called profit to assets ratio. It is the ratio between net profit and total assets. Higher the ratio, greater is the performance. This ratio is calculated by the following this formula Return on Assets = (Net Profit/Total Assets) 100 It is shown in the table 5.11 that the profit earned to total assets ratio of GDCCB has been in fluctuation. It was recorded as 0.58% in 2000-01, which had declined to 0.23% in 2004-05 though increased to 0.31%, in 2008-09 it was less than that of recorded in 2000-01, as there is no considerable increase in the value of total assets. 143

Table 5.11 Return on Assets of the GDCCB ( in Lacks) Sl. No. Year Net Profit Total Assets (in % ) 1. 2000-01 315 54401 0.58 2. 2004-05 128 (-59.37) 55259 (1.58) 3. 2008-09 173 55617 (35.16) (0.65) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 0.23 0.31 Chart 5.10 Return on Assets of the GDCCB 0.6 0.5 0.4 0.3 0.2 0.1 0 2000-01 2004-05 2008-09 0.58 0.23 0.31 5.3.4.3 Interest Income to Total Assets of the GDCCB: The ratio of interest income to total assets determines the viability of a banking company. Higher the ratio better is the viability. This ratio is calculated by the following formula Interest Income to Total Assets ratio= (Interest Income/Total Assets) 100 144

The interest income of GDCCB has been increasing considerably. The growth was recorded as 24.82% in 2004-05 and increased by 26.08% in 2008-09. But in terms of total assets growth, there is no satisfactory enhancement. The growth was 1.58% in 2004-05, and 0.65% only in 2008-09. Interest income to total assets ratio had increased slightly in the given period. GDCCB is still largely dependent upon interest earnings as major source of their income. The financial sector reforms in this bank have not been able to switch them over to non interest income avenues. This may be due to their inherent limitations like restricted areas of operation and lack of mental and managerial transformation. Table 5.12 Interest Income to Total Assets of the GDCCB ( in Lacks) Sl. No. Year Interest Income Total Assets (in % ) 1. 2000-01 854 54,401 1.57 2. 2004-05 1,066 (24.82) 3. 2008-09 1,344 (26.08) 55,259 (1.58) 55,617 (0.65) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 1.93 2.42 145

Chart 5.11 Interest Income to Total Assets of the GDCCB 2.5 2 1.5 1 0.5 0 2000-01 2004-05 2008-09 1.57 1.93 2.42 5.3.4.4 Operating Profit to Working Funds of the GDCCB: The operating profit to working funds ratio analyses the performance of a bank in terms of its earning capacity. Higher the ratio, the performance of bank is good. This ratio is calculated by the following this formula Operating Profit to Working Funds = (Operating Profit/Working Funds) 100 Operating Profit=Total Income-Operating Expenses Working Funds=Total Assets-Accumulated Losses The operating profit of GDCCB has considerably increased by 46% in 2008-09, though grew negatively in 2004-05 over 2000-01. Regarding working funds also there has been a positive growth at a declining growth rate. The growth rates were 1.58% in 2004-05, and 0.65% in 2008-09. 146

The Operating Profit to Working Funds ratio was fluctuating from 1.46% in 2000-01, to 1.12% in 2004-05 and to 1.63% in 2008-09. It can be stated that GDCCB is free of accumulated losses during the given period. Table 5.13 Operating Profit to Working Funds of the GDCCB ( in Lacks) Sl. No. Year Operating Profit Working Funds (in % ) 1. 2000-01 795 54,401 1.46 2. 2004-05 620 (-22.01) 3. 2008-09 905 (45.97) 55,259 (1.58) 55,617 (0.65) Source: Audit Reports of the GDCC Bank Note: Figures in brackets show the Annual Growth Rates 1.12 1.63 Chart 5.12 Operating Profit to Working Funds of the GDCCB 2 1.5 1 0.5 0 2000-01 2004-05 2008-09 1.46 1.12 1.63 147

5.3.4.5 Wages as Percentage of Total Expenses of the GDCCB: Wages of staff to total expenses ratio also helps to know how much amount is paid as wages out of total expenses. It explains the relationship between the payment and provisions for employees and total expenses. Lower the ratio better is the performance of a bank. This ratio is calculated by the following this formula Wages as % of Total Expenses = (Staff Expenses/Total Expenses) 100 The staff expenses have increased slightly in 2004-05 and enormously increased by 48.78% in 2008-09. Total expenses also slightly increased in 2004-05 and increased by 17.48% in 2008-09.The ratio of wages of staff to total expenses has recorded considerable increase by 2008-09 with 12.05% which was 9.51% in 2004-05 and 9.41% in 2000-01. Table 5.14 Wages as Percentage to Total Expenses of the GDCCB ( in Lacks) Sl. No. Year Staff Expenses Total Expenses (in % ) 1. 2000-01 480 5,102 9.41 2. 2004-05 492 (2.50) 3. 2008-09 732 (48.78) 5,171 (1.35) 6,075 (17.48) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 9.51 12.05 148

Chart 5.13 Wages as Percentage to Total Expenses of the GDCCB 14 12 10 8 6 4 2 0 2000-01 2004-05 2008-09 9.41 9.51 12.05 5.3.4.6 Profit Margin of the GDCCB: The profit Margin is the residue left after meeting all the expenses out of revenue. This margin is avilable for ploughing back into the business. It explains the bank s profitability position. This ratio is calculated by the following this formula Profit Margin =(Net Profit/Total Income) 100 The annual growth rate of net profit is negatively decreased by -59.37% in 2004-05 and it is increased by 35.16% in 2008-09. The annual growth rate of total income is negatively reduced (-2.18) in 2004-05 and increased by 17.91% in 2008-09. Profit Margin of GDCCB is recorded as 5.82% in 2000-01, reduced to 2.42% in 2004-05 and slightly increased to 2.77% in 2008-09. 149

Table 5.15 Profit Margin of the GDCCB ( in Lacks) Sl. No. Year Net Profit Total Income (in % ) 1. 2000-01 315 5,417 5.82 2. 2004-05 128 5,299 2.42 (-59.37) (-2.18) 3. 2008-09 173 (35.16) 6,248 (17.91) 2.77 Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates Chart 5.14 Profit Margin of the GDCCB 6 5 4 3 2 1 0 2000-01 2004-05 2008-09 5.82 2.42 2.77 5.3.5 Liquidity s: For a bank, liquidity is a crucial aspect which represents its ability to meet its financial obligations. It is utmost important for a bank to maintain correct level of liquidity, which will otherwise lead to declined earnings. A high liquidity ratio indicates that the bank is more affluent. However, a bank needs to take care in hedging liquidity risk to ensure its own liquidity under all rational conditions. It is possible only when the percentage of funds ploughed in the investments with high returns is large. 150

5.3.5.1 Government Securities to Total Assets of the GDCCB: This ratio explains how much amount is invested in liquid assets and banking company s ability to meet depositors and creditors demand. If this ratio is high, it indicates liquidity position is good. This ratio is calculated by the following this formula Government Securities to Total Assets = (Government Securities/Total Assets) 100 The liquidity ratio of GDCCB in terms of government securities has been constant during the given years, while the value of total assets has gradually increased. However, the ratio between government securities to total assets is almost stagnant. It increases risk involvement, since higher ratio lowers the measure of risk involved in total assets. Table 5.16 Government Securities to Total Assets of the GDCCB ( in Lacks) Sl. No. Year Government Securities Total Assets (in % ) 1. 2000-01 -- 54,401 -- 2. 2004-05 688 55,259 (1.58) 3. 2008-09 688 55,617 (0.65) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 1.25 1.24 151

Chart 5.15 Government Securities to Total Assets of the GDCCB 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2000-01 2004-05 2008-09 0 1.25 1.24 5.3.5.2 Cash to Total Assets of the GDCCB: Cash is an important asset of a banking company, which reflects the liquidity position. If a bank has adequate cash balance its liquidity position will be more. At the same time the bank should not maintain too much of cash balance which involves opportunity cost. It will be obtained by dividing cash by total assets. If the ratio is higher it indicates liquidity position of bank is high and if the ratio is low it indicates lower liquidity position of a bank. This ratio is calculated by the following this formula Cash to Total Assets = (Cash/Total Assets) 100 The cash balance with GDCCB has decreased during the given period. It was recorded as -11.11% in 2004-05 and further diminished to -5% by 2008-09. Regarding total assets, its value has increased. The ratio of cash to total assets has marked with declining trend. It was 4.05% in 2000-01, decreased to 3.55% in 2004-05 and further slightly to 3.35% in 2008-09. 152

Table 5.17 Cash to Total Assets of the GDCCB ( in Lacks) Sl. No. Year Cash Total Assets (in % ) 1. 2000-01 2205 54,401 4.05 2. 2004-05 1960 (-11.11) 3. 2008-09 1862 (-5.00) 55,259 (1.58) 55,617 (0.65) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 3.55 3.35 Chart 5.16 Cash to Total Assets of the GDCCB 5 4 3 2 1 0 2000-01 2004-05 2008-09 4.05 3.55 3.35 5.3.5.3 Total Investment to Total Assets of the GDCCB: Total investment to total assets is another ratio which is used to measure the liquidity position of a banking company. The larger the investments, more will be liquidity position and lower the investments lower will be the liquidity position. This ratio is calculated by the following this formula Total Investment to Total Assets = (Total Investments/Total Assets) 100 The total investments of GDCCB have got fluctuating trend during the given period. It negatively decreased by -6.69% in 2004-05 153

and increased by 227.13% in 2008-09. But there is no that much degree of increase in total assets. Regarding the ratio of total investments to total assets it has fluctuating trend. It was 11.98% in 2000-01, decreased to 11% in 2004-05 and further greatly to 35.76% in 2008-09. This indicates that the liquidity position of GDCCB is in better position since there is greater enhancement in the value of total investments. Table 5.18 Total Investments to Total Assets of the GDCCB ( in Lacks) Sl. Year Total Total Assets No. Investments (in % ) 1. 2000-01 6,515 54,401 11.98 2. 2004-05 6,079 (-6.69) 55,259 (1.58) 3. 2008-09 19,886 55,617 (227.13) (0.65) Source: Audit Reports of the GDCCB Note: Figures in brackets show the Annual Growth Rates 11.00 35.76 Chart 5.17 Total Investment to Total Assets of the GDCCB 40 30 20 10 0 2000-01 2004-05 2008-09 11.98 11 35.76 154

Table 5.19 Balance Sheet Characteristics of the GDCCB -A CAMEL Model (in Percentage) S.No Balance Sheet Indicators 2000-01 2004-05 2008-09 A 1 2 B 1 2 3 4 C 1 2 D 1 2 3 4 5 6 E 1 2 3 Capital Adequacy s: Capital Adequacy Net NPAs to Net Worth Asset Quality s: Government Securities to Total Investments Net NPAs to Net Advances Priority Sector Advances to Total Advances Asset Utilization Management Quality s: Profit Per Employee Productivity Per Employee Earnings s: Non Interest Income to Total Income Return on Assets Interest income to Total Assets Operating Profit to Working Funds Wages as % of Total Expenses Profit Margin Liquidity s: Government Securities to Total Assets Cash to Total Assets Total Investments to Total Assets 10.68* 53.71 -- 7.44 92.88 9.96 0.82Lakhs 122Lakhs 84.23 0.58 1.57 1.46 9.41 5.82 -- 4.05 11.98 Source:Audit Reports of the GDCCB Note:* Indicates 2006-07 data, ** Indicates 2007-08 data. 11.10** 152.22 11.32 38.78 98.21 9.59 0.44Lakhs 128Lakhs 79.88 0.23 1.93 1.12 9.51 2.42 1.25 3.55 11.00 19.22 20.29 3.46 9.35 92.38 11.23 0.75Lakhs 180Lakhs 78.49 0.31 2.42 1.63 12.05 2.77 1.24 3.35 35.76 155

5.4 Findings: According to the parameters indicated by NABARD, in the case of the GDCCB, the sum of the Bad&Doubtful Debts and Accumulated Losses has been below the 50 percent mark of the owned funds. It is evident from the analysis that the financial position of the GDCCB is better. As per the prudential norms, the banks being operated in India are required to achieve 9% CRAR. It shows that the GDCCB has well exceeded the stipulated level. Similarly, the CRAR was 10.68% in 2007-08 which has gone up and touched 20% mark in 2008-09. All this explains the strength of GDCCB in terms of sound capital base and its adequacy. Employee productivity of GDCCB, it can be stated that this is increased satisfactorily to 180 lakhs in 2008-09 when compared to the given previous years. By 2008-09 number of employees had decreased but the productivity ratio has shown increasing trend. The interest income of GDCCB has been increasing considerably. The growth was recorded as 24.82% in 2004-05 and increased by 26.08% in 2008-09. Interest income to total assets ratio is increasing slightly in the given period. GDCCB is still largely dependent upon interest earnings as major source of their income. 156

The staff expenses were increased slightly in 2004-05 and enormously increased by 48.78% in 2008-09. Total expenses also slightly increased in 2004-05 and increased by 17.48% in 2008-09.The ratio of wages of staff to total expenses has recorded considerable increase by 2008-09 with 12.05% which was 9.51% in 2004-05 and 9.41% in 2000-01. Profit Margin of GDCCB is recorded as 5.82% in 2000-01, reduced to 2.42% in 2004-05 and slightly increased to 2.77% in 2008-09. The profit margin of the GDCCB has increased significantly in the post liberlization era. Regarding the ratio of total investments to total assets it has fluctuating trend. It was 11.98% in 2000-01, decreased to 11% in 2004-05 and further greatly to 35.76% in 2008-09. It indicates that the liquidity position of GDCCB is in better position since there is greater enhancement in the value of total investments. 157