MANAGEMENT OF BANKS

DuPont Analysis (The South Indian Bank Ltd.)

MBA -N

Christ University Institute of Management

Under the guidance of

Prof Ramachandaran T S

Submitted by:
Students Name & Registration Numbers:
KASHISH ARORA 1528114
Trimester

-3

Year of Study

- 2015-17

Date of Submission

- 3 February 2016

ROE
It shows the amount of net income returned as a percentage of the shareholders
equity. It measures a company's profitability by revealing how much profit a
company generates with the money that the shareholders have invested.
Also ROE can be analysed by product of ROA and Equity Multiplier(EM). Where
ROA gives the idea about asset use efficiency. That is how efficiently the assets
of the banks are being taken into use to generate profit. And EM tells about the
financial leverage about the company. Higher the EM means more the companys
leverage.
South Indian Bank

ROA(%)
equity multiplier
ROE(%)

2015

2014

2013

2012

0.54
17.01851
852

0.97
17.1443
3

1.11
18.5135
1

1.1
19.6545
5

9.19

16.63

20.55

21.62

201
1

2010

1
18.5
2
18.5
2

1.02
16.6568
6

2011

2010

16.99

Banking private sector

2015

2014

ROA(%)

1.56

1.46

equity multiplier

8.46

8.54

ROE(%)

13.2

12.47

2013
1.55
8.57
13.29

2012
1.46

1.39

1.14

8.44

7.98

8.22

12.32 11.10

9.37

We can observe that ROE for SIB was 88% more than the market in 2010. Both
ROA and EM were more than the market. The trend continues till 2013, but after
that the bank started reducing its EM by reducing its outstanding debts. Also
ROA has followed same trend in growth, i.e. till 2013 it was growing and doing
well above market rate, but after 2013 it has decreased drastically. This is maybe
because although there is an increase in total assets but the increase in net
income year after year is not at the same pace as total assets. I.e. the interest
earned by the bank is not increasing at the same rate.

Asset Utilization
Income
Management
Ratio

2015

Interest Earned

5286.22

Other Income

497.07
5783.2
9
59116.3
2
57051.
145
0.10137
027

Total Income
Total Assets
Average Total
Assets
Ratio

2014
5015.
06
368.4
6
5383.
53
54985
.97
5239
0.5
0.102
758

2013
4434.
29
334.9
3
4769.
22
49795
.03
4508
2.55
0.105
789

2012
3583.
43
247.0
7
3830.
5
40370
.06
3659
5.14
0.104
672

2011
2446.
02
196.6
9
2642.
71
32820
.22
2917
7.13
0.090
575

2010
1935.72
208.46
2144.18
25534.04

The asset utilization ratio also tells the same trend about banks performance for
past five years. It has been growing from 2011 till 2013 at an average growth
rate of 13.12% but after 2013, it has a negative growth year after year. This is
because, as we can see an increase in the total income of the bank from 2013
has increase by 21.26%, but the average total assets has increased by faster
rate of 26.54%. That is why there is a decline in the ration after 2013

Expense Ratio
Total Expense
Average Total
Assets
Ratio
Efficiency Ratio
Non Interest
Expense
(Including
Provisions)
Total Income
Interest Expense
Ratio
Burden
Non Interest
Income

Cost Management
2015
2014
2013
2012
2011
5315.35 4654.59 4113.36 3258.15 2197.21
45082.5 36595.1 29177.1
57051.145 52390.5
5
4
3
0.0931681 0.08884 0.09124 0.08903 0.07530
56
4
1
2
6

1556.1 1259.74 1113.49

867.15

695.23

5783.29 5383.53 4769.22

3830.5 2642.71
3919.99 3616.29 3153.46 2561.69 1654.92
0.8351312 0.71282 0.68914 0.68343 0.70382
19
9
3
6
4

497.07

368.46

334.93

247.07

196.69

Operating
Expense
Average Total
Assets
Amount

981.3

882.89

767.17
617.29
462.53
45082.5 36595.1 29177.1
57051.145 52390.5
5
4
3
-484.23 -514.43 -432.24 -370.22 -265.84

Expense Ratio shows the efficiency of the company to minimise the cost. It is a
ratio of total expense to average total assets. It tells the total expenses of a
company as a percentage of the total assets.
The Lower the ratio, the better is the company. We can see that there is a
gradual increase in the expense ratio. This is because assets and cost on those
assets have increase gradually during the tenor.
Efficiency Ratio measures the banks overheads as a percentage of its revenue.
So the bank had done well in maintaining the efficiency. In fact from 2010
efficiency has increased 18.65%.

Gross NPA

NPA Analysis
2015
2014
643.45
432.62

2013
433.87
31902.2
1

2012
267.16
27542.2
7

2011
230.34
20751.3
5

0.97
76.51
27325

1.11
60.02
20696.5
5

0.29
158.41
0.68772
2

Gross Advances
Gross NPAs to Gross
Advances (%)
Net NPA

37628.65497

36354.62

1.71
357.05

1.19
281.67

Net Advances
Net NPAs (funded) to Net
Advances (%)
Provision held for NPAs

37192.70833

36111.54

1.36
249.53
31991.0
3

0.96
259.76

0.78
131.9

0.78
164.22

Provision coverage Ratio

Gross NPAs recovered during the
year
Gross NPAs at the beginning of
the year

0.403698811

0.304887

0.3785

0.28
176.81
0.66181
3

289.12

629.67

363.35

134.69

87.17

432.62

433.87

Recovery Ratio
Fresh accretions to NPAs

0.668300125
499.95

1.451287
628.42

Standard Assets

36985.20497

35922

0.013517567
108.53

0.017494
246.94

Write Off Ratio

0.250866812

0.569157

230.34
0.58474
4
171.51
27275.1
1
0.00628
8
65.9
0.28609
9

211
0.41312
8
106.51
20521.0
1

Slippage Ratio
NPA written off during the year

267.16
1.36004
6
530.06
31468.3
4
0.01684
4
219.5
0.82160
5

0.00519
33.34
0.15800
9

Gross NPAs Ratio are the sum total of all loan assets that are classified as NPAs
as per RBI guidelines. It reflects the quality of the loans made by banks. It
consists of all the nonstandard assets like as sub-standard, doubtful, and loss
assets. It is the ratio of gross NPAs and the gross advance.
Net NPAs Ratio are those type of NPAs in which the bank has deducted the
provision regarding NPAs. Net NPA shows the actual burden of banks. Since in
India, bank balance sheets contain a huge amount of NPAs and the process of
recovery and write off of loans is very time consuming, the provisions the banks
have to make against the NPAs according to the central bank guidelines, are
quite significant.
Both the ratios have increase during the 5 year tenor. This is because there is
more lending by the bank year after year, and recovery of loans is not 100%. In
fact recovery efficiency decreased.
Provision Coverage Ratio is the ratio of provision to gross NPAs. Its the
reserves, a bank keeps with itself, to pay up against the obligation when
expected NPAs becomes Net NPAs. The more is the ratio, the better it is for the
bank. There is a decline of 41.3% in ratio from 2011 to 2015. This is because the
gross NPAs have increased 180% during the tenor, and the provisions are almost
the same.
Recovery Ratio is the ratio of gross NPA recovered during the year and NPA at
the beginning of the year. It tells about how efficiently the NPAs have been
turned over during the year. Higher the ratio, better it is for the bank. The history
of SIB for recovery ratio has been good. Its still early to comment on it.
Write off ratio is the ratio of NPAs written off during the year to the NPAs during
opening of the year. The lesser the value, means lesser number of gross NPAs
have become bad debt. Company has managed to control its write off ratio in
last year.

Interest earned on advances

Advances
Average advances
Return on Advances Ratio
Interest earned on investments
Investments
Average investments

SPREAD ANALYSIS
4152.967
6
3949.736
37391.63
67
36229.86
36810.74
65
34022.7
0.112819
434
0.116091
1053.729
16717.16
29
15534.46

954.4815
14351.78
13437.62

3575.9
4
31815.
54
29548.
14
0.1210
21
746.38
93
12523.
47
10961.

2868.0
78
27280.
74
23884.
73
0.1200
8
621.10
58
9399.8
74
9161.8

1930.0
2
20488.
73
18155.
83
0.1063
03
481.51
32
8923.7
72
8039.6

15822.
92

7155.6
13

Return on Investments Ratio

Return on Funds
(Return on Advances + Return on
Investments)
Interest
paid on
deposits
2800.855

95
0.067831
669
0.103714
83

Deposits
Cost of Deposits
Interest paid on borrowings

Cost of Borrowings
Cost of Funds
(Cost of Deposits + Cost of
Borrowings)

Spread
( Return on Funds - Cost of
Funds )
Net Interest Income

Net Interest Margin

23
0.0677
93

92
0.0598
92

0.107321
295

0.1118
81

0.1107
72

0.0970
36

2587.583

1916.604
44262
4749109
30
0.0005
0.000545
4
9339
1869
12845
273078
5

1206.427
36500
29721
53
08
0.0005 0.0004
25
06
1770
832

2390.269

248162.5
0.048774
493

200766.5
0.046517

93637
0.0199
6

43927
0.0402
94

29035
31065.
5
0.0267
82

0.048176
835

0.046085
202

0.0196
05

0.0390
39

0.0257
3

5191249
0.000539
534
12104

Borrowings
Average borrowings

0.071031

67
0.0680
91

223247

33
58819

5.554%

6.124%

9.228
%

7.173
%

7.131
%

1352.1126

1362.153

1185.6
71

951.47
41

723.59
3

2.37%

2.60%

2.63%

2.60%

2.48%

Spread (or Net Interest Rate Spread)

The difference between the average yields a financial institution receives from
loans and other interest-accruing activities and the average rate it pays on
deposits and borrowings. The spread is a key determinant of a financial
institution's profitability (or lack thereof).
The more the difference in positive, better is the profitability of the bank. The
bank did well in tenor from 2011 till 2013. It increased by 29.4% as compared to
2011.this is because the cost of borrowing was low throughout those three years.
If we see 2014 & 2015, there was a sharp decline of 39.8% from 2013. This was

maybe due to a sharp increase in borrowings by the bank. More than twice the
amount of borrowings has been observed after year 2013.

CONCLUSION
The South Indian Bank performed really well in years 2011-2014. The bank did
well in Return on Equity as well as spread. But from 2014-15, there has been
observed a decrease in revenue generation and also ROE and ROA. All the
reasons are discussed above with each topic. Also the NPAs analysis showed that
though there was increase in net NPAs, but there was also increase in recovery of
gross NPAs throughout the tenor of five years. So there is no doubt that bank is
not performing up to the level it has performed in the past. Neither it is achieving
the market growth rate from the past two years.