PERFORMANCE APPRAISAL OF

STATE BANK OF INDIA

Submitted by:
Bindu Bothra(11MFC030)
Alina Sarma(11MFC025)
Under the guidance of:
Prof. Samson Moharana
Senior Professor in Finance,
P.G Department of Commerce
Utkal University

MASTER OF FINANCE & CONTROL

P.G. DEPARTMENT OF COMMERCE
UTKAL UNIVERSIT, VANIVIHAR
BHUBANESWAR
(2011-2013)

SBI AT A QUICK GLANCE

LARGEST COMMERCIAL BANK OF
INDIA
HAVING HIGHEST NO. OF
BRANCHES AND ATMS IN
INDIA(BRANCHES-19347 & ATM25,005)
HAVING HIGHEST NO. OF FOREIGN
BRANCHES (156)
HIGHEST AMOUNT OF CAA
DEPOSITS (48.66%)
PROVIDINGA WIDE RANGE OF
PRODUCTS AND SERVICES

AIMING HIGH ON STRONG

FOUNDations

DECLARATION
We hereby declare that the work presented in this Project entitled
Performance appraisal of SBI submitted to Prof. Samson Moharana
(Senior Professor in Finance), at Department of Commerce, Utkal
University, Bhubaneswar is an authentic record of our original work.

Signature of the Mentor:

Date:

Signature of the Candidate:

Bindu Bothra
Alina Sharma

ACKNOWLEDGEMENT
The satisfaction and joy that accompanies the successful completion
of a task is incomplete without mentioning the name of the person who
extended his help and support in making it a success.
We are greatly indebted to Prof. Samson Moharana (Senior
Professor in Finance), at Department of Commerce, Utkal
University, Bhubaneswar for devoting his valuable time and efforts
towards our project. We thank him for being a constant source of
knowledge, inspiration and help for successfully making this project.
Finally, we thank all those who have directly or indirectly helped us
in our project. We express our profound thanks to our teachers as well as
friends who are the constant source of encouragement for us.

CONTENTS

CERTIFICATE
DECLARATION
ACKNOWLEDGEMENT
EXECUTIVE SUMMARY
SL.NO
CHAPTER 1:

INTRODUCTION
STATEMENT OF PROBLEM:
OBJECTIVE OF STUDY:
RESEARCH METHODOLOGY:
LIMITATIONS OF STUDY

CHAPTER 2:

THE BANKING REFORMS & BASEL II ACCORD

CHAPTER 3:

COMPANY PROFILE
STATE BANK OF INDIA

CHAPTER 4:

CAMELS FRAMEWORK
THE CAMELS FRAMEWORK
CAPITAL ADEQUACY
ASSET MANAGEMENT
MANAGEMENT SOUNDNESS
EARNINGS & PROFITABILITY
LIQUIDITY
SENSITIVITY TO MARKET RISK

CHAPTER 5:

DATAANALYSIS & INTERPRETATIONCHAPTER

CHAPTER 6:

SUGGESTIONS & CONCLUSION

BIBLIOGRAPHY

LISTS OF TABLES & GRAPH:-

TABLES:a) Debt Equity Ratio

b) Total Advance to Total Asset Ratio
c) Government Securities to Total Investments
d) Gross NPA ratio
e) Net NPA ratio
f) Total Advance to Total Deposit Ratio
g) Business per Employee
h) Profit per Employee
i) Return on Asset
j) Operating Profit by Average Working Fund
k) Net Profit to Average Asset
l) Interest Income to Total Income
m) Other Income to Total Income
n) Liquidity Asset to Total Asset
o) Government Securities to Total Asset
p) Approved Securities to Total Asset
q) Liquidity Asset to Demand Deposit
r) Liquidity Asset to Total Deposit
GRAPHS:1. Debt Equity Ratio
2. Total Advance to Total Asset Ratio
3. Government Securities to Total Investments
4. Net NPA ratio
5. Total Advance to Total Deposit Ratio
6. Business per Employee
7. Profit per Employee
8. Return on Asset
9. Operating Profit by Average Working Fund
10.Net Profit to Average Asset
11.Interest Income to Total Income
12.Other Income to Total Income
13.Liquidity Asset to Total Asset
14.Government Securities to Total Asset
15.Approved Securities to Total Asset
16.Liquidity Asset to Demand Deposit
17.Liquidity Asset to Total Deposit

EXECUTIVE SUMMARY

Due to the nature of banking and the important role of banks in the economy
in capital formation, banks should be more closely watched than any other types of
economic unit in the economy.
Indian banking system has transformed in recent years due to globalization
in the world market, which has resulted in fierce competition. Banking sector is
one of the fastest growing sectors in India. Todays banking sector becoming more
complex. Evaluating Indian banking sector is not an easy task. There are so many
factors, which need to be taken care while differentiating good banks from bad
ones.
To evaluate the performance of banking sector we have chosen the CAMEL
model which measures the performance of banks from each of the important
parameter like Capital Adequacy, Assets Quality, Management Efficiency, Earning
Quality and Liquidity. The CAMEL supervisory improvement over the earlier
system in terms of frequency, coverage and focus. In the present study an attempt
is made to evaluate relative performance of banks using CAMEL approach. Each
parameter of CAMELCapital Adequacy, Asset Quality, Management Quality,
Earning Quality and Liquidity has been evaluated taking various ratios.

CHAPTER -1
INTRODUCTION OF
BANKING SECTOR

Introduction
The Indian banking sector performed better in 2010-11 over the previous
year despite the challenging operational environment. The banking business of
Scheduled Commercial Banks (SCBs) recorded higher growth in 2010-11 as
compared with their performance during the last few years. Credit grew at 22.9 per

cent and deposits grew at 18.3 per cent in 2010-11 over the previous year.
Accordingly, the outstanding credit-deposit ratio of SCBs increased to 76.5 per
cent in 2010-11 as compared with 73.6 per cent in the previous year. Despite the
growing pressures on margins owing to higher interest rate environment, the return
on assets (RoA) of SCBs improved to 1.10 per cent in 2010- 11 from 1.05 per cent
in 2009-10. The capital to risk weighted assets ratio under both Basel I and II
frameworks at 13.0 per cent and 14.2 per cent, respectively in 2010-11 remained
well above the required minimum of 9 per cent. The gross NPAs to gross advances
ratio declined to 2.25 per cent in 2010-11 from 2.39 per cent in 2009-10,
displaying improvement in asset quality of the banking sector. Though there was
improvement in the penetration of banking services in 2010-11 over the previous
year, the extent of financial exclusion continued to be staggering. The number of
complaints received at the Banking Ombudsman offices witnessed decline in
2010-11 over the previous year.

THE BANK
The word bank means an organization where people and business can invest or
borrow money; change it to foreign currency etc. According to Halsbury A
Banker is an individual, Partnership or Corporation whose sole pre-dominant
business is banking, that is the receipt of money on current or deposit account, and
the payment of cheque drawn and the collection of cheque paid in by a customer.

The Origin and Use of Banks

The Word Bank is derived from the Italian word Banko signifying a bench,
which was erected in the market-place, where it was customary to exchange money.
The Lombard Jews were the first to practice this exchange business, the first bench
having been established in Italy A.D. 808. Some authorities assert that the Lombard
merchants commenced the business of money-dealing, employing bills of exchange
as remittances, about the beginning of the thirteenth century. About the middle of
the twelfth century it became evident, as the advantage of coined money was
gradually acknowledged, that there must be some controlling power, some
corporation which would undertake to keep the coins that were to bear the royal
stamp up to a certain standard of value; as, independently of the sweating which
invention may place to the credit of the ingenuity of the Lombard merchants- all
coins will, by wear or abrasion, become thinner, and consequently less valuable; and
it is of the last importance, not only for the credit of a country, but for the easier
regulation of commercial transactions, that the metallic currency be kept as nearly
as possible up to the legal standard. Much unnecessary trouble and annoyance has
been caused formerly by negligence in this respect. The gradual merging of the

business of a goldsmith into a bank appears to have been the way in which banking,
as we now understand the term, was introduced into England; and it was not until
long after the establishment of banks in other countries-for state purposes, the
regulation of the coinage, etc. that any large or similar institution was introduced
into England. It is only within the last twenty years that printed cheques have been
in use in that establishment. First commercial bank was Bank of Venice which was
established in 1157 in Italy.
STATEMENT OF PROBLEM:
The study is conducted to analyse state Bank of India on the basis of CAMELS
model.
OBJECTIVE OF STUDY:
To evaluate the strength of State Bank of India by using CAMELS model
technique.
RESEARCH METHODOLOGY:
DATA SOURCE:
Primary Data: Primary data was collected from the company balance sheets
and company profit and loss statements
Secondary Data: Secondary data on the subject was collected from Business
journals, Newspaper, company prospectus, company annual reports and RBI
websites.
To achieve our objective we have calculated ratios as per CAMEL
Framework:

LIMITATIONS OF STUDY
1. Time and resources constraints.
2. The study was completely done on the basis of ratios calculated from the
balance sheets.
3. It has not been possible to get a personal interview with the top management
employees of State bank of Bank.

4. It has not been possible to get sensitive real data on actual CAMELS
analysis performed by the RBI on State bank of India.

CHAPTER-2
BANKING Reforms
& basel accord

THE BANKING REFORMS

In 1991, the Indian economy went through a process of economic liberalization,
which was followed up by the initiation of fundamental reforms in the banking
sector in 1992. The banking reform package was based on the recommendations
proposed by the Narasimham Committee Report (1991) that advocated a move to a
more market oriented banking system, which would operate in an environment of
prudential regulation and transparent accounting. One of the primary motives
behind this drive was to introduce an element of market discipline into the
regulatory process that would reinforce the supervisory effort of the Reserve Bank

of India (RBI). Market discipline, especially in the financial liberalization phase,

reinforces regulatory and supervisory efforts and provides a strong incentive to
banks to conduct their business in a prudent and efficient manner and to maintain
adequate capital as a cushion against risk exposures. Recognizing that the success
of economic reforms was contingent on the success of financial sector reform as
well, the government initiated a fundamental banking sector reform package in
1992.
Banking sector, the world over, is known for the adoption of
multidimensional strategies from time to time with varying degrees of success.
Banks are very important for the smooth functioning of financial markets as they
serve as repositories of vital financial information and can potentially alleviate the
problems created by information asymmetries. From a central banks perspective,
such high-quality disclosures help the early detection of problems faced by banks
in the market and reduce the severity of market disruptions. Consequently, the RBI
as part and parcel of the financial sector deregulation, attempted to enhance the
transparency of the annual reports of Indian banks by, among other things,
introducing stricter income recognition and asset classification rules, enhancing
the capital adequacy norms, and by requiring a number of additional disclosures
sought by investors to make better cash flow and risk assessments. During the pre
economic reforms period, commercial banks & development financial institutions
were functioning distinctly, the former specializing in short & medium term
financing, while the latter on long term lending & project financing. Commercial
banks were accessing short term low cost funds thru savings investments like
current accounts, savings bank accounts & short duration fixed deposits, besides
collection float. Development Financial Institutions (DFIs) on the other hand, were
essentially depending on budget allocations for long term lending at a
concessionary rate of interest. The scenario has changed radically during the post
reforms period, with the resolve of the government not to fund the DFIs through
budget allocations. DFIs like IDBI, IFCI & ICICI had posted dismal financial
results. Infect, their very viability has become a question mark. Now, they have
taken the route of reverse merger with IDBI bank & ICICI bank thus converting
them into the universal banking system.

BASEL - II ACCORD

Bank capital framework sponsored by the world's central banks designed to

promote uniformity, make regulatory capital more risk sensitive, and promote
enhanced risk management among large, internationally active banking
organizations. The International Capital Accord, as it is called, will be fully
effective by January 2008 for banks active in international markets. Other banks
can choose to "opt in," or they can continue to follow the minimum capital
guidelines in the original Basel Accord, finalized in 1988. The revised accord
(Basel II) completely overhauls the 1988 Basel Accord and is based on three
mutually supporting concepts, or "pillars," of capital adequacy. The first of these

pillars is an explicitly defined regulatory capital requirement, a minimum capitalto-asset ratio equal to at least 8% of risk-weighted assets. Second, bank
supervisory agencies, such as the Comptroller of the Currency, have authority to
adjust capital levels for individual banks above the 9% minimum when necessary.
The third supporting pillar calls upon market discipline to supplement reviews by
banking agencies. Basel II is the second of the Basel Accords, which are
recommendations on banking laws and regulations issued by the Basel Committee
on Banking Supervision. The purpose of Basel II, which was initially published in
June 2004, is to create an international standard that banking regulators can use
when creating regulations about how much capital banks need to put aside to guard
against the types of financial and operational risks banks face.
Advocates of Basel II believe that such an international standard can help
protect the international financial system from the types of problems that might
arise should a major bank or a series of banks collapse. In practice, Basel II
attempts to accomplish this by setting up rigorous risk and capital management
requirements designed to ensure that a bank holds capital reserves appropriate to
the risk the bank exposes itself to through its lending and investment practices.
Generally speaking, these rules mean that the greater risk to which the bank is
exposed, the greater the amount of capital the bank needs to hold to safeguard its
solvency and overall economic stability.
The final version aims at:
1. Ensuring that capital allocation is more risk sensitive;
2. Separating operational risk from credit risk, and quantifying both;
3. Attempting to align economic and regulatory capital more closely to reduce the
scope for regulatory arbitrage. While the final accord has largely addressed the
regulatory arbitrage issue, there are still areas where regulatory capital
requirements will diverge from the economic. Basel II has largely left unchanged
the question of how to actually define bank capital, which diverges from
accounting equity in important respects. The Basel I definition, as modified up to
the present, remains in place.
The Accord in operation
Basel II uses a "three pillars" concept
(1) Minimum capital requirements (addressing risk),
(2) Supervisory review and
(3) Market discipline to promote greater stability in the financial system.
The Basel I accord dealt with only parts of each of these pillars. For example: with
respect to the first Basel II pillar, only one risk, credit risk, was dealt with in a
simple manner while market risk was an afterthought; operational risk was not
dealt with at all.

1. The First Pillar

The first pillar deals with maintenance of regulatory capital calculated for
three major components of risk that a bank faces: credit risk, operational risk and
market risk. Other risks are not considered fully quantifiable at this stage. The
credit risk component can be calculated in three different ways of varying degree
of sophistication, namely standardized approach, Foundation IRB and Advanced
IRB. IRB stands for "Internal Rating-Based Approach". For operational risk, there
are three different approaches - basic indicator approach, standardized approach
and advanced measurement approach. For market risk the preferred approach is
VaR (value at risk). As the Basel II recommendations are phased in by the banking
industry it will move from standardized requirements to more refined and specific
requirements that have been developed for each risk category by each individual
bank. The upside for banks that do develop their own bespoke risk measurement
systems is that they will be rewarded with potentially lower risk capital
requirements. In future there will be closer links between the concepts of economic
profit and regulatory capital. Credit Risk can be calculated by using:1. Standardized Approach
2. Foundation IRB (Internal Ratings Based) Approach
3. Advanced IRB Approach
The standardized approach sets out specific risk weights for certain types of
credit risk. The standard risk weight categories are used under Basel 1 and are 0%
for short term government bonds, 20% for exposures to OECD Banks, 50% for
residential mortgages and 100% weighting on commercial loans. A new 150%
rating comes in for borrowers with poor credit ratings. The minimum capital
requirement (the percentage of risk weighted assets to be held as capital) has
remains at 8%.

For those Banks that decide to adopt the standardized ratings approach they
will be forced to rely on the ratings generated by external agencies. Certain Banks
are developing the IRB approach as a result.
2. The Second Pillar
The second pillar deals with the regulatory response to the first pillar, giving
regulators much improved 'tools' over those available to them under Basel I. It also
provides a framework for dealing with all the other risks a bank may face, such as
systemic risk, pension risk, concentration risk, strategic risk, reputation risk,
liquidity risk and legal risk, which the accord combines under the title of residual
risk. It gives banks a power to review their risk management system.
3. The Third Pillar
The third pillar greatly increases the disclosures that the bank must make.
This is designed to allow the market to have a better picture of the overall risk
position of the bank and to allow the counterparties of the bank to price and deal
appropriately. The new Basel Accord has its foundation on three mutually
reinforcing pillars that allow banks and bank supervisors to evaluate properly the
various risks that banks face and realign regulatory capital more closely with
underlying risks. The first pillar is compatible with the credit risk, market risk and
operational risk. The regulatory capital will be focused on these three risks. The
second pillar gives the bank responsibility to exercise the best ways to manage the
risk specific to that bank. Concurrently, it also casts responsibility on the
supervisors to review and validate banks risk measurement models. The third
pillar on market discipline is used to leverage the influence that other market
players can bring. This is aimed at improving the transparency in banks and
improves reporting.

CHAPTER-3
COMPANY PROFILE

Company Profile
The State Bank of India, the countrys oldest Bank and a premier in terms of
balance sheet size, number of branches, market capitalization and profits is today
going through a momentous phase of Change and Transformation the two
hundred year old Public sector behemoth is today stirring out of its Public Sector
legacy and moving with an ability to give the Private and Foreign Banks a run for
their money.
The bank is entering into many new businesses with strategic tie ups
Pension Funds, General Insurance, Custodial Services, Private Equity, Mobile
Banking, Point of Sale Merchant Acquisition, Advisory Services, structured
products etc each one of these initiatives having a huge potential for growth.

The Bank is forging ahead with cutting edge technology and innovative new
banking models, to expand its Rural Banking base, looking at the vast untapped
potential in the hinterland and proposes to cover 100,000 villages in the next two
years.
It is also focusing at the top end of the market, on whole sale banking
capabilities to provide Indias growing mid / large Corporate with a complete array
of products and services. It is consolidating its global treasury operations and
entering into structured products and derivative instruments. Today, the Bank is the
largest provider of infrastructure debt and the largest arranger of external
commercial borrowings in the country. It is the only Indian bank to feature in the
Fortune 500 list.
The Bank is changing outdated front and back end processes to modern
customer friendly processes to help improve the total customer experience. With
about 8500 of its own 10000 branches and another 5100 branches of its Associate
Banks already networked, today it offers the largest banking network to the Indian
customer. The Bank is also in the process of providing complete payment solution
to its clientele with its over 21000 ATMs, and other electronic channels such as
Internet banking, debit cards, mobile banking, etc.
With four national level Apex Training Colleges and 54 learning Centres
spread all over the country the Bank is continuously engaged in skill enhancement
of its employees. Some of the training programes are attended by bankers from
banks in other countries.
The bank is also looking at opportunities to grow in size in India as well as
Internationally. It presently has 82 foreign offices in 32 countries across the globe.
It has also 7 Subsidiaries in India SBI Capital Markets, SBICAP Securities, SBI
DFHI, SBI Factors, SBI Life and SBI Cards - forming a formidable group in the
Indian Banking scenario. It is in the process of raising capital for its growth and
also consolidating its various holdings.
Throughout all this change, the Bank is also attempting to change old
mindsets, attitudes and take all employees together on this exciting road to
Transformation. In a recently concluded mass internal communication programme
termed Parivartan the Bank rolled out over 3300 two day workshops across the
country and covered over 130,000 employees in a period of 100 days using about
400 Trainers, to drive home the message of Change and inclusiveness. The
workshops fired the imagination of the employees with some other banks
in India as well as other Public Sector Organizations seeking to emulate the
programme.

The CNN IBN, Network 18 recognized this momentous transformation

journey, the State Bank of India is undertaking, and has awarded the prestigious
Indian of the Year Business, to its Chairman, Mr. O. P. Bhatt in January 2008.
The elephant has indeed started to dance.
The origin of the State Bank of India goes back to the first decade of the
nineteenth century with the establishment of the Bank of Calcutta in Calcutta on 2
June 1806. Three years later the bank received its charter and was re-designed as
the Bank of Bengal (2 January 1809 ). A unique institution, it was the first jointstock bank of British India sponsored by the Government of Bengal. The Bank of
Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the Bank
of Bengal. These three banks remained at the apex of modern banking in India till
their amalgamation as the Imperial Bank of India on 27 January 1921.
Primarily Anglo-Indian creations, the three presidency banks came into
existence either as a result of the compulsions of imperial finance or by the felt
needs of local European commerce and were not imposed from outside in an
arbitrary manner to modernise India's economy. Their evolution was, however,
shaped by ideas culled from similar developments in Europe and England, and was
influenced by changes occurring in the structure of both the local trading
environment and those in the relations of the Indian economy to the economy of
Europe and the global economic framework.

SWOT ANALYSIS OF SBI

STRENGTHS: It is the largest bank of India in terms of market share, revenue & asset.
As per recent data the bank has more than outlets & ATM centers.
It has its presence in 32 countries engaging currency trade all over the
world.
The bank has merged with Stata Bank of Saurashtra, State Bank of Indore
and the bank is planning to go further acquisition in current FY-2012
It has the first mover advantage in commercial banking services
SBI has recently Changed its vision & mission statement showing sign up
inclination towards new age banking services

 It has a powerful brand name over the country & overseas. It became the
synonymous for banking in rural area.
SBI has a portfolio of product and services. It succeeded in cross selling of
its product and services.
All the branches of SBI has core banking which enable the customer to bank
anywhere same as local bank.

Weakness: Lack of proper technology driven services when compared to private banks.
Employees show reluctance to solve issues quickly due to higher job
security and customers waiting period is long when compared to private
banks.
The banks spends a huge amount on its rented buildings.
SBI has the largest number of employees in banking sector, hence the bank
spends a considerable amount of its income in employees salary
compensation.
In spite of modernization, the bank still carries the perception of traditional
bank to new age customers.
SBI fails to attract salary accounts of corporate and many government sector
employees salary accounts are also shifted to private bank for ease of
operations unlike before.
It is fully computerized but lack of computer efficiency made the banking
very slow.
NPA in credit card is more.
Resistance from employees and trade union against merger of associate
bank.

Opportunities: SBIs merger with five more banks namely State Bank of Hydrabad, State
bank of Patiala, State bank of Bikaner and Jaipur, State of bank of
Travancore and State bank of Mysore are in approval stage

 Mergers will result in expansion of market share to defend its number one
position
SBI is planning to expand and invest in international operations due to good
inflow of money from Asian Market
Since the bank is yet to modernize few of its banking operations, there is a
better scope of using advanced technologies and software to improve
customer relations
Young and talented pool of graduates and B schools are in rise to open new
horizon to so called old government bank

Threats: Net profit of the year has decline from 9166.05 in the year FY 2010 to
7,370.35 in the year FY2011
This shows the reduce in market share to its close competitor ICICI
Other private banks like HDFC, AXIS bank etc
FDIs allowed in banking sector is increased to 49% , this is a major threat to
SBI as people tend to switch to foreign banks for better facilities and
technologies in banking service
Other government banks like PNB, Andhra, Allahabad bank and Indian bank
are showing
Customer prefer to switch to private banks and financial service providers for
loans and mortgages, as SBI involves stringent verification procedures and
take long time for processing

BUDGET HIGHLIGHTS:-

 The government is committed to protect the financial health of PSB for

FY2012-13.
Govt. is proposed to provide 15888cr for capitalization of PSB.
Govt. is also examining the possibility of creating a financial holding
company to meet the capital requirement of PSB.
It has proposed to raise the target for agricultural credit to 575000 cr. this
move will increase the NPA of PSB.
FM proposed to enhance the additional subvention to 3%, it will be negative
for PSB in terms of NIM.
FM has made interest income up to Rs.10,000 from a saving bank account
exempted from tax, it will boost to mobilize the low cost deposit and
provide another attraction to draw customer.
Signal on interest rates.

HIGH LIGHT OF SBI Q3 RESULTS: SBI has reported a slippage of Rs.8,161 & 85% rising in provisioning.
Provision amount Rs.1200cr has set aside for Kingfisher (bad loan).
What is more ironical is kingfisher has become NPA even after debt recast
in 2010 for around Rs.7000 cr.
Other contributor to this slippage are iron ore & steel, sugar, textile, plastic.
Segment wise large corporate account for Rs.4,000cr., SME for Rs.21,00cr.,
agriculture loan Rs.1,100cr., retail Rs.400 cr. & Rs.600 from international
operation.
The gross NPA of bank touched a record 40,0098 crore.
Despite of massive provisioning the bank beat market & analyst forecast
Its net profit rise at Rs.3,263crore on higher interest income and margin.
Chairman Pratip Chaudhuri says NPA have plateaued.

 DOWNGRADATION OF SBI
SBI was downgraded to D+ from C- , citing capital constraint quality and
quantity of assets in Octobert, 2011.
After this Bankex lost 22.93% & benchmark sensex fell 17.55%.
HDFC bank Ltd. Topped the chart in terms of market capitalisation.
Its market capitalisation has dropped 36.64% and wealth eroded by 65000
cr.
O.P. Bhatt who was helm for 5 years in his passion for regaining & market
tried to expand its loan book & mopped up deposit at high cost.
Some of these loans turned bad and slow down in economy worsened the
scenario further.

SOME RECENT STEPS TAKEN BY SBI:

IT has launched a one time settelement scheme for recovering bad loan in
MSME borrower.
IT has cut the interest rate on education loan 25-100bps
It has increased interest rate to 8% on deposit across various maturity below
one year.
It has plan to open around 100 branches in abroad in Nepal, Singapore,
Australia, U.S.A & Britain.
It has raised retail deposit rate by 25-100 bps.

 CHALLENGES AHEAD:
In a path of global banking, There are so many challenges which are as
follows:
Higher capital requirement to meet basal- 3 target.
Slowdown in economy due to high interest & inflation
May face significant head winds due to tighter margin dip in credit growth.
Mounting pressure due to exposure to sensitive sector like power, aviation,
textile, telecom.
Volatility of rupee may lead to further tightening of liquidity.
High chances of corporate debt restructuring.
Impose of pre-condition before capital infusion as it is invested Rs.1000
crore in life insurance business and providing para banking activities.
Monitoring of RBI its global operation as it has expand its global operation.
Quality of human capital will be the single most important defining factor as
80% of general maneger,65% of DGM, 58% OF AGM &44% OF CM
would be retiring.
Liquidity deficit in banking sector.

CHAPTER-4
CAMEL FRAMEWORK

The CAMELS FRAMEWORK

Sound financial health of the bank is the guarantee not only its depositors but is equally
significant for the shareholders, employees, as well as the whole economy. As a sequel to the
maxim, efforts have been made from time to time, to measure the financial position of each bank
and mange it efficiently and effectively. The latest CAMEL Model is used to apprise the financial
performance of the banks.
During an on-site bank exam, supervisors gather private information, such as
details on problem loans, with which to evaluate a bank's financial condition and
to monitor its compliance with laws and regulatory policies. A key product of such
an exam is a supervisory rating of the bank's overall condition, commonly referred
to as a CAMELS rating. The acronym "CAMEL" refers to the five components of
a bank's condition that are assessed:
Capital adequacy,
Asset quality,
Management,
Earnings, and
Liquidity
A sixth component, a bank's Sensitivity to market risk, was added in 1997;
hence the acronym was changed to CAMELS. CAMELS is basically a ratio-based
model for evaluating the performance of banks. Various ratios forming this model
are explained below:
1. C- Capital Adequacy:
Capital base of financial institutions facilitates depositors in forming their
risk perception about the institutions. Also, it is the key parameter for financial
managers to maintain adequate levels of capitalization. Moreover, besides
absorbing unanticipated shocks, it signals that the institution will continue to
honour its obligations. The most widely used indicator of capital adequacy is
capital to risk-weighted assets ratio (CRWA). According to Bank Supervision
Regulation Committee (The Basle Committee) of Bank for International
Settlements, a minimum 9 percent CRWA is required.
Capital adequacy ultimately determines how well financial institutions can
cope with shocks to their balance sheets. Thus, it is useful to track capitaladequacy ratios that take into account the most important financial risksforeign
exchange, credit, and interest rate risksby assigning risk weightings to the
institutions assets. A sound capital base strengthens confidence of depositors. This
ratio is used to protect depositors and promote the stability and efficiency of
financial systems around the world. The following ratios measure capital
adequacy:
s) Capital Risk Adequacy Ratio:

CRAR is a ratio of Capital Fund to Risk Weighted Assets. Reserve Bank of

India prescribes Banks to maintain a minimum Capital to risk-weighted Assets
Ratio (CRAR) of 9 % with regard to credit risk, market risk and operational risk
on an ongoing basis, as against 8 % prescribed in Basel documents.
Total capital includes tier-I capital and Tier-II capital. Tier-I capital includes
paid up equity capital, free reserves, intangible assets etc. Tier-II capital includes
long term unsecured loans, loss reserves, hybrid debt capital instruments etc. The
higher the CRAR, the stronger is considered a bank, as it ensures high safety
against bankruptcy.
CRAR = Capital/ Total Risk Weighted Credit Exposure
t) Debt Equity Ratio:
This ratio indicates the degree of leverage of a bank. It indicates how much of
the bank business is financed through debt and how much through equity. This is
calculated as the proportion of total asset liability to net worth. Outside liability
includes total borrowing, deposits and other liabilities. Net worth includes equity
capital and reserve and surplus. Higher the ratio indicates less protection for the
creditors and depositors in the banking system.
Borrowings/ (Share Capital + reserves)
u) Total Advance to Total Asset Ratio:
This is the ratio of the total advanced to total asset. This ratio indicates banks
aggressiveness in lending which ultimately results in better profitability. Higher
ratio of advances of bank deposits (assets) is preferred to a lower one. Total
advances also include receivables. The value of total assets is excluding the
revolution of all the assets.
Total Advances/ Total Asset
v) Government Securities to Total Investments:
The percentage of investment in government securities to total investment is a
very important indicator, which shows the risk taking ability of the bank. It
indicates a banks strategy as being high profit high risk or low profit low risk. It
also gives a view as to the availability of alternative investment opportunities.
Government securities are generally considered as the most safe debt instrument,
which, as a result, carries the lowest return. Since government securities are risk
free, the higher the government security to investment ratio, the lower the risk
involved in a banks investments.

Government Securities/ Total Investment

2. A Asset Quality:
Asset quality determines the healthiness of financial institutions against loss of
value in the assets. The weakening value of assets, being prime source of banking
problems, directly pour into other areas, as losses are eventually written-off against
capital, which ultimately expose the earning capacity of the institution. With this
backdrop, the asset quality is gauged in relation to the level and severity of nonperforming assets, adequacy of provisions, recoveries, distribution of assets etc.
Popular indicators include nonperforming loans to advances, loan default to total
advances, and recoveries to loan default ratios.
The solvency of financial institutions typically is at risk when their assets
become impaired, so it is important to monitor indicators of the quality of their
assets in terms of overexposure to specific risks, trends in nonperforming loans,
and the health and profitability of bank borrowers especially the corporate
sector. Share of bank assets in the aggregate financial sector assets: In most
emerging markets, banking sector assets comprise well over 80 per cent of total
financial sector assets, whereas these figures are much lower in the developed
economies. Furthermore, deposits as a share of total bank liabilities have declined
since 1990 in many developed countries, while in developing countries public
deposits continue to be dominant in banks. In India, the share of banking assets in
total financial sector assets is around 75 per cent, as of end-March 2008. There is,
no doubt, merit in recognizing the importance of diversification in the institutional
and instrument-specific aspects of financial intermediation in the interests of wider
choice, competition and stability. However, the dominant role of banks in financial
intermediation in emerging economies and particularly in India will continue in the
medium-term; and the banks will continue to be special for a long time. In this
regard, it is useful to emphasize the dominance of banks in the developing
countries in promoting non-bank financial intermediaries and services including in
development of debt-markets. Even where role of banks is apparently diminishing
in emerging markets, substantively, they continue to play a leading role in nonbanking financing activities, including the development of financial markets.
One of the indicators for asset quality is the ratio of non-performing loans to total
loans. Higher ratio is indicative of poor credit decision-making.

NPA: Non-Performing Assets:

Advances are classified into performing and non-performing advances

(NPAs) as per RBI guidelines. NPAs are further classified into sub-standard,
doubtful and loss assets based on the criteria stipulated by RBI. An asset, including
a leased asset, becomes nonperforming when it ceases to generate income for the
Bank.
An NPA is a loan or an advance where:
1.
2.
3.
4.
5.

Interest and/or instalment of principal remains overdue for a period of more

than 90 days in respect of a term loan;
The account remains "out-of-order'' in respect of an Overdraft or Cash
Credit (OD/CC);
The bill remains overdue for a period of more than 90 days in case of bills
purchased and discounted;
A loan granted for short duration crops will be treated as an NPA if the
instalments of principal or interest thereon remain overdue for two crop
seasons; and
A loan granted for long duration crops will be treated as an NPA if the
instalments of principal or interest thereon remain overdue for one crop
season.

The Bank classifies an account as an NPA only if the interest imposed

during any quarter is ot fully repaid within 90 days from the end of the relevant
quarter. This is a key to the stability of the banking sector. There should be no
hesitation in stating that Indian banks have done a remarkable job in containment
of non-performing loans (NPL) considering the overhang issues and overall
difficult environment.
The following ratios are necessary to assess the asset quality.
I.

Gross NPA ratio:

This ratio is used to check whether the bank's gross NPAs are increasing quarter
on quarter or year on year. If it is, indicating that the bank is adding a fresh stock
of bad loans. It would mean the bank is either not exercising enough caution when
offering loans or is too lax in terms of following up with borrowers on timely
repayments.
Gross NPA/ Total Loan

II.

Net NPA ratio:

Net NPAs reflect the performance of banks. A high level of NPAs suggests high
probability of a large number of credit defaults that affect the profitability and networth of banks and also wear down the value of the asset. Loans and advances
usually represent the largest asset of most of the banks. It monitors the quality of
the banks loan portfolio. The higher the ratio, the higher the credits risk.
Net NPA/Total Loan
3. M Management:
Management of financial institution is generally evaluated in terms of
capital adequacy, asset quality, earnings and profitability, liquidity and risk
sensitivity ratings. In addition, performance evaluation includes compliance with
set norms, ability to plan and react to changing circumstances, technical
competence, leadership and administrative ability. Sound management is one of
the most important factors behind financial institutions performance. Indicators of
quality of management, however, are primarily applicable to individual
institutions, and cannot be easily aggregated across the sector. Furthermore, given
the qualitative nature of management, it is difficult to judge its soundness just by
looking at financial accounts of the banks.
Nevertheless, total advance to total deposit, business per employee and
profit per employee helps in gauging the management quality of the banking
institutions. Several indicators, however, can jointly serveas, for instance,
efficiency measures doas an indicator of management soundness. The ratios
used to evaluate management efficiency are described as under:
a. Total Advance to Total Deposit Ratio:
This ratio measures the efficiency and ability of the banks management in
converting the deposits available with the banks (excluding other funds like equity
capital, etc.) into high earning advances. Total deposits include demand deposits,
saving deposits, term deposit and deposit of other bank. Total advances also
include the receivables.
Total Advance/ Total Deposit

b. Business per Employee:

Revenue per employee is a measure of how efficiently a particular bank is utilizing

its employees. Ideally, a bank wants the highest business per employee possible, as
it denotes higher productivity. In general, rising revenue per employee is a positive
sign that suggests the bank is finding ways to squeeze more sales/revenues out of
each of its employee.
Total Income/ No. of Employees
c. Profit per Employee:
This ratio shows the surplus earned per employee. It is arrived at by dividing
profit after tax earned by the bank by the total number of employee. The higher the
ratio shows good efficiency of the management.
Profit after Tax/ No. of Employees
E Earning & Profitability:
Earnings and profitability, the prime source of increase in capital base, is
examined with regards to interest rate policies and adequacy of provisioning. In
addition, it also helps to support present and future operations of the institutions.
The single best indicator used to gauge earning is the Return on Assets (ROA),
which is net income after taxes to total asset ratio.
Strong earnings and profitability profile of banks reflects the ability to
support present and future operations. More specifically, this determines the
capacity to absorb losses, finance its expansion, pay dividends to its shareholders,
and build up an adequate level of capital. Being front line of defense against
erosion of capital base from losses, the need for high earnings and profitability can
hardly be overemphasized. Although different indicators are used to serve the
purpose, the best and most widely used indicator is Return on Assets (ROA).
However, for in-depth analysis, another indicator Interest Income to Total
Income and Other income to Total Income is also in used. Compared with most
other indicators, trends in profitability can be more difficult to interpretfor
instance, unusually high profitability can reflect excessive risk taking. The
following ratios try to assess the quality of income in terms of income generated
by core activity income from landing operations.
i. Dividend Payout Ratio:
Dividend payout ratio shows the percentage of profit shared with the shareholders.
The more the ratio will increase the goodwill of the bank in the share market.
Dividend/ Net profit
ii.

Return on Asset:

Net profit to total asset indicates the efficiency of the banks in utilizing their
assets in generating profits. A higher ratio indicates the better income generating
capacity of the assets and better efficiency of management in future.
Net Profit/ Total Asset
iii.

Operating Profit by Average Working Fund:

This ratio indicates how much a bank can earn from its operations net of the
operating expenses for every rupee spent on working funds. Average working
funds are the total resources (total assets or total liabilities) employed by a bank. It
is daily average of total assets/ liabilities during a year. The higher the ratio, the
better it is. This ratio determines the operating profits generated out of working
fund employed. The better utilization of the funds will result in higher operating
profits. Thus, this ratio will indicate how a bank has employed its working funds in
generating profits.
Operating Profit/ Average Working Fund
iv.

Net Profit to Average Asset:

Net profit to average asset indicates the efficiency of the banks in utilizing
their assets in generating profits. A higher ratio indicates the better income
generating capacity of the assets and better efficiency of management. It is arrived
at by dividing the net profit by average assets, which is the average of total assets
in the current year and previous year. Thus, this ratio measures the return on assets
employed. Higher ratio indicates better earning potential in the future.
Net Profit/ Average Asset
v.

Interest Income to Total Income:

Interest income is a basic source of revenue for banks. The interest income
total income indicates the ability of the bank in generating income from its
lending. In other words, this ratio measures the income from lending operations as
a percentage of the total income generated by the bank in a year. Interest income
includes income on advances, interest on deposits with the RBI, and dividend
income.
Interest Income/ Total Income

vi.

Other Income to Total Income:

Fee based income account for a major portion of the banks other income. The
bank generates higher fee income through innovative products and adapting the
technology for sustained service levels. The higher ratio indicates increasing
proportion of fee-based income. The ratio is also influenced by gains on
government securities, which fluctuates depending on interest rate movement in
the economy.
Other Income/ Total Income
4. L Liquidity:
An adequate liquidity position refers to a situation, where institution can obtain
sufficient funds, either by increasing liabilities or by converting its assets quickly
at a reasonable cost. It is, therefore, generally assessed in terms of overall assets
and liability management, as mismatching gives rise to liquidity risk. Efficient
fund management refers to a situation where a spread between rate sensitive assets
(RSA) and rate sensitive liabilities (RSL) is maintained. The most commonly used
tool to evaluate interest rate exposure is the Gap between RSA and RSL, while
liquidity is gauged by liquid to total asset ratio.
Initially solvent financial institutions may be driven toward closure by poor
management of short-term liquidity. Indicators should cover funding sources and
capture large maturity mismatches. The term liquidity is used in various ways, all
relating to availability of, access to, or convertibility into cash. An institution is
said to have liquidity if it can easily meet its needs for cash either because it has
cash on hand or can otherwise raise or borrow cash. A market is said to be liquid if
the instruments it trades can easily be bought or sold in quantity with little impact
on market prices. An asset is said to be liquid if the market for that asset is liquid.
The common theme in all three contexts is cash. A corporation is liquid if it has
ready access to cash. A market is liquid if participants can easily convert positions
into cash or conversely. An asset is liquid if it can easily be converted to cash.
The liquidity of an institution depends on:
1. The institution's short-term need for cash;
2. Cash on hand;
3. Available lines of credit;
4. The liquidity of the institution's assets;
5. The institution's reputation in the market placehow willing will counterparty
is to transact trades with or lend to the institution? The ratios suggested to measure
liquidity under CAMELS Model are as follows:
1) Liquidity Asset to Total Asset:

Liquidity for a bank means the ability to meet its financial obligations as they
come due. Bank lending finances investments in relatively illiquid assets, but it
fund its loans with mostly short term liabilities. Thus one of the main challenges to
a bank is ensuring its own liquidity under all reasonable conditions. Liquid assets
include cash in hand, balance with the RBI, balance with other banks (both in
India and abroad), and money at call and short notice. Total asset include the
revaluations of all the assets. The proportion of liquid asset to total asset indicates
the overall liquidity position of the bank.
Liquidity Asset/ Total Asset
2) Government Securities to Total Asset:
Government Securities are the most liquid and safe investments. This ratio
measures the government securities as a proportion of total assets. Banks invest in
government securities primarily to meet their SLR requirements, which are around
25% of net demand and time liabilities. This ratio measures the risk involved in the
assets hand by a bank.
Government Securities/ Total Asset
3) Approved Securities to Total Asset:
Approved securities include securities other than government securities. This
ratio measures the Approved Securities as a proportion of Total Assets. Banks
invest in approved securities primarily after meeting their SLR requirements,
which are around 25% of net demand and time liabilities. This ratio measures the
risk involved in the assets hand by a bank.
Approved Securities/ Total Asset
4) Liquidity Asset to Demand Deposit:
This ratio measures the ability of a bank to meet the demand from deposits in a
particular year. Demand deposits offer high liquidity to the depositor and hence
banks have to invest these assets in a highly liquid form.
Liquidity Asset/ demand Deposit

5) Liquidity Asset to Total Deposit:

This ratio measures the liquidity available to the deposits of a bank. Total
deposits include demand deposits, savings deposits, term deposits and deposits of
other financial institutions. Liquid assets include cash in hand, balance with the
RBI, balance with other banks (both in India and abroad), and money at call and
short notice.
Liquidity Asset/ Total Deposit
S Sensitivity to Market Risk:
It refers to the risk that changes in market conditions could adversely impact
earnings and/or capital. Market Risk encompasses exposures associated with
changes in interest rates, foreign exchange rates, commodity prices, equity prices,
etc. While all of these items are important, the primary risk in most banks is
interest rate risk (IRR), which will be the focus of this module. The diversified
nature of bank operations makes them vulnerable to various kinds of financial
risks. Sensitivity analysis reflects institutions exposure to interest rate risk, foreign
exchange volatility and equity price risks (these risks are summed in market risk).
Risk sensitivity is mostly evaluated in terms of managements ability to
monitor and control market risk. Banks are increasingly involved in diversified
operations, all of which are subject to market risk, particularly in the setting of
interest rates and the carrying out of foreign exchange transactions. In countries
that allow banks to make trades in stock markets or commodity exchanges, there is
also a need to monitor indicators of equity and commodity price risk.
Interest Rate Risk Basics:
In the most simplistic terms, interest rate risk is a balancing act. Banks are
trying to balance the quantity of reprising assets with the quantity of repricing
liabilities. For example, when a bank has more liabilities repricing in a rising rate
environment than assets repricing, the net interest margin (NIM) shrinks.
Conversely, if your bank is asset sensitive in a rising interest rate environment,
your NIM will improve because you have more assets repricing at higher rates.
Liquidity risk is financial risk due to uncertain liquidity. An institution might
lose liquidity if its credit rating falls, it experiences sudden unexpected cash
outflows, or some other event causes counterparties to avoid trading with or
lending to the institution. A firm is also exposed to liquidity risk if markets on
which it depends are subject to loss of liquidity.
Liquidity risk tends to compound other risks. If a trading organization has a
position in an illiquid asset, its limited ability to liquidate that position at short

notice will compound its market risk. Suppose a firm has offsetting cash flows
with two different counterparties on a given day. If the counterparty that owes it a
payment defaults, the firm will have to raise cash from other sources to make its
payment. Should it be unable to do so, it too we default. Here, liquidity risk is
compounding credit risk.
Accordingly, liquidity risk has to be managed in addition to market, credit
and other risks. Because of its tendency to compound other risks, it is difficult or
impossible to isolate liquidity risk. In all but the most simple of circumstances,
comprehensive metrics of liquidity risk don't exist. Certain techniques of assetliability management can be applied to assessing liquidity risk. If an organization's
cash flows are largely contingent, liquidity risk may be assessed using some form
of scenario analysis. Construct multiple scenarios for market movements and
defaults over a given period of time. Assess day-to-day cash flows under each
scenario. Because balance sheets differed so significantly from one organization to
the next, there is little standardization in how such analyses are implemented.
Regulators are primarily concerned about systemic implications of liquidity risk.
Business activities entail a variety of risks. For convenience, we distinguish
between different categories of risk: market risk, credit risk, liquidity risk, etc.
Although such categorization is convenient, it is only informal. Usage and
definitions vary. Boundaries between categories are blurred. A loss due to
widening credit spreads may reasonably be called a market loss or a credit loss, so
market risk and credit risk overlap. Liquidity risk compounds other risks, such as
market risk and credit risk. It cannot be divorced from the risks it compounds.
An important but somewhat ambiguous distinguish is that between market
risk and business risk. Market risk is exposure to the uncertain market value of a
portfolio. Business risk is exposure to uncertainty in economic value that cannot be
mark-to-market. The distinction between market risk and business risk parallels
the distinction between market-value accounting and book-value accounting. The
distinction between market risk and business risk is ambiguous because there is a
vast "gray zone" between the two. There are many instruments for which markets
exist, but the markets are illiquid. Mark-to-market values are not usually available,
but mark-to-model values provide a more-or-less accurate reflection of fair value.
Do these instruments pose business risk or market risk? The decision is important
because firms employ fundamentally different techniques for managing the two
risks.
Business risk is managed with a long-term focus. Techniques include the
careful development of business plans and appropriate management oversight.
Book-value accounting is generally used, so the issue of day-to-day performance is
not material. The focus is on achieving a good return on investment over an
extended horizon. Market risk is managed with a short-term focus. Long-term
losses are avoided by avoiding losses from one day to the next. On a tactical level,

traders and portfolio managers employ a variety of risk metrics duration and
convexity, the Greeks, beta, etc.to assess their exposures. These allow them to
identify and reduce any exposures they might consider excessive. On a more
strategic level, organizations manage market risk by applying risk limits to traders'
or portfolio managers' activities. Increasingly, value-at-risk is being used to define
and monitor these limits. Some organizations also apply stress testing to their
portfolios.

CHAPTER-5
DATA
INTERPRETATION
& ANALYSIS

CAMEL FRAMEWORK
C- CAPITAL ADEQUACY
1. Capital risk Adequacy Ratio
Year
200607
200708
200809
200809
200910
200910
201011
201011

Basel-I

Tier-I
8.01

Tier-II
4.33

Ratio
12.34

Base-I

9.14

4.40

13.54

Basel-I

8.53

4.44

12.97

BaselII
Basel-I

9.38

4.87

14.25

8.46

3.54

12.00

BaselII
Basel-I

9.45

3.94

13.39

6.93

3.76

10.69

BaselII

7.77

4.21

11.98

2.

20
18
16
14
12
10

Tier-II

Tier-I

6
4
2
0

INTERPREATATION:CRAR is a ratio of Capital Fund to Risk Weighted Assets. Reserve Bank of India
prescribes Banks to maintain a minimum Capital to risk-weighted Assets Ratio (CRAR) of 9 %

with regard to credit risk, market risk and operational risk on an ongoing basis, as against 8 %
prescribed in basal II documents.
CAR of the SBI was 11.98 which was above RBI prescribes limit. Higher the ratio the
banks are in a good position to absorb losses. But from the last year it has decreased from 13.39
to 11.98.

2. Debt Equity Ratio

Year

Borrowing
s(Rs.)

2006-07

39703352

2007-08

51727411
3
53713682
1
10301160
11
11956895
50

2008-09
2009-10
2010-11

Share
capital(
Rs.)
526298
9
631470
4
634880
2
634882
6
634999
0

Reserve
(Rs.)

Debt
ratio

307725
75
484011
911
573128
162
653143
160
643510
442

110.17

equity

105.49
092.69
156.19
183.99

Debtio euity ratio

2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2006-07

Debtio euity ratio

2007-08

2008-09

INTERPREATATION:-

2009-10

2010-11

The Debt to Equity Ratio measures how much money a bank should safely
be able to borrow over long periods of time. Generally, any bank that has a debt to
equity ratio of over 40% to 50% should be looked at more carefully to make sure
there are no liquidity problems.
The debt equity ratio of SBI has increased by 183% in the year 2011.
Because the Bank's aggregate liabilities (excluding capital and reserves) rose by
17.35% from Rs. 9,87,464.53 crores on 31st March 2010 to Rs.11,58,750.16 crores
on 31st March 2011. The increase in liabilities was mainly contributed by increase
in deposits and borrowings so that ratio was increased.

3. Total Advance to Total Asset Ratio

Year

200607
200708
200809
200910
201011

Total
Advance(Rs.)
3373364935
4167681862
5425032042
6319141520
7567194480

Total
Asset(Rs.)
566565238
8
721526312
1
964432080
7
105341373
05
122373620
05

Total
Deposit(Rs
.)
43552108
94
53740394
09
74207312
80
80411622
68
93393281
30

Total advance
to total
deposit (Rs.)

Total Advance
to Total Asset
Ratio (%)
59.54

77.45
57.76
77.55
56.25
73.10
59.98
78.58
61.83
81.02

Total Advance to Total Deposit Ratio

82
80
78
76
74
72
70
68
2006-07 2007-08 2008-09 2009-10 2010-11

Total Advance to Total

Deposit Ratio

Total Advance to Total Asset Ratio

63
62
61
60
59
58
57
56
55
54
53
2006-07 2007-08 2008-09 2009-10 2010-11

Total Advance to Total

Asset Ratio

Total Advance to Total Asset Ratio shows that how much amount the bank holds against
its asset. Here in SBI Bank, from 2010 to 2011 this ratio is continuously increased after 2006
because increase in advances is more than increase in total assets which shows growth in
investment. And that is good sign for the bank. During the year, total advances of the Bank grew
by 19.75% in the previous year.
Total Advance to Total Asset Ratio shows that how much amount the bank holds against
its assets. Here in SBI Bank, from 2009 to 2011 this ratio is continuously increased because
increase in advances is more than increase in total assets which shows growth in investment.
Banks advances remain well distributed across all verticals. Large Corporate
advances have grown to Rs.1,08,741 crores in March11, registering a
growth of 23.38%. Mid-Corporate Advances increased to Rs.1,57,565 crores
with increase 19.42% growth. Retail advances grew 22.04% from 1,34,849
crores in March10 to Rs.1,64,576 crores in March11. SME Advances of the
Bank rose by 22.80 & International advances went up by 12.66% to
Rs.1,09,358 crores in March11.

4. Government Securities to total Investment

Year

2006-07
2007-08
2008-09
2009-10
2010-11

Govt.
Securities(Rs.)
1182708274
1411282709
2269600632
2267060163
2307414469

Total
Investment(Rs.)
1491488825
1895012709
2759539569
2875635892
2855869958

Govt. Securities
to
Total
Investment
158.21
148.73
164.22
79.53
81.57

Govt. Securities to Total Investment

180
160
140
120

Govt. Securities to
Total Investment

100
80
60
40
20
0
2006-07 2007-08 2008-09 2009-10 2010-11

This shows the percentage of investment in govt securities. It is believed that

the more investment in govt securities is a safe. As per norm stipulated by RBI the
bank have to maintain SLR at the rate of 24%. In this year investment in govt
securities was decreasing steeply from the last 2 years but still it is a good sign of
the bank because it increasing their profitability.
A-ASSET QUALITY
1. Gross NPA
Year
2009-2010
2010-2011

Ratio
3.05
3.28

This ratio is used to check whether the bank's gross NPAs are increasing
quarter on quarter or year on year. If it is, indicating that the bank is adding a fresh
stock of bad loans. It would mean the bank is either not exercising enough caution
when offering loans or is too lax in terms of following up with borrowers on
timely repayments.
Along with increase in credit, State Bank of India is conscious about asset
quality. Though gross NPAs stood at 3.28% in March11 against 3.05% in
March10.
2. Net NPA
2006-07
2007-08
2008-09

Net NPA Ratio

1.56
1.78
1.79

2009-10
2010-11

1.72
1.63

1.2
1
0.8
0.6
0.4
0.2
0
2006-07

2007-08

2008-09

2009-10

20010-11

.
INTERPRETATION:Net NPA reflects the performances of banks. A high level of NPAs suggests
high probability of a large no of credit defaults that affect the profitability and
net worth of banks and also wear down the value of asset. Loans and advances
generally consider as largest asset of bank. The higher the ratio, the higher is the
risk. The NPA level in 2010-11 is 1.63% which is lower than previous years
Net NPA 1.70 %.
To comply with 70% provision coverage as up Sep. 2010. SBI had to create
a 3430 cr. Counter cyclical buffer. Of this, the bank set aside Rs. 2330 cr. by
March, 2011.

M- MANAGEMENT
1. Total Advance to Total Deposit Ratio
Year

Deposits(Rs
.)

Advances(Rs.)

2006-07

435521

337336

Total Advance
to Total Deposit
Ratio
77.45

2007-08
2008-09
2009-10
2010-11

537404
742073
804116
933933

416768
542503
631914
756719

77.55
73.10
78.58
81.02

1000000
800000
600000

Deposits

400000

Advances

200000

Total Advance to Total

Deposit Ratio
11

20
10
-

10

09

20
09
-

08

20
08
-

20
07
-

20
06
-

07

INTERPRETATION:Deposits of SBI rose to 16.14% yoy from Rs.8,04,116 crores in March,10 to

Rs. 9,33,933 crores in March11, driven by CASA growth of 22.14%. With
sustained 26.20% rise in Saving Bank deposits, CASA ratio improved from
46.67% in March10 to 48.66% in March11, an increase of 199bps.

Total Advance to Total Deposit Ratio

11
20
10
-

10
20
09
-

20
08
-

08

09

Total Advance to Total

Deposit Ratio

20
07
-

20
06
-

07

0.82
0.8
0.78
0.76
0.74
0.72
0.7
0.68

INTERPRETATION:Gross Advances of SBI recorded a yoy growth of 20.32% from Rs.6,41,480

crores in March10 to Rs.7,71, 802 crores in March11. Credit Deposit Ratio
(Domestic) at 76.32% as at the end of SBI advances remain well distributed across
all verticals. Large Corporate advances have grown from Rs. 88,137 crores in
March10 to Rs.1,08,741 crores in March11, registering a growth of 23.38%.
Mid-Corporate Advances increased from to Rs.1,57,565 with 19.42% growth.
Retail advances grew 22.04% to ` Rs.64,576 crores in March11. SME Advances
of the Bank rose by 22.80% to Rs.19,676 crores in March11, while Agri
advances rose 21.18% to Rs. 94,826 crores. International advances went up by
12.66% from ` 97,072 crores in March10 to ` 1,09,358 crores in March11.

2. Business per Employee

Business per Employee
Year
200607
200708
200809
200910
201011

Business per
Employee(Rs.)
35700

Total
(Rs.)Income
44007.59

45600

57645.24

55600

76479.22

63600

85962.07

70465

97218.95

Business per Employee

80000
70000
60000
Business per
Employee

50000
40000
30000
20000
10000
0
2006-07 2007-08 2008-09 2009-10 2010-11

INTERPRETATION:It shows how efficiently a particular bank is utilising its employees. Ideally
a bank wants the highest business per employees. As it denotes higher
productivity. Increase in this is a positive sign of Bank finding ways to squeeze
more sales revenue out of its each employee. In SBI it has gone up to 70465.
3. Profit Per Employee
Year

Profit
Employee

per

2006-07
2007-08
2008-09
2009-10

236.81
372.57
473.77
446.03

20010-11

384.63

Profit per Employee

500
400

Profit per Employee

300
200
100
0
2006-07 2007-08 2008-09 2009-10 20010-11

INTERPRETATION:It is a measure of how efficiently a particular bank is utilizing its

employee. A bank wants highest profit per employee. In this year it has decrease to
384 from 446 in 2010. That is a good sign.
E- EARNING & PROFITABILITY
1. Dividend Payout Ratio
Year
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11

Dividend Payout Ratio

6.0
8.5
11.0
12.5
14.0
14.0
21.5
29.0
30.0
30.0

Dividend Pay out Ratio

35
30
25
20
15
10
5
0
10
20
09
-

08
20
07
-

06
20
05
-

20
03
-

20
01
-

02

04

Dividend Pay out Ratio

INTERPRETATION:It shows the percentage of profit shared with share holder. The higher the
ratio the more will be the goodwill of company in share market. The dividend
payout ratio is same as previous year that is 30% & and from last 10 years
constantly it is increasing. It shows better position in the market.

2. Return on Asset
ROA
2006-07
2007-08
2008-09
2009-10
20010-11

0.84
1.01
1.04
0.88
0.71

1.2
1
0.8
0.6
0.4
0.2
0
2006-07

2007-08

2008-09

2009-10

20010-11

INTERPRETATION:It shows that how much return bank can get from their total asset. Higher ratio
is good for bank. Because if ratio is increasing then we can say that the return of
the bank is high. It has decreased from 88%t o 71%. So that bank should look after
to use of assets efficiently & effectively.
3. Operating Profit by Average working Fund
Year
2006-07
2007-08
2008-09
2009-10
20010-11

Operating
Profit(Rs.)
15058.2
17021.23
20873
23671.44
32526.4

Average
Working
fund(Rs.)
566565.2388
721526.3121
964432.0807
1053443.731
1223736.201

Operating Profit by
Avg. Working fund
2.65
2.35
2.16
2.24
2.65

Operating Profit by Avg. Working fund

0.03
0.03
0.02

Operating Profit by Avg.

Working fund

0.02
0.01
0.01
0
2006-07 2007-08 2008-09 2009-10 20010-11

INTERPRETATION:Earning reflect the growth capacity and the financial health of the bank.
High earnings signify high growth prospects. It shows core operations of SBI
remain robust. The Operating Profit of the Bank for 2010-11 stood at Rs.25,335.57
crores as compared to Rs.18,320.91 crores in 2009-10 registering an excellent
growth of 38.29%. The Bank has posted a Net Profit of Rs.8,264.52 crores for
2010-11 as compared to Rs.9,166.05 crores in 2009-10 registering a decline of
9.84%.
4. Net Profit to Average Asset

Year
2001-02
2001-03
2001-04
2001-05
2001-06
2001-07
2001-08
2001-09
2001-10
2001-11

Ratio
0.73
0.86
0.94
0.99
0.89
0.84
1.01
1.04
0.88
0.71

Net Profit to AVG. Ratio

1.2
1
0.8
Net Profit to AVG. Ratio

0.6
0.4
0.2

20
01
20 -02
01
20 -03
01
20 -04
01
20 -05
01
20 -06
01
20 -07
01
20 -08
01
20 -09
01
20 -10
01
-1
1

INTERPRETATION:The net profit of the SBI has decreased by 9.84% from 9,166 cr. to 8,265 cr.
The reasons of decreasing are due to substantial provision towards additional
liability for enhance superannuation out of wage revision and increase in seiling
gratuity with higher tax provision. While Net Interest Income recorded a growth of
37.41%, the Other Income increased by 5.72%, Operating Expenses increased by
13.27% attributable to higher staff cost and other expenses.
5. Interest Income to Total Income
Year

Interest
Income(R
s.)

Other
Income
(Rs.)

Total
Income(R
s.)

Interest
Income to
Total
Income

Other
Income to
Total
Income

2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11

29810.08
31087.02
30460.49
32428
35979.58
37242.33
48950.31
63788.43
70993.92
81394.36

4174.48
5740.26
7612.46
7119.9
7435.2
6765.26
8694.93
12690.79
14968.15
15824.59

33984.56
36827.28
38072.95
39547.9
43414.78
44007.59
57645.24
76479.22
85962.07
97218.95

Ratio
87.71
84.41
80.00
81.99
82.87
84.62
84.91
83.40
82.58
83.31

12.28
15.58
19.99
18.00
17.12
15.37
15.08
16.59
17.41
16.27

Interest Income to Total Income Ratio

10
20
09
-

08
20
07
-

06
20
05
-

04

Interest Income to
Total Income Ratio

20
03
-

20
01
-

02

0.9
0.88
0.86
0.84
0.82
0.8
0.78
0.76

INTERPRETATION:It shows that how much interest income earn from total income. Higher the
ratio higher is the profit.it is the regular income from customer. This ratio has gone
upto 83% in 2011 from 82% in 2010.
Net Interest Margin (NIM) rose by 66 bps to 3.32% in FY11 from 2.66% in
FY10, ue to faster increase in interest income (14.65%) than interest expenses
(3.27%). Driven by loan growth of 20.32%, interest income on advances has
increased by 18.45% yoy in FY11 against a growth of 9.11% in FY10. Growth in
interest expenses was contained mainly due to CASA deposits growth of 22.14%.
Consequently, net interest income increased by 37.41% to Rs.32,526 crores against
13.41% rise recorded in FY10. Fee income also recorded a handsome rise of 20%
in FY11.
6. Other Income to total Income

Other Income to Total Income

0.25
0.2
0.15

Other Income to Total

Income

0.1
0.05

10

20
09
-

08

20
07
-

06

20
05
-

04

20
03
-

20
01
-

02

INTERPRETATION:Fee based incomes account form a major source of banks income. Bank generates
higher income through innovative product and services. The ratio is also
influenced securities. higher is the ratio higher is the income.SBI it decreases
from 17% to 16%. The Other Income increased by 5.72%, Operating Expenses
increased by 13.27% attributable to higher staff cost and other expenses. Non
interest income rose by 5.72%. the ratio was decreased because of proportionately more
increment in total income than other than interest income.

L-LIQUIDITY
1. Liquidity Asset to Total Asset
Year

200607
200708
200809
200910
201011

Cash &
balances
with
Reserve
Bank of
India(Rs.)
290764250

Balances
with banks
& money at
call & short
notice(Rs.)

Liquidity
Asset(Rs.)

Total
Asset(Rs.)

Liquidity
Asset to Total
Asset

228922650
159317192

555461727

488576259

612908652

248978483

943955020

284786457

56656523
88
72152631
21
96443208
07
10534437
305
12237362
005

515346158

51968690
0
67466335
0
10440379
86
86188713
5
12287414
77

9
10
8
10

Liquidity Asset to Total Asset

0.12
0.1
0.08

Liquidity Asset to Total

Asset

0.06
0.04
0.02
0
2006-07 2007-08 2008-09 2009-10 2010-11

INTETRPRETATION:Liquidity for a bank means ability to meet its financial Obligations as they come
due. Bank lending finances investment in relatively illiquid asset but it funds its
loan with mostly short term liability. Thus one of the main challenges to a bank is
ensuring its own liquidity under all reasonable condition. The ratio was decreased
in the year 2009 because of increment in total assets.
2. Government Securities to Total Asset
Year

Govt.
Securiti
es
in
India(Rs
.)

2006-07

118270
8274
141128
2709
226960
0632
226706
0163
230741
4469

2007-08
2008-09
2009-10
2010-11

Govt.
Securiti
es
outside
India(Rs
.)
117703
1114
140734
0368
226217
4704
200951
52
223907
88

Total
Govt.
Securitie
s(Rs.)

Govt.
Securities
to
Total
Asset

2359739
388
2818623
077
4531775
336
2287155
315
2329805
257

41.64991
47
39.06473
03
46.98905
63
21.71122
43
19.03845
99

Govt.Securities to Total Asset

0.5
0.4
Govt.Securities to
Total Asset

0.3
0.2
0.1
0
2006-07 2007-08 2008-09 2009-10 2010-11

INTERPRETATION:Government securities
to total asset ratio shows
that,
what
percentage of government securities bank has against total assets. Higher
the ratio is good for the bank because if this ratio is higher than we can say
that bank is more investing in government securities. Here we can see the
ratio is decreasing constantly from 2008 due to investment in other avenue.

3. Approved Securities to Total Asset

Year

Approved Securities to Total

Asset(Rs.)

2006-07

Other
Approved
Securities(Rs
.)
33430589

2007-08

27382517

0.37

2008-09

18926808

0.19

2009-10

10351255

0.09

2010-11

4237113

0.03

0.59

Approved Securities to Total Asset

0.01
0.01
0.01

Approved Securities
to Total Asset

0
0
0
0
0
2006-072007-082008-092009-102010-11

INTERPRETATION:Approved securities include securities other than govt. Securities. This

ratio measures the approved securities as a proportion of total asset. Bank
invest in this primarily after meeting their SLR requirements. This ratio
measures the risk involved in the asset hand a bank. The ratio is constantly
decreasing due to decrement in approved securities. Government and other
approved securities. The Banks market share in domestic advances was
16.40% as of March 2011. And the total assets of the Bank increased by
16.17%.

4. Liquidity Asset to Demand Deposit

Year

200607
200708
200809
200910

Demand
Deposit
from
Bank(Rs
.)
109748
101
123134
067
107618
416
890446
95

Demand
Deposit
from
others(R
s.)
7102316
37
8582012
34
9999173
42
1136749
627

Total
Demand
Deposit(
Rs.)

Liquidity
Asset(Rs.
)

Liquidity
Asset to
Demand
Deposit

8199797
38
9813353
01
1107535
758
1225794
322

5196869
00
6746633
50
1044037
986
8618871
35

4.73
5.47
9.70
9.67

201011

870035
65

1224949
827

1311953
392

1228741
477

14.12

Liquidity Asset to Demand Deposit

16
14
12
10

Liquidity Asset to
Demand Deposit

8
6
4
2
0
2006-07 2007-08 2008-09 2009-10 2010-11

ITERPRETATION:The ratio shows power of liquidity asset against total demand deposits. It means
what part of demand deposit can be easily Converted into monetary form in need.
In SBI, the ratio was fluctuate because of the change in the cash balance during the
each year ending. In the year 2011. because of increment in cash balance,the
liquidity assets were increased and vice versa the ratio was also increased.

5. Liquidity Asset to Total Deposit

Year

2006-07
2007-08
2008-09
2009-10
2010-11

Total
Deposit(R
s.)
4355210
894
5374039
409
7420731
280
8041162
268
9339328
130

Liquidity
Asset(Rs.)

Liquidity Asset
to Total Deposit

5196869
00
6746633
50
1044037
986
8618871
35
1228741
477

11.93
12.55
14.06
10.71
13.15

Liquidity Asset to Total Deposit

11
20
10
-

10
20
09
-

09
20
08
-

08

Liquidity Asset to Total

Deposit

20
07
-

20
06
-

07

0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0

INTERPETATION:It shows how much part of the deposits invested into liquid asset, which can
be easily converted into monetary value in the time need. In SBI the ratio was
14% in 2009 . then it decreased to 10% and again
In 2011 it is increased to 13% due to increase in liquid asset.

ANALYSIS
COMPONENT RATINGS TO THE BANKS:Now, after analyzing the ratio next, task to do is to give weightage to all the parameters
according to the importance of the ratios. Each component will be given weightage according to
the importance of itself and ratios covered in that particular point. The total weightage allocated
to the all parameters would be out of 100.

Overall ranking to the SBI:Ratio

Capital Adequacy
Capital Risk Adequacy Ratio
Debt Equity Ratio
Total Advance to Total Asset Ratio
Government Securities to Total Asset
Asset Quality
Gross NPA to Total Loan
Net NPA to Total Loan
Management
Total Advance to Total Deposits
Business per Employee
Profit per Employee
Earnings
Dividend payout Ratio
Return on Asset
Operating Profit to Average Working
Fund
Net Profit to Average Asset
Interest Income to Total Income
Other income to Total Income
Liquidity
Liquidity Asset to total Asset
Government Securities to Total Security
Approved Securities to Total Security
Liquidity Asset to Demand deposit
Liquidity Asset to Total Deposit
Total

Weightage
Out of 28%
7%
7%
7%
7%
Out of 14%
7%
7%
Out of 15%
5%
5%
5%
Out of 18 %
3%
3%
3%

SBI Ratings
1
1
7
5
6

3%
3%
3%
Out of 25%
5%
5%
5%
5%
5%
100%

2
4
3

5
6
5
5
2
4
2
5

3
1
1
1
3
=72

Overall rating has been assigned according to following tables:

The weightage given to different parameters is as follows:

TABLE - Component Weightage

Parameter
Capital Adequacy
Asset Quality
Management
Earnings
Liquidity
Total
TABLE - Capital Quality:
Ratio
1
2
CRAR
Below
15.5015.50
20.00
Debt-Equity Above
115-125
Ratio
125
Total
Below
35-40
Advance to
35
Total Asset
Government Below
58-65
Securities to 58
total
Investment

Weightage
28%
14%
15%
18%
25%
100%

3
20.0024.50
105-115

4
24.5029.00
95-105

5
29.0033.50
85-95

6
33.5038.00
75-85

40-45

45-50

50-55

55-60

65-72

72-79

79-86

86-93

TABLE - Asset Quality:

Ratio
1
2
3
Gross
Above 9 7.50-9.00 6-7.50
NPA to
Total
Loan
Net NPA Above 3 2.50-3.00 2-2.50
to Total
Loan

7
Above
38
Below
75
Above
60
Above
93

4
5
6
7
4.50-6.00 3.00-4.50 1.50-3.00 Below
1.5

1.50-2.00 1.00-1.50 0.50-1.00 Below

o.5

TABLE - Management Quality

Ratios
Total Advance to Total Deposit
Business per Employee
Profit per Employee

1
Below
46
Below
2.5
Below2.
00

2
46-55

3
55-64

4
64-73

2.5 0
5.00
2.00
4.50

5.00
7.50
4.50
7.00

7.50
10.00
7.00
9.50

5
Above
73
Above 10
Above
9.50

TABLE - Earnings Quality:

Ratios
0.50
Devidend Payout Ratio
Below
10
Return on Asset
Below
0.50
Operating Profit to average
Below
working fund
1.75
Net Profit to average Asset
Below
0.50
Interest Income to Total Income
Below
56
Other Income to Total Income
Below
4
TABLE Liquidity quality:
1
2
Ratios

1.00
10 17

1.50
17 - 24

2.00
24 31

2.50
31 38

0.50
-0.75
1.75
-2.00
0.50
-0.75
56-67

0.75
1.00
2.00
2.25
0.75
1.00
67-76

1.00
1.25
2.25
2.50
1.00
1.25
76-85

1.25
1.50
2.50
2.75
1.25
1.50
85-94

4-13.50

13.5023

23-32.5

3.00
Above
38

Above
1.50
Above
2.75
Above
1.50
Above
94
32.5-42 Above
42

Liquidity
Asset to
Total Asset
G-Sec to
Total Asset
Approved
Securities to
Total Asset

Below 7

7-9

9-11

11-13

Above 13

Below 24

24
31
0.50
0.75

31-38

38-45

Above 45

Liquid Asset
to Demand
Deposit
Liquid Asset
to Total
Deposit

Below 27

27
35

35 43

43 51

Above
51

Below 9

9 12

12 -15

15 18

Above
18

Below
0.50

0.75
1.00

1.00
1.25

Above
1.25

CHAPTER -6
SUGGESTIONs &
CONCLUSION

SUGGESTIONs
The bank should adapt itself quickly to changing norms.

 The bank should maintain globally standardized with the coming of

BASEL-III requirement. The Bank should strengthen the internal position to
cope with the international standard.
NPA level of SBI is very high so the bank should take some preventive
action to reduce NPA. To reduce NPA level the bank should adopt some risk
management techniques. And they should give loans to the customers,
whose credit worthiness is good.
In State Bank of India, debt equity ratio is continuously rising over the years
which are not good so they have to increase equity or reduce debts in their
capital structure.
Bank has to give more advances in order to earn more interest. But they
should have to also keep in mind the credit worthiness of the customers.
The bank should use some innovative product to compete with private banks
& global banks.

CONCLUSION

State bank is the one largest public sector bank. It has shown tremendous
growth over the past 5 years. State bank of India has been able to withstand the
acid test of CAMELS model. However it should not rest on its laurels. SBI will
also open its branches outside India. NAP of SBI has also decreased from
previous year. Its CASA deposits is more than any other banks.SBI is also giving
more focus on retail banking sector. It should also gear up for BASEL-III norms
which are imminent in the near future. It should also strive for disruptive
innovative banking practices to beat other stronger competitors, both in the
domestic as well as international arena. All in all, State bank is a bank with sound
fundamentals which is growing at a really fast pace but there are so many
challenges which it must prepare itself for to sustain and succeed.