KOTAK MAHINDRA BANK

CAMEL EVALUAITON OF KOTAK MAHINDRA BANK

ABIDEEZ P A 10MBA (1002)

11

KOTAK MAHINDRA BANK

COMPANY PROFILE
The Kotak Mahindra group is a financial organization established in 1985 in India. It was previously known as the Kotak Mahindra Finance Limited, a non-banking financial company. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship company was given the license to carry on banking business by the Reserve Bank of India (RBI). Kotak Mahindra Finance Ltd. is the first company in the Indian banking history to convert to a bank. Today it has more than 20,000 employees and Rs. 10,000 crore in revenue. Mr. Uday Kotak is Executive Vice Chairman & Managing Director of Kotak Mahindra Bank Ltd. In July 2011 Mr. C. Jayaram and Mr. Dipak Gupta, whole time directors of the Bank, were appointed the Joint Managing Directors of Kotak Mahindra Bank. Dr. Shankar Acharya is the chairman of board of Directors in the company. The Bank had 78 full-fledged branches (44 branches as on September 30, 2005) across 49 towns and cities as on September 30, 2006. The Bank proposes to have around 110 branches by March 2007 across 65 towns and cities. The group has a net worth of over Rs. 2,900 crore, employs around 8,800 people in its various businesses and has a distribution network of branches, franchisees, representative offices and satellite offices across 282 cities and towns in India and offices in New York, London, Dubai and Mauritius. Despite falling margins, private sector lender Kotak Mahindra Bank has reported a 19 per cent increase in consolidated net profit in the second quarter ended September 30 in comparison to same period last year. The bank made a consolidated net profit of Rs 433 crore in Q2 of 2012 as against Rs 364 crore in same periods last year. Advances grew 35 per cent at Rs 50,581 crore in the second quarter from Rs 37,515 crore in the same period previous year. Kotak Mahindra Bank has a prominent place among the Indias foremost economic classified banking organization. The Kotak Mahindra Bank has a net value of greater than 6327 crore rupee at the ending of the period 2007 to 2008, it was stated that the combined income of Kotak Mahindra Bank independently was about 990 crore rupees. The share capital of Kotak Mahindra Bank as on June 30, 2011 was Rs 36891 crore divided into 737,810,369 equity shares of Rs 5

each fully paid up. Consolidated net NPAs (excluding stressed asset portfolio) as on September 30, 2006 were 0.20% of consolidated net advances (0.32% as on September 30, 2005). Total consolidated net NPAs were 0.44% as on September 30, 2006. Consolidated total income for Q2FY07 was up 45% to Rs. 903.49 crore as compared to Rs. 619.90 crore in Q2FY06. As on September 30, 2006, the deposits of the Bank were Rs. 8,194 crore up 49% as compared to Rs. 5,498 crore as on September 30, 2005. CASA deposits comprised 21% of total deposits. The Bank had around 255,000 deposit accounts as on September 30, 2006 (113,000 deposit accounts as on September 30, 2005).

Annual report
Profit loss account
Mar ' 11 Income Operating income Expenses Material consumed Manufacturing expenses Personnel expenses Selling expenses Adminstrative expenses Expenses capitalised Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT 783.83 103.25 543.24 1,430.32 1,250.25 18.94 1,269.20 2,058.49 98.27 -887.55 369.52 818.16 583.48 53.81 720.13 1,357.41 900.90 26.14 927.05 1,397.48 90.00 837.05 250.00 564.05 583.63 66.78 613.64 1,264.05 452.03 42.00 494.03 1,546.60 69.56 424.47 149.96 275.82 519.23 92.32 336.84 948.39 562.34 14.08 576.42 1,309.56 50.86 525.57 103.85 292.81 292.98 77.62 290.71 661.31 231.50 5.93 237.44 699.24 34.74 202.70 61.88 140.82 4,739.06 3,655.79 3,262.68 2,820.30 1,592.06 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Mar ' 11 Non recurring items Other non cash adjustments Reported net profit Earnigs before appropriation Equity dividend Preference dividend Dividend tax Retained earnings 0.02 818.18 1,784.09 36.88 4.37 1,742.84

Mar ' 10 -2.94 2.01 563.11 1,212.06 29.66 1,182.40

Mar ' 09 0.27 276.10 804.27 25.96 1.86 776.45

Mar ' 08 1.12 293.93 648.12 25.87 4.40 617.85

Mar ' 07 0.55 141.37 644.49 22.86 3.88 617.74

Balance sheet Balance sheet

Mar ' 11 Sources of funds Owner's fund Equity share capital Share application money Preference share capital Reserves & surplus Loan funds Secured loans Unsecured loans Total Uses of funds Fixed assets Gross block Less : revaluation reserve Less : accumulated depreciation Net block Capital work-in-progress Investments Net current assets 831.80 406.20 425.61 17,121.44 745.34 317.69 427.65 12,512.66 460.61 247.25 213.36 9,110.18 391.42 181.17 210.25 9,141.99 273.57 132.48 141.09 6,861.96 29,260.97 36,094.36 23,886.47 28,426.38 15,644.93 19,550.46 16,423.65 20,017.35 11,000.09 12,662.02 368.44 6,464.95 348.14 4,191.78 345.67 3,559.86 344.67 3,249.04 326.16 1,335.77 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Mar ' 11 Current assets, loans & advances Less : current liabilities & provisions Total net current assets 1,503.33 3,032.36 -1,529.03

Mar ' 10 1,420.69 2,869.42 -1,448.73

Mar ' 09 1,622.33 3,257.34 -1,635.01

Mar ' 08 1,258.43 3,175.75 -1,917.32

Mar ' 07 692.33 2,153.65 -1,461.32

Miscellaneous expenses not written Total

16,018.01

11,491.58

7,688.52

7,434.92

5,541.73

CAPITAL Pursuant to the approval granted by the Members at an Extraordinary General Meeting held on 27th July 2010 and receipt of other necessary approvals, in August 2010 your Bank allotted 16400000 equity shares of face value of Rs.10/- each to Sumitomo Mitsui Banking Corporation, a public company registered under the laws of Japan on a preferential basis at a price per equity share of Rs. 833/- for a total consideration of Rs. 1366.12 crore.

In September 2010, each equity share of your Bank having a face value of Rs. 10 was subdivided into two equity shares of the face value of Rs. 5 each. During the year, your Bank has also allotted 77,88,550 equity shares (adjusted for stock split number) arising out of the exercise of Employee Stock Options granted to the employees and Executive Directors of the Bank and its subsidiaries. Post allotment of equity shares and sub-division of equity shares as aforesaid, the issued, subscribed and paid-up Share Capital of the Bank stands at Rs. 368.44 crore comprising of 73,68,71,504 equity shares of Rs 5 each. The Bank has a Capital Adequacy Ratio (CAR) under Basel II as at 31st March 2011 of 19.92% with Tier I being 17.98%. At a consolidated level the CAR was 19.46% under Basel II. During the year, your Bank has not issued any Capital under Tier II. As on 31st March 2011, outstanding Unsecured, Redeemable Non- Convertible, Subordinated Debt Bonds was Rs. 465.70 crore and outstanding Unsecured, Non-Convertible, Redeemable Debt Capital Instruments Upper Tier II stood at Rs. 336.68 crore.

Basel Norms
1) Basel I Norms Basel I defines capital based on two tires: 1. Tier 1(core capital): Tier 1 capital include stock issues ( or share holders equity) and declared reserves, such as loan loss reserves set aside to cushion future losses or for smoothing out income variations 2. Tier 2 (Supplementary Capital): Tier 2 capital includes all other capital such as gains on investment assets, long- term debt with maturity greater than five years and hidden reserves. However, short-term unsecured debts are not included in the definition of capital.

2) Basel II Norms Basel II norms require banks to set aside higher capital for more risky assets.

Tier 1 Capital It is the core measure of a bank's financial strength from a regulator's point of view. It consists of the types of financial capital considered the most reliable and liquid, primarily Shareholders' equity. Examples of Tier 1 capital are common stock, preferred stock that is irredeemable and non-cumulative, and retained earnings.

Capital in this sense is related to, but different from, the accounting concept of shareholder's equity. Both tier 1 and tier 2 capital were first defined in the Basel I capital accord. The new, Basel II, accord has not changed the definitions in any substantial way.

Each country's banking regulator, however, has some discretion over how differing financial instruments may count in a capital calculation. This is appropriate, as the legal framework changes in different legal systems.

The theoretical reason for holding capital is that it should provide protection against unexpected losses. Note that this is not the same as expected losses - provisions, reserves and current year profits are for expected losses.

More specifically, Tier 1 Capital is a measure of capital adequacy of a bank, and is the ratio of a bank's core equity capital to its total risk-weighted assets. Risk weighted assets is the total of all assets held by the bank which are weighted for credit risk according to a formula determined by the Regulator (usually the country's Central Bank). Most Central Banks follow the BIS - Bank of International Settlements guidlelines in setting asset risk weights. Assets like cash and coins usually have zero risk weights, while unsecured loans might have a risk weight of 100%. It is calculated as:Tier One Capital / Risk Weighted Assets

Tier 2 capital

It is a measure of a bank's financial strength with regard to the second most reliable form of financial capital, from a regulator's point of view. The forms of banking capital were largely standardized in the Basel I accord, issued by the Basel Committee on Banking Supervision and left untouched by the Basel II accord.

Tier 1 capital is considered the more reliable form of capital.

National regulators of most countries around the world have implemented these standards in local legislation. This includes the Board of Governors of the Federal Reserve System of the United States (FRB). There are several classifications of tier two, capital. In the Basel I accord, these are categorized as undisclosed reserves, revaluation reserves, general provisions, hybrid instruments and subordinated term debt.

Undisclosed Reserves Undisclosed reserves are not common, but are accepted by some regulators where a Bank has made a profit but this has not appeared in normal retained profits or in general reserves.

Revaluation Reserves A revaluation reserve is a reserve created when a company has an asset revalued and an increase in value is brought to account. A simple example may be where a Bank owns the land and building of its headquarters and bought them for $100 a century ago. A current revaluation is very likely to show a large increase in value. The increase would be added to a revaluation reserve.

General Provisions A general provision is created when a company is aware that a loss may have occurred but is not sure of the exact nature of that loss. Under pre-IFRS accounting standards, general provisions were commonly created to provide for losses that were expected in the future. As these did not represent incurred losses, regulators tended to allow them to be counted as capital.

Hybrid Instruments Hybrids are instruments that have some characteristics of both debt and shareholders' equity. Provided these are close to equity in nature, in that they are able to take losses on the face value without triggering a liquidation of the Bank, they may be counted as capital.

Subordinated Term Debt Subordinated term debt is debt that is not redeemable (it cannot be called upon to be repaid) for a set (usually long) term and ranks lower (it will only be paid out after) ordinary depositors of the bank.

A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings is called subordinated term debt. Also known as "junior security" or "subordinated loan". In the case of default, creditors with subordinated debt wouldn't get paid out until after the senior debt holders were paid in full. Therefore, subordinated debt is more risky than unsubordinated debt.

Capital adequacy norms in director report in control of basal The Bank has a Capital Adequacy Ratio (CAR) under Basel II as at 31st March 2011 of 19.92% with Tier I being 17.98%. At a consolidated level the CAR was 19.46% under Basel II. During the year, your Bank has not issued any Capital under Tier II. As on 31st March 2011, outstanding Unsecured, Redeemable Non- Convertible, Subordinated Debt Bonds was Rs. 465.70 crore and outstanding Unsecured, Non-Convertible, Redeemable Debt Capital Instruments Upper Tier II stood at Rs. 336.68 crore.

Safe Deposit Lockers

Kotak Mahindra Bank offers you Safe Deposit Locker facilities which can be utilized to safe keep your important documents, jewellery and other valuables.

Features & Benefits

Easy availability and access You can plan your visit and access your locker on all working days during banking hours.

Convenient sizes Choose your own locker size, from a range of options - small, medium and large.

Hassle-free payment Customers can set-up standing instructions on your Savings Account, to pay your annual locker rent. The banks Locker Facility enables you to avail Locker in your home branch without the constraint of maintaining a linked deposit. You can also opt for Nomination facility.

Nomination for Safe deposit Lockers

1. Nomination facility is available to Individual/ Joint hirer/s of Safe Deposit Locker. 2. Nomination can be made in favour of only one individual. 3. Safe deposit lockers hired in the names of a minors, the nomination shall be made by the natural guardian/s or court appointed guardians. 4. In the event of the death of a locker-hirer/s for which there is a nomination on record the contents of the locker will be released to the nominee of the hirer, without insistence on a succession certificate or probate of the Will from the legal heirs of the deceased customer. 5. In case of death of a sole locker-hirer without nomination, but there is a probated will available; access will be given to the Executor / Administrator.

CAMEL ANALYSIS
I) CAPITAL QUALITY

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 honor 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 8 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 capital-adequacy ratios that take into account the most important financial risksforeign exchange, credit, and interest rate risksby assigning risk weightings to the institutions assets. Capital cushions fluctuations in earnings so that credit unions can continue to operate in periods of loss or negligible earnings. It also provides a measure of reassurance to the members that the organization will continue to provide financial services. It serves to support growth as a free source of funds and provides protection against insolvency. While meeting statutory capital requirements is a key factor in determining capital adequacy, the credit unions operations and risk position may warrant additional capital beyond the statutory requirements. Maintaining an adequate level of capital is a critical element.
2009 Debt Equity Ratio Debt= Deposits + borrowings +unsecured debts Equity = Capital + Reserves and surplus Ratio = Debt/ equity Advances To Assets Advances Total Assets Ratio = Advances/ Total Assets 2011

2237894 7024589 390552.7 683339 5.730071 10.27980109

1662534 2,932,931.00 2871187 5,085,066.00 57.90405 57.67734381

Capital adequacy ratio as on December 31, 2005 was 11.05% (13.73% as on December 31, 2004). Whereas the capital adequacy rate of the bank in 2008 was over 21%. Capital risk adequacy ratio 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 of 9% with regard to credit risk, market risk and operational risk on an ongoing basis as against 8% prescribed in Basel documents Debt Equity Ratio: The 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. 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 advance of bank deposits is preferred to a lower one. Total advances also include receivable. The value of total assets is excluding the revolution of all assets.

II)

ASSET QUALITY

Asset quality determines the robustness of financial institutions against loss of value in the assets. The deteriorating value of assets, being prime source of banking problems, directly pour into other areas, as losses are eventually written-off against capital, which ultimately jeopardizes the earning capacity of the institution. With this backdrop, the asset quality is gauged in relation to the level and severity of non-performing 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. 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. 2009
1. Gross NPA to Net Advances Gross NPA Ratio= Gross NPA/ Net Advances 2. Net NPA to Net Advances Net NPA Ratio = Net NPA / Net Advances

2011

73071 39910 4.395159 1.360754822

39684 15013 2.386959 0.511877027

3.Total Loans To Total Shares Total loans No. of shares Ratio = Total Loans/ Total Shares 4.Total Loans To Total Assets Total assets Ratio = Total Loans/Total Assets 5.Fair Market Value To Book Value Market Value Book Value Ratio(%) = Fair market value/Book value

1619143 3,609,436.00 3456.69 7368.72 468.4084 489.8321554

2871187 5,085,066 56.39279 70.98110428

277.98 500 112.98 92.74 246.0435 539.1416864

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. 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 net-worth 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 bank loan portfolio. The higher the ratio, the higher the credits risk.

III) MANAGEMENT QUALITY

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 administration ability. In effect, management rating is just an amalgam of performance in the above-mentioned areas. 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 bank. Management is the most forward-looking indicator of condition and a key determinant of whether of credit union is able to correctly diagnose and respond to financial stress. The management component provides examiners with objective, and not purely subjective indicators. An assessment of management is not solely dependent on the current financial condition of the credit union and will not be an average of the other component ratings. 2009
1.Market Value To Equity Capital face value Ratio(%) = Market value/Equity capital 2.Total advances To Total Deposits Total Deposits Advances Ratio =Total advances/Total deposits 3.Business Per Employee Business= Advances + deposits No Of Employees Ratio =Business/No. of Employees 4.Profit Per Employee Profit = Net Profit Ratio = Profit/No. of Employees 10 27.798

2011
5 10000

1564493 2,926,097.00 1662534 2,932,931.00 106.2666 100.2335534

3227027 5,859,028.00 8400 11000 384.1699 532.6389091

27609.72 81816.2 3.286871 7.437836364

Total Advances to total deposits ratio: This ratio measures the efficiency and ability of the banks management in converting the V deposits available with the banks into high earning advances. Total deposits include demand deposits, saving deposits, term deposits and deposit of other bank. Total advances also include the receivables. 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/revenue out of each of its employee. 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.

IV)

EARNINGS QUALITY

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 indepth analysis, another indicator Net Interest Margins (NIM) is also used. Return on Assets (ROA): An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment". Net interest rate margin Mar '11 Mar '10 Mar '9 Mar '8 Mar '7 4303.56 3255.62 3065.14 2535.36 1354.1 2058.49 1397.48 1546.6 1309.56 699.24 2245.07 1858.14 1518.54 1225.8 654.86

Interest earned Interest expended Net interest rate margin

1) Interest income to total assets Ratio: 2007

Total assets Interest Income Interest Income to Total Assets

2008

2009
7688.52 3065.14 0.398665

2010
7434.92 2535.36

2011
5541.73 1354.1

16018.01 11492.58 4303.56 3255.62 0.26867 0.28328

0.341007 0.244346

2) Net Interest Margin to Total Assets:

Total assets Net interest rate margin 16018.01 11492.58 2245.07 1858.14 7688.52 1518.54 7434.92 1225.8 5541.73 654.86

Net interest margin to Total Assets 0.140159 0.161682 0.197507 0.164871 0.118169

3) Non-Interest Income to Assets:

Total assets Noninterest income 16018.01 11492.58 507.56 420.97 7688.52 7434.92 157.56 310.48 5541.73 287.83

Noninterest income to Total Assets 0.031687

0.03663 0.020493 0.04176 0.051939

4) Operating Profit to Total Assets:

Total assets Operating profit 16018.01 11492.58 2613.15 1580.34 0.13751 7688.52 1614.79 0.210026 7434.92 1243.88 0.167302 2009 5.Operating profit To Average Working Funds Average Working funds Operating Profit Ratio = Operating profit/Average Working Funds 6.Interest Spread Interest earned Interest spend Interest Spread = Interest Earned - Interest expenditure 5541.73 618.83 0.111667 2011

Operating profit to Total Assets 0.163138

2814695 2926742 68000 261,315.00 2.415893 8.928528719

306514.4 154659.8 151854.7

43035.6 20584.8 22450.8

7.Net profit To Average Assets Average Assets = Opening Assets + Closing Assets/2 Profit = Net Profit Ratio = Net Profit/Average Assets 8.Interest Income To Total Income Total Income Ratio= Interest Income/Total Income 9.Non-Interest Income To Total Income Non-interest Income Ratio = Non-interest Income/ Total Income

2851212 1375479.5 27609.72 81816.2 0.96835 5.948194793

342300 50379.7 89.54554 85.42250152

35786.26 43035.6 10.45465 85.42250152

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 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. Net profit to average asset: Net profit to average assets 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 average assets, which is the average of total asset 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. Interest income to total income: Interest income is a basic source of revenue for banks. The interest income to 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 RBI and dividend income. 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 country.

V)

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. The L of CAMEL represents the concept of Asset/Liability Management the identification, monitoring and control of: Interest rate risk sensitivity and exposure Liquidity risk and control Technical competence in asset/liability management techniques Cash maintained by the banks and balances with central bank, to total asset ratio (LQD) is an indicator of bank's liquidity. In general, banks with a larger volume of liquid assets are perceived safe, since these assets would allow banks to meet unexpected withdrawals.

2009 1.Liquid Assets To Total Assets Liquid Assets =Cash with RBI + Cash for short notice Total assets Ratio = Liquid assets/Total assets 2.Liquid Assets To Demand deposits Demand Deposits Ratio = Liquid assets/Demand deposits

2011

114067 247098 2871187 5,085,066 3.972815 4.859287962

341816.1 562341.7 33.37086 43.94089928

Liquidity assets to total assets Liquidity asset to total asset means the ability to meet its financial obligations as they come due. Bank lending finances investments in relatively illiquid assets, but it finds 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 RBI, balance with other banks and money at call and short notice. Total assets include the revaluations of all the assets. The proportion of liquid asset to total asset indicates the overall liquidity position of the bank. Government securities to total assets: 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. Liquidity asset to total deposit: This ratio measures the liquidity available to the deposit 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 RBI, balance with other banks and money at call and short notice.