SRM INSTITUTE OF SCIENCE AND TECHNOLOGY

Kattankulathur, Chennai-603 203

FACULTY OF MANAGEMENT

MBF22307 - NPA MANAGEMENT

MINI PROJECT
Academic Year -2023-24

Name of the Student : ARUNACHALAM M

Register Number : RA2352006010082

Year & Semester : I YEAR & THIRD SEMESTER

Section : MBA BFS AA2

MAY 2023-24
ABSTRACT:

Here’s a concise abstract on Capital Small Finance Bank:

“Capital Small Finance Bank is a leading financial institution specializing in providing banking

services to small and micro enterprises. With a focus on financial inclusion, the bank offers a range

of products and services tailored to meet the needs of its diverse customer base. Known for its

innovative approach and customer-centric ethos, Capital Small Finance Bank continues to play a

crucial role in fostering economic growth and empowerment in its operational areas.”

The Non-Performing Assets (NPA) abstract regarding Capital Small Finance Bank likely provides

an overview of the bank’s non-performing loans, including details such as the amount,

classification, and trends over a specified period. It might also include information on the bank’s

efforts to manage and reduce NPAs, such as recovery initiatives and provisioning strategies.

Key words:

 NPA
 Asset reconstruction
 Recovering loss
 Sub-Standard Assets
 NPA Provisioning
BANK INTRODUCTION:

Capital Small Finance Bank began operations as India’s first small finance bank (SFB) in April

2016 after conversion from Capital Local Area Bank. Prior to conversion to a small finance bank,

Capital Local Area Bank was operating as India’s largest local area bank since January 14, 2000.

Running our legacy to build a retail focused banking franchise by enabling access for middle

income group customers to affordable credit in the states Bank operates, we have cemented our

position as one of the most prominent SFBs in India. We achieved this by continuously enhancing

our capabilities in various metrics, including asset quality, cost of funds, retail deposits, and CASA

deposits. Our banking expertise spans over two decades, during which we evolved from the largest

local area bank to an SFB. Our banking portfolio offers a diverse range of asset and liability

products and various third-party products/services as well. In our asset category, we cater to

agricultural needs, micro, small, and medium-sized enterprises (MSMEs), and trading

requirements, including working capital and machinery financing. We also provide mortgages,

predominantly for housing loans.

At Capital Small Finance Bank, our exceptional growth and superior asset quality, in comparison

to other SFBs, can be credited to welldiversified loan portfolio emphasizing income generation, a

consistent emphasis on secured lending, continuous customer engagement, the adoption of

structured underwriting practices, and rigorous credit assessment & risk management strategies.
We leverage technology to boost digital payment methods and communicate with customers,

aiming to sustain and amplify our customer transactions. Our overarching goal is to elevate the

okoverall customer experience by broadening our technological adoption.

The Bank pioneered in bringing modern banking facilities to the rural areas at low cost.The

Bank introduced 7-Day branch banking with extended banking hours since its first day of

operations. The focus to serve common man and the local touch advantage has given the Bank a

competitive edge over other banks operating in the region. Within a short period, most of the

branches become market leaders of their respective centres. The Bank is providing safe, efficient

and service oriented repository of savings to the local community while reducing their dependence

on moneylenders by making need based credit easily available.

The Bank transitioned from a Local Area Bank to Small Finance Bank with 47 Branches. In a short

span, 118 new Branches have become operational, taking the total number of Branches to 165.

After establishing a strong footprint in the state of Punjab, the Bank has now started expansion to

the states of Delhi, Haryana, Rajasthan, Himachal Pradesh along with Union Territory of

Chandigarh.Capital Small Finance Bank has been granted Scheduled Status by the Reserve Bank

of India vide Notification dated February 16, 2017.

The total business of the Bank has crossed Rs. 11,300 crores with over 8,97,000 accounts. The

Bank has 70% of its business in rural and semi urban areas, with priority sector lending of 78.85%

of the Adjusted Net Bank Credit as on March 31, 2022. The Bank is extending loans primarily to

small borrowers. As on March 31, 2022, 65.49% of the total advances are up to the ticket size of

Rs. 25 lacs.Conversion of the Bank to Small Finance Bank has removed the geographical barriers

for expansion, resulting in exponential growth of the Bank in all spheres.

VISION OF BANK :
Life@Capital Small Finance Bank:
Our employees are our brand ambassadors enabling us to serve our customers. We believe that an
organization filled with satisfied and motivated employees yield the best results. Our Human
Resource policies based on our guiding principles help build self-driven and highly motivated
human capital.

Balancing Work and Life

Flexi-timing, work-from-home options, proximity to branches and offices from homes are our
contributions to our employees’ work-life balance. We have an Employee Well-Being & Assistance
Program (EWAP) to address any personal and work challenges that may affect employees’
wellbeing. We believe that regular breaks from work rejuvenate the workforce, and we support
claiming downtime.

Contributing to Sustainable Growth

Our aim to expand, while being environmentally friendly, starts with our employees. We train them
to be our ambassadors of sustainable growth.

Valuing Efforts

Rewards go a long way in making employees feel seen. Through compensation, benefits and other
recognition, employees know their efforts are being appreciated.

Celebrating Together

Celebrating festivals and other occasions during the year, brings us together to create a bond. We
also celebrate personal achievements and organisational milestones to demonstrate our
appreciation for the employees’ contributions.

Thanking our Employees:

With easy access and open door policy, the senior management and managers have built an
atmosphere of gratitude in the day-to-day working environment. Also we have ESOPs taking into
account longevity and performance to build strong team and thank human resource for their
contributions.
Strategy:

Continue to grow loan book organically with focus on secured lending:

The bank plans to expand its reach by opening new branches in its existing markets and entering
new territories. It will leverage its brand presence in Punjab to expand into adjacent states. The
bank's strategy is to develop a deeply entrenched geographical presence that will allow it to service
a larger market for credit and grow its advances. The bank has been able to successfully grow its
loan book over theyears, and it intends to continue to grow its portfolio with a focus on secured
lending. Its advances as of September 30, 2023 and September 30, 2022 for agriculture, MSME
and trading and mortgagessegments were Rs. 2266.93 crore, Rs. 1153.36 crore and Rs. 1528.81
crore, and Rs. 1991.68 crore, Rs. 1129.55 crore and Rs. 1316.66 crore, and as of March 31, 2023
were Rs. 2137.45 crore, Rs. 1120.46 crore and Rs. 1434.48 crore, respectively, with an average
ticket size of Rs. 0.12 crore, Rs. 0.18 crore and Rs. 0.12 crore as on March 31, 2023 and Rs. 0.12
crore, Rs. 0.18 crore and Rs. 0.12 crore as on September 30, 2023. The bank strives to maintain
the growth momentum in its loan book with continued focus on these segments. The bank believes
it is well positioned to take advantage of the tailwinds and intend to continue to grow its portfolio
with focus on secured lending which it believes will provide it a competitive edge over its
competitors.

Strengthen liability franchise:

The bank, leveraging its strong brand, has rapidly grown its deposit portfolio since its inception as
a small finance bank. Since 2016, it has strategically focused on building its retail deposits. These
deposits are cheaper than wholesale options and exhibit greater stickiness, meaning they remain
with the bank longer. This retail focus translates to a high CASAratio compared to competitors. To
maintain this advantage, the bank actively deepens existing customer relationships. CASAdeposits
as on March 31, 2023, March 31, 2022, March 31, 2021 and September 30, 2023, were Rs. 2747.90
crore, Rs. 2549.40 crore, Rs. 2092.63 crore and Rs. 2643.36 crore, representing a CASA ratio of
41.88%, 42.16%, 40.08%, and 37.76%, respectively during these periods. As on March 31, 2023
and September 30, 2023 it had CASA ratio of 41.88% and 37.76% respectively resulting in low
cost of funds of 5.11% and 5.68% respectively. Its cost of funds stood at 5.68% and 5.11% for the
six months ended September 30, 2023 and Fiscal ended March 31, 2023. Further, its
CASAdeposits per branch stood at Rs. 16.16 crore and retail deposits per branch stood at Rs. 37.78
crore as of Fiscal 2023. The bank believes that CASAand retail deposits are cheap source of funds
for its which will enable it to expand its product portfolio and achieve economies of scale as it
continues to grow and scale up its operations.

Leverage technology and data analytics for scalability and profitable growth:

The bank utilizes technology to streamline customer onboarding and data management, driving
business generation. Its seamless "omni-channel" approach integrates banking across websites,
internet banking, and mobile apps, ensuring a smooth experience for customers. Mobile-first
solutions make acquiring and onboarding new customers easier than ever. Furthermore, the bank's
IT systems leverage economies of scale for enhanced productivity, faster turnaround times, and
reduced transaction costs. Operationally, digitization brings multiple benefits: improved processes,
increased productivity, cost reduction, data-driven collections with early warning systems, and
better crossselling opportunities.Customer Centric Initiatives: The bank is embracing digital
onboarding to attract new customers, especially millennials who prefer online convenience.
Beyond that, they're exploring innovative delivery channels like self-service kiosks and tax
payments through APIs. The goal is to make banking accessible and convenient for everyone.
Strengthening existing alternate channels is also a priority. The bank is encouraging more
customers to use ATMs, internet banking, and their dedicated mobile app. This app allows users
to do everything digitally, from applying for IPOs to paying bills.

Initiatives Driving Operational Efficiencies:

The bank is committed to modernizing its technology infrastructure to streamline operations,

improve efficiency, and serve customers cost-effectively. Building a robust data lake through
powerful analytics will enable them to create personalized products and solutions meeting diverse
customer needs and solidifying their position as their "go-to" bank. Deepening automation is key,
with integrations planned across technology service providers for both loan origination and credit
assessment. These solutions will seamlessly connect with the core banking system, creating a
unified and efficient banking experience. The bank further plans to leverage AI and machine
learning across various operations, including credit monitoring, assessment, origination, and
product cross-selling.

Focus on strengthening operational and profitability metrics :

Since becoming an SFB, the bank's strategic investment in expanding its branch network has
directly fueled loan book growth. With 126 new branches added, their total now stands at 173,
reaching more customers and driving loan opportunities.

Improve credit to deposit ratio :

Previously limited by its local reach, the bank's transformation into an SFB opened doors to
strategic geographic expansion. Focusing on neighboring states like Punjab, Haryana, Delhi,
Rajasthan, and Himachal Pradesh, it aims to tap into a wider customer base. This expansion plan
will not only broaden its reach but also improve its credit-to-deposit ratio by targeting loan
products as an entry strategy in new locations.

Focus on optimising costs :

The bank aims to further improve its operating efficiency to reduce cost to income ratio while
improving its existing return metrics. Post conversion from a local area bank, its branch network
has increased more than three times from 47 to 173 as on September 30, 2023. Its branches
typically take 15-21 months to break even and since majority of branches have reached the break-
even; its proportion of matured branches to total branches will be incrementally higher going
forward. It also targets to increase revenue from its existing businesses, optimise business mix to
improve risk-adjusted returns.
 REVIEW OF LITERATURE:

 Dr. Nandhini & Dr. V. Rathnamani (2021) in their study has analyzed the various
parameters in the Operation of small finance banks. The study was undertaken to know the
importance of small finance banks by Doing a comparative study of SFBs with other
commercial banks. The researcher has compared Equitas SFB With a nationalised & a
private sector banks in Tamil Nadu. Kumud Khatri (2020) in her study has analyzed .
 The present relevance of SFBs, its importance in boosting financial inclusion. The
objectives of the study is To compare the benefits of SFBs with working financial
institutions and to analyze the further scope of SFBs In catering the perspective of financial
inclusion and financial intermediation. Kittu R.S Dec (2019) in has Studied the guidelines
through which RBI has licensed these banks. This study was undertaken to know the
Impact of small finance banks on financial inclusion. The aim of this study is to examine
the effect of SFB.
 It was found that small finance bank provides a steady supply of financial services to
priority sector. It was Suggested that SFBs have to follow low-cost operation system based
on latest technological tools, provide Adequate training to interested rural people to
develop their business more effectively. The researcher Concluded that SFBs have play an
important role in the economy as well as the status of rural population. P. Dhanya & Dr.
P.B. Banudevi (2019) has studied about the threats and challenges of small finance banks
in The light of transforming economic landscape of the country. The objective of the study
is to identify the role Of SFB and to analyze the threats and challenges faced by SFB. It
was found that the major important
 Challenges faced by SFBs are high cost of transformation of resources, cost of mobilizing
the deposits of SFB and controlling of NPAs. They are in stiff competition with commercial
banks and NBFC’S. T. Ravikumar (2019) has studied about the evolution and their
performance of SFBs in India. On analyzing the Penetration and the performance of small
finance banks it was at a satisfactory level with a minimum level of Profit. Further, it was
concluded that SFBs significantly promote financial inclusion in Indian by establishing
Almost 95% of their branches in rural & semi-urban areas and serve all kind of people.
  Lakshminarayana S (2019) in his study has studied the policies of Ujjivan small finance
banks and analyzed the basic financials. It was found that Ujjivan bank has a consistent
debt equity ratio which indicated a effective utilization mix Of both internal and external
funds. It was analyzed that the net worth needs to be maintained with a sound Lending and
selective lending approach as there was fluctuating trend. It was suggested that the bank
Should have a consistent performance with a strengthening credit history and ranking
system.

RESEARCH METHODOLOGY:

Research Methodology
Objectives of the study

• To analyse the types of assets and effect of NPA on it .

• To study the causes of NPA of banks

• To study the trends of gross and net NPA

Hypothesis

• NPA effect on financial partition of the bank

• Credit risk management should be adopted by the bank for minimizing the NPA

Limitation

• This study is only restricted to Yes bank only

• The result of the study may not be applicable to any other bank
• The conclusion of the study is based on the secondary information .Thus some amount

Of subjectivity might remain

Research Design :

The research conducted is to analyze the NPA management in CAPITAL SMALL FINANCE
BANK .The nature of research is exploratory as well as diagnostic. This study is based on the

Secondary data only of YES bank .The various data provided by them , the RBI Circulars ,

Journals , magazines , data from internet and interpretation made thereof.

Data collections and tools:

The data calculated for the study is secondary data. These data which have already been

Collected by someone else and which already been passed through statistical processes.

Sources are:

 Substandard Assets – recently unpaid loans.

 Doubtful Assets – long-unpaid loans with uncertain recovery.
 Loss Assets – loans likely never to be repaid.

Source of data:

• Secondary data: Secondary Data refers to the information or facts already

Collected such data are collected with the objectives of understanding the past status

Of any variable or the data collected and reported by some source is accessed and used

For the objective of a study. Normally in research, the scholars collect published data,

Journals, annual reports and websites.

MEANING OF NPA AND TYPES :

Non-Performing Assets (NPA)

Net Non Performing Asset = Total Gross NPAs – Provisions

NPA expands to non-performing assets (NPA). Reserve Bank of India defines Non Performing
Assets in India as any advance or loan that is overdue for more than 90 days.

“An asset becomes non-performing when it ceases to generate income for the bank,” said RBI in
a circular form 2007.

To be more attuned to international practises, RBI implemented the 90 days overdue norm for
identifying NPAs has been made applicable from the year ended March 31, 2004. Depending on
how long the assets have been an NPA, there are different types of non-performing assets as well.

What is an Asset and Nonperforming Assets for a Bank?

Asset means anything that is owned. For banks, a loan is an asset because the interest we pay on
these loans is one of the most significant sources of income for the bank.

When customers, retail or corporates, are not able to pay the interest, the asset becomes ‘non-
performing’ for the bank because it is not earning anything for the bank. Therefore, RBI has
defined NPAs as assets that stop generating income for them.

How Nonperforming Assets (NPA) Work?

Non-Performing Assets (NPAs) are loans or advances issued by banks or financial institutions that
no longer bring in money for the lender since the borrower has failed to make payments on the
principal and interest of the loan for at least 90 days.
A debt that has been past due and unpaid for a predetermined period is known as a non-performing
asset (NPA).

When the ratio of NPAs in a bank's loan portfolio rises, its income and profitability fall, its capacity
to lend falls, and the possibility of loan defaults and write-offs rise.

To address this issue, the government and the Reserve Bank of India have introduced various
policies and methods to manage and reduce the amount of non-performing assets (NPAs) in the
banking sector.

Types of Non Performing Assets (NPA)

Different types of non-performing assets depend on how long they remain in the NPA category.

a) Sub-Standard Assets

An asset is classified as a sub-standard asset if it remains as an NPA for a period less than or equal
to 12 months.

b) Doubtful Assets

An asset is classified as a doubtful asset if it remains as an NPA for more than 12 months.

c) Loss Assets

An asset is considered a loss asset when it is “uncollectible” or has such little value that its
continuance as a bankable asset is not suggested. However, some recovery value may be left in it
as the asset has not been written off wholly or in parts.

NPA Provisioning

Keeping aside the technical definition, provisioning means an amount that the banks set aside from
their profits or income in a particular quarter for non-performing assets, such as assets that may
turn into losses in the future. It is a method by which banks provide for bad assets and maintain a
healthy book of accounts.
Provisioning is done according to which category the asset belongs. The categories have been
mentioned in the above section. Not only the type of asset but provisioning also depends on the
type of bank. Like, Tier-I banks and Tier-II banks have different provisioning norms.

GNPA and NNPA

Gross Non Performing Asset Ratio = Total Gross NPAs / Total Assets

Banks are required to make their NPAs numbers public and to the RBI from time to time. There
are primarily two metrics that help us understand any bank's NPA situation.

NPA numbers for a bank will be mentioned in the standalone financial statements of a bank.

- GNPA: GNPA stands for gross non-performing assets. GNPA is an absolute amount. It tells you
the total value of gross non-performing assets for the bank in a particular quarter or financial year,
as the case may be.

- NNPA: NNPA stands for net non-performing assets. NNPA subtracts the provisions made by the
bank from the gross NPA. Therefore net NPA gives you the exact value of non-performing assets
after the bank has made specific provisions.

NPA Ratios

NPAs can also be expressed as a percentage of total advances. It gives us an idea of how much of
the total advances are not recoverable. The calculation is pretty simple:

GNPA ratio is the ratio of the total GNPA of the total advances.

NNPA ratio uses net NPA to determine the ratio to the total advances.
RECENT DATA OF NPA IN CAPITAL SMALL FINANCE BANK LTD:

INTERPRETATION:
Total income: This is the total amount of money that the company earned during the year. It has
been steadily increasing over the past three years, from ₹557.30 crore in 2021 to ₹725.48 crore in
2023. There is a slight dip in total income between 2023 and December 2023 at ₹637.67 crore.

PAT (Profit After Tax): This is the net amount of money that the company earned after all
expenses have been paid. It has also been increasing steadily over the past three years, from ₹40.78
crore in 2021 to ₹93.59 crore in 2023. Similar to total income, PAT shows a decrease in December
2023 at ₹83.32 crore.

Total assets: This is the total amount of money that the company owns. It has also been increasing
steadily over the past three years, from ₹6,371 crore in 2021 to ₹7,991 crore in 2023. The trend
continues in December 2023 with total assets reaching ₹8,850 crore.

Net NPA (Net Non-performing Assets): This is a measure of the amount of loans that are unlikely
to be repaid by borrowers. It is expressed as a percentage of total loans. The Net NPA ratio for
CSFBL Financials has increased slightly over the past three years, from 1.13% in 2021 to 1.36%
in 2023. It increased again in December 2023 to 1.53%.

ROTA (Return on Total Assets): This is a measure of how efficiently a company is using its
assets to generate profits. It is expressed as a percentage. The ROTA ratio for CSFBL Financials
has been increasing steadily over the past three years, from 0.70% in 2021 to 1.24% in 2023. The
upward trend continues in December 2023 with ROTA reaching 1.32%.

NPA DATA POINTS AND TREND LINE:

 Gross non-performing assets to advances ratio has increased from 0.4% in March 2014 to
1.3% in March 2019.
 Net non-performing assets to net advances ratio has increased from 0.1% in March 2014
to 0.9% in March 2019.
 Gross NPA has increased from 27.3 million in March 2014 to 339.6 million in March 2019.
 Net NPA has increased from 0.0 million in March 2014 to 242.2 million in March 2019.
This data indicates a general worsening of the NPA situation for this bank over the 4-year period,
with both gross and net NPAs rising substantially.

To create a trend line graph showing the NPA trend over the last four years, you would typically
follow these steps:

Collect Data: Gather the NPA (Non-Performing Assets) data for the last four years. This data
should include the total amount of NPAs for each year.

Choose a Graph Type: For trend analysis, a line graph is most suitable as it clearly shows changes
over time.

Plot the Graph:

X-axis: Represent the years (e.g., 2019, 2020, 2021, 2022).

Y-axis: Represent the NPA values.

Draw Trend Line: Add a trend line to the graph to indicate the overall direction of the NPA values
over the four years.
Analyze: Use the trend line to discuss whether the NPAs are increasing, decreasing, or remaining
stable.

NPA VALUES
 NPA TREND LINE

SWOT ANALYSIS:

STRENGTH:
 Strong Brand Portfolio – Over the years Capital Bank Financial Corp. has invested in
building a strong brand portfolio. The SWOT analysis of Capital Bank Financial Corp.
just underlines this fact. This brand portfolio can be extremely useful if the organization
wants to expand into new product categories.
 Successful track record of developing new products – product innovation.
 Strong Free Cash Flow – Capital Bank Financial Corp. has strong free cash flows that
provide resources in the hand of the company to expand into new projects.
 Reliable suppliers – It has a strong base of reliable supplier of raw material thus enabling
the company to overcome any supply chain bottlenecks.
 High level of customer satisfaction – the company with its dedicated customer
relationship management department has able to achieve a high level of customer
 satisfaction among present customers and good brand equity among the potential
customers.
 Good Returns on Capital Expenditure – Capital Bank Financial Corp. is relatively
successful at execution of new projects and generated good returns on capital expenditure
by building new revenue streams.
 Strong dealer community – It has built a culture among distributor & dealers where the
dealers not only promote company’s products but also invest in training the sales team to
explain to the customer how he/she can extract the maximum benefits out of the products.
 Automation of activities brought consistency of quality to Capital Bank Financial Corp.
products and has enabled the company to scale up and scale down based on the demand
conditions in the market.

WEAKNESS:

 Not very good at product demand forecasting leading to higher rate of missed
opportunities compare to its competitors. One of the reason why the days inventory is
high compare to its competitors is that Capital Bank Financial Corp. is not very good at
demand forecasting thus end up keeping higher inventory both in-house and in channel.
 Days inventory is high compare to the competitors – making the company raise more
capital to invest in the channel. This can impact the long term growth of Capital Bank
Financial Corp.
 Financial planning is not done properly and efficiently. The current asset ratio and liquid
asset ratios suggest that the company can use the cash more efficiently than what it is
doing at present.
 The company has not being able to tackle the challenges present by the new entrants in
the segment and has lost small market share in the niche categories. Capital Bank
Financial Corp. has to build internal feedback mechanism directly from sales team on
ground to counter these challenges.
  Not highly successful at integrating firms with different work culture. As mentioned
earlier even though Capital Bank Financial Corp. is successful at integrating small
companies it has its share of failure to merge firms that have different work culture.
 Organization structure is only compatible with present business model thus limiting
expansion in adjacent product segments.
 Investment in Research and Development is below the fastest growing players in the
industry. Even though Capital Bank Financial Corp. is spending above the industry
average on Research and Development, it has not been able to compete with the leading
players in the industry in terms of innovation. It has come across as a mature firm looking
forward to bring out products based on tested features in the market.

OPPORTUNITIES:
 Decreasing cost of transportation because of lower shipping prices can also bring down
the cost of Capital Bank Financial Corp.’s products thus providing an opportunity to the
company - either to boost its profitability or pass on the benefits to the customers to gain
market share.
 Economic uptick and increase in customer spending, after years of recession and slow
growth rate in the industry, is an opportunity for Capital Bank Financial Corp. to capture
new customers and increase its market share.
 New trends in the consumer behavior can open up new market for the Capital Bank
Financial Corp. . It provides a great opportunity for the organization to build new revenue
streams and diversify into new product categories too.
 Organization’s core competencies can be a success in similar other products field. A
comparative example could be - GE healthcare research helped it in developing better Oil
drilling machines.
 Lower inflation rate – The low inflation rate bring more stability in the market, enable
credit at lower interest rate to the customers of Capital Bank Financial Corp..
 The new technology provides an opportunity to Capital Bank Financial Corp. to practices
differentiated pricing strategy in the new market. It will enable the firm to maintain its
 loyal customers with great service and lure new customers through other value oriented
propositions.
 Stable free cash flow provides opportunities to invest in adjacent product segments. With
more cash in bank the company can invest in new technologies as well as in new products
segments. This should open a window of opportunity for Capital Bank Financial Corp. in
other product categories.
 Opening up of new markets because of government agreement – the adoption of new
technology standard and government free trade agreement has provided Capital Bank
Financial Corp. an opportunity to enter a new emerging market

THREATS:
 New environment regulations under Paris agreement (2016) could be a threat to certain
existing product categories .
 New technologies developed by the competitor or market disruptor could be a serious
threat to the industry in medium to long term future.
 The company can face lawsuits in various markets given - different laws and continuous
fluctuations regarding product standards in those markets.
 Imitation of the counterfeit and low quality product is also a threat to Capital Bank
Financial Corp.’s product especially in the emerging markets and low income markets.
 Changing consumer buying behavior from online channel could be a threat to the existing
physical infrastructure driven supply chain model.
 As the company is operating in numerous countries it is exposed to currency fluctuations
especially given the volatile political climate in number of markets across the world.
 The demand of the highly profitable products is seasonal in nature and any unlikely event
during the peak season may impact the profitability of the company in short to medium
term.
 Intense competition – Stable profitability has increased the number of players in the
industry over last two years which has put downward pressure on not only profitability
but also on overall sales
Financial Analysis:

Assets

1. Company's total assets have shown consistent increase over reporting periods, reflecting
growth in its resource base & potentially expanded business operations.

2. This steady growth indicates positive momentum & may suggest effective capital allocation &
investment strategies.

3. Investors may view this trend favourably as it signifies company's ability to scale up its
operations & enhance its market position.

Revenue

1. Revenue has fluctuated over reporting periods, with notable increase in FY23 followed by
decrease in latest period.

2. While increase in FY23 demonstrates revenue growth & business expansion, subsequent
decline may raise concerns about revenue sustainability.

3. Investors should investigate factors contributing to revenue fluctuations & assess company's
ability to maintain or improve revenue levels in future.

Profit After Tax (PAT)

1. PAT has geneally shown upward trend, indicating improving profitability over reporting
periods.

2. Significant increase in FY23 reflects enhanced operational efficiency & profitability.

3. Investors may interpret this trend positively as it demonstrates company's ability to generate
sustainable profits & create value for shareholders.
Net Worth

1. Net worth has increased consistently, indicating growth in shareholders' equity & overall
financial strength.

2. Growth suggests that company has been able to retain earnings & accumulate wealth over
time.

3. Investors may view rising net worth positively as it enhances company's ability to withstand
financial challenges & pursue growth opportunities.

Reserves & Surplus

1. Reserves & surplus have followed similar pattern to net worth, showing steady growth over
reporting periods.

2. This increase indicates that company has been able to set aside profits for future investments
or to buffer against risks.

3. Investors may see growing reserves & surplus as positive sign of financial stability & prudent
financial management.

Total Borrowing

1. Total borrowing has fluctuated over reporting periods, with peaks & troughs in FY22 & FY23.

2. Decrease in FY22 followed by increase in FY23 suggests varying financing needs or changes
in company's borrowing strategy.

3. Investors should assess company's debt management practices & monitor trend in total
borrowing to evaluate its impact on financial health & risk exposure.
FINDINGS:

 Gross NPA ratio: The bank's gross NPA ratio increased from 1.2% in March 2020 to 2.8%
in March 2023. This means that the percentage of loans that are not being repaid on time
has been increasing over the past few years.
 Net NPA ratio: The bank's net NPA ratio also increased from 1.1% in March 2020 to
1.53% in March 2023. This means that the percentage of loans that are not being repaid
on time after taking provisions into account has also been increasing.
 Movement in gross NPA: The opening balance of gross NPA was ₹339.6 million in
March 2020 and it increased to ₹1,526.2 million in March 2023. This means that the bank
has added a significant amount of new gross NPAs to its books over the past few years.
 Movement in net NPA: The opening balance of net NPA was ₹242.2 million in March
2020 and it increased to ₹740.5 million in March 2023. This means that the bank has also
added a significant amount of new net NPAs to its books over the past few years.

SUGGESTIONS:

 Strengthen credit appraisal processes: The bank can improve its credit appraisal
processes to ensure that it is only lending to borrowers who are likely to be able to repay
their loans. This may involve collecting more information from borrowers about their
financial history and ability to repay, as well as developing more sophisticated credit
scoring models.
 Focus on collections: The bank can focus on collections efforts to recover outstanding
loans from borrowers who are in default. This may involve hiring more staff to collect
debts, as well as developing more effective collection strategies.
 Restructure loans: The bank can work with borrowers who are having difficulty
repaying their loans to restructure their loans. This may involve extending the term of the
loan, reducing the interest rate, or forgiving some of the debt.
  Sell NPA: The bank can sell its NPA to asset reconstruction companies (ARCs) at a
discount. ARCs are specialized firms that buy distressed debt from banks and other
financial institutions. They then try to collect the debt or sell the underlying assets.

CONCLUSION:

 Capital Small Finance Bank demonstrates strong profitability (high EPS), robust asset
quality (high NAV per share), & attractive valuation (lower P/E ratio & P/BV ratio)
compared to its peers. However, its RoNW is slightly below average, suggesting room for
improvement in terms of generating returns on its net worth. Overall, it appears to be
well-positioned within small finance banking segment, particularly in terms of
profitability & asset quality.