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Analysis of Branch profitability
Submitted by
K. Laxminarayana
University Reg No:112542246
BOB Reg No: BOB0024815
The goal of this project is to analyze the Balance Sheet and Profit & Loss account of Tilaknagar
Branch (Hyderabad, AP-1)--Analysis of the Profitability of the Branch.
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Certificate from the Mentor
This is to certify that this project titled Analysis of branch profitability is a
bonafied work carried out and developed by K.LAXMINARAYANA in partial
fulfillment for the 1 year training program ofPGDBF at Baroda Manipal School
of Banking. This is also to certify that this project is the result of
candidates own work and is of sufficiently high standard to warrant its
submission to the university for the award of the said degree. The
assistance and help rendered to him during the course of his project work in the form of
basic source material and information have been duly acknowledged.
Mentor
P S N Murthy
Chief Manager
Tilaknagar Branch
Bank of Baroda
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Acknowledgement
I present this project on Analysis of Branch Profitability that has a
significant impact on business of the branch in Bank of Baroda, with a sense of
great pleasure and satisfaction. I take this opportunity to express my gratitude to
the people who have been instrumental in the successful completion of this project.
I would like to show my greatest appreciation to Mr. P.S.N.Murthy (Chief
Manager) and the Staff members of Tilaknagar branch, Bank of Baroda. I cant say
thank you enough for his tremendous support and help. I feel motivated and
encouraged every time I attend his meeting. Without his encouragement and
guidance this project would not have materialized.
The guidance and support received from all the members who contributed to this
project, was vital for the successful completion of the project. I am grateful for
their constant support and help.
Date: 15-11-2012
K Laxminarayana
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Table of content
CERTIFICATE FROM THE MENTOR .................................................................................................................... 2
ACKNOWLEDGEMENT ..................................................................................................................................... 3
TABLE OF CONTENT ......................................................................................................................................... 4
EXECUTIVE SUMMARY ..................................................................................................................................... 5
INTRODUCTION / BACKGROUND ..................................................................................................................... 7
RELATED THEORY / LITERATURE....................................................................................................................... 8
STUDY / ANALYSIS OF TILAKNAGAR BRANCH .................................................................................................. 10
RECOMMENDATIONS .................................................................................................................................... 26
CONCLUSION ................................................................................................................................................ 28
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Executive summary
The term 'profit' is an accounting concept which shows the excess of income over
expenditure viewed during a specified period of time. Profit is the main reason for
the continued existence of every commercial organization. On the other hand, the
term profitability is a relative measure where profit is expressed as a ratio,
generally expressed as a percentage. Profitability depicts the relationship of the
absolute amount of profit with various other factors. Profitability is the most
important and reliable indicator as it gives a broad indicator of the ability of a bank
to raise its income level. Profitability of banks is affected by a number of factors.
Some of these are endogenous, some are exogenous.
Changes in policies made by RBI are exogenous to the system. These include
changes in monetary policy, changes in quantitative credit control like changes incash reserve ratio(CRR), statutory liquidity ratio(SLR), changes in bank rates,
qualitative credit controls like selective credit control measures, credit deposit
ratio, region-wise guidelines on lending to priority sector, changes in interest rates
on deposits and advances, levy of tax on interest income etc. Various other factors
like careful control of expenditure, timely recovery of loans are endogenous.
In practice executives define profits in banks as the difference between total
earnings from all earning assets and total expenditure on managing the entire asset
& liabilities portfolio. In case of banks, the main source of income is interest
earned and discount on bills discounted. Since banks accept various types of
deposits from people so interest paid to customer is an important expenditure of the
banks. The difference between interest earned and interest paid is known as spread
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and is a good indicator of bank's efficiency. Establishment expenses covering
salaries, provident fund, allowances, and bonus and so on, form another important
component of expenditure.
Profit is the very reason for the continued existence of any commercial
organization. The rate of profitability and volume of profits are therefore rightfully
considered as indicators of efficiency in the deployment of resources of banks.
This Project aims at Analysis of Tilaknagar Branch Profitability by reading the
Balance sheet and Profit & Loss Account for the financial year 2011-12(FY12) and
comparing the same with the previous Fiscal year 2010-11(FY11) to interpret the
trend.
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Introduction / Background
Concept of profitability
Profitability means ability to make profit from all the business activities of an
Organization, Company, Firm, or an Enterprise. It shows how efficiently the
management can make profit by using all the resources available in the market.
Profitability is the the ability of a given investment to earn a return from its use.
Profitability is an important yardstick for measuring the efficiency, the extent of
profitability cannot be taken as a final proof of efficiency. Sometimes satisfactory
profits can mark inefficiency and conversely, a proper degree of efficiency can be
accompanied by an absence of profit. The net profit figure simply reveals a
satisfactory balance between the values receive and value given. The change in
operational efficiency is merely one of the factors on which profitability of an
enterprise largely depends. Moreover, there are many other factors besides
efficiency, which affect the profitability.
Profit & Profitability
Sometimes, the terms Profit and Profitability are used interchangeably. But in
real sense, there is a difference between the two. Profit is an absolute term,
whereas, the profitability is a relative concept. However, they are closely related
and mutually interdependent, having distinct roles in business. Profit refers to thetotal income earned by the enterprise during the specified period of time, while
profitability refers to the operating efficiency of the enterprise. It is the ability of
the enterprise to make profit on sales. It is the ability of enterprise to get sufficient
return on the capital and employees used in the business operation.
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Related theory / literature
Profitability analysis is a component of enterprise resource planning (ERP) that
allows administrators to forecast the profitability of a proposal or optimize the
profitability of an existing project. Profitability analysis can anticipate sales and
profit potential specific to aspects of the market such as customer age groups,
geographic regions, or product types.
Profitability analysis can help key personnel in an enterprise to:
Identify the most and least profitable products or services. Discover which sources of information offer the most reliable facts. Optimize responses to changing customer needs. Evolve the product mix to maximize profits in the medium and long term. Isolate and remedy the causes of decreasing profit margins.
Profitability Ratio which helps in Statistical Analysis of Profitability
1. Credit Deposit Ratio
2. Return on Asset Ratio
3. Operating Profit to Total Asset Ratio
4. Spread to Total Asset Ratio
5. Interest Income to Total Income Ratio
6. Interest Expenditure to Total Expenditure Ratio
1. Credit Deposit Ratio: It is the ratio of how much a bank lends out of the
deposits it has mobilized. It indicates how much of a bank's core funds are being
used for lending, the main banking activity. A higher ratio indicates more reliance
on deposits for lending and vice-versa.
Credit Deposit Ratio = Net Loans / Total Deposits
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2. Return on Asset Ratio: This ratio indicates how profitable a company is
relative to its total assets. The return on assets (ROA) ratio illustrates how well
management is employing the company's total assets to make a profit. The higher
the return, the more efficient management is in utilizing its asset base. The ROA
ratio is calculated by comparing net income to average total assets, and is
expressed as a percentage.
Formula:
Return on Assets = Net Income / Average Total Assets
3. Operating profit to Total Asset Ratio: It is a measure of income that tells
investor how much of revenue will eventually become profit for a branch. The
higher the operating profit, the more profitable a branch business is.
Operating profit = Revenue Total expenditure
4. Spread to total asset Ratio: The difference between interest earned and interest
paid is known as spread and is a good indicator of bank's efficiency. Spread on Total
Assets is defined as the Net Interest Income Divided by Total Assets.
5. Interest income: Interest income is earned on Advances
6. Interest Expenditure: Interest paid on Deposits
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Study / Analysis of Tilaknagar Branch
Tilaknagar Branch, Hyderabad
Date of Opening:
25-12-1991
SOL ID: (Service Outlet ID)
2420. This normally indicates the serial number of branches opened.
Region: Andhra Pradesh Region-I
Zone: KARAP
Tilaknagar branch is situated in Metro City surrounded by well developed
Residential colonies. Good old branch having good loyal and high net worth
customer base. This branch is strengthened by the presence of Regional office,
RLF and SME-LF in the city which facilitated quick decision making in sanction
of Advances. This branch ranked 4th place in the region in terms of volume of total
business. Branch is under CBS with good infrastructure and having onsite ATM.
Tilaknagar branch has the large customer base of deposits and advances. The
number of deposit accounts is 15800 and advance accounts are 776. This branch is
offering all most all the major products of our bank and also the third party
products like BOB Gold Coins, Baroda Pioneer Mutual Funds, India First Life
Insurance products which helps in increasing the non-interest and fee-basedincome of the branch.
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Business Performance
The table below represents financial status and Business Performance of the branch
from FYs 2010 to 2012.
(Rs. in lacs)
MAR 10
ACTUALS
MAR11
ACTUALS
MAR 12
ACTUALS
SEPT12
ACTUALS
1. Total Deposits 12344.92 17811.38 20427.36 21488.48A Current 623.59 1100.62 848.48 622.59
B SB 3906.80 4981.17 4525.89 5102.24
Low cost
Deposits(CASA)
4530.39 6081.79 5374.34 5724.83
C Time 7814.53 11729.59 15053.02 15763.65
2. Total Advances 10566.12 12860.22 14553.09 14369.50Total Business
(Deposits + Advances)
22911.04 30671.6 34980.45 35857.98
3. NPA 14.95 1966.02 1447.344 Income 1158.22 1645.65 2004.52 777.43
5 Expenses 716.19 885.69 1364.83 836.66
6 Net Profit 721.76 989.94 1042.19 236.05
7 Cost of Deposits 5.47% 5.36% 6.99% 7.83%8. Yield on Advances 11.99% 12.42% 13.74% 10.05%
9 Business per employee 1909.25 2555.97 2915.04 3259.82
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Profitability Analysis
Deposits
MAR'10 MAR'11 MAR'12
Current 623.59 1100.62 848.48
SB 3906.8 4981.17 4525.89
Low cost 4530.3 6081.79 5374.34
Time 7814.53 11729.59 15053.02
From the above graph we can infer that there is a continuous growth in time
deposits, whereas current and SB deposits recorded growth in 2011 and a fall in
2012. However CASA i.e low cost deposits are more or less at the average level
for the years 2010, 2011 and 2012. The percentages of low cost deposits to total
deposits are 36.7%, 34.2 % and 26.37% for the fiscal years 2010, 2011 and 2012
respectively.
0
2000
4000
6000
8000
10000
12000
14000
16000
Current SB Low cost Time
MAR'10
MAR'11
MAR'12
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Total Advances:
(Amount in Lacs)
Retail Credit
Priority sec Advances
MSE Advances
Other Priority sec Advan
Total Advances
A consistent growth can
2011 to 2012, which is a
various types of offers/s
The branch has to concen
which appear to be on a l
0
2000
4000
6000
8000
10000
12000
14000
16000
Retail Credit Priori
Adv
2010 2011
5516 6200
3009 2532
747 590
es 1525 1735
10566.12 12860.22
be observed in Total advances from
hieved by creating awareness in the
hemes and quickly disposing off th
trate more on SME advances and Prio
wer side.
ty sec
nces
MSE
Advances
Other Priority
sec Advances
Total
Advances
13
012
5874
2653
492
1885
14553.09
2010 to 2011 and
ustomers about the
loan applications.
ity sector advances
2010
2011
2012
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Total NPA:
(Amounts in lacs)Sub Standered Asset
Doubtful
Loss
TOTAL NPA
Branch profitability dep
there is abnormal increa
major cause for high N
recovery steps situation i
the graph. Therefore, as s
must keep strict vigil ov
event of the account bei
costly for the bank.
0
500
1000
1500
2000
2500
Sub Standered
Asset
D
2010 2011 2012.73 4.12 4
8.58 7.42 1
3.86 3.41
15.17 14.95 19
nds upon the level of NPA also. Fro
e in branch NPA level from the ye
A is failure in projects of big cust
s improving and NPA level is comin
oon as an account is classified as subs
er the security during the next one
g classified as doubtful, the lack of
ubtful Loss TOTAL NPA
14
2 Sep-128.53 281.45
01.9 1146.36
15.52 19.53
6.02 1447.34
m the above graph
r 2010 to 2011. A
mers. With timely
down as shown in
tandard, the banker
ear because in the
security proves too
2010
2011
2012
Sep-12
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Total Income & Total Ex
(Amount in Lacs)
2010
2011
2012
If we compare expenditu
income is higher than th
profits of branch. Tot
commission exchange, R
sum of interest paid on
debt expenses account a
0
500
1000
1500
2000
2500
2010
enses:
otal income Total Expens
1158
1645
2004
re of the branch with the income for
expenditure. Expenditure can show
l income including interest earne
covery in bad debts and other income.
eposits; interest paid on Borrowings,
d other expenses
2011 2012
T
T
15
s
716
885
1364
the last three years
irect impact on net
on advances is
Total expenses are
staff expenses, Bad
tal income
tal Expences
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Total income
(Amount
in Lacs)
Interest earned
on Advances
2010 962.
2011 1441.
2012 1876.
Most of the customers us
in pre RTGS &NEFT p
Now the customers are u
and BCs. This is one of
Total advances are also i
on advances also increase
0
500
1000
1500
2000
2500
2010
Commission &
Exchange
other income T
8 179.12 16.12
2 188.08 16.55
2 112.34 15.98
ed Demand drafts and Bankers Chequ
riod. It fetches good exchange com
ing NEFT and RTGS for money trans
the reasons for reduction in commis
creased from the year 2010 to 2012 s
d.
2011 2012
Interest ear
Advances
Commision
other inco
Total incom
16
tal income
1158.22
1645.65
2004.52
e to transfer money
ission to the bank.
fers instead of DDs
ion based income.
the interest earned
ned on
& Exchange
e
e
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Avg. Return on advances
Formula: Interest receiveTotal ad
Interest received o
advances
Total advances
Avg.Return on advances
The Return on advances
Average return on advan
Total advances inc Increase in Rate of
10
10.5
11
11.5
12
12.5
13
on advancesances
Mar2011 Mar2012
1441.02 1876.20
12860.22 14553.09
11.20 12.89
re increased from FY 2011 to FY 201
es increased due to following reasons
eased for the FY 2012
interest( Changes in Base Rate)
Avg.Return on advances
17
2011
20112
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Total Expenses:
(Amount In Lacs )
Int paid on Deposits
Staff expenses
other Expenses
Bad debt written off
Total expenses
Deposits increased from
increased interest rates
Staff expenses also incre
to the staff.
0
200
400
600
800
1000
1200
1400
1600
Int paid on
Deposits
Staff ex
2010 2011 2012
636.04 772.6 1267.4
45.43 73.2 64.33
33.55 39.55 33.1
1.17 0.34 0
716.19 885.69 1364.8
he year Mar 2010 to Mar 2012. This
hich reflected in increase in interes
sed from Mar 2011 to Mar 2012 bec
pences other Expences Bad debt
written off
Total expe
18
can be attributed to
paid on deposits.
use of arrears paid
ces
2010
2011
2012
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Avg .Cost of Deposits
Formula:
Total interest: paid on d
Total d
Total interest paid on
depositsTotal Deposits
Avg Cost of Deposits
The cost of deposits are i
Cost of deposits increase
rate of interest. Changes
Also the composition of
deposits lead to pay mor
more on CASA deposits
0
1
2
3
4
5
6
7
Total int
posits
posits
ar2011 Mar2012
72.60 1267.40
7811.38 20427.36
.33 6.20
creased from FY 2011 to FY 2012
d from Mar 11 to Mar 12 because o
in Rate of interest showed impact
deposits with the branch has chang
interest on time deposits. So, branch
rest paid on deposits
2011
2012
19
fluctuations in the
n cost of deposits.
d. Increasing time
has to concentrate
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Business per employee:
year B
2010
2011
2012
Every year the business p
1. Customer Delight
2. Social Banking
3. Targeting HNI Custom
4. Target High Busines
5. Identifying our good b
0
500
1000
1500
2000
2500
3000
3500
siness per employee
1909
2555
2915
er employee is increasing. Because of
ers
s Shops
orrowers
Business per employee
21
ollowing reasons
2010
2011
2012
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Percentage of staff expe
Formula: staff expenseTotal expenses
staff expense
Total expenses
% of staff expense to th
total expenses
The Percentage of staff
FY 2012, because the artaken into P & L acco
expenses during Mar 11
0
1
2
3
4
5
6
7
8
9
% of staff
se to the total expenses
Mar2011 Mar2012
73.20 64.33
885.69 1364.83
8.26 4.71
xpense to the total expenses Decreas
ears paid to the staff during the yearnt for the year 10-11 hence there i
.Staff expenses came to normal in the
expense to the total expenses
22
d from FY 2011 to
10-11 .It has beens increase in staff
Y 2012.
2011
2012
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Percentage of staff expe
Formula: staff expense
Total Business
staff expense
Total business
% of staff expense to th
total business
The % Percentage of sta
FY 2012
0
0.05
0.1
0.15
0.2
0.25
% o
se to the total Business
(Deposits+Advances)
Mar2011 Mar2012
73.20 64.33
30671 34980
0.23 0.18
f expense to the total income decreas
fstaff expense to the total business
23
d from FY 2011 to
2011
2012
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Findings
Cost of deposits increased from Mar 11 to Mar 12 because of increase inROI over the time deposits.
Average return on advances increased, Because High yielding advancesincreased in the FY 12
The branch has to concentrate on non interesting income by promoting thirdparty products and non fund based products.
Operating expenses reduced from the FY 2011 to FY 2012 therefore branchhas good control over on operating expenses
Staff expenses Decreased from FY 2011 to FY 2012, because the arrearspaid to the staff during the year 10-11 .it has been taken into P & L account
for the year 10-11 hence there is increase in staff expenses .Staff expenses
normalized in the FY 2012.
Suggestions:
Since the branch is located in prime residential area there is scope for gettingmore CASA deposits .Branch needs to concentrate more on CASA, Current
Deposits in particular.
Branch can canvass for new savings, Current and Salary Accounts, therebyincreasing customer base which may turn into huge CASA deposit in future.
Increase yield on advances by increasing qualitative credit portfolio andreduction in NPA, arresting fresh slippage.
Maximize fee based income
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Concentrate on recovery in NPA accounts. Control slippage of loan accounts by regular monitoring. Periodical reviews
should be done.
Prevent the revenue expenses by reducing other expenses Increase the sales of Third party products by cross selling Motivate the customers towards usage of alternate delivery channels which
results in reduction in cost of transaction, thereby we can reduce back office
staff and deploy them in front office.
Minimizing the capital expenses and revenue In connection with compromise settlement, sacrifice amount should be least
possible.
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Recommendations
Targeting HNI Customers
The HNI customers / Top 50 Customers of the branch should be identified & we
can give advisory services to their financial management.
We can sell our Baroda Life Insurance plans, Baroda Pioneer Mutual Funds, Gold
coin sales, Acquiring more Fixed Deposits, Recurring Deposits from them.
Wealthier customers should be invited to the branch and high quality Financial
Advisory Services should be provided.
Target High Business Shops
In Tilaknagar, there is good scope for Retail lending as well as lending to small
Business Units like Branded Textile Showroom, Restaurants, Shopping malls etc.
are popping up gradually. If we can attract those high business shops to have
account (current) with us, then the business of the branch will be increased which
in turn increases the profitability.
Prudent Banker
Most important Strategy to improve the business of the branch.
Each and Every employee has to monitor the transactions very carefully as we
deal with our customers money. They should monitor each and every account
carefully & if they feel the account may slip to NPA category, from the initial
stage itself necessary preventive & recovery measures have to be taken.
Customer Delight
This can be achieved by providing excellent customer service & creating
innovative products for the benefit of the customers. Through customer
cooperation only we can achieve any target in our bank.
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Recognizing our good borrowers
Recognizing our good borrowers and rewarding their loyalty by offeringconcessional rates of interest, better operational flexibility in the operation of their
accounts.
Development Areas
As CASA deposit level is relatively low (32%) more focused efforts needed to be
put in to strengthen the CASA portfolio.
There is a need to inculcate competitive spirit in staff members to promote
business as a bank situated in most banked area where competition to canvass
business relatively on the higher side.
Customer referrals
Referral marketing should be done in the branch because it takes word of mouth
from the spontaneous situation to one where maximum referrals are generated
Segment Customers
We have to segment our customers into the mass market and more affluent or
wealthy individuals. Focus on providing efficient, streamlined services for the
mass market. Focus individual time on building relationships with affluent
customers. All the services of the bank should be clearly communicated to the
customers.
Good Location & Clean Environment
The Branch should give a pleasant and comfortable ambience to the customers and
they should feel the comfortable to visit and get their business done at our branch
again and again. This paves the way to build the Customer Relationship with our
bank and therefore whatever we want to achieve in terms of profit, we can achieve.
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Conclusion
The economic outlook for FY13 is quite mixed. The risks from weak global
outlook, volatile inflation and investment slowdown remain on the downside.
However, our Banks capital strength, adequate liquidity reserves and well
diversified balance sheet & sources of earnings has made it more stable and
stronger.
During FY13, our Bank will continue to expand its market share in both depositsand advances by exploiting its geographic & strategic advantages and capital
strength. As in the past, our Bank will focus on maintaining a high growth in
domestic CASA deposits. Our Bank will leave no stone unturned in maintaining its
asset quality in terms of low NPA ratios.
With reference to Tilaknagar branch, we can infer that the banks policies and
plans to increase business and profit are implemented at the branch level.
Today, the major differentiator amongst the banking service providers is thequality of customer service which the branch is maintaining at high standards at
all times. Tilaknagar branchs well sustained good performance has enabled it to
face the future with confidence and commitment. The varied interests and
expectations of customers have to be taken care of by further improving upon the
delivery of services which if most essential to retain and increase profits and
thereby profitability.
I would specially like to thank my mentor and all staff members of Tilaknagar
branch, as they provided me full support, encouragement and acted as a backbonefor this project.
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