Financial Analysis of banking sector of India

Financial Analysis of banking sector of India: Special Reference to Private Sector Banks

Financial statements are those statements which provide information about profitability and financial position of a business. It includes two statements, i.e., profit & loss a/c or income statement and balance sheet or position statement. The income statement presents the summary of the income earned and the expenses incurred during a financial year. Position statement presents the financial position of the business at the end of the year. This paper is try to present all the components of balance sheet and profit and loss account in common size and analyze the individual item in Balance Sheet & Profit & Loss A/c as compare to total liabilities/Assets/Income/Expenditure.

Objectives

1. To compare the financial position with the help of Balance Sheet and Profit and Loss Account
2. To compare the financial performance through a common-size financial statement.

Introduction

After preparation of the financial statements, one may be interested in knowing the position of an enterprise from different points of view. This can be done by analyzing the financial statement with the help of different tools of analysis such as Common size statement analysis, funds flow analysis, cash flow analysis, Common size/ comparative statement analysis, etc. Here I have done financial analysis by Common size financial statement analysis. Common size financial statement analysis, also called vertical analysis, is just one technique that financial managers use to analyze their financial statements. It is not another type of income statement. It is just a tool that is used to analyze the income statement and position statement. With the use of this method of common-size financial statements, the comparisons between the financial statements of different companies become easy. In this method, each of figures in the financial statements are reported in the form of percentage. This percentage is the figure of one frequent base figure. This base figure determines the percentile of all the figures in the common-size financial statements. By using this method, it is easy to compare the financial statements of the same company from different periods or comparing the companies of different size. Due to this method, the bias between the company sizes is removed, and investor can effectively compare the financial statements. The selection of base figure depends on the financial statements' head. In income statements, the revenue can be selected as the base figure and all the incomes and expenses can be measured against it.

Moreover, in the balance sheet of the company, all the related items are divided by the total of their items. For example, if the investor wants to find out the percentage of the inventory in balance sheet, he or she will have to divide the figure of inventory with the total assets.

Methodology

For the purpose of this study individual item of balance sheet converted into common size i.e.in 100 for this purpose an individual item in balance sheet divided by total assets/total liabilities and converted into 100.This is also to profit and loss account i.e. individual item in profit and loss account divided by total income/total expenditure and converted into100.For this analysis three years Balance Sheet and Profit and loss account of top three private banks viz.ICICI bank,HDFC bank and Axis bank was analyzed.

Balance Sheets as on 31st March 2011

Profit & Loss Account for the year ended 31st March 2011

Balance Sheets as on 31st March 2012

Profit & Loss Account for the year ended 31st March 2012

Balance Sheets as on 31st March 2013

Profit & Loss Account for the year ended 31st March 2013

Capital to Total Liabilities

Interpretation

Capital Common size statement of ICICI Bank was more than Axis Bank & HDFC Bank in these three years. It is also seen that in all these three years Capital Common size statement of these banks were decreased consistently.

Reserve and surplus to Total Liabilities

Interpretation

Common size statement of Accumulated Reserve and Surplus of ICICI Bank was more than Axis Bank & HDFC Bank, but this Common size statement consistently decreases. This Common size statement of Axis bank consistently increases.

Deposits to Total Liabilities

Interpretation

Deposit Common size statement Axis bank was more than HDFC & ICICI bank; however this Common size statement of Axis bank and HDFC bank consistently decreases.

Borrowings to Total Liabilities

Interpretation

As regards to borrowings, ICICI bank has more borrowings than Axis bank and HDFC bank, it is also depicts that borrowings of Axis bank and HDFC bank consistently increases.

Other liabilities & Provisions to Total Liabilities

Interpretation

Other liabilities and provisions of HDFC bank was more than Axis bank and ICICI bank and it is upto10% on an average, however the axis bank & ICICI bank maintains this Common size statement upto 3% on an average.

Cash & Balances with RBI to Total Assets

Interpretation

Cash balance of HDFC bank in year 2010-11 was in highest Common size statement. Cash balance of HDFC bank and ICICI bank continuously decreases.

Balance with Banks and Money at call and Short Notice to Total Assets

Interpretation

Bank balance and money at call and short notice of ICICI bank in highest proportion.The proportion of HDFDC bank shows increased trend.

Investment to Total Assets

Interpretation

Investment of HDFC bank in these three years was less than Axis bank and ICICI bank. It is also seen that Investment of Axis bank consistently increases but this is not so to HDFC bank and ICICI bank.

Advances to Total Assets

Interpretation

Advances given by the ICICI bank was less than Axis bank and HDFC bank. Advances given by HDFC bank and ICICI bank clearly shows increased trend but this is not so as to Axis bank.

Fixed Assets to Total Assets

Interpretation

Fixed Assets of ICICI bank was more than Axis bank and HDFC bank, however fixed assets of these banks decreased consistently.

Other Assets to Total Assets

Interpretation

Other Assets of HDFC bank in higher proportion in first two years but this is decreased in last year. Other Assets of ICICI bank continuously increases

Interest Earned to Total Income

Interpretation

Interest income of HDFC bank was more than Axis bank and ICICI bank, however Interest income of Axis bank and ICICI bank shows increased trend.

Other Income to Total Income