International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), International Journal of Management (IJM) Volume

me 2, Number 1, Jan- April (2011), IAEME

ISSN 0976 6502(Print), ISSN 0976 6510(Online) Volume 2, Number 1, Jan- April (2011), pp. 79-83 IAEME, http://www.iaeme.com/ijm.html

IJM

IAEME

OPERATIONAL EFFICIENCY AND TIMES SERIES CHANGES IN TAICO BANK AUTO REGRESSIVE INTEGRATED MOVING AVERAGE (ARIMA) MODEL Dr. S. RAJAMOHAN Professor, Alagappa Institute of Management Alagappa University, Karaikudi-630 004 S. PASUPATHI Associate Professor in Commerce, Vivekananda College Thiruvedakam (West), Madurai -625 217 ABSTRACT The Tamilnadu Industrial Cooperative Bank established in 1962 provides credit to industrial cooperatives like tea factories, match factories, coir industries and the like in the state. It has 32 branches located at district headquarters. In this paper an attempt is made to know the operational efficiency and the times series changes in overall functioning of the bank during the period of analysis through a model called Auto Regressive Integrated Moving Average (ARIMA). It was found that the financial performance of the bank is consistent for the first five years (1998-99 to 2002-03) and a radical change is occurred in the overall functioning of the bank during the last six years of the study (2004-04 to 2008-09). Moreover, out of the 47 ratios, two thirds of the ratios show an increasing trend and the rest of them shows a decreasing trend during the period analysis. Also there is a constant increase and significant changes in the five variables namely operating profit, gross income, capital employed, operating expenses and interest expenses (11.14% each year). Thus the TAICO Bank has performed financially well during the period of analysis. INTRODUCTION The Tamilnadu Industrial Cooperative Bank was established and started functioning from November, 1962. It provides a wide range of financial assistance to various industrial cooperatives, small scale industries, partnership firms, joint stock companies and the like engaged in small, tiny, cottage and village industries in the non farm sectors. In this paper an attempt has been made to identify the time series changes in the overall functioning of the bank through a model called ARIMA model. SCOPE OF THE STUDY The present research study is pursued to analyse the financial performance of the bank, its time series changes and prediction about the trends in the overall functioning to the extent possible.

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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 2, Number 1, Jan- April (2011), IAEME

REVIEW OF LITERATURE D. Ilangovan and K. Padmanaban1 (2002) analysed the performance of PACBs in Tamilnadu by taking the different kinds of loans, branch expansion, level of deposits, position of reserves, working capital, overdues as the criterion. They concluded that cooperative banks are the suitable institutions for providing short term credit to agriculture, small scale industries and industrial cooperatives. H. Srinivas Rao2 (2006) in his article analysed the working of the Andhra Pradesh State Cooperative Bank. The findings were that there was a steep increase in the figures of interest earned, interest paid, deposits, fixed assets and liquid assets. Fixed assets to net worth ratio showed a fluctuating trend and there was a perfect positive relation between current assets and current liabilities. A. Khan3 (2010) evaluated the Performance of Dimapur District Central Cooperative Bank (Patna). He pointed out that the overall performance of the bank is very good during the reference period. He also suggested ways to reduce NPAs, administrative expenses, deployment of funds in profitable sources and to increase the non fund based (non interest income) activities of the bank. R. Latha4 (2003) in her dissertation entitled. A Comparative Study on the Financial Performance of Associate Banks of State Bank of India has made an interbank comparison of the financial performance of associate banks of SBI. For analyzing the financial performance she has used eight parameters like deposits, advances, investments, branch expansion, NPAs, total income, total expenditure, net profit into account. She has used ratio analysis for accessing the performance of the bank. She has also used growth rate and percentage analysis for analyzing the financial performance. Finally she has ranked all the seven banks under 24 parameters. State Bank of Hyderabad secured first rank in 11 parameters and State Bank of Indore secured last rank in eight parameters. D. Suryachandra Rao5 (2009) in his article evaluated the performance of commercial banks by taking the indicators like spread, return on assets, return on equity, profit per branch, business per employee, deposits, advances and the like for a period of 11 years (1992-93 to 2002-03). He suggested that the banks should device strategies to cut down and control the costs, earn more revenues from non interest sources and reduce the dependence of interest income, adopt latest and cost-effective technologies to improve the profitability. METHODOLOGY This study is based on secondary data. The data required for the study have been collected from the annual accounts of the TAICO Bank, books, journals and the like. Discussions have also been held with the official of the bank. PERIOD OF THE STUDY This study covers a period of 11 years commencing from 1998-99 to 2008-09. ANALYSIS OF THE STUDY The ARIMA Model is useful in identifying the Time Series changes and to estimate the forecasts about the overall functioning of the bank.6 It automatically identifies and estimates the best fitting Arima or exponential smoothing model for one or more dependent variable series. In this present research work, the researcher identified a number of 47 independent variables namely total loans and advances per employee,

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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 2, Number 1, Jan- April (2011), IAEME

deposits per employee, business per employee, total outside liabilities to networth, deposits to equity, deposits to total assets, net NPAs to net advances, total liabilities to owned funds, total assets to equity fund, liquid assets to total assets, cash to reserve, staff cost to total income, cash to volume of business, net NPAs to total advances, total income to total assets, total expenses to total income, interest expenses to total income, current assets to volume of business, returns to average assets, liquid assets to total deposits, liquid assets to demand deposits, operating expenses to total expenses, fixed deposits to total deposits, net profit to owned funds, net profit to total deposits, net profit to total income, net profit to working capital, net profit to total assets, net profit to spread, spread to total income, current ratio, total income to working capital, total expenses to working capital, burden to working capital, cash to current liabilities, working capital to volume of business, current assets to total assets, non interest income to total income, interest income to total income, networth to total assets, total advances to total deposits, total assets to total liabilities, fixed assets to owned funds, networth to current assets, spread to total assets, cash to current assets and demand liabilities to total liabilities against the five dependent variables(operating profit, operating expenses, capital employed, interest expenses and gross income). The details of the five dependent variables are depicted in Table 1. TABLE 1: Selected Variables for ARIMA Model Net Operating Capital Interest Operating Expenses Employed Expenses Profit - 157.27 121.74 1392.72 329.91 - 273.32 129.85 1745.77 420.44 104.45 128.07 2024.48 456.51 150.89 268.53 1806.67 642.67 215.19 185.06 1859.14 905.75 205.55 195.23 2010.40 1311.19 243.19 230.51 2340.00 1566.76 169.84 232.17 2631.47 1683.31 45.35 260.54 3101.21 1854.86 78.10 289.98 3362.64 2515.31 91.04 361.24 3664.20 2871.74 Source: Annual Accounts of the TAICO Bank Gross Income 664.19 737.62 943.02 975.01 1598.16 2234.79 2707.42 2691.51 3021.44 3571.44 3981.95

Year 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Table 1 shows that the three selected variables namely capital employed, interest expenses and gross income show an increasing trend and the remaining two variables namely net operating profit and operating expenses show a decreasing trend during the period of analysis. The ARIMA Model is executed in this context and the following result is obtained and is presented in Table 2.

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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 2, Number 1, Jan- April (2011), IAEME TABLE 2 Projections of Vital Ratios - ARIMA Model Values
Fit Statistic Particulars Stationary Rsquared R-squared RMSE MAPE MaxAPE MAE MaxAE Normalized BIC Mean 5 .786 .786 214.067 18.016 61.015 168.895 332.251 11.149 SE 10 .353 .353 32.839 8.588 33.477 33.118 57.986 .312 Minimu m 25 .156 .156 172.294 9.544 17.293 124.599 280.190 10.734 Maximum 50 .968 .968 247.293 31.503 97.786 207.752 421.543 11.457 75 .156 .156 172.294 9.544 17.293 124.599 280.190 10.734 90 .156 .156 172.294 9.544 17.293 124.599 280.190 10.734 95 .528 .528 183.366 10.738 26.981 138.922 281.106 10.855 Percentile 5 .951 .951 209.686 17.177 68.401 164.473 329.834 11.127 10 .961 .961 246.959 25.713 91.357 201.078 384.603 11.454 25 .968 .968 247.293 31.503 97.786 207.752 421.543 11.457 50 .968 .968 247.293 31.503 97.786 207.752 421.543 11.457

Source: Box, Jenkins and Reinsel, An Over view of Multiple Regression Co-efficient, American Journal of Sunsehes, 1994, pp.141-170. It gives out Stationery R2 Values, Varying R2 values, Root mean Square Error (RMSE), MEAN Absolute Error (MAE), Mean Absolute Percentage Error (MAPE), Maximum Absolute Error (MAE), Maximum absolute Percentage Error (MAPE), Normalised Bayesian Information. The modified ARIMA values are presented in Table 3. TABLE 3 Projections of Vital Ratios - Modified ARIMA Model Values
Maximu m 50 .814 .956 29768.82 1 29.019 95.421 21157.20 8 64584.27 2 20.833 75 -4.44E016 .857 341.950 11.780 28.838 231.653 90 -4.44E016 .857 341.950 11.780 28.838 231.653 95 -1.11E016 .905 797.316 12.844 31.098 584.499

Fit Statistic Particulars Stationary Rsquared R-squared RMSE

Mean 5 .375 .923 6005.887 17.697 54.167 4353.603

SE 10 .414 .035 11668.4 42 6.733 28.293 8261.36 9 25466.9 09 2.979

Minimum 25 -4.44E016 .857 341.950 11.780 28.838 231.653

Percentile 5 .333 .931 1122.6 09 14.761 42.908 867.89 4 2226.7 79 14.381 10 .782 .945 9489.87 8 24.253 86.163 7010.44 2 19943.3 7 17.249 25 .814 .956 29768.8 21 29.019 95.421 21157.2 08 64584.2 72 20.833 50 .814 .956 29768.8 21 29.019 95.421 21157.2 08 64584.2 72 20.833

MAPE MaxAPE MAE

MaxAE

12691.656 15.319

760.706 12.130

760.706 12.130

760.706 12.130

1156.41 13.634

Normalized BIC

Source: Box, Jenkins and Reinsel, An Over view of Multiple Regression Co-efficient, American Journal of Sunsehes, 1994, pp.141-170.

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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 2, Number 1, Jan- April (2011), IAEME

From Table 3, it is found that the Mean, Standard Error with maximum and minimum fit statistics are sharply estimated. Since the whole series is centered at mean values, it can be concluded that collectively the five variables totally exhibit 78.6 per cent variance in the past 11 years. The RMSE variance and NAPE variance are respectively 214.067 and 18.016 with normalized BIC variance 11.149. This implies that the five variables have made significant changes, that is 11.14 per cent each year on the average. Thus it can be concluded that the variation is above 50 per cent in the span of 11 years for TAICO Bank. It shows that the TAICO Bank has performed financially well with respective increase in its operating profit and gross income. At the same time the increase in operative expenses and interest expenses, capital employed shows its significant financial development. CONCLUSION The TAICO Bank has been performing financial well during the period of analysis. Efforts must be taken by the bank to ensure more total income and interest income by reducing its operating expenses in the future years. REFERENCES 1. D.Ilangovan and K. Padmanaban, Performance of DACBs in Tamilnadu, Tamilnadu Journal of Cooperative, Vol.2, No.7, May 2002, pp.27-31. 2. H. Srinivas Rao, Working of the Andhra Pradesh State Cooperative Bank An Evaluation Finance India, Vol. XV, No 2, September 2006, pp.1351 1357. 3. A. Khan, Performance of Dimapur District Central Cooperative Bank (Patna), NCDC Bulletin, No.6, June 2010, pp.8-14. 4. R. Latha, A Comparative Study on the Financial Performance of Associate Banks of State Bank of India, M.Phil. Dissertation Submitted to Alagappa University, June 2003. 5. D. Suryachandra Rao, An Evaluation Study of the Performance of Commercial Banks, Finance India, June 2009, Vol.XXI, No.2, pp.591- 597. 6. Box, Jenkins and Reinsel, An Overview of Multiple Regression Co-efficient, American Journal of Sunsehes, 1994, pp.141-170.

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