Financial Markets and Banking Group Assignment

Bank of Baroda
Financial Statement Analysis
PGCBM 22 XLRI, Jamshedpur

13

Bank of Baroda

Group Detail
SID DB12021 DB12022 SMS ID 2224281 2224781 Name Sandeep Moudgil Soumya Mishra Center Chandigarh - Sector 34 A Chandigarh - Sector 34 A Group 11 11

Faculty
Professor Santosh Sangem

Assignment Objectives
For the assignment, you are required to make use of publicly available information on the individual bank for a period of 4-7 years, ending in the financial year 2011-12. The primary submission should be in Microsoft Word or PDF format and must not exceed 25 pages. You are expected to analyze the trends in the nature of asset portfolio choices and profitability based on what has been taught during the course. Students are also required to provide the summarized financial statements of the bank studied in an excel sheet . Such summarized financial statements should have formed the basis for the computation of the financial indicators used in the assignment. The excel sheet must also contain the calculation of the ratios used for the analysis. The marks assigned to the group would depend on the rigor employed in terms of the length of period for the assignment, the number and accuracy of the financial indicators computed, and most importantly, the quality of the analysis. It is these and not the submission length that will help in getting good marks, so try to be as much precise and to the point as possible. The primary source of information for the submission will be the annual reports of the concerned bank available at its own website. In addition, you may use any other source of data to provide support for other points made by you in the analysis. However, be sure to cite the source clearly.

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Bank of Baroda

Section 1

A Brief History of the Assigned Bank

The Heritage
It all started with a visionary Maharaja's uncanny foresight into the future of trade and enterprising in his country. On 20th July 1908, under the Companies Act of 1897, and with a paid up capital of Rs 10 Lacs started the legend that has now translated into a strong, trustworthy financial body, THE BANK OF BARODA. It has been a wisely orchestrated growth, involving corporate wisdom, social pride and the vision of helping others grow, and growing itself in turn. The founder, Maharaja Sayajirao Gaekwad, with his insight into the future, saw "a bank of this nature will prove a beneficial agency for lending, transmission, and deposit of money and will be a powerful factor in the development of art, industries and commerce of the State and adjoining territories."

The Ethics
Between 1913 and 1917, as many as 87 banks failed in India. Bank of Barodasurvived the crisis, mainly due to its honest and prudent leadership. This financial integrity, business prudence, caution and an abiding care and concern for the hard earned savings of hard working people, were to become the central philosophy around which business decisions would be effected. This cardinal philosophy was over years of its existence, to become its biggest asset. It ensured that the Bank survived the Great War years. It ensured survival during the Great Depression. Even while big names were dragged into the Stock Market scam and the Capital Market scam, the Bank of Baroda continued its triumphant march along the best ethical practices.

The major ongoing initiatives of the Bank are detailed below: Business Process Reengineering (BPR) People Initiatives New Technology Platform Marketing Initiatives Corporate Social Responsibility (CSR) Initiatives

Board of Directors

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Bank of Baroda

Source - http://www.bankofbaroda.co.in/

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Bank of Baroda

International Presence

Source - http://www.bankofbaroda.co.in/

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Bank of Baroda
Section 2 And 3

Analysis of Bank Financial Reports [2012-2008 (5 years)] a. Official Balance Sheet/P and L Statement/Annual Report 20012-08
http://www.bankofbaroda.co.in/fin/AnnualReport.asp

b. Bank of Baroda Balance Sheet (Last 5 years)

Consolidated Balance Sheet Mar '12 12 mths Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Init. Contribution Settler Preference Share Application Money Employee Stock Opiton Reserves Revaluation Reserves Net Worth Deposits Borrowings Total Debt Minority Interest Policy Holders Funds Group Share in Joint Venture Other Liabilities & Provisions Total Liabilities 412.38 412.38 0.00 0.00 0.00 0.00 0.00 28,103.92 0.00 28,516.30 392,615.95 23,598.06 416,214.01 91.18 0.00 0.00 12,590.52 457,412.01 Mar '12 12 mths Assets Cash & Balances with RBI Balance with Banks, Money at Call Advances Investments Gross Block Accumulated Depreciation Net Block 22,268.34 43,542.00 292,077.14 86,697.00 5,096.79 2,668.60 2,428.19 20,394.42 31,029.31 232,085.11 74,018.46 4,716.57 2,333.37 2,383.20 14,076.07 22,493.41 177,711.90 63,163.27 4,412.31 2,042.92 2,369.39 10,901.21 14,301.41 146,293.98 53,626.58 4,268.90 1,709.27 2,559.63 9,617.34 13,552.77 108,578.97 44,657.76 4,092.10 1,417.83 2,674.27 392.81 392.81 0.00 0.00 0.00 0.00 0.00 21,379.55 0.00 21,772.36 311,603.25 22,378.33 333,981.58 72.91 0.00 0.00 10,386.92 366,213.77 Mar '11 12 mths 365.53 365.53 0.00 0.00 0.00 0.00 0.00 15,349.06 0.00 15,714.59 245,951.15 13,404.27 259,355.42 59.42 0.00 0.00 9,049.71 284,179.14 Mar '10 12 mths 365.53 365.53 0.00 0.00 0.00 0.00 0.00 12,914.99 0.00 13,280.52 196,608.44 5,644.85 202,253.29 46.43 0.00 0.00 16,730.97 232,311.21 Mar '09 12 mths 365.53 365.53 0.00 0.00 0.00 0.00 0.00 10,993.01 0.00 11,358.54 155,295.08 3,962.17 159,257.25 36.29 0.00 0.00 12,826.91 183,478.99 Mar '08 12 mths ------------------- in Rs. Cr. ------------------Mar '11 12 mths Mar '10 12 mths Mar '09 12 mths Mar '08 12 mths

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Bank of Baroda
Capital Work In Progress Other Assets Minority Interest Group Share in Joint Venture Total Assets Contingent Liabilities Bills for collection Book Value (Rs) 0.00 10,399.33 0.00 0.00 457,412.00 134,988.89 41,028.30 693.62 0.00 6,303.27 0.00 0.00 366,213.77 112,544.64 34,004.12 556.06 0.00 4,458.54 0.00 0.00 284,272.58 78,341.53 28,071.78 431.40 0.00 4,628.39 0.00 0.00 232,311.20 64,958.31 22,800.15 364.58 0.37 4,344.08 0.00 0.00 183,425.56 75,729.57 15,225.85 311.82

Source : Dion Global Solutions Limited

URL - http://www.moneycontrol.com/stocks/company_info/print_main.php

Bank of Baroda Profit and Loss Statement (Last 5 years)

Previous Years

Profit & Loss account Mar '12 12 mths Income Interest Earned Other Income Total Income Expenditure Interest expended Employee Cost Selling and Admin Expenses Depreciation Miscellaneous Expenses Preoperative Exp Capitalised Operating Expenses Provisions & Contingencies Total Expenses 29,673.72 3,422.33 33,096.05 19,356.71 2,985.58 2,589.44 276.57 2,880.80 0.00 6,727.59 2,004.80 28,089.10 Mar '12 12 mths Net Profit for the Year Extraordionary Items Profit brought forward Total Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Earning Per Share (Rs) Equity Dividend (%) 5,006.96 0.00 0.00 5,006.96 0.00 812.29 0.00 121.79 170.00

------------------- in Rs. Cr. ------------------Mar '11 12 mths Mar '10 12 mths Mar '09 12 mths Mar '08 12 mths

21,885.92 2,809.19 24,695.11 13,083.66 2,916.78 1,885.00 243.04 2,324.94 0.00 5,669.88 1,699.88 20,453.42 Mar '11 12 mths 4,241.68 0.00 0.00 4,241.68 0.00 753.35 0.00 108.33 165.00

16,698.34 2,806.36 19,504.70 10,758.86 2,350.88 1,627.56 230.86 1,478.21 0.00 4,711.23 976.28 16,446.37 Mar '10 12 mths 3,058.33 0.00 0.00 3,058.33 0.00 639.26 0.00 83.96 150.00

15,091.58 2,757.66 17,849.24 9,968.17 2,348.13 885.24 230.50 2,189.99 0.00 3,844.66 1,809.20 15,622.03 Mar '09 12 mths 2,227.20 0.00 0.00 2,227.20 0.00 383.56 0.00 61.14 90.00

11,813.48 2,051.04 13,864.52 7,901.67 1,803.76 927.20 232.00 1,564.36 0.00 3,370.27 1,157.05 12,428.99 Mar '08 12 mths 1,435.52 0.00 0.00 1,435.52 0.00 340.94 0.00 39.41 80.00

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Bank of Baroda
Book Value (Rs) Appropriations Transfer to Statutory Reserves Transfer to Other Reserves Proposed Dividend/Transfer to Govt Balance c/f to Balance Sheet Total 668.34 1,740.81 2,453.86 812.29 0.00 5,006.96 536.16 1,387.87 2,100.46 753.35 0.00 4,241.68 414.71 1,162.07 1,257.00 639.26 0.00 3,058.33 352.37 1,136.23 707.41 383.56 0.00 2,227.20 303.18 444.23 650.35 340.94 0.00 1,435.52

Source : Dion Global Solutions Limited URL: http://www.moneycontrol.com/stocks/company_info/print_main.php

Annual Report Self Analysis

2011(in Crores)
20993.11 358397.18 228676.36 112272.64 790.88 3,152.50 20974.23 209890.48 0.1 1,603.83 4,419.20 22,513.31 3,284.66

Data
Net Worth Total Assets Total Advances Contingent Liabilities Net NPAs Gross NPAs Tier-I Capital Total Risk Weighted Assets Provision for Doubtful Debts Advances Subject to Restructuring Profit after Tax Interest Income Non-Interest Income

2012(in Crores)
27476.85 447321.46 287377.29 134552.25 1,543.64 4,464.75 27497.91 253733.75 76.14 8,265.41 5,216.29 30,488.49 4,099.89

2010(in Crores)
15106.39 278316.71 175035.29 77997.01 602.32 2,400.69 14356.88 156091.41 0.06 2,455.05 3,149.79 17,234.82 2,966.47

2009(in Crores)
12835.54 227406.73 143985.9 64745.82 449.04 1842.92 11069.64 130324.89 51.01 2658.56 2,331.27 15,547.56 2,845.67

2008(in Crores)
11043.93 179599.5 106701.32 75364.33 493.55 1981.38 NA NA 36.46 NA 1,518.14 12,164.25 2,142.42

Annual Report Self analysis Excel Attached Below

FinStmt_Analysis_Ra tios.xlsx

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Bank of Baroda
Section 4

Capital Adequacy Ratios

Type Ratio Capital Asset Ratio Capital Adequacy Net Capital-Assets Ratio Net NPA Coverage Ratio Tier-I Capital Ratio Formula Net Worth/Total Assets (Net Worth- Net NPAs)/ Total Assets Net NPAs / Net Worth Tier-I Capital / Total Risk Weighted Assets 2012 (in %) 6.14 5.8 5.62 10.84 2011(in %) 5.86 5.64 3.77 9.99 2010(in %) 5.43 5.21 3.99 9.2 2009(in %) 5.64 5.45 3.5 8.49 2008(in %) 6.15 5.87 4.47 NA

Section 5

Asset Quality, Market Risk & Liquidity Ratios

Type Ratio Gross NPA Ratio-I (A) Net NPA Ratio-I (A) Gross NPA Ratio-II (A) Net NPA Ratio-II (A) Formula Gross NPAs/ Total Assets Net NPAs/ Total Assets Gross NPAs/ Total Advances Net NPAs/ Total Advances Provision for Doubtful Debts/ Total Advances Advances Subject to Restructuring/ Total Advances 2012 (in %) 1.00 0.35 1.55 0.54 2011(in %) 0.88 0.22 1.38 0.35 2010(in %) 0.86 0.22 1.37 0.34 2009(in %) 0.81 0.2 1.28 0.31 2008(in %) 1.1 0.27 1.86 0.46

Asset Quality, Market Risk & Liquidity Ratios

Provisions Ratio (A) Restructured Assets Ratio (A)

0.03

0.04

0.03

2.88

0.7

1.4

1.85

NA

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Bank of Baroda
Section 5

Asset Quality, Market Risk & Liquidity Ratios

Type Ratio Return on Equity Profitability Ratio Return on Assets Interest Income Ratio Non-Interest Income Margin Formula Profit after Tax/Net Worth Profit after Tax/Total Assets Interest Income/ Total Assets Non-Interest Income/Contingent Liabilities 2012 (in %) 18.98 1.17 6.82 2011(in %) 21.05 1.23 6.28 2010(in %) 20.85 1.13 6.19 2009(in %) 18.16 1.03 6.84 2008(in %) 13.75 0.85 6.77

3.05

2.93

3.8

4.4

2.84

A Consolidated List of Calculated Ratios Along with Formulae Can be Found in below Attached Excel Sheet (Double Click on Ratios to check Formulae used)

FinStmt_Analysis_Ra tios.xlsx

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Bank of Baroda
Section 7

Interpretation of Ratios and Overall Analysis

Type

Ratio

Ratio Interpretations
This ratio tells us the extent of shareholders funds maintained against the total assets owned by the bank. It also gives us an indication of the maximum extent of losses in the value of assets that the bank can withstand. Since Net NPA's are nothing but an expected loss that is not provided for, the true amount of capital available to withstand losses in total asset value is lower than the net worth. This ratio captures the true amount of such capital available as a buffer against future losses. Percentage reduction in Net Worth if provisions made against entire amount of Net NPA's. A higher/increasing value of this ratio points to trouble This ratio gives us the proportion of equity held against the amount of risk weighted assets. To put it simply, risk weighted assets are a measure of the amount of risk involved with each asset (think of risk weighted asset values as the maximum amount of loss that could be incurred on the assets if no recovery is possible at all) The proportion of total assets that are not generating any income for the bank. This ratio is not of much value as gross NPA's are not the only non-income generating assets for banks. The proportion of total assets that are to be written off. As with gross NPA ratio-I, this ratio is not of much value but is very widely used in the financial press.

2012 (in %)

2011(in 2010(in 2009(in 2008(in %) %) %) %)

Capital Asset Ratio

6.14

5.86

5.43

5.64

6.15

Capital Adequacy

Net Capital-Assets Ratio

5.8

5.64

5.21

5.45

5.87

Net NPA Coverage Ratio

5.62

3.77

3.99

3.5

4.47

Tier-I Capital Ratio

10.84

9.99

9.2

8.49

NA

Asset Quality, Market Risk & Liquidity Ratios

Gross NPA Ratio-I (A)

0.88

0.86

0.81

1.1

Net NPA Ratio-I (A) PGCBM 22

0.35

0.22

0.22 Page 11

0.2

0.27

Bank of Baroda
This ratio more correctly compares apples with apples. It gives us the proportion of nonincome generating advances. High and increasing values of this ratio are indicative of lax lending policies in the past leading to problems in recovery in the present. The proportion of total advances that are yet to be written off/provided against. Same interpretation as for Gross NPA Ratio-II The amount of accumulated provisions made against total advances. A high and increasing value of this ratio has the same implication as Gross NPA RatioII. It also indicates that the bank is possibly being more cautious in terms of recognizing possible losses in its profit and loss account. This ratio gives us the proportion of advances that the bank could not recover fully on originally contracted terms and hence require restructuring to reduce the extent of future losses on such loans. Possibly in the absence of such restructuring, the bank would have had to fully write-off the amount of these loans. A high value of this ratio has the same interpretation as Gross NPA Ratio-II. Additionally, this ratio has to be compared with Gross NPA Ratio-II to get a sense of the true extent of loss making loans (for instance if the Gross NPA RatioII is 3% and this ratio is 2%, it means that the bank is able to restructure 2/3 of its possible loss making loans and hence, its actual losses will be lower. This ratio gives us the extent of returns earned by the bank on the capital invested by shareholders This ratio gives us the extent of returns earned by the bank on the capital invested by all providers of capital.

Gross NPA Ratio-II (A)

1.55

1.38

1.37

1.28

1.86

Net NPA Ratio-II (A)

0.54

0.35

0.34

0.31

0.46

Provisions Ratio (A)

0.03

0.04

0.03

Restructured Assets Ratio (A)

2.88

0.7

1.4

1.85

NA

Profitability Ratio

Return on Equity

18.98

21.05

20.85

18.2

13.75

Return on Assets PGCBM 22

1.17

1.23

1.13 Page 12

1.03

0.85

Bank of Baroda
This is used to further analyze the drivers of net interest margin. It gives us the interest yield on interest earning assets. As the profitability decomposition exercise shows, this ratio should be further broken down in terms of the rate of return earned by different categories of interest bearing assets and their composition. A declining value of this ratio is indicative of greater competition and lesser avenues for growing assets more profitably. This gives us the rate of income earned on off-balance sheet items. Typically, it can be further broken down into the composition of various offbalance sheet items and the rates of income earned on each.

Interest Income Ratio

6.82

6.28

6.19

6.84

6.77

Non-Interest Income Margin

3.05

2.93

3.8

4.4

2.84

What do the above indicators mean for Bank of Baroda?

The year FY12 has been challenging for the Indian economy. After two years of a fairly robust growth of 8.4%, Indias GDP growth is estimated at 6.9% for FY12 by the Central Statistical Organization, Government of India. Notwithstanding the challenging environment, the Bank was able to exploit the opportunities within the given environment and sustain its qualitatively superior performance during FY12. The Bank posted a very healthy growth of 25.9% in its global business way above the banking industrys average performance. On the back of healthy growth of 17.2% in its Net Interest Income, the Bank recorded Net Profit growth of 18.0% despite adverse pressures on Net Interest Margins (NIMs). The Banks Return on Average Assets (ROAA) at 1.24%, Capital Adequacy at 14.67% and Return on Equity at 18.98 % again provided an eloquent testimony to the financial Soundness of your Bank. Moreover, the Bank again proved its strength in the asset quality management by restricting its Gross NPA ratio at 1.53% and Net NPA ratio at 0.54% during FY12 one of the lowest in the large sized banking segment in India. Source Annual Report 2012-11

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INDEXFormulae Used for Calculation

Capital Adequacy Ratios S. No. 1 2 3 4 Ratio Capital-Assets Ratio Net CapitalAssets Ratio Net NPA Coverage Ratio Tier-I Capital Ratio (Also called Tier-I Leverage Ratio) Basel Risk Weighted Capital Ratio Formula Net Worth/Total Assets (Net Worth- Net NPAs)/ Total Assets Net NPAs / Net Worth Tier-I Capital / Total Risk Weighted Assets

(Tier-I Capital + Tier-II Capital + Tier-III Capital) / Total Risk Weighted Assets Equity-Risk Tier-I Capital / Total Risk Weighted Assets Weighted Assets Ratio Short-Term Leverage Ratio Short-Term Borrowed Funds (Non-Deposit Funds)/ Total Assets

Asset Quality, Market Risk & Liquidity Ratios S. No. 1 2 3 Ratio Gross NPA Ratio-I (A) Gross NPA Ratio-II (A) Net NPA RatioI (A) Formula Gross NPAs/ Total Assets Gross NPAs/ Total Advances Net NPAs/ Total Assets

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Bank of Baroda
4 Net NPA RatioII (A) Provisions Ratio (A) Restructured Assets Ratio (A) Net NPAs/ Total Advances Provision for Doubtful Debts/ Total Advances Advances Subject to Restructuring/ Total Advances

5 6

Asset Quality, Market Risk & Liquidity Ratios S. No. 7 Ratio Asset Concentration Ratio (A) Sectoral Concentration Ratios (A) Formula Large Loans/ Total Advances Exposures to Individual Sector/ (Total Advances+ Investments (except Gsecs)) (e.g. Exposures to Real Estate Sector, Retail Advances, Capital Markets, etc) Liquid Assets/(Demand deposits + Savings deposits+ Interbank Deposit Liabilities + Short Term Borrowed funds) Liquid Assets/ (Total Assets)

Liquidity RatioI (A,L,M)

10

Liquidity RatioII (A,L,M)

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Bank of Baroda
11 Liquidity RatioIII (Short-Term Gap Ratio) (A,L,M) Off-Balance Sheet Exposure Ratio (A,M) Assets Maturing in One year/ Liabilities Due in One year Off Balance Sheet Transactions / Total Assets

12

Asset Quality, Market Risk & Liquidity Ratios S. No. 13 Ratio Relative Growth Rate Ratio-I (A,M) Relative Growth Rate Ratio-II (A,L,M) 15 Relative Growth Rate Ratio-III (A) Relative Growth Rate Ratio-IV (A,M) Exposure to Banks & Financial Institutions Ratio (A,L,M) Formula Growth Rate of Advances (%)/ Growth Rate of Investments Growth Rate of Government Securities Holdings/ Growth Rate of Investments Growth Rate of Off Balance Sheet Transactions / Growth Rate of Total Assets Growth Rate of Risk Weighted Assets / Growth Rate of Total Assets (Investment in Securities issued by Banks & FIs + Interbank Deposit Balances + Advances to Banks & FIs)/ Total Assets

14

16

17

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Profitability Ratios
S. No. 1 2 3 4 5 Ratio Return on Equity Return on Assets Net Interest Margin Interest Income Ratio Interest Expense Ratio Non-Interest Income Ratio Formula Profit after Tax/Net Worth Profit after Tax/Total Assets (Interest Income-Interest Expense)/ Total Assets

Interest Income/ Total Assets Interest Expense/ (Deposits + Borrowings) Non-Interest Income/ Net Interest Income

Profitability Ratios
S. No. 7 Ratio Operating Expense Ratio NPA Provision Ratio Formula

Operating Expenses/ (Net Interest Income + NonInterest Income) Provision against NPAs/(Net Interest Income)

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Bank of Baroda
9 Non-Interest Income Margin Non-Interest Income/Contingent Liabilities

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