FINANCIAL ANALYSIS OF PMC BANK CRISIS

A Research project

Submitted in partial fulfillment of the requirements for the award of

degree
Of
Bachelor of business administrative

Submitted by

VAIBHAV KAPOOR
(FCM/BBA/2017-20/052)

Under Supervision of

MRS. SARITA MISHRA

ASSISTANT PROFESSOR

FACULTY OF COMMERCE AND MANAGEMENT STUDIES SRI

SRI UNIVERSITY, CUTTACK, ODISHA

November, 2019

1
 SRI SRI UNIVERSITY, ODISHA

CANDIDATE’S DECLARATION

I hereby certify that the work which is being presented in the report entitled “FINANCIAL
ANALYSIS OF PMC BANK CRISIS”, in partial fulfillment of the requirements for the award
of the Degree of Bachelors of Business Administration and submitted in the Faculty of
Commerce and Management Studies of the Sri Sri University, Odisha is an authentic record of
my own work carried out during 5TH semester(3rd year) under the supervision of Mrs. Sarita
Mishra, Assistant Professor, Faculty of Commerce and Management Studies, Sri Sri University,
Odisha.

(Vaibhav Kapoor)

Signature of the Student

This is to certify that the above statement made by the student is correct to the best of my
knowledge.

Dated:

(Mrs. Sarita Mishra)

Signature of the Research Guide

2
 Acknowledgement

I would like to convey my sincere gratefulness to all those who gave me the opportunity to
complete this project. I acknowledge the huge importance of this research and especially of this
project undertaken.

All the outset I would take the opportunity to express my sincere thanks to Dr. Namita Rath,
Head of Department FMS, Sri Sri University, Odisha, for giving me the opportunity to do
the research work.

I am highly obliged to Mrs. Sarita Mishra for his untiring help, valuable guidance and kind
supervision which were the main stream to bring this work in present shape. I wish to thank him
for his constant support in the successful completion of this research work.

Last, but not the least, I thank My Parents for giving me life in the first place, for educating me,
for their unconditional support and encouragement to purse my interest.

3
TABLE OF CONTENT

1. INTRODUCTION

• ABOUT
• FOCUS POINTS
• VISION AND MISSION
• PMC CRISIS

2. LITERATURE REVIEW

• FINANCIAL RATIO
• FINANCIAL STATEMENTS

3 OBSERVATION AND DEDUCTIONS

• FINDINGS
• ANALYSIS

4. CONCLUSION

5. BIBILIOGRAPHY

4
INTRODUCTION

5
ABOUT:

Punjab & Maharashtra Co-operative Bank is a Multi-State Scheduled Urban Co-operative Bank
with its area of operation in the States of Maharashtra, Delhi, Karnataka, Goa, Gujarat, Andhra
Pradesh and Madhya Pradesh. The humble beginning of the Bank was done in a small room at Sion,
on February 13, 1984 as a single branch Bank. In a span of 35 years, the Bank has a wide network
of 137 branches across six states. The Bank stands among top 10 co-operative banks of the country.

Milestones

The Bank was conferred with Scheduled Status by the Reserve Bank of India in the year 2000.It is
the Youngest Bank to achieve the ‘Scheduled Bank’ status.

The Multi-State Status was conferred on the Bank by the Central Registrar in the year 2004.The Bank
thus entered into the National platform

The Bank was given the Authorised Dealer Category I License by the Reserve Bank of India for
Forex business in the year 2011.

6
Awards and Achievements

The Bank has been awarded with 'Best Bank award for the year 2018' in the category of Rs.2000 cr
& above deposit by the Brihan Mumbai Nagari Sahakari Banks Association Ltd. for consecutively 2
times.

The Bank has various laurels to its credit.

All India Bank Depositors’ Association, well known body of the bank depositors, felicitated the Bank
in appreciation of “work ethics oriented to depositors’ service” in 1999.

The Bank has been awarded with ‘Padmabhushan Vasantdada Patil Award’ as the ‘Best Urban Co-
operative Bank’ by the Maharashtra State Co-op Banks’ Association Ltd. for nine times.

The Bank received a ‘Special Jury Award’ from NPCI for the lowest dispute ratio in Co-operative
Banking sector and also for the lowest unscheduled down time in 2012.

Since 2004, the Bank has instituted an award in the memory of the late M.R. Pai, noted public worker
and consumer activist. However, the Bank has requested the All India Bank Depositors’ Association
to choose the Award winner each year.

Special mention →

→ The Bank has a number of firsts to its credit and takes pride in having a number of unique
features:
→ 360 days banking (Sunday and Holiday Banking).
→ Token-less banking (tellers for any amount of cash withdrawal)
→ Set up of self-service counters for customers
→ Tele-banking service.
→ Introduction of special products like “Double Decker” and “Bal Bhavishya Yojana”.
→ The Bank was the pioneer to mention names of payee/ Drawer in the passbook / statement of
accounts to facilitate easy identification of every entry / transaction. The Reserve Bank of
India, in the year 2008/09, advised other banks to adopt this practice in the interest of better
customer service.
→ The Bank launched Website, Face Book page in the year 2011/12 to be noted on International
platform.
→ With 70% Women employees, the Bank believes in women empowerment. The Bank charges
1% less ROI for education loan to girls/women. It has special saving account scheme for
women. Women are given benefit of additional rate offered to senior citizens at the age of 58
years.

7
Corporate Social Responsibility (CSR)

→ As a part of Corporate Social Responsibility and a step forward in expansion of its business
the Bank acquired following three weak banks.
→ Kolhapur Janata Sahakari Bank Ltd, Kolhapur in 2008
→ Jai Shivrai Nagari Sahakari Bank Ltd, Nanded in 2009
→ Chetana Sahakara Bank Niyamitha, Sirsi, Karnataka in 2010
The depositors of these merged banks were paid in full. They are a satisfied lot.
→ The Bank donates Re 1/-, against each transaction carried out through Bank’s own ATMs,
to CRY & SAVE THE CHILDREN foundation.
→ The Bank has been generously donating to the NGO Help age India.
→ As an expression of gratitude, the bank in its “30th YEAR OF SERVICE WITH SMILE” has
organized Health Check Up Camps for customers and well wishers

INVESTMENTS

Financial year 2018-2019 is a challenge for the fixed income markets in India. In the domestic front,
extra market borrowings due to a miss in fiscal deficit target for FY18-19 and a sticky core inflation
weighed on the market sentiments. A strong global macro headwind by the way of rate tightening by
the US Fed (raising key rate by 25bp each on four occasions aggregating 100bp) and rising crude
prices further added to the adversity. With initiating rate action, the RBI talked up the market yields,
possibly to prepare the way for any further adverse escalation in macros, while still assessing the
sustainability of such developments. Resultantly, benchmark India 10-year yields approached near
8% mark. Subsequently, fresh turbulence in emerging markets led by the US China trade war tensions
and currency depreciation in Turkey, Mexico and Argentina had a cascading impact on India with
FPI flows turning negative in debt market. Consequently, the INR also suffered massive depreciation
of nearly 15%, hitting an all-time low mark of 74 before settling down to around 70, adding to the
bond market’s woes. These developments spiked bond investors taking India 10-year yield to the
yearly high of 8.25%. In such increasing interest rate scenario, the Bank preferred to hold securities
under Held till maturities to avoid mark to market losses. Thus, Bank shifted Securities worth `
28,015.35 lakh from AFS (Available for Sale) to HTM (Held till Maturities) category. Further, the
securities were acquired from secondary market under HTM category at higher yield to improve the
yield of the Portfolio.

CAPITAL TO RISK ASSET RATIO (CRAR)

As your Bank is an Authorised Dealer Category I Bank, it is required to maintain consistent CRAR
above 12%. As against the same, your Bank’s CRAR has stood at 12.62% and continues to retain a
healthy Capital to Risk Assets Ratio (CRAR).

8
VISION AND MISSION

“To emerge as a strong, vibrant, most preferred premier cooperative bank,

committed to excellence in serving the customers, and augmenting the
stakeholder’s value through concern, care and competence”.

The motto of the bank is ‘We enjoy to Serve’.

9
THE PMC CRISIS

Punjab and Maharashtra Cooperative Bank (PMC Bank) has been facing regulatory actions and
investigation over alleged irregularities in certain loan accounts. Loans given to financially stressed
real estate player Housing Development & Infrastructure (HDIL) are at the centre of the
investigation.

The crisis at PMC Bank first came to light on September 24, 2019, the day the Reserve Bank of
India (RBI) placed curbs on the activities of the Mumbai-based bank for six months. The central
bank also limited the amount a customer could withdraw from their account during the next six
months — to Rs 1,000 at first, and later to Rs 25,000.

The Enforcement Directorate has filed a money laundering case in the PMC Bank scam.

What happened at PMC Bank?

According to a FIR filed in the case, HDIL promoters allegedly colluded with the bank
management to draw loans from the bank's Bhandup branch. The bank officials did not classify
these loans as non-performing advances, despite non-payment.

Reports estimate the bank’s overall exposure to the HDIL group at around Rs 6,500 crore, or over
73 per cent of all of the bank’s advances — and all of this is not being serviced.

The bank also allegedly created fictitious accounts of companies which borrowed small sums of
money, and created fake reports to hide from regulatory supervision.

In 2018-19, the bank had reported a net profit of Rs 99.69 crore in its annual report. The bank
showed 3.76 per cent (or Rs 315 crore) of advances (Rs 8,383 crore) as gross non-performing assets
(NPAs), which was good performance as compared to public-sector banks.

However, it is now clear that the bank presented false financial reports to hide the bad loan mess
and the alleged collusion with HDIL and other companies.

Investigation so far

A special investigation team of the Mumbai Police is probing the case. The police's Economic
Offences Wing registered a case against the former bank management and promoters of HDIL on
September 30, 2019. The case for forgery, cheating and criminal conspiracy was filed on the basis
of a complaint by RBI-appointed administrator.

The bank's former chairman Waryam Singh, managing director Joy Thomas and other senior
officials, along with HDIL’s executive chairman Rakesh Kumar Wadhawan and his son Sarang,
have been named in the FIR.

Most people named in the FIR have been arrested. The bank's former MD Joy Thomas and HDIL’s
Wadhawans were arrested before him.

10
THE BIGGEST LESSONS FOR INDIA FROM THE PMC BANK FIASCO

When Kiran Gupte saw televised images of anguished depositors breaking down and weeping
outside the branches of Punjab and Maharashtra Co-operative Bank (PMC) over the last fortnight,
bitter feelings came flooding back. Since 2014, whenever he has heard of someone considering
depositing money in a cooperative bank, he has advised them against it, because he wouldn’t want
anyone to go through what he has. When the Reserve Bank of India (RBI) placed Mumbai’s CKP
Co-operative Bank under restriction. on withdrawals and lending in 2014, it changed Gupte’s life.
Nearly Rs 12 lakh, about 85% of his life’s savings, are stuck at the bank, with no clarity on if and
when he might get the money back.

“I really don’t know what will happen to us now,” says the 72-year-old former employee with a
chemical company, who lives with his wife in Dombivali in Mumbai.

He found CKP attractive for the higher interest rate on fixed deposits the bank offered, compared
with larger state-owned or private commercial banks.
Gupte has only managed to get Rs 15,000 from his savings account and has not been getting interest
on his fixed deposit, which amounts to Rs 85k annually, for five years now. A group of depositors
sends periodic representations to banking authorities and the prime minister. They haven’t heard
much back.

Gupte is among the tens of thousands of depositors who are faced with financial ruin as a
consequence of the potential folding of a poorly managed or fraud-hit cooperative banking
institutions.

PMC Bank, which has lately been in the news for fraudulently extending loans to Housing
Development & Infrastructure Ltd (HDIL), imperiling deposits of numerous customers, is just the
latest in a series of cooperative banks that have been placed under restrictions by the RBI. As of
March 2019, 26 urban cooperative banks (UCBs) were placed under directions of the central bank
for putting depositors at risk, thanks to mismanagement or fraud. This means operations are
restricted and, often, deposits are stuck.
Every time a crisis such as PMC surfaces, there’s some sympathy over the plight of depositors, and
debates around the need to regulate cooperative banks better. But then the world moves on, leaving
hapless depositors to pick up the pieces of their lives, and denting people’s faith in the banking
system ever so slightly.

The regulatory inaction leaves room for the next crisis at another bank somewhere else.

Why have institutions that are called banks but are not entirely within the purview of mainstream
banking regulations? Especially in a country with low financial literacy, where depositors
sometimes discover the difference only after a bank run?

The answer is complicated, and any potential regulation requires consensus building among
differing parties, such as central and state institutions. That’s partly what has come in the way of
effective regulation so far. Now, however, Finance Minister Nirmala Sitharaman has said the
government will assess if legislative amendments are needed to implement effective regulation. If
that happens, it might just be the silver lining on the PMC crisis.
11
Long History
Co-operative banking institutions account for about 8% of deposits and 9% of advances and loans
in India. Periodic tumult notwithstanding, they remain essential to the banking ecosystem in some
ways, especially at the lower end of the income pyramid.

“Co-operative banks are still relevant because they cater mostly to first-time borrowers who may
not be looked at positively by public-sector banks or private banks. We understand these borrowers
because we come from the same ecosystem,” says Gautam Thakur, chairman of Saraswat Co-
operative Bank, India’s largest scheduled UCB by assets.
While this is true, co-operative banks charge a higher rate of interest on loans to compensate for the
higher risk, and consequently are able to offer more attractive rates to depositors.

The Indian co-operative credit movement has its origins in the late 19th century when it was
attempted as an alternative to usurious moneylenders in villages.

The enactment of the Co-operative Credit Societies Act, 1904 (later amended in 1912), provided an
impetus to the idea as more co-operative credit societies were set up in rural and urban areas.
R Gandhi, former deputy governor of the RBI, does not think the problem lies in the ownership
structure of co-operative banks. “In fact, dispersed ownership is good. The problem is, in a co-
operative structure, you cannot have a professional board.” The board of directors of a co-operative
bank is elected by the bank’s members and the process is often gamed by politicians to gain control
of the bank. Politicians also wield a lot of influence in other co-operative institutions, such as sugar
mills in Maharashtra. In many states, political control of such institutions plays a key role in the
maintenance of the networks of political patronage, through loans as well as jobs at such
institutions.
In 1966, co-operative banks with paid-up share capital and reserves of more than Rs 1 lakh were
brought under the purview of the Banking Regulation Act, 1949, kicking off dual regulation of
UCBs that continues to this day. While the state registrar of co-operative societies is responsible for
monitoring the administration and audit of these banks, the apex bank regulates their banking
functions. Multi-state UCBs come under the ambit of the central registrar of co-operative societies.
This dual control has been cited as one of the key reasons why irregularities in UCBs often escape
detection. UCBs do not need the RBI’s approval to appoint their chief executive, unlike commercial
banks.
With the RBI’s liberalization of licensing norms in 1993, the number of UCBs swelled from 1,311
to 1,926 in 2004. But a third of these new banks became financially sick within a short period and
the RBI stopped issuing new licenses in 2004. The Madhavpura Mercantile Cooperative Bank
scam, in which there was a run on the bank in 2001, following revelations of the bank’s exposure to
entities linked to tainted stock broker Ketan Parekh, only added to RBI’s caution. There have been
129 mergers of UC Bs between 2004 and 2018, and as of March 2019, there were 1,542 UCBs, 54
of which were scheduled and the rest non-scheduled. Scheduled banks have more stringent norms
than non-scheduled banks and can borrow from the RBI for their normal banking requirements,
unlike the latter. Bengaluru has the most UCBs in India, at 263, followed by Nagpur (254) and
Mumbai (241).

Besides their higher interest rates, UCBs continue to be popular also because of the localized
12
personal attention they provide their clientele, which is missing in large commercial banks.
“Around 90% of the staff in our branches are locals. There is a sense of comfort for the borrower
when the staff knows him,” says Thakur. Some UCBs are also appealing to people because of their
long history. One of the reasons why Chandrashekhar Lad decided to open an account with CKP
Bank in the late 2000s was that the bank had been around since 1915.

“I had never kept money in a cooperative bank but this was a 100-year-old bank and their branch
was close to my house,” says Lad, a 61-year-old chartered accountant in Mumbai. But now he is not
sure if he is going to get his Rs 35 lakh back from the bank.
PMC Bank also has an administrator now. Its suspended managing director Joy Thomas, its former
chairman Waryam Singh and the promoters of HDIL Rakesh and Sarang Wadhawan have been
arrested. “People’s trust in co-operative banks is broken after this,” says Kiran Tare, a retired design
engineer in Thane who has Rs 3 lakh in PMC Bank. For Tare, this is a double whammy of sorts,
having earlier lost `6 lakh to the freeze on CKP Bank. He says he closed his accounts with various
co-operative banks but decided to continue with PMC Bank. “The bank’s balance sheet was good
and it was giving good dividends. We had no clue what was really happening.”

PMC Bank’s losses from not declaring some of the loans given to HDIL as non-performing assets
(NPAs) even after they had turned bad have been pegged at Rs 4,355 crore.
“Any UCB that is under directions of the RBI is either merged with another bank or is liquidated,”
says Vidyadhar Anaskar, vice-president of the National Federation of Urban Cooperative Banks
and Credit Societies. In case of liquidation, only deposits up to Rs 1 lakh are insured. As of March
2019, Rs 4,822 crore had been paid on insurance claims on deposits in 351 co-operative banks,
compared with Rs 296 crore in 27 commercial banks.

Though UCBs perform better than commercial banks on NPAs, return on assets and return on
equity, 46 of them have negative net worth, according to the RBI. “Even those UCBs which are fine
now may become problematic later,” says S Mahendra Dev, director of the Indira Gandhi Institute
of Development Research.

A committee headed by Gandhi in 2015 suggested that multi-state UCBs with a business of more
than Rs 20,000 crore convert into commercial banks and that smaller UCBs become small-finance
banks. “Once they cross a certain threshold, greater discipline is needed,” says Gandhi. This would
bring these UCBs completely under the control of the RBI. But, not surprisingly, there is resistance
from the sector. “There are only 5-6 big UCBs. If they convert to commercial banks, depositors will
pull out and the sector will collapse,” says Anaskar, who is also chairman of Pune-based Vidya
Sahakari Bank, a UCB.

The RBI did not respond to ET Magazine’s questions.

UCBs are just one part of the co-operative banking system. Rural co-operative banks account for
two-thirds of all co-operative banks’ assets. The short-term rural co-operative credit consists of
three tiers in most states — state co-operative banks (StCBs), district central co-operative banks
(DCCBs) and primary agricultural credit societies (PACs).

13
Diminishing Role
Till the nationalization of commercial banks in 1969, co-operative banks were the primary
institutional source of agricultural credit. But with the expansion of commercial banks and the
advent of regional rural banks in 1976, the role of co-operative banks has waned. Their share of
agricultural credit has declined from three-fourths in the mid-1970s to 12% in 2018-19, according
to the RBI and the National Bank for Agriculture and Rural Development (Nabard), which has been
delegated the power to inspect StCBs and DCCBs by the RBI. PACs, however, are not regulated by
the central bank.
Despite their diminishing contribution to farm credit, co-operative banks and societies are still
crucial in villages. Somnath Satras, a sugarcane and onion farmer at Uralgaon village in Pune
district, needed a loan of Rs 12 lakh to install lift irrigation in his farm in 2015
He first went to a private bank, which kept him waiting for two months before turning him down.
Then he went to the PAC near his village and his loan was processed within eight days. “There is
not much paperwork and everything happens quickly at the credit society,” he says.
PACs borrow from DCCBs and StCBs to lend to farmers. Satras is not averse to borrowing from
commercial banks. He has an account with Bank of India and has borrowed from HDFC Bank to
buy a car and a motorcycle. “But for farm loans, co-operative banks are the best option.” There are
33 StCBs, 364 DCCBs and around 95,600 PACs in India.
Days after the Union government scrapped Rs 500 and Rs 2,000 currency notes in November 2016,
the RBI said DCCBs could not accept these notes, as commercial banks were allowed to do,
ostensibly because the RBI feared unaccounted money was being laundered through these banks.
Despite the pernicious influence of politicians on rural cooperative banks, they are important to the
rural economy, according to B Subrahmanyam, MD, National Federation of State Cooperative
Banks. “They service a lot of small and marginal farmers who don’t go to commercial banks.”
Small and marginal farmers constitute 70% of PACs’ members.

While there is consensus on the need for more regulation of co-operative banks, there are some who
advocate a different approach to co-operative banks than to commercial banks. “Because co-
operative banks are people’s institutions, they should have more flexible norms. The amount of
profits they can make from banking activities is severely limited. The norms for UCBs can be a
little more stringent than for rural co-operative banks,” says R Ramakumar, professor at the Tata
Institute of Social Sciences in Mumbai. He adds that co-operative banks’ time has not passed.
Gandhi concurs: “One advantage with having a large number of UCBs is their local focus and they
develop the habit of banking among people.” And it is true that irregularities are hardly restricted to
co-operative banks, as the Nirav Modi scam at Punjab National BankNSE -0.81 % has shown.
Nonetheless, it’s clear that there is an urgent need to implement checks and balances to make sure
ordinary depositors aren’t left at sea.

14
LITERATURE
REVIEW

15
FINANCIAL RATIO
A financial ratio or accounting ratio is a relative magnitude of two selected numerical values
taken from an enterprise's financial statements. Often used in accounting, there are many standard
ratios used to try to evaluate the overall financial condition of a corporation or other organization.

FINANCIAL RATIO

Liquidity Asset Management Leverage Profitability

Liquidity ratios

Liquidity ratios asses the firm`s ability to meet its short-term obligations using short-term assets.
The short-term obligations are the ones recorded under current liabilities that come due within one
financial year. Short-term assets are the current assets. There are three (03) important
liquidity ratios

1. Current Ratio

The current ratio (CR) is equal to total current assets divided by total current liabilities. This
indicates the extent to which current liabilities can be paid off through current assets.

CURRENT ASSET
CURRENT RATIO
CURRENT LIABILITIES

2. Cash Ratio

The cash ratio goes a step further and examines the ability of the firm to settle short-term
liabilities using only cash and cash equivalents such as marketable securities. In other
words, the cash ratio indicates the extent to which current liabilities can be paid through very
liquid assets.

CASH RATIO Cash +Marketable Securities

Current Liabilities

16
Asset Management Ratios

Asset management ratios also known as efficiency ratios indicate the efficiency of the use of
assets in generating sales. There are five (05 more important ratios: average
collection period, inventory turnover, cash conversion cycle, fixed assets turnover
and total assets turnover.

.
1. Average Collection Period

The average collection period (ACP), also known as days sales outstanding (DSO), indicates the
average length of time the firm must wait after making accredit sale before it collects cash. In other
words, it shows the average number of days accounts receivables remain outstanding. The ACP is
calculated as follows

AVERAGE COLLECTION Receivables

PERIOD
Annual credit Sales/365

This is an important ratio used to evaluate the credit policy of the firm in relation to the industry
norms. A higher ACP indicates a liberal policy in that the firm gives more times to debtors for
making payments. A lower ACP indicates astringent policy in that the firm gives less time for
debtors.

2. Total Asset Turnover

Total asset turnover ratio measures the efficiency of the use of total assets in generating sales. Total
assets are sum of current and net fixed assets. The total asset turnover is calculated as sales divided
by average total assets. The average total assets are the simple average of total assets at the
beginning and end of the period.

Sales
TOTAL ASSET TURNOVER
Average Total Assets

17
Leverage Ratios

The leverage ratios, also called debt management ratios, measure two key aspects of the use of debt
financing by the firm. The use of debt financing a
called financial leverage. We want to know the level of financial leverage used by the business as
well as the ability of the firm to service its debt obligations. The debt ratio, debt-equity ratio and
interest cover are discussed below.

1. Debt Ratio

The debt ratio indicates the proportion of assets financed through both short-term and long-term
debt. This ratio is computed as total debt, which is
the sum of short-term and long-term debt, as a percentage of total assets. A higher ration indicates
higher leverage. A higher ration also means lower debt capacity in that the ability for the firm to
raise funds through more debt is lower due to already high debt levels.

Total Debt
DEBT RATIO
Total Assets

2. Debt –Equity Ratio

The debt to equity ratio (D/E) is also widely used as an indication of the level of financial leverage.
While there are several ways of computing this ratio, the most useful version is to express long-
term debt as percent of total equity. Thus, it focuses only on the long-term financing, both debt and
equity, and it is meaningful when we want to examine the long-term leverage. Total equity includes
both preferred equity and common equity. A higher debt equity ratio indicates greater leverage and
potentially higher financial risk.

Long Term Debt

DEBT EQUITY RATIO
Total Equity

18
Profitability Ratios

The profitability ratios, also known as performance ratios, assesses the firm`s ability to earn
profits on sales, assets and equity. These are critical to determining the attractiveness of
investing in company shares, and investors use these ratios widely. We will examine five
important profitability ratios, namely, gross profit margin, operating profit margin, net profit
margin, return on assets, and return on equity.

1. Gross Profit Margin

The gross profit margin (GPM) shows the firm`s profit margin after deducting costs of goods sold
but before deducting operating expenses, interest expenses, and taxes. This ratio is also known as
gross profit ratio

Sales –Cost of Goods Sold

GROSS PROFIT MARGIN
Sales

This is the first level of profitability. The GPM depends primarily on the firm`s product pricing and
cost control. The price of the product impacts sales. Production cost such as material, labour, and
overhead or the cost of purchases affect the cost of goods sold. A firm with a better ability to price
products in line with inflation of cost of production and the ability to
control production costs or suppliers will be able to maintain or increase gross margins.

2. Net Profit Margin

This is the bottom-line profitability, which most analysts and investors pay attention to on a regular
basis. The net profit margin (NPM) shows the firm`s profit margin after all the costs and expenses.
It is the profit available for distribution to common shareholders a percentage of sales.

Net Income
NET PROFIT MARGIN
Sales

Obviously, the lower operating profit margin is one reason for the lower NPM. It is also possible
that, since the firm is more debt-financed than an average firm, it has more interest expenses as
well. Since taxes are fixed, the key difference between the OPM and NPM is interest costs, which
are linked to the firm`s financing decision.

19
 3. Return on assets

The return on assets (ROA) measures the return earned on total assets employed in the
business. Sometimes, this is also referred to as the return on total capital. Since total assets
are financed through both debt and equity, is important that the return measure used for this
calculation reflects income to both shareholders and debt holders. We define the return as
the net income available for distribution to shareholders plus the interest expenses paid to
debt holders. This return is divided by the average total assets, which represents the simple
average of the total assets at the beginning and ending balance sheets.

Net Income + Interest Expenses

RETURN ON ASSET
Average total assets

4. Return on Equity

The return on equity (ROE) measures the return earned on the capital provided by the common
stockholders (Equity holders).
It is the net income as a percent of the average common equity, where the average common equity
is the simple average of the common equity at the beginning and ending balance sheets. The net
income is the income available for distribution to ordinary shareholders after deducting any
preferred dividends.

Net Income
RETURN ON EQUITY
Average Common Equity

Although not widely reported, this is in fact a more useful ratio than the P/E and P/BV ratios
discussed earlier. This is because the price of a share must be related to the actual cashflows
generated by the firm to its shareholders. There are a number of different definitions of
cash flow, and the one we use here is the most basic definition of cash flow. The cash flow is
the net income available for ordinary shareholders adjusted for non-cash income and expenses
included in the income statement. Since most common non-cash item in the income statement is
depreciation of physical assets and amortization of intangible assets, the cash flow is calculated by
adding these two items to the net income.

Total cash flow = Net income + Depreciation & Amortization

20
 FINANCIAL STATEMENTS

Balance Sheet as at March 31

Amount (₹)
PROPERTY & SCHEDULE 2019 2018 2017
ASSETS
1 CASH 6 708,55,24,409.87 540,27,66,244.27 4947784641.15
2 BALANCES WITH OTHER 7 409,69,30,640.75 276,03,49,147.91
BANKS 2579269479.85
3 INVESTMENTS 8 3124,87,07,813.23 2509,37,23,796.35 25800412353.16
4 ADVANCES 9 8383,32,91,762.66 7428,08,34,195.90 64382300066.91
5 BILLS RECEIVABLE 10,52,894.21 1,98,954.97
BEING BILLS FOR
COLLECTION
(As per Contra) 2087154.00
6 BRANCH ADJUSTMENTS 0.00 7,247.36 0.00
7 OVERDUE INTEREST 137,76,85,413.08 98,32,84,334.13
RECOVERABLE (NPA)
(As per Contra) 492116122.62
8 INTEREST RECEIVABLE 63,05,77,881.46 59,92,96,419.19 642079597.57
9 FIXED ASSETS 10 507,96,47,895.81 539,44,15,142.95 5036964956.17
10 OTHER ASSETS 11 283,93,90,259.95 208,15,38,738.26 1570670387.90
11 NON-BANKING ASSETS 51,24,000.00 51,24,000.00
ACQUIRED IN
SATISFACTION OF CLAIMS 15470000.00
TOTAL 13619,79,32,971.02 11660,15,38,221.29
105469154759.40
CAPITAL & SCHEDULE 31.03.2019 31.03.2018 31.03.2017
LIABILITIES
1 CAPITAL 1 292,60,98,375.00 294,21,67,975.00 2845117175.00
2 RESERVE FUND & OTHER 2 933,94,06,343.84 814,80,16,760.50
RESERVES 7479045616.68
3 DEPOSITS & OTHER 3 11617,33,69,351.54 9938,85,09,571.68
ACCOUNTS 90120028252.35
4 BORROWINGS 4 305,90,16,000.00 251,79,72,000.00 1892313000.00
5 BILLS FOR COLLECTION 10,52,894.21 1,98,954.97
BEING BILLS RECEIVABLE
(As per Contra) 2087154.00
6 BRANCH ADJUSTMENTS 0 0 107758.40
7 OVERDUE INTEREST 137,76,85,413.08 98,32,84,334.13
RESERVE
(As per Contra) 0.00
8 INTEREST PAYABLE 35,68,72,006.78 22,93,94,725.96 235503003.78
9 OTHER LIABILITIES 5 296,44,32,586.57 239,19,93,899.05 2402836676.50
TOTAL
105469154759.40
13619,79,32,971.02 11660,15,38,221.29

CONTINGENT LIABILITIES 12 1721,08,43,069.94 1125,67,95,355.72 16204186725.14

*Values as mentioned in Bank’s Annual Reports 2017-18,2018-19.

21
 Profit & Loss Account for 2019,18,17.
(Amount in
`)
EXPENDITURE 2019 2018 2017

1 Interest on 754,18,71,141.27 680,15,38,432.73

Deposits,
Borrowings etc. 6740660269
2 Salaries and 113,62,35,674.39 105,13,46,342.52
Allowances
1050467999
3 Rent, Taxes, 39,40,35,109.03 34,49,59,406.20
Insurance, Lighting
etc.
332659928
4 Legal Charges 1,02,866.00 70,600.00 154967
5 Postage, Telegram 8,70,01,239.16 7,69,75,893.88
and Telephone
charges
66588102.62
6 Audit fees & 8,97,43,076.41 8,93,99,261.85
Professional
Charges
80865504.36
7 Depreciation/ 46,14,78,240.09 46,13,50,567.44
Amortisation of
Assets
468969739
8 Printing Stationery
and Advertisement

I) Printing and 3,16,89,146.65 4,06,01,803.31

Stationery 47772883.64
ii) Advertisement 2,72,69,412.20 4,13,26,868.68 45057864
5,89,58,558.85 8,19,28,671.99 92830747.64
9 Other Expenditure
I) Bank and Other 18,22,16,896.22 13,14,66,737.21
Charges Paid

84557423
ii) Repairs and 20,62,48,107.12 19,60,51,812.45
Maintenance of
assets

176500147.8
iii) Premium paid to 10,56,62,326.00 9,68,63,817.00
DICGC

87524889.53
iv) Travelling and 79,59,163.79 75,56,692.57
Conveyance

8647565.53
v) Security Charges 7,65,66,166.40 7,37,99,668.10 65095449
vi) Amortisation of 3,06,69,278.70 2,98,91,796.94
Premium on
Investments
23055877.45
vii) Miscellaneous 15,64,84,038.30 14,35,60,267.57
Expenses
143655717.7
10 Provisions 76,58,05,976.53 67,91,90,791.84 589037070

22
 I) Provision Against 2,95,00,000.00 4,45,00,000.00
Standard Assets
15500000
ii) Provision for Bad 69,55,00,000.00 20,25,00,000.00
& Doubtful Debts
125000000
iii) Provision for 15,67,32,290.00 16,58,22,631.12
Investment
Depreciation
Reserve 377380000
iv) Provision for 0.00 86,40,000.00
other Contingent
Liability 0
88,17,32,290.00 42,14,62,631.12
11
Income Tax 517880000
Expenses
I) Current Tax 76,50,00,000.00 63,48,21,937.11 532972077.6
ii) Deferred Tax (19,90,61,442.41) 5,28,40,943.25 2477067
56,59,38,557.59 68,76,62,880.36 535449144.6
12 Total Expenses 1198,29,02,729.32 1069,58,85,479.93 10475563471
13 Net Profit after Tax 99,69,45,120.02 100,90,22,164.75 969425058.4
TOTAL 1297,98,47,849.34 1170,49,07,644.68 11444988529

INCOME 2019 2018 2017

1 Interest & Discount 1209,49,06,768.47 1095,66,87,060.77
10419625302.74
2 Commission 7,37,98,392.82 9,13,35,945.52
72111787.47
3 Income on Trading (Net) 26,09,13,247.32 16,43,73,474.63
607329516.77
4 Dividend 8,700.00 10,286.00 10273.00
5 Other Receipts
I) Bank and Other Charges 37,15,36,346.49 29,83,98,998.58
Received 172134601.62
ii) Rent received on lockers 3,75,74,565.00 3,56,22,685.00
34102550.00
iii) Profit on Sale of Assets 74,67,984.70 21,30,773.30
281385.11
iv) Miscellaneous Income 12,47,28,192.54 14,83,06,888.88
133723112.55
54,13,07,088.73 48,44,59,345.76
340241649.28
6 Excess Provision for 89,13,652.00 80,41,532.00
Impaired Assets NDCC 5670000.00
TOTAL 1297,98,47,849.34 1170,49,07,644.68
11444988529.26
*Values as mentioned in Bank’s Annual Reports 2017-18,2018-19

23
 OBSERVATIONS
AND
INTERPRETATION

24
 FINDINGS:

KEY RATIOS OF PMC BANK

RATIOS 2019 2018 2017

CASH RATIO 0.821 0.834 1.037

CURRENT RATIO 0.061 0.054 0.05

GROSS MARGIN 0.175 0.183 0.18

RETURN ON ASSETS 0.104 0.108 0.108

RETURN ON EQUITY 0.341 0.343 0.341

DEBT RATIO 0.909 0.905 1.078

DEBT TO EQUITY RATIO 1.167 0.933 0.748

VALUES USED FOR THESE:

1. Current assets=cash+balance with other banks+bills receivalbes+advances+interest receivables

2. Current liabilities=bills for collection+interest payable=deposits and other accounts

3. Sales=interest & discounts+commission+income on trading+dividend+bank and other charges

received+rent received on lockers

4. Equity= share capital

5. Total debts=deposits & other a/c.+borrowings+bills for collection+overdue interest reserve+interest

payable+other liabilities

6. Long term debts=borrowings+overdue interest reserve+other liabilities.

25
ANALYSIS:

1. Different financial ratios calculated for the last 3 years in a yearly format. This chart
shows how the ratios have changed every year.

FINANCIAL RATIOS
1.4

1.2

0.8

0.6

0.4

0.2

0
CASH RATIO CURRENT RATIOGROSS MARGIN RETURN ON RETURN ON DEBT RATIO DEBT TO
ASSETS EQUITY EQUITY RATIO

2019 2018 2017

2. Cash ratio is increasing over 3 years means the bank has enough liquidity to meet its
short-term obligations instead of long term.
3. Current ratio is not changing very much. Neither is the gross margin increasing instead,
it is decreasing by few crore rupees.
4. Return on asset and equity have also not changed much over these years.
5. In the first 2 years the debt ratio is slightly <1 which means the bank had less debts
than its assets nut in the year 2019 it increases drastically and becomes >1 making debts
more than assets. This means company’s capacity to get rid of its liabilities has reduced
drastically.
6. It is reducing over years means that to manage kits assets the bank is now raising less
liabilities instead increasing equity shareholding but this does not means its debts are
reduced because equity is a kind of liability as well.

26
Comparative position of growth over the last one year is as given below:
(` in Crore)

Particulars March 2019 March 2018 Mar-17

Share Capital 292.61 294.22 284.51

Reserves 933.94 814.80 747.9

Deposits 11617.34 9938.85 9012
Cash Investments & Bank 4243.12 3325.68 3332.75
Balance

Advances 8383.33 7428.08 6438.23

Gross Income 1297.98 1170.49 1144.5

Working Capital 13313.25 11390.10 10320.5

Net Profit Before Tax 156.29 169.67 150.48

Net Profit After Tax 99.69 100.90 96.4

No. of Branches 137 134 125

27
CONCLUSION

28
• Every time a crisis such as PMC surfaces, there’s some sympathy over the
plight of depositors, and debates around the need to regulate cooperative banks
better. But then the world moves on, leaving hapless depositors to pick up the
pieces of their lives, and denting people’s faith in the banking system ever so
slightly.

• The answer is complicated, and any potential regulation requires consensus

building among differing parties, such as central and state institutions. That’s
partly what has come in the way of effective regulation so far. Now, however,
Finance Minister Nirmala Sitharaman has said the government will assess if
legislative amendments are needed to implement effective regulation. If that
happens, it might just be the silver lining on the PMC crisis.

• As of March 2019, 26 urban cooperative banks (UCBs) were placed under

directions of the central bank for putting depositors at risk, thanks to
mismanagement or fraud. This means operations are restricted and, often,
deposits are stuck.

• These kind of studies can reveal the drawbacks of a currently working firm and
be used effectively to save them from such crisis.

29
BIBILIOGRAPHY

30
MAIN REFRENCES AND WEBSITES:

• economictimes.indiatimes.com

• https://economictimes.indiatimes.com/industry/banking/finance/banking/the-

biggest-lessons-for-india-from-the-pmc-bank-fiasco/articleshow/71557920.cms

• www.google.com

• www.pmcbank.com

• https://www.pmcbank.com/english/AboutUs2.aspx

• money.rediff.com

• www.timesnownews.com

• www.timesnownews.com

31