INTRODUCTION OF

BANK

INTRODUCTION:

Current time bank is crucial part of business and it is furnished

services to connecting businessmen for urging dealing. Banking has played a
very important role in the economic development of all the nations of the
world. In fact, banking is the lifeblood of modern commerce is. So depend
upon banking that any cessation of banking activity. Even for a day or two.
This completely paralyzes the economic life of a nation.

1.1 OVERVIEW OF BANKING INDUSTRY:

The word bank has been derived from the Latin word bancus or from
banque. Which mean a bench in English? The early bankers transacted their
business at benches in a market place. When banker failed his bench was
broken up by the people. According to some authorities derived from the
German word bank was meaning a joint stock fund Italianated into banco
when the German were masters of a great part of Italy, In India, the Hilton
young commission recommended that word bank or banker should be
interpreted as meaning every person, firm or company accepting deposits of
money subject to withdrawal by cheque, draft or order.

The Indian Banking Companies Act. 1949 define a “Banking company

as a company which transacts the business of banking in any State of India.”

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 In the economic development of a nation banks occupy an important
place. Banking institutions from an important part of the money market
comprises both organized as well as unorganized sectors. The unorganized
sector includes moneylenders and indigenous bankers and largely caters to
the needs if persons living in villages and small town. It is estimated that
about one third of the total credit requirements of the country are met by the
unorganized sector. Financial Institution in the organized sector have grown
significantly in the last institutions in the organized sector of the Indian
Money Market commercial bank and co-operative banks have been in
existence for a petty long time.
Besides the co-operative banks. Commercial banks and regional Rural
Banks. A variety of specialized financial institutions have been setup in the
country to cater to the specific needs of trade, commerce, agriculture,
industry and other activities.
In the field of agricultures finance and allied activities. Co-operative
credit societies and central co-operative have been in operation since long.
After nationalization in a 1969. Commercial banks also have expanded their
activities to rural areas and provide finance for agriculture and allied
activities.
Thus quantitatively as well as qualitatively there banking instructions
have increased their services tremendously in recent years.

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1.2 STRUCTURE OF CO- OPERATIVE BANK:

Primary Co-operative Bank

Central Co-operative Bank

State Co-operative Bank

CO-OPERATIVE BANKS:

Farmers in India are scattered all over the country and need short-term
small borrowing for agricultural purpose. This need is not fulfilled by
commercial banks, which are unsuited for financing agriculture accepted as
security by commercial banks. Therefore special types of banks are necessary
for the financing of agriculture. Co-operative banks are best suitable for this
purpose. The objective of co-operative banks is to offer banking facilities to
persons of limited means requiring credit for productive purpose in the use of
the land and labor at their disposal. The co-operative banking structure in
India may be divided into their component part.

1. Primary Co-operative Banks “or” Credit Society (PCS)

The primary co-operative credit society is an association of borrows

and non-borrows residing in a particular locality. The funds of the society are
derived from the share capital and deposits of members and loans from

3
central co-operative banks. The borrowing power of the members as well as
of the society is fixed. The loans are given to members for the purpose of
cattle, folder fertilizer, pesticides, implements, etc.

2. Central Co-operative Banks (CCB):-

There are the federations of primary credit societies in a district and

are of two types- those having a membership of primary societies only and
those having a membership of societies as well as individuals. The funds of
the bank consist of share capital, deposits and overdrafts from state co-
operative banks and joint stocks. These banks finance member societies
within the limits of the borrowing capacity of societies. They also conduct all
the business of a join-stock bank.

3. State Co- Operative Banks (SCB):-

The state co-operative bank is a federation of central co-operative

banks and acts as a watchdog of the co-operative banking structure in the
state. Its funds are obtained from share capital from the Reserve Bank of
India. The state co-operative banks lend money to central co-operative banks
and primary societies and not directly to farmers. The principle one being the
institution of provincial co-operative banks to serve as apex banks in the
hierarchy of co-operative pyramid.

1.2.1 Role of Co-operative Banks in India and its structure:

4
 Co-operative banking came into vogue in India in 1904 when the first
Co-operative Credit Society Act was passed. The main function of a co-
operative Credit Society was to provide cheap credit to the members who are
small people with small means and small needs and finance. Another object
was to inculcate the saving habit among the agriculturists and make them
take advantage of co-operation from fellow members of the society. We
could bring green revolution in agriculture sector only due to co-operative
activities.
There is a state co-operative bank in each state co-operative as an apex
institution, advancing short term and medium term agriculture credit is three
tier one: a state co-operative bank (SCB) at an apex level in each state, the at
the district level and the primary and society (PCS) in the village, and urban
banks (UB) and other non-agricultural credit societies (NACS) in cities and
towns. The structure of co-operative banks.
As I discussed the co-operative societies came into existence when the
co-operative societies act, 1904 was enacted. These societies, however could
not mobilize enough resources as compared to the loans demanded by its
members. This led to the enactment a new act in 1912. The various sections
of this act are as follow:
1) To keep watch over the activities of the primary co-operative societies
and to assist them the required monetary help and them guidance
district central co-operative banks are established.
2) Establishing of non-leading societies along with the loan-giving
(lending) societies.
3) The difference between the village societies and urban societies is
removed and the type of societies maintain are only of two types.

5
 (i) Societies having limited responsibility.

(ii) Societies having unlimited responsibilities.

In 1919, the Nontague Chemsford Act made co-operative societies and

banks co-operative society acts have been passed by all the state
government.

From April 11966 the co-operative banks came under the preview of
banking lagh a paid up capital of Rs. 1 lakh or more have come under
the control of Reserve Bank of India. From above discussion, we see
that the co-operative banks in India have shown very good progress
since their establishment but in spite of showing very much progress
there still exists a number of defects in such co-operative societies and
banks. This has led qualitative improvement to suffer.

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INTRODUTION OF VARACHHA CO-OPERATIVE
BANK LTD

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2.1 HISTORY
The Varachha Co-operative Bank submitted the application for
beginning of the bank and also registered to the Surat District Registraction
Department on 27th January, 1995 with registered no SA2914 and the
registered office of the bank is at Affil Tower, Lambe Hanuman Road, Surat-
395006. Within the period of five-month obtaining license from Reserve
Bank of India, on 1st July, 1995 with license number as UBD Guj1153 P after
finishing has started it’s working on dated 16th August 1995. By gliting of
lamp with inauguration of the bank was done by the Swami Sachidanand.
Board of Director:
Shree Pravinbhai V. Pansuriya (CHAIRMEN)
Shree Bhupendrabhai K. Ribadiya (VICE CHAIRMEN)
Dr. Lavjibhai M. Nakrani (CHAIRMEN OF LOAN COMMITTEE)
Shree Dhirubhai N. Ghevariya (CHAIRMEN OF STAFF COMMITTEE)
Shree Kanjibhai R. Vadariya (DIRECTOR)
Shree Vallabhbhai P. Savani (DIRECTOR)
Shree Narendrabhai M. Kukadiya (DIRECTOR)
Shree Jivarajbhai K. Patel (DIRECTOR)
Shree Prabhudas T. Patel (DIRECTOR)
Shree Kanubhai V. Savaliya (DIRECTOR)
Shree Babubhai V. Mangukiya (DIRECTOR)

2.2 SCENARIO OF ORGANIZATION

CHAIRMEN
P.B. Dhakecha

VICE CHAIRMEN
Bhupendrabhai K. Ribadiya

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 MANAGING DIRECTOR
Bhavanbhai B. Navapara

BOARD OF DIRECTOR

GENERAL MANAGER
A.D.Bhalani

Ring Road
Katargam
Branch Branch
Branch
Manager K.A. Dobariya
A.V. Patel
B. C. Sorathia

Kamrej Kadodara Kapodra

Branch Branch Branch
M.D. Kanani D.I. Dodiya V.B. Dhanani

2.3 DEVELOPMENT:-

The development of The Varachha Co- Operative Bank was

continuously increasing after two and half year from establishing of Head
Office. We can know more above bank from given a table of Branch
establishment. The Varachha Co- Operative Bank was not need take loan
from government sector and other. For Developing and Vested it’s branch so
progress table as under.

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 Branch Address Date
Bhavani Complex, Kamrej Char
KAMREJ 07-06-1998
Rasta, Surat.

Sai Darshan Market, Kamela

RING 04-07-1999
Darwaja, Ring Road, Surat.
ROAD

Establishing of three branch in one year on 2000-2001

Branch Address Date
Thakorji Complex, Kadodara Char
KADODARA 02-07-2000
Rasta, Surat.
“Visvas Bhavan” Nr. Shiddh Kutir
KAPODRA Temple, Kapodra, Varachha Road, 28-01-2001
Surat-6.
Sardar Complex, Nr. Anath
KATARGHAM Asram, Katargam Main Road, 26-01-2001
Surat.
Amazing development of bank. To achieve in year 2000-2001.
Because period of one year. The Varachha Co-operative bank was set up the
three Braches within the short time to it’s evident to rapid development of th
Varachha Co-operative Bank.

2.4 THE VARACHHA CO-OPERATIVE BANK

ESPECIALLY BANKING SERVICES:

1. Tele-Banking Cum Fax Services:

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 By using tele-baking services, customer can take information about
personal account ledger (PLA) and it’s transaction. And bye using fax
services. Customer can take statement of last fifteen day on fax services.

2. Vat Machine:

“Visual Account Teller Machine” i.e. called VAT Machine.

Customer can see his statement, balance sheet, and other information by just
entering his account number and PIN number and this facility is very popular
in customers.

3. M.I.C.R. Cheque.

“Magnetic Ink Character Recognition” that is known as M.I.C.R.

This crucial technology is also adopted by The Varachha Co-Operative Bank
for rapidly work with a view to speeding up the cheque clearing process both
local as well as intercity, under this system; the cheques are processed at
high. Speed on machines. Bank issue cheque, draft and other payment
instrument in M.I.C.R. Format using the special quality paper and printing
specifications. On M.I.C.R. instrument there is code line at the bottom
containing information printed in magnetic ink, which is required for
mechanical processing. The code line contains the following information.
• First six number indicate the cheque number
• Next three number indicate city code
• Next three number indicate bank code
• Next three number indicate branch code
• After some space three is the number for transaction code

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 M. I. C. R. cheque should not be a folded pin, staples, etc. should only
be used on top left hand corner of the cheque. Signature of the drawer, rubber
stamp, etc. should be affixed above the code line. Nothing should be written
on the code line. In place of the counterfoils M.I. C. R. chequebooks provide
for Record Slip. At the ends, which are used for recording the details of every
cheque, issued.

4. Teller Payment Service:

Cashier furnishes this service if amount is not exceeding of 20,000 in

Current Account and 10,000 in Saving Account so customer can draw
directly through this service.

5. Other services:

a) Senior citizen
For senior citizen Bank gives half percent more in Fixed Deposit to
them whose age is above 60 years

b) Full Day Banking Services:

Monday to Friday 10:00 a.m. to 6:00 p.m.
Saturday 10:00 a.m. to 2:00 p.m.
c) Safe Deposit Vault services:
Just open in Branch
• Kapodara Branch
• Katargam Branch
• Kamrej Branch
d) N.R.I. (Non Resident in India)

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 N.R.I. individual can open his account in The Varachha Co-operative
Bank because The Varachha Co-operative Bank is granted through Reserve
Bank of India.
e) G.E.B. Bill collection services
Organization of centers for G.E. B. Bill payment for more suitability
for the customers. Facilities provided by the bank in Kamrej, Kadodra
Branch and Kapodra Branch.
f) Insurance provided by the bank to its deposit holder and loan taker.

2.5 VARIOUS TYPES OF DEPOSIT ACCOUNTS IN

VARACHHA BANK:-

 Bank Account:

The bank accepted deposits from the public and offers facilitates to the
public according to their requirements and economic status. Though bank
accepts deposits as a fund-raising device. Its primary aim is to serve the
society as financial institution and lend its might to strengthen the capital

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market. Keeping all these in video a bank usually offers three types of
accounts in which it accepts deposits.
1) Fixed Time Deposit Account
2) Saving Deposit Account
3) Current Account

Details in Deposit Accounts:

1) Fixed Time Deposit Account:-

Fixed deposit account are made with the bank for a fixed period which
is specified at the time of making the deposit. This account attracts those
customers who have money to invest for a longer period but do not want to
take much of risk.
The interest rate varies from one period to another. A deposit of 15
days attracts a smaller rate of interest and deposits for 5 or more years the
highest rate.
Fixed deposit accounts are usually opened by the following kinds
people.
1) Middle Income People.
2) Religious Societies
3) Trustee
4) Educational Institutions
5) Others who want to invest but at no risk at all.

2) Saving Deposit Account:-

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 The banks with a view to developing the people’s habit of savings the
bank accept saving deposits. Normally people having fixed income belonging
to middle class, deposit their savings in their accounts and the banks provide
them facilities so that they may earn interest.
Saving account open with minimum amount is Rs.1000 and the
interest rate is 3.5%.

3) Current Account:-

Current accounts are also known as demand deposit accounts current

account is running an active account which may be operated upon any
number of times during a working day. There is no restriction on the number
and the amount of withdrawals from a current account. Current account
deposit is known as banker’s demand liability and in order to fulfill its
liabilities he keeps sufficient cash ready every moment.
 Function of Current Account
• Individual Account
• Proprietary Account
• Private account
• Hindu Undivided Family (HUF)
To encourage saving habits in general public and mobilize savings in
the country for her development plans. So the bank offering.
(i) Recurring Deposit Accounts:
The recurring deposit account has gained wide popularity these days.
Under this the depositor is required to deposit a fixed amount of money every
month for specific period of time. Each installment may vary from Rs.5 to
Rs.500 or more per month and the total period of account varies from 12

15
months to 10 years. After completion of the specified period, the customer
gets back all his deposits along with the cumulative interest occurred on
them.
This type of accept is very popular amongst the salary people since it
provides them an opportunity to raise the enough funds. So that they can
utilize it in the purchase of some useful household good, the purchase of
which otherwise it impossible.

2.6 MANAGEMENT TOWARDS PROVISION FOR PROFIT

DISTRIBUTION
• Net Profit
Deducted Provision
Reserve Fund 25 %
Share Dividend 15 %

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 Dividend Equalization Fund 02 %
Education Fund -
Building Fund -
Total -
Distribution Profit = DP
Rest Profit = Net profit – (DP)
• Rest Profit
Deduction as per sub-
rule:
Accident annual fund 5%
Other activity fund 20 %
Donation fund 10 %
Rebate Interest Fund 20 %
Jubilee Festival Fund 10 %
Staff Benefit Fund 10 %
Member welfare Fund 20 %
Co-operative Propaganda 05 %
Fund
Total 100 %

2.7 BANKERS:-
Bankers Location
The Gujarat State Co-operative Bank Limited Ahmedabad
The Surat District Co-operative Bank Ltd. Surat
State Bank of India – Chawlk Bazar – Nanpura Surat
State Bank of Travankor – Ring Road Surat
State Bank of Saurastra Surat
State Bank of Mysore Surat
Indus Ind Bank Limited Surat
H.D.F.C. Bank Ltd. Surat
I.C.I.C.I. Bank Ltd. Surat

2.8 BANK PROVIDES VARIOUS TYPES OF LOANS:

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 1) Mortgage Loan
2) Security Loan on Bank’s Share Certificate
3) Vehicle Loan
4) Cash Credit Loan
5) Machinery Loan
6) Term Loan
7) Self-employee Loan
8) Loan on National Saving Certificate
9) TUF Loan (Textile Upgradation Fund )
10) Gold Loan

2.9 OBJECTIVE OF THE VARACHHA CO-OPERATIVE

BANK

 To encourage thrift and mutual Co-operating among its members.

 To create funds to be lend at moderate of interest to the members of

the bank in accordance with the processor specified in these byelaws

 To undertake the management of trust and for that to accept any office
of trustee, executors or office to perform duties of such a confidence
nature either independently or jointly with some other person as the board
deems fit.

 To undertake every kind of banking and sharaffi business and also to

undertake giving bank guarantee and letter of credit on behalf of
members.

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  To do every kind of trust and agency business and particularly do the
work investment of funds, sale of properties and of recovery or
acceptance of money.

 To give possible help and necessary guidance to traders, artisans etc.

who are members of this bank in the conduct of their business.

2.10 PROGRESS OF THE VARACHHA BANK:

(Rows 2to 6 are in Crores)

No Contents 03/98 3/99 3/00 3/01 3/02 3/03
No. of
1. Share 5566 5955 6429 6887 7342 8142
Holders
Share
2. 0.95 1.31 1.82 2.51 3.11 3.44
Capital
Total
3. 17.02 37.54 62.45 101.03 123.04 129.79
Deposit
Total
4. 10.39 22.53 39.94 55.21 67.32 67.25
Loans
5. Net Profit 1.11 1.34 2.09 3.67 4.70 4.3
Working
6. 23.33 44.60 72.43 115.83 146.41 159.35
Capital
No. of
7. 14680 24530 40013 58222 66109 75435
Depositor
No. Of
8. Loan 1232 1868 4216 5098 5727 5055
accepter

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 9. Dividend 15% 15% 15% 15% 15% 15%

RATIO ANALYSIS

3.1 INTRODUCTION OF RATIO ANALYSIS: -

The relationship of these two figure expressed mathematically is called

a ratio. The ratio reefers to the numerical or quantities relationship between
two variables or times. A ratio is calculated by dividing one item of the
relationship with the other. The ratio analysis is one of the most useful and
common methods of analyzing financial statement. Ratio enables the mass of
data to be summarized and simplified. Ratio analysis is an instrument for
diagnosis of the financial health of an enterprise.

3.2 MEANING OF RATIO:-

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 A ratio is only a comparison of the numerator with the denominator.
The tern ratio reefers to the numerical or quantitative relationship between
two figures and obtained by dividing the former by the latter.
Ratio analysis is an important and age old technique of financial
analysis. The data given in financial statements ratio are relative form of
financial data and very useful techniques to cheek upon the efficiency of a
firm. Some ratio indicates the trend or progress or downfall of the firm.

3.2.1 Importance of ratio:

Ratio analysis of firm’s financial statement is of interest to a number

of parties mainly. Shareholders, creditor, financial executives etc.
shareholders are interested with earning capacity of the firm: creditors are
interested in knowing the ability of firm to meet financial obligation and
financial executives are concerned with evolving analytical tools that will
measures and compare costs, efficiency liquidity and profitability with a
view to making intelligent decisions.

• Aid to measure general efficiency: Ratios enable the mass

of accounting data to be summarized and simplified
• Aid to measure financial solvency: They point out firm’s
liquidity position to meet its short-tern obligation and long-tern
solvency.
• Aid in forecasting and planning: ratio help to prepare the
future plan of action etc.
• Facilitate decision-making: it throws light on the degree
of efficiency of the management and utilization of the assets that is
why it is called surveyor of efficiency.

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 • Aid in corrective action: the highlight the factors
associated with successful and unsuccessful firms.
• Aids in intrude firm comparison: inter firm comparison
are facilities. It is an instrument for diagnosis of financial health of
enterprise.
• Evaluation of efficiency: ratio analysis is an effective
instrument which, when properly used is useful to assess important
characteristics of business liquidity, solvency, profitability etc.
• Effective tool: ratio analysis helps in making effective
control of the business measuring performance; control of cost etc.
ratio ensures secrecy.

3.2.2 Limitation of ratio analysis

Ratio analysis is as already mentioned, a widely used tool of financial

analysis. It is because ratios are simple and easy to understand. But they must
be used very carefully. They suffer from various limitations.

Some of the limitations of ratio analysis are given below:

• Difference in definition: comparisons are made difficult
due to difference in definitions of various financial terms.
• Limitations of according records ratio: Ratio analysis is
based on financial statement, which are themselves subject to
limitations.

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 • Lack of proper standards: it is very difficult to ascertain
the standard ratio in order to make proper comparison. Because it
differs from firm to firm, industry to industry.
• Changes in accounting procedure: it different firms for
their valuation follow methods then comparison will practically be
of no use.
• Limited use of single ratio: a single ratio would not be
able to convey anything. It too many ratio are calculated they are
likely to confuse instead of revealing meaningful conclusions
• Personal bias: Ratios have to be interpreted and different

people may interpret the same ratio in efferent ways. The analyst
has to carry further investigation and exercise. His judgment in
arriving at a correct diagnosis.

3.3. CLASSIFICATION BY PURPOSE:

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 This is a classification based on the purpose for which an analyst
computes these ratios. The modern approach of classifying the ratios is
according to purpose or objects of analysis. Normally, ratios are used for
the purpose of assessing the profitability and sound financial position.
Thus, ratios according to the purpose are more meaningful.
There can be several purposes, which can be listed.

Classification by Purpose

Profitability Activity
Solvency

Capital turnover Ratio

Creditor Turnover
Debtor Turnover
Short term Long term Fixed Assets Turnover

- Proprietary Ratio
- Current Ratio - Debt – Equity
- Cash position Ratio
Ratio
- Solvency Ratio

Gross profit Ratio

Net profit Ratio
Expense Ratio
Operating profit Ratio
Return on capital
employed Ratio
Return on Equity Ratio

3.3.1 Solvency ratio

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 Solvency ratio (
1
Short term Long tern
) Sh
o rt-
Proprietary ratio
Current ratio
Debt-equity ratio
Cash position ratio
Solvency ratio

term
I. Current Ratio
II. Cash position Ratio

(I) Current ratio: -

Current ratio is the most common ratio measuring liquidity being

related to working capital analysis; it is also called the working capital ratio.
Current ratio expresses relationship between current assets and current
liability.

It is calculated by dividing current assets by current liability.

Current ratio = current assets

Current liabilities

25
 Current
2001 2002 2003
assets
Cash 101022946 91865667 145366689
Bank 82752538 60395420 100068900
Advance 324052618 435799975 424613713
Other advances 22341179 38793552 69260211
Bills receivables 5060596 3979987 3500508
Interest receivables 20780224 17586799 22042524
Total 556010102 648421400 764852545
Current liabilities
Bills payable 5060596 3979987 3500508
Interest payable 105537341 151404137 170012452
Current deposit 117193537 177498738 216847619
Saving deposit 159518565 221739279 251737366
Interest liabilities 12762863 16825205 10115704
Other liabilities 16985292 17438244 30137518
Total 417058194 588885590 682351167
Ratio 1.33 1.10 1.12

Chart:
1.33
1.4
1.1 1.12
1.2

0.8

0.6

0.4

0.2

0
2001 26
2002 2003
Interpretation: -
An ideal current ratio is 2:1 considered as a safe margin of solvency
2:1 i.e. the current assets are two times the current liabilities. When ratio is
2:1. The creditors will be able to get their payments in full.
Here, it is shows the bank has been always between 1.12 to 1.33 which
is quite satisfactory but can be improv by better profit and also by decreasing
in liabilities.

(II) Cash position ratio: -

It is a variation of quick ratio. When liquidity is highly retracted in
terms of cash and cash equivalents this ratio should be calculated. The
inventory and the debtors are excluded from current assets, to calculate this
ratio.
Cash position ratio= (cash + marketable security)
Current liability

2001 2002 2003

Cash 10102294 91865667 145366689
6
Marketable securities 82752539 60395420 100068900
Total 18377548 152261087 245435589
0.44
0.45 5
Current Liability
0.4 41705819 0.36588885590 682351167
0.35 4
Ratio 0.3 0.26 0.44 0.26 0.36
0.25
Chart: 0.2
0.15
0.1
0.05
0
2001 27
2002 2003
Interpretation: -
In cash position ratio 1:1 is satisfactory result. In 2001 to 2003 all
year’s ratio is lower than 0:75:1. It means the bad position for the bank. In
cash position ratio cash is increase in 2003 compare with 2001. And also
marketable securities increase in 2003.

(2) Long-term
I. Proprietary Ratio
II. Debt-Equity Ratio
III. Solvency Ratio

(I) Proprietary ratio:

Proprietary ratio relates the shareholders funds to total assets. It is a
variant of the debt equity ratio. This ratio a variant of the debt equity ratio.
This ratio shows the long-term or future solvency of the business. It is
calculated by dividing shareholders funds by the total assets:
Proprietary ratio= shareholders fund
Total assets
Share holders fund 2001 2002 2003
Capital 25050000 31060400 34402600
Reserve fund 59506159 104411717 172655919
Subsidiary fund - - -
P & L a/c 36709773 47001569 47280228
Total 121265932 182473686 254338747
Total asset 1166383894 1468522340 1600488521
Ratio 0.10 0.12 0.16

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 Chart:

0.16
0.16

0.14 0.12
0.12
0.1
0.1

0.08

0.06

0.04

0.02

0
2001 2002 2003

Interpretation: -
This ratio shows the general strength of the bank. It is very important
to creditors as is help them to find out the proportion of share holder fund in
the total asset used in business. Higher ratio indicates a secured position to
creditor i.e. 0.16 and lower ratio indicates greater risk to creditor i.e. 0.10.
From 2001 to 2003, the ratio is increase.

(II) Debt-equity ratio:

Debt equity ratio is determined to ascertain soundness of the long-term
financial policies of the company. This ratio relates all external liabilities to
owner’s recorded claims.

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 Debt-equity ratio = Long-term debt
Shareholder’s fund

Long term debt 2001 2002 2003

Fixed deposit 628059766 679807291 659343265
Other borrowing - 17355772 4455342
Total 628059766 697163063 663798606
Share holders fund 121265932 182473686 254338747
Ratio 5.18 3.82 2.61

Chart:

6
5.18
5
3.82
4
2.61
3

0
2001 2002 2003

Interpretation: -
In indicates the margin of safety to long-term creditors low debt-equity
is larger safety margin for creditors and high ratio is unfavorable from the
firm’s point of view and creditors point of view the claims of creditor are
greater than the of owners.

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 (III) Solvency ratio: -
Solvency ratio is also known as debt ratio. It is a difference of l00and
proprietary ratio. This ratio is found out between total assets and external
liabilities out between total asserts and external liabilities external liabilities
means all long period and short period liabilities.
Solvency ratio= Outside liabilities
Total assets
= Total liabilities – shareholder’s fund
Total assets – NPA

particular 2001 2002 2003

Outside liabilities
Total liabilities 1166383894 1468522340 1600488521
Less: Share holders fund 121265934 182473686 254338747
Total 1045117960 1286048654 1346149774
Total assets 1166383894 1468522340 1600488521
Ratio 0.89 0.87 0.84

Chart: 0.89
0.89
0.88
0.87
0.87
0.86
0.85
0.84
0.84
0.83
0.82
0.81
2001 2002 2003

31
Interpretation: -
In this ratio, total assets are far more than external liabilities. The
banks treated solvent. In solvency ratio in 2001 is 0.89 and decrease in 2003
is 0.84, it means that outside liabilities is always less than total assets.

3.3.2 Profitability ratio

I. Net profit Ratio
II. Expense Ratio
III. Operating Profit Ratio
IV. Return on capital employed ratio
V. Return on equity shareholder’s funds.

I. Net profit ratio:

The ratio expresses the relationship between profit & net sales.
The main objective of computing this ratio is to determiner the overall
profitability due to various factors such as operational efficiency trading on
equity and hence it is very useful to preparatory.
Net profit ratio = Net profit x 100
Net sales
2001 2002 2003
Net Profit 36709774 47001569 47280228
Net Sales: 24.91
25
Interest receivable 143706779 189693181 203890471
Commission 24.5 24.23
3656668 4271246 5805746
Total 147363447 193964427 209696217
24
Ratio 24.91% 24.23% 22.55%
23.5

Chart: 23 22.55

22.5
22
21.5
21
2001 32
2002 2003
Interpretation: -
In the Net profit ratio, higher the ratio of net operating profit to sales
better is the operating efficiency and profitability when used with net profit
ratio and operating ratio.
In this ratio in 2001 is 24.90% and slightly decrease in 2003 is 22.55%
1t is more useful for the further condition of the bank.

II. Expenses Ratio:

This ratio indicates the efficiency or otherwise in the incurrence of
administrative expense. It is expressed as a percentage.
The purpose of this ratio is that income is rise than expenditure it is
also raised.
Expenses ratio = Total expenses X 100
Total incomes

Total expenses 2001 2002 2003

Staff, salaries, allowance 5914459.7 7509958 8790948
Director fees - - -
Legal fees 58050 34650 84531
Rent, tax, insurance 1677238 3546764 3596769
Postage, telegram 559554 666025 651445
Audit fees 41115 84425 193950

33
 Stationary, printing 1952370 1102094 1461752
Other expenses 2323893 5899959 5467498
Total 12526680 18843874 20246895
Total income 148944409 196044763 211774038
Ratio 8.41% 9.61% 9.56%

Chart

9.8 9.61 9.56

9.6
9.4
9.2
9
8.8
8.41
8.6
8.4
8.2
8
7.8
2001 2002 2003

Interpretation:
In this ratio the expenses are reduced it is best for firm and higher ratio
it is bad for all the future position and lower ratio greater profitability.
In this ratio the percentage of 2001 is 8.39% it is good position In 2003
the ratio is high from 8.39% to 9.56%.
The expenses ratio is increasing in % but it is not increasing highly.

34
III. Operating Profit Ratio
This ratio measures the relationship between operating profits and net
sales.
The main purpose of computing this ratio is to determine the
operational efficiency of the management.

Operating profit Ratio: operating profit x 100

Net sales

Operating profit 2001 2002 2003

Profit 36709774 47001569 47280228
Provision 4873700 4894792 29959203
Depreciation 3791403 13411085 6018823
Total 45374877 65307446 83258254
Net sales 147363447 193964427 209696217
Ratio 30.79% 33.66% 39.70%

Chart:

35
 39.7
40
33.66
35 30.79
30
25
20
15
10
5
0
2001 2002 2003

Interpretation:
This ratio increases in 3 years the ratio of 2003 is 39.70%. 1t means
lower position for 2001 is good but high in 2002 more efficient and increase

36
factor for higher gross profit, lower operating profit. Lower operating ratio
shows the higher operating profit.
Return on capital employed ratio: -

This ratio measures a relationship between net profit before interest &
tax and capital employed.

The purpose of computing this ratio is to find out how efficiency the
long term funds supplied by the creditors and shareholder have been used.

Return on capital employed ratio

= Net profit before interest & tax X 100
Capital employed
2001 2002 2003
Operating profit 45374877 65307446 83258254
Capital employed
Capital 25050000 31060400 34402600
Reserve fund 59506159 104411717 172655919
Subsidiary partnership fund - - -
Total 84556159 135472117 207058519
Ratio 53.66% 48.21% 40.21%

Chart: 60 53.66
48.21
50
40.21
40

30

20

10

0
2001 2002 2003

37
Interpretation: -
From the return on capital ratio is lower in year 2002, 2003. In this
ratio operating profit is lower than capital employed. The ratio is high that
means the more efficient use of capital employed, but the ratio is getting
decreased. So here we can say that the bank has to try to increase the ratio.

V. Return on equity shareholder fund: -

This ratio measures a relationship between net profit after interest and
tax and shareholder’s fund. This ratio establishes the profitability from the
shareholders point of view.
This purpose of computing this ratio to find out how efficiently the
funds supplied by the equity shareholders have been used.

Return on shareholders fund ratio

= Net profit after tax & interest X 100
Shareholders fund
2001 2002 2003
Net profit 36709774 47001569 47280228
Shareholders fund 121265934 182473686 254338747
Ratio 30.27% 25.76% 18.59%

Chart:

38
 35
30.27
30 25.76
25
18.59
20

15

10

0
2001 2002 2003

Interpretation: -
From 2001 to 2003, all year shareholder fund and profit are increasing.
It is the final income i.e. available for distribute as dividend to shareholder.
Shareholder fund include shareholder capital and all reserves and surplus
belonging to shareholder from 2001 to 2003, the ratio is decreasing in
percentage. In 2001, the ratio is 30.27%, then in next year the ratio is 25.76%
and in last year the ratio is 18.59%. So I suggest that bank take corrective
action about it.

39
3.3.3 Activity ratio

I. Creditor turnover ratio

II. Debtor turnover ratio
III. Fixed assets turnover ratio

40
 Creditors turnover ratio
This is also known as accounts payable or creditors velocity. This ratio
establishes a relationship between net credit purchase and average trade
creditors.
Longer the period of outstanding payable is lesser is the problem of
working capital of the firm but when the firm does not pay off its creditors
within time it may have adverse effect on the business.
The purpose of computing this ratio is to determine the efficiency of
the firm with the creditors is managed.
Creditor turnover ratio= Net credit purchase
Average trade creditor
In bank creditor turnover ratio
= Creditors + interest payable + bills payable

Interest paid

Creditors 2001 2002 2003

I. F.D. 628059766 679807291 659343264
II. S.D. 159518566 221739278 251737365
III. C.D. 117193537 177498738 216847619
Bills payable 5060596 3979987 3500508
Interest payable 105537341 151404137 170012452
Total 1015369807 1234429431 1301441209
Interest paid 91042853 111893442 108268889
Ratio 11.15times 11.03times 12.02times

Chart:

41
 12.2 12.02
12
11.8
11.6
11.4 11.15
11.2 11.03
11
10.8
10.6
10.4
2001 2002 2003

Interpretation:
In this ratio creditors are decreases in all year. In year 2001,
11.14times and increase in 2003 year is 12.02 times. It will be good for the
bank. A higher ratio shows that the creditors are not paying in time. A lower
ratio shows that business is not taking the full advantage of credit period
allowed by creditors.

Debtors turnover ratio

This is also called as debtor’s velocity or receivable turnover. This
ratio establishes a relationship between net credit sales and average trade
debtors.
The purpose of computing this ratio is to determine the efficiency of
the firm with which the trade debtors are managed
If the firm has not been able to collect its debtors within a reasonable
time its, funds unnecessarily locked up in receivables. In such case short term
loans have to be arranged for paying off its current liabilities. This depends
on quality of debtors.

42
 Debtor’s turnover ratio: Net credit sales
Average trade debtors
In bank debt equity ratio:
Debtors + bills receivable + interest receivables
Interest receivables

2001 2002 2003

Debtors
(i) Short term loan 324052618 435799975 424613713
(ii)Medium-term loan 225997182 235499752 246013956
(iii) Long-term loan 2056307 1866669 1935631
Bills Receivable 5060596 3979988 3500507
Interest Received 20780224 17586779 22042524
Total 577946927 694733163 698106331
Interest Received 143706779 189693182 203890471
Ratio 4.02 times 3.66 times 3.42 times

Chart:

4.1 4.02
4
3.9
3.8 3.66
3.7
3.6
3.42
3.5
3.4
3.3
3.2
3.1
2001 2002 2003

43
Interpretation:
In the debtors turnover ratio debtors are decrease as compare to above
year but interest receive for bank is decrease in 2002 it also indicates that
ratio is decrease or lower than above year.

IV. Fixed Assets Turnover Ratio

It is also known as to fixed assets ratio. This ratio establishes a
relationship between net sales and fixed assets.
The purpose of computing this ratio is to determine the efficiency and
profit earning capacity of the firm.

Fixed assets Turnover Ratio = Net sales

Net fixed Assets

2001 2002 2003

Net Sales 147363447 193964427 209696217
Net Fixed Assets
Furniture & fixture 15027239 18696536 15303200
Telephone deposits 167000 141000 145000
Gas deposits 3100 3100 4700
Vehicles 294807 218386 119598
Total 15492146 19059022 15572498
Ratio 9.51 10.18 13.47

Chart:

44
 14 13.47

12
9.51 10.18
10

0
2001 2002 2003

Interpretation: -
It indicates the firms’ ability to generate sale per rupee of investment
in fixed assets higher the ratio greater is the intensive utilization of fixed
Assets. Lower ratio measures under utilization of fixed Asset.

3.3.4 Credit Deposit Ratio

The purpose of credit Deposit Ratio that to find the current Position of
Bank. Total Deposit (T.D + Interest Payable)

Credit Deposit Ratio = Total Advances X 100

Total Deposits

2001 2002 2003

Total Advances 552106108 673166396 672563299

45
 Total Deposits 1010309209 1230449444 1297940701
Ratio 54.65% 54.71% 51.82%
Chart:-

55 54.65 54.71
54.5
54
53.5
53
52.5 51.82
52
51.5
51
50.5
50
2001 2002 2003

Interpretation:
Generally this ratio should be maintained at 60% to 70%. And 75% is
boarder line that is at should not exceed 75%. In the past 3 years, ratio is
between in 60% to 70% that means perfectly use of loan able fund.

II.3.5 Spread Ratio

The purpose of spread Ratio is find the Received interest & paid
interest.

Spread Ratio: (Interest Received-Interest paid) x 100

Interest Received

46
 2001 2002 2003
Interest Received 143706779 189693181 203890471
Interest paid 91042853 111893442 108268889
Total 52663926 77799739 95621582
Ratio 36.65% 41.01% 46.89%

Chart:

50 46.89
45 41.01
40 36.65
35
30
25
20
15
10
5
0
2001 2002 2003

Interpretation:

Spread Ratio is required minimum30% to 35%. This Ratio is good

because higher than 30% to 35%. Interest received is higher than fatest paid
in last three years.

I.3.6 Over dues Ratio

Over dues Ratio = Total over dues

47
 Total loan
2001 2002 2003
Total over dues 34133397 33680000 32120116
Total loan 552106108 673166396 672563299
Ratio 6.18% 5% 4.76%

Chart:

7
6.18
6
5
4.76
5

0
2001 2002 2003

Interpretation:
This ratio should maintain below in 10%. If this ratio is above 15%
that means bank comes in categories of week but these ratio of bank already
below 10%. Overdue of year 2003 is less than 2002.

3.3.7 Profit margin

To find the profit margin that means net profit dividing by total incomes.

Profit margin= Net profit x 100

Total income

48
 2001 2002 2003
Net profit 36709774 47001569 47280228
Total income 148944409 196044763 211774039
Ratio 24.67% 23.97% 22.33%

Chart:

25 24.67
24.5
23.97
24
23.5
23
22.33
22.5

22
21.5

21
2001 2002 2003

Interpretation:
Generally this ratio is required under 10 to 15%. If this ratio is higher
than 15% that means it is good for bank.

3.3.8 Non interest income ratio

Non interest income ratio= Non interest income x 100

Total income
2001 2002 2003
Non interest income
Exchange & commission 3656668 4271255 5805746

49
 Other income 1580962 2080327 2077822
Total 5237630 6351580 7883567
Total income 148944409 196044762 211774039
Ratio 3.52% 3.24% 3.72%

Chart:

3.8 3.72
3.7
3.6 3.52
3.5
3.4

3.3 3.24

3.2
3.1
3
2001 2002 2003

Interpretation:
This ratio should maintain between 3 % to 5 %, which means it is good
for bank. This ratio of bank is always under its limit i.e. 3% to 5%

3.3.9 Loan to Deposit Ratio

Loan to Deposit Ratio = Total Loan x 100

Total Deposit

50
 2001 2002 2003
Total Loan 552106108 673166396 672563299
Total Deposit 904771869 1079045308 1127928249
Ratio 61.02% 62.39% 59.63%

Chart:

62.39
62.5
62
61.5 61.02
61
60.5
60 59.63
59.5
59
58.5
58
2001 2002 2003

Interpretation:
Cash Reserve Ratio (CRR) & Statutory Liquidity Ratio (SLR) has to
be maintained under section 18 & 24 banking regulation act, 1947. Bank can
advances total of deposits of 30 to 40% & make advances 60 % to 70%
Varchha bank has maintains this ratio. This ratio was maintaining under 60 to
70 % last year of the Varachha bank. It is satisfactions as per ratio point of
view.

3.3.10 Profit on loan & advance ratio

51
 7.1 7.03
6.98
7

6.9

6.8

6.7 6.65

6.6

6.5

6.4
2001 2002 2003

Net profit X 100

Total loan
2001 2002 2003
Net profit 36709774 47001569 47280228
Total loan 552106107 673166396 672563299
Ratio 6.65% 6.98% 7.03%

Chart:

Interpretation:

52
 The ratio of 2001 and 2002 a rounding 5 % but increase in 2003 is
7.03% that means total loans are increase in last 2 years compare with net
profit. Percentage of outstanding loan of bank maintained nearly 5 %. It goes
to 6.65% in the year 2001 that is a sufficient.

3.3.11 Total income to income of interest on loan Ratio:

Income of interest on loan x 100
Total income
2001 2002 2003
Income of interest on loan 143706779 189693182 203890470
Total income 148944409 196044763 211774039
Ratio 96.48 % 96.76% 96.27 %

Chart:

98 97.76

97.5

97
96.48
96.5 96.27

96

95.5
2001 2002 2003

Interpretation
The bank’s income on interest of loan is around 96 %. That means it is
good for bank. In 2002, the bank’s income of interest on loan is 96.76 % and

53
slightly decreases in 2003 that is 96.27 %. Bank require try to increase in its
income of interest on loan.

3.3.12 Interest expense Ratio:

Total Interest Paid X 100

Total Expenditure
2001 2002 2003
Total Interest Paid 91042853 111893442 108268889
Total Expenditure 112234636 149043194 164493810
Ratio 81.11% 76.67% 65.82%

Chart:

90
81.11 76.67
80
65.82
70
60
50
40
30
20
10
0
2001 2002 2003

Interpretation:
The ideal ratio is declare by RBI under 70% to 75%. If this ratio is
higher than 75%. Bank should try to decrease this position create in 2001 but
after 2001 this ratio maintain under 70% to 75% that means bank get the
control on this ratio.

54
FINDINGS

55
• An ideal current ratio is 2:1 the ratio 2:1 is
considered as a safe margin of solvency due to the fact that if the current
assets are reduced to half i.e. 1 instead of 2 then also creditors will be able
to get their payments in full.
• Here it shows that the bank has been always between
1.1-1.45, which is quite satisfactory but can be improved by better
turnover & profit and also by decreasing liabilities.
• The Debt Equity ratio is determined to ascertain the
soundness of long-term financial policy of the bank. In case the ratio is 1.
It is consider being quite satisfactory.
• So it shows that the bank was able to acquire enough
external equity in all year that is a good sign for future.
• Bank’s interest expenses ratio is higher in 2001 that
is interest paid on overdraft and deposit was high.
• Overdue ratio decrease in 2003 i.e. total overdue
decrease in 2003 it is a good for bank.
• Working capital is increase in year to year for
maintaining day to day expenses.
• Credit deposit ratio is always less than 60%. Total
advances are less than total deposit. Ideal ratio is 60% to 70%.
• Bank’s non-performing assets are increase in year to
year due to development of bank.

SUGGESTION

56
 Bank should try reducing its operating expense and increasing its income.
 Bank should establish inter branch connectivity with all branches.
 The bank should update its website for better marketing so Customer See
the bank’s progress.
 To increase awareness in people mind The Varachha Co-operative Bank
should design it’s add campaign and select right source of propaganda
like media. Viz., etc.
 In the competition area bank should give facility of ATM to customer.

BIBLIOGRAPHY

57
  Management Accounting
-R.S. N. Pillai and Bagvati (S.Chand)
 Banking and Insurance
-N.D. Gami, J.B.Patel, Sunil H. Rajani (New Popular Prakasan)
 Annual Report of Bank

Profit & Loss Account

Particular 2001 2002 2003

Expense

58
Interest on deposit and borrowing 91042852 111893442 108268889
Salaries allowance & Provident 5914459 7509957 8790948
Fund
Director Fees - - -
Rent, Tax, Insurance, Electricity 1677238 3546764 3596769
Law Fees 58050 34650 84531
Postage, Telegram, Telephone 559554 666025 651445
Exp.
Audit Fee 41115 84425 193950
Depreciation Fund 3791403 4567387 6048823
Stationary, Printing 1952370 1102094 1461752
Non Banking Expense - - 5536118
Other Expense 7197592 19638450 29890582
Profit 36709773 47001569 47280228
Total 14894440 196044763 211774037
9

Income
Interest & Discount 14370677 189693182 203890471
9
Commission Exchange 3656668 4271254 5805746
Donation - - -
Non Banking Income - - -
Other Income 1580962 2080327 2077822
Total 48944409 196044763 211774037

Balance Sheet

Particular 2001 2002 2003

59
Liability
Share capital 25050000 31060400 34402600
Reserve fund 59506159 104411716 172655919
Subsidiary Fund - - -
Deposit:
- Temporary Deposit 628059765 679807291 659343264
- Saving Deposit 159518565 221739278 251737365
- Current Deposit 117193537 177498738 216847619
Call & Short Time Deposit - - -
Borrowing - 5000000 4455342
Bills Payable 5060596 3979987 3500507
Interest Overdue 12762863 16825205 10115703
Interest payable 105337341 151404137 170012452
Other liability 16985291 17438243 30137518
Profit and Loss A/c 36709773 47001569 47280228
Total 116638389 1468522340 1600488516
4

Assets
Cash 101022945 91865667 145366688
Bank 82752538 60395420 100068900
Call & Short time Investment - - -
Investment 339447100 530055100 540055100
Subsidiary Fund Invest - - -
Loans and Advances
- Short term 324052618 435799975 424613712
- Moderate term 225997182 235499752 246013956
- Long term 2056307 1866669 1935631
Interest receivable 20780224 17586799 22042523
Bills Receivable 5060596 3979987 3500507
Branch adjustment - - -
Building premises 27845962 33988220 32328089
Furniture & Fixture 15027239 18696536 15303200
Other Asset 22341179 38793552 69260210
Total 116638389 1468522340 1600488516
4

60