CHAPTER – 1

INTRODUCTION

1.1. OUTLINE OF THE PROJECT

A large number of companies have certainly been managing assets for years.
World has long used the term to mean “manage its assets effectively to enhance its
value”. Which had been operating over the couple of years in a turbulent competitive
world, have started facing stumbling obstacles in the management to asset components. It
has been paved the way, to study about the operational efficiency of asset management of
Indian Overseas Bank.

To assess the operational efficiency of IOB in managing various asset

components, selective accounting ratios is applied. This also focuses on the degree of
comparison among operational efficiency of assets management of an enterprise. It also
helps to find out the impact of operational efficiency indicators of the bank on its
profitability.

Greater efficiency is a prime goal for all businesses, nowhere more so than in the
intensely competitive and rapidly changing in service sector. Judgments of efficiency are
based on some idea of ‘wastage’. A relatively efficient process either requires fewer
inputs or produces more outputs compared to a similar process, to achieve the objectives
of the process.

Five ways to improve operational efficiency

• Analyze the current situation
• Optimize business processes
• Modernize existing assets
• Expand fast and flexibly
• Maximize the growth opportunity

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ASSET MANAGEMENT:

Many of you have probably heard the term "asset management" Before, but you may not
have an idea of what it really is. Asset management is a broad term. It can be defined as a
process that guides the gaining of assets, along with their use and disposal in order to
make the most of the assets and their potential throughout the life of the assets. While
doing this, it also manages and maintains any costs and risks associated with the assets. It
is not something you can buy, but rather a discipline you must follow in order to maintain
your assets.

Asset Management can be used for a variety of things. Most use asset management to
keep track of their cash or "liquid assets." Banking institutions are considered a form of
asset management (savings accounts, CD's, mutual funds, money market accounts, etc.)
along with investments. Another example of assets: businesses often have a product to
sell. These products are considered assets. The right asset management system can be
utilized to make the product more readily available, easier to produce, cheaper to ship to
customers, etc.

Asset Management Resource:

Tracking and insuring the product is also a way of asset management. The product is an
asset to the business and essential for its survival and for financial stability. So,
maintaining and managing this product is of the up most importance.

There is another type of asset that many people do not think of when they think of the
term "asset management." This asset has to do with public and shared assets such as: the
building and maintaining of streets, highways, water treatment facilities, sewage,
electricity, natural gas, clean air, etc. All of these are assets that everyone on this earth
needs. Usually, your city or local government uses asset management to maintain the cost
of these assets.

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They also use it to produce some of these assets more effectively and in a more cost
efficient manner. Natural resources such as: water, electricity, and natural gas are
managed so that they can be renewed constantly and thus available inexpensively.

There are many different means of asset management. It often depends on what type of
asset is involved. There are companies and software products available to assist in asset
management. Whatever method you choose, there are many similar things that your asset
manager system should entail:

1. Optimize asset use and manage all maintenance efforts involved by making assets as
accurate, reliable, and efficient as possible.

2. Reducing the demand for new assets and thus save money by using demand
management techniques and maintaining current assets.

3. Uses a form of asset tracking: knowing where the asset is at all times, how much the
asset is worth, and how much the asset cost you to begin with. It should also incorporate
this throughout the entire life of the asset.

4. Always tries to achieve greater value for money through evaluating the asset options:
the cost of maintaining, producing, the use of it, etc.

5. Always provides a report on the value of the assets, along with any costs involved in
maintaining the assets.

Asset Management (AM) eliminates the need for point solutions that offer a limited,
"flat" view of an asset by expanding the visibility and ownership of an asset throughout
an entire organization. Different entities may describe an asset in several ways:

Fixed asset to an accounting department

Leased asset to facilities management
Piece of production equipment to operations
Inventory item to materials management
Maintainable asset to mechanical engineers

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AM incorporates the above views of an asset through a single entity. An asset is an entity
for which users can report problems. Assets can be cooling towers, cranes, buses,
buildings, conveyors, or anything that needs work. AM provides the flexibility to address
the many types of assets through the definition of the following:

Asset groups and attributes

Asset links to an enterprise
Asset costs and work history
Asset activities and meters.

EFFICIENCY RATIOS, KEY TO MANAGING ASSETS:

“Though analysis of asset management ratios has limitations, historical and peer
comparisons help in gauging the efficiency of the management in utilizing its assets”

What is it?

Efficiency ratios are the financial statement ratios that measure how effectively
a business uses and controls its assets. Efficiency ratios are ratios that come off the
balance sheet and the income statement and therefore incorporate one dynamic statement,
the income statement and one static statement, the balance sheet. These ratios are
important in measuring the efficiency of a company in either turning their inventory,
sales, assets, accounts receivables or payables. It also ties into the ability of a company
to meet both its short term and long term obligations. The efficiency ratio compares
operating expenses with operating revenue. It measures how effectively or efficiently
operating expenses are used to generate loans, deposits and fee income.

Efficiency ratios, also known as asset management ratios, are the key to
deciphering how well a business manages and uses its assets. These ratios measure a
company’s efficiency in applying its assets and play a role in determining the returns
generated.

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Why is it important?

The efficiency ratio is important because it tells us how efficiency we are

employing our limited resources. The more efficiently we employ our resources, the
more profitable we become.

Efficiency ratios measure the quality of a business’ receivables and how

efficiently it uses and controls its assets, how effectively the firm is paying suppliers, and
whether the business is overtrading or under trading on its equity.

The selected efficiency ratios can be used to measure the company’s efficiency
which are as follows:

CAPITAL TURNOVER:

Managerial efficiency is calculated by establishing the relationship between cost

or sales or sales with the amount of capital invested in the business. It measures how
efficiently the company is able to utilize its capital to generate sales. The higher the
CTR, the higher is the company’s efficiency in using its capital funds.
Capital turnover Ratio: {Sales (or) Total Operating income / Total Capital}

ASSETS TURNOVER:

Assets are used to generate sales. Therefore, a firm should manage its assets
efficiently to maximize sales. The relationship between sales and assets is called assets
turnover. Several assets turnover ratios can be calculated.

TOTAL ASSETS TURNOVER:

This ratio determines efficiency of utilization of total assets and profitability of
a business concern and it also reflects the company’s efficiency in managing its
investment in total assets. Higher the ratio more is the efficiency in utilization of total
assets. A lower ratio is the indication of under utilization of fixed assets.

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 Some analysts like to compute the total assets in addition to or instead of the
net assets turnover. This ratio shows the firm’s ability in generating sales from all
financial resources committed total assets. Thus
Total assets Turnover: {Sales (or) Total Operating income / Total Assets)
Total Assets (TA) include net fixed assets (NFA) and current assets (CA) (TA = NA
+ CA)

FIXED ASSETS TURNOVER:

1. Fixed Asset Turnover Ratio:

This ratio determines efficiency of utilization of fixed assets and profitability of a

business concern and it also reflects the company’s efficiency in managing its investment
in fixed assets. Higher the ratio more is the efficiency in utilization of fixed assets. A
lower ratio is the indication of under utilization of fixed assets.

The firm may wish to know its efficiency of utilizing fixed assets, for its fixed
assets turnover is calculated.

Fixed Assets Turnover Ratio: {Sales (or) Total Operating Income / Net fixed
assets}

The use of depreciated value of fixed assets in computing the fixed assets
turnover may render comparisons of firm’s performance over period or with other firms
meaningless. Therefore, gross fixed assets (GFA) may be used to calculate the fixed
assets turnover for a meaningful comparison.

CASH TURNOVER:

Since case is the most liquid asset, it measures how efficiency cash is managed.
A financial analysis may examine cash turnover ratio and its equivalent to marketable
securities. Trade investment or marketable securities are equivalent of cash. The higher
the CSTR, the more efficient is the management of cash whereas a low CSTR reflects
underutilization of available cash resources and the presence of idle capacity. It indicates

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whether the efficiency of cash management of the company is increased or decreased in
the firm.
Cash Turnover Ratio: {Total operating income or Cost of goods sold/ cash &
Bank Balance }

WORKING CAPITAL TURNOVER:

Working capital turnover ratio measures the effective utilization of working

capital. It also measures the smooth running of business or otherwise. The ratio
establishes relationship between cost of sales and working capital. The difference
between the current assets and current liabilities excluding short term bank borrowing is
called net working capital, sometimes it is used as firm’s liquidity and it measures the
firm’s potential reservoir of funds.

Working Capital Turnover ratio: {Total Operating Income or Cost of goods

sold / Net working Capital}

Net working capital is the difference between the firm’s current assets and current
liabilities.

WHAT DOES PROFITABILITY RATIO MEAN?

A class of financial metrics that are used to assess the business’s ability to
generate earnings as compared to its expenses and other relevant costs incurred during a
specific period of time. For most of these ratios, having a higher value relative to a
competitor’s ratio or the same ratio from a previous period is indicative that the company
is doing well.

Profitability ratios serve as overall measures of the effectiveness of the

management. It measures the firm’s use of its assets and control of its expenses to
generate an acceptable rate of return.

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IMPORTANCE OF PROFITABLITY RATIOS:

A company should earn profits to survive and grow over a long period of time.
Profits are essential, but it would be wrong to assume that every action initiated by
management of a company should be aimed at maximizing profits, irrespective of
concerns for customers, employees, suppliers or social consequences. It is unfortunate
that the word ‘Profit’ is looked upon as a term of abuse since some firms always want to
maximize profits at the cost of employees, customers and society. Except such
infrequent cases, it is a fact that sufficient profits must be earned to sustain the operations
of the business to be able to obtain funds from investors for expansion and growth and to
contribute towards the social overheads for the welfare of the society.

Profit is the difference between revenues and expenses over a period of time.
Profit if the ultimate ‘output’ of a company and it will have no future if it fails to make
sufficient profits. Therefore, the financial manager should continuously evaluate the
efficiency of the company in terms of profit. The profitability ratios are calculated to
measure the operating efficiency of the company. Besides management of the company,
creditors and owners are also interested in the profitability of the firm. Creditors want to
get interest and repayment of principal regularly. Owners want to get a required rate of
return on their investment. This is possible only when the company earns enough profits.

HOW IS PROFIT MEASURED?

Profit can be measured in various ways. The most common measure of the profit
is profit after taxes (PAT) or net income (NI), which is a result of the impact of all
factors on the firm’s earnings. Taxes are not controllable by the management. To
separate the influences of taxes, therefore, profit before taxes (PBT) may be computed. If
the firm’s profit has to be examined from the point of view of all investors (lenders and
owners), the appropriate measuring of profit is Operating Profit. Operating profit is
equivalent of earnings before interest and taxes (EBIT). This measure of profit shows
earning arising directly from the commercial operations of the business without the effect
of financing. The concept of EBIT may be broadened to include non-operating income if

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they exist. On an after-tax basis, profit to investors is equal to EBIT (1 – T), where T is
the Corporate tax rate. This profit measure is called net operating profit after tax or
NOPAT.

PROFITABILITY ANALYSIS:

The Profitability Analysis is done for the following reasons:

a) How profitability is the company? What accounting policies and practices are
followed by the company? Are they stable?
b) Is the profitability (RONA) of the company high/low/average? Is due on:
1. Profit margin
2. Assets utilization
3. Non-operating income window dressing
4. Change in accounting policy
5. Inflationary conditions
c) Is the return on equity (ROE) high/low/average? Is due to :
1. Return on investment
2. Financing mix
3. Capitalization of reserves?
d) What is the trend in profitability? Is it improving because of better utilization
of resources or curtailment of expenses of strategic importance? What is the
impact of cyclical factors on profitability trend.
e) Can the company sustain its impressive profitability or improve its
profitability given the competitive and other environmental situation?
The selected profitability ration can be used to measure the company’s profitability
position as follows:

RETURN ON CAPITAL EMPLOYED

The term capital employed has been interpreted by different accountants and
authors. Some of the different meanings of capital employed are as follows:
1. Total of all assets i.e. fixed assets as well as current assets

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 2. Total of fixed assets
3. Total of long-term funds employed in the business.
4. Net working capital plus fixed assts.
It measures the efficiency or otherwise of profit in relation to capital employed. Return
on capital is calculated by using the following formula
Return on Capital Employed: {(Operating Profit / Capital employed)* 100}

RETURN ON NET WORTH:

The term net worth refers to equity share capital + Reserves + Profits –
Accumulated losses. This ratio signifies the return on equity shareholder’s funds. The
profit considered for computing the ratio is taken after payment of preference dividend.
The ratio of return on net worth is calculated as follows;
Return on Net worth: {(Operating Profit / Total Net worth)* 100}

RETURN ON TOTAL ASSETS:

The firms use this ratio to measure the productivity of total asset and operating
profit against the amount invested in total assets to ascertain whether assets are being
utilized properly or not. It is calculated as under:
Return on Total Assets: [(operation profit/ Total Assets)*100]

RETURN ON FIXED ASSETS:

This ratio is calculated to measure the productivity of fixed assets and operating
profit against the amount invested in fixed assets to ascertain whether assets are being
utilized properly or not. It is calculated as under:
Return on Total Assets: [(operation profit/ Fixed Assets)*100]

NET PROFIT MARGIN:

Net profit is obtained when operating expenses, interest and taxes are subtracted
from the gross profit. The net margin ratio is measured by dividing profit after tax by
sales.

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 If the non-operating income figure is substantial, it may be excluded from PAT to
see profitability arising directly from sales. Net profit margin ratio establishes a
relationship between net profit and sales and indicates management’s efficiency in
manufacturing, administration and selling the products. This ratio is the overall measure
of the firm’s ability to turn each rupee sales into net profit. If the net margin is
inadequate, the firm will fail to achieve satisfactory return on shareholder’s funds.

This ratio also indicates the firm’s capacity to withstand adverse economic
conditions. A firm with a high net margin ratio would be in an advantageous position to
survive in the face of falling selling prices, rising costs of production or declining
demand for the product. It would really be difficult for a low net margin firm to withstand
these advertisers. Similarly a firm with high net profit margin can make better use of
favorable conditions, such as rising selling prices, falling costs of production or
increasing demand for the product. Such a firm will be able to accelerate its profits at a
faster rate than a firm with low net profit margin.

Net Profit Margin: [(profit after tax/sales or Total operating income)*100]

The above efficiency and profitability ratio offer more significant insights about
how the company manages its assets to achieve operational efficiency of the business. It
also tries to find out the financial policies adopted by the company to manage its assets
effectively for achieving three important goals i.e., efficiency of assets, minimization of
risk and maximization of profitability. It also provides suggestions for the company to
strengthen its management of assets for maximizing the operational efficiency of the
business and meeting any sort of financial distress which may occur in the future.
For analyzing the asset management, a technique of ratio analysis is used to determine
the efficiency and profitability position of the company. The selective efficiency and
profitability ratios were used for the study to analyze the efficiency of assets management
and its impact on profitability position of the company.

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RATIO ANAYSIS:

Ratio analysis is one of the powerful tools of financial analysis, where financial yardstick
evaluating efficiency and profitable position. Financial analysis is used to provide reliable
financial information to management of the firm, viz., owners, investors and others.

Ratio is defined as “the indicated quotient of two mathematical expressions” and”

the relationship between two or more things”. In financial analysis, a ratio is used as a
benchmark for evaluating the financial position and performance of a firm.

Ratio analysis is used to compare the risks and performance of the same firm over
time (time series) or different firms at the same time (cross sectional). Time series
analyses generally look for the development of trends. Cross sectional analyses usually
compare a firm’s performance to industry averages or a set of peer firms in the same
industry.

There is no set of structured guidelines or ratio analysis. Analysts using common

sense developed all of the commonly used ratios. When doing your own analysis you
should feel free to create new ratios or adopt old ones that make sense to you in addition
to the typical ratios discussed in text books. Often the analyst may also want to adjust the
ratio calculations because of differing economic conditions or firm strategies. A user of
analyst information should also be aware that other analysts adjust their calculations.
Caution should thus be taken when using the work of others unless you know exactly
how they calculated their ratio. On occasion different analysts will also either use the
same name for different ratios or different names for the same ratios, which can be
confusing.

PURPOSE OF RATIO ANAYSIS:

To profile the economic characteristics, competitive strategies, operating

characteristics, and financial structure of the firm the following is required:

 Activity analysis

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  Profitability analysis

In doing ratio analysis it is important to remember the firm’s business strategy, industry
and environment, as these will derive the ratios. So we must try to relate the ratios to
underlying business performance; in general they are a starting point in looking for
economic advantages and problems.

PROBLEMS WITH RATIO ANALYSIS:

1. Proportionality: ratio analysis usually assumes linear relationships which intercepts at

zero. In practice this relationship rarely exists. For many costs there are fixed and
variable components thus they will not have a zero intercept.

2. Benchmarks: industry averages are frequently used but differences across firms may
invalidate these. I a firm uses a non-industry standard accounting method the ratios may
not be comparable. Industry averages may also not be useful goals if all comparable firms
are doing poorly.

3. Timing: firms now how their performance is measured and may take action to
“window dress” at the end of periods.

4. When ratios contain both balance sheet and income statement numbers it is often
nuclear whether the analyst should use beginning or ending balance sheet numbers or an
average of he two. For return ratios using a beginning number makes the most sense. If
the ratio will be used to forecast future ending balances makes more sense.

5. Number outside of the usual range can be difficult to interpret. This is especially true
or near zero denominators or negative numbers.

1.1.1 NEED FOR THE STUDY:

In the changing scenario, empirical observation show that asset management

holds an important area in the theory of business finance. Efficiency utilization of asset
management has a direct bearing on efficiency and profitability of the company.
Ineffective asset management can significantly affect the Banks financial performance.

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The primary need of the study is to assess the asset components of Indian Overseas Bank.
The study also focuses on the influence of operational efficiency of the bank on its
profitability. The study provides in-depth analysis of how assets are managed effectively,
monitored properly, planned accurately and reviewed periodically to remove bottleneck
so as to improve the efficiency and profitability of the bank.

1.1.2 SCOPE OF THE STUDY:

The scope of the study is confined to the analysis of asset management of the
Indian Overseas Bank for the period of five financial years. The main focus on the study
is to analyze the efficiency of assets management and its impact on profitability position
of the bank. Only selected activity and profitability ratios were used as yardstick for
analyzing operational efficiency and profitability of the bank to manage its assets
effectively enhancing its profitability and value in the future.

1.1.3 PROBLEM DEFINITION

The study is conducted to understand the asset management of Indian Overseas

Bank in an effective way and to assess the profitability position of the organization with
the help of statistical tools.

1.1.4 OBJECTIVES OF THE STUDY

Primary Objective:

To analyze the operational efficiency of Asset Management for the INDIAN

OVERSEAS BANK by using selected efficiency ratio.

Secondary Objective:

1. To assess the Operational efficiency of managing various assets components of

the Bank by using selected activity ratios.
2. To evaluate profitability position of the Bank by using selected profitability ratios.
3. To measure the degree of uniformity among the efficiency of managing essential
asset components of the Bank by applying Kendall’s coefficient of concordance.

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 4. To access the degree of uniformity among profitability indicators of the Bank by
applying Kendall’s coefficient of concordance.

5. To study the correlation between the efficiency & profitability of the company by
applying Karl Pearson’s coefficient of correlation and Spearman’s rank
correlation.

6. To make appropriate suggestions for improving the operation efficiency of asset

components of The INDIAN OVERSEAS BANK.

1.1.5 RESEARCH METHODOLOGY AND DESIGN

INTRODUCTION

‘Research’ means a scientific and systematic search for pertinent information of a

specific topic. Research is a careful investigation or inquiry especially through search for
new facts in zany branch of knowledge. It can be defined as a scientific and systematic
search for pertinent information on a specific topic. In fact, research is an art of scientific
investigation. Research would focus on a careful investigation are inquiry specification
through search for new facts in any branch of knowledge. Research is systematized
effort to gain new knowledge.

“Research comprises of defining and redefining problems, formulating hypothesis

or suggested solutions collecting, organizing and evaluation data, making deduction and
reaching conclusions, and at last carefully testing the conclusion to determine whether
they fit the formulating hypothesis”.

‘Methodology’ is defined as “the study of methods by which we gain knowledge,

it deals with cognitive processes imposed on research by the problems rising from the
nature of its subject matter”.

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RESEARCH DESIGN:

Once the research problem has been formulated in clear cut terms, a research
design is prepared to state the conceptual structure within the research would be
conducted. It is needed because it facilitates the smooth sailing of the various research
operations, thereby making the reach as efficient as possible for yielding maximum
information with minimal expenditure of effort, time and money. A research design is
the arrangement of conditions for collection and analysis of data in a matter that aims to
combine relevance to the research purpose with economy in procedure. It constitutes the
blueprint for the collection measurement and analysis of data. It is mainly concerned
with what, why, where, when and how research study to be made.

Generally research design can be categorized into three types namely research
design in case of exploratory research studies, research design in case of descriptive and
diagnostic research studies, the research design in case of hypothesis – testing research
studies.

Analytical research studies are those studies, where the research has to use facts
or information already available, and analyze these to make a critical evaluation of the
assets. Exploratory research studies are those studies which are concerned with more
precise investigation for the discovery of new ideas and insights. Descriptive Research
studies are those studies which are concerned with describing in the characteristics of a
particular individual, or of a group, diagnostic research studies determine the frequency
with which something occurs or its association with something else. Hypothesis – testing
research studies are those where the research tests the hypothesis of casual relationships
between variables.

HYPOTHESEIS OF THE STUDY:

Hypothesis is usually considered as the principal instrument in research. Its main

function is to suggest new experiments and observations. Hypothesis testing enables us to
make profitability statements about population parameter(s). Hypothesis is a mere

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assumption or some supposition to be proved or disproved. It can be defined as a
proposition or a set of proposition set forth as an explanation for the occurrence of some
specified group of phenomena either asserted merely as a provisional conjuncture to
guide some investigation or accepted as highly probable in the light of established facts.

Hypothesis can be either null hypothesis or alternative hypothesis. The null

hypothesis is the one which one wishes to disprove and the alternative hypothesis is
usually the one which one wishes to prove. Thus, a null hypothesis represents the
hypothesis one is trying to reject and alternative hypothesis represents the hypothesis one
is trying to accept. The null hypothesis is generally symbolized as H o and alternative
hypothesis as H1. The level of significance at 5% is taken for hypothesis testing of the
study.

Keeping the objective of the study, the following hypotheses were framed and
tested during the study period:
 There is a significant agreement among five sets of profitability indicators of
Indian Overseas Bank.
 There is no significant agreement among five sets of efficiency indicators of
Indian Overseas Bank.
 Correlation between the Efficiency (Return on total assets) & Profitability (Return
on net worth) of the Indian Overseas Bank is significant.
 Rank correlation between the Efficiency (Capital turnover ration) & Profitability
(Net Profit margin) of the Indian Overseas Bank.

RESEARCH METHODOLOGY:

Type of Research

The method of research for the purpose of the study is hypothesis-testing type of
research.

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Hypothesis-Testing Type of Research

Hypothesis-testing research studies are those where the researcher tests the
hypothesis of casual relationships between variables.
This study is based on the Hypothesis-testing research study. In this study,
significant hypotheses were framed and tested by applying statistical tools for drawing
conclusions.

DATA COLLECTION

The task of data collection begins after a research problem has been defined and
research design chalked out. While deciding about the method of data collection to be
used for the study, there are mainly two sources data available for the researcher. They
are:
1. Primary Data
2. Secondary Data
Primary Data
The Primary Data are those which are collected by as fresh and for the first time
and thus happen to be original in character. The researcher for this study has used only
the secondary data.

Secondary data
The secondary data, on the other hand, are those which have already been
collected by some one else and which has already been passed through the statistical
process.
Data used in the study
The researcher for the purpose of the study has collected data which was purely
secondary in nature. The information was collected from journals, abstract of
administrative reports and balance sheet of the bank, etc.

PROCESSING AND ANALYSIS OF DATA:

The secondary data, after collection, has been processed and analyzed in
accordance with the outline laid down for the purpose at the time of developing the

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research plant. Technical speaking, processing implies editing, coding, classification and
tabulation of collected data so that they were amenable to analysis. The term analysis
refers to the computation of certain measures along with searching for patterns of
relationship that exist among data-groups.

The collected data were analyzed with the help of ratio analysis technique. The
selected accounting ratios are used to predict the relationship efficiency and profitability
position of the company and to analyze on the influence of operational efficiency of the
company on its profitability. The analyzed data with the help of selective efficiency and
profitability ratios have been statistically tested through the simple percentage analysis.

STATISTICAL ANALYSIS:

The role of statistics is functioning as a tool in, designing research, analyzing its
data and drawing conclusion there from. The important statistical tools used in the study
are as follows:
♦ Kendall’s Coefficient of Concordance
♦ Karl Pearson’s Coefficient of Correlation Method
♦ Spearman’s Rank Correlation Method

1.1.6 LIMITATION OF THE STUDY:

• The study was limited to only five financial years.

• The study is purely based on the secondary data which was taken primarily from
published annual reports of the Bank.
• The study is not completely generalized because limited asset ratios were only
calculated based on the financial information given by the Bank.
• The interpretation of activity and profitability ratios is only based on the
assumptions of the researcher due to lack of fixed standards of rule of thumb.
• The activity and profitability ratios calculated may also suffer from the inherent
weakness of accounting dated provided by the bank.

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 • The researcher may be provided with distorted figures because the bank may not
disclose actual accounting figures to the public.
• The period of the study is restricted to two months, starting from March-May
2010

PERIOD OF THE STUDY:

The period of the study is restricted to two months, starting from March-May 2010.
During the period, the following research activities were carried out.
 The objectives of the study were set up.
 Data were collected from annual reports and other reports issued by Indian
Overseas Bank and from Web sites.
 Data were analyzed with the help of statistical tool like Kendall’s Coefficient of
concordance, Karl Pearson’s coefficient of correlation and Spearman’s Rank
correlation.
 Data were interpreted with the help of tables, figure/charts, etc.
 Based on the analysis of data, findings, suggestions, and conclusion were drawn
successfully.
 Finally a report is generated.

1.1.7 CHAPTERISATION

CHAPTER- I - INTRODUCTION
It deals with outline of the study, Need, Problem Definition, Objective, Research
Methodology and Limitations. It also frames Review of literature, and it describes the
industrial profile, company profile and product profile.

CHAPTER- II - DATA ANALYSIS AND INTERPRETATION

This chapter consists of data analysis and interpretation which includes
Percentage Analysis and Statistical Tool.

CHAPTER III - SUMMARY AND CONCLUSION

This chapter deals with Findings, Suggestions and Conclusion.

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1.2 LITERATURE REVIEW

The term “Asset Management” may be defined as a process that guides the
gaining of assets, along with their use and disposal and in order to make the most of the
assets and their potential throughout the life of the assets. There are many different
means of asset management. It often depends on what type of asset is involved. There are
companies and software products available to assist in asset management.

Previously, many researchers on management effectiveness merely analyzed

financial ratios, and fewer investigations considered service quality and so incorporated
non-financial ratios in evaluating banking effectiveness. Scholars rarely directly
discussed the casual relationships between the assets and management profitability. Many
researchers use a single casual relationship when discussing the casual relationship
between the asset and profitability. Of late, Asset Management has been the primary
source dealt with by different resources. Review on Asset Management reveals that it
eliminates the need for point solutions that offer a limited, "flat" view of an asset by
expanding the visibility and ownership of an asset throughout an entire organization.
Different entities may describe an asset in several ways.

AASHTO Transportation Asset Management Guide: (Cambridge Systematics,.) 2002

This American Association of State Highway and Transportation Officials (AASHTO)
guide provides state departments of transportation (DOTs) and other transportation
agencies guidance on implementing asset management concepts and principles within
their business processes. At its core, asset management deals with an agency’s decisions
in resource allocation and utilization in managing its system of transportation
infrastructure. the U.S. team observed that asset management as an organizational culture
and decision-making process is critical to transportation programs facing significant
capital renewal and preservation needs and that successful programs require top-level
commitment.

Analytical Tools for Asset Management (Cambridge Systematics, Inc.) 2006

This report presents new analytical tools to support asset management. Emphasis
is given to tools needed to assist agencies in trade-off decisions for resource allocation.

21
FHWA Asset Management Primer (U.S. Department of Transportation) 1999

This document explains the basics of asset management: What is asset

management? Why do we need asset management? An overview of current practices in
asset management and a vision into the future for improving the process are presented.

Performance-based planning is systematic and analytic, building upon the

following components: expressions of policy in terms of quantifiable objectives; explicit
measures of system performance; analytic methods to predict impact of different types of
investments; models for system monitoring; and feedback mechanisms to assess
performance trends.

“Integrating Pavement and Asset Management in Functional and Operational

Terms” (Ralph Haas, Lynne Cowe Falls, and Susan Tighe) 2004

If asset management and its component systems are to function in a coordinated

and effective way, an integration platform is required. This paper suggests that three key
elements need to be included in such a platform. They are locational referencing, asset
valuation, and level of service. According to this, Asset Management incorporates the
above views of an asset through a single entity. An asset is an entity for which users can
report problems. Assets can be cooling towers, cranes, buses, buildings, conveyors, or
anything that needs work.

To conclude, the Review shows that whatever method is chosen, there are many
similar things that the asset management system shall - a) optimize asset use and manage
all maintenance efforts involved by making assets as accurate, reliable, and efficient as
possible. b) Reduce the demand for new assets and thus save money by using demand
management techniques and maintaining current assets. c) Uses a form of asset tracking:
knowing where the asset is at all times, how much the asset is worth, d) Always achieve
greater value for money through evaluating the asset options: the cost of maintaining,
producing, the use of it, etc. e) Always provides a report on the value of the assets,
along with any costs involved in maintaining the assets.

22
1.2.1 INDUSTRY PROFILE/COMPANY PROFILE

BANKING INDUSTRY

INTRODUCTION:

Banking in India originated in the last decades of the 18th century. The oldest
bank in existence in India is the State Bank of India, a government-owned bank that
traces its origins back to June 1806 and that is the largest commercial bank in the
country. Central banking is the responsibility of the Reserve Bank of India, which in
1935 formally took over these responsibilities from the then Imperial Bank of India,
relegating it to commercial banking functions. After India's independence in 1947, the
Reserve Bank was nationalized and given broader powers. In 1969 the government
nationalized the 14 largest commercial banks; the government nationalized the six next
largest in 1980.

HISTORY

As mentioned earlier, Banking in India originated in the last decades of the 18th
century. The first banks were The General Bank of India which started in 1786, and the
Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India
is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which
almost immediately became the Bank of Bengal. This was one of the three presidency
banks, the other two being the Bank of Bombay and the Bank of Madras.. These three
banks merged in 1921 to form the Imperial Bank of India, which, upon India's
independence, became the State Bank of India. Indian merchants in Calcutta established
the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of
1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the
oldest Joint Stock bank in India. With large exposure to speculative ventures, most of the
banks opened in India during that period failed. The depositors lost money and lost
interest in keeping deposits with banks. Subsequently, banking in India remained the
exclusive domain of Europeans for next several decades until the beginning of the 20th
century. Foreign banks too started to arrive.

23
 Around the turn of the 20th Century, the Indian economy was passing
through a relative period of stability. Around five decades had elapsed and Indians had
established small banks, most of which served particular ethnic and religious
communities. The presidency banks dominated banking in India. The period between
1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The
Swadeshi movement inspired local businessmen and political figures to found banks of
and for the Indian community. A number of banks established then have survived to the
present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara
Bank and Central Bank of India. The fervour of Swadeshi movement lead to establishing
of many private banks in Dakshina Kannada and Udupi district which were unified
earlier and known by the name South Canara (South Kanara ) district. Four nationalised
banks started in this district and also a leading private sector bank. Hence undivided
Dakshina Kannada district is known as "Cradle of Indian Banking".

The period during the First World War (1914-1918) through the end of the
Second World War (1939-1945), and two years thereafter until the independence of India
were challenging for Indian banking. The years of the First World War were turbulent,
and it took its toll with banks simply collapsing despite the Indian economy gaining
indirect boost due to war-related economic activities. At least 94 banks in India failed
between 1913 and 1918.

The partition of India in 1947 adversely impacted the economies of Punjab

and West Bengal, paralyzing banking activities for months. India's independence marked
the end of a regime of the Laissez-faire for the Indian banking. The Government of India
initiated measures to play an active role in the economic life of the nation, and the
Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed
economy. This resulted into greater involvement of the state in different segments of the
economy including banking and finance. The major steps to regulate banking included:

• In 1948, the Reserve Bank of India, India's central banking authority, was
nationalized, and it became an institution owned by the Government of India.

24
 • In 1949, the Banking Regulation Act was enacted which empowered the Reserve
Bank of India (RBI) "to regulate, control, and inspect the banks in India."
• The Banking Regulation Act also provided that no new bank or branch of an
existing bank could be opened without a license from the RBI, and no two banks
could have common directors.

However, despite these provisions, control and regulations, banks in India except the
State Bank of India, continued to be owned and operated by private persons. This
changed with the nationalization of major banks in India on 19 July 1969.

By the 1960s, the Indian banking industry had become an important tool
to facilitate the development of the Indian economy. At the same time, it had emerged as
a large employer, and a debate had ensued about the possibility to nationalise the banking
industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the
GOI in the annual conference of the All India Congress Meeting in a paper entitled
"Stray thoughts on Bank Nationalisation." The paper was received with positive
enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance
and nationalised the 14 largest commercial banks with effect from the midnight of July
19, 1969. A second dose of nationalization of 6 more commercial banks followed in
1980. The stated reason for the nationalization was to give the government more control
of credit delivery. With the second dose of nationalization, the GOI controlled around
91% of the banking business of India. Later on, in the year 1993, the government merged
New Bank of India with Punjab National Bank. It was the only merger between
nationalized banks and resulted in the reduction of the number of nationalized banks from
20 to 19. After this, until the 1990s, the nationalized banks grew at a pace of around 4%,
closer to the average growth rate of the Indian economy.

In the early 1990s, the then Narasimha Rao government embarked on a

policy of liberalization, licensing a small number of private banks. These came to be
known as New Generation tech-savvy banks, and included Global Trust Bank (the first of
such new generation banks to be set up), which later amalgamated with Oriental Bank of
Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move,

25
along with the rapid growth in the economy of India, revitalized the banking sector in
India, which has seen rapid growth with strong contribution from all the three sectors of
banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been setup with the proposed relaxation
in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be
given voting rights which could exceed the present cap of 10%, at present it has gone up
to 74% with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this
time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of
functioning. The new wave ushered in a modern outlook and tech-savvy methods of
working for traditional banks. All this led to the retail boom in India. People not just
demanded more from their banks but also received more.

Currently (2007), banking in India is generally fairly mature in terms of supply,

product range and reach-even though reach in rural India still remains a challenge for the
private sector and foreign banks. In terms of quality of assets and capital adequacy,
Indian banks are considered to have clean, strong and transparent balance sheets relative
to other banks in comparable economies in its region. The Reserve Bank of India is an
autonomous body, with minimal pressure from the government. The stated policy of the
Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and
this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail
banking, mortgages and investment services are expected to be strong. One may also
expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its
stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an
investor has been allowed to hold more than 5% in a private sector bank since the RBI

26
announced norms in 2005 that any stake exceeding 5% in the private sector banks would
need to be vetted by them.

In recent years critics have charged that the non-government owned banks are too
aggressive in their loan recovery efforts in connection with housing, vehicle and personal
loans. There are press reports that the banks' loan recovery efforts have driven defaulting
borrowers to suicide.

The growth in the Indian Banking Industry has been more qualitative than
quantitative and it is expected to remain the same in the coming years. Based on the
projections made in the "India Vision 2020" prepared by the Planning Commission and
the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-sheets
of banks is likely to decelerate. The total assets of all scheduled commercial banks by
end-March 2010 is estimated at Rs. 40,90,000 crores. That will comprise about 65 per
cent of GDP at current market prices as compared to 67 per cent in 2002-03. Bank assets
are expected to grow at an annual composite rate of 13.4 per cent during the rest of the
decade as against the growth rate of 16.7 per cent that existed between 1994-95 and
2002-03. It is expected that there will be large additions to the capital base and reserves
on the liability side.

The Indian Banking Industry can be categorized into non-scheduled banks and
scheduled banks. Scheduled banks constitute of commercial banks and co-operative
banks. There are about 67,000 branches of Scheduled banks spread across India. As far
as the present scenario is concerned the Banking Industry in India is going through a
transitional phase. The amendment of Banking Regulation Act 1993 saw the entry of new
private sector banks. Banking Segment in India functions under the umbrella of Reserve
Bank of India – the regulatory, central bank. This segment broadly consists of:

1. Commercial banks.
2. Co-operative banks.

27
 The commercial banking structure in India consists of: Scheduled Commercial
Banks and non-scheduled Banks. Scheduled commercial Banks constitute those banks,
which have been included in the Second Schedule of Reserve Bank of India (RBI) Act,
1934. Indian banks can be broadly classified into

1. Nationalized banks/public sector banks

2. Private banks and
3. Foreign banks.

The Public Sector Banks (PSBs), which are the base of the Banking sector in
India account for more than 78 per cent of the total banking industry assets.
Unfortunately they are burdened with excessive Non Performing assets (NPAs), massive
manpower and lack of modern technology. On the other hand the Private Sector Banks
are making tremendous progress. They are leaders in Internet banking, mobile banking,
phone banking, ATMs. As far as foreign banks are concerned they are likely to succeed
in the Indian Banking Industry.

In the Indian Banking Industry some of the Private Sector Banks operating are
IDBI Bank, ING Vyasa Bank, SBI Commercial and International Bank Ltd, Bank of
Rajasthan Ltd. and banks from the Public Sector include Punjab National bank, Vijaya
Bank, UCO Bank, Oriental Bank, Allahabad Bank among others. ANZ Grindlays Bank,
ABN-AMRO Bank, American Express Bank Ltd, Citibank are some of the foreign banks
operating in the Indian Banking Industry.

Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector

banks (that is with the Government of India holding a stake), 31 private banks (these do
not have government stake; they may be publicly listed and traded on stock exchanges)
and 38 foreign banks. They have a combined network of over 53,000 branches and
17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector
banks hold over 75 percent of total assets of the banking industry, with the private and
foreign banks holding 18.2% and 6.5% respectively.

28
COMPANY PROFILE

INTRODUCTION

Established in 1937, Indian Overseas Bank (IOB) is a leading bank based in

Chennai, India. IOB had the distinction of simultaneously commencing operations in
three branches at Karaikudi, Chennai, and Yangon (Myanmar). Since IOB aimed to
encourage overseas banking and foreign exchange operations, it soon opened its branches
in Penang and Singapore. Today, Indian Overseas Bank boasts of a vast domain in
banking sector with over 1950 domestic branches and 6 branches overseas. Indian
Overseas Bank has an ISO certified in-house Information Technology department, which
has developed the software that 900 branches use to provide online banking to customers;
the bank has a target to expand online banking to 1200 branches soon. IOB also has a
network of about 600 ATMs all over India and IOB's International VISA Debit Card is
accepted at all ATMs belonging to the Cash Tree and NFS networks. IOB offers internet
Banking (E-See Banking) and is one of the banks that the Govt. of India has approved for
online payment of taxes. IOB was the first bank to venture into consumer credit, as it
introduced the popular Personal Loan scheme. in 1969. After nationalization, the Bank
emphasized on opening its branches in rural parts of India. In 1979, IOB opened a
Foreign Currency Banking Unit in the free trade zone in Colombo. In the year 2000,
Indian Overseas Band undertook an initial public offering (IPO) that brought the
government's share in the bank's equity down to 75%.

HISTORY AND PROGRESS

Indian Overseas Bank was founded on February 10th 1937, by Shri. M. Ct. M.
Chidambaram Chettyar, a pioneer in many fields - Banking, Insurance and Industry with
the twin objectives of specializing in foreign exchange business and overseas banking.

IOB had the unique distinction of commencing business on 10th February 1937
(on the inaugural day itself) in three branches simultaneously - at Karaikudi and Chennai
in India and Rangoon in Burma (presently Myanmar) followed by a branch in Penang and
another in Singapore. The bank served the Nattukottai Chettiars, who were a mercantile

29
class that at the time had spread from Chettinad in Tamil Nadu state to Ceylon (Sri
Lanka), Burma (Myanmar), Malaya, Singapore, Java, Sumatra, and Saigon. As a result,
from the beginning IOB specialized in foreign exchange and overseas banking. At the
dawn of Independence, IOB had 38 branches in India and 7 branches abroad. Deposits
stood at Rs.6.64 Crs and Advances at Rs.3.23 Crs at that time.

In Pre-nationalization era (1947- 69), IOB expanded its domestic activities and
enlarged its international banking operations. As early as in 1957, the Bank established a
training centre which has now grown into a Staff College at Chennai with 9 training
centers all over the country. During 1960s, the banking sector in India was consolidating
by the merger of weak private sector banks with the stronger ones; IOB absorbed five
banks, including Kulitali Bank. IOB was the first Bank to venture into consumer credit. It
introduced the popular Personal Loan scheme during this period. In 1964, the Bank made
a beginning in computerization in the areas of inter-branch reconciliation and provident
fund accounts. In 1968, IOB established a full-fledged department to cater exclusively to
the needs of the Agriculture sector.

IOB was one of the 14 major banks that were nationalized in 1969. On the eve of
Nationalization in 1969, IOB had 195 branches in India with aggregate deposits of
Rs.67.70 Crs. and Advances of Rs.44.90 Crs. At one point, probably before
nationalization, IOB had twenty of its eighty branches located overseas. After
nationalization it, like all the nationalized banks, turned inward, emphasizing the opening
of branches in rural India. In 1973, IOB had to wind up its five Malaysian branches as
the Banking law in Malaysia prohibited operation of foreign Government owned banks.
This led to creation of United Asian Bank Berhad in which IOB had 16.67% of the paid
up capital. In the same year, Bharat Overseas Bank Ltd was created in India with 30%
equity participation from IOB to take over IOB’s branch at Bangkok in Thailand. In
1977, IOB opened its branch in Seoul and the Bank opened a Foreign Currency Banking
Unit in the free trade zone in Colombo in 1979. The Bank has sponsored 3 Regional
Rural Banks viz. Puri Gramya Bank, Pandyan Grama Bank, Dhenkanal Gramya Bank. In
1988-89, IOB acquired Bank of Tamil Nadu in a rescue.

30
 After 1992, there were unprecedented developments. IOB entered Web site during
the month of February 1997. IOB got autonomous status during 1997-98 IOB had the
distinction of being the first Bank in Banking Industry to obtain ISO 9001 Certification
for its Computer Policy and Planning Department from Det Norske Veritas (DNV),
Netherlands in September 1999. In 2000, IOB engaged in an initial public offering (IPO)
that brought the government's share in the bank's equity down to 75%. The equity shares
of IOB are listed in the Madras Stock Exchange, and National Stock Exchange of India
Ltd; Mumbai. Since its inception, IOB has absorbed various banks including the latest –
Bharat Overseas Bank – in 2007. In 2009, IOB took over Shree Suvarna Sahakari Bank,
which was founded in 1969 and had its head office in Pune.

BOARD OF DIRECTORS:

The Composition of the Board of Directors of IOB is governed by “The Nationalized

Banks (Management and Miscellaneous Provisions) Scheme 1970” read with “The
Banking Companies (Acquisition and Transfer of Undertakings) and Financial
Institutions Laws (Amendment) Act 2006” and amendment to the vide Extraordinary
Gazette Notification dated 19.02.2007 of the Central Government. The composition of
the Board of Directors of IOB is broad based. The bank is managed by the board of
directors as a whole. In toto, there are 11 directors of various capacity in IOB. Shri S.A.
Bhat is the Chairman and Managing Director for the financial year 2009-2010.

GEOGRAPHIC SPREAD:

As on date, Indian Overseas Bank boasts of a vast domain in banking sector with over
1950 domestic branches all over India and 6 branches overseas. IOB also has a network
of about 600 ATMs all over India and IOB's International VISA Debit Card is accepted at
all ATMs belonging to the Cash Tree and NFS networks.

The Head Office of IOB is situated at 763, ANNA SALAI, CHENNAI 600 002.

31
The Head office is under the control of General Manager and assisted by various officers
and staff at different capacities. This Office consists of many departments, viz. Regional
Office I, Regional Office II, Human Resources Department, Finance and Accounts
Department, which includes activities like training and recruitment processes. Also these
departments deal with investment options like Mutual Funds and shares. The Head
Office has control over all the activities of branches of the IOB. The branches provide a
wide range of consumer and commercial banking services to customers, including
Savings Account, Current Account, Depositary Services, VISA Cards, Credit Cards,
Debit Cards, Online Banking, Any Branch Banking, Home Loans, NRI Account,
Agricultural Loans, Payment of Bills / Taxes, Provident Fund Scheme, Forex Collection
Services, Retail Loans, etc.

POLICY OF IOB

As per the policy of IOB, a customer is most important visitor to their premises. At IOB,
they are committed to giving their customers the best. The customer charter provided and
followed by IOB is given below:
Customer charter

A Customer is the most important visitor on our premises.

He is not dependent on us;
we are Dependent on him.
He is not an interruption on our work;
He is the purpose of it.
He is not an outsider on our business;
He is part of it.
We are not doing him a favour by serving him;
He is doing a favour by giving us an opportunity to do so. - Mahatma Gandhi
Their Citizen's Charter outlines the facilities available at IOB, the various services they
provide, their charges and time frames for performing these services.

32
ASSET LIABILITY POSITION OF IOB:

A large position of the funding of the bank is in the form of short and medium
term deposits. The Asset liability position of the bank could be affected if the depositors
do not roll down the deposits.

As per the normal behavioral pattern and past experience, a large portion of the
deposits gets rolled over. The bank feels that in the event of these deposits not being
rolled over the fresh accretion of deposits would take of the Asset liability mismatches.
In addition the bank has the cushion investment of Rs.11961.36 crores in the long term
(over 5 years) category, which can be utilized to correct any medium term mismatches.
Moreover, the bank has the asset liability management system in place to actively
monitor and manage the duration and liquidity mismatches.

ASSET MANAGEMENT IN IOB:

Asset Management can be used for a variety of things. Most use asset
management to keep track of their cash or "liquid assets." Banking institutions are
considered a form of asset management (savings accounts, CD's, mutual funds, money
market accounts, etc.) along with investments.

CASH MANAGEMENT IN IOB

Indian Overseas Bank, committed to disseminate the benefits of Information

Technology revolution among the Banking public, took a major step in this direction and
launched Any Branch Banking. It was followed by IOB-STARS Scheme (Speedy
Transfer and Realization services) which makes outward Cheque Collections almost like
local clearing. The scheme of IOB-STARS extends effective customer service at a
reasonable charge, through 13 Star Centers at the following locations: Ahmedabad,
Bangalore, Kolkata, Chennai, Coimbatore, New Delhi, Hyderabad, Mumbai, Baroda,
Lucknow, Ernakulam, Pune and Ludhiana. These Star Centers cater to the needs of our
Star customers at 325 branches of IOB.

33
INVESTMENTS

Treasury and Investment operations are profit centres and hence not confined only to
management of Bank’s statutory requirements. Further steps were taken to integrate the
domestic treasury operations with its Foreign Exchange operations, which is effectively
yielding results.

PREECIOUS METALS TRADE

IOB is the first bank to enter Precious Metals Trade. The Bank commenced Gold Whole
sale trade on 20th November 1997 and commenced its retail trade during January 1998.

FOREIGN EXCHANGE & INTERNATIONAL EXPANSION OF IOB

Bank is very active player in the Indian Foreign Exchange Market. Its international
expansion highlights are :

• 1937-38: As mentioned above, IOB was international from its inception with
branches in Rangoon, Penang, and Singapore.
• 1941: IOB opened a branch in Malaya that presumably closed almost immediately
because of the war.
• 1946: IOB opened a branch in Ceylon.
• 1947: IOB opened a branch in Bangkok and re-opened others.
• 1948: United Commercial Bank (see below) opened a branch in Malaya.
• 1949: IOB opened a branch in Bangkok.
• 1963: The Burmese government nationalized IOB’s branch in Rangoon.
• 1973: IOB, Indian Bank and United Commercial Bank established United Asian
Bank Berhad in Malaysia. (Indian Bank had been operating in Malaysia since
1941 and United Commercial Bank Limited had been operating there since 1948.)
The banks set up United Asian to comply with the Banking Law in Malaysia,
which prohibited foreign government banks from operating in the country. Also,
IOB and six Indian private banks established Bharat Overseas Bank as a Chennai-
based private bank to take over IOB's Bangkok branch.

34
 • 1977: IOB opened a branch in Seoul.
• 1979: IOB opened a Foreign Currency Banking Unit in Colombo, Sri Lanka.
• 1992: Bank of Commerce (BOC), a Malaysian bank, acquired United Asian Bank
(UAB).
• 2007: IOB took over Bharat Overseas Bank.
•

AWARDS:

 IOB bagged the NABARD's award for credit linking the highest number of Self
Help Groups for 2000-2001 among the Banks in Tamil Nadu.
 IDRBT (Institute for Development and Research in Banking Technology)
conferred the Best Award under Banking Technology to IOB. The award was
given for the innovative use of banking applications on INFINET (Indian
Financial Network) for the year 2001. Mobile banking under SMS technology
implemented in Ahmadabad and Baroda.

BANKING CODE OF IOB:

IOB follows the Banking code issued by the Banking Codes and Standards Board
of India (BCSBI).

BCSBI was promoted by Reserve Bank and 11 Banks public, private and
foreign. It is “An independent and autonomous watch dog to monitor and ensure that the
Banking Codes and Standards adopted by the banks are adhered to in true spirit while
delivering their services”. It has been set up as recommended by Committee on
Procedures and Performance Audit of Public Services, under the Chairmanship of Shri
S.S.Tarapore which was constituted to study the Customer Service prevailing in Banks
with the primary objective of providing hassle free service to the Common Man.

BCSBI, jointly with Indian Banks Association, has scripted a Code of Bank’s
Commitment to Customers. Bank will make available a copy of the same, free of cost to
each individual customer. These code have come into effect from 1st July 2006.

35
The objectives of the Code are spelt out by BCSBI as follows:

1. To promote good and fair banking practices by setting minimum standards in dealing
with customers

2. To increase transparency so that customers have a better understanding of what they

can reasonably expect of the services

3. To encourage market forces through competition to achieve higher operating standards

4. To promote a fair and cordial relationship between the customers and the Bank

5. To foster confidence in the banking system.

The code will apply to all products and services of the Bank. The Code dwells upon
interest rates, tariff schedule, terms and conditions governing relationship between the
bank and the customer, compensation of loss, privacy and confidentiality of the
information relating to the customer, norms governing advertisements, marketing and
sales by banks.

The Bank has designated the General Manager, Customer Service Department as Code
Compliance Officer for the Bank, to whom customers are free to refer any systemic
deficiency observed by them in day to day operations.

ACHIEVEMENTS:

 IOB was the first Bank to venture into consumer credit. It introduced the popular
Personal Loan scheme during 1960s.
 IOB entered Web site during the month of February 1997.
 IOB got autonomous status during 1997-98.
 IOB had the distinction of being the first Bank in Banking Industry to obtain ISO
9001 Certification for its Computer Policy and Planning Department from Det
Norske Veritas (DNV), Netherlands in September 1999.

36
  IOB started STAR services in December 1999 for speedy realization of outstation
cheques.
 IOB was one among the first to join Reserve Bank of India’s negotiated dealing
system for security dialing online.
 The Bank setup a separate Computer Policy and Planning Department (CPPD) to
implement the programme of computerization.
 The Bank has finalized an e-commerce strategy and has developed the necessary
internet banking modules in-house. IOBNET connects Central Office with all
Regional Office.
 A Voluntary Retirement Scheme was introduced in the Bank on the lines of IBA
package with Boards approval in December 2000.
 IOB has been committed to and involved in various social causes, the most
prominent being women empowerment - the Sakthi IOB Chidambaram Chettiar
Memorial Trust and IOB's Promotion of the Agricultural Seed Bank.
 IOB's Promotion of Pulses Seed Bank is a project in association with
M.S.Swaminathan Research Foundation, Chennai for the establishment of Seed
Banks in various villages under Dry land farming.

PERFORMANCE HIGHLIGHTS

 Business: Total Business increased from Rs. 162575 crore as on 31.12.2008 to Rs.
185656 crore as on 31.12.2009 with growth percentage of 14.20%
 Deposits: Total deposits grew from Rs.90866 crore as on 31.12.2008 to Rs.79408
crore as on 31.12.2009 registering a growth percentage 16.93%.
 Advances: Gross Advances increased from Rs. 71709 crore as on 31.12.2008 to
Rs. 79408 crore as on 31.12.2009 with growth percentage of 10.74%
 Operating Profit: The operating profit for nine months period ended 31.12.2009
stood at Rs. 1389.32 crore as against Rs.1710.31 crore for the corresponding
period of the previous year.

37
  Net Profit: The net profit for nine months period ended 31.12.2009 is Rs. 579.52
crore as against Rs.1003.42 crore for the corresponding period of the previous
year.
 Total income: Total income for Q3 of 2009-10 decreased by 11.74% to
Rs.2828.65 crore as against Rs.3204.90 crore for the corresponding quarter of
2008-09. Interest income of Q3 (2009-10) at Rs.2570.13 crore is almost same
level of Q3 (2008-09).
 Total expenditure : Total expense for Q3 of 2009-10 contained with marginal
increase of 3.65% to Rs. 2422.56 crore from Rs.2337.17 crore.
Total interest paid on deposits decreased during Q3 (2009-10) by 2.82% year on
year to Rs.1566.40 crore.
 NPA Management: Gross NPA as at 31st Dec. 2009 was at Rs. 3218 crore as
against Rs.1718 crore as on 31st Dec. 2008 with Gross NPA ratio of 4.05% and
2.40% respectively.
 Net NPA as at 31.12.2009 was Rs. 1690 crore as against Rs.920 crore and on
31.12.2008 with Net NPA ratio of 2.17% and 1.30% respectively with Provision
Coverage Ratio at 53.32%.

CREDIT RATING REPORT:

Instruments rated

 Rs.3 Billion Tier I Perpetual Bond issue AA+ /Stable

 Rs.5.1 Billion Upper Tier II Bond issue AA+ /Stable
 Rs.2.9 Billion Lower Tier II Bond issue AA+ /Stable
 Tier I Perpetual Bond Issue aggregation Rs.6 Billion AA+/Stable
 Upper tier II bond issue aggregation Rs.1.2 Billion AA+/Stable
 Lower tier II bond issue aggregation Rs.18 Billion AA+/Stable
 Certificate of deposit program P1+

RATING DRIVERS

STRENGTHS

38
 • Comfortable earnings profile
• Adequate capitalization
• Average, but deteriorating, resource profile.
• Expected support from majority owner, the Government of India.

WEAKNESSES

• Moderate asset quality

• Exposure to risk relating to geographical concentration in operations.

RATING SENSITIVITY FACTORS

• Extent of support from Government of India

• Asset Quality
• Earning profile

HIGHLIGHTS

 Bank of 68 years of existence.

 Bank is professionally managed with a track record of profitability.
 Bank has also been specialized branches to cater to the needs of industrial finance,
trade finance, personnel banking, international banking, NRIs and small scale
industries.
 Bank’s training infrastructure consisting of staff college, 9 staff training centes under
rural banking training centre.

1.2.2 PRODUCT PROFILE

PRODUCTS AND SERVICES OF IOB:

The thoughtfully designed products and services of the Indian Overseas Bank can
be listed as given below:

Personal Banking

39
 • Saving bank
• Current account
• Term deposit
• Retail loans
• Home loans and mortgages
• Depository services
• IOB Fine Gold
• International VISA Cards
• Any Branch Banking
• Multi city cheque facility
• Insurance and mutual fund

Corporate Banking

• Micro Small and Medium Enterprises (MSME)

• IT & ITes BPO
• Cash management services -IOB STARS

Rural

• IOB's commitment for social causes

• Agricultural short time loans
• Financial inclusion
• Agri business consultancy

NRI Accounts

• Non-Resident Ordinary (NRO)

• Resident Foreign Currency Account (RFC)
• Foreign Currency Non-Resident Accounts (Banks)
• NRI home loan scheme
• NRI remittances
• Remittances procedures
• Tracking cell

40
 • Forward cover
• IOB NRI shield
• IOB Expo Gold Card

Forex

• SWIFT centers
• Authorized dealer branches
• Forex collection services
• Overseas cash

Government Business

• E-Payment of direct taxes

• E-Payment of indirect taxes
• Pension payment scheme
• Sales tax collections
• Provident Fund Scheme 1968
• 8 percent savings taxable bond scheme
• Senior citizen scheme 2004

BANK’S POLICIES ON VARIOUS CUSTOMER SERVICES

 Cheque Collection Policy

 Compensation Policy
 Grievance Redressal Policy
 Collection of Dues and Repossession of Security Policy
 Deposit Policy
 Advances Policy
 Code For Lenders
 Current Account And Cash Credit Account Rules
 Anti Money Laundering Policy
 Official Language Policy
 USD Cheque Collection Policy

41
42
 CHAPTER –II

DATA ANALYSIS AND INTERPRETATION

2.0 INTRODUCTION

The term analysis refers to the computation of certain measures along with
searching for pattern of relationship that exists among data groups. Thus “in the process
of analysis, relationship or differences supporting or conflicting with original or new
hypothesis should be subjected to statistical test of significance to determine with what
validity data can be said to indicate any conclusions” .

Analysis of data in a general way involves a number of closely related operations.

That are performed with the purpose of summarizing the collected data and organizing
them in such a manner that they answer.

The data after collection has to be processed and analyzed in accordance with the
outline laid down for the purpose at the time of developing research plan. This is essential
for a scientific study and for ensuring that we have all the relevant data. Processing
implies editing, coding, classification and tabulation of collected data so that they are
amenable to analysis.

Editing of data is a process of examining the collected raw data to detect errors
and omission to correct these when possible. Editing is done to assure that the data are
accurate, consistent with other facts gathered, uniformly entered, as completed as
possible and have been well arranged to facilitate coding and tabulation.
The next process is coding, coding refers to the process of assigning numerals or other
symbols to answer so that responses can be put into a limited number of categories or
classes. Coding is necessary for efficient analysis and through if the several replies may
be reduced to small number of classes which contain the critical information required for
analysis.

43
 The third process is classification, classification of data which happens to the
process of arranging data in groups or classes on the basis of common characteristics.
The final process is tabulation, when a mass of data has been assembled, it becomes
necessary for the researcher to arrange the same in some kind of concise and logical
order. Thus, tabulation is the process of summarizing raw data and displaying the same in
compact form (i.e., in the form of statistical tables) for further analysis.

After collecting and analyzing the data, the researcher has to accomplish the task
of drawing inferences followed by report writing. This has to be done very carefully,
otherwise misleading conclusion may be drawn and the whole purpose of doing research
may get vitalized. It is only through interpretation that the researcher can expose relations
and processes that underlie his findings.

Interpretation refers to the task of drawing inferences from the collected facts
after an analytical and or experimental study. In fact, it is search for broader meaning of
researcher findings. The interpretation is advice through which the factors that seems to
explain what has been observed by researcher in the course of the study can be better
understood and it also provides a theoretical conception which can serve as a guide for
further researcher.

Interpretation is essential for the simple reason that the usefulness and utility of
research findings lie in proper interpretation. It is being considered a basic component of
research process.

The task of interpretation is not an easy job, rather it requires a great skill and
dexterity on the part of researcher. So interpretation is an art that one learns through
practice and experience. The researcher may seek guidance from the experts for
accomplishing the task of interpretation.

So the process of interpretation must be done properly and analyzed after

collecting the data.

44
2.1 PERCENTAGE ANALYSIS & FIGURE (TABLE)

SELECTED EFFICINCY AND PROFITABILITY RATIO FOR ASSET

MANAGEMENT

CAPITAL TURNOVER RATIO (CTR) = [Total Operating Income/ Total Capital]

Table No: 2.1.1
CTR of Indian Overseas Bank for the period 2004-2009
(Rupees in Crores)
Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Particulars
TOI (A) 4494.53 4693.54 6082.13 8358.75 10910.87
TC (B) 46816.43 53706.76 72730.78 89182.25 107266.86
CTR (A/B) 0.096 0.087 0.084 0.094 0.102
CTR of Indian Overseas Bank for the period of 2004-2009
Figure No: 2.1.1

0.12 0.102
0.096 0.094
0.1 0.087 0.084

0.08

0.06 CTR(times)

0.04

0.02

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
years
Inference:

It is clear from the above figures that the Capital Turnover Ratio of Indian Overseas
Bank was fluctuating between 0.096 times in 2004-2005 to 0.102 times in 2008-2009.
The CTR was registered very low in all the five years of the study. It indicates the bank’s
efficiency in utilization of capital funds employed in the business is found to be not
satisfactory. The lower the CTR, the lower is the bank’s efficiency in utilization of capital
funds in the business.
FIXED ASSETS TURNOVER RATIO (FATR) = [Total Operating Income/ Net
Fixed Assets]

FATR of Indian Overseas Bank for the period 2004-2009

45
 Table No: 2.1.2
(Rupees in Crores)
Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Particulars
TOI (A) 4494.53 4693.54 6082.13 8358.75 10910.87
NFA (B) 452.34 457.74 510.65 558.57 1709.86
FATR (A/B) 9.94 10.25 11.91 14.96 6.38

Figure No: 2.1.2

FATR of Indian Overseas Bank for the period of 2004-2009

16 14.96

14 11.91
12 9.94 10.25
10
8 6.38
6 FATR(TIMES)
4
2
0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
YEARS

Inference:

It is understood from the above figure that the FATR shows increasing trend from 2004-
2005 (9.94 times) to 2007-2008 (14.96). In 2008-2009, the FATR has decreased to 6.38
times. It infers that Fixed Assets Turnover Ratio was found to be sound over the period of
study except for the last year. It also indicates that the amount invested in fixed assets
was effectively utilized in the business except for last year.
TOTAL ASSETS TURNOVER RATIO (TATR) = [Total Operating Income/ Total
Assets]

TATR of Indian Overseas Bank for the period 2004-2009

Table No: 2.1.3
(Rupees in Crores)

46
 Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Particulars
TOI (A) 4494.53 4693.54 6082.13 8358.75 10910.87
TA (B) 46816.43 53706.76 72730.78 89182.25 107266.86
TATR (A/B) 0.096 0.087 0.084 0.094 0.102

TATR of Indian Overseas Bank for the period of 2004-2009

Figure No: 2.1.3

0.12 0.102
0.096 0.094
0.1 0.087 0.084
0.08
0.06
0.04 TATR(times)
0.02
0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
YEARS

Inference:

The above figure depicts that the total assets turnover ratio of Indian Overseas Bank
shows a downward trend from 2004-2005 (0.096 times) to 2006-2007 (0.084 times) and
then an upswing trend in 2007-2008 (0.094 times) and 2008-2009 (0.102 times). The
average TATR was registered at 0.093 times and found to be not satisfactory. The
proportion of operating income to total assets has not been efficiently used in the business
for increasing the operating income of the bank.
CASH TURNOVER RATIO (CSTR) = [Total Operating Income/ Cash and Bank
Balances]
CSTR of Indian Overseas Bank for the period 2004-2009
Table No: 2.1.4
(Rupees in Crores)
Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Particulars
TOI (A) 4494.53 4693.54 6082.13 8358.75 10910.87
CBB (B) 4953.96 3707.24 8979.30 10341.32 10921.90

47
CSTR (A/B) 0.907 1.266 0.677 0.808 0.999

CSTR of Indian Overseas Bank for the period of 2004-2009

Figure No: 2.1.4

1.4 1.266
1.2 0.907 0.999
1 0.808
0.8 0.677
CSTR (times)
0.6
0.4
0.2
0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
YEARS

Inference:

The above figure infers that the cash turnover ratio of the bank was increasing from
2004-2005 (0.907 times) to 2005-2006 (1.266 times) and decreased to 0.677 times in the
year 2006-2007. In 2007-2008 (0.808 times) and in 2008-2009 (0.999 times) there was
an upward trend. The higher the cash turnover ratio, the more efficient is the management
of cash and bank balance, whereas low CSTR reflects under utilization of available cash
resources and the presence of idle capacity. The overall CSTR was said to be fairly
satisfactory except for the year 2006-2007 during the period of study in the bank. High
CSTR was recorded in the year 2005-2006 (1.266).

48
WORKING CAPITAL TURNOVER RATIO (WCTR) = [Total Operating Income/
Net Working Capital]

WCTR of Indian Overseas Bank for the period 2004-2009

Table No: 2.1.5
(Rupees in Crores)
Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Particulars

TOI (A) 4494.53 4693.54 6082.13 8358.75 10910.87

NWC (B) 27349.36 34296.73 48245.65 60148.96 74341.56
WCTR (A/B) 0.164 0.137 0.126 0.139 0.147

WCTR of Indian Overseas Bank for the period of 2004-2009

Figure No: 2.1.5

0.2
0.164
0.137 0.139 0.147
0.15 0.126

0.1
WCTR (times)
0.05

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
YEARS

Inference:

The above figure infers that WCTR of Indian Overseas Bank was fluctuating and was in
decreasing trend from 2004-2005 (0.164 times) to 2006-2007 (0.126 times). From 2007-
2008 and 2008-2009 it was in upward trend. The proportion of Net Operating Income in
the Net Working Capital was found to be dissatisfactory. Generally the higher the
WCTR, the higher is the efficiency of working capital management of the Bank. It
clearly indicates that the bank has sufficient working capital, but the bank did not utilize
the working capital properly. The WCTR ratio was not found to be satisfactory.

49
RETURN ON CAPITAL EMPLOYED (ROCE) = [Operating Profit/ Capital
Employed]*100

ROCE of Indian Overseas Bank for the period 2004-2009

Table No: 2.1.6

(Rupees in Crores)
Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Particulars
OP (A) 992.29 954.39 1267.37 1534.32 1932.80
CE (B) 46816.43 53706.76 72730.78 8918.25 107266.86
ROCE (A/B) 1.80% 1.72% 1.74% 1.78% 2.12%

ROCE of Indian Overseas Bank for the period of 2004-2009

Figure No: 2.1.6

2.50%
1.80% 1.78% 2.12%
2.00% 1.72% 1.74%

1.50%

1.00%
ROCE
0.50%

0.00%
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
YEARS

Inference:
The above figure infers that ROCE of Indian Overseas Bank was at 1.80% in 2004-2005
and had fallen to 1.72% during 2005-06. But it had increased gradually to 2.12% in
2008-2009. It only signifies that the profitability position of the bank was not
satisfactory during the period of the study. The operating profit is very less compared to
capital employed. The capital employed was not utilized effectively during the period of
the study. The higher the ROCE, the more efficient is the utilization of capital employed
in the business.
RETURN ON NETWORTH (RONW) = [Operating Profit/ Net Worth]*100
RONW of Indian Overseas Bank for the period 2004-2009
Table No: 2.1.7

50
 (Rupees in Crores)
Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Particulars
OP (A) 992.29 954.39 1267.37 1534.32 1932.80
NW (B) 2575.19 3177.44 3990.37 4856.67 7510.96
RONW (A/B) 38.53% 30.04% 31.76% 31.59% 27.03%

RONW of Indian Overseas Bank for the period of 2004-2009

Figure No: 2.1.7

38.53%
40.00%
35.00% 31.76% 31.59
30.04% 27.03%
30.00%
25.00%
20.00%
15.00%
RONW
10.00%
5.00%
0.00%
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
YEARS

Inference:

The figure infers that the RONW of Indian Overseas Bank had decreased to 27.03% in
2008-2009 from 38.53% in 2004-2005. It was in fluctuating trend in the years 2005-06
(30.04%), 2006-07 (31.76%) and 2007-06 (31.59%). It signifies that the bank was able
to utilize its net worth of shareholders funds effectively to some extent to increase
operating profit of the business. A high RONW of 38.53% was registered in the year
2004-2005.

51
RETURN ON TOTAL ASSETS (ROTA) = [Operating Profit/ Total Assets]*100
ROTA of Indian Overseas Bank for the period 2004-2009
Table No. 2.1.8
(Rupees in Crores)
Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Particulars
OP (A) 992.29 954.39 1267.37 1534.32 1932.80
TA (B) 46816.43 53706.76 72730.78 89182.25 107266.86
ROTA (A/B) 1.80% 1.72% 1.74% 1.78% 2.12%

ROTA of Indian Overseas Bank for the period of 2004-2009

Figure No: 2.1.8

2.50%
1.80% 1.78% 2.12%
2.00% 1.72% 1.74%

1.50%

1.00%
ROTA
0.50%

0.00%
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
YEARS

Inference:
The above figure infers that the ROTA of Indian Overseas Bank had decreased to 1.72%
in 2005-2006 from 1.80% in 2004-2005. After that there was a gradual increasing trend
to 2.12% in 2008-2009. The proportion of operating profit to total assets was termed to
be unfavourable though there is a gradual increase, over the period of study. It indicates
that the profitability of the bank was not healthy and the amount invested in total assets
was not being effectively utilized during these periods. RONW was high in the year
2008-2009 (2.12%) compared to other years. The higher the return on total assets, the
more efficient is the utilization of total asset invested in the business.
RETURN ON FIXED ASSETS (ROFA) = [Operating Profit/ Net Fixed Assets]*100

ROFA of Indian Overseas Bank for the period 2004-2009

52
 Table No: 2.1.9
(Rupees in Crores)
Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Particulars
OP (A) 992.29 954.39 1267.37 1534.32 1932.80
NFA (B) 452.34 457.74 510.65 558.57 1709.86
ROFA (A/B) 1.13% 2.75% 2.48% 2.09% 2.19%

ROFA of Indian Overseas Bank for the period of 2004-2009

Figure No. 2.1.9

2.75%
3.00% 2.48% 2.19
2.09%
2.50% %
2.00%
1.13%
1.50%
1.00% ROFA
0.50%
0.00%
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
YEARS

Inference:

The above figure infers that the ROFA of Indian Overseas Bank was fluctuating. In
2004-2005 it was 1.13% and rose to 2.73% in 2005-2006. Then there was a decreasing
trend upto 2007-2008 (2.09%) and ended up as 2.19% in 2008-2009. The highest ROFA
was recorded in the year 2005-2006 (2.75%). This indicates that profitability of the bank
was not sound when compared to net fixed asset and the fixed asset is not effectively
utilized. The higher the return on fixed assets, the more efficient is the utilization of fixed
assets invested in the business.

53
NET PROFIT MARGIN (NPM)= [Profit after Tax/ Total Operating Income]*100

NPM of Indian Overseas Bank for the period 2004-2009

Table No: 2.1.10
(Rupees in Crores)
Years 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Particulars
PAT (A) 645.79 739.82 1006.05 1200.76 1257.2
TOI (B) 4494.53 4693.54 6082.13 8358.75 10910.87
NPM (A/B) 14.368% 15.762% 16.541% 14.365% 11.523%

NPM of Indian Overseas Bank for the period of 2004-2009

Figure No: 2.1.10

18.00% 16.541%
15.762%
16.00% 14.368% 14.365%
14.00% 11.523%
12.00%
10.00%
8.00%
6.00% NPM
4.00%
2.00%
0.00%
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
YEARS

Inference:

The above figure portrays that the NPM of Indian Overseas Bank showed a fluctuating
trend. In the financial year 2004-2005 the NPM was 14.368% and it came down to
11.523% in the financial year 2008-2009. The proportion of profit after tax to total
operating income seemed to be not very dissatisfactory over the period of the study. It
indicates that the company did not reduce its operating expenses, depreciation and
interests gradually over the period of the study. The profit after tax to total operating
income was high in the year 2006-2007(16.541%) as compared to other four years.

TREND ANALYSIS:

54
 “Trend” signifies a tendency and as such the review and appraisal of tendency in
accounting variables are nothing but trend analysis. Trend analysis is carried out by
calculating trend ratios (percentage) and or/by plotting the accounting data on graph
paper or chart. Trend analysis is significant for forecasting and budgeting. Trend
analysis discloses the changes in financial and operating data between specific periods.
In financial analysis the direction of changes over a period of years is of crucial
importance. Time series or trend analysis of ratios indicates the direction of change.
This kind of analysis is particularly applicable to the items of profit and loss account.

The ratio analysis will reveal the financial condition of the firm more reliably
when trends in ratios over time are analyzed. Ratios at appointment of time can mislead
the point of time. An impressive present financial position may really be eroding over
time, while a weak position may be improving at a rapid rate over time. Thus, the trend
analysis of the ratios adds considerable significance to the financial analysis because it
studies ratios of several years and isolates the exceptional instances occurring in one or
two periods. Although the trend analysis of the company ratio itself is informative to
compare the trends in industry ratios, this comparison would reveal how well the
company has been operating over time to its competitors and may also help to explain the
trends in the company’s ratios.

Management has to protect the interest of all concerned parties, creditors, owners
and others. They have to ensure some minimum operating efficiency and keep the risk of
the firm at a minimum level. This survival depends upon their operating performance.
From time to time, management uses trend analysis to determine the firm’s financial
strengths and weaknesses and accordingly takes actions to improve the firm’s position.
Management is in a better position to analyze the firm’s financial position as it has access
to internal information, which is not available to the credit analyst or the security analyst.

55
 TREND ANALYSIS

The Details of Asset Components of Indian Overseas Bank for the period of

2004-2005 to 2008-2009

Table No.2.1.11

(Rupees in Thousands)

Particulars 2004- 2005- 2006- 2007- 2008-

2005 2006 2007 2008 2009
Fixed Assets 4523420 4577383 5106572 5585775 17098596
Investments 190147180 189522843 239744736 284747084 312154387
Current Assets:
• Cash 41754365 30779584 46861079 91242328 59404442
balance

• Bank
7785191 6292828 42931947 12170884 49814575
balance

• Loans &
advances 252051881 347562019 470602860 604238440 748852726

Other Assets 11888385 14843460 17321090 20612881 23409261

56
 TREND ANALYSIS

The Trend Analysis of Indian Overseas Bank is computed from 2004-2005 to 2008-
2009

Table No.2.1.12
(In Percentage)
Particulars 2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
Fixed Assets 100 101.19 112.89 123.49 378.00
Investments 100 99.67 126.08 149.75 164.16
Current Assets:
• Cash 100 73.71 112.23 218.52 142.27
balance

• Bank 100 80.83 551.45 156.33 639.86

balance

• Loans & 100 137.89 186.70 239.72 297.10

advances

196.90
Other Assets 100 124.85 145.69 173.38

57
 The Trend analysis of Fixed Assets of Indian Overseas Bank for the period 2004-
2005 to 2008-2009
Figure No. 2.1.11

Inference:
The percentage of fixed assets has shown an increasing trend from 2004-2005 (100%) to
2005-2006 (101.19%) and again have an upward trend in 2006-2007 (112.89), 2007-2008
(123.49), 2008-2009 (378.00%). 2008-2009 shows the highest fixed asset compared to
other four years.

The Trend Analysis of investment of Indian Overseas Bank for the period 2004-
2005 to 2008-2009
Figure No.2.1.12

200
164.16
149.75
150 126.08
100
99.67
100
investmtments

50

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Inference:

The percentage of investments has shown an decreasing trend from 2004-2005 (100%) to
2005-2006 (99.67%) and then it started to show an upward trend from 2006-2007
(126.08%), 2007-2008 (149.75%), 2008-2009 (164.16%)

58
 The Trend Analysis of cash balance of Indian Overseas Bank for the period 2004-
2005 to 2008-2009
Figure No.2.1.13

250 218.52

200
142.75
150 112.23
100 73.71
100 CASHBALANCE

50

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Inference:
The percentage of cash balance shows a decreasing trend from 2004-2005 (100%) to
2005-2006 (73.71). Then it shows an upward trend in 2006-2007 (112.23%) and 2007-
2008 (218.52%) and then finally showed a decreasing trend in 2008-2009 (14.75%).

The Trend Analysis of Bank balance of Indian Overseas Bank for the period 2004-
2005 to 2008-2009
Figure No.2.1.14

700 551.43% 639.86%

600
500
400
300 156.33% BANKBALANCE
200 100% 80.83%
100
0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Inference:
The percentage of bank balance has shown a decreasing trend from 2004-2005 (100%) to
2005-2006 (80.83%) and then it shows an upward trend in 2006-2007 and again it came
down in 2007-2008 (156.33%) and finally shows an upward trend in 2008-2009
(639.86%).

59
The Trend Analysis of Loans and Advances of Indian Overseas Bank for the period
2004-2005 to 2008-2009
Figure No.2.1.15

297.1%
300
239.72%
250
186.7%
200 137.89%
150
100% LOANSANDADVANCES
100
50
0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Inference:

The percentage of loans and Advances has shown an increasing trend in all five years. 1n
2004-2005 it was 100%. In 2005-2006 it was 137.89%. In 2006-2007 it was 186.70%.
In 2007-2008 it was 239.72%. In 2008-2009 it was 297.10%.

The Trend Analysis of Other Assets of Indian Overseas Bank for the period 2004-
2005 to 2008-2009
Figure No.2.1.16

196.90
200 173.38
145.69
150 124.85
100
100
OTHERASSETS
50

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Inference:
The percentage of other assets has shown an increasing trend in all five years. 1n 2004-
2005 it was 100%. In 2005-2006 it was 124.85%. In 2006-2007 it was 145.69%. In
2007-2008 it was 173.38%. In 2008-2009 it was 196.90%.

60
 RANKING OF ASSET COMPONENTS

ASSET COMPONENTS OF INDIAN OVERSEAS BANK FOR THE PERIOD OF

2004-2005 TO 2008-2009

Table No.2.1.13
Rupees in Thousands
Particulars 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Fixed Assets 4523420 4577383 5106572 5585775 17098596
Investments 19014718 189522843 239744736 284747084 312154387

0
Current Assets:
• Cash 41754365 30779584 46861079 91242328 59404442
balance

• Bank
7785191 6292828 42931947 12170884 49814575
balance

• Loans &
advances 25205188 347562019 470602860 604238440 748852726
1
Other Assets 11888385 14843460 17321090 20612881 23409261
Total Assets 50815042 593578117 822568284 1018597392 1210733987

CALCULATION OF ASSET COMPONENTS OF INDIAN OVERSEAS BANK

FOR THE PERIOD OF 2004-2005 TO 2008-2009

61
 Table No.2.1.14

PARTI- FD to Investments Cash Bank balance Loans & Other

CULARS TA to TA balance to to TA advances Assets to
TA to TA TA
2004-2005 0.0089 0.3741 0.0821 0.0153 0.4960 0.0233

2005-2006 0.0077 0.3192 0.0518 0.0106 0.5855 0.0250

2006-2007 0.0062 0.2914 0.0569 0.0521 0.5721 0.0210

2007-2008 0.0054 0.2795 0.0895 0.0119 0.5932 0.0202

2008-2009 0.0141 0.2578 0.0490 0.0411 0.6185 0.0193

62
 RANKING OF ASSET COMPONENTS OF INDIAN OVERSEAS BANK FOR
THE PERIOD OF 2004-2005 TO 2008-2009

Table No.2.1.15

PARTI- FD Invest- Cash Bank Loans & Other Aver- Ultimate

CULARS to ments balance balanc advances Assets age ranking
TA to TA to TA e to TA to TA to TA rank
2004-2005 2 1 2 3 5 2 2.5 5

2005-2006 3 2 4 5 3 1 3 3

2006-2007 4 3 3 1 4 3 3 3

2007-2008 5 4 1 4 2 4 3.33 1

2008-2009 1 5 5 2 1 5 3.16 2

63
 RANKING OF ASSET COMPONENTS OF INDIAN OVERSEAS BANK FOR
THE PERIOD OF 2004-2005 TO 2008-2009

Figure No: 2.1.17

5
5

4
3 3
3
2
2 RANKINGOFASSETCOMPONENTS
1
1

0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009

Inference:
Based on the principle of asset components ranking, it can be interpreted that the lower
the point scored, the more favourable is the asset management of the company. The
above figure shows that the asset management of the Indian Overseas Bank was framed
to be sound in the financial year 2007-2008 because the high proportion of asset
components was registered in this year as compared to the other four years.

64
2.2 STATISTICAL TOOL

STATISTICAL ANALYSIS:

The Role of Statistics is functioning as a tool in, designing research, analyzing its
data and drawing conclusion there from. The important statistical tools used in the study
are as follows:

 Kendall’s Coefficient of Concordance.

 Karl Pearson’s Coefficient or Correlation.
 Spearman’s Rank Correlation.

KENDALL’S COEFFICIENT OF CONCORDANCE

INTRODUCTION:

Kendall’s Coefficient of Concordance, represented by W, is an important non-

parametric measure of relationship. It is used for determining the degree of association
among several (k) sets of ranking of N objects or individuals. When there are only two
sets of rankings of N objects, we generally work out Spearman’s coefficient of
correlation but Kendall’s Coefficient of Concordance (W) is considered an appropriate
measure of studying the degree of association among three or more sets of rankings. This
descriptive measure of the agreement has special applications in providing a standard
method of ordering objects according to consensus when we do not have an objective
order of the objects.

The basis of Kendall’s Coefficient of Concordance is to imagine how the given data
would look of there were no agreement among the several sets of rankings, and then to
imagine how it would look of there were perfect agreement among the several sets. In
general, when perfect agreement exists among ranks assigned by k judges to n objects,
the rank sums are k, 2k, 3k … Nk. The total sum of n ranks for k judges is kN (N+1)/2
and the mean rank sum is k (N+1)/2. The degree of agreement between judges reflects
itself in the variation in the rank sums. When all judges agree, this sum is a maximum.

65
Disagreement between judges reflects itself in a reduction in the variation of rank sums.
For maximum disagreement, the rank sums will tend to be more or less equal. This
provides the basis for the definition of a coefficient of concordance. When perfect
agreement exists between judges, W equals to 1, when maximum disagreement exists, W
equals to 0. It may be noted that W does not take negative values because of the fact that
with more than two judges complete disagreement cannot take place. Thus, Coefficient
of Concordance (W) is an index of divergence of the actual agreement shown in the data
from the perfect agreement.

The steps or Procedures involved in Kendall’s Coefficient of Concordance test:

The procedure for computing and interpreting Kendall’s Coefficient of

Concordance (W) is as follows:
1. All the objects, N should be ranked by all k judges in the usual fashion and this
information may be put in the form of a k by N matrix.
2. For each object determine the sum of rank (Rj) assigned by all the k judges.
3. Determine Rj and the obtain the value of s as under:
__
s= ∑ ( R j - R j )2

4. Work out the value of W using the following formula:

W = s ÷ 1 * k2 (N3 – N)
12
__
Where s = ∑ (Rj - Rj)2
k = no. of sets of rankings i.e. the number of judges.
N = number of objects ranked

1 * k2 (N3 – N) = maximum possible sum of the squared deviations i.e.,

12 the sum s which would occur with perfect agreement
among k rankings.

66
Formula:

W = s ÷ 1 * k2 (N3 – N)
12
__
Where s = ∑ (Rj - Rj)2

k = no. of sets of rankings i.e. the number of judges.

N = number of objects ranked

1 * k2 (N3 – N) = maximum possible sum of the squared deviations i.e.,

12 the sum s which would occur with perfect agreement
among k rankings.

Null Hypothesis (H0):

There is no significant agreement among sets of ranks of N objects accepting null

hypothesis.

Alternate Hypothesis (H1):

There is a significant agreement among sets of ranks of N objects rejecting null

hypothesis.

67
KARL PEARSON’S COEFFICIENT OR CORRELATION

INTRODUCTION:

It is also called as simple correlation and it is most widely used method of measuring the
degree of relationship between two variables. Karl Pearson’s coefficient of correlation is
also known as the product moment correlation coefficient. The value of ‘r’ lies between
+ 1. Positive values of r indicate positive correlation between the two variables (i.e.
changes in both variables take place in the statement direction), whereas negative values
of ‘r’ indicate negative correlation i.e., changes in two variables taking place in the
opposite directions. A zero value of ‘r’ indicates that there is no association between the
two variables. Where r = (+) 1, it indicates perfect positive correlation and when it is (-)
1, it indicates perfect negative correlation, meaning thereby that variations in independent
variable (X) explain 100% of the variations in the dependent variable (Y). We can also
say that for a unit change in independent variable, if there happens to be a constant
change in the dependent variable is the same direction, then correlation will be termed as
perfect positive. But if such change occurs in the opposite direction, the correlation will
be termed as perfect negative. The value of ‘r’ nearer to + 1 or -1 indicates high degree
of correlation between two variables.

This coefficient assumes the following;

• That there is linear relationship between two variables.

• That the two variable are casually related which means that one of the variables
is independent and other one is dependent and

• A large number of independent causes are operating in both variables so as to

produce a normal distribution.

68
Formula:

Karl Pearson’s coefficient of correlation can be worked out by using the following
formula:
__ __
∑ (Xi – X) (Yi - Y)
Karl Pearson’s coefficient of correlation (or) r = ---------------------------------
√(∑ (Xi – X). ∑ (Yi - Y))
Where
Xi = ith value of X variable
__
X = mean of X

Yi = ith value of Y variable

__
Y = mean of Y

Null Hypothesis (H0):

There is no significant correlation between the N objects accepting null hypothesis.

Alternate Hypothesis (H1):

There is a significant correlation between the N objects rejecting null hypothesis.

69
SPEARMAN’S RANK CORRELATION

INTRODUCTION

When the data are not available to use in numerical form for doing correlation
analysis but when the information is sufficient to rank the data as first, second, third and
so forth, we quite often use the rank correlation method and work out the coefficient of
rank correlation. In fact, the rank correlation coefficient is a measure of correlation that
exists between the two sets of ranks. In other words, it is a measure of association that is
based on the ranks of the observation and not on the numerical value of the data. It was
developed by famous statistician Charles Spearman in the early 1900s and as such it is
also known as Spearman’s Rank Correlation.

The Steps or Procedure involved in Spearman’s Rank Correlation:

For calculating rank coefficient,

1. First of all the actual observation be replaced by their ranks, giving rank 1 to the
highest value, rank 2 to the next highest value and following this very order ranks
are assigned for all values. If two or more values happen to be equal, then the
average of the ranks which should have been assigned to such values had they
been all different, is taken and the same rank (equal to the said average) is given
to concerning values.

2. The second step is to record the difference between ranks (or ‘d’) for each pair of
observation, then square these differences to obtain a total of such differences
which can symbolically be stated as ∑di2.

Formula:

Spearman’s ‘r’ = 1- {6∑d2 / n (n2 – 1)}

Where n = number of paired observations.

70
The value of Spearman’s rank correlation coefficient will always vary between ±, +1 ,
indicating a perfect positive correlation and -1 indicating perfect negative correlation
between two variables. All other values of correlation coefficient will show different
degrees of correlation.

Null Hypothesis (H0):

There is no significant rank correlation between the N objects accepting null

hypothesis.

Alternative Hypothesis (H1):

There is a significant rank correlation between the N objects rejecting null

hypothesis.

71
 STUDENT’S T- TEST

INTRODUCTION

Sir William S. Gosset (pen named student) developed a significance test,

known as student’s t- test, based on t distribution and through it made significant
contribution in the theory of sampling applicable in case of small samples. Student’s
t-test is used when two conditions are fulfilled viz., the sample size is 30 or less and
the population variance is not known. While using t-test we assume that the
population from which sample has taken is normal or approximately normal, sample
is a random sample, observation are independent, there is no measurement error and
that in the case of two samples when equality of the two population means is to be
tested, we assume that the population variances are equal.

Steps are procedures involve in t-test:

1. Work out the value of test statistic (i.e., ‘t’)

2. Compare the table value of t (based on t distribution) at certain level of

significance for given degrees of freedom.

3. If the calculated value of ‘t’ is either equal to or exceeds the table value, we
infer that the difference is significant,

4. But if the calculated value of ‘t’ is less than the concerning table value of t, the
difference is no treated as significant.

Formula:
t = r ÷ √ (1-(r)2) * √ (n-2)

72
 KENDALL’S CO-EFFCIENT OF CONCORDANCE

TEST NO: 1

Aim:

To test the degree of uniformity among five sets of profitability indicators of Indian
Overseas Bank.

Null hypothesis (H0):

There is no significant agreement among five set of profitability indicators of Indicators
of Indian Overseas Bank.

Alternative hypothesis (H1):

There is significant agreement among five set of profitability indicators of Indian
Overseas Bank.

Selected profitability measures of Indian Overseas bank for the period of

2004-2005 to 2008-2009
Table No. 2.2.1

YEARS ROCE (%) RONW %) ROTA (%) ROFA (%) NPM (%)
2004-2005 1.80 27.03 1.80 1.13 14.368
2005-2006 1.72 31.59 1.72 2.75 15.762
2006-2007 1.74 31.76 1.74 2.48 16.541
2007-2008 1.78 30.04 1.78 2.09 14.365
2008-2009 2.12 38.53 2.12 2.19 11.523

73
 Analysis of Kendall’s Coefficient of Concordance among selected
profitability indicators
Table No.2.2.2

YEARS ROCE RONW ROTA ROFA NPM Sum of __

(Rj - Rj)2
Ranks (Rj)
2004-2005 2 5 2 5 3 17 4
2005-2006 5 3 5 1 2 16 1
2006-2007 4 2 4 2 1 13 4
2007-2008 3 4 3 4 4 18 9
2008-2009 1 1 1 3 5 11 16
∑ Rj =75 S=34

Here N=5, k=5

Rj = ∑Rj /N
= 75/5
= 15
W = s ÷ (1/12)*k2(N3 – N)
= 34 ÷ (1/12)*52(53 – 5)
= 34 ÷ (1/12)*25(125 – 5)
= 34 ÷ (1/12)*25(120)
= 34 ÷ (25/12)*120
= 34 ÷ 250
= 0.136

The level of significance = 5%

The calculate value of s = 34
The table value of S @ 5% level of significance for k = 5 and N = 5 is 112.3

74
Result:
Since the calculated value of s (34) is lesser than the tabulated value of s (112.3).
So Null hypothesis (H0) is accepted.

Decision:
There is no significant agreement among five sets of profitability indicator of
Indian Overseas Bank. The hypothesis that W= 0.136 is not significant.

75
 KENDALL’S CO-EFFCIENT OF CONCORDANCE

TEST NO: 2

Aim:

To test the degree of uniformity among five sets of profitability indicators of Indian
Overseas Bank.

Null hypothesis (H0):

There is no significant agreement among five set of efficiency indicators of Indicators of

Indian Overseas Bank.

Alternative hypothesis (H1):

There is significant agreement among five set of efficiency indicators of Indian Overseas
Bank.

Selected Efficiency measures of Indian Overseas bank for the period

2004-2005 to 2008-2009

Table No.2.2.3

YEARS CTR FATR TATR CSTR WCTR

2004-2005 0.096 9.94 0.096 0.907 0.164
2005-2006 0.087 10.25 0.087 1.266 0.137
2006-2007 0.084 11.91 0.084 0.677 0.126
2007-2008 0.094 14.96 0.094 0.808 0.139
2008-2009 0.102 6.38 0.102 0.999 0.147

76
 Analysis of Kendall’s Coefficient of Concordance among selected profitability
indicators
Table No.2.2.4

YEARS CTR FATR TATR CSTR WCTR Sum of __

(Rj - Rj)2
Ranks (Rj)
2004-2005 2 4 2 3 1 12 9
2005-2006 4 3 4 1 4 16 1
2006-2007 5 2 5 5 5 22 49
2007-2008 3 1 3 4 3 14 1
2008-2009 1 5 1 3 2 11 16
∑Rj=75 S= 76

Here N=5, k=5

Rj = ∑Rj /N
= 75/5
= 15
W = s ÷ (1/12)*k2(N3 – N)
= 76 ÷ (1/12)*52(53 - 5)
= 76 ÷ (1/12)*25(125 – 5)
= 76 ÷ (1/12)*25(120)
= 76 ÷ (25/12)*120
= 76 ÷ 250
= 0.304
The level of significance = 5%
The calculated value of s = 76
The table value of s @ 5% level of significance for k = 5 and N = 5 is 112.3

77
Result:

Since the calculated value of s (76) is lesser than the table value of s (112.3), the
Null hypothesis (H0) is accepted.

Decision:

There is no significant agreement among five sets of profitability indicators of

Indian Overseas Bank. The hypothesis W= 0.304 is not significant.

78
 KARL PEARSON’S COEFFICIENT OF CORRELATION

TEST NO: 3
Aim:

To test the correlation between the operational efficiency (Return on Total Assets) &
profitability (Return on Net Worth) of Indian Overseas Bank.

Null Hypothesis (H0):

The correlation between the operational efficiency (Return on Total Assets) &
profitability (Return on Net Worth) is not significant.

Alternative Hypothesis (H1):

The correlation between the operational efficiency (Return on Total Assets) &
profitability (Return on Net Worth) is significant.

Calculation of Correlation between the Operational Efficiency (Return on Total

Assets) & profitability (Return on Net Worth).
Table No. 2.2.5

YEARS ROTA __ x2 RONW __ y2 Xy

X (%) x(X- X) y(Y- Y)
Y (%)
2004-2005 2.12 0.288 0.082 38.53% 6.74 45.427 1.941
2005-2006 1.78 - 0.052 0.002 30.04% -1.75 3.062 0.091
2006-2007 1.74 - 0.092 0.008 31.76% -0.03 0.001 0.002
2007-2008 1.72 - 0.112 0.012 31.59% -0.2 0.04 0.022
2008-2009 1.80 - 0.032 0.001 27.03% -4.76 22.657 0.152
∑X = ∑x2= ∑Y = ∑y2 ∑xy =
9.16 0.105 158.95 =71.187 2.208
__
X = ∑X / N
= 9.16 / 5
= 1.832
__
Y = ∑Y / N

79
 = 158.95 / N
= 31.79
r = ∑xy / √(∑x2∑y2 )
= 2.208 / √(0.105 * 71.187)
= 2.208 / 2.733
= 0.80
Student’s t-distribution:
t = r ÷ √((1-(r)2)) * √(n-2)
t = 0.80 ÷ √((1-(0.80)2)) * √(5-2)
= 0.80 ÷ 0.6 *1.73
= 1.33 * 1.73
= 2.30

Degree of freedom (D.O.F) = n-2

= 5-2
=3

Level of significance = 5%
Calculated value of t = 2.30
Table value of t @ 5% level of significance is 3.182

Result:
Since the calculated value of t (2.30) is lesser than the tabulated value of t (3.182).
The null hypothesis (H0) is accepted.

Decision:
Correlation between the operational efficiency (Return on Total Assets) & profitability
(Return on Net Worth) of Indian Overseas Bank is not significant.

80
 SPEARMAN’S RANK CORRELATION

TEST NO: 4

Aim:

To test the rank correlation between the operational efficiency (Capital Turnover Ratio)
& profitability (Net Profit Margin) of Indian Overseas Bank.

Null Hypothesis:

To test the rank correlation between the operational efficiency (Capital Turnover Ratio)
& profitability (Net Profit Margin) is not significant

Alternative Hypothesis:

To test the rank correlation between the operational efficiency (Capital Turnover Ratio)
& profitability (Net Profit Margin) is significant

Calculation of rank correlation between operational efficiency (Capital Turnover

Ratio) & profitability (Net Profit Margin)
Table No.2.2..6

YEARS CTR RANK NPW RANK D D2

(%) (R1) (R2) (R1-R2)
2004-2005 9.6 2 14.368 3 -1 1
2005-2006 8.7 4 15.762 2 2 4
2006-2007 8.4 5 16.541 1 4 16
2007-2008 9.4 3 14.365 4 -1 1
2008-2009 10.2 1 11.523 5 -4 16
∑ D2 =38

81
Spearman’s ‘r’ = 1 – {6∑d2i / (N3 – N)}
r = 1 – { 6×38 / (53 – 5)}
r = 1 – { 228 / 120}
r = 1 – 1.9
r = - 0.9
student’s t – distribution:
t = r ÷ √ (1 – (r)2) * √(n – 2)
t = - 0.9 ÷ √((1 – (-0.9)2) *√(5 – 2)
t = (- 0.9 ÷ 0.19) * 1.73
t = - 4.73 * 1.73
t = -8.182

Degree of freedom (D.O.F) = n–2

5–2
3

Level of significance = 5%
Calculated value of t = -8.182
Table value of t @ 5% Level of significance is 3.182

Result :

The calculated value of t (- 8.182) is less than the table value of t (3.182). Therefore null
hypothesis (H0) is accepted.

Decision:

The rank correlation between the operational efficiency (Capital Turnover Ratio) &
profitability (Net Profit Margin) is not significant.

82
 CHAPTER III

SUMMARY AND CONCLULSION

3.1 FINDINGS

GENERAL FINDINGS

 The Capital Turnover Ratio of Indian Overseas Bank was fluctuating. The CTR
was registered very low in all the five years of the study. It indicates the bank’s
efficiency in utilization of capital funds employed in the business is found to be
not satisfactory during these five years.

 FATR showed an increasing trend. But fell down in the last year. It infers that
Fixed Assets Turnover Ratio was found to be sound over the period of study
except for the last year. It also indicates that the amount invested in fixed assets
was effectively utilized in the business except for last year.

 The proportion of operating income to total assets was low in all five years of the
study. It implies that the amount invested has not been efficiently used in the
business for increasing the operating income of the bank.

 The cash turnover ratio of the bank was fairly satisfactory. The higher the cash
turnover ratio, the more efficient is the management of cash and bank balance. It
shows that the efficiency of cash management of the company was considered to
be fairly satisfactory during this period.

 The WCTR of Indian Overseas Bank was fluctuating. The proportion of Net
Operating Income in the Net Working Capital was found to be dissatisfactory.
The working capital was not properly utilized by the bank. They had sufficient
amount of working capital. The WCTR ratio was not found to be satisfactory.

83
  The return on capital employed of Indian Overseas Bank was considered to be
dissatisfactory. It only signifies that the profitability position of the bank was not
satisfactory during the period of the study. The operating profit is very less
compared to capital employed. The capital employed was not utilized effectively
during the period of the study.

 The RONW of Indian Overseas Bank had fluctuating trend. It signifies that the
bank was able to utilize its net worth of shareholders funds effectively to some
extent to increase operating profit of the business. Return on net worth was fairly
profitable.

 The proportion of operating profit to total assets was termed to be unfavourable

though there was a gradual increase, over the period of study. It indicates that the
profitability of the bank was not healthy and the amount invested in total assets
was not being effectively utilized during these periods.

 The Return on fixed assets of Indian Overseas Bank was fluctuating. This
indicates that profitability of the bank was not sound when compared to net fixed
asset and the fixed asset is not effectively utilized.

 The proportion of profit after tax to total operating income seemed to be not very
dissatisfactory over the period of the study. It indicates that the company did not
reduce its operating expenses, depreciation and interests gradually over the period
of the study. There is profit, but not much.

FINDINGS OF TREND ANALYSIS

 The percentage of fixed assets has shown an increasing trend from 2004-2005 to
2008-2009. During 2008-2009 the bank has invested more in fixed assets.

84
  The percentage of investments has shown an decreasing trend from 2004-2005 to
2005-2006 and then it started to show an upward trend from 2006-2007 to 2008-
2009.

 The percentage of cash balance showed a decreasing trend from 2004-2005 to

2005-2006. Then it showed an upward trend in 2006-2007 and 2007-2008 and
then finally showed a decreasing trend in 2008-2009.

 The percentage of bank balance has showed a decreasing trend from 2004-2005 to
2005-2006 and then it showed an upward trend in 2006-2007 and again it came
down in 2007-2008 and finally showed an upward trend in 2008-2009.

 The percentage of loans and Advances has shown an increasing trend in all five
years from 2004-2005 to 2005-2006. It was a very good sign.

FINDINGS OF RANKING OF ASSET COMPONENTS

 The asset management of the Indian Overseas Bank was framed to be sound in the
financial year 2007-2008 because the high proportion of asset components was
registered in this year as compared to the other four years.

STATISTICAL FINDINGS:

 There is no significant agreement among five sets of profitability indicator of

Indian Overseas Bank.
 There is no significant agreement among five sets of profitability indicators of
Indian Overseas Bank.
 Correlation between the operational efficiency (Return on Total Assets) &
profitability (Return on Net Worth) of Indian Overseas Bank is not significant.
 The rank correlation between the operational efficiency (Capital Turnover Ratio)
& profitability (Net Profit Margin) is not significant.

85
3.2 SUGGESTIONS

• It is observed from the study that capital turnover ratio of Indian Overseas Bank
has recorded very low during the period of study. It shows that the capital funds
were not effectively utilized by the bank. It is suggested that the bank needs to
increase the utilization of capital funds employed in the business.

• The survey indicates that the proportion of operating income to total assets was
fluctuating in the years of the study. It has given a clear picture that the amount
invested in total assets was only utilized limitedly in the business. So the bank
should take appropriate measures to reduce idle cash locked up in fixed assets.

• It is found that the working capital during the period of study is more than
sufficient for the bank but this was not utilized effectively. So it gives a clear
picture that The proportion of Net Operating Income in the Net Working Capital
was found to be dissatisfactory. So the bank should effectively follow
conservative working policy to meet its liquidity requirements in the forth coming
years.

• The study infers that the profitability position of the bank was not satisfactory
during the period of the study. The operating profit is very less compared to
capital employed. The capital employed was not utilized effectively during the
period of the study. The bank needs to take suitable measures to make effective
utilization for increasing the profitability position of the bank.

• The proportion of operating profit to total assets was termed to be unfavourable

though there was a gradual increase, over the period of study. It indicates that the

86
 profitability of the bank was not healthy and the amount invested in total assets
was not being effectively utilized during these periods. It is suggested that
measures need to be taken to invest the assets in healthier schemes.

3.3 CONCLUSION

Asset Management is the process of effective utilization of assets in a company, here the
Bank. It can be used for a variety of things. It has been always an integral part in the
bank and it has a direct bearing on profitability of the bank. It also compares among
operational efficiency of the asset components used for increasing the profitability in the
bank. Most use asset management to keep track of their cash or "liquid assets." Banking
institutions are considered a form of asset management (savings accounts, CD's, mutual
funds, money market accounts, etc.) along with investments.

The study has come to the conclusion that the operational efficiency of the bank
was observed to be not satisfactory, because the capital funds and the amount invested in
the total assets have not been effectively utilized to the fullest extent in the business. It
also concludes that the return on total capital employed in the net margin of Indian
Overseas bank was found to be fair and not very favourable over the period of time. The
study also infers that the Net Profitability position of the Bank was considered to be
favourable to certain extent. A credit rating report says IOB has a moderate asset quality
which is its major weakness.

The statistical part of the study shows that there is no significant difference
between the operational efficiency and profitability of the company, as per the Spearman
rank correlation. Also the study reveals that there is a lack of uniformity in the efficiency
of managing different asset components of the Indian Overseas Bank and there is no
significant uniformity in the profitability indicators of IOB.

To conclude, IOB enjoys a comfortable earnings profile, adequate capitalization

and average, but deteriorating, resource profile. Though there are drawbacks such as
moderate asset and exposure to risk relating to geographical concentration in operations,

87
the study reveals that IOB is always safe as it gets the expected support from the majority
owner, Government of India.

88
 INDIAN OVERSEAS BANK BALANCE SHEET
(Rs in Crore)

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Sources of funds:
Owner's fund
Equity share capital 544.80 544.80 544.80 544.80 544.80
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 5,396.59 4,197.90 3,327.59 2,510.17 1,888.57
Loan funds:
Secured loans - - - - -
Unsecured loans 1,00,115.89 84,325.58 68,740.4 50,529.3 44,241.24
1 2
Total 1,06,057.28 89,068.28 72,612.8 53,584.2 46,674.60
1 8
Uses of funds:
Fixed assets
Gross block 2,352.74 1,102.80 1,000.13 865.33 819.56
Less : revaluation reserve 1,209.57 113.97 117.97 122.47 141.82
Less : accumulated depreciation 655.95 569.11 509.20 419.40 375.05
Net block 487.22 419.72 372.95 323.47 302.68
Capital work-in-progress 13.07 24.88 19.73 11.80 7.84
Investments 31,215.44 28,474.71 23,974.4 18,952.2 19,014.72
7 8
Net current assets:
Current assets, loans & advances 2,340.93 2,061.29 1,732.11 1,484.35 1,188.84
Less : current liabilities & 7,258.26 6,323.84 6,629.82 4,914.43 3,407.94
provisions
Total net current assets -4,917.34 -4,262.55 -4,897.71 -3,430.08 -2,219.10
Miscellaneous expenses not - - - - -
written
Total 26,798.39 24,656.76 19,469.4 15,857.4 17,106.14
5 7
Notes:
Book value of unquoted - - - - -
investments
Market value of quoted - - - - -
investments
Contingent liabilities 41,856.09 34,388.84 24,273.5 15,980.7 10,118.38

89
 9 0
Number of equity shares 5448.00 5448.00 5448.00 5448.00 5448.00
outstanding (Lacs)

INDIAN OVERSEAS BANK PROFIT & LOSS ACCOUNT

(Rs in Crore)

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Income
Operating income 10,910.87 8,358.75 6,082.13 4,693.54 4,494.53
Expenses
Material consumed - - - - -
Manufacturing expenses - - - - -
Personnel expenses 1,271.84 949.68 931.07 893.57 843.46
Selling expenses 26.95 12.17 13.57 8.86 2.86
Administrative expenses 907.46 573.78 598.85 497.62 560.40
Expenses capitalized - - - - -
Cost of sales 2,206.25 1,535.64 1,543.48 1,400.05 1,406.72
Operating profit 1,932.80 1,534.32 1,267.37 954.39 992.29
Other recurring income 256.79 265.40 149.14 70.24 68.87
Adjusted PBDIT 2,189.59 1,799.72 1,416.51 1,024.63 1,061.16
Financial expenses 6,771.81 5,288.79 3,271.27 2,339.10 2,095.53
Depreciation 100.94 75.10 61.12 55.34 46.74
Other write offs - - - - -
Adjusted PBT 2,088.65 1,724.62 1,355.39 969.30 1,014.42
Tax charges 628.51 452.36 365.00 202.28 320.46
Adjusted PAT 1,257.29 1,200.76 1,006.05 739.82 645.79
Nonrecurring items 68.50 1.57 2.39 43.52 5.57
Other non cash adjustments - - - - -
Reported net profit 1,325.79 1,202.34 1,008.43 783.34 651.36
Earnings before appropriation 1,325.79 1,202.34 1,008.43 783.34 651.36
Equity dividend 286.82 203.96 191.22 161.51 148.36
Preference dividend - - - - -

90
Dividend tax - - - - -
Retained earnings 1,038.97 998.37 817.22 621.83 503.00

REFERENCES

BOOK SURVEY

• Dr. ARORA P.N. and Mrs. S. ARORA (2007), “STATISTICS FOR

MANAGEMENT”, Sultan Chand & Company Limited

• KOTHARI, C.R.. (Revised Second Edition, 2007) “RESEARCH

METHODOLOGY (Method and Techniques)” New Age International (P) Ltd,
Publishers, New Delhi.

• I.M. Pandey (Ninth Edition) “FINANCIAL MANAGEMENT” Vikas

Publishing House Private Limited.

• T.S. REDDY AND DR. Y. HARI PRASAD REDDY (Revised Edition 2007)
“MANAGEMENT ACCOUNTING” Margham Publications.

WEBSITE SURVEY

1. www.indianoverseesbank.com
2. www.allprojectreports.com
3. www.google.com

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