Camel PPT

CAMELS APPROACH

Submitted by: Group No. 1Vishal Joshi – PG-10-20

Devang Parekh- PG-10-34SanketYagnik- PG-10-58

Madhuri More- PG-10-92Pooja Shah- PG-10-108

LIST OF BANKS•Union Bank of India•IDBI Bank•Punjab National Bank•UCO Bank•Canara Bank

CAPITAL ADEQUACY RATIO(BASEL-II)

This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world.

The government has recently planned to infuse capital in the bank through preferential placement of equity with the intent of maintaining a Tier-I Capital adequacy Ratio of 8%. (Tier-I Capital of 8.69% - FY 2011)

Sr. No Ratio Formula 2007 2008 2009 2010 2011

1 Capital Adequacy Ratio (Tier I Capital (+) 5,189.87 6,106.00 7,795.00 9,697.00 12,177.69 Tier II Capital) 3,067.77 4,151.00 4,844.00 5,639.00 5,968.00

Risk Weighted Assets 64,513.00 82,145.00 95,245.00 122,598.00 140,095.00 12.80% 12.49% 13.27% 12.51% 12.95%

Asset Quality

It is a measure of assessing the credit risk associated with a Bank’s asset. The asset quality ratio breached the level of 1% for the 1st time in 5 years and could affect the banks bottom-line.

Majority of public sector banks witnessed

deterioration in asset quality and gross NPA to gross advances

ratio increased during the year.

2 Asset Quality Net NPA 601.22 127.57 325.94 965.33 1,803.44 Loans & Advances 62,386.43 74,266.91 96,534.23 119,315.30 150,986.08

0.96% 0.17% 0.34% 0.81% 1.19%


Management Quality3 Management Quality Non Interest Expense 6,173.03 4,092.23 3,569.57 2,786.29 4,033.56

Total Assets 102,677.88 123,991.88 160,975.51 195,161.84 235,984.45 6.01% 3.30% 2.22% 1.43% 1.71%


This ratio measures the efficiency of the management in limiting the non interest expenses and the bank has managed to reduce it to 1.71 % in FY 2011 of its total assets as compared to 6.01% in 2007.

Earnings Ability4.1 ROCE NPAT 845.39 1,387.03 1,726.55 2,074.92 2,081.95

Total Capital Employed 94,585.62 115,966.85 151,328.09 189,678.83 228,541.78 0.89% 1.20% 1.14% 1.09% 0.91%

4.2 EBITDA Margin EBIT 6,592.79 8,941.29 11,157.81 12,769.58 14,541.41 Total Income 8,068.72 10,534.27 13,371.93 15,277.42 18,491.40

81.71% 84.88% 83.44% 83.58% 78.64%

4.3 Leverage Ratio Debt 89,395.75 108,619.14 142,587.73 179,255.05 215,777.26 Total Funds 94,585.62 115,966.85 151,328.09 189,678.83 228,541.78

0.9451 0.9366 0.9422 0.9450 0.9441

4.4 ROE Net Profit After Tax 845.39 1,387.03 1,726.55 2,074.92 2,081.95 Equity Capital 4,874.02 6,268.79 8,044.04 9,582.07 11,594.15

17.34% 22.13% 21.46% 21.65% 17.96%

4.5 ROA Net Profit After Tax 845.39 1387.03 1726.55 2074.92 2081.95Total Assets 102677.88 123991.88 160975.51 195161.84 235984.45

0.82% 1.12% 1.07% 1.06% 0.88%


ROCE: A ratio that indicates the efficiency and profitability of a company's capital investments. The ROCE has been steady for Union Bank over the span of 5 years.

EBIDTA Margin: The bank’s EBIDTA margin has declined by more than 300 bps during the last 5 years which could have an effect on the bottom line.

Leverage Ratio: It has been observed that over the 5 year period ; the bank’s leverage ratio has remained steady.

Return on Equity (ROE): There has been a decline in the bank’s PAT growth in the last fiscal year resulting in a dip in the ROE of the company as compared to previous year

Return on Assets (ROA): The bank’s ROA has marginally deteriorated as compared to previous year indicating that it is not able to generate enough returns on its assets.

Net Interest Margin (NIM)


A performance metric that examines how successful bank’s investment decisions are compared to its debt situations.

The bank has given a guidance of net interest margin recovering to 3.2% (up by 50 basis points as compared to last year) for the fiscal year 2011-2012.

In the current fiscal the bank attracted higher amount of deposits owing to an upward revision in interest rates, but it hiked its lending rates much later, putting pressure on its interest margin & the credit growth did not keep up pace with the deposit growth.

4.6 Net Interest Margin (Interest Income - 7,382.18 9,447.30 11,889.38 13,302.68 16,452.62Interest Expense) 4,591.96 6,360.95 8,075.81 9,110.27 10,236.42

Total Assets 102677.88 123991.88 160975.51 195161.84 235984.452.72% 2.49% 2.37% 2.15% 2.63%

5 Liquidity Risk Reserves & Surplus 4228.16 5118.19 6549.26 8302.69 10555.35Total Assets 102677.88 123991.88 160975.51 195161.84 235984.45

4.12% 4.13% 4.07% 4.25% 4.47%

Liquidity Risk


This ratio helps to assess whether the bank has sufficient amount of reserves to withstand rising NPA levels. The bank has managed to keep the reserves & surplus above 4% since the last 5 years.

Sensitivity To Market Risk (Beta)6 Sensitivity to Beta 1.1552 1.2185 0.7046 0.6192 1.0712

Market Risk (With reference to BSE) Current Beta (As on 23rd December 2011 - 0.97)

Currently the stock is trading at a beta of 0.97. However over the 5 year period the stock was trading at a beta of > 1 for most of the years.

Double Bottom

H&S Top BUY CALL

Ratio Formula 2007 2008 2009 2010 2011Capital Adequacy Ratio Tier I + Tier II Capital 13657 16241 20101 14944

Risk Weighted Assets 114257 140405 177688 109560.111.56% 11.95% 11.57% 11.31% 13.64%

Capital Adequacy Ratio

Interpretation: CRAR is a ratio of Capital Fund to Risk Weighted Assets. Reserve Bank of India prescribes Banks to maintain a minimum Capital to risk-weighted Assets Ratio (CRAR) of 9 % with regard to credit risk, market risk and operational risk on an ongoing basis, as against 8 % prescribed in Basel documents. CAR ratio of IDBI bank is steady between 2007 to 2010 between11 % to12 % and has increased to 13.46% in 2011 due to increase in share capital from 724.86 to 984.57 Cr

Ratio Formula 2007 2008 2009 2010 2011Asset Quality Net NPA 721.93 1082.91 949 1406 1678

Loans & Advances 62470.82 82212.69 103428 138202 1570981.16% 1.32% 0.92% 1.02% 1.07%

Asset Quality

Interpretation: This ratio is used to check whether the bank's gross NPAs are increasing or decreasing. If it is increasing, indicating that the bank is adding a fresh stock of bad loans. It would mean the bank is either not exercising enough caution when offering loans or is too lax in terms of following up with borrowers on timely repayments. The ratio is quite lower in 09 as the gross NPAs in 09 where the lowest among the year. However the ratio is increasing which is a concern for the bank.

IDBI BANK

Management Quality

Interpretation: This ratio measures the efficiency of the management in limiting the non-interest expenses and the ratio is on an increasing trend due to continuously increasing non-interest expense as a percentage of total asset

Ratio Formula 2007 2008 2009 2010 2011Management Quality Non Interest Expense 1054.8 1528.79 1857.29 3526.7 4762.22

Total Assets 103839.3 130694.4 172402.3 233572.8 253376.81.02% 1.17% 1.08% 1.51% 1.88%

YEAR Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

ROCE 6.67% 7.11% 7.55 % 6.47 % 5.87%

EBITDA MARGIN 12.73% 14.08% 10.92% 16.04% 20.27%

LEVERAGE RATIO 91.2% 92.7% 94.3% 95.5% 94.1%

ROE 10% 11.19% 12.06% 13.16% 15.80%

ROA 0.61% 0.56% 0.50% 0.44% 0.65%

NIM 0.63% 0.52% 0.72% 0.97% 1.67%

Management Quality

ROCE shows an increasing trend up to 2009 thereafter it shows a decreasing trend, because there has been a slight increase in equity capital till 2010 and there has been a huge increase in 2011, the debt structure and net income has shown an increasing trend for all the past 5 years. EBITDA: EBITDA margin has shown an increasing trend except for the year 2010 in which there was a sudden decline as depreciation increased by over 125% whereas earning increased only by 34% Leverage ratio is used to calculate the financial leverage of a company. The debt ratio shows the reliance on debt financing. A high debt ratio is unfavorable because it indicates that the company is already overburdened with debt. The ratio has shown an increasing trend, which shows that the bank is highly leveraged. IDBI Bank’s ROE has shown a growth over the past years and it has grown at a very fast rate from the year 2010 to 2011 This is because its equity share capital has Increased from 724.86 to 984.57 crore from the year 2010 to 2011. On the other hand its Net Income has always increased over the past years and the jump from 2010 to 2011 was very high. IDBI Bank’s ROA has shown an fluctuating trend over the years it was on a decreasing trend from year 2008 to 2010 however it increased in the year 2011. This s because there is a huge increase in reported net profit. NIM is defined as the difference between interest earned and interest expended as a proportion of average total assets. NIM for IDBI bank is on an increasing trend Y-O-Y which is a good indicator of the efficiency and earnings ability of the bank

Liquidity Risk

Interpretation: Liquidity for a bank means the ability to meet its financial obligations as they come due. Bank lending finances investments in relatively illiquid assets, but it fund its loans with mostly short term liabilities. Thus one of the main challenges to a bank is ensuring its own liquidity under all reasonable conditions. The ratio was continuously decreasing from 07 to 10 which however it increased in March -11.

Ratio Formula 2007 2008 2009 2010 2011Asset Quality Net NPA 721.93 1082.91 949 1406 1678

Loans & Advances 62470.82 82212.69 103428 138202 1570981.16% 1.32% 0.92% 1.02% 1.07%

Asset Quality

Interpretation: This ratio is used to check whether the bank's gross NPAs are increasing or decreasing. If it is increasing, indicating that the bank is adding a fresh stock of bad loans. It would mean the bank is either not exercising enough caution when offering loans or is too lax in terms of following up with borrowers on timely repayments. The ratio is quite lower in 09 as the gross NPAs in 09 where the lowest among the year. However the ratio is increasing which is a concern for the bank.

Ratio Formula 2007 2008 2009 2010 2011Liquidity Risk Reserves & Surplus 7575.11 8095.5 8697.36 9438.4 13582.02

Total Assets 103839.3 130694.4 172402.3 233572.8 253376.87.30% 6.19% 5.04% 4.04% 5.36%

Ratio Formula 2007 2008 2009 2010 2011Sensitivity to Beta 1.4 1.41 1.02 1.27 1.35Market Risk

Sensitivity to Market Risk

Interpretation: A measure of the volatility of a security or a portfolio in comparison to the market as a whole. Beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market.


Interpretation: Capital adequacy ratio (CAR) is a ratio of a bank's capital to its risk. It reflects the ability of a bank to deal with probable loan defaults. We can see that its CAR showed a sudden dip in the year 2008 & 2010 but after that it has shown a steady rise which is a good sign for its depositors and investors.

Interpretation: Refers to the efficiency of the management in managing the bank. This ratio shows how efficiently the bank is using the non interest expenses over the total assets. The ratio has shown a decreasing trend. It clearly shows noninterest expenses have increased in order to total assets.

Mar-11 Mar-10 Mar-09 Mar-08 Mar-07

15.38% 13.41% 14.01% 13.25% 13.50%

Management Quality


1.93% 2.08% 2.26% 2.32% 2.44%

Asset Quality

Interpretation: As the asset quality ratio is on increasing trend, it could affect the bottom line and there are rising concerns of growing number of NPA’s. We can see that the bank is not able to decrease its NPA and due to this the bank is not able to increase its capital adequacy and also the profitability of bank is decreasing continuously. But in 2011 the net NPA was less than 2010, means that the bank got return on its loans and advances.

Interpretation: Liquidity Risk is measured by ratio Reserves & Surplus/Total Assets. This ratio is around 5.5% to 6.45% from 2008-09 to 2010-11. This indicates that bank has good amount of reserves to overcome liquidity risks.


1.10% 1.06% 1.09% 0.84% 0.94%

Liquidity Risk


5.83% 5.53% 5.72% 6.04% 6.44%

Earnings Ability

ROCE showed an increase since 2008, since there was no change in the capital structure from 2007 to 2010 but there was an increase in equity capital from 2010 to 2011. This ratio would help the shareholders determine is the management being able to generate additional value for them.

EBITDA margin has increased from 2008 to 2011 but there is decline in EBITDA margin in 2008 compare to 2007 margins since there was an increase in depreciation 2008.


ROCE 1.86% 1.96% 1.92% 1.77% 1.89%EBITDA

MARGIN 24.29% 24.14% 21.29% 19.07% 23.88%LEVERAGE

RATIO 0.94 0.94 0.94 0.94 0.93

ROE 22.44% 24.10% 20.64% 18.87% 17.52%

ROA 1.2% 1.17% 1.01% 0.94% 0.92%

NIM 2.33% 2.20% 2.29% 2.12% 2.61%

Leverage ratio is used to calculate the financial leverage of a company. The debt ratio shows the reliance on debt financing. A high debt ratio is unfavorable because it indicates that the company is already overburdened with debt. The ratio has been hovering around 0.94 for all the years, since Canara Bank is a public sector undertaking it depends much more on debt capital rather than equity capital.

Canara Bank’s ROE has shown a growth from the year 2007 to 2010 but it reduced in 2010-11, because there is no change in capital structure from 2007 to 2010 ( Rs. 410 crore) but increased from 2010 to 2011 (Rs. 433 crore). On the other hand its Net Income has always increased over the past 5 years.

Canara Bank’s ROA has increased over the past 5 years. This is because its Total Assets has increased over the years, its Net Income has also increased accordingly and at a faster rate. With the increase in ROA we can conclude that Canara Bank is utilizing its assets well for generating revenue but it reduced from 2010 to 2011 since the net income reduced to Rs. 906.54 crore & its total assets increased. The higher the return on assets ratio, the more efficiently the company is using its asset base to generate sales.

NIM is defined as the difference between

interest earned and interest expenses as a proportion of average total assets. Net interest margin is maintained above 2% by Canara bank since last 5 years indicating normal spread.




1 0.99 0.97 1 1.02

BUY CALL

Capital Adequacy Ratio:

CAR is a ratio of Capital Fund to Risk Weighted Assets. Reserve Bank of India prescribes Banks to maintain a minimum Capital to risk-weighted Assets Ratio (CAR) of 9 % with regard to credit risk, market risk on an ongoing basis, as against 8 % prescribed in Basel documents. PNB has a strong CAR maintained over the period of last five years. (latest for 2011 being 13.79%). Therefore PNB is in a very good position to deal with probable loan defaults.

Ratio Formula 2011 2010 2009 2008

Capital Adequacy Ratio Tier I Capital 20978.87 17227.3 13799.92 11459.84Tier II Capital 9908.81 9536.26 7769.85 5737.5Risk Weighted Assets 2238.84 1701.23 1383.22 1150.15

13.79631 15.7319 15.5939 14.9523

Asset Quality:

2011 2010 2009 2008 2007Asset Quality Net NPA 2038.63 981.69 263.85 753.78 725.62

Loans & Advances 242106.67 186601.21 154702.99 119501.57 96596.520.84% 0.53% 0.17% 0.63% 0.75%

The NPA’s for PNB have increased significantly by 107% over the last year due to increase in interest rate on past 13 occasions. But the proportion of NPA with respect to loans & advances is low as it stands at 0.84% for FY11.

Management Quality:

2011 2010 2009 2008 2007Management Quality Non Interest Expense 10986.42 8182.85 6859.66 5482.94 5291.13

Total Assets 378325.24 296632.78 246918.62 199020.36 162422.502.90% 2.76% 2.78% 2.75% 3.26%

Management quality have improved over the period of five years as PNB have been effectively utilizing its assets and managing operating costs. The total assets over the period of past 5 years have increased with a CAGR of 18.43% whereas the non-interest expense have increased with a CAGR of 15.73%.

Earnings AbilityReturn on Capital Employed

ROCE have been steady over the period but still low as compared with its peers i.e. SBI which stands at ~11%.

EBITDA Margin

EBITDA margins have been consistent over the past few years but have dropped by ~5.5% from previous year due pressure on interest income.

ROCE NPAT 4433.50 3905.36 3090.88 2048.76 1540.08Total Capital Employed 365996.9743 286315.0875 236873.7896 184222.132 152243.9876

1.21% 1.36% 1.30% 1.11% 1.01%

EBITDA Margin EBITDA 21742.8694 18848.8108 17062.2246 12026.775 8192.0409Total Income 30599.06 25032.22 22191.90 16262.58 12966.54

71.06% 75.30% 76.88% 73.95% 63.18%

Leverage Ratio

Leverage ratio is consistently observed at 0.91-0.94 levels indicating that PNB have been effectively utilizing its equity capital viz a viz debt funds.

Return on Equity

PNB have increased its ROE over a period of time at a CAGR of ~24%.

Its profitability margin have increased with a CAGR of ~16% due to increased number of branches from 4540 in 2007 to 5189 in 2011 having a pan India presence. Returns are also hampered due to higher provisioning for NPA’s.

2011 2010 2009 2008 2007Leverage Ratio Debt 344488.4171 268592.169 222220.16 171903.7856 141808.5277

Total Funds 365996.9743 286315.0875 236873.7896 184222.132 152243.98760.941232964 0.938099949 0.938137395 0.933133189 0.931455685

2011 2010 2009 2008 2007ROE Net Profit After Tax 4433.50 3905.36 3090.88 2048.76 1540.08

Equity Capital 21508.5572 17722.9185 14653.6296 12318.3464 10435.459920.61% 22.04% 21.09% 16.63% 14.76%

Return on Assets

There has been a negligible increase in ROA for PNB (4%-CAGR). It is observed over the years that PNB have been increasing their cash balance yoy and also the short term advances have increased by ~22% every year.

Net Interest Margin

The NIM’s of PNB have been slightly tight over due to increase in cost of deposits and a decline in yield on investments. A decline in CASA ratio has also lead to a decrease in NIM’s.

2011 2010 2009 2008 2007ROA Net Profit After Tax 4433.50 3905.36 3090.88 2048.76 1540.08

Total Assets 378325.24 296632.78 246918.62 199020.36 162422.501.17% 1.32% 1.25% 1.03% 0.95%

2011 2010 2009 2008 2007Net Interest Margin Interest Income – Interest Expense 11807.3359 8478.0716 6831.9132 5534.1557 5213.2367

Total Assets 378325.24 296632.78 246918.62 199020.36 162422.503.12% 2.86% 2.77% 2.78% 3.21%

Liquidity Risk

Liquidity Risk is measured by ratio Reserves & Surplus/Total Assets. It has decreased from 6.23% in 2007 to 5.60% in 2011, due to higher provisioning for NPA’s and decrease in recoveries from the agriculture sector - the priority lending sector.

Sensitivity to Market risk:

The sensitivity to market risk is an assessment of the effect of changes

in market prices, changes in interest rates, currency exchange rates, and stock prices on the banks earnings and capital. All of the Indian Scheduled Commercial Banks have become sensitive and responsive to customers’ needs as well as have very well leaped into universal banking. PNB too has become sensitive and responsive to customers’ needs as well as have very well migrated to BASEL II norms.

2011 2010 2009 2008 2007Liquidity Risk Reserves & Surplus 21191.75 17407.62 14338.33 12003.04 10120.16

Total Assets 378325.24 296632.78 246918.62 199020.36 162422.505.60% 5.87% 5.81% 6.03% 6.23%

Sensitivity to Market Risk Beta 0.85 0.88 0.96 1.01 0.98

BUY

Incorporated in 1943 as United Commercial Bank.

Government Of India (GOI) undertaking.

Provides commercial banking services to individuals & corporate.

Offers treasury operations, wholesale banking, retail banking & other banking operations.


Interpretation: Capital adequacy ratio (CAR) is a ratio of a bank's capital to its risk. It reflects the ability of a bank to deal with probable loan defaults. We can see that its CAR showed a sudden dip in the year 2008 but after that it has shown a steady rise for the next 3 years which is a good sign for its depositors and investors.

Interpretation: We can see that the bank is able to decrease to its NPA and due to this the bank is able to increase its capital adequacy and also the profitability of bank is increasing continuously and the bank is able to pay more loans. But in 2011 the net NPA was more than 2010, means that the bank was not able to control its NPA i.e. bank did not get return on its loans and advances.


11.56% 10.09% 11.93% 13.21% 13.71%

Asset Quality


2.14% 1.98% 1.18% 1.17% 1.84%

Management Quality

Interpretation: Refers to the efficiency of the management in managing the bank. This ratio shows how efficiently the bank is using the non interest expenses over the total assets. The ratio has shown a fluctuating trend, It clearly shows noninterest expenses have increase in order to total assets.


2.43% 2.06% 1.89% 1.66% 2.36%

Earnings Ability

ROCE showed an increase in 2010 & 2011, since there was a change in the capital structure, but there was no change in the year 2008 & 2009 as the equity capital remained the same.

EBITDA margin shown a fluctuating trend because there has been change in the depreciation, the EBITDA margins increased in 2010 since there was a reduction in depreciation compared to 2009 and vice-versa


ROCE 1.35% 1.13% 1.13% 1.27% 1.70%EBITDA

MARGIN 18.10% 14.29% 14.07% 17.11% 11.59%LEVERAGE

RATIO 0.96 0.97 0.96 0.96 0.95

ROE 14.30% 16.59% 19.95% 28.03% 17.62%

ROA 0.42% 0.46% 0.50% 0.74% 0.55%

NIM 2.26% 1.66% 1.47% 1.69% 2.35%

Contd… Leverage ratio is used to calculate the financial leverage of a

company. The debt ratio shows the reliance on debt financing. A high debt ratio is unfavorable because it indicates that the company is already overburdened with debt. The ratio has been hovering around 0.95 for all the years, since UCO Bank is a public sector undertaking it depends much more on debt capital rather than equity capital.

UCO Bank’s ROE has shown a growth over the past years and it has grown at a very fast rate from the year 2008 to 2009 and 2009 to 2010 but it reduced in 2010-11. This is because its equity share capital has decreased from Rs799.36crore to Rs549.36crore from the year 2008 to 2009 and remained same in 2010 but it increased to Rs. 627.52 crore from 2010-11. On the other hand its Net Income has always increased over the past years and the jump from 2009 to 2010 was very high.

Contd…. UCO Bank’s ROA has increased over the years, especially

from the year 2009 to 2010. This is because though its Total Assets has increased over the years, its Net Income has also increased accordingly and at a faster rate. The cause for the big jump in the ROA from the year 2009 to 2010 is due the fact that its Net Income almost doubled in this time from Rs557.72crore to Rs1,012.19 crore the change in its Total Assets during this period was Rs111,664.16crore to Rs137,319.47crore.

NIM is a performance metric that examines how successful bank’s investment decisions are compared to its debt situations. The bank has given a guidance of net interest margin recovering to 2.35% for the fiscal year 2010-2011. The bank attracted higher amount of deposits owing to an upward revision in interest rates, but it hiked its lending rates much later, putting pressure on its interest margin & the credit growth did not keep up pace with the deposit growth.

Liquidity Risk

Interpretation: Liquidity Risk is measured by ratio Reserves & Surplus/Total Assets. This indicates that bank has good amount of reserves to overcome liquidity risks. This is the risk that arises in case of a default & rising NPA’s. This ratio helps to assess whether the bank has sufficient amount of reserves to withstand rising NPA levels. The bank has managed to keep the reserves & surplus upto 3% since the last 5 years.



2.49% 2.37% 2.42% 2.56% 3.04%



1 0.99 0.97 1 1.02

BUY CALL

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Camel PPT