1. INTRODUCTION:

The development Banks perform an important role of the financial system in India. In country it is observed that fast growth in development banks due to excellent financial development in bank after independent period. Development banks are focused financial institutions which are performing dual functions they are providing medium and long term finance to entrepreneurs and for economic development played promotional roles as it named as development banks, so that it is focused on development.

Development Banks provide finance but their operations are unlike ordinary commercial Banks. Development Banks are differing from commercial banks by three ways. Unlike commercial banks, development banks are not taken deposits from the public, they are providing medium and long term finance to medium and small scale enterprises and they are providing long term finance for development of the country. Development Banks are playing a promotional role, the significance of which has increased in recent years. They are encouraging a balanced regional growth of industries, working within the framework of the national policy and social objectives. They are promoting entrepreneurship, project appraisal and evaluation, and supplying necessary information to policy makers. They command great importance, especially in the context of attaining planned economic development. Banking industry is best example for high liquid industries. Based on the balance sheet and income statements analysis can assess the performance of the bank in economic environment.

Financial performance analysis includes analysis and interpretation of financial statements in such a way that financial performance refers to the act of performing financial activity. Financial performance can be assessed by level of accomplishment of financial objectives of the bank. It is used as tool to measure the firm’s policies and operations in monetary terms. Financial health of the bank can be estimated by financial strengths and financial weakness of the bank. These can be identified and analyzed by establishing relationship between profit and loss account and balance sheet. The growth of any organization depends on the overall performance such as Production, Marketing, Human resource and Financial performance of the organization. In this context the present paper attempts to study financial performance of development banks with special reference to Small Industries Development Bank of India (SIDBI) using liquidity, solvency, efficiency and profitability ratios as in financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance of a firm.

2. RESEARCH METHODOLOGY:

2.1 Objectives of the Study:

1. To analyze the financial performance of Small Industrial Development Bank of India.

2. To make an in-depth study on liquidity, solvency, activity and profitability performance of Small Industrial Development Bank of India.

2.2 Period of the Study:

The present study is undertaken for a period of five accounting year starting from 2007-08 to 2016-17.

2.3 Method of Data Collection:

The study is mainly based on secondary data which is collected, compiled and calculated mainly from annual reports. Other related information is collected from journals, conference proceedings and websites. The secondary data collected for the period from 2007-2008 to 2016-2017 from annual reports of SIDBI, various books and journals related with the study and website of the Bank and other institutions.

2.4 Method of Analysis and Interpretation of Data:

Various statistical tools and financial analytical tools have been used for analysis of the secondary data. Statistical tools like Mean and coefficient of variation are categorized as descriptive tools and have been applied for evaluating the financial performance.

3. PROFILE OF SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA:

The aim of Small Industries Development Bank of India is to provide finance for development of micro, small and medium scale enterprises. With a view to encourage small-scale sector in Indian economy, the need for setting up of a separate institution to cater exclusively to the needs of small business enterprises all over the country was strongly felt. Accordingly, the Government of India established Small Industries Development Bank of India (SIDBI) under Section 3(1) of Small Industries Development Bank of India Act, 1989 as a wholly-owned subsidiary of Industrial Development Bank of India (IDBI).The Bank started its operations from April 2, 1990. In 2000, the SIDBI was delinked from IDBI as subsidiary.

It has owned by 34 institutions which were controlled by Government of India. At inception stage it was working as refinancing agency to other banks and provides credit to state level financial institutions by these activities provides finance indirectly to SMEs but later on it has expanded its branches upto100 in all most all important industries in India and through which provide direct finance to the small and medium enterprises by the way it has played crucial role in providing good support to micro finance institutions. SIDBI recently has opened seven branches christened as Micro Finance branches, aimed especially at dispensing loans up to Rs. 5 lakhs.

On 28 August 2017, Mohammad Mustafa became the new Chairman and Managing Director of SIDBI Small and medium enterprises play a catalytic role in the growth and development of global output. Over the years, this sector has been considered as an important pillar of Indian economy. In order to increase the flow of credit to small and medium enterprises, the Government of India has created Small and Medium Enterprises (SME) Fund in April 2004. Since then, SIDBI has been structuring the fund and providing financial assistance to Small and Medium Enterprises (SMEs) at an interest rate of two per cent below the Bank prime lending rate.

Creating best employment through different industrial activities diffusion is the efficient way of improving rural economy. By the way development of backward areas and improvement in standard of living of the people can be achieved. Improvement of rural economy development can be possible only by small scale industries development bank of India as it is contributing in growth of the country with 40% of the manufacturing sector in India, small scale industry’s contribution during 2009-2010 was Rs. 5, 38,357 crores as against Rs. 4, 65,171 crores in 2008-2009. The growth of SSI was 8.43 per cent. It has an employment potentiality of 171.58 lakhs.

4. DISCUSSIONS AND RESULTS:

4.1 Liquidity and Solvency Ratios:

In accounting, the term liquidity is defined as the ability of a company to meet its financial obligations as they come due. The liquid ratios are used as to tool to measures the company’s ability to meet short term debts. To know the liquid position of the firm, there are three ratios are to be considered, they are current ratio, acid test ratio and cash ratio. These three ratios are used by financial analysts to analyze the liquidity position of company.

Table 1: Liquidity and Solvency Ratios of Small Industrial Development Bank of India

Year	Current Ratio	Cash Ratio	Debt-Equity Ratio	Proprietary Ratio	Interest Coverage Ratio	Debt Ratio	Fixed Asset to Net Worth Ratio
2007-08	3.99	3.56	11.81	8.3	0.39	0.980	0.773
2008-09	3.17	0.65	10.96	8.8	0.80	0.963	0.765
2009-10	2.57	2.35	9.74	10.1	0.59	0.989	0.615
2010-11	7.94	7.07	9.92	10.0	0.38	0.996	0.276
2011-12	7.46	6.50	10.37	9.6	0.43	0.997	0.259
2012-13	3.17	1.55	7.25	13.6	0.39	0.985	0.233
2013-14	3.44	2.73	6.06	16.5	0.46	0.999	0.205
2014-15	10.40	9.49	4.28	23.3	0.63	0.998	0.191
2015-16	2.65	2.18	6.53	15.3	0.44	0.998	0.168
2016-17	9.90	7.52	7.13	14.0	0.38	0.995	0.153
Mean	5.47	4.36	8.40	12.96	0.49	0.99	0.36
SD	2.95	3.02	2.47	4.64	0.14	0.01	0.25
CV	54.00	69.20	29.45	35.83	28.55	1.14	68.87

Source: Compiled from Annual Reports of SIDBI

Table 2: Activity Ratios of Small Industrial Development Bank of India

Year	Net Assets Turn over Ratio	Fixed Assets TurnoverRatio	Loans to Deposits Ratio	Current Assets TurnoverRatio	Working Capital Turnover Ratio
2007-08	0.030	1.25	6.52	0.32	0.07
2008-09	0.030	1.58	3.94	0.20	-0.12
2009-10	0.030	0.24	3.08	0.87	0.48
2010-11	0.060	1.43	3.18	1.57	1.45
2011-12	0.050	1.30	3.42	1.69	1.55
2012-13	0.090	2.73	3.10	1.85	1.53
2013-14	0.090	2.98	3.52	2.39	2.10
2014-15	0.090	2.79	4.12	5.02	4.92
2015-16	0.086	2.93	3.35	1.55	1.17
2016-17	0.081	3.34	3.10	1.66	1.56
Mean	0.06	2.06	3.73	1.71	1.47
SD	0.03	1.02	1.04	1.35	1.41
CV	44.62	49.67	27.98	78.85	95.75

Source: Compiled from Annual Reports of SIDBI

Table 3: Profitability Ratios of Small Industrial Development Bank of India

Year	Gross Profit Ratio	Net Profit Ratio	Operating Profit Ratio	Return on Net worth	Earnings Per share
2007-08	5.54	328.754	25.82	0.30	4.41
2008-09	11.16	380.535	26.35	0.26	6.72
2009-10	9.80	411.645	30.48	0.24	9.45
2010-11	29.61	178.786	20.05	0.56	11.42
2011-12	41.07	218.294	30.52	0.46	12.69
2012-13	22.10	155.416	16.05	0.64	11.22
2013-14	26.52	192.629	21.10	0.52	14.91
2014-15	36.76	247.159	28.84	0.40	18.96
2015-16	26.56	202.616	19.55	0.49	16.64
2016-17	24.50	178.407	16.55	0.56	16.39
Mean	23.36	249.42	23.53	0.44	12.28
SD	11.58	91.32	5.55	0.14	4.60
CV	49.55	36.61	23.57	30.83	37.45

Source: Compiled from Annual Reports of SIDBI

5. FINDINGS, RECOMMENDATIONS AND CONCLUSION:

5.1 Findings of the Study:

In entire ten years of research period that is from 2007-08 to 2016-17 researcher has find out the following facts related to financial performance perspective by using different types of accounting ratios to identify the activity, profitability, liquidity and financial positions of small industrial development bank of India. They are

1. The current ratio of SIDBI during the study period varied from least of 2.57 to maximum of 10.40. In the year 2007-08 the current ratio was 3.99 and it was decreased to 3.17 in the year 2008-09 and further decreased and reached least current ration of the study period that is 2.57 in the year 2009-2010.

2. In the year 2010-11 the ratio increased to 7.94 because there was decrease in current liabilities when compared to previous years. In 2009-10 and 2015-16 SIDBI maintaining least ratio 2.57 and 2.65 respectively.

3. The current ratio increased in the year 2014-15 to 10.40 due to drastic decrease in currents assets and drastic increase in current liabilities. Thereafter current ratio decreased to 2.65 due to increased in current liabilities in the year 2015-16.

4. The research period current ratio projected (CV =54.00) medium degree of variation where as current assets projected (CV=47.41) lower degree of variation and current liabilities projected (CV=70.44) high degree of variation.

5. The cash ratio of SIDBI during the study period varied from least of 0.65 to highest of 9.49, From the table, in the year 2007-08 the cash ratio was 3.56 and it was decreased to 0.65 in the year 2008-09.

6. In the year 2008-09 cash ratio is 0.65 so SIDBI is having financial difficulty as if the cash ratio lowers than 1 does indicate a company face dangerous consequences. In super quick assets least degree of various observed while compared with current liabilities (CV=74.25) and cash ratio (CV= 69.20)

7. In the research period 2013-14 the cash ratio was increased from 1.55 to 2.73 and further sudden and rapid increase in cash ratio from 2.73 to 9.49 and touches maximum value of research period.

8. During study period in all years Ideal cash ratio (Above 1) are maintained by SIDBI except in the year 2008-09 with ratio of 0.65.

9. The Debt-equity ratio of SIDBI during the study period varied from least of 4.28 to highest of 11.81, it highlights that debt-equity ratio of SIDBI decreased from 11.81 in 2007-08 to 10.96 in 2008-09 and further decreased to 9.74 in the year 2009-10.

10. In 10 years of research period debt stood with average of Rs.56704.74 crores, Equity projected average of Rs.7871.35 crores and Debt –Equity Ratio stood with average of 8.40.

11. In the year 2014-15 SIDBI projected least debt-equity ratio i.e., 4.28 and projected highest debt equity ratio 11.81 in the year 2007-08. The analysis of the ratio revealed wider inter-year variations over the period.

12. The equity has (CV=56.11) highest degree of variation while compared with debt. Debt (CV= 35.53) has medium degree of variance and debt- equity ratio (CV=29.45) has low degree of variance.

13. During research period not observed rapid and sharp changes in ratios. In the year 2008-09has been observed second highest debt equity ratio with value of 10.96.

14. In the year 2014-15 SIDBI has highest proprietary ratio with value of 23.3 as drastic increase in share holder’s equity from Rs. 11182.72 crores to Rs.14220.49 crores.

15. In the research period in all year total assets stood first than share holder’s equity with average of Rs. 57136.94 crores and Rs. 7871.35 crores respectively and share holder’s equity shown highest degree of variance (CV=56.11) than total assets(CV=34.97) and proprietary ratio (CV=35.83).

16. Interest coverage ratio stand with the average of 0.49. Interest charges shown highest degree of variance (CV=45.621) than earnings before interest and tax (CV=43.49) and interest coverage ratio (CV=28.55).

17. In the year 2007-08 SIDBI has highest fixed asset to net worth ratio i.e., 0.773 and in the year 2016-17 has least fixed asset to net worth ratio i.e., 0.153. The fixed assets to net worth ratio shown highest degree of variance (CV=68.87) than net worth (CV=55.75) and fixed assets (CV=53.11)

18. During research period least net assets turnover ratio has been recorded 0.030 in the first three years i.e., 2007-08, 2008-09 and 2009-10 and further increased to 0.060 in the year 2010-11. Sales shown highest degree of variance (CV=64.96) than average total assets (CV=36.54) and net assets turnover ratio (CV=44.62).

19. During 10 years of research period net assets turnover ratio varies from 0.030 to 0.090. During research period a net asset turnover ratio increased from 0.030 to 0.060.

20. During 10 years reference period in all years fixed assets turnover ratio is greater than 1 except in the year 2009-10 observed least fixed assets turnover ratio lesser than 1 i.e., 0.24.

21. Sales shown highest degree of variance (CV=64.96) than average fixed assets (CV=53.11) and fixed assets turnover ratio (CV=49.67). During 10 years of research period fixed assets turnover ratio varies from 0.24 to 3.34.

22. Deposits shown highest degree of variance (CV=42.40) than loans (CV=35.00) and loans and deposits ratio (CV=27.98). During 10 years of research period loans to deposits ratio varies from 3.08 to 6.52 and 2012-13 and 2016-17 shown same loans to deposits ratio i.e., 3.10.

23. Gross profit shown highest degree of variance (CV=72.48) than net sales (CV=64.96) and gross profit ratio (CV=49.55). During 10 years of research period gross profit ratio varies from 5.54 to 41.07.

24. In the research period gross profit ratio increased from 5.54 to 11.16 in the year 2008-09. In the year 2012-13 gross profit ratio is decreased to 22.10 from 41.07. Its shown upward trend first and again shown slightly downward trend from 2014-15 to 2016-17.

25. In research period least net profit ratio is 155.4 observed in the year 2012-13 and highest net profit ratio is 411.6 in the year 2009-10. In the year 2008-09 net profit ratio increased from 328.7 to 380.5 and further increased to 411.6 and touches highest peaks in the year 2009-10. Net profit ratio ranges from 155.4 to 411.6 during 10 years of research period.

26. In the entire reference period net profit is greater than net sales with average of Rs. 7871.35 crores and Rs. 3794.57 crores respectively and sales shown highest degree of variance(CV=64.96) than net profit (CV=56.11) and net profit ratio (CV=36.61).

27. In the entire reference period sales shown highest degree of variance (CV=64.96) than operating profit (CV=61.30) and operating ratio (CV=23.57). During 10 years of research period operating profit ratio varies from 16.05 to 30.48.

28. The Earnings per share of SIDBI during the 10 years of research period from 2007-08 to 2016-17 and also observed highest Earning per share 18.96 in the year 2014-15. From the year 2007-08 earnings per share is 4.41.

29. In the entire reference period in the year 2014-15 earnings per share reached highest value i.e., 18.96 as profit after tax highest in Rs.1422.04 crores. The profit after tax stand with average of Rs.786.9 crores, equity shares stand with average of 6.0 crores shares

30. Earnings per share stands with 12.28. Profit after tax shown highest degree of variance (CV=56.15) than earnings per share (CV=26.35) and earnings per share (CV=37.45). During 10 years of research period earnings per share ranges from 4.41 to 18.96.

31. In the entire reference period shareholders equity greater than net worth with average of Rs. 7871.35 crores and Rs. 3794.57 crores respectively and net worth shown highest degree of variance (CV=64.96) than share holders equity (CV=56.11) and return on net worth (CV=30.83). During 10 years of research period return on net worth varies from 0.24 to 0.64.

5.2 Recommendations:

On the basis of above findings, the following recommendations were made for improving the performance of SIDBI

1. It is thus necessary that SIDBI must open more branches near industrial areas for easy accessibility of entrepreneurs. The other related factors like credit requirement of entrepreneurs, availability of existing financial intermediaries, potential for future development, etc., should be taken into consideration while formulating branch expansion policy.

2. Indirect advances depend upon the funding requirement and liquidity position of the other banks and State Financial Corporations who generally avail refinance from SIDBI. Since banks and SFCs are not availing refinance from SIDBI, hence the same is showing a declining trend. Therefore, it is suggested that the bank should start increasing its focus on direct finance for increasing its interest income.

3. The SIDBI profitability depends on business and thereby good customer service. Therefore, it is recommended that the bank develops tailor made schemes besides the standard schemes so as to improve the customer service and to trap the potential business.

4. The interest expense is a major component of expenditure for banks. The interest expenses and non-interest expenses of the bank increased in proportion to interest income and non-interest income during the study period. Further, discussions with the bank officials revealed that the entrepreneurs invariably make default in repayment of loan and the interest payments due on it. This has an adverse impact on the profitability of the bank.

5. The declining trend in the return on advances and returns on funds affect the different kinds of ratio. Thus, the bank needs to monitor their interest expenditure and devise new policy measures so as to check delinquency about defaulters so as to maintain its sound financial position.

6. It is necessary that suitable steps should be taken by the bank by organising awareness programmes for disseminating information to the existing and prospective entrepreneurs about the promotional activities of the bank.

7. It is suggested that the Government should ensure in coordination with SIDBI that all the facilities related to finance, marketing etc. needed by SSls should be made available at one place so that entrepreneurs do not have to go to different parts of the city for a single work. This will save a lot of time.

8. SIDBI should simplify its loan procedure so as to avoid delay in providing assistance to MSME units. The bank must specify its terms and conditions clearly along with security requirement at first instance, so as to reduce inconvenience on the part of borrowers.

9. The bank should also make efforts for timely release of subsidy so that entrepreneurs would be able to utilize it in a better way.

10. The study evaluates that entrepreneurs lack information about some pertinent issues like new schemes introduced for MSMEs, status about release of subsidy by government, status about entrepreneurs‟ loan account, etc. It is thus necessary that bank must develop its communication system. Two-way communication process should be developed and strengthened through feedback from its customers and by providing them information as and when desired.

11. It is suggested that bank updates its website regularly and on-line information should be provided to entrepreneurs regarding changes made in terms and conditions as per RBI guidelines. This helps the bank to redesign its policies accordingly and serve its customers in a better way.

12. Apart from credit and advisory function, the bank should also undertake other banking activities like merchant banking, training, advisory and skill development centre which will improve fee based income of the bank.

13. It is thus necessary that SIDBI must open more branches near industrial areas for easy accessibility of entrepreneurs. The other related factors like credit requirement of entrepreneurs, availability of existing financial intermediaries, potential for future development, etc. should be taken into consideration while formulating branch expansion policy.

14. The SIDBI profitability depends on business and thereby good customer service. Therefore, it is recommended that the bank develops tailor made schemes besides the standard schemes so as to improve the customer service and to trap the potential business.

15. It is necessary that suitable steps should be taken by the bank by organising awareness programmes for disseminating information to the existing and prospective entrepreneurs about the promotional activities of the bank.

16. It is suggested that the Government should ensure in coordination with SIDBI that all the facilities related to finance, marketing etc. needed by SSls should be made available at one place so that entrepreneurs do not have to go to different parts of the city for a single work. This will save a lot of time.

17. SIDBI should simplify its loan procedure so as to avoid delay in providing assistance to MSME units. The bank must specify its terms and conditions clearly along with security requirement at first instance, so as to reduce inconvenience on the part of borrowers.

5.3 CONCLUSION:

SIDBI financial performance e analysed by using deferent types of ratios during the reference period of 2007-08 to 2016-17. For analysis financial performance of SIDBI researcher has taken current ratio and cash ratio for analysis liquidity position, debt-equity ratio, proprietary ratio, debt ratio, interest coverage ratio and fixed assets to net worth ratio for analysis solvency position, fixed assets turnover ratio, net assets turnover ratio, loans to deposits ratio, current assets turnover ratio and working capital turnover ratio for analysing capacity of management of assets of the bank and gross profit ratio, net profit ratio, operating profit ratio, Earnings per share and return on net worth ratio for analysing profitability of SIDBI.

The return on investments, return on assets and return on equity ratio increased, while return on funds ratio decreased during the period of study. It is thus evident that bank was not receiving interest on loans and advances as well as on investments from its borrowers. On the basis of solvency ratios, the long-term financial stability of SIDBI was found satisfactory. The long-term funds as percentage to total assets ratio, followed by net-worth ratio and debt-equity ratio have displayed positive results during the reference period.

6. REFERENCES:

1. C. Paramasivan and S. Rajeshkann (2015) “Role of SIDBI in Promotion of Dalit Entrepreneurs” – “International Journal in Management and Social Science”, Vol.03 Issue-06; 2015:195-202.

2. J. D. Savalia (2016) “Role of Small Industries Development Bank of India (SIDBI) in Industrial Development in Gujarat State (With Special Reference to Small Scale Industries)”-“International Journal of Trend in Research and Development”, Volume 3(2); 2016:94-102

3. Manish Roy Tirkey and Dr. Enid Masih (2017) ‘The Performance of SIDBI in the development of MSME in Uttar Pradesh’- “IOSR Journal of Economics and Finance” Volume 8(4); 2017:74-80.

4. Prakash Yadava (2014) “A Study on Sidbi’s Direct Finance Scheme for Small Scale Units in Lucknow City”- “Indian journal of applied research (IJAR)” Volume: 4(5); 2014:94-95.

5. P. Amirtha Gowri and T. Renuha (2014) “An analysis of key indicators of small industries development bank of India (SIDBI)”-“International Journal of Research in Commerce and Management (IJRCM)” Volume No. 5(4); 2014: 26-30.

6. Uma Narang and Pooja Sareen (2014) “Performance Evaluation of Small Industries Development Bank of India”- “International Journal of Multidisciplinary Consortium (MRES)” Volume -1(1); 2014: 1-5.

7. Wagamare.Shivaji and Veeresh (2016) “An analysis of profitability and productivity of small industries development bank of India (SIDBI)” “IRACST – International Journal of Commerce, Business and Management (IJCBM)”, Volume. 5(3): 2016:54-65.

Received on 22.04.2020 Modified on 18.05.2020

Asian Journal of Management. 2020;11(3):291-296.

DOI: 10.5958/2321-5763.2020.00045.1