Financial Performance Analysis of Banks – A Study of SBI

 

Gulshan Kumar¹, Gaurav Kapoor²

¹Associate Professor, Rajshree Institute of Management and Technology, Bareilly.

²Assistant Professor, Rajshree Institute of Management and Technology, Bareilly.

 

ABSTRACT:

Banking Industry in India is led by Public Sector Banks (PSB) with a big share in the Indian market. The present study is to compare the financial performance of SBI with the industry averages on the basis of financial ratios for the period 2016-17 to 2020-21. It was found that the solvency position of SBI and the employment of assets are far better than the industry and the other banks. The employment of shareholders’s funds and CASA of SBI is also better than the industry and other banks.

 

 

 

INTRODUCTION:

Indian economy has emerged as a global economy and disciplined economy at the present time. Indian Government has taken any initiatives for the growth of banking sector in Indian economy. Banking industry and banking reforms has fuelled the growth of Indian economy as it provide credit facilities to the various business and other infrastructure activities.

 

State Bank of India (SBI) is an Indian multinational public sector bank and financial services statutory body headquartered in Mumbai, Maharashtra. SBI is the 43rd largest bank in the world and ranked 221st in the Fortune Global 500 list of the world's biggest corporations of 2020, being the only Indian bank on the list. It is a public sector bank and the largest bank in India with a 23% market share by assets and a 25% share of the total loan and deposits market. It is also the fifth largest employer in India with nearly 250,000 employees. SBI provides a range of banking products through its network of branches in India and overseas, including products aimed at non-resident Indians (NRIs).

 

 

SBI has 16 regional hubs and 57 zonal offices that are located at important cities throughout India. SBI is one of the largest employers in the world with 245,652 employees as on 31 March 2021. Out of the total workforce, the representation of women employees is nearly 26%. The percentage of Officers, Associates and Subordinate staffs was 44.28%, 41.03% and 14.69% respectively on the same date. Each employee contributed a net profit of ₹828,350 (US$11,000) during FY 2020–21.

 

LITERATURE REVIEW:

Shah, S. Q., and Jan, R. (2014) in their study “Analysis of financial performance of private banks in Pakistan” finds that Bank size and Operational Efficiency is negatively related with ROA and positive relationship was found with Assets management ratio. While, Bank size is positively related with Interest Income and Asset Management and Operational Efficiency is negatively related with Interest Income.

 

Adam, M. H. M. (2014) in the study “Evaluating the Financial Performance of Banks using financial ratios-A case study of Erbil Bank for Investment and Finance” show the positive behaviour of the financial position for Erbil Bank and some of their financial factors variables influence the financial performance for the bank. Then, it is found that the overall financial performance of Erbil Bank is improving in terms of liquidity ratios, assets quality ratios or credit performance, profitability ratios (NPM, ROA, ROE). This study suggests a set of recommendations regarding the development and enhancing of some banking operations which will boost the bank's profitability and improve the financial performance for the bank.

 

Pinto, P., Hawaldar, I. T., Rahiman, H. U., TM, R., and Sarea, A. (2017) in the study “An evaluation of financial performance of commercial banks” indicate that the profitability has an impact on capital adequacy and financial leverage, whereas the study did not ratify the relationship between the profitability and efficiency of the banks. This study also reveals that enforcement of higher capital adequacy ratio will adversely affects the profitability of the banks. The impact of financial and oil crisis might have influenced the financial leverage of the banks there by resulted in an adverse effect on the profitability of the banks.

 

Jha, S., and Hui, X. (2012) in the study “A comparison of financial performance of commercial banks: A case study of Nepal” found that public sector banks are significantly less efficient than their counterpart are; however domestic private banks are equally efficient to foreign-owned (joint venture) banks. Furthermore, the estimation results reveal that return on assets was significantly influenced by capital adequacy ratio, interest expenses to total loan and net interest margin, while capital adequacy ratio had considerable effect on return on equity.

 

Kumbirai, M., and Webb, R. (2010) in the study “A financial ratio analysis of commercial bank performance in South Africa” found that overall bank performance increased considerably in the first two years of the analysis. A significant change in trend is noticed at the onset of the global financial crisis in 2007, reaching its peak during 2008-2009. This resulted in falling profitability, low liquidity and deteriorating credit quality in the South African Banking sector.

 

Sofyan, M. (2019) in the study “Analysis Financial Performance of Rural Banks in Indonesia” found that CAR, LDR, and OER have a significant effect on ROA. Every increase in operating costs will result in a decrease in pre-tax profit which results in a decrease in ROA. NPL has no significant effect on ROA because rural bank has a large CAR ratio to cover credit risk.

 

Palamalai, S., and Britto, J. (2017) in the study “Analysis of financial performance of selected commercial banks in India” found that the financial performance of private sector banks is relatively better than the public sector banks throughout the study period. Besides, the study examines the impact of liquidity, solvency and efficiency on the profitability of the selected Indian commercial banks by employing the panel data estimations, viz. the Fixed Effect and Random Effect models. The empirical results from the panel data estimations revealed that the liquidity ratio and solvency ratio, and the turnover ratio and solvency ratio are found to have positive and significant impact on the profitability of selected public sector and private sector banks, respectively, bearing testimony to the fact that profitability is a function of those ratios.

 

OBJECTIVES OF THE STUDY:

1.    To examine and compare the financial performance of SBI with the industry averages from the view point of a neural onlooker.

2.    To examine and compare the overall profitability of SBI with the industry averages.

 

RESEARCH METHODOLOGY:

The present study is based on secondary data collected from the annual reports of SBI, BOB and PNB for the period 2016 to 2021. Ratio Analysis was applied to analyze and compare the trends in banking business and financial performance. Compound Average Growth Rate (CAGR) and ratios have been deployed to analyze the trends in the banking industry.

 

RESULTS AND ANALYSIS:

Shareholders’ Funds: Shareholders’ funds are made up of the called-up share capital and reserves. The SBI Bank Shareholders’ funds in Table 1 exhibits a 99.61 percentage of reserves as compared to the industry averages given in Table 2 and Table 3 stands at 98.70 and 98.10 percent respectively. The reserves percentage indicates the performance of the bank as the reserves are the funds that are set aside from the profits of the bank. The shareholders’ funds of SBI Bank have shown a growth of CAGR of 7.76 percent, while the share capital has exhibited a growth of CAGR of 2.85 percent. This is due to the fact that the reserves and surplus showed tremendous growth every year. The trend of shareholders’ funds and its comparison with other banks indicates that SBI has far better operating functioning than other banks of the banking industry.

 

Table 1: Shareholders’ Funds of SBI; 2016-2021(Rs. In Crore)

Source: Compiled from Annual Reports

 

 

 

 

 

Table 2: Shareholders’ Funds of BOB; 2016-2021(Rs. In Crore)

Source: Compiled from Annual Reports

 

Table 3: Shareholders’ Funds of PNB; 2016-2021(Rs. In Crore)

Source: Compiled from Annual Reports

 

Leverage Ratio:

Leverage ratios measure the relative amount of funds supplied by equity and debt holders. Debt Ratio is selected for the study.

 

Debt-Ratio:

The debt ratio known as debt to assets ratio, measures the financial leverage of the company, determining the firm’s ability to pay off the debt in future. It is calculated as the total liabilities divided by total assets. A lower debt ratio indicates that a company relies on borrowing for financing its assets. The debt ratio of SBI Bank is consistently 0.94 times as given in Table 4 indicating a leverage balance sheet. Companies with higher debt ratios signal that it is time to switch to quit financing to grow their operations. The SBI Bank has worked in the same direction, which is evident by the increase in its growth in the share capital that has gradually increased from the year 2016. A comparison with the industry averages given in Table 5 and Table 6 indicates that SBI Bank has been maintaining the industry averages.

 

Table 4: Debt Ratio of SBI; 2016-2021(Rs. In Crore)

Source: Compiled from Annual Reports

 

Table 5: Debt Ratio of BOB; 2016-2021(Rs. In Crore)

Source: Compiled from Annual Reports

 

 

Table 6: Debt Ratio of PNB; 2016-2021(Rs. In Crore)

Source: Compiled from Annual Reports

 

CASA Ratio:

CASA stands for current and saving account. CASA ratio indicates the proportion of current and saving account deposits to total deposit. A higher CASA ratio indicates the availability of low-cost funds leading to better efficiency of the bank. The CASA ratio of SBI Bank presented in Table 7 had climbed from 43.81 percent to a high of 45.39 percent. The CASA ratio of SBI Bank when compared with the industry averages given in Table 7 is highest; indicating the position of CASA ratio is very strong in comparison with the industry standards as give in Table 7.

 

Table 7: CASA Ratio (In Percentage)

Source: Compiled from Annual Reports

 

Profitability Ratios:

Profitability Ratios are also known as profit margin ratios. These ratios are used to evaluate the overall performance of a company and how well the company is performing in terms of profit. These ratios are indicators of the company’s efficiency in using the capital committed by shareholders and lenders. It is the most common method of financial ratios which is used to measure the performance of the banks. The return on net worth, return on assets and net profit margin ratios are selected for the study.

 

Return on Net worth:

This ratio measures the return on the resources provided by the shareholders. Net worth includes Share capital and Reserve and Surplus after deducting fictitious assets. This ratio measures the amount of earnings of each rupee that the equity shareholders have invested in the company. The higher the ratio, the better it is for the shareholders. The return on Net worth ratio of SBI given in Table 8 indicates that return on Net worth ratio in SBI is far better than the industry averages in comparison with other banks.

 

Return on Assets:

This ratio is the relationship between profits and total assets. This ratio is used to measure how effectively a company utilizes its assets to make a profit. It is commonly used to measure the performance of the company. High Return on Assets implies a greater asset- intensity and profitability of the bank. In case of SBI the Return on Assets ratio given in Table 8 is showing a declining trend in the beginning but after that it increasing continuously. The Return on Assets ratio of SBI is performing far better than the averages of other banks of the industry.

 

Net Profit Margin:

Net Profit Margin ratio measures the profitability on the revenue earned. If the ratio is high then it is considered as efficient and profitable. Net Profit Margin of SBI shown in Table 8 indicates that the profits of the bank is well above the industry averages in comparison with other banks of the industry.

 

Table 8: Profitability Ratios of SBI

Source: Compiled from Annual Reports

 

Table 9: Profitability Ratios of BOB

Source: Compiled from Annual Reports

 

Table 10: Profitability Ratios of PNB

 

CONCLUSION:

The position of SBI Bank and assets are in tune and relatively greater with the industry averages. The employment of shareholders’s funds and CASA which is higher than the industry averages and the other banks. Return on networth, Return on assets and Net profit margin of SBI also showing that the financial position of SBI is far better than the industry averages and other banks.

 

 

REFERENCES:

1.     Shah, S. Q., and Jan, R. (2014). Analysis of financial performance of private banks in Pakistan. Procedia-Social and Behavioral Sciences, 109, 1021-1025.

2.     Adam, M. H. M. (2014). Evaluating the Financial Performance of Banks using financial ratios-A case study of Erbil Bank for Investment and Finance. European Journal of Accounting Auditing and Finance Research, 2(6), 162-177.

3.     Pinto, P., Hawaldar, I. T., Rahiman, H. U., TM, R., and Sarea, A. (2017). An evaluation of financial performance of commercial banks. International Journal of Applied Business and Economic Research, 15(22), 605-618.

4.     Jha, S., and Hui, X. (2012). A comparison of financial performance of commercial banks: A case study of Nepal. African Journal of Business Management, 6 (25), 7601-7611.

5.     Kumbirai, M., and Webb, R. (2010). A financial ratio analysis of commercial bank performance in South Africa. African Review of Economics and Finance, 2(1), 30-53.

6.     Sofyan, M. (2019). Analysis Financial Performance of Rural Banks in Indonesia. International Journal of Economics, Business and Accounting Research (IJEBAR), 3(03).

7.     Palamalai, S., and Britto, J. (2017). Analysis of financial performance of selected commercial banks in India. Srinivasan, Palamalai and Britto, John (2017), “Analysis of Financial Performance of Selected Commercial Banks in India”, Theoretical Economics Letters, 7(7), 2134-2151.

 

Accepted on 14.09.2022      ©A&V Publications All right reserved