BANKING PROJECT

EVALUATION OF PERFORMANCE OF AXIS BANK ON THE BASIS OF CAMEL MODEL

MINI PROJECT REPORT Submitted by VISRUTH K (11AB45)

Course Facilitator MR. PATTABHIRAMAN

COURSE: MBA (AU) BATCH : B

DATE : 2.1.2013 PLACE: COIMBATORE

PEELAMEDU, COIMBATORE-641004 DECEMBER-2012

INDIAN BANKING INDUSTRY: OVERVIEW AND ANALYSIS Introduction: Bank is a financial institution that provides various banking and financial services to their customers. In other words we can say that a bank is an institution which provides the basic services of accepting the deposits from the people and then providing the loans to the people who are in need of them. A banking system can be called a system where the banks provide various services to the customers like cash management, reporting the transactions of customers, providing various other services to the customers etc. Bank is an institution that is an important part of any economy of any country. Banks are the main participants of the financial system in India. The banking sector itself presents a wide variety of opportunities for the customers. Some of the main services other that accepting the deposits and issuing loans are providing locker facilities for valuables, credit and payment services like checking money orders. Banks also provide services like payment of the bills, clearing of the demand deposits and customers can also take various insurance and investment products like mutual funds etc through the banks. Banks are needed for providing necessary security and safety for the funds of the people, to control the supply of money and credit in the economy, to avoid the financial powers being accumulated in hands of few and also for the overall development, growth and well being of the society and economy as whole. History of Indian Banking: The first bank in India was the General Bank of India (1786). Some of the other main banks during the Pre-Independence period was Bank of Bengal (1809), Bank of Bombay (1840), Bank of Hindustan (1870), Allahabad Bank (1865), Punjab National Bank (1894) etc. Between the period of 1906 to 1913, Bank of India, Baroda, Central Bank and Indian Bank were set up. The Reserve Bank of India was established in 1935. The growth of the banks at the period of time was very slow. During the years of 1913 and 1948, there were as much as 1000 small banks in India. So in order to improve and increase the banking activity the Govt of India came up with Banking Companies Act 1949. Reserve Bank of India was given extensive power for supervision of banking in India. The following were the major steps taken by the Government of India to regulate the banking institutions in India under quick glance. They are as follows: 1) 2) 3) 4) 5) 6) 1949- Passing of the Banking Regulation Act 1955- Nationalization of State Bank of India 1959- Nationalization of State Bank of India Subsidiaries 1969- Nationalization of 14 other major banks 1971- Creation of Credit guarantee corporations 1980- Nationalization of other 7 major banks

Nationalization: In the 1960s Indian banking industry was recognize as an important tool for development of Indian Economy. It was at that point of time since the issue was of such massive importance there have been active talks about the nationalization of the major banks. One of the main persons that actually lead to this was the Indira Gandhi who was the prime minster at that point of time. The Government of India nationalized 14 major banks at that point of time in 1969. The second step of this nationalization was in 1980 where 6 more banks were nationalized. With the second step the majority of the control over the banking in India was under the Government. Liberalization: Another major aspect that impacted the banking in India was liberalization. Prime Minister Narasimha Rao took the policy of liberalization of small number of private banks. These later came to be known as the New Generation Banks. This move made an impact as there was rapid growth in the banking sector. Mainly three sections of banks government, private and foreign banks benefited from this. The next stage was to proposed relaxation of the norms in the Foreign Direct Investment. This will give the banks voting rights which could exceed form the present cap of the 10%. Structure of Indian Banking Industry: The banking industry plays an important role in the economic and financial development of the country. The main growth of the economy is heavily depended on the robustness of the banking industry. India has a long history of the banking even before the Independence. After the independence India has seen an increase in the banking sector as overall development as a whole. Today Indian banking system is one of the most robust banking systems all over the world. The following figure depicts the structure of the banking in India as whole.

The banking industry comprises of RBI as the apex bank and the bank that controls and cocoordinates the functions of all other banks. There are Scheduled banks, which are listed in the second schedule of the RBI Act 1934. Then there are unscheduled banks. Scheduled banks classified into four sections of public, private, foreign banks and regional rural banks under commercial and under co-operatives there are urban and state co-operatives. Indian Banking industry at present has many major players. They are listed as follows: Types of Commercial Banks Major Share Holders Major Players Public sector banks Govt of India SBI, PNB, Canara Bank, Bank of Baroda, Bank of India, Union Bank etc Private Sector Banks Private persons and Axis Bank, HDFC Bank, individuals Kotak Mahindra Bank, Yes Bank, ICICI Bank Foreign Banks Foreign Entity City Bank, HSBC, Deutsche Bank, BNP Paribas, Standard Chartered Regional Rural Banks Central Govt and State Himachal Grameen Bank, Government Pallavan Grama Bank, Neelachal Gramya Bank The main income of the bank comes from interest the bank gives on the loans. It mainly comprises about 80-85% of the income of the major Indian banks. Besides this the bank also generates the fee- based income in the form of various activities like commissions and exchange, income from other banking activities. The current rule states that domestic banks should as much as 40% while the foreign banks can lend up to 30% of their net credit. The banking business can be classified into various segmentation. They are retail banking, whole sale banking, treasury operations, and other banking activities. Retail banking includes loans like housing loan, vehicle loan, education loan etc given to the individuals mainly. The whole sale banking is loans to middle level and large corporate enterprises. Banks also take activities like hire purchasing, leasing and merchant banking.

FRAMEWORK OF CAMELS CAMELS rating are one of the key ratings used for evaluation of banks financial condition and also to monitor its compliance with the laws and regulatory policies. During the bank exam which is done on-site the supervisors gather these information on order to evaluate the bank on various criteria. So one of the key things used in the evaluation is the supervisory rating of the overall condition of the bank. This is commonly called the CAMELS Rating. The word CAMELS itself is an acronym which refers to the five components of a banks condition that are assessed. They are listed in below as the following: CAMELS
Capital Adequacy

Asset Quality

Management Soundness

Earnings & Profitablity

Liquidity

Sensitivity To Market Risk

The above listed refers to the six main components of the bank condition that are assessed. Earlier there was usually five but the last option sensitivity market risk was added later in the year 1997. So the acronym was changed to CAMELS. CAMELS basically are the model for evaluation of the performance of the banks and it is basically ratio based. The various ratios that are used are explained. I CAPITAL ADEQUACY: The capital adequacy is very important for the financial institutions as it forms the capital base of them. Also this is a key element for the financial managers to maintain the adequate level of the capital in the bank. Here the most widely accepted and used ratio is Capital- to Risk-Weighted Assets Ratio. As per the norms of Bank Supervision Regulation Committee (The Basle Committee) of Bank International Settlements, there has to be a minimum of 9% CRWA needed for the banks to maintain a very sound capital base strengthens the confidence of the depositors as well as this ratio can be used for protecting the interest of the depositors and to promote the bank on the grounds of efficiency and stability.

Capital Risk Adequacy Ratio: Capital Risk Adequacy Ratio helps in measuring the banks capital. According to the RBI a minimum of capital to risk-weighted assets ratio of 9% must be maintained. A bank having the sound capital base helps the depositors to gain more confidence. Capital Risk Adequacy Ratio (CRAR)= Capital/ Total Risk Weighted Credit Exposure II ASSET QUALITY: Asset Quality helps in determination of the robustness of the financial institutions against the loss of value in the assets. The main problem that is faced by the banks is the deteriorating value of the assets, as it affects the other areas. They are treated as losses and eventually are written off against the capital. But this further creates problems as it jeopardizes the earning capacity of the bank. So asset quality is taken in relation with the level and the extend of severity of the nonperforming assets (NPA), recoveries, distribution of the assets etc. the main indicators of this are loans that are default to the total advances, non performing loans to advances, recoveries of the loan default ratios etc. One of the main indicators of the asset quality is the ratio of nonperforming loans to the total loans (GNPA). A higher GNPA is the indicator that there is poor credit decision making done by the bank. Non Performing Assets: Assets are mainly classified as performing assets and non performing assets as per the guidelines of RBI. These assets that are non performing are further classified into sub-standard, doubtful and loss assets based on the various criteria specified by the RBI. Here an Non Performing Asset can be a loan or an advance where: 1) Interest or the installment amount remains overdue when it has crossed for the period of more than 3 months or 90 days specifically. 2) The account remains out-of-order in respect of the overdraft or the cash credit. 3) The main bill remains overdue for the time period of 3 months or more than 90 days in case of bills purchased and discounted 4) A loan granted for the crops that are of a long period will be treated as NPA if the installments or the principle amount or the interest associated with that remains overdue for approximately one crop season. The bank classifies a separate account as an NPA only if the interest imposed during any of the quarter is not fully repaid with 3 months or 90 days from the end of the relevant quarter. III MANAGEMENT SOUNDNESS: Management soundness is extremely important for any financial institution. The evaluation of the management is mainly done on the basis of capital adequacy, asset quality, earnings and

profitability, liquidity and risk savings ratings. Also performance evaluation includes following a certain set of norms, ability to plan and react to the dynamic changes that is happening, leadership and administrative ability and technical compliance. A sound management is one of the main factors behind the performance and the success of any financial institution and not just banks alone. But judging and measuring the quality of the management and extend to which it has been effective is not easy. So total expenditure to total income and operating expense to total expense can help to measure the management quality to some extent. The ratio of the noninterest expenditures to total assets (MGNT) is one the measures to evaluate and assess the working and functioning of the management. This variable is a mix of various elements like payroll, workers compensation, training and investment made etc. Efficiency ratios help to demonstrate how effectively the bank uses the assets available to it and how efficiently the bank manages the operations and other activities in the functioning. Asset Turnover Ratio= Total Revenue/ Total Assets This indicates the relationship between the total revenue and the total assets. Important things to remember: i. ii. Banks that have low profit margin usually tend to have greater asset turnover and vice versa. This ratio is much more useful for checking the growth of the banks to ensure that they are growing the revenue that is proportion to the sales. IV EARNINGS AND PROFITABLITY: Earnings and profitability, these two components are that mainly the prime source of increase in the capital base. This is evaluated with regards to the interest rate policies and adequacy of the provisioning. This also helps the institutions to support the present as well as future operations. One of the main indicators of the earnings is the Return on Assets (ROA). This mainly includes the net income after the taxes to the total asset ratio. A bank having strong earnings and profitability gives a strong indication that it has the ability and resources to support the present and the future operations. It has the ability to absorb the losses, pay to the share holders the dividend and to build an adequate amount of capital. Apart from ROA another indicator called Net Interest Margins (NIM) is also used. ROA- Return On Assets= Net Income/ Total Assets It is a very strong indicator of measuring the earnings and profitability of the company.ROA gives us a idea of how efficient the management is at using the assets to generate the earnings. This is calculated by taking the total earnings of the company annually and dividing by total assets. ROA for the public companies can be high compared to other companies. When using the ROA as a comparative measure it is always advisable to compare the companies ROA numbers against the previous ROA numbers. The ROA figure gives the investors the idea of how

efficiently the company is converting money it has to invest in the net income. In simple words the higher the ROA the better. V LIQUIDITY: Liquidity is another important aspect related to the company or financial institution. An appropriate liquidity position is referred to the situation where the institution is in a position to obtain the sufficient funds. It can be obtained either by increasing the liabilities or by converting the assets to money. So it can also be called as adequate asset and liability management as a mismatch can lead to liquidity risk being faced. Effective fund management happens when the spread between the rate sensitive assets (RSA) and rate sensitive liabilities (RSL) is appropriately maintained. The main tool used evaluate the interest rate exposure is the gap that exists between the RSA and RSL. Liquidity is mainly measured by liquid to total asset ratio. i. ii. iii. An Institution is said to have liquidity if it is successful in meeting the needs for the cash as it has enough cash in hand already or is in an adequate position to raise cash or borrow. A market is said to be liquid if the instruments it is traded can easily be purchased and sold in quantity that has very little impact on the market prices An asset can be said to be in liquid when the market for that asset is as liquid.

Cash maintained in the banks and the balances with the central bank, to total asset ratio (LQD) is one of the indicators of the banks liquidity. In general, banks that have large volume of liquid assets are safe comparing with the ones that are not. This is because in event of emergency they can be easily cashed in. Credit Deposit Ratio is a tool used to evaluate and understand the liquidity position of the bank. It can be found out by division of the cash help by the bank in the various forms by the total deposit of the bank. A higher ratio is clear indication that there are more amounts of liquid cash at the hands of the banks for meeting the withdrawals of the clients. VI SENSITITY TO MARKET RISK: Sensitivity to the market risk refers to that changes happening in the market conditions that have adverse effect and impact in the earnings and the capital of the institution. The market risk includes the exposures associated with the changes in the interest rates, foreign exchange rates, commodity prices, equity prices etc. The entire above mentioned are important, the main primary risk of most of the banks is the Interest Rate Risk (IRR). The banks being in diversified nature and activities makes them open to various kinds of financial risks. The sensitivity analysis reflects the institutions exposure to the interest rate risk, foreign exchange volatility and equity price risks. The risk sensitivity is mainly calculated and evaluated in the terms of how the management of the institution is successful in monitoring and controlling of the various market risks.

AXIS BANK PROFILE AXIS bank is one of the main banks in the India banking sector. It was previously called the UTI bank and it was one of the first of the new private banks that have commenced its operation in 1994. As a part of liberalization the Govt of India allowed the new private banks to be established. Earlier it was called the UTI bank but in the year 2007 the name was changed to AXIS bank in order to avoid the confusion with other business entities with the same name. Today the bank has a capitalized to the extend to more than 500 crores. The bank as of 2012 has a total income of more that 27414.87 crore. Branches of Axis bank: At the present the bank has very wide network of branches more than 1042 branches. Axis bank also has more than 4474 ATMs all over India. They provide 24 hour service to the customers. It is one of the largest networks of ATMs in India. Axis bank has five other wholly owned subsidiaries namely Axis Securities and Sales Ltd, Axis Private Equity Ltd, Axis Trustee Services Ltd, Axis Asset Management Company Ltd and Axis Mutual Fund Trustee Ltd. During the years 2008-2009 Axis branch opened new 176 branches all over the India that include 12 extension counters that was later upgraded to the branches. Also in that same year Axis bank opened 831 ATMs. Also in that same year, the Bank established Axis Trustee Services Company Ltd as a wholly owned subsidiary company, which is engaged in trusteeship activities. In January 2009, the Bank set up Axis Asset Management Company Ltd to carry on the activities of managing a mutual fund business. Also, they incorporated Axis Mutual Fund Trustee Ltd to act as the trustee for the mutual fund business. Also during the year 2009-2010 Axis bank opened another 200 branches all over the India. In the year 2010 Axis bank launched an important feature Axis Call and Axis Pay on Atom. This is a unique mobile payment solution using the Axis debit cards. Also Axis bank is the first bank in India to provide debit- card based payment service via IVR. During the year 2010-2011 further an addition of 407 branches were opened. During this year the bank also opened a representative branch in Abu Dhabi. The bank also has its representative office in Singapore, Hong Kong and Dubai International Financial Centre. And the branches of the bank are spread in Urban, Semi Urban as well as metropolitan cities. The bank also has its presence in all the union territories. In March 2011 Axis bank opened the new subsidiary namely Axis U.K Ltd as company that is privately registered in the United Kingdom. The main purpose behind this is filling an application with the financial services authority, for getting the banking license. Also creation of the necessary infrastructure is also needed for the subsidiary to commence the business in UK.

Balance Sheet Snapshot: The following is the snapshot of the balance sheet of Axis bank for year 2011-2012.

EVALUATION OF AXIS BANK THROUGH CAMELS MODEL 1) CAPITAL ADEQUACY: The first element of the CAMELS, capital adequacy is taken. In this tow main ratios are used to evaluate the capital adequacy of the bank. They are capital adequacy ratio and debt equity ratio. They are listed as follows: I. Capital Risk Adequacy Ratio:

Particulars Years

2007-2008 13.73%

2008-2009 13.69%

2009-2010 15.80%

2010-2011 12.65%

2011-2012 13.66%

There is an increase in the Capital Risk Adequacy Ratio in the past 5 years. So this indicates the tightening of the capital adequacy norms by the RBI. Also at present the 13.66% shows a good position being held by Axis bank to absorb the losses and also inspires confidence of investors. II. Debt Equity Ratio:

Particulars Years

2007-2008 9.65%

2008-2009 9.96%

2009-2010 8.81%

2010-2011 11.49%

2011-2012 12.6%

The debt equity ratio of Axis bank has not increased much in the last 5 years. In the year 20102012 it saw an increase to 11.49% but at the present it has come down to just 9.99%. III. Total Advance to Total Asset Ratio:

Particulars Years

2007-2008 54.4%

2008-2009 55.2%

2009-2010 57.7%

2010-2011 58.6%

2011-2012 59.4%

Here the total advance to total asset ratio shows as to how much amount of money the bank holds against its assets. Here Axis bank from the past 5 years has shown a continuous increase in the total advances given than increase in the total assets. IV. Government Securities to Total Investments:

Particulars Years

2007-2008 52.8%

2008-2009 54.7%

2009-2010 61.09%

2010-2011 59.87%

2011-2012 59.85%

This ratio shows the investment of the bank in the government securities. The percentage indicates the amount of money the bank has invested in the government securities from the total investment. So it can be said that the more the bank invests in the government securities the safer can be its position. The axis bank shows an increase in the investment of the government securities in these past 5 years. 2) ASSET QUALITY: The next step is analyzing the asset quality of the Axis bank. This is mainly done with two ratios. They are gross NPA and net NPA. They are listed below: I. Gross NPA Ratio:

Particulars Years

2007-2008 1.99%

2008-2009 1.68%

2009-2010 1.14%

2010-2011 0.83%

2011-2012 1.10%

The Gross NPA ratio is mainly used to check whether the gross Non performing assets of the bank are increasing on every quarter of the year. The Gross NPA level of Axis bank is low and the bank has maintained that level for the past 5 years. This indicates bank is taking enough care of money. II. Net NPA Ratio:

Particulars Years

2007-2008 0.36%

2008-2009 0.35%

2009-2010 0.36%

2010-2011 0.26%

2011-2012 0.25%

Net NPA usually indicates the performance of the banks. If the Net NPA is high then there is a huge possibility that a large number of the credit defaults have occurred that will affect the profitability and net worth of the banks. It also wears down the value of the asset. For the past 5 years we have seen that Axis bank has decreased its Net NPA on a continuous basis. The Net NPA has decreased year by year indicating that risk of bad loans is also reduced. III. Total Advance to Total Deposit Ratio:

Particulars Years

2007-2008 68.08%

2008-2009 69.48%

2009-2010 73.84%

2010-2011 75.25%

2011-2012 77.12%

This ratio shows investment made by the bank through approval of the loans against the accepting of the loans. In the Axis bank we can see that there is a constant increase in the ratio of total advance to the total deposit. 3) MANAGEMENT QUALITY: The next CAMEL element is the Management Quality. Management Quality of the Axis bank is measured and evaluated based on the two ratios. They are Asset Turnover Ratio and Profit I. Asset Turn Over Ratio:

Particulars Years

2007-2008 6.32%

2008-2009 0.11%

2009-2010 0.10%

2010-2011 0.09%

2011-2012 0.11%

The asset turnover ratio indicates the efficient of the bank in utilizing the firms assets and providing or generating the revenue. The Axis banks asset turnover ratio is comparatively low. II. Profit Per Employee:

(amount in lakh) Particulars Years 2007-2008 8.39 2008-2009 10.02 2009-2010 11.6 2010-2011 12.8 2011-2012 13.3

Profit per employee is the measure of how effectively and efficiently the bank is utilizing its employees and the bank wants every employee to get highest profit. In the Axis bank we can see there is a steady increase in the profit per employee over the past 5 years. So this in turn ensures greater employee satisfaction and increased sales. III. Total Advance to Total Deposit Ratio:

Particulars Years

2007-2008 68.08%

2008-2009 69.48%

2009-2010 73.84%

2010-2011 75.25%

2011-2012 77.12%

This ratio shows investment made by the bank through approval of the loans against the accepting of the loans. In the Axis bank we can see that there is a constant increase in the ratio of total advance to the total deposit. IV. Business Per Employee:

Particulars Years

2007-2008 11.7

2008-2009 10.6

2009-2010 6.6

2010-2011 7.5

2011-2012 9.6

The income per employee is the measure of how effectively the particular bank is utilizing its own human resource i.e. employees. A successful bank would want the highest business for each and every employee as possible. So there is higher productivity. So generally when the revenue per employee rises it is a good sign for the bank. Rising business per employee states that the bank is successful in getting more revenue from the already existing workforce. In the Axis bank

the business per employee ratio is showing a decreasing trend. From the 11.6 it has decreased to 9.6. 4) EARNINGS QUALITY: The next step in CAMELS is evaluating the bank on the basis of its earnings quality. Mainly two ratios are taken for this. They are Return on Asset and Dividend Payout Ratio. They are I. Dividend Payout Ratio:

Particulars Years

2007-2008 24.49%

2008-2009 23.16%

2009-2010 22.57%

2010-2011 19.78%

2011-2012 18.15%

In the dividend payout ratio it shows the percentage of the profit that the bank shares with the share holders. Dividend is very important element because it is the main earnings of the share holders who are investing their money in the bank. The greater the ratio, greater will be the good will of the bank in the market and more shareholders will be willing to invest in the bank. As in the table above we can see that Axis bank has been providing good dividend payout ratio. However the ratio has been decreasing slightly over the years. So this may cause a concern. II. Return On Asset Ratio:

Particulars Years

2007-2008 1.24%

2008-2009 1.44%

2009-2010 1.67%

2010-2011 1.68%

2011-2012 1.68%

The Return on Asset Ratio shows that how much the bank is successful in getting the return from the total asset. Generally a higher ROA is good for the working of the bank as there is increased revenue from the assets of the bank. In case of Axis bank we can see that the ratio is going in an increasing manner over the past five years. There has been a constant increase. However in the years 2010 and 2011 there has been a stagnant in the ratio. But overall we can say that bank is successful in getting the return from the assets it has. III. Operating Profit by Average Working Fund:

Particulars Years

2007-2008 2.57%

2008-2009 2.95%

2009-2010 2.98%

2010-2011 3.17%

2011-2012 2.94%

This reflects the earning as well as growth capacity as well as the financial health of the bank. Generally an increase in this ratio is presumed to be good for the bank. IV. Net Profit to Average Asset:

Particulars Years

2007-2008 1.24%

2008-2009 1.44%

2009-2010 1.53%

2010-2011 1.6%

2011-2012 1.63%

The net profit to the average asset indicates the efficiency of the banks in utilizing their assets in order to generate net profits. So naturally a higher ratio indicates that there is better income generating done by the bank by using the assets available to it. In the above table we can see that Axis bank has continuously increased the net profit to average asset ratio over the period of 5 years. The ratio has increased from 1.24% to now it reached 1.63%. 5) LIQUIDITY: The next step is liquidity. Liquidity is an important aspect of the bank. Every bank should have adequate liquidity in order to meet the uncertain conditions and emergencies. In this approach liquidity is mainly evaluated of the Axis bank by taking into two main ratios. They are Liquidity Asset to Total Asset and the credit deposit ratio. They are listed below: I. Liquidity Asset to Total Asset:

Particulars Years

2007-2008 11.41%

2008-2009 10.17%

2009-2010 8.4%

2010-2011 8.8%

2011-2012 4.8%

Liquidity assets to total asset means the ability of the bank too met the financial obligations that it has. So a bank has to ensure there are adequate liquidity in it at all conditions. In the above

table for the Axis bank, from the year there is a constant decrease in the ratio from 11.41% it has now arrived at 4.8%. II. Government Securities to Total Asset:

Particulars Years

2007-2008 19.42%

2008-2009 19.97%

2009-2010 22.5%

2010-2011 18.42%

2011-2012 18.77%

Government securities to the total asset ratio show what percentage of the government securities the bank currently has as against the total number of asset it has. If the ratio is higher we can say that it is good indicator for the bank as the bank is investing in the securities of the government. In the case of Axis bank we can see that the total ratio has increased in the years 2007 to 2010. It has increased by 3%. However in the later years a fall in the ratio is seen and currently it is at 18.77%. III. Liquidity Asset To Demand Deposit:

Particulars Years

2007-2008 31.24%

2008-2009 29.70%

2009-2010 23.7%

2010-2011 19.1%

2011-2012 29%

This ratio shows the power of the liquidity asset against the total demand deposits of the bank, in simple words it means what part of the demand deposits can be converted to cash in the time of need for the bank. In case of Axis bank as above table we can see that there is a reduction in the ratio in the past 4 years. But in the last year the ratio has increased to almost 10%. This shows the increase in the demand deposit of the bank. IV. Liquidity Asset To Total Deposit:

Particulars Years

2007-2008 14.20%

2008-2009 14.01.%

2009-2010 13.7%

2010-2011 14.21%

2011-2012 12.9%

This ratio shows how much of the total deposits of the bank are invested in the current assets. It means how much can be converted to monetary form easily. In case of Axis bank the ratio is 14.20% in the initial years but it has been reducing on a continual basis. So it indicates there is fewer deposits in the banks keep to be converted to cash immediately. ANALYSIS AND INTERPRETATION ACCORDING TO CAMELS RATING 1) CAPITAL ADEQUACY: I. Capital Adequacy Ratio: The banks are required to maintain the capital adequacy ratio (CAR) as specified by RBI from time to time. As per the latest RBI norms, the banks in India should have a CAR of 12%. It is arrived at by dividing the sum of Tier-I, Tier-II and Tier-III capital by aggregate of risk weighted assets (RWA). Symbolically, CAR= (Tier-I + Tier-II + Tier-III)/RWA Tier-I capital includes equity capital and free reserves. So Axis bank is having the ratio higher than the prescribed ratio. This is a clear indication that the bank is comfortable to absorb any future losses. II. Debt-Equity Ratio: For most banks the debt equity ratio over 40-50% should be looked at more carefully. According to the RBI guidelines. The ratio given in 12.6%. This indicates that the debt equity structure of Axis bank is quite low. So the bank is not very much aggressive in financing its growth with the debt. III. Total Advance to Total Asset Ratio: There has been a continuous increase in the total advance to total asset ratio of the Axis bank for the last 5 years. From the 54% there has been an increase of 5%. IV. Government Securities to Total Investments: As per the table shown previously the total investment made by the Axis bank in the Government securities has been increasing in an increasing trend over the last 5 years. From 52.8% there has been an increase of 7.05%. so there is an increased investment in securities which is good. 2) ASSET QUALITY: I. Gross NPA: There has been decrease in the gross NPA of the Axis bank over the last 5 years. From 1.99% the Gross NPA at present has come down to 1.10%. This is a clear indicator that the Axis bank is taking steps to reduce the NPA and effective utilization of the money is made by the bank. II. Net NPA:

The net NPA rating for the year 2012 has been 1.28%. Looking at the Net NPA of the Axis banks we can say that Axis bank is slowly falling back a little. The bank has reported a fall in the Net NPA from 0.36% to 0.25%. So there Axis bank needs to improve. III. Total Advance to Total Deposit Ratio: According to this ratio the Axis bank has shown a constant increase ranging from 68.08% to increase of 77.12%. 3) MANAGEMENT QUALIY: I. Asset Turn Over Ratio: Axis bank has seen a reduced Asset turn over ratio for the last 5 years. The ratio has decreased from 6.32 to substantially amount ending up to 0.11%. So it should be said that Axis bank at present is not utilizing the assets available for generation of maximum revenue. II. Profit Per Employee: Profit per employee is the measure by which it can be found out that how effectively and efficiently bank is utilizing its employees to get the maximum profit. As for the Axis bank we can see there is a steady increase in the ratio. From 8.3% the ratio has increased to 13.3%. III. Total Advance to Total Deposit Ratio: This ratio shows the main investment made by the bank through approval of the loans against the acceptance of the loans. There is increasing trend in the ratio of the Axis bank. The ratio has increased from 68.08% to 77.12%. So the efficiency of the bank in converting the deposits to advances have increased. IV. Business Per Employee: In the Axis bank the business per employee ratio is showing a slight decreasing trend. In the year 2008 it was 11.7 and it dipped to 7.1 in the year 2011. However in year 2012 there has been an increase in it as it has climbed to above 9%. This shows Axis bank is ensuring greater business for every employee. 4) EARNINGS QUALITY: I. Dividend Payout Ratio: The dividend payout ratio of the Axis bank has shown a slight decrease over the period of years. The dividend payout ratio has decreased from 24.4% to 18% in the last five years. But the reduction is not that sharp so it indicates the bank is striving hard to ensure proper dividend to share holders. II. Return On Asset Ratio:

This ratio clearly indicates how profitable the company is in relation to the total assets that it has. In Axis bank there has been an increase in the return on asset from the ratio 1.24% it has increased to 1.68%. So this shows that there has been an increasing return to the assets. III. Operating Profit to Average Working Fund: This mainly shows about the growth capacity of the bank as well as financial health. There has been an increase in this for Axis bank for the past 5 years. From 2.57% it has gone up to 2.94% in the current year. IV. Net Profit to Average Asset: This indicates the assets and the efficiency of the banks in utilizing their assets in order to get more profits. Taken the case of Axis bank we can see that there has been an increase in this. Form 1.24% the current percentage stands 1.63%. So there is increased utilization of assets by bank. 5) LIQUIDITY: I. Liquidity Asset to Total Asset: According to this ratio Axis bank has shown a steady decrease. Form the figure 11.41% the present figure now is 4.8%. So this means a reducing liquidity in assets of the bank compared to normal assets. II. Government Securities to Total Assets: This shows as to what percentage of the total asset is invested in the government securities. Axis bank has shown a slight decrease of this over the past years. From 19.42% it has come down to 18.77%. This shows less investment in the government securities. III. Liquidity Asset to Demand Deposit: This means as to how much part of the demand deposits can be converted to the liquid assets when need by the bank. In the Axis bank we can see a slight decrease in this amount. From 31.4% it has fallen to 29%. But still there is sufficient liquidity in demand deposit. IV. Liquid Asset To Total Deposit: There shows as to how much of the total deposits held by the bank, how much of them can be converted to monetary terms as quickly as possible. In Axis bank we see there has been a decrease in this figure from 14.20% to 12.9% thus having less liquidity in total deposits.
CONCLUSION: Axis bank is the third largest private sector bank in India. Analyzing the data of the bank and evaluating has revealed that the bank has shown tremendous growth over the last 5 years and there is still much

scope for future growth and expansion. The bank has also managed to contain NPAs according to the strict guidelines of the RBI over such long period of time. Further stating the Axis bank has been able to pass the test of CAMELS model. So due to all this at present the bank is enjoying a comfortable position in the market but Axis bank should also take necessary steps for ensuring the same growth and expansion in the future.

REFERENCES 1) http://money.rediff.com/companies/Axis-Bank-Ltd/14030047/balance-sheet

2)

http://www.goodreturns.in/company/axis-bank/ratios.html

3)

http://www.moneycontrol.com/financials/axisbank/profit-loss/AB16#AB16

4)

http://www.axisbank.com/download/Annual-Report-2012.pdf

5)

http://www.axisbank.com/download/Annual-Report-2010.pdf

6)

http://www.axisbank.com/download/Annual-Report-2009.pdf

7) http://www.kotaksecurities.com/stock-market-news/equity/5013/Axis-Bank-Ltd.ratios/14030047.00

8) http://www.indiainfoline.com/Markets/Company/Axis-Bank-Ltd/532215