growth analysis of

Bank of India &

Punjab National Bank

SUBMITTED BY
GROUP 9
SAMIR BAJAJ 2009197
SAURABH BHAGEL 2009200
SIVARAM SRIPADA 2009202
PRAKHAR CHAWLA 2009225
RUCHIKA PURI 2009252
Project Overview

 The purpose the project is to analyse

various indicators of productivity like
Return on Assets (ROA), Return on
Equity (ROE), Profit & Volume of
business per employee, Number of
accounts per employee; ways these
factors can be improved and
understand their impact on
profitability of a bank. The Project is
prepared by comparing Bank of India
and Punjab National Bank over the
past 10 years that is from Year 2001-
BANK OF INDIA

qPremier and one of the

oldest commercial banks in India
qIn July 1969, Bank of India was
nationalized along with 13 other
large Indian commercial banks
qIndia's 4th largest bank,
after SBI, PNB and Central Bank of
India
qIt has 3216 branches, including 27
branches outside India
qMade enormous contribution to
India's efforts towards agricultural
and rural development, industrial
diversification and modernization.
qVentured into Merchant Banking,
Mutual Funds, Housing Finance, and
Custodial & Depository through its
subsidiaries.
q
Profitability Ratios
ROE and ROA

 In FY05 and FY06 were particularly bad

years with poor Net Margins and lower
asset turnover resulting in poor return
on assets and return on equity.
 In FY07 and FY08 Bank of India seems to
have recovered.
 In FY08 Net Margins touched an
impressive 13% plus on the back of
robust fee income and interest income
growth.
 BOI maintained a high ROE of over 20%
because of the significantly higher Net
Margin and higher Asset Turnover.

  In FY08 and FY09 the return fell due
to meltdown in global economy and
trying to emerge from the impact of
it on India economy.
 Also sluggish behavior of private
consumption added to it.

Spread and NIM

 Net Interest Margins have been generally

stable around the 3% mark for the last
few years.
 After recession reduction on PLR and global
economic slowdown caused pressure on
NIM
 During 2008-09, Reserve Bank of India
took several measures to infuse
liquidity in the system and relaxed a
number of regulatory measures for
facilitating the financial system to cope
up with the adverse impact of global
financial crisis.
 Net interest Margin has remained constant
inspite of constant increase in the spread
 Changes in Burden has mainly being
attributed by Noninterest Income.
 Non-interest income declined by
14.26% and covered 71.34% of
Operating Expenses as against
98.64% in the previous year.
 Cost Efficiency ratio has seen
significant improvements on a
consistent basis in the last 4 years
to just over 30 percent in FY08.

Equity Multiplier
  This ratio shows a company's total
assets per dollar of stockholders'
equity. A higher equity multiplier
indicates higher financial leverage,
which means the company is
relying more on debt to finance its
assets.

ASSET UTILIZATION
 The AU ratio measures the extent to
which the bank’s assets generate
revenue
 AU for Bank of India over the years has
slowly and steadily come down. It was
above 10% in 2001, but in 10 years it
has come below 8%.
 It was above 10% in 2001, but in 10
years it has come below 8%. Though
total income has increased from Rs
6178 crore in 2001 to Rs 20,494 crore
in 2010, an increase of 231% but Total
assets of Bank has increased has
increased at a greater rate; from Rs
NET PROFIT MARGIN
 Net Profit Margin is a ratio of
profitability, calculated as
net income divided by revenues, or
net profits divided by Total Income.
 A higher Net profit margin indicates a
more profitable bank that has
better control over its costs
compared to its competitors.
 NPM of Bank of India is ‘M’ shaped; it
started with 4.07 in year 2001,
reached peak of 15.5 in 2009 and
lowered again in 2010 when it
OVERHEAD EFFICIENCY
 OH efficiency measures the bank’s
ability to generate noninterest
income to cover noninterest
expenses. It is the ratio of NI
income to NI expense.
 This ratio should be as high as
possible, but due to high levels of
Non-Interest expense it is seldom
more than 100%.
 Though too high OH may not be
good.
EFFICIENCY RATIO
 The Efficiency ratio is the ratio of Non
Interest & Non Tax expenditure to total
income – interest expended.
 Higher efficiency ratio means that the
bank is losing a larger percentage of
its income to expenses. If it’s lower,
it’s good for bank and its
shareholders.
 Efficiency ratio graph is kind of W
shaped, it was between 0.8 & 0.9 in
2001, best figure was in 2009 when it
reached 0.5, but again 2010 it was
touching 0.7.
TOTAL BUSINESS MIX
 Total Business Mix is sum of Advances
and Deposits.
 It is measure of extent of operations of a
particular bank, indicating an increase
in physical presence of bank across
the country and also popularity among
customers.
 Total Business Mix for Bank of India has
increased at an exponential pace from
year 2001 to 2010, showing growth of
374%. This must be due to increase in
number of deposit schemes offered by
the bank and also increasing trust
shown by its customers.
Punjab National Bank (PNB)

 Since its humble beginning in 1895 with

the distinction of being the first Indian
bank to have been started with Indian
capital, PNB has achieved significant
growth in business which at the end of
March 2010 amounted to Rs 435931
crore. Today, with assets of more than
Rs 2,96,633 crore, PNB is ranked as
the 3rd largest bank in the country
(after SBI and ICICI Bank) and has the
2nd largest network of branches (5002
offices including 5 overseas
Productivity Ratio Analysis
 The reason why ROE had seen a
slump in the year 2006 from 2005
and didn’t show too much
improvement in 2007 as well.
 Capital reserves had increased when
compared to 2005 in 2006 & 2007.
 Cash and balances with RBI had
increased in 2006 drastically due to
regulations and therefore there
wasn’t enough money to invest and
most of the cash at hand went for
Loans and Advances.
 This resulted in a very less increase in
NET profit despite increase in
ROA (Return on Assets)
  Although the Asset size increased
because of Increase in Cash
balance with RBI the investments
decreased from 2005 to 2006.
 And also in 2007 the company is
sitting on almost double the call
money at banks , and hadn’t
invested it anywhere.

Spread
  The increase in Interest earned and
Interest Expended have been
constant.
 It is however increase in Other
expenses which is leading to
declining growth of NET profits.

Net Interest Margin
  Increase in Spread has not been able
to catch up with the increase in
Assets.
 In 2008 Mar there is a slump,
Because huge increase in assets.
Spread increased by only 500.

Burden
  In 2007 other income didn’t increase
where as Non -interest expenses
increased hugely because of
Increase in Payment to Employees.
There might have been a huge
recruitment.

Non Interest Income/Total
Assets
  Non interest income for the years
from 2005 to 2008 has increased
very modestly. However the assets
have increased at a higher rate.
Hence the slump.
 The company didn’t increase its
income through non interest
sources.

Operating Expenses/Total
Assets
  The assets have been increasing from
06 to 10 and the operating
expenses have been kept low .The
bank keeping its operating
expenses low.

Provisions/Total Assets
  The firm has decreased its
provisions& contingencies 07 till 09,
This can be attributed to better
credit policies.

Equity Multiplier
  The equity multiplier has been almost
stagnant for 06 &07. The EM is not
increasing or not reaching the
levels of 01 and 02 .This indicates
that bank is not able to increase
assets despite increasing equity.

Asset Utilization
  In 07& 08 Huge increase in assets
didn’t help in contributing to
increase in Income. This was
because large amounts of funds
that were blocked in RBI and also
with other banks.
 Bank was conservative at that time.

Net Profit Margin
  The expenses increased in 06&07 and
despite increase in income the Net
profit didn’t increase considerably.
This is because substantial increase
in Provisions and Contingencies,
because of change in credit policies.

Efficiency Ratio
  Expenses increased when compared
to net income. This is because of an
increase in employee expenses
along with increase in Provisions.

Total Business Mix
Asset Quality Ratios for PNB

2010 2009
Asset Quality Ratios for BOI

2010 2009
 Gross NPA of BOI to its total assets is
more than that of PNB which shows
better management of PNB and
also better provisions.
 Average profit per employee of BOI
decreased from 2009 to 2010 and
Average profit per employee of BOI
is lesser than PNB. Average profit
per branch also decreased for BOI.
This figure is also lower than that of
PNB.
 However Average business per
branch of BOI is much higher than
that of PNB.
THANK YOU