A STUDY ON ANALYSIS OF FINANCIAL STATEMENT OF IDBI
BANK RANEBENNUR
CHAPTER - 1
INTRODUCTION
IDBI is the Industrial Development Bank of India, set up in the year 1964. Its
headquarters are in Mumbai and its parent company is Life Insurance Corporation (LIC). The
purpose of setting up the IDBI is to financial and other credit facilities to struggling
industries. Moreover, the IDBI came into existence with the aim to provide financial support
credit assistance to needy industries. Initially, the IDBI continued to operate as an RBI
subsidiary. But over time, the RBI it underwent a transfer and now functions under the
Government of India (GOI).
IDBI Bank Ltd is one of India's largest commercial Banks. The Bank is a Universal
Bank with their operations driven by a cutting edge core Banking IT platform. They offer
personalized banking and financial solutions to their clients in the retail and corporate
banking arena through their large network of Branches and ATMs spread across length and
breadth of India. IDBI Bank had a network of 2095 branches and 3394 ATMs & CRMs as on
31 December 2020. The bank also set up an overseas branch at Dubai. The Bank operates in
four segments namely Wholesale Banking Retail Banking Treasury Services and Other
Banking Operations. They have six wholly-owned subsidiaries namely IDBI Homefinance
Ltd IDBI Gilts Ltd IDBI Intech Ltd IDBI Capital Market Services Ltd IDBI Asset
Management Ltd and IDBI MF Trustee Company [Link] Bank Ltd was incorporated in the
year 1964 as a wholly owned subsidiary of Reserve Bank of India with the name Industrial
Development Bank of India. The company was regarded as a Public Financial Institution and
continued to serve as a DFI for 40 years. In February 16 1976 the ownership of the company
was transferred to the Government of India by RBI and the company was made the principal
financial institution for coordinating the activities of institutions engaged in financing
promoting and developing industry in the [Link] the year 1982 the company transferred
their International Finance Division to Export-Import Bank of India. In the year 1993 they
formed one wholly owned subsidiary company namely IDBI Capital Market Services Ltd for
providing broad range of financial products and services. In June 7 1995 the company made
their Initial Public Offer (IPO) which brought down GOI holding to below 100%. In March
2000 the company set up one wholly owned subsidiary company namely IDBI Intech Ltd for
providing Information Technology (IT) related activities of the organization. They
established a public limited company in the home loan segment namely 'IDBI Homefinance
Ltd'. Also they entered into a financial and technical collaboration agreement with Nepal
Development Bank (NDB). In March 2001 they incorporated IDBI Trusteeship Services Ltd
to take over the entire debenture business and assist to the subscribers and issuers of
debentures by the way of up-to-date information and efficient professional [Link] March
2003 the Bank made an exit from their asset management activity by divesting their entire
shareholding in IDBI Principal Asset Management company Ltd IDBI Principal Trustee
Company Ltd and all Trust Corpus rights of IDBI Mutual Fund in favour of their joint
venture partner Principal Financial Services Inc USA with a view to concentrate on their core
business activities. They also divested their entire stake in Discount & Finance House of
India Ltd (DFHI) in favour of SBI. In September 2003 the company diversified their business
domain further by acquiring the entire shareholding of Tata Finance Ltd in Tata Home
finance Ltd. The fully-owned housing finance subsidiary was renamed 'IDBI Home finance
Ltd'. bIn October 2004 the company was transformed into a banking company to undertake
all kind of banking activities while continuing to play their secular Development Financial
Institution role. Also they changed their name to Industrial Development Bank of India Ltd.
In 2005 Industrial Development Bank of India Ltd merged their banking subsidiary IDBI
Bank with themselves. In October 2006 United Western Bank Ltd was amalgamated with the
Bank as a part of the inorganic growth strategy.
IDBI BANK Bank was established in 1964 by an Act to provide credit and other
financial facilities for the development of the fledgling Indian industry. Initially it operated as
a subsidiary of Reserve Bank of India RBI transferred it to GOI. Many institutes of national
importance find their roots in IDBI BANK like SIDBI BANK, Exim bank, NSE and NSDL.
The war cry for reforms in financial space saw GOI reducing its stake in the bank in the year
2019. At present LIC holds 51% stake in IDBI BANK Bank and GOVT holds 46.46% and
the remaining 2.54% held by public. For the first quarter of the current financial year 2017-
18, the bank reported a net loss of Rs.853 crore compared to a profit of Rs.241 crore during
the corresponding period last financial year. In the fourth quarter of financial year 2016-17,
the bank had reported a loss of Rs.3, 200 crore. While the reported loss was lower than the
preceding quarter, bad loans continued to surge. In the quarter ending September 2017 the
bank bounced back with a loss of Rs.198 crore compared to a loss of over Rs.2,000 crore in
the previous quarter. The bank is expected to return to profit in the upcoming financial year.
It currently has 13,722 ATMs, 1899 branches, including one overseas branch in Dubai, and
12, 122 centers
The bank has an aggregate balance sheet size of INR 3.74 trillion as on 31 March
2016"About us". IDBI BANK Bank. Retrieved 22 February 2014. On June 29, 2018 Life
Insurance Corporation of India (LIC) has got a technical go-ahead from Insurance Regulatory
and Development Authority of India (IRDAI) to increase stake in IDBI BANK Bank up to
51%.
Financial statements for banks present a different analytical problem than
manufacturing and other service companies. As a result, analysis of the bank's financial
statements requires a distinct approach that recognizes the bank's somewhat unique functions
and risks. As banking is one of the most highly liquid industries, investors have some level
of assurance in the soundness of the banking system. As a result, investors can focus most of
their efforts on how a bank will perform in different economic environments.
Hence, to evaluate banks’ performance, we can use different methods. These methods
can be classified in three ways: The traditional method of financial indices based on balance
sheet and income statement analysis, parametric methods based on the knowledge of
production function and non-parametric methods that do not require production function
(Wozniewska, 2008). If the financial market were efficient, market price for banks' stock
price would be one of the most appropriate tools for measuring banks' performances. The
alternative to the market approach is the accounting-based financial ratio approach, which has
commonly been used for measuring the financial performance of banks (Abdu, 2004). Since
the stock price data for Ethiopia’s commercial banks are not available, the accounting based
financial ratios was used as a measure of financial performance in this study.
OBJECTIVES OF THE STUDY:
To assess the risk both financial as well as business involved with bank
To assess the present earning capacity of the bank for the purpose of inter-bank
comparison and thereby to assess the progress of otherwise of the bank.
To evaluate the efficiency of the bank for proper utilization of financial resources.
To assess the intra-bank comparison among of the various components of the bank.
To see the effect of various non-economic and economic factors of the bank.
To ascertain short-term liquidity position by the application of various liquidity
ratios.
To evaluate the long-term solvency position by the application of various solvency
ratios
To assess the working capital position of the bank.
To assess the performance of the bank by the application of various ratios
SCOPE OF THE STUDY
The purpose of financial statement analysis is to evaluate the past, current, and future
performance and financial position of the company for the purpose of making investment, credit, and
other economic decisions.
Financial statements are the end results of an accounting record-keeping process that records
the economic activities of a company. They summarize this information for use by investors,
creditors, analysts and other interested in a company’s performance and financial position.
The key financial statements that are the focus of analysis are the income statements, balance
sheet, statement of cash flows and owner’s equity. The income statement and statement of cash flows
portray different aspects of a company’s performance over a period of time.
RESEARCH METHODOLOGY
The Research Design of the study is the arrangement of information, and analysis of
the data in a manner that aims to combine relevant purpose with economy procedure, in fact,
it constitutes the blue print of collection, measurement and analysis of data and finally
presentation.
In the present study we have adopted descriptive method of study. Conveniently
observation method, held discussion with officials, customers and secondary data has been
utilized.
SOURCE OF DATA: There are two sources of data, viz,
Primary Source Data
Secondary Source Data
PRIMARY SOURCE OF DATA
Primary data has been collected from the structured interview schedule administered to
bank officials, customers, experts. The primary data are very useful for analysis,
interpretations, conclusions and suggestions.
SECONDARY SOURCE OF DATA
Secondary data are also very impartment the data already collected by someone else
which is available in the systematic manner.
Secondary data analysis can save time that would otherwise be spent collecting data
and particularly in the case of quantitative low cost of data.
LIMITATIONS OF THE STUDY
The customer base of high and product like high value residential property has not been
taken into consideration.
The financial performance of the banks is depending on customers however, the
customer do not adequate understanding for the performance of banks.
The information on defaults of the home loan customer segment is very little and banks
do not provide the same easily.
The sample is limited to Ranebennur IDBI BANK Bank Branch.
The data of only 3years has been used.
The responded very not very much keen to discloses personal information and decision
making process.
NEED OF THE STUDY:
Financial statement analysis is used to identify the trends and relationships between
financial statement items. Both internal management and external users (such as analysts,
creditors, and investors) of the financial statements need to evaluate a company's
profitability, liquidity, and solvency. The most common methods used for financial statement
analysis are trend analysis, common‐size statements, and ratio analysis. These methods
include calculations and comparisons of the results to historical company data, competitors,
or industry averages to determine the relative strength and performance of the company being
analyzed.
We know that the analysis of financial statement helps the analyst to know the
financial information from the financial data contained in the financial statements and to
assess the financial health (i.e. strength or weakness) of an enterprise. It also helps to make a
forecast for the future which helps us to prepare budgets and estimates.
In short, analysis of financial statements helps us to take various decisions at various
places of a bank.
It helps to know the reasons for relative changes either in profitability or in the
financial position as a whole.
It also helps to highlights the operating efficiency and the present profit earning
capacity of the bank as a whole.
Various financial journal (Viz. RBI Bulletins), newspapers etc. also require financial
statements for analyzing and scrutinizing the financial position of a bank for the
readers.
