A Study on Financial Analysis of State Bank of India and Its Associates

Chetan G. Patil *, Ravi Sahu **

*Faculty of MBA Department, Pimpri Chinchwad College of Engineering,

Pune-411044, email: [email protected]

**2nd Year MBA Student, Pimpri Chinchwad College of Engineering

Pune-411044, email: [email protected]

Abstract

State Bank of India and its associates are the largest among commercial banks (Public, Private and Foreign

banks) in India. These banks have adopted many of the technological initiatives at par with banking

industry in India. These banks are focusing on maintaining the presence in Urban and Rural India. This

study was conducted to find out various ratios of SBI and its associates. The time frame for this study is

considered April 2007 to March 2012 i.e. five financial years. Annual reports of various banks and reports

from RBI are considered as the source of data for this study.

Key words: Commercial Banks, Banking Ratios, SBI and Its Associates.

1. Introduction
Banking in India has its origin since the vedic period. The concept of lending and borrowing money

was very much prevalent in India. The East India Company promoted the Bank of Calcutta in 1806. The

three presidency banks were merged in year 1921 to form the Imperial Bank. The Reserve Bank of India

was established in 1934. After the Independence of India, the Imperial Bank was taken over and in year

1955 the assets were vested in a new bank, the State Bank of India. The major event after Independence

was the nationalization of 14 banks on 19th July 1969.

 Till 1992 Indian Banking Sector was highly regulated. LPG has brought change to Indian Banking

Sector. At Present the Indian Banking System comprises Public Sector Banks, Private Sector Banks,

Foreign Banks and Co-operative Banks. The Public Sector, Private Sector and Foreign Banks are regulated

by RBI while the Co-operative Sector Banks are regulated by both RBI and state co-operative body. State

Bank of India is the largest bank in India in all these sectors.

As on 31st March 2013, the State Bank of India (SBI) has five domestic banking subsidiaries

namely State Bank of Bikaner & Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore

(SBM), State Bank of Patiala (SBP), State Bank of Travancore (SBT). The State Bank of India has

seventeen non-banking subsidiaries namely SBI Capital Markets Ltd, SBICAP Securities Ltd, SBICAP

Ventures Ltd, SBICAP (UK) ltd, SBICAP Trustees Co. Ltd, BICAP (Singapore Ltd), SBI DFHI Ltd, SBI

Mutual Fund Trustee Company Pvt. Ltd, SBI Global Factors Ltd, SBI Pension Funds Pvt. Ltd, SBI Fund

Management Pvt. Ltd, SBI Fund Management (International) Pvt. Ltd, SBI Cards & Payment Services Pvt.

Ltd, SBI Life Insurance Company Ltd, SBI-SG Global Securities Services Pvt. Ltd, SBI General Insurance

Company Ltd. The State Bank of India has eight joint ventures namely C-Edge Technologies Ltd, GE

Capital Business Process Management Services Pvt. Ltd, Macquarie SBI Infrastructure Management Pte.

Ltd, Macquarie SBI Infrastructure Trustee Ltd, SBI Macquarie SBI Infrastructure Management Pvt. Ltd,

SBI Macquarie SBI Infrastructure Trustee Pvt. Ltd, Oman India Joint Investment Fund-Mgt. Co Pvt. Ltd,

Oman India Joint Investment Fund-Trustee Co Pvt. Ltd. The State Bank of India has six foreign banking

subsidiaries namely State Bank of India (California), State Bank of India (Canada), Commercial Bank of

India LLC, Moscow, SBI (Mauritius) Ltd, PT Bank SBI Indonesia, Nepal SBI Bank Ltd. The State bank of

India is ranked 8th amongst top 10 market cap companies and number 1 amongst Public Sector Banks. The

Bank on a consolidated basis continues to be amongst the top tax payers of the country.
 All the banks are directed by Reserve Bank of India to follow the norms of capital adequacy, asset

quality, prudential norms, disclosure requirements and making transparent financial statements. All these

factors motivate researchers like Mishra and Aspal (2012), Sangmi and Nazir (2010), Singh and Kohli

(2006), Khatik and Singh (2005) and many more to carry out financial analysis of various banks in India.

For healthy financial and banking system it is required that many researcher should be working evaluating

performance of these institutions from time to time.

2. Objectives
The main objectives of study are as follows
(i) to analyze financial performance of State Bank of India and Its Associates

(ii) to suggest measures to improve financial performance based on the study

3. Methodology
This study is descriptive in nature. The banks considered for this study are State Bank of India and

Its Associates (SBBJ, SBH, SBM, SBP and SBT). This study is descriptive in nature. There are various

ratios and models to evaluate performance of commercial banks, but for this study selected ratios are

considered. Simple statistical tools like mean and standard deviation has been used to describe and analyze

the data. The period of study is chosen from April 2007 to March 2012 i.e. five financial years. Annual

reports are the main source of data for this study. These annual reports are downloaded from the websites

of respective banks. The Database published by the Reserve Bank of India is also one of the most

important sources of data for this study.

4. Data and Analysis

In this study all ratios are numbers without any unit except business per employee and profit per

employee which is in Rupee. Mean refers to arithmetic mean. SD refers to Standard Deviation. G.M. refers
to Group Mean (Mean for SBI and Its Associates in respective year). G.SD refers to Group Standard

Deviation (Standard Deviation for SBI and Its Associates in respective year).

4.1 Capital Adequacy Ratio

The Capital Adequacy of commercial banks is measured by evaluating Tier I and Tier II capital of

banks. The capital adequacy ratio is derived by dividing Tier I and Tier II capital by Risk Weighted Assets

of bank. Tier I capital includes permanent shareholders’ equity, perpetual non-cumulative preference

shares, disclosed reserves and innovative capital instruments. Tier II capital includes undisclosed reserves

of fixed assets and long-term holdings of equity securities, general provisions/general loan-loss reserves;

hybrid debt capital instruments and subordinated debt.

Table No.1
Bank 2008 2009 2010 2011 2012 Mean SD
SBI 13.54 14.25 13.39 11.98 13.86 13.40 0.861702
SBBJ 12.51 14.52 13.30 11.68 13.76 13.15 1.100218
SBH 12.35 11.53 14.90 14.25 13.56 13.32 1.375125
SBM 11.73 13.38 12.42 13.76 12.55 12.77 0.806951
SBP 13.56 12.60 13.26 13.41 12.30 13.03 0.546791
SBT 13.53 14.03 13.74 12.54 13.55 13.48 0.561489
G.M. 12.87 13.39 13.50 12.94 13.26
G.SD 0.7823 1.141 0.8116 1.0275 0.6648
Banks are required to maintain capital adequacy ratio (CAR) of 9% as stipulated by Reserve Bank of India.

All the banks under study are having adequate capital to bear unexpected losses. Although SBM CAR is

consistently below group Mean CAR for this study; all the banks under study are having adequate capital

to bear unexpected losses. SBH has highest SD which indicates fluctuations in maintaining CAR. Not a

single bank has been able to maintain consistently above the GM. GSD for financial year 2009 has been

highest.
4.2 Investment - Deposit Ratio
This ratio signifies the amount invested by the bank with respect to its deposits.
More investment in secured assets will result in reduction of exposure but at the same time this may

sacrifice the earning opportunity

Table No. 2
Bank 2008 2009 2010 2011 2012 Mean SD
SBI 35.26 37.19 36.78 31.65 29.91 34.16 3.225073
SBBJ 30.78 28.04 29.53 25.11 27.07 28.11 2.192511
SBH 31.99 33.60 32.90 32.10 29.62 32.04 1.502523
SBM 30.60 34.57 29.56 29.91 29.36 30.80 2.158351
SBP 29.60 28.38 28.14 25.38 27.76 27.85 1.542766
SBT 32.11 31.47 31.14 30.82 31.39 31.39 0.478516
G.M. 31.72 32.21 31.34 29.16 29.19
G.SD 1.9713 3.6015 3.1226 3.1258 1.5564
SBI and SBH have consistently higher investment-deposit ratio than GM and SBI is leading with mean of

34.16%. Investment-deposit ratio for SBP and SBBJ has been consistently lower than GM that too SBBJ

has higher SD. GSD for investment-deposit ratio is also highest in year 2009.

4.3 Cash-Deposit Ratio

This ratio simply measures liquidity of the bank. Cash with RBI and others is considered as

component of Cash-Deposit Ratio

Table No. 3
Bank 2008 2009 2010 2011 2012 Mean SD
SBI 9.59 7.49 7.62 10.11 5.18 8.00 1.958333
SBBJ 11.46 9.17 8.03 9.98 7.04 9.14 1.71203
SBH 11.07 8.69 7.00 9.07 5.81 8.33 2.018922
SBM 9.69 5.27 7.11 6.26 6.03 6.87 1.706814
SBP 8.84 6.20 6.17 5.89 8.95 7.21 1.543644
SBT 9.26 5.54 6.82 8.10 6.68 7.28 1.432395
G.M. 9.99 7.06 7.13 8.24 6.62
G.SD 1.0411 1.647 0.6457 1.8262 1.3181
SBBJ is having highest mean of Cash-Deposit Ratio, it has outperformed GM throughout the study, while

SBH is having highest SD for study period. Financial year 2012 has highest GSD.

4.4 Credit-Deposit Ratio

This ratio measures the efficient of management for advancing the fund vis-à-vis deposits of the

banks. Even generation of low cost deposits also tested for management efficiency.

Table No.4
2008 2009 2010 2011 2012 Mean SD
SBI 77.55 73.11 78.58 81.03 83.13 78.68 3.79711
SBBJ 73.52 76.10 76.37 76.52 79.98 76.50 2.300886
SBH 71.54 69.94 72.39 73.02 78.04 72.99 3.051109
SBM 76.57 77.82 75.97 78.73 79.37 77.69 1.426639
SBP 74.94 72.72 71.80 75.56 79.25 74.85 2.903818
SBT 79.59 77.81 75.59 79.17 77.44 77.92 1.581859
G.M. 75.62 74.58 75.12 77.34 79.54
G.SD 2.8933 3.1742 2.5672 2.8775 1.9927
In case of credit-deposit ratio SBM has always outperformed GM, while SBH has always underperformed

the GM. SBI has highest mean of 78.68% along with highest SD. In financial year 2009 banks has lowest

GM with highest GSD.

4.5 Ratio of Secured Advances to Total Advances

This ratio indicates the quality of advances by the bank, higher ratio indicates better quality.

Table No.5
Bank 2008 2009 2010 2011 2012 Mean SD
SBI 73.06 79.01 78.50 79.78 81.04 78.28 3.071394
SBBJ 82.64 80.02 79.20 85.71 85.84 82.68 3.09579
SBH 82.92 81.70 85.81 88.44 88.08 85.39 3.017863
SBM 86.43 89.08 87.80 89.97 86.51 87.96 1.561601
SBP 91.42 93.04 96.73 97.29 95.15 94.73 2.478499
SBT 84.57 80.29 79.82 81.53 83.62 81.97 2.068775
G.M. 83.51 83.86 84.64 87.12 86.71
G.SD 6.0417 5.782 7.0434 6.331 4.8084
SBP is remarkably leading GM in this ratio with Mean of 94.73%; surprisingly SBI is consistently lagging

in GM with Mean of 78.24% with higher SD. GSD is highest in year 2011 because of SBP.

4.6 Return on Equity

This is one of most favorite ratios of investors’ and analyst community. This is ratio of net income

to equity, reserve and surplus.

Table No.6
Bank 2008 2009 2010 2011 2012 Mean SD
SBI 16.75 17.05 14.80 12.62 15.72 15.39 1.785474
SBBJ 18.71 21.46 20.39 20.91 18.59 20.01 1.3005
SBH 21.28 20.87 22.02 24.35 21.98 22.10 1.348983
SBM 25.31 18.47 18.06 15.77 9.62 17.45 5.643305
SBP 15.92 18.20 16.01 16.65 17.95 16.95 1.070223
SBT 23.28 30.64 26.88 23.09 13.93 23.56 6.207713
G.M. 20.21 21.11 19.69 18.90 16.30
G.SD 3.7196 4.9576 4.421 4.5956 4.2616
In case of Return on Equity (ROE), most of the time SBH is outperforming GM. SBT was leading till 2011

but in 2012 its ROE has drastically fallen down to 13.93%. SBI has always underperformed GM with

lowest mean 15.39%.

4.7 Return on Assets

This is the ratio of Net Profit to Total Assets of the bank. This ratio helps to measure efficiency of

the capital employed.

Table No.7
Bank 2008 2009 2010 2011 2012 Mean SD
SBI 9.34 9.68 8.62 8.64 7.88 8.83 0.699979
SBBJ 10.14 10.89 9.59 9.88 7.72 9.64 1.177222
SBH 9.83 10.57 9.73 10.01 7.85 9.60 1.028804
SBM 10.16 10.84 10.00 10.07 7.23 9.66 1.399875
SBP 10.20 11.25 10.25 10.32 7.60 9.92 1.368132
 SBT 9.84 10.43 9.47 9.53 6.83 9.22 1.38947
G.M. 9.92 10.61 9.61 9.74 7.52
G.SD 0.3253 0.5372 0.5615 0.5986 0.4111
SBP is has highest mean of return on assets, it also outperformed GM. SBM has highest SD, year 2011 has

highest GSD.

4.8 Business per Employee

This ratio measures the efficiency and productivity of manpower that bank has. Higher ratio

indicates better productivity of manpower.

Table No.8 (Rs. Lakh)

Bank 2008 2009 2010 2011 2012 Mean SD
SBI 456.00 556.00 636.00 704.65 798.42 630.21 132.0281
SBBJ 445.45 555.39 628.00 751.00 827.00 641.37 152.0141
SBH 599.08 839.82 755.62 1037.68 1168.68 880.18 225.9424
SBM 495.00 602.00 672.00 795.00 881.00 689.00 152.9657
SBP 759.82 910.24 895.21 956.30 1055.74 915.46 107.2468
SBT 558.65 657.75 696.00 888.00 1066.00 773.28 202.6272
G.M. 552.33 686.87 713.81 855.44 966.14
G.SD 117.7 152.15 100.14 127.86 150.84
SBP has highest Mean with lowest SD indicates stability and superiority in business per employee. SBI has

always underperformed GM that too with lowest mean. GSD is highest in year 2009.

4.9 Profit per Employee

This is a ratio is calculated by diving profit after tax with total number of employees. Higher ratio

indicates higher efficiency of management.

Table No.9 (Rs. Lakh)

Bank 2008 2009 2010 2011 2012 Mean SD
SBI 3.73 4.74 4.46 3.85 5.31 4.42 0.65136
SBBJ 2.73 3.55 4.00 5.00 5.00 4.06 0.974644
SBH 4.35 4.87 5.58 7.89 8.63 6.26 1.891846
SBM 3.28 3.48 4.41 5.00 4.00 4.03 0.698412
SBP 3.70 4.68 4.45 5.20 5.87 4.78 0.81391
 SBT 3.40 5.36 6.00 8.00 4.20 5.39 1.772095
G.M. 3.53 4.45 4.82 5.82 5.50
G.SD 0.5405 0.7606 0.7845 1.7116 1.6828
SBH profit per employee is growing year on year basis with highest mean and SD. SBM has always

underperformed GM. GSD is highest in year 2011 because of SBI and SBT.

4.10 Ratio of Operating Profit to Total Assets

Operating Profit calculated by subtracting operating expenses from operating income. Ratio is

obtained simply by diving operating profit with total assets.

Table No.10
Bank 2008 2009 2010 2011 2012 Mean SD
SBI 2.04 2.13 1.82 2.23 2.47 2.14 0.240065
SBBJ 1.75 2.04 1.80 1.95 2.20 1.95 0.183052
SBH 1.79 1.88 2.08 2.38 2.36 2.10 0.268579
SBM 1.89 1.78 2.18 2.41 1.88 2.03 0.260651
SBP 1.46 1.50 1.80 2.24 1.96 1.79 0.324947
SBT 1.73 2.26 1.79 1.80 1.59 1.83 0.253477
G.M. 1.78 1.93 1.91 2.17 2.08
G.SD 0.1908 0.2726 0.1723 0.2431 0.3284
SBI and SBH has outperformed GM frequently, while SBI highest operating profit to total asset ratio with

mean of 2.14, SBP has lowest operating profit to total assets ratio with mean of 1.79 with highest SD. GSD

is lowest in year 2010.

4.11 Ratio of Net Interest Income to Total Assets

Net interest income is difference between interest earned and interest expended (NIM). Higher ratio

of NIM to total asset indicates better earning.

Table No.11
Bank 2008 2009 2010 2011 2012 Mean SD
SBI 2.64 2.48 2.35 2.86 3.38 2.74 0.404708
SBBJ 2.48 2.52 2.41 3.02 3.28 2.74 0.385126
SBH 2.01 2.12 2.26 2.92 2.99 2.46 0.460755
 SBM 2.54 2.28 2.88 3.36 2.82 2.78 0.404387
SBP 1.67 1.75 2.11 2.97 2.61 2.22 0.558052
SBT 2.34 2.75 2.57 2.60 2.33 2.52 0.180229
G.M. 2.28 2.32 2.43 2.96 2.90
G.SD 0.3709 0.3497 0.2684 0.2469 0.3996
SBM has highest mean of NIM to Total Assets ratio followed by SBI and SBBJ with mean of 2.74. GM is

lowest in year 2008 and 2009 with relative high GSD.

4.12 Ratio of Net NPA to Net Advances

NPA stands for non performing assets. Net NPA to Net Advances signifies the quality of the assets.

Higher NPA erodes profitability of bank. Bank has to be cautious at the time of lending in order to tame the

NPAs.

Table No.12
Bank 2008 2009 2010 2011 2012 Mean SD
SBI 1.78 1.76 1.72 1.63 1.82 1.74 0.07225
SBBJ 0.83 0.85 0.78 0.83 1.92 1.04 0.491498
SBH 0.16 0.38 0.55 0.87 1.30 0.65 0.4455
SBM 0.43 0.50 1.02 1.38 1.93 1.05 0.626714
SBP 0.60 0.60 1.04 1.21 1.35 0.96 0.346482
SBT 0.94 0.58 0.91 0.98 1.54 0.99 0.346266
G.M. 0.79 0.78 1.00 1.15 1.64
G.SD 0.5598 0.5052 0.3948 0.3152 0.2844
SBH has managed to maintain lowest mean of 0.65 Net NPA to Net Advances and has underperformed

GM. SBI has highest mean of 1.74 with highest SD. GM is highest in year 2012 with lowest GSD indicates

across board increase in NPA.

4. Conclusion
Financial Analysis of State Bank of India and Its Associates has highlighted that all banks have

maintained capital adequacy above the regulatory requirement of 9%, this indicates that banks are gearing

up for Basel III norms (which RBI has planned to implement between Financial Year 2013 to 2017). Group
Mean of investment-deposit ratio for financial year 2009 has been highest; the possible reason is that, due

to global financial crises banks become conservative and parked their money in investment rather than

lending it out. Higher cash-deposit ratio indicates good liquidity position but it reduces the level of returns.

SSBJ should reduce cash-deposit ratio, it can park money in investment if it is skeptical about the lending

as sitting on excessive cash erodes the value. Higher level of credit-deposit ratio signifies efficiency of

management, in financial year 2009 efficiency of management for banks as whole has gone down. Ratio of

secured advances to total advances indicates quality of lending; SBI should look forward for secured

advances as it is lagging in this regard throughout the study period. All banks has higher secured advances

to total advances except SBI, which explains that SBI seems to be aggressive in lending which is again

very much visible from higher Credit-Deposit ratio of SBI. Possible reason for this aggression of SBI could

be competition intensified by private sector banks. As SBI has lowest Return on Asset and lowest Return

on Equity, it is suggested that lending quality and lending policy of SBI should be revisited. Return on

equity for SBM has shown negative trend for entire study period which is alarming sign for investors’ and

analysts’. SBM should take serious measures to improve return on equity. SBI has low profit per employee

and lowest business per employee; possible reasons for this could be higher base of employees and

intensive presence in rural area and broader objective of financial inclusion. SBP need to improve on

operating profit. Net NPA to Net Advances has significantly increased for SBI as well as all its associates

in the year 2012 which is worrying sign for banks as whole; increase in NPA across the board indicates

tough time for economy. All the banks should be cautious in this regard.
References

Khatik and Singh (2005), Financial Appraisal of IDBI Bank Limited, Finance India,Vol. XIX No.3,
September 2005, pg.969-982.
Singh and Kohli (2006), Evaluation of Private Sector Banks in India: A SWOT Analysis, Journal of
Management Research, Vol. 6, No.2, August 2006, pg.84-101.
Sangmi and Nazir (2010), Analyzing Financial Performance of Commercial Banks in India: Application of
CAMEL Model, Pak. J. Commer. Soc. Sci., 2010 Vol. 4(1), 40-55.
Reserve Bank of India, ‘Trend and Progress of Banking in India 2011’.

Mishra and Aspal (2012), A CAMEL Model Analysis of State Bank Group, electronic copy available at:
http://ssm.com/abstract=2177081.