AEGAEUM JOURNAL ISSN NO: 0776-3808

Comparative Study on Financial Performance analysis using CAMEL model with allusion to and Karur Vysya Bank – An Empirical Investigation

Dr.N.Rajesh Asst. Professor, Dept. of Commerce, Annai Vailankanni Arts and Science College, Thanjavur – 7, Affiliated to Bharathidasan University, Thiruchirappalli - 24

Abstract

Banking sector’s role is an inevitable one now a day; it became a part of our day to day life, particularly the 21 st century peoples using the bank as their panacea for all. implementing many users friendly internet based applications to keep their customers very close to them; from the home itself the customers can do their maximum of financial dealings by using internet based mobile applications. It helps to speed up their life style as well as life cycle, particularly the private sector banks doing many dramatic changes in their customer’s life. The present day peoples intentions is not only depositing their savings money and lending apart from them they want to invest their investments in the banks. This is the core reason to study the banks financial performance particularly the TamilNadu based private sector banks. This study helps to find the fiscal worthiness of the City Union Bank and KarurVysyaBank, the researcher taking only five years data for his research; he analyzed deposits schemes, capital adequacy, asset quality, management efficiency, earning capacity and liquidity position of the above said banks. The results help the investors and customers to take correct financial decisions in future. CAMEL approach helps to find the exact situations of the banks and it makes a clear path to the general public too. The above said banks are one of the oldest private sector banks in , this study will helpful to find the root causes of the every financial opportunities and threats.

Keywords: Capital Adequacy, asset quality, earning capacity, management efficiency and liquidity.

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1.1 Introduction

Banks financial statement is an outcome to expose their performance, the customers and the investors can trace the financial improvements of the particular bank, but they can’t get the exact information on a particular year. This is the main reason to concentrate the comparative study with another bank; this is the simple way to find the accurate worthiness of our favorite bank, here the researcher not only focusing deposits and lending also concentrate how the bank is invest their money with other avenues during the past five years.

1.2 Review of Literature

A.S. Sidhu (2020) Priority sectors form the foundation and base-structure of an economy. Providing adequate financial aid to these important sectors can lead to development of an economy in real terms. These sectors include Agriculture, Micro Small and Medium Enterprises, Housing, Education and other weaker sections of an economy. Reserve , since 1968 have specified separate targets and sub-targets for priority sector lending, falling short of which funds are transferred to Rural Infrastructure Development Fund (RIDF). The present study aims to analyse trends and performance patterns of priority sector lending at all India level and Punjab in particular from 2004-05 to 2017-18. Comparative analysis of public and private banks has been done in India and Punjab and impact of crisis period on priority sector lending is also studied sector-wise. Steady CAGRs and increasing growth rates indicate positive environment in banks with respect to lending. But lack of social intent in private banks need to be catered. Priority sector lending has manifold benefits to uplift an economy and therefore this study analyses the trends and performance, pin-point the problem areas and suggests some policy implications to improve the lending to priority sectors.

JonathanWilliams and NghiaNguyen (2005)examine the impact of changes in bank governance on bank performance for a sample of commercial banks operating in SE Asia between 1990 and 2003. We identify bank governance in terms of bank ownership and measure bank performance as rank order alternative profit efficiency, technical change, and productivity. The period was characterised by financial deregulation, the Asian crisis and bank restructuring programmes. To resolve financial distress, SE Asian authorities implemented inter alia bank privatisationprogrammes and widened access for foreign ownership. Our results tend to support bank privatisation and the repeal of state ownership on economic grounds. We suggest the potential benefits of foreign ownership may take longer to be realised. For domestic private-owned banks, the challenge is improving bank efficiency.

CheenuGoel (2013) Efficiency and profitability of the banking sector in India has assumed primal importance due to intense competition, greater customer demands and changing banking reforms. Since competition cannot be observed directly, various indirect measures in the form of simple indicators or complex models have been devised and used both in theory and in practice. This study attempts to measure the relative performance of Indian banks. For this study, we have used public sector banks and private sector banks. We know that in the service sector, it is difficult to quantify the output because it is intangible. Hence different proxy indicators are used for measuring productivity of banking sector. Segmentation of the banking sector in India was done on bank assets size. Overall, the analysis supports the conclusion that new banks are more efficient that old ones. The public sector banks are not as profitable as other sectors are. It means that efficiency and profitability are interrelated. The key to increase performance depends upon ROA, ROE and NIM.

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1.3 Research Methodology

Research methodology provides a strategic framework and also shows a clear path to find the accurate solutions and findings to a particular research. It makes a design and outlook of the entire research; it shows a clear procedures and strategic technique to the researcher. In this research the researcher find the various facts and figures to measure the validity of the financial data used. Comparative and ratio analysis gives the tendency of the banks and corporate financial soundness.

1.3.2 Objective of the study

a. To analyze the banks financial performance by using CAMEL model

b. To understand the capital adequacy position of the banks

c. To find the financial soundness of the selected private banks

d. To understand the management efficiency of the banks during the last five years

1.3.3 Scope for further research

The study leaves major opportunities to the future researcher and financial analysts, here the researcher chosen only two old private sector banks for the study. The present study will help to find the facts and figures of the financial performance of the private sector banks, the present study will give more dimensions to the future researcher capital adequacy, asset quality, management efficiency, earning capacity and liquidity positions are needed to study further.

1.3.4 Data Collection

This research is purely based on secondary data, all the data have been analyzed with ration, most of the data has been collected from the bank’s annual reports, websites and books etc., these reports have been made up by the certified accountant of the banks, they may analyze very carefully and examined in a particular manner, not only the banks interest these reports are useful to the investors and customerswelfare, the secondary data sometimes may not give exact results, because the concern personnel may favor to the particular bank.

1.3.5 Tools used

The researcher has applies only financial tools like ratio analysis, ratios always helps to find the accurate financial result of the banks and corporates during the year.

1.3.6 Limitations • Only TamilNadu based private sector banks have been taken for the research • The researcher chosen last five fiscal years for the study • Only two private banks have been taken for the research.

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1.4 Data Analysis and Interpretations

Table 4.1 Debt Equity Ratio ( Rs in Cr)

City Union Bank KarurVysya Bank Debt Equity S.No Fiscal Year Total Shareholders’ Total Shareholders’ Ratio Liabilities Equity Liabilities Equity (CUB) (KVB) 1 2018-2019 45259 734 69340 160 61.6 43.3 2 2017-2018 39937 664 66929 145 60.1 46.1

3 2016-2017 35271 601 61807 122 58.6 50.6 4 2015-2016 31252 598 58985 122 52.2 48.3 5 2014-2015 27871 596 53152 122 46.7 43.5

Table 4.2 Advances to Assets Ratio ( Rs in Cr)

Advances to Assets City Union Bank KarurVysya Bank Ratio S.No Fiscal Year

Advances Assets Advances Assets (CUB) (KVB)

1 2018-2019 33065 45259 50615 69340 0.73 0.73 2 2017-2018 28239 39937 45973 66941 0.71 0.68 3 2016-2017 24112 35271 41434 61808 0.68 0.67 4 2015-2016 21253 31804 39475 58985 0.66 0.67 5 2014-2015 18089 27871 36690 53152 0.65 0.69

Table 4.3 Net Non-Performing Assets to Total Assets Ratio ( Rs in Cr)

Net Non-Performing City Union Bank KarurVysya Bank Assets Ratio S.No Fiscal Year Net Non- Net Non- Total Total Performing Performing (CUB) (KVB) Assets Assets Assets Assets 1 2018-2019 591.46 45259 2420 69340 0.013 0.034 2 2017-2018 474.78 39937 1862 66941 0.011 0.027 3 2016-2017 39.05 35271 1033 61808 0.001 0.016 4 2015-2016 323.15 31804 216 58985 0.01 0.003 5 2014-2015 232.79 27871 281 53152 0.008 0.005

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Table 4.4Total Investments to Total Assets Ratio ( Rs in Cr)

Total Investments City Union Bank KarurVysya Bank to Total Assets S.No Fiscal Year Ratio Total Total Total Total (CUB) (KVB) Investments Assets Investments Assets 1 2018-2019 7863 45259 14882 69340 0.173 0.214 2 2017-2018 7031 39937 15803 66941 0.176 0.236 3 2016-2017 7082 35271 14857 61808 0.201 0.24 4 2015-2016 6826 31804 14443 58985 0.215 0.244 5 2014-2015 6365 27871 12375 53152 0.228 0.232

Table 4.5 Total Advances to Total Deposits Ratio ( Rs in Cr)

Total Advances City Union Bank KarurVysya Bank to Total Deposits Ratio S.No Fiscal Year Total Total Total Total (CUB) (KVB) Advances Deposits Advances Deposits

1 2018-2019 33065 38448 50615 59868 0.859 0.845 2 2017-2018 28239 32853 45973 56890 0.859 0.808 3 2016-2017 24112 30116 41434 53700 0.801 0.771 4 2015-2016 21253 27158 39475 50078 0.782 0.788 5 2014-2015 18089 24075 36690 44690 0.751 0.82

Table 4.6 Profit per Employee Ratio ( Rs in Cr)

Profit per City Union Bank KarurVysya Bank Employee Ratio S.No Fiscal Year Number of Number of Total Profit Total Profit (CUB) (KVB) Employees Employees 1 2018-2019 720 5518 265.1 7663 0.13 0.03 2 2017-2018 625 5319 539 7956 0.11 0.06 3 2016-2017 510 4689 608 7400 0.11 0.08 4 2015-2016 452 4517 569 7211 0.1 0.07 5 2014-2015 402 4365 495 7197 0.09 0.06

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Table 4.7 Net Profit to Average Assets Ratio

Net profit to City Union Bank KarurVysya Bank Average S.No Fiscal Year AssetsRatio Average Average Net Profit Net Profit (CUB) (KVB) Assets Assets 1 2018-2019 683 42598 211 68141 0.016 3.09 2 2017-2018 592 37604 346 64375 0.015 5.37 3 2016-2017 503 33537 606 60397 0.015 0.01 4 2015-2016 444 29838 568 56069 0.014 0.01 5 2014-2015 395 26433 464 52348 0.014 8.86

Table 4.8Liquid Assets to Demand Deposits Ratio

Liquid assets to City Union Bank KarurVysya Bank demand deposits S.No Fiscal Year Ratio Demand Demand Liquid Assets Liquid Assets (CUB) (KVB) Deposits Deposits 1 2018-2019 6304 3214 11147 5814 1.96 1.19 2 2017-2018 4663 2786 9272 5576 1.67 1.66 3 2016-2017 4657 2409 8796 4920 1.93 1.78 4 2015-2016 3406 1919 6903 4027 1.77 1.17 5 2014-2015 3053 1668 4596 3528 1.83 1.31

CUB KVB Total Liabilities Shareholders’ Total Liabilities Shareholders’ Equity Equity Minimum Value 27871 596 53152 122 Maximum Value 45259 734 69340 160 Mean Value 35.918 63.8 62 13.4 CUB KVB Advances Assets Advances Assets Minimum Value 18089 27871 36690 53152 Maximum Value 33065 45259 50615 69340 Mean Value 24.9 36 42.8 62 CUB KVB Net Non- Total Assets Net Non-Performing Total Assets Performing Assets Assets Minimum Value 232.79 27871 281 53152 Maximum Value 591.46 45259 2420 69340 Mean Value 33.2 36.02 11.62 62.04

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CUB KVB Total Investments Total Assets Total Investments Total Assets Minimum Value 6365 27871 12375 53152 Maximum Value 7863 45259 15803 69340 Mean Value 70.33 36.8 14.4 62.04 CUB KVB Total Advances Total Deposits Total Advances Total Deposits Minimum Value 18089 24075 36690 44690 Maximum Value 33065 38448 50615 59868 Mean Value 24.95 30.53 42.83 53.04 CUB KVB Total Profit Number of Total Profit Number of Employees Employees Minimum Value 402 4365 495 7197 Maximum Value 720 5518 608 7956 Mean Value 54 48 49 74 CUB KVB Net Profit Average Assets Net Profit Average Assets Minimum Value 395 26433 211 52348 Maximum Value 683 42598 606 68141 Mean Value 52.3 34 43.9 60.2 CUB KVB Liquid Assets Demand Deposits Liquid Assets Demand Deposits Minimum Value 3053 1668 4596 3528 Maximum Value 6304 3214 11147 5814 Mean Value 44 239 814 477

5. Findings, Suggestions and Conclusions

5.1Findings

1. The debt equity ratio indicates that the level of leverage of the banks, the debt equity ratio of the CUB is better than the KVB the city union bank is maintaining a good debt policy since 1904; it shows that they maintaining their reputation among the people and investors. Their maximum debt ratio is 61.6 during 2018-2019; it seems that the city union bank is having a good reputation among the investors and general public. The KVB is also moderate position in the aspects of debt equity ratio, their share value is slope but they maintain debt in a formulated basis. Their maximum level of debt ratio is 50.6.during 2016-2017.Here both the bank is strictlyfollowed the Basel committee reports and recommendations to keep their equity share holder fund in an equal range. 2. The throughout the years of the city union bank has registered a positive ratios from 0.65 to 0.73 it seems that the growth of advances given by the banks if growing basically the advances is higher responsible to the higher profits, the karurvysya bank also showing a good advances

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to assets ratio consecutively from 0.69 to 0.73 here compare with the CUB KVB is having a good advances ratio position it means the kvb is having a good profitable position during the study period. 3. The net non-performing assets to total assets ratio indicates that the efficiency of the bank in assessing the lending risk and debt recovering condition basically the Net NPA are measured as a percentage of the banks total assets. The cub is having very lower risk of NPA and debt recovering the higher ratio is seen in the year 2018-2019 the lower ratio is seen in the year 2015-2016 & 2016-2017. the kvb is having some little higher percentage of net NPA to total assets, in the year 2018-2019 the banks is keeping high ratio is seen 0.034 and the lower one is 0.005 in the year 2014-2015. Their NPA and debt recovery is satisfactory but they lose their condition in the last fiscal year. 4. The total investment to total assets is basically the deployment of funds in investment, basically the investment is not the core aim of the banks, if they invest their money in investment it may spoil their reputation among the public, they may locked their entire income in the investments in future, the above table 4.4 inferred that the kvb is hating a high investment ratio, they invest their money in a reputed companies investmentscompare with the kvb the cub is not moderate but during the study period some of the years like 2016-2017 their investment is more. The higher ratio indicates that the banks are having an option to avoid NPA by using their investment revenues. 5. The bank’s core aim to be to convert their deposits in to advances, the higher ratio shows that the higher ability of the banks management conversion in to loans it seems higher profit interest. The above table no 4.5 inferred that the cub and kvb both the banks having a good methodology to convert their deposits to advances during the year 2017-18 and 2018-2019 cub is having a good ratio of 0.589 the kvb is also keep their reach during the year 2018-2019 and 2017-2018. The prime aim of the cub is depends the advances; the kvb is having straight line of advances during 2015-2017.

5.2 Suggestions

1. The analysis of the debt to equity ratio of city union bank during the year 2014-15, 2015-16, 2016-17 is very moderate they must concentrate and enable the healthiness among the investors and depositors. The kvb’s debt ratio is better in the year 2018 - 2019. Both the bank should keep a strong debt policy in the upcoming fiscal years. 2. The main income the banks are advances, the higher ratio of advances to assets indicates the lower pressure against the non-performing assets, the during the study period 2014-2015 the city union bank is having very low percentage of convert their deposits in to advances, the karurvysya bank is also attempt the same level in the year 2015-2016. They try to main aggressiveness on lending. 3. The city union bank is having higher level of NPA to total assets during the year 2018- 2019 the total value of the loans should working and not to become a non performing, the KVB has invest their advances in risk weighted assets during the year 2017-18 and

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2018-19. Both the banks must concentrate to reduce their NPA position in the future financial year; it helps to raise the higher return inadvances. 4. Basically the return on investments is profitable always it is expected too, likewise the total investment to total assets. During the study period kvb is having high ratio position during the year 2014-2015 to 2018-2019; the bank is having a strong position in the return on investment, the cub’s investment return against the total assets in sloping trend after the 2016-2017. They bank should must concentrate to get maximum return on investment

5.3 Conclusion

The financial performance analysis is a vital one to the banking sector, they want to recheck and test their financial soundness and worthiness of the business, they adopt different factors to test their financial statement, and in this research the researcher has examined the city union bank and karur vysya bank’s financial statement (last five years) to find the entire capacity. Both the banks need to pay attention on non-performing assetsand strengthening of liquidity position in future. Both the bank must implement the guidelines given for regulating the non- performing assets strictly. The CAMEL approach has been implemented in this study to conduct the comparativeworthiness of the banks; debt to shareholders ratio and advances to assets ratio shows a good condition of the above banks, both the banks having a growth trend in liquid assets to demand deposits and netprofit to totalassets position. This study mainly useful to the investors and customers to take right decision in future, it helps to forecast their financial oriented decisions well in advance. The findings and suggestions are purely based on the ratio results, the outcomes is based on the annual reports of the both the banks. This study will give appropriate guidelines to the future investors and researchers.

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