JAC : A JOURNAL OF COMPOSITION THEORY ISSN : 0731-6755

Financial performance Analysis of IndusInd and City Union Bank in using Camel Model

Kiran S.Prajapati Research Scholar, Department of Commerce and Management, K.S.K.V. Kachchh University, Bhuj, Gujarat

ABSTRACT

Banking sector is one of the fasted growing sectors in India. Today’s banking sector becoming more complex. In 2016; roughly, the Contribution of the banking sector to GDP is about 7.7% of GDP. Banking sector has generated employment in the economy for about 1.5 million people. To evaluating Indian banking sector is not an easy task. There are so many factors, which need to be taken case while differentiating good bank from bad ones. To evaluate performance of banking sector we have chosen the CAMEL model which measures the performance of bank from each of the important parameter like capital adequacy, asset quality, management efficiency earning quality and liquidity.

KEYWORDS: Performance evaluation, CAMEL MODEL, Indusind bank and City Union bank.

INTRODUCTION

In India the economic growth of Indian economy flourished with the introductionof the era of LPG (generally known as liberalization , privatization and globalization ) , " Financial sectorin general and banking sector in particular is one of the vital ingredients for the economic development of the country . Aresilient and vibrant banking system is very crucial for sound and accelerated economic growth.” For this reason it can be said that the growth of the economy depend on financial soundness of banking sector , Supervision of banking unit can help to make than financially sound . In today's scenario, the banking sector is one of the fastest growing sectors anda lot of funds areinvested in . Also today's banking system is becoming more complex. In this Assignment we are evaluating the performance of the bank. We have taken two different private banks that named Indusind bank and City union bank. The study is based on secondary data drawn from the annual reports of five years from 2012 to 2016, of all these banks for the comparison. We are applying, the CAMELModel evaluate the performance of the banks, from all the important parameter like Capital Adequacy, Assets Quality, Management Efficiency, Earning Quality and Liquidity. CAMELFramework Supervisory framework of SBP, consistent with international norms, covers risk-monitoring factors forevaluating the performance of banks. Specifically, CAMELS frameworkisin place since end December 1997 for on-site and off-site surveillance. Bank supervisory authorities assign each bank a score on a scale of one (best) to five (worst) for each factor. Ifabank has an average scoreless than two it is considered to be a high-quality institution, while banks with scores greater than three are considered to be less-than-

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satisfactory establishments.The systemhelps the supervisory authority identify banks that are in need of attention.

PURPOSE OF RESEARCH

To study the financial performance of private sector banks, named Indusind bank and City Union bank.

OBJECTIVES OF THESTUDY

 To analyses the Capital Adequacy of Indusind bank and CUB.  Toanalyses the AssetsQuality of Indusind bank and CUB.  To analyses the Management Efficiency of Indusind bank and CUB.  To analyses the Earning capacity of Indusind bank and CUB.  To analyses theLiquidity of Indusind bank and CUB.

About the Banks:

Indusind Banks

The bank began its operations on 17thApril 1994 under thechairmanship of S.P.Hinduja with the primary objective of serving the NRI Community.Indusind bank Limitedis aMumbai based Indian new generation bank, established in 1994.The bank offers commercial, transactional andelectronic banking products and Indusind Bank was Inaugurated in April 1994 by than Union finance Minister Manmohan singh. Indusind Bankis the first among the new - generation private banks in India.

The bank started in operations witha capital amount orRation among which Rs. 600 millionwas raised by the Indian Residents and Rs. 400million was raised bythe Non-Resident Indians. The bank has specialized in services and continuously upgrades its support system by introducing newer technologies. It is also workingonexpanding its networkof branches all across the country along with meeting the global benchmark. According to the bank, its name is derived from the Indus Valley Civilization.

CITY UNION BANK:

The City Union Bank Limited is an . The Bank Limited, as it was at first called, was incorporatedasalimited companyon 31 October 1904. The bankinitially preferred the role ofaregional bankin the district of . The bank also provides a gamut of technological services like net banking, mobile banking, self-service kiosks, Bulk Note Acceptors and Point of Sales etc. o cater tothe needs of customers for many differentwalksof life, and the banks also have a wide offeringof savings and deposit products to meet the demand of various customers. It also offers many loan products to service the financial needs of small individual customers to large industries.

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SCOPEOF THE STUDY

The scope of the study is limited asit covers two private banks namedIndusind bankand CUB. To check the financial position of this bank the data of 5 years the co - operative year 2012 to 2016 are considered.

RESEARCH METHODOLOGY

The study is descriptive in nature and it is based on secondary data drawn from the annual reports of the SPCB. For the purpose of analysis, the evaluation is done by using CAMEL parameters, the latest model for financial analysis of banks. For applying this model, five main dimensions of the performance (Capital adequacy, Assets quality, Management capability, Earning capacity and Liquidity) are assessed using ratio analysis. For that purpose the financial ratios are divided into five main categories.

CAPITAL ADEQUACY – C

Capital base of financial institutions facilitates depositors in forming their risk perception about the institution. Also, it is the key parameter for financial managers to maintain adequate level of capitalization. Moreover, besides absorbing unanticipated shocks, itsignals that the institution will continue to honors its obligations. The most widely used indicator of capital adequacyiscapital to riskweighted assets ratio (CRWA). According to Bank Supervision Regulation Committee (The Basle Committee) of Bank for International settlements, a minimum percent CRWA is required. Capital adequacyultimately determines howwell financial institutions can cope with shocks to their balance sheets. Thus, it is useful to track capital-adequacy ratios that take into account the most important financial risks - foreign exchange, credit, and interestraterisks-by assigning risk weightings to the institution’s assets. Asound capital base strengthens confidence of depositor. Thisratio is used to protect depositors and promote the stability and efficiency of financial systems around the world.

INDUSIND BANK Table 1 CAPITAL ADEQUACY Ratio/Years 2012 2013 2014 2015 2016 Mean STDEV

CAR (%) 15.03 13.83 12.09 15.5 15.31 14.352 1.421661 D/E(Times) 1.61 1.63 1.94 1.25 1.09 1.504 0.33657094

Adv/Ast 65.4 63.32 61.53 61.88 63.3 63.086 1.52731136 (%) G-Sec/Inv 70.61 71.33 78.27 80.95 85.69 77.37 6.42316122 (%)

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CITY UNION BANK Table 1 CAPITAL ADEQUACY Ratio/Years 2012 2013 2014 2015 2016 Mean STDEV

CAR (%) 16.22 15.01 16.52 15.58 15.83 15.832 0.58375509 D/E(Times) 0.42 0.15 0.06 0.22 0.15 0.2 0.13546217

Adv/Ast 69.74 64.4 64.46 66.21 67.57 66.476 2.25251637 (%) G-Sec/Inv 96.89 89.74 86.21 93.86 95.15 92.37 4.33709004 (%)

Table 1 clearly reveals that average CAR was far above the standard norms of 9.00% whichis appreciable. CARof Indusind bank was 14.35% and CUB 15.38%.Debt-Equity ratio was 1.504 of Indusind bank and 0.2 of CUB. The Total advances to Total Assets Ratio are a measure of a bank’s aggressiveness in leading. Government securities to Total Investments Ratio measure the amount of risk free Assets Invested by a Bank in government securities as a percentage of the total investments held by the bank. In Indusind Bank ratio increase from 71.33% in 2013 to 78.27% in 2014 as the amount of risk government securities increase considerably. In CUB 2014the ratio decreased to 86.21% from 89. 34% in 2013 in spite of the increment in the amount of government because of the amount of total investment.

ASSETS QUALITY – A

The term asset quality and its management determines to a great extent the growth and profitability of a firm. This is because the deteriorating value of assets directly also effects other areas because the loan losses are generally written off against capital. Apart from this it also hampers profitability as the provision is made to Gross NPAs. So at the end of the day quality of assets jeopardizes the earning capacities of the bank.

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INDUSIND BANK Table 2 Assets Quality Ratio/Years 2012 2013 2014 2015 2016 Mean STDEV

G.NPA 1.17 1.12 0.81 0.87 1.93 1.18 0.44698993 Ratio (%) N.NPA 0.31 0.33 0.31 0.36 0.39 0.34 0.03464102 Ratio (%) TI/TA (%) 22.6 24.78 20.47 21.84 20.55 22.048 1.77100819 N.NPA/TA 1.98 2.11 1.88 2.25 2.46 2.136 0.22831995

CITY UNION BANK Table 2 Assets Quality Ratio/Years 2012 2013 2014 2015 2016 Mean STDEV

G.NPA 1.7 1.81 1.86 2.41 2.83 2.122 0.48173644 Ratio (%) N.NPA 1.17 1.21 1.3 1.53 1.71 1.384 0.22952124 Ratio (%) TI/TA (%) 19.73 23.82 22.84 21.46 19.94 21.558 1.78390583 N.NPA/TA 7.73 7.89 8.35 10.16 11.58 9.182 1.63063485

Table 2 indicates that the Gross NPAs to NetAdvances ratio is ameasure of the quality of assets in a situation, where management has not provided for loss on NPAs. The averageratio ofINDUSIND BANK on 1.18% which is appreciable, and the average ratio of CUB is 2.12%. In CUB Net NPAs ratio reveals increasing trend throughout the study. Total Investment to total assetsratioisastandard measure to know the percentage of total assets locked up in investment. Standard deviation of total investment to total assets is1.77and 1.78 respectively. In a CUB net NPA to Total assets isreveals increasing trend.

MANAGEMENT – M

Management offinancial institution isgenerally evaluated in terms of capital adequacy, asset quality, earnings and profitability, liquidity and risk sensitivity ratings. In additional, performance evaluation includes compliance with set norms, ability to plan and react to changing circumstances technical competence, leadership and administrative ability. Sound management

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is one of the most important factors behind financial institutions performance. Indicatorsofqualityof management, however, are primarily applicable to individual institutions, and cannot be easily aggregated across the sector. Furthermore, given the qualitative nature of management, it is difficult to justify its soundness just by looking at financial accounts of the banks. Nevertheless total advance to total advance to total deposits, business per employee and profit per employee helps in gauging the management quality of the banking Institutions. Several indicators, however, can serve jointly serve–as, for instance, efficiency measures do – asan indicatorof management soundness.

INDUSIND BANK Table 3 Management Efficiency Ratio/Years 2012 2013 2014 2015 2016 Mean STDEV

Expen/Inc 83.63 86.12 85.35 84.93 84.56 84.918 0.92448364 (%) TA/TD (%) 94.22 91.07 92.79 95.07 89.34 92.498 2.32797552

BPE(Rs. 832.18 717.1 719.2 764.6 916.3 789.876 84.7097626 Crore) EPC(Rs. 8.19 9.03 9.38 9.92 11.33 9.57 1.16749732 Crore) CITY UNION BANK Table 3 Management Efficiency Ratio/Years 2012 2013 2014 2015 2016 Mean STDEV

Expen/Inc 87.91 87.72 87.62 86.62 86.25 87.224 0.73941193 (%) TA/TD (%) 72.98 73.11 74.62 77.53 79.14 75.476 2.74793195

BPE(Rs. 9.01 9.06 9.65 10.68 11.53 9.986 1.09413436 Crore) EPC(Rs. 0.06 0.08 0.09 0.1 0.11 0.088 0.01923538 Crore)

Table3clearly states that in INDUSIND Bank the average operating expenditure to operating income ratio was 84.92% which indicates that out of 100 Rs of operating income bank’s operating expenses is 84.92 Rs. and in CUB the average operatingexpendituretooperating income ratio was 87.22% whichindicates that out of 100Rs of operating income bank’s operating

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expenses is 87.22Rs. So CUB is more appreciable. Businessperemployeeratio indicatestheefficiency of bank in terms of doing business with lesser number of employees. The STDEV of BPE is 184.70and 1.09lacesrespectively. Earningper employee ratio indicates the average profit generated per person employed by a bank. Thisratio showed fluctuating trend throughout the study period.

EARNING QUALITY – E

This parameter lays importance on how a bank earns its profit. This quality of earning is very important decisive factor that determines the ability of a bank to earn consistently. It basically determines the profitability of the bank. It also explains the sustainability and growth in earning in the future.

INDUSIND BANK Table 4 Earning Quality Ratio/Years 2012 2013 2014 2015 2016 Mean STDEV

ROE (%) 16.48 17.48 18.59 16.78 15.26 16.918 1.23199838 ROA (%) 1.58 1.181 1.9 1.91 1.86 1.6862 0.31325261 Int. Income 9.1 10.59 10.27 9.67 9.35 9.796 0.62336185

Other 2.5 2.43 2.7 2.75 2.71 2.618 0.14307341 Income Pro. 70.47 70.35 62.61 58.58 58.39 64.08 6.01938535 Coverage Ratio (%)

CITY UNION BANK Table 4 Earning Quality Ratio/Years 2012 2013 2014 2015 2016 Mean STDEV

ROE (%) 15.37 16.91 15.6 16.67 15.26 15.962 0.77043494 ROA (%) 1.43 1.44 1.49 1.5 1.5 1.472 0.03420526 Int. Income 10.85 10.55 10.17 9.91 9.47 10.19 0.53907328

Other 1.25 1.25 1.52 1.38 1.44 1.368 0.11861703 Income

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Pro. 60.88 61.74 57.54 60.01 61 60.234 1.62633945 Coverage Ratio (%)

Table 4clearly reveals that Return on Equity Ratio is a profitability ratio for investors which measure the profitability of shareholders' investments. Return onequity ratio showed a fluctuating trend throughout the study period. In the Indusind bank theratioincreasedfrom 16.48 in 2012 to 17.48% in 2013, 17.48% in 2013 to 18.59% in 2014. Afterwards theratiosuddenlydecreased from 18.59% in 2014 to 16.78% in 2015. The ratio again dropped from 16.78% in 2015 to15.26% in 2016, the average return on equity ratio was 16.92%. In the CUB the ratio decreased from 16.91% in 2013 to 15.60% in 2014, the average return on equity ratiowas15.96. The Return on Assets Ratio is a key profitability ratio that measures bank efficiency in using its assets to generate net income. Return on assetsratioshowed fluctuating trend throughout the study period. In CUB ROAration reveals increasing trend throughout the study. Interestincometo total incomeratio indicates the ability of the bankin generating income from its lending. Asper the interest income to total income ratio CUB is more appreciable as compare to Indusind bank average provision interest ratio of Indusind bankis64.08% and theCUB is 60.23%.

LIQUIDITY - L

An adequate liquidity position refers to situation, where the institution can obtain sufficient fund, either by increasing liabilities or by converting itsassets to quickly ata reasonable costs. Itis therefore, generally assessed in terms of overallassets and liability management, as mismatching gives rise to liquidity risk. Efficient fund management refers toasituation whereaspread between rate sensitive assets (RSA) and ratesensitiveliabilities (RSL) ismaintained. The most commonly used tool to evaluate interestrate exposure is the Gap between RSA and RSLwhileliquidity is gauged by liquid to total assets ratio. Initially solvent financial institutionsmay bedriven toward closure by poor managementofshort-term liquidity.Indicators should cover funding sources and capture large maturity mismatches. The termliquidity is used in various ways,all relatingavailability of, access to, or convertibility into cash. An institution is said to haveliquidity if it can easily meet its needs for cash either because it has cash on hand or can otherwise raise or borrow cash.

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INDUSIND BANK Table 5 Earning Quality Ratio/Years 2012 2013 2014 2015 2016 Mean STDEV

LA/TA 0.86 0.11 0.68 0.9 1.58 0.826 0.52657383 G-Sec./TA 16.32 17.67 16.02 17.68 17.61 17.06 0.81978656

LA/DD 0.14 0.96 0.61 0.83 0.14 0.536 0.38253104 LA/TD 1.97 0.15 1.02 1.39 2.23 1.352 0.82299453 L.Coverage - 61.74 70.66 94.61 75.67 16.9980675 Ratio (%)

CITY UNION BANK Tables 5 Earning Quality Ratio/Years 2012- 2013- 2014- 2015- 2016- Mean STDEV 13 14 15 16 17 LA/TA - 1.1 1.07 1.32 1.16333333 0.13650397 G-Sec./TA 19.12 21.28 19.69 20.15 18.97 19.842 0.93105854

LA/DD - 18.31 17.75 19.33 18.4633333 0.8010826 LA/TD - 1.27 1.25 1.55 1.35666667 0.16772994 L.Coverage - 132 137.4 147 138.8 7.59736797 Ratio (%)

Table 5 indicates that Liquid Assets to Total Assets Ratio the overall liquidity of the unit by indicating the proportion of liquid assets in total assets. In Indusind bank the lowest ratio was found in the year 2013 being 0.11% as on one hand the amount of liquid assets decreased whereas on the other hand the amount of total assets increased. The highest liquid assets to total assets ratio was found in the year 2016 being 0-1.58% as in this was the only year in which the amount of liquid assets increased considerably. In CUB the lowest ratio was found in the year 2015 being 1.07% as on hand the amount of liquid assets decreased whereas on the other hand the amount of total assets increased, The highest liquid assets ratio was found in the year 2016 being 1.32% as in this was only year in which the amount of liquid assets increased considerably. Liquid assets to total deposit ratio measures the liquidity available to the depositors of the bank. This ratio also register fluctuating trend during entire study, there mean are 1.352 and 1.356 respectively. The government securities to total assets ratio measures the amount of risk free

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liquid assets invested by bank in government securities as a percentage of total assets held by the bank. Government securities to total assets ratio showed a fluctuating trend for the entire study period. The STDEV of G-Sec to total assets ratio of Indusind bank is 0.81 and CUB is 093.The average Liquidity coverage ratio of Indusind bank is 75.67% and CUB is 138.8%.

CONCLUSIONS

 The overall state capital adequacy of both banks was satisfactory in term of capital adequacy ratio. CUB’S G-sec to Total investment is higher than the Indusind Bank.  Gross NPA Ratio and Net NPA Ratio of Indusind bank are lower than the CUB. So that the Indusind banks is more appreciable.  Return on Equity and return on Assets of Indusind bank is more than the City Union Bank.

REFERENCES

 Annual Reportsof Indusind bank, Year 2012, 2013, 2014, 2015 and 2016  Annual Reportsof City Union Bank Year2012, 2013, 2014, 2015 and 2016  Personal Information andEvaluation  IOSR Journal of Business and Management (IOSR-JBM)  www.scribd.com/History.camel

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