CHAPTER I
INTRODUCTION
1.1 BACKGROUND
The
banking sector is one of the most important instrument of the national
development, occupies a unique place in a nation’s economy. Economic
development of the country is evident through the soundness of the banking
system. deregulation in the financial market, market liberalization, economic
reforms have witnessed important changes in banking industry leading to
incredible competitiveness and technological sophistication leading to a new
era of in banking. Since then, every bank is relentless in their endeavor to
become financial strong and operationally efficient and effective. Indian banks
are the dominant financial intermediaries in India and have made good progress
during the global financial crisis; it is evident from its annual credit growth
and profitability. the growth is possible in two ways, organic or inorganic.
Organic growth is also referred as internal growth, occurs when the company
grows from its own business activity using funds from one year to expand the
company the following year. Such growth is a gradual process spread over a few
years but firms want to grow faster. Inorganic growth is referred as external
growth and considered as a faster way to grow which is most preferred Inorganic
growth occurs when the company grows by merger or acquisition of another
business. The main motive behind the Merger is to create synergy, that is one
plus one is more than two and this rationale beguile the companies for merger
at tough times. Merger and Acquisitions help the companies in getting the benefits
of greater market share and cost efficiency. For expanding the operations and
cutting costs, Banks are using Merger and Acquisitions as a strategy for
achieving larger size, increased market share, faster growth, and synergy for
becoming more competitive through economies of scale. Today a large section of
people, who have minimal financial literacy, are need to know the financial
performance status of the banks where their deposits are vested. They may be as
an investor, manager, employee, owner, lender, customer, government and public
at large. Financial performance is not available from the records and files in
any organisation. It has to be derived by the usage of financial statement
analysis techniques. The selection and usage of technique is subject to the
option of the user. Some of the important and commonly used techniques are:
Ratio Analysis, Cross section analysis Comparative statement analysis, Time
series analysis, Common size analysis. The usefulness of ratios depends on
skilful interpretation and intelligence of the user. The present study is
devoted to analysis the financial ratios of Axis Bank by using ratio analysis
with a view to give meaningful interpretations for the users Financial Ratios
are used in the evaluation of the financial condition and profitability of a
company. The ratios are calculated from the financial information provided in
the balance sheet and income statements. While analyzing the financial
statements you should keep in mind the principles/practices that accountants
use in preparing statements to examine at the financial condition and
preference of a company. Ratio Analysis is one of the techniques of financial
analysis where ratios are used to evaluating the financial condition and
performance of a firm. Analysis and interpretation of various accounting ratios
gives a skilled and experienced analyst a better understanding of the financial
condition and performance of the firm.
1.2 PROBLEM STATEMENT
Generally banking
System is the backbone of every country’s economy. It is generally agreed that
a strong and healthy banking system is a prerequisite for sustainable economic
growth The banking system of India is featured by a large network of banks,
serving many kinds of financial needs of the people The Axis Bank popularly is
one of the leading banks in India with number of branches and variety of products. the investigation in this study is the financial performance
of the bank. The study will mainly explore the financial tools to measure and
interpret a performance. The main objective of any company is the creation of
wealth for its stakeholders although this mostly applies market facts This
means that progress needs to be measured to show the bank return in total by
highlighting the major strengths and opportunities of the bank and on the other
hand, weaknesses and threats facing the bank. also An analysis indicates the
level of efficiency, liquidity, debt management and adequate cash flow. No
research is completed until it has formulated a specific problem. The problem
of the study is to analyze the financial status of Axis Bank
1.3 OBJECTIVE OF THE STUDY
§ To
know the liquidity position and solvency
§ To
study the profitability of axis bank
§ To
find financial performance and efficiency use of capital employed
1.4 SCOPE OF THE STUDY
The
current study choose one private sector bank to evaluate the financial
performance The main scope of the study was to put into practical the aspect of
the study into real life work experience. The study applies Ratio analysis based
on last 5 years Annual financial reports of axis bank in India
1.5 SIGNIFICANCE OF THE STUDY
Government
regulation, in most of the countries shielded the banks from the forces of
competition. India is no exception for this. With the nationalization of the
most of the major commercial banks in 1969, restrictions on entry and expansion
of private and foreign banks were gradually increased. The Reserve Bank of
India also began enforcing uniform interest rates, spreads and service changes
among nationalized banks. This cause of lack free market competition either
among public and private banks. gradually the force of competition from the
banking sector is still remain. In addition some areas of concern in the form
of increasing non-performing assets, declining profitability and efficiency,
which were threatening the viability of commercial banks. Commercial banks have
played a vital role in giving direction to economic development by catering the
financial requirement of trade and industry in the country. By encouraging
saving among the people, commercial banks have fastened the process of capital
formation. Banks draw the community savings into the organized sector which can
then be allotted among the different economic activities according to the
priorities laid down by planning authorities in the country. ‘The banks are not
only the safe deposit vaults for these savings, but taking the banking system
as a whole, they also create deposits in the process of their lending
operations. However, the important function of a banker is the provision of
convenient machinery by which people can make payments to each other without
having to walk round each other’s house with bags of coins. Banks also exercise
influence on the level of economic activities through the creation of
manufacturing of money. Through their lending policies, they divert the
economic activity to the needs of the country. In view of this, the role of
commercial banks in underdeveloped countries and planned economies like India
becomes particularly important. the present study seeks to examine the trends
in the financial performances of one of the leading banking sector of the
country (Axis Bank)
1.6 LIMITATION OF THE STUDY
Due to constraints
of time and resources, the study is likely to suffer from certain limitations.
Some of these are mentioned here under so that the findings of the study may be
understood in a proper perspective. The limitations of the study are:
·
The study is based on the secondary data and the
limitation of using secondary data may affect the results.
·
The secondary data was taken from the five years
annual reports of the Axis Bank. It may be possible that the data shown in the
annual reports may be limited period of time
which does not effectively show
the actual fluctuation of the bank profitability.
Financial
analysis is mainly done to compare the growth, profitability and financial
soundness of bank by diagnosing the information contained in the financial
statements. Financial ratio analysis is done to identify the financial
strengths and weaknesses of the bank by properly establishing relationship
between the items of Balance Sheet and Profit & Loss Account for period of
five years. It helps in better understanding of bank financial position, growth
and performance by analyzing the financial statements with various tools and
evaluating the relationship between various elements of financial statements
1.7 RESEARCH DESIGN
In the present
descriptive study is employed. an attempt has been made to measure, evaluate
and compare the financial performance of the Bank. the analysis partitioned two side aspect of stakeholders. the shareholders wealth and
other external stakeholders. The study is based on secondary data that has been
collected from annual reports of the
bank website, magazines, journals, documents and other published
information. The study covers the period of 5 years from year 2010-11 to year
2014-15. Ratio Analysis was applied to analyze and compare the trends in
banking business and financial performance.
1.8 STATISTICAL TOOLS
the Researcher has used the following
tools to present and analysis data
data
presentation
I.
tables
II.
Diagrams
data
analysis
I.
Microsoft excel 2007
1.9 PERIOD OF THE STUDY
this study of financial ratio
analysis is limited to five years from 2010 to 2015. the accounting year starts
from 1 April to 31 march.
1.10 SCHEME OF CHAPTERISATION
The
researcher is prepared the following scheme of chapterisation.
1. The first chapter deals with
introduction and research design of the study.
2. The second chapters describes the
Industry and company profile
3. The third chapter deals with literature
review.
4. The fourth chapter is devoted to the
research methodology.
5. The fifth chapter is data analysis and
interpretation.
6. The sixth chapter gives findings of the
study
1.11 OPERATIONAL KEY TERMS DEFINITION
Ratios:
are the simplest mathematical (statistical) tools that reveal significant relationships hidden in mass of data, and allow meaningful comparisons. Some ratios are
expressed as fractions or decimals, and some as percentages. Major types of business ratios include Efficiency, Liquidity, Profitability, and Solvency ratios.
Analysis:
Ratio Analysis
is a form of Financial Statement Analysis
that is used to obtain a quick indication of a firm's financial performance in
several key areas. The ratios
are categorized as Short-term Solvency Ratios,
Debt Management Ratios, Asset
Management Ratios, Profitability
Ratios, and Market Value Ratios
Profit:
The surplus remaining after total costs are deducted from total revenue, and the basis on which tax is computed and dividend is paid. It is the best known measure of success in an enterprise.
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