Page 33 - Banking Finance March 2019

ARTICLE

DEF is preferred to Bank ABC because, by not owing as much Good Customer Service, innovation of deposit product
money, it carries less risk. development, digital banking, good publicity, instant
services, complaints free / low, increase in rating of the bank
The purpose of equity multiplier is to see how much assets like CAMELS rating etc. contributes to increase in Liability
of a bank are financed by the total shareholders' equity, so Mix percentage of Banks.
that we can find out how much assets of the bank are
financed by the external sources of finance (Deposits / Debt). Year-on-Year, this ratio should be increased. Branding is also
This is one of the financial leverage ratios which helps an contributed to some extent to increase this ratio. Once
investor to find out how much assets are being financed by public prefers to open the deposit accounts with the bank
the shareholders' equity. due to the abovementioned factors, this ratio will increase
without much efforts. If above mentioned factors are
If the ratio is higher, the financial leverage is lower. And if positive in banks, Bank's CASA deposits will also increase.
the ratio turns out to be lower, the financial leverage is Thereby it is dual benefit to the bank i.e., to increase in Low
higher. Cost Deposits and also percentage of Deposits in Total
liability of the Bank.
There is a marginal gap between BOB and VB. DB equity
multiplier is very less when compared to other Banks. Dena (iv) Asset Utilization Ratio (%) = Total Income^
Bank uses more capital funds for loans and advances when
compared to Bank of Baroda and Vijaya Bank. To improve / Total Assets
this ratio the banks, should control the Non-performing Name of the Bank 2018 Rank
Assets to increase in profits. Thereby reserves will be created Bank of Baroda 6.99 3
after declaration of dividends. Effective utilization of equity
Vijaya Bank 7.99 2
share capital in addition to utilization of deposits mobilized
by the bank improves to pay dividends to the shareholders Dena Bank 8.35 1
and also reduces the risk to the bank. To achieve this ratio,
banks should increase the performance in all respects in ^Total Income = Interest Income + Non-Interest Income
order to build confidence level among the shareholders.
ANALYSIS:
(iii) Liability Mix (%) : Total Deposits / Total The asset utilization ratio measures management's ability
Liabilities to make the best use of its assets to generate revenue or
income. Thus, the more effectively a bank utilizes its assets,
Name of the Bank 2018 Rank the more profitable the bank will be.
Bank of Baroda 82.13 3
Vijaya Bank 88.55 1 The asset utilization ratio has been calculated by dividing
Total Income by Total Assets. In Dena Bank the Asset
Dena Bank 87.81 2
Utilization Ratio is high when compared to the other Banks.
Due to price war is going-on in Banking Industry, spreads
ANALYSIS:
are thinning Year-on-Year basis. Banks should focus more
Liability Mix Ratio: Among Three Banks, Vijaya Bank Liability on Non-interest income in order to increase the Asset
Mix is in Top. The difference between liability mix of VB and Utilization Ratio and also to increase the bottom-line of the
DB is marginal. This ratio show out of the total liabilities of bank.
the banks which the deposits percentage. If the Ratio is
good, it denotes that public is interested to invest their There is a scope to increase in non-interest income of the
surplus funds with the Bank. banks with its huge network of Branches spread from Metros
to Rural Areas of the country through cross-selling of third
As deposits are source of funds to the bank for doing lending party products to the existing customers, increase business
activity, banks should focus to increase this ratio. Poor ratio in remittance products, Foreign Exchange transactions,
means that public is not interested to invest their funds with Hiring of Lockers, Bank Guarantees and Letters of Credit
the bank. etc. Innovate new financial products to suit requirements

BANKING FINANCE | MARCH | 2019 | 33