Page 38 - Banking Finance October 2015

ARTICLE

ratio of net NPA to net advances came they must incur to gain access to capital. Cost of funds refer to the interest to
down significantly during 2010-2011. be paid by the bank for borrowing the funds from RBI and other commercial
banks to meet the day to day operations. This cost occurs as per the interest
It is obvious from the table that the net rates governed by the RBI from time to time and the bank's ability to acquire
NPA as % to net advances had declined from the public.
to the level of 1.60% in 2010-11 from
1.79% in 2008-09. The reason is that SBI The raise in this cost shows negative performance for banks. Table -1 shows that
have adopted stringent measures so as the cost of funds had registered the least 4.67% in 2010-11 and the highest is
to reduce the NPA over the period 5.72% in 2008-09. It is 5.63% in 2012-13. It may be observed that cost of funds
under reference. But it raised to 1.82% was less than from 2008-09 to 2012-13. Therefore it shows a positive
in 2011-12 and 2.10% in 2012-13, due performance level for SBI.
to the fluctuations in the economy.
Wage Bill:Wage bill refers to the expenditure incurred by the bank over their
Operating expenses: Ratio is personnel for the services rendered by them which includes salary, DA,TA bills
calculated by dividing operating and other emoluments payable to the employers by the banks. So this forms a
expenses by its gross operating major expenditure to the banker.
income. Investors using the ratio can
further compare each type of expenses Table-1 shows that a major share out of the income goes for meeting the wage
such as utilities, insurance, taxes and bill. In 2010-11,the wage bill registered the highest ie, 21.16 per cent. However
maintenance to the co-operating there have been some fluctuations in its movement. The wage bill has recorded
income, as well as the sum of all a decline during the last two years of study period. It may be said that SBI could
expenses to the gross operating down size its work force.
income. Table 1 depicts highest ratio
in 2010-11 as 23.67% and lowest in Financial performance of SBI
2008-09 as 20.46%. It is also observed
that 8.82% reduction in operating Financial performance is measured under the headings of liquidity performance
expenses in 2012-13 from the peak and profitability performance. Liquidity indicators are:-
level of 23.67 in 2010-11. D Credit Deposit Ratio

Cost of funds: The interest rate paid by D Investments/Total deposits Ratio
fine institution for the funds that they
deploy in their business. The cost of D Capital adequacy ratio
funds is one of the most important
input cost for a finance institution. Liquidity performance of SBI is presented in Table 2:
Since a lower cost will generate better
returns when the funds are deployed Table 2. Liquidity performance of SBI during 2008-09 to
in the form of short term and long 2012-13
term loans to borrowers. Cost of finds
is determined by the interest rate paid Year Deposits Advances CD ratio Investments/ *CRAR
to depositors on financial products (in million) (RS in million) Total deposit
including savings and time deposit. 2008-09 74,20,731 54,25,032 73.11 37.19 14.25
2009-10 80,41,162 63,19,142 78.58 36.78 13.39
Although the term of cost of funds 2010-11 93,39,328 75,67,194 81.03 31.65 11.98
usually refers to financial institutions, 2011-12 1,04,36,474 86,75,789 83.13 29.91 13.86
most corporations that rely on 2012-13 1,20,27,396 1,04,56,166 86.93 29.18 12.92
borrowing are impacted by the costs Total 47265091 38443323 402.78 164.71 66.4
Mean 94530182 7688664.6 80.56 32.94 13.28
value

Source: Various RBI reports on trend and progress of banking.
Note:*CRAR-Capital to Risk weighted Asset Ratio.

38 | 2015 | OCTOBER | BANKING FINANCE

Copyright@ The Insurance Times. 09883398055 / 09883380339