A

SUMMER TRAINING REPORT ON

“THE FINANCIAL SERVICES OF BANKING INSTITUSION”
SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF MASTER OF
BUSINESS ADMINISTRATION DEGREE

GURUGRAM UNIVERSITY, GURUGRAM

UNDER THE SUPERVISION OF SUBMITTED BY:

Dr. Kusum Lata Vipin

Assistant Professor Roll no.- 225056
GITM, Gurugram MBA 3rd Sem.

GLOBAL INSTITUTE OF TECHNOLOGY & MANAGEMENT,

FARUKHNAGAR,GURUGRAM

2022-2024
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 CERTIFICATE OF THE INTERNAL GUIDE:

This is to certify that the contents of the report entitled “THE FINANCIAL SERVICES OF BANKING
INSTITUTION ” by Vipin, roll no. 225056, submitted to Global Institute of Technology &
Management for the award of Master of Business Administration (MBA 3rd Semester) is original
research work carried out by him under my supervision. This report has not been submitted either partly
or fully to any other University or Institute for award of any degree or diploma.

Dr. Kusum Lata Assistant

Professor

Department of Management Studies Global

Institute of Technology & Management

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 SELF DECLARATION
I, Vipin, the undersigned solemnly declare that the report of the summer training report entitled “THE
FINANCIAL SERVICES OF BANKING INSTITUTION” assigned to me for the partial fulfilment of
MBA degree from Gurugram University, Gurugram. It is the original work done by me and the
information provided in the study is authentic to the best of my knowledge.

I declare that the statements made & conclusions drawn are an outcome of my summer training report. I
further declare that to the best of my knowledge & belief the summer training report does not contain any
part/work which has been submitted for the award of any other degree/diploma/certificate in this
University or any other University.

Place: Vipin
Date:

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 CONTENS
Serial. No. TITLE PAGE NO.

Chapter-1 INTRODUCTION
1.1 –Introduction of the Study 9
1.2- Purpose of Study 9
1.3 -Place of Study 10
1.4 -Scope of Study 10
1.5 -Objective of the study 11
1.6 –Methodology 11
1.7 -Data collection 12
1.8 –Tools 12
1.9 –Limitation 12

Chapter-2 PROFILE OF BANK

2.1 –Introduction to Banking Industry 14
2.2 –Growth of Indian Financial Sector 18
2.3 –Co-operative Banks in India 19
2.4 -About Orissa State Co-operative Bank Ltd. 20
2.5 –Financial Highlights of OSCB Ltd. 30
2.6 –Retail Banking of OSCB Ltd. 39
2.7 –Introduction of Corporate Governance 40

Chapter-3 PROJECT OVERVIEW

3.1 –Introduction of Financial Statement 43
3.2 -Meaning and Concept of Financial Analysis 43
3.3 - Objective of Financial Statement Analysis 44
3.4 -Types of Financial Analysis 44
3.5 -Procedure of Financial Statement Analysis 46
3.6 -Methods and Devices of Financial Analysis 47
3.7 -Limitation of financial Analysis 50
3.8 -Overview of Ratio Analysis 51

Chapter-4 ANALYSIS AND INTERPRETATION

4.1 -Comparative Balance Sheet 56 Page |
4 4.2 -Comparative Income Statement 60
 4.3 -Ratio Analysis 62

Chapter-5 FINDINGS AND SUGGESTIONS

5.1 -Findings 68
5.2 –Suggestions 69

Serial. No. TITLE PAGE NO.

Chapter-6 CONCLUSION 71

BIBLIOGRAPHY 72

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 CHAPTER-1

Introduction
1.1 –Introduction of the Study
1.2- Purpose of Study
1.3 -Place of Study
1.4 -Scope of Study
1.5 -Objective of the study
1.6 -Methodology
1.7 -Data collection
1.8 -Tools
1.9 -Limitation

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 INTRODUCTION
1.1 –Introduction of the Study:
Finance is defined as the provision of money when it is required. Every
enterprise needs finance to start and carry out its operation. Finance is the
lifeblood of an organization. So, finance should be managed effectively.
Financial statements are prepared primarily for decision making. Financial
Statement Analysis refers to the process of determining financial strength and
weakness of the firm by properly establishing strategic relationship between the
items of the balance sheet and profit and loss account. There are various methods
and techniques used in analyzing financial statements, such as comparative
statements, trend analysis, common size statements, schedule of changes in
working capital, funds flow and cash flow analysis, cost volume profit analysis
and ratio analysis and other operative data. The analysis of financial statement is
used for decision making by various parties.

 First task is to analyze and select the information which is requiring

taking decision.

 Second task is to arrange the information in a way to highlight significant

relationship.

 Final task is the interpretation and drawing of inferences and conclusions.

1.2 -Purpose of Study

The present study is made as a part of the MBA programme for training in
the form of on the job training with the following activities.

 To know the financial position of the OSCB ltd.

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  The bank has the strength to fulfill its obligation or not.
 Find out strength and weakness of OSCB ltd.

 Performance of OSCB ltd. for granting credit, providing loan and making
investment.

 Growth rate of OSCB ltd.

 Know the liquidity position of OSCB ltd.

 Know the long term solvency of OSCB ltd.

 Know the operating efficiency of OSCB ltd.

 Know the overall profitability of OSCB ltd.

1.3- Place of Study

All the activities are carried out in the Orissa State Co-operative Bank
Ltd. Bhubaneswar.

1.4- Scope of Study

 The data and information were gathered during training.

 The scope is limited to the secondary data only.

 The scope is delimited to the year 2001-02 to 2007-08.

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1.5- Objectives of the study:

 The role objective of the project is to help the management of the

organization in decision making, regarding the subject matter.
 Calculation of financial statement and ratio is only the clerical task whereas
the interpretation of its needs immense skill, intelligence and
foresightedness.
 One of the easiest and most popular ways of evaluating performance of the
organization is to compare its present ratios with the past ones called
comparison and through development action plan.
 It gives an indication of the direction of change and reflects whether the
oraganisation’s financial position and performance has improved,
deteriorated or remained constant over period of time.
 Here much emphasis is given to historical comparison and on forecasting
the immediate future trends.

1.6- Methodology:

The research involved extensive and intensive studies of Orissa State

Co-operative Bank ltd. Bhubaneswar. In this project report a sincere effort
has been made to study the financial statements analysis of the bank.
During this study, I study the financial position and performance of the bank.
At last, I have given interpretation and conclusion of the study.

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1.7- Data collection:
The whole of my study is based on secondary data of OSCB Ltd. I have
not taken any primary data for my study because primary data would not have
been helpful to my study. During the tenure of my study I have taken help of the
following secondary data.
 Annual report of OSCB Ltd.
 Annual audit report of OSCB Ltd.
 Balance sheet of OSCB Ltd.
 Development action plan of OSCB Ltd.
 Profit and Loss account of OSCB Ltd.

1.8- Tools:
There are some of the tools, which are relevant for the study of ratio
analysis and performance of OSCB Ltd. are
 Comparative statements;
 Trend Analysis;
 Common-size statements;
 Funds flow Analysis;
 Cash flow Analysis;
 Cost volume profit Analysis;
 Ratio analysis.

1.9- Limitation:

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  It is only based on mathematical interpretation of the figures and ignores
the factors such as management style, motivation of workers, leadership
etc.
 It is affected by the price level changes.
 It does not give any clue for future.

CHAPTER-2

Profile of bank

2.1 –Introduction to Banking Industry

2.2 –Growth of Indian Financial Sector
2.3 –Co-operative Banks in India
2.4 -About Orissa State Co-operative Bank Ltd.
2.5 –Financial Highlights of Orissa State Co-operative Bank Ltd.
2.6 –Retail Banking of Orissa State Co-operative Bank Ltd.
2.7 –Introduction of Corporate Governance by OSCB Ltd.

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 2.1-Introduction to Banking Industry

Introduction:
Modern banking in India is said to be developed during the British era. In the 1st half of
the 18th century, the British East India Company established three banks -the Bank of Bengal in
1809, the Bank of Bombay in 1840 and the Bank of Madras in 1843. But in the course of time
these three banks were amalgamated to a new bank called Imperial Bank and later it was taken
over by the State Bank of India in 1955. Allahabad Bank was the first fully Indian owned bank.
The Reserve Bank of India was established in 1935 followed by other banks like Punjab
National Bank, Bank of India, Canara Bank and Indian Bank.
In 1969, 14 major banks were nationalized and in 1980, 6 major private sector banks
were taken over by the government. Today, commercial banking system in India is divided into
following categories.

Types of Banking:

1. Central Bank

The Reserve Bank of India is the central Bank that is fully owned by the government. It
is governed by a central board (Headed by a Governor) appointed by the Central Government.
It issues guidelines for the functioning of all banks operating within the country.
2. Public Sector Banks

A. State Bank of India and its associate banks called the State Bank Group
B. 19 Nationalized Banks
C. Regional Rural Banks mainly sponsored by public sector banks

3. Private Sector Banks

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 A. Old generation private banks
B. New generation private banks
C. Foreign banks operating in India
D. Scheduled co-operative banks
E. Non-scheduled banks

4. Co-operative Sector
The co-operative sector is very much useful for rural people. The co-operative banking
sector is divided into the following categories:
A. State co-operative Banks
B. Central co-operative banks
C. Primary Agriculture Credit Societies

5. Development Banks/Financial Institutions

A. IFCI
B. IDBI
C. ICICI
D. IIBI
E. SCICI Ltd.
F. NABARD
G. Export-Import Bank of India
H. National Housing Bank
I. Small Industries Development Bank of India
J. North Eastern Development Finance Corporation

Banking Services:
Banking in India is so convenient and hassle free that one (individual, groups or
whatever the case may be) can easily process transactions as and when required. The most
common services offered by banks in India are as follow:

" Bank Accounts: It is the most common service of the banking sector. An individual can
open a bank account which can be either savings, current or term deposits.
" Loans: You can approach all banks for different kinds of loans. It can be a home loan,
car loan, and personal loan, loan against shares and educational loans.
" Money Transfer: Banks can transfer money from one corner of the globe to the other by
issuing demand drafts, money orders or cheques.
" Credit and Debit cards: Most of the banks offer credit cards to their customer which can
be used to purchase goods and services on credit. On the other hand debit card also used to
draw cash easily.
" Lockers: Most banks have safe deposit lockers which can be used by the customers for
storing valuable, important documents or jewellery.

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Banking Services for NRIs:
Non Resident Indians or NRIs can open accounts in almost all Indian banks. The three types of
accounts that NRIs can open are:
" Non-Resident (Ordinary) Account - NRO A/c
" Non-Resident (External) Rupee Account - NRE A/c
" Non-Resident (Foreign Currency) Account - FCNR A/c

Banking and Finance:

Banking industry in India has evolved lately under the impact of the stimulus packages
announced by the Government. According to the Annual Policy 2008-09 of the Reserve Bank
of India (RBI), the central bank, key monetary aggregates have witnessed some growth in 2008-
09. This is reflected in the changing liquidity positions arising from domestic and global
financial conditions and the policy initiatives taken by the government. Also, reserve money
variations during 2008-09 have largely reflected an increase in currency in circulation and
reduction in the cash reserve ratio (CRR) of banks.

According to a study by Dun & Bradstreet (an international research body)-"India's Top Banks
2008"-there has been a significant growth in the banking infrastructure. Taking into account all
banks in India, there are overall 56,640 branches or offices, 893,356 employees and 27,088
ATMs. Public sector banks made up a large chunk of the infrastructure, with 87.7 per cent of all
offices, 82 per cent of staff and 60.3 per cent of all automated teller machines (ATMs).
The Credit Scenario
The year-on-year (y-o-y) aggregate bank deposits stood at 21.2 per cent as on January 2, 2009.
Bank credit touched 24 per cent (y-o-y) on January 2, 2009 as against 21.4 per cent on January
4, 2008. The year-on-year (y-o-y) growth in non-food bank credit at 23.9 per cent as on January
2, 2009 was higher than that of 22.0 per cent as on January 4, 2008. Increase in total flow of
resources from the banking sector to the commercial sector was also higher at 23.4 per cent as
compared with 21.7 per cent a year ago. The incremental credit-deposit ratio rose to 81.4 per
cent as on January 2, 2009, as against 63.1 per cent as on January 4, 2008. Also, during 2008-09
so far, the total flow of resources to the commercial sector from banks stood at US$ 58.83
billion up to January 2, 2009. Scheduled commercial banks' credit to the commercial sector
expanded by 27.0 per cent (y-o-y) as on November 21, 2008, as compared with 23.1 per cent a
year ago.

There has been variation in credit expansion across bank groups. Credit expansion as on
January 2, 2009 for public sector banks stood at 28.6 per cent, scheduled commercial banks
(SCBs) including the regional rural banks (RRBs) at 24 per cent, foreign banks at 6.9 per cent
and private sector banks at 11.8 per cent, according to the Annual Policy for 2008-09 of
Reserve Bank of India.

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Several measures initiated by the Reserve Bank have resulted in banks reducing their deposit
and lending rates between November 2008 and January 2009. The range for deposit rates for
public sector banks varied from 5.25 to 8.5 per cent, foreign at 5.25 to 7.75 per cent and private
sector banks at 4 to 8.75 per cent. In the post-crisis quarter caused due to collapse of Lehman
Brothers, large corporate like Infosys moved their deposits to State Bank of India (SBI), the
country's largest bank. Infosys has revealed that it transferred deposits of nearly US$ 200.61
million from ICICI Bank to SBI last year.

Deposits as on January 2, 2009 for public sector banks stood at 24.2 per cent, scheduled
commercial banks (SCBs) including the regional rural banks (RRBs) at 21.2 per cent, foreign
banks at 12.1 per cent and private sector banks at 13.4 per cent, according to the Annual Policy
for 2008-09 of the Reserve Bank of India.

The prime lending rates of public sector banks stood at 12 to 12.5 per cent, private sector banks
at 14.75 to 16.75 per cent and foreign banks 14.25 to 15.50 per cent as on January 2009.

Bank loans rose 18.1 per cent on year-on-year basis as on March 13, the RBI has said in its
Weekly Statistical Supplement released on March 27, 2009. Outstanding loans rose to US$
541.82 billion in the two weeks to March 13. The non-food credit rose to US$ 530.19 billion in
the two weeks, while food credit stood at US$ 9.61 billion in the same period.

Since October 2008, the central bank has cut the cash reserve ratio, or the proportion of deposits
that banks set aside, and the repo rate, or the rate at which it lends to banks, by 400 basis points
each to inject liquidity into the system and activate a lower interest rate regime. Also, the
reverse repo rate has been lowered by 200 basis points to discourage banks from parking
surplus funds with RBI. Till April 7, 2009, the CRR had further been lowered by 50 basis
points, while the repo and reverse repo rates have been lowered by 150 basis points each. Public
sector banks have pruned their benchmark prime lending rates (BPLRs) by 150-200 basis
points. Also, in April 2009, private sector banks such as Axis and Bank of Rajasthan have
reduced their BPLRs by 50 basis points. Only few foreign banks such as Citibank have pared
home loan rates by 50 basis points to 13.75 per cent.

The rupee depreciated during 2008-09, reflecting varied developments in international financial
markets and portfolio outflows by foreign institutional investors (FIIs). The rupee exchange rate
was between 48.37 to 49.19 against the US dollar and 63.60-68.09 against the Euro in January
2009.

Government Initiatives
Apart from the bank rate cuts announced in the stimulus packages, cash withdrawals from bank
will not attract tax from April 1, 2009 following abolition of the banking cash transaction tax
(BCTT) in the Union Budget 2008-09. The total collection of BCTT stood at US$ 120.36
million in 2008-09. Also, inter-ATM usage transaction became free of charges effective April
1, 2009.
Exchange rate used: 1 USD = 49.8417 INR

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 2.2-GROWTH OF INDIAN FINANCIAL SECTOR

The Indian economy continued to record strong growth during 2007-08, albeit with some
moderation. Real gross domestic product (GDP) growth rate at 9.0 per cent during 2007-08
moderated from 9.6 per cent during 2006-07, reflecting some slow down in industry and
services. A positive feature during the year was a recovery in the growth of real GDP
originating in the agricultural sector, after the slowdown experienced in the previous year.
Despite this moderation, the overall growth rate of the Indian economy during 2007-08 was
noteworthy in the global context.

During 2007-08, the growth of real GDP originating from the industrial sector decelerated to
8.2 per cent as against 10.6 per cent in 2006-07. In terms of Index of Industrial Production
(IIP), industrial growth was at 8.5 per cent as against 11.5 per cent in 2006-07. Manufacturing
sector growth at 9.0 per cent during 2007-08 (12.5 per cent during 2006-07) was the lowest in
the last four years. The mining and electricity sectors also grew at a slower pace during 2007-
08. In terms of use-based classification, the performance of the capital goods sector was
particularly impressive with 18.0 per cent growth.

However, the basic goods, intermediate goods and consumer goods sectors recorded
decelerated growth of 7.0 per cent, 8.9 per cent and 6.1 per cent, respectively, during 2007-08.
The performance of the industrial sector was also affected by the subdued performance of the
infrastructure sector, registering 5.6 per cent growth during 2007-08. The services sector
recorded double digit growth consistently in the last three years. It grew by 10.7 per cent during
2007-08, on top of 11.2 per cent growth in 2006-07

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The Reserve Bank during 2007-08 had to contend with large variations in liquidity not only due
to swings in cash balances of the Central Government, but also on account of large and volatile
capital flows. The Reserve Bank judiciously used the CRR, LAF and MSS to manage such
swings in liquidity conditions, consistent with the objectives of price and financial stability. As
a whole, there was a net absorption of liquidity on 171 days and net injection of liquidity on 75
days during 2007- 08. The average daily net outstanding balances under LAF varied between
injection of Rs.10,804 crore during December 2007 to absorption of Rs.36,665 crore in October
2007. Net issuances under the Market Stabilisation Scheme (MSS) during 2007-08 amounted to
Rs.1,05,691 crore.

In the foreign exchange market, the Indian rupee exhibited two-way movements in the range of
Rs.39.26-43.15 per US dollar during 2007-08. The Indian rupee depreciated to Rs.41.58 per
US dollar on August 17, 2007 from Rs.40.43 per US dollar on July 31, 2007. The exchange rate
of the rupee appreciated thereafter up to January 2008. The rupee moved in a range of
Rs.39.26-39.84 per US dollar during October 2007- January 2008. However, the rupee started
depreciating against the US dollar from the beginning of February 2008 on account of FII
outflows, rising crude oil prices and heavy dollar demand by oil companies. The exchange rate
of the rupee was Rs.39.99 per US dollar at end-March 2008.

2.3-Co-operative Banks in India

The Co operative banks in India started functioning almost 100 years ago. The Cooperative
bank is an important constituent of the Indian Financial System, judging by the role assigned to
co operative, the expectations the co operative is supposed to fulfil, their number, and the
number of offices the cooperative bank operate. Though the co operative movement originated
in the West, but the importance of such banks have assumed in India is rarely paralleled
anywhere else in the world. The cooperative bank in India plays an important role even today in
rural financing. The businesses of cooperative bank in the urban areas also have increased
phenomenally in recent years due to the sharp increase in the number of primary co-operative
banks.
Co operative Banks in India are registered under the Co-operative Societies Act. The
cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations
Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Cooperative banks in India finance rural areas under:

i. Farming
ii. Cattle
iii. Milk
iv. Hatchery
v. Personal finance

Cooperative banks in India finance urban areas under:

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i. Self-employment
ii. Industries
iii. Small scale units
iv. Home finance
v. Consumer finance
vi. Personal finance

Some facts about Cooperative banks in India

i. Some cooperative banks in India are more forward than many of the state and private
sector banks.
ii. According to NAFCUB the total deposits & landings of Cooperative Banks in India is
much more than Old Private Sector Banks & also the New Private Sector Banks.
iii. This exponential growth of Co operative Banks in India is attributed mainly to their
much better local reach, personal interaction with customers, and their ability to catch the nerve
of the local clientele.

2.4-About Orissa State Co-operative Bank Ltd.

The Orissa State Co-operative Bank, a Scheduled Bank under RBI Act was registered in
the year 1948 as the Apex Bank of the short term Coop. Credit structure of Orissa with an
objective of Development of the agrarian economy of Orissa by catching the credit equipment
of the terms of the state.
The OSCB had made a humble beginning with a Share Capital of Rs. 1.76 lakhs and a
borrowing of Rs.25.50 lakhs to address the problem of farm credit dispensation. The OSCB, in
its own way has contributed in providing farm credit and inputs to bring the desired change
over the years. The Bank has been trying to develop the primary societies viz. PACS (Primary
Agricultural Co-operative Society) which constitutes of schemes as LAMPS (Large Scale
Agriculture Multipurpose Co-operative Society) / FSS (Farmers Service Co-operative Society).
The activities of the OSCB are not confined to dispensation of farm credit alone. As a
schedule bank, it has responded to the sweeping change in banking service in view of
advancement in Information Techchnology.
The Bank has assumed the role of leader of the Coop - Credit Structure to develop the
lower tiers to cope with the emerging challenges of banking activities. The activities of OSCB
are
 General Banking Business
 Re-finance to the DCCB

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  Dispensation of farms credit
 Production Credit

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Who's Who

MEMBERS OF THE MANAGING COMMITTEE OF ORISSA STATE CO-OPERATIVE

BANK LIMITED, BHUBANESWAR

Sri Jagneswar President

Smt. Kamalini Mohanty Vice President
Sri R.N. Dash, IAS
Managing Director

Our Inception and Corporatization

General Banking Business:

The Bank has been accepting deposits from the public and offering all banking facilities to
its customers through its fully computerized branches and extension counts at Bhubaneswar,
Cuttack, Paradeep, Sambalpur. The Banking services offered by the banks include acceptance of all
types of deposits, bills, and exchange, issues of letter of credit, advancing loans to farm and non-
farm sector.

Provision of locker facilities. The bank has made a humble beginning in providing ATM
facility in its Main Branch at Pandit Jawarharlal Nehru Marg.Bhubaneswar for providing Any Time
Banking. This facility shall be provided in all the served cities soon. Integration of all the branches
and extension counters are on the anvil to provide Anywhere Banking Services.

Refinance to DCCBs:

The OSCB came into existence to support the lending activities of its affiliated DCCBs.
The Bank provides refinance to them to pursue the following activities.

Rourkela Institute of Management Studies, Rourkela Page |

(i) Dispensation of farm
23

Credit: Product Credit:

 Societies (PACS)/Large Sized Agriculture

And Multi Purpose Co-operative Societies (LAMPS)/Farmers Services Societies (FSS).The Farm
credit requirement of the farmer is met by these societies by availing loans from the DCCBs. The
OSCB extends

The Indian
Refinance Banking
facilities to Scenario:
the DCCBs for financing the PACS. During 1999-2000, Rs. 426.23 Crores
were disbursed to 6.76 lakhs farmers in the state.
SCB (State Co-operative Bank)

CCB (Cental Co-operative Bank)

Investment Credit:
UCB (Urban Co-operative Bank)
The Bank has been dispensing investment credit for MinorPCB Irrigation, Farm
(Primary Mechanization,
Co-operative Bank)Dairy,
Poultry, Horticulture, Plantation, Sericulture etc. through the DCCBs and PACS/LAMPS/FSS. The
OSCB, in consultation with the NABARD and Govt. of Orissa SCARDB prepares
(Stateplans and programs
Co-operative Agro- for
dispensation of investment credit and closely monitor the financing, utilization etc.
Rural Development Bank)

(ii) Non-farm sector Financing:

The OSCB has facilitated the DCCBs diversifying into financing of non-farm sectors. The DCCBs
have been dispensing non-farm credit to small-scale industries in shape of block capital and
working capitals. Loans are also advanced for trading activities, purchase of commercial vehicles,
housing etc. With refinance support from the OSCB. The branches of the banks are also proving
these loans directly.

(iii) Handloom sectors financing:

The OSCB has been financing the handloom cooperative societies

For production and marketing through DCCBs. The Orissa State Handloom Weavers Society is
directly
Direct financed
Finance by the Bank.
by OSCB

The OSCB has directly financed the Sugar Industries in the

state to help the cultivators to get remunerative prices for
their sugarcane crop. It has also financed the Orissa State
Coop Marketing Federation for fertilizers business. Besides
the following large units are also financed by the bank.

a. Neelachal Ispat Nigam –Large Scale Steel Industry

b. Kalinga Hospital- Corporate Hospital
c. Bilati (Orissa) Ltd. – Tropical Food processingChairman and MD of OSCB in
Unit. a discussion with MD
d. Flour Mills NABARD Mr. Y.C. Nanda
e. Press about Credit Expantion

f. Mass Media

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Promotional and Development Role

As The Apex Bank of the Coop Credit Structure, the bank has assumed the role of
leadership to develop the structure to face the emerging challenge in banking business. The
Following activities have been taken by the bank in these regards.

i. Introduction of Kisan Credit Card: - The OSCB has been facilitated dispensation of entire
farm credit through Kisan Credit Card only to enable the farmer members to get instant
credit. The DCCBs with the help of the Bank have transformed 813 primary societies as Mini
Banks who have mobilized Rs. 250 crores from the rural areas.

ii. Information Technology in DCCBs :- The OSCB has taken the responsibility to computerize
the operation of the DCCBs to face the challenge from their commercial counterparts. The
software package is finalized for the purpose.

iii. Face lift of the branches of DCCBs and the Mini Bank: - The Bank has been providing
regular assistance for the face-lift of the DCCB Branches and PACS. The NABARD has also
help 200 PACS with financial assistance for improvement of infrastructure facilities.

iv. Organization and linkage of self-help Groups:-The Banks has been patronizing and close
monitoring organization of self help groups at primary level and monitoring the progress.

v. Human Resources Development: - The OSCB has been maintaining a Training Institute to
impart training to the personnel of DCCBs and PACS/ LAMPS/FSS. Regular Training
programs is conducted by the institute for the purpose.

vi. Conduct of Study:- To find out the reasons for low off- take of farm
Credit, the bank had appointed all four Universities of the states. They have given their
reports basing on which corrective actions have been taken. The bank has also

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 undertaken a study on functioning of SHGs in West Bengal to emulate their
experience in the state.

vii. Preparation of development Action Plan and Signing Of MOU:- At the

behest of OSCB, the DCCBs have been preparing DAPs and Signing MOU with the Bank
and NABARD. This effort of the banks has created a cost consciousness among the lowest
tiers and their turn over has increased manifold.

viii. Image Building: The Bank has been undertaking advertisement through hoarding and
electronics media to boost up the images of the entire credit structure.

ix. NABARD as partner of the Bank: - The NABARD has been extending required support
to the Bank to accomplish its objectives. The assistance include
liberal and confessional refinance, assistance from Coop Development Fund, Support to the
women Development cell, Technical, monitoring and Evaluation Cell, Faculty support to the
Training Institute Etc.

x. Excellence Recognized:- The National Federation of state Coop Banks (NAFSCOB) has
awarded the Bank for its outstanding performance for consecutive four years. The NABARD
has also awarded the bank for its performance during 1997-98. The Bank has been achieving
all the MOU Parameters.

xi. Profits since Inception: - The Bank has been earning profit since its inception and paying
divided to its shareholders uninterruptedly.

xii. Corporate Vision:- The Bank aims at a vibrant Coop. Credit Structure by strengthening
PACS and DCCBs , best customer services through computerization and anytime-anywhere
Banking and above all a satisfied clientele.

OSCB Ltd. Network

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 ▪ Angul United CCB Keonjhar CCB
▪ Aska CCB ▪ Khurda CCB
▪ Balasore Bhadrak CCB ▪ Koraput CCB
▪ Banki CCB ▪ Mayurbhanj CCB
▪ Berahampur CCB ▪ Nayagarh CCB
▪ Bhawanipatana CCB ▪ Sambalpur DCCB
▪ Bolangir DCCB ▪ Sundaragarh CCB
▪ Boudh CCB ▪ United Puri Nimapara CCB
▪ ▪ Cuttack CCB
▪

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Short Term Credit Co-operative Banking Sector

STATUS PAPER ON SHORT TERM COOPERATIVE CREDIT STRUCTURE IN

ORISSA

The short term cooperative credit in Orissa comprising 2714 PACS (including 218 LAMPS
and 6 FSS) at the grass roots level, 17 District Central Cooperative Banks at the middle rung and
Orissa State Cooperative Bank at the apex level have been rendering yeomen’s service to the
farming community. From out of around 50 lakh agricultural families, 44.98 lakh families have
become members of the PACS taking the coverage to 90%.

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 families) enrolled to total no. of members
Agril. families
1997- 39.48 34.60 87.06 13.66
98
1998- 39.48 36.58 92.65 14.78
99
1999- 39.48 37.72 95.50 14.97
00
2000- 50.14 38.89 77.78 16.10
01*
2001- 50.14 39.33 78.66 16.09
02*
2002- 50.14 39.33 79.44 15.57
03
2003- 50.14 40.56 80.89 17.21
04
2004- 50.14 44.75 89.25 22.91
05
2005- 50.14 44.98 89.70
06 2.5-Financial Highlights Orissa State -operative Bank Ltd.
2006- 50.14
Co 44.98 89.70
07 y key areas and achieved all targets
setup in the Development Action Plan (DAP). The funds comprising of paid of capital and
resource, deposit and borrowing are the main resource of the bank. A Major chunk of this
resources are deployed under the loans and advances to the affiliated central Cooperative
Banks, Member society and individuals for different purpose under farm and non-farm sectors.

The Statutory investment requirement under RBI Act and BR Act are met by investment in
Central/State Governance Securities and others approved trustee securities, seasonal investible
surpluses are deployed in call and short term deposits with commercial banks, to maximize as
yield on assets.

Besides remaining vigilant over judicious deployment of funds, the banks is also making
concerted efforts to bring down the level of non earning assets of the banks and increase the
financial margin.

Seasonal investible surplus are deployed in call and short

terms deposits with commercial banks and DFHI etc. to
maximise the yields on assets. Beside remaining vigilant
over judicious deployment of funds, the bank is also
making concerted efforts to bring down the level of non-
earning assets of the bank and increase the financial
margin. Also see the Profit & Dividend of OSCB
The Bank since its inception operated above the break even level and attained sustainable
viability long since. As a result the bank continued to build up its Reserves and Funds as per
the provision of the bye-laws. The total Reserves at the end of 1997-1998 stood at Rs.5752.52
Lakh as against Rs.4711.00 Lakh in 1996-97 .Quantumwise, the reserves incresed by
Rs.1041.52 Lakh during the year, recording growth rate of 22.11 % .
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Sources And Uses of Funds
Important financial indicators of OSCB and DCCBs during past 4 years.
OSCB (Rs. in Lakhs)
Sl. Particulars 2003-04 2004-05 2005-06 2006-07 2007-08 Percentage
(Provisional) of growth
over
previous
year
1 Share Capital 4958.32 5168.62 6437.98 6976.86 7137.58 8.37%
2 Reserve Fund 13917.91 16749.31 18492.47 20173.87 21530.15 9.09%
3 Own Fund 18876.23 21917.93 24930.45 27150.73 -- 8.91%
4 Deposits 102601.38 107850.94 121315.98 129586.23 156626.80 6.82%
5 Borrowings 75573.56 69151.18 95434.17 125141.36 166593.24 31.13%
6 Working 212573.39 214139.32 257252.88 295086.90 --
Fund 14.71%
7 Loans 109908.08 127898.44 168220.52 193761.25 --
outstanding 15.18%
8 Investments 83288.41 68195.11 71145.27 88822.10 56455.67 24.84%
9 Per employee 952.96 1106.80 1385.34 1562.06 --
business 12.76%
10 Net profit 1347.51 1744.43 1969.39 916.00 -- 8.37%
11 Dividend 6% 7% 7%

CCBs (Rs. in Crores

Particulars 2002-03 2003-04 2004-05 2005-06
1. Own fund 181.57 212.18 231.13 266.23
2. Deposits 1569.25 1749.58 1830.35 1940.35
3. Loans & Advances 1820.99 2102.26 2346.14 2746.35
4. Working Capital 2897.44 3224.43 3577.53 4141.60
5. Cost of Management(COM) 49.63 51.72 53.83 55.56
6. % of COM to WC 1.71 1.60 1.50 1.34
7. CCBs earning operating profit 13 15 17 16
8. Profit/Loss -7.25/ +9.75 -1.95+17.25 +46.33 -2.40 +13.23
105.95 94.77 53.90 46.61
9. Accumulated Losses

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Reserves:
The Bank since its inception operated above the break even level and attained
sustainable viability long since. As a result, the bank continued to build up its Reservers and
Funds as per the provision of the bye-laws. The total Reserves at the end of 1998-99 stood at
Rs.7092.22 Lakh as against Rs. 5752.52 Lakh in 1997-98. Quantumwise, the reserves increased
by Rs. 1339.70 Lakh during the year, recording growthrate of 23.29 % .

Composition of Reserves and Funds of the Bank from 1996-97 along with year-wise growth
rate are indicated below.

Rs in Lakh
Types of Reservers
1996-97 1997-98 1998-99
Statutory Reserve Fund 404.07 439.18 484.68
Agril,Credit 1803.83 1966.45 2050.64
Stabilisation
Other Reservers 2503.10 3346.89 4556.90
Total : 4711.00 5752.52 7092.22

Growth Rate of Reserves ( In Lakh)

Year Amount wise Increase Percentage of
Amount over Last Year Growth
1996 - 97 4711.00 193.25 4.28%
1997 - 98 5752.52 1041.52 22.11%
1998 - 99 7092.22 1339.70 23.29%

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 Deposits
(Rs. in Crores
Deposit Mobilisation.
Year PACS CCB OSCB
Total Deposit % of Growth Total % of Total % of Growth
during the Deposit Growth Deposit during the
yr. during the yr.
yr.
1999- 238.97 42 951.33 24 560.06 34
2000
2000- 321.58 30 1188.96 25 731.27 31
2001
2001- 425.47 10 1406.85 18 874.82 20
2002
2002- 432.75 2 1569.25 13 886.12 1
2003
2003- 446.82 3 1761.25 12 1026.01 16
2004
2004- 494.85 11 1853.48 5 1078.32 5
2005
2005- 516.33 4 1955.75 6 1213.16 12
2006
2006- 557.07 8 2126.80 9 1295.86 7
2007

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 Borrowings

Disbursement of schematic loans:

The short term cooperative credit structure is not lagging behind in financing investment credit
for acquisition of capital assets by the farmer members to increase agriculture production and
productivity by adopting modern technology. The DCCBs and PACS with the assistance of
OSCB have been financing activities like plantation and horticulture, sericulture, pisciculture,
farm mechanisation, small road transport operators, small business, small scale industries, etc.
both under farm and non farm sector. The financing for the purpose during last 8 years is given
as follows:

Schematic finance during last five years (Rs. in Crores

Year Finance under Farm Sector Finance under Non-farm Total
Sector
Target Achievement Target Achievement Target Achievement
No. Amt. No. Amt. No. Amt.
1999-00 4700.00 6430 2031.88 5300.00 3153 2092.69 10000.00 9583 4124.57
2000-01 6300.00 13291 3765.41 3700.00 3581 1905.20 10000.00 16872 5670.61
2001-02 5560.00 13287 2793.90 2440.00 4677 1219.39 8000.00 17964 4013.29
2002-03 5310.00 5330 2001.55 2095.00 70.72 1950.73 7405.00 12342 3952.28
2003-04 5000.00 2566 1114.54 2500.00 13306 3402.41 7500.00 15872 4516.95
2004-05 5000.00 5661 1693.82 5000.00 24225 3247.66 10000.00 29886 4941.48
2005-06 9500.00 8672 2736.39 5000.00 15679 3717.40 14500.00 24351 6453.79
2006-07 12800.00 10766 3937.78 10000.00 19030 3992.71 22800.00 29796 7930.49

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 Crop Loan

Dispensation of crop loan:

In Orissa, around 79% of the population depend on agriculture and allied activities for their
livelihood. Large number of farmers requires farm credit for their seasonal agricultural
operations. The short term cooperative credit structure has been providing the major chunk of
crop loan over the years and supporting the farmer members at the time of natural calamities to
raise fresh crops. The details are as under:

Market share in crop loan financing by cooperative banks versus commercial

banks: (Rs. in Crores

Year Target as per annual credit Achievement Market share

plan
Coop. Commercial Total Coop. Commercial Total Coop. Commercial
Banks Banks/ Banks Banks Banks Banks
RRBs
1998- 265.26 132.15 397.41 329.02 133.98 463.00 71% 29%
99
1999- 373.96 150.85 524.81 426.24 168.54 594.78 72% 28%
00
2000- 492.78 167.77 660.55 438.36 189.85 628.21 70% 30%
01
2001- 550.55 189.89 740.44 537.23 240.92 778.15 69% 31%
02
2002- 688.77 213.19 909.96 615.54 283.47 899.01 68% 32%
03
2003- 718.15 255.41 973.56 742.49 331.66 1074.15 69% 31%
04
2004- 903.51 467.49 1371.00 959.67 539.98 1499.65 64% 36%
05
2005- 1283.36 570.84 1854.20 1394.53 728.93 2123.46 66% 34%
06
2006- 1545.82 790.15 2335.97 1559.16 678.80 2237.96
07 (as on
31.01.07)

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2.6-Retail Banking of Orissa State Co-operative Bank Ltd.:

Housing loans : The bank is financing Housing Loan under its "APNA GHAR " scheme.
Maximum amount under this head is Rs.500000.00 for purchase of readymade house or
construction. For repair, renovation or addition/ alteration the limit is Rs.50000.00. The rate of
interest is 13% on reducing balance. Maximum repayment period is 15 years with 18 months
moritorium period.
Consumer Durable Requirement / Formalities
1. Maximum limit Rs. 50000.00 or 75% of the cost of the item.
2. Subject to five times monthly gross income.
3. Repayable in maximum 40 monthly installments in reducing balance.

Motor Vehicle Finance

For any sort of Surface Transport and Water Transport vehicle both for commercial and
personal pupose.
Requirement / Formalities
1. 75% of the total cost of vehicle, including insurance and registration.
2. Repayable in 60 monthly installments reducing balance.

Business Enterprise

Terms Loan for

1. Fixed Assets for Projects.

2. Commercial Complex and Kalyan Mandap
3. Hotels, Tourist Resorts, Health Care units.
4. Equipment and Machinaries.

Requirement / Formalities

1. Maximum 75% of the fixed Assets

2. Maximum repayable periods – 10 years.
3. Interest in reduced balance method.

Working Capital Loans

1. Retail Business
2. Trader

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 3. Wholesaler
4. Project Solution

Requirement / Formalities

1. Maximum 75% of working capital requirement subject to Stock Holding.

2. Quarterly Interest on days balance.

2.7-Introduction of Corporate Governance by Orissa State Co-operative

Bank Ltd.:

Orissa State Cooperative Bank is the first bank in the cooperative sector in the country to
introduce sound practices of corporate governance to ensure transparency in its functioning.
During the last three years, the following initiatives have been taken to follow good corporate
practices by addressing a range of issues such as, protection of shareholders rights, enhancing
shareholders value, disclosure requirements, integrity of accounting practices and strengthening
the control system.

The employees of the bank can now expose any wrongdoing of the top management of the bank
without any fear of reprisal. The Board of Management of the bank in its meeting held on
30.06.2003 has accepted the system for protection of whistleblowers adopted in USA and in
Indian Companies like Wipro and Infosys. This facility would give protection to the staff, who
expose irregularities, corruption, mal-practices etc. by the top management of the bank. Under
this system, where any staff of the bank discovers information, which he believes shows serious
mal-practice, impropriety, abuse or wrongdoing, then the information should be disclosed
without fear of reprisal. Following the spirit of the Sarbanes Oxley Act of the USA, which
envisages protection for whistleblowers (staff who expose corruption), a similar policy has been
adopted to enable the employees to raise concern about any irregularity and impropriety at an
early stage and in the right way without fear of victimisation, subsequent discrimination or
disadvantage. OSCB has become the first bank in the country to have adopted such a policy.
Employees are normally the first to realise that there are irregular or illegal practices being
followed by any colleague/ management. Hence a policy which affords protection to the
employees who expose irregularities, corruption, malpractice etc. will go a long way in
ensuring transparent management, setting standards, which the DCCBs shall be encouraged to
emulate.

Besides, the Orissa State Cooperative Bank has adopted the following sound practices of
corporate governance.

1. Timely audit of accounts has been ensured. The audit for the year 2005-06 was
completed by 30.06.06.
2. The bank has been paying uninterrupted dividend to the shareholders.

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 3. Common coding of accounting heads has been introduced in the State to integrate the
accounting practices of the OSCB and all affiliated DCCBs. This has facilitated the
computerisation process in the Central Cooperative Banks.
4. Organisation of annual customer meets to understand their changed perception and to
reorient the policies and procedures of the bank. Such meets are also being organised at
the level of the DCCBs as well as the PACS.
5. A transparent transfer policy have been formulated and adopted in the bank. Transfers
are now being effected on the basis of the policy without any other consideration.
6. A bi-monthly house journal entitled “Sampark” is published with effect from January,
2001, which not only provides a forum to the employees to express their views, but also
the management is also able to explain the justification for taking important decisions.
7. Each branch of the OSCB, DCCBs as well as the PACS is being visited by a
supervisory officer every month to inspect the functioning and also impart guidance.
8. Loans Manual for the Bank has been prepared by NABCON- the consultancy arm of
NABARD.
9. Systems Audit of the Bank has been conducted by M/s Haribhakti & Co., Mumbai.
10. A comprehensive HRD policy is being evolved for the Bank by the National Institute of
Bank Management, Pune.

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 CHAPTER-3

PROJECT OVERVIEW

3.1 –Introduction of Financial Statement

3.2 -Meaning and Concept of Financial Analysis
3.3 - Objective of Financial Statement Analysis
3.4 -Types of Financial Analysis
3.5 -Procedure of Financial Statement Analysis
3.6 -Methods and Devices of Financial Analysis
3.7 -Limitation of financial Analysis
3.8 -Overview of Ratio Analysis

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3.1 –Introduction of Financial Statement: -
Finance is defined as the provision of money when it is required. Every enterprise
needs finance to start and carry out its operation. Finance is the lifeblood of an organization. So,
finance should be managed effectively.
Financial statements are prepared primarily for decision making. Financial Statement
Analysis refers to the process of determining financial strength and weakness of the firm by
properly establishing strategic relationship between the items of the balance sheet and profit
and loss account. There are various methods and techniques used in analyzing financial
statements, such as comparative statements, trend analysis, common size statements, schedule
of changes in working capital, funds flow and cash flow analysis, cost volume profit analysis
and ratio analysis and other operative data. The analysis of financial statement is used for
decision making by various parties.

3.2 MEANING AND CONCEPT OF FINANCIAL ANALYSIS:-

The term ‘financial analysis’ , also known as analysis and interpretation of financial
statements’, refers to the process of determining financial strengths and weakness of the firm by
establishing strategic relationship between the items of the balance sheet, profit and loss
account and opposite data.”Analysing financial statements,” according to Metcalf and Titard,
“is a process of evaluating the relationship between component parts of a financial statements to
obtain a better understanding of a firm’s position and performance”. In the words of Myers,
“Financial statement analysis is largely a study of relationship among the various financial
factors in a business as disclosed by a single set-of statement, and a study of the trend of these
factors as shown in a series of statements.”
The purpose of financial analysis is to diagnose the information contained in financial
statements so as to judge the profitability and financial soundness of the firm. Just like a doctor
examines his patient by recording his body temperature, blood pressure, etc. before making his
conclusion regarding the illness and before giving his treatment, a financial analyst analysis the
financial statements with various tools of analysis before commenting upon the financial health
or weaknesses of an enterprise. The analysis and interpretation of financial statements is
essential to bring out the mystery behind the figures in financial statements. Financial
statements analysis is an attempt to determine the significance and meaning of the financial
statement data so that forecast may be made of the future earnings, ability to pay interest and
debt maturities (both current and long-term) and profitability of a sound dividend policy.
The term ‘financial statement analysis’ includes both ‘analysis’, and ‘interpretation’. A
distinction should, therefore, be made between the two terms. While the term ‘analysis’ is used

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to mean the simplification of financial data by methodical classification of the data given in the
financial statements, ‘interpretation’ means, ‘explaining the meaning and significance of the
data so simplified.’ However, both ‘analysis and interpretation’ are interlinked and
complimentary to each other Analysis is useless without interpretation and interpretation
without analysis is difficult or even impossible. Most of the authors have used the term
‘analysis’ only to cover the meaning both analysis and interpretation as the objective of analysis
is to study the relationship between various items of financial statements by interpretation. We
have also used the terms ‘Financial statement Analysis’ or simply ‘Financial Analysis’ to cover
the meaning of both analysis and interpretation.

3.3-Objective and Importance of Financial Statements Analysis:

The primary objective of financial statements analysis is to understand and diagnose the
information contained in financial statement with a view to judge the profitability financial
soundness of the firm, and to make forecast about future prospects of the firm. The purpose of
analysis depends upon the person interested in such analysis and his object. However, the
following purposes or objectives of financial statements analysis may be stated to bring out
significance of such analysis :
1. To assess the earning capacity or profitability of the firm.

2. To assess the operational efficiency and managerial effectiveness.

3. To assess the short term as well as long term solvency of the firm.

4. To identify the reasons for change in profitability and financial position of the firm.

5. To make inter-firm comparisons.

6. To make forecasts about future prospects of the firm.

7. To assess the progress of the firm over a period of time.

8. To help in decision making and control.

9. To guide or determine the dividend action.

10. To provide important information for granting credit.

3.4-Types of Financial Analysis:

We can classify various types of financial analysis into different categories depending upon:
1. On the basis of material used,

2. On the basis of modus operandi,

3. On the basis of entities used,

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 4. On the basis of time horizon.

1. On the basis of Material Used: According to material used, financial analysis can be two
types

a. EXTERNAL ANALYSIS

b. INTERNAL ANALYSIS

a. EXTERNAL ANALYSIS: This analysis is done by outsiders who do not have access to the
detailed internal accounting records of the business firm. These outsiders include investors,
potential investors, creditors, potential creditors, credit agencies, government agencies and
general public. For financial analysis, thus serves only a limited purpose. However, the
recent changes in the government regulations requiring business firms to make available
more detailed information to the public through audited published accounts have
considerably improved the position of the external analysis.

b. INTERNAL ANALYSIS: This analysis is done by persons who have access who have
access to the detailed internal accounting records of the business firm is known as internal
analysis. Such an analysis can, therefore, be performed by executives and employees of the
employees of the organization as well as government agencies which have statutory powers

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 vested in them. Financial analysis for managerial purposes is the internal type of analysis
that can be effected depending upon the purpose to be achieved.

2. On the basis of Modus Operandi:

According to the method of operation followed in the analysis can be two types
(a) Horizontal Analysis

(b) Vertical Analysis

(a) Horizontal Analysis:

It refers to the comparison of financial data of a company for several years. The figures of
this type of analysis are presented horizontally over a number of columns. The figures of the
various years are compared with standard or base year. A base year is a year chosen as
beginning point. It is also called “Dynamic Analysis”. This analysis makes it possible to focus
attention on items that have changed significantly during the period under review. Comparative
statements and trend percentages are two tools employed in horizontal analysis.
(b)Vertical Analysis:
It refers to the study of relationship of the various items in the financial statements of one
accounting period. In this type of analysis the figures from financial statements of a year are
compared with a base year selected from the same year’s statement. . It is also called “Static
Analysis”. Common size financial statements and financial ratios are the two tools employed in
vertical analysis. Since vertical analysis considers data for one time period only, it is not vary
conducive to a proper analysis financial statements. However, it may be used along with
horizontal analysis to make it more effective and meaningful.

3. On the basis of entities involved:

According to the method of operation followed in the analysis can be two types
(a) Inter-firm or Cross Sectional Analysis

(b) Intra-firm or Time Series Analysis

(a) Inter-firm or Cross Sectional Analysis:

Cross sectional analysis involves comparison of financial data of a firm with other firms
(competitors) or industry averages for the same time period.
(b) Intra-firm or Time Series Analysis:
Time series analysis involves the study of performance of the same firm over a period of
time.

4. On the basis of time horizon:

According to the method of operation followed in the analysis can be two types
(a) Short term Analysis

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 (b) Long term Analysis

(a) Short term Analysis:

Short term analysis measures the liquidity position of a firm, i.e. short term paying capacity
of a firm or the firm’s ability to meet the current obligations.
(b) Long term Analysis:
Long term analysis involves the of the firm’s ability to meet the interest costs and repayment
schedules of its long term obligations. The solvency, stability and profitability are measured
under this type of analysis.

3.5-Procedure of Financial Statements Analysis:

Broadly speaking there are three steps involved in the analysis of financial statements. These
are
(i) Selection

(ii) Classification

(iii) Interpretation

The first step involves selection of information (data) relevant to the purpose of analysis of
financial statements. The second step involved is the methodical classification of the data and
the third step includes drawing of inferences and conclusions.
The following procedure is adopted for the analysis and interpretation of financial statements.
1. The analyst should acquaint himself with principles and postulates of accounting. He
should know the plans and policies of the management so that he may be able to find
out whether these plans are properly executed or not.

2. The extent of analysis should be determined so that the sphere of work may be decided.
If the aim is to find out the earning capacity of the enterprise then analysis of income
statement will be undertaken. On the other hand, if the financial position is to be studied
then balance sheet analysis will be necessary.

3. The financial data given in the statements should be re-organised and re-arranged. It will
involve the grouping of similar data under same heads, breaking down of individual
components of statements according to nature. The data is reduced to a standard form.

4. A relationship is established among financial statements with the help of tools and
techniques of analysis such as ratios, trends, common size, funds flow etc.

5. The information is interpreted in a simple and understandable way. The significance and
utility of financial data is explained for helping decision-taking.

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 6. The conclusions drawn from interpretation are presented to the management in the form
of reports

3.6-Methods or Devices of Financial Analysis:

A Number of methods or devices are used to study the relationship between different
statements. The following methods of analysis are generally used:
i. Comparative statements

ii. Trend analysis

iii. Common –size statements

iv. Funds flow analysis

v. Cash flow analysis

vi. Ratio analysis

vii. Cost-volume-profit analysis

In this project the Comparative Statement and Ratio Analysis is used to study the
financial statement of Orissa State Co-operative Bank Ltd.

Comparative statements:
The comparative financial statements are statements of the financial position at different
periods of time. The elements of financial position are shown in a comparative form so as to
give an idea of financial position at two or more periods. Any statement prepared in a
comparative form will be covered in comparative statements. From practical point of view
generally, two financial statements
1. Balance Sheet
2. Income Statement

Comparative balance sheet

The comparative balance sheet analysis is the study of the trend of the same items, group
of items and computed items, group of items and computed items in two or more balance sheets
of the same business enterprise on different dates. The changes in periodic balance sheet items
reflect the conduct of a business. The changes can be observed by comparison of the balance
sheet at the beginning and at the end of a period and these changes can help in forming an
opinion about the progress of an enterprise. The comparative balance sheet has two columns for
the data of original balance sheets. A third column is used to show this increase in figures. The
fourth column may be added for giving percentage of increases and decreases.

Guidelines for Interpretation of Comparative Balance Sheet:

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 While interpreting comparative balance sheet the interpreter is expected to study the
following aspects:
1. Current Financial Position and Liquidity Position
2. Long term Financial Position
3. Profitability of the Concern

1. For studying the Financial Position and short term Financial Position of a concern, one
sees the working capital in both the years. The excess of current assets over current
liabilities will give the figure of working capital. The increase in working capital means
improvement in the current financial position of the business. An increase in current
assets accompanied by the increase in current liabilities of the same amount will not
show any improvement in short term financial position. One should study the increase
or decrease in current assets and current liabilities and this will enable him to analyse
the current financial position.
The second aspect which should be studied in current financial position is the
liquidity position of the concern. If liquid assets like cash in hand, cash at bank, bills
receivable, debtors, etc. show an increase in the second year over the first year, this will
improve the liquidity position of the concern. The increase in inventory can be on
account of accumulation of stocks for want of customers, decrease in demand or
inadequate sales promotion efforts. An increase in inventory may increase working
capital of the business but it will not be good for business.
2. The long term financial position of the concern can be analysed by studying the changes
in fixed assets, long term liabilities and capital. The proper financial policy of concern
will be to finance fixed assets by the issue of either long-term securities such as
debentures, bonds, loans from financial institutions or issue of fresh share capital. An
increase in fixed assets should be compared to the increase in long term loans and
capital. If the increase in fixed assets is more than the long term securities then parts of
fixed assets have not only been financed from long term sources. A wise policy will be
to finance fixed assets by raising long term funds.
3. The new aspects to be studied in a comparative balance sheet questions is the
profitability of the concern. The study of increase or decrease in retained earnings,
various resources and surpluses, etc. will enable the interpreter to see whether the
profitability has improved or not. An increase in the balance of profit and loss account
and the other resources created from profits will mean an increase in profitability to the
concern. The decrease in such accounts may mean issue dividend, issue of bonus share
or deterioration in profitability of the concern.
4. After studying various assets and liabilities an opinion should be formed about the
financial position of the concern. One cannot say if short term financial position is good
then long term financial position will also be good or vice versa. A concluding word
about the overall financial position must be given at the end.

Comparative Income Statement:

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 The income statement gives the results of the operation of a business. The comparative
income statement gives an idea of the progress of a business over a period of time. The changes
in absolute data in money values and percentages can be determined to analyse the profitability
of the business. Like comparative balance sheet income statement also has four columns. First
two columns give figures of various items for two years. Third and fourth columns are used to
show increase or decrease in figures in absolute amounts and percentages respectively.

Guidelines for Interpretation of Comparative Income Statement:

The analysis and interpretation of income statement will involve the following steps:

1. The increase or decrease in sales should be compared with the increase or decrease in
costs of goods sold. An increase in sales will not always mean an increase in profit. The
profitability will improve if increase in sales is more than increase in costs of goods
sold. The amount of gross profit should be studied in the first step.
2. The second step of analysis should be the operational profits. The operating expenses
such as office and administrative expenses, selling and distribution expenses should be
deducted from gross profit to find out operating profits. An increase in operating profit
will result from the increase in sales position and control of operating expenses. A
decrease in operating profit may be due to an increase in operating expenses or decrease
in sales. The change in individual expenses should also be studied. Some expenses may
increase due to the expansion of business activities while others may go up due to
managerial inefficiency.
3. The increase or decrease in net profit will give an idea about the overall profitability of
the concern. Non operating expenses such as interest paid, losses from sales of assets,
writing off deferred expenses, payment of tax, etc. decrease the figure of operating
profit. When all non-operating expenses are deducted from operational profit, we get a
figure of net profit. Some non operating incomes may also be there which will increase
net profit. An increase in net profit will gave us an idea about the progress of the
concern.
4. An opinion should be formed about profitability of the concern and it should be given at
the end. It should be mentioned whether the overall profitability of the concern is good
or not.

Focus of Financial Statement Analysis:

Financial statement analysis involves evaluating different aspects of a business enterprise,
which are of great importance to different users such as management, investors, creditors,
bankers, analyst, investment advisers, etc. generally, the following analyses are made while
making Financial Statement Analysis.
1. Liquidity or short term solvency analysis
2. Profitability analysis
3. Capital structure or gearing analysis
4. Market strength or investor analysis

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 5. Growth and stability analysis

Application of Financial Analysis:

Following are the application of financial analysis:
1. Assessing Corporate Excellence
2. Judging credit worthiness
3. Forecasting bankruptcy
4. Valuing equity shares
5. Predicting bonds ratings
6. Estimating market risk

3.7-Limitations of Financial Statement Analysis:

Financial analysis is a powerful mechanism of determining financial strengths and weakness
of a firm. But, the analysis is based on the information available in the financial statements.
Thus, the financial analysis suffers from serious inherent limitations of financial statements.
The financial analyst has also be careful about the impact of price level changes, windows
dressing of financial statements, changes in the accounting policies of a firm, accounting
concepts and conventions, and personal judgement, etc. The readers are advised to relate the
limitations of financial statements as given in the previous chapter and also the limitations of
ratios as a tool of financial analysis as discussed in Ratio Analysis. Some of the important
limitations of financial analysis are, however, summed up as below:
i. It is only a study of interim reports.
ii. Financial analysis is based upon only monetary information and non-monetary
factors are ignored.
iii. It does not consider changes in price levels.
iv. As the financial statements are prepared on the basis of a going concern, it does not
give exact position. Thus accounting concepts and conventions cause a serious
limitation to financial analysis.
v. Changes in accounting procedure by a firm may often make financial analysis
misleading.
vi. Analysis is only a means and not an end in itself. The analyst has to make
interpretation and draw his own conclusions. Different people may interpret the
same analysis in different ways.

3.8-Overview of Ratio Analysis

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Introduction:
Ratio analysis is one of the techniques used to analyse the financial statements. It is one of
the most powerful tools of financial analysis. It is the process of establishing and interpreting
various ratios (quantitative relationship between figures and group of figures). Through ratio
analysis financial statement can analyse more clearly and decision made from such analysis.
According to Accountant’s Handbook by Wixon Kell and Bedford, a ratio “is an expression,
of the quantitative relationship between the numbers”.

Nature of Ratio Analysis:

Ratio analysis is a technique of analysis and interpretation of financial statements. It is the
process of establishing and interpreting various ratios for helping in making certain decision.
However, ratio analysis is not an end in itself. It is only a means of better understanding of
financial strength and weaknesses of affirm. Calculation of mere ratios does not serve any
purpose, unless several appropriate ratio are analysed and interpreted. There are a number of
ratios which can be calculated from the information given in the financial statements, but the
analyst select the appropriate data and calculate only a few appropriate ratios from the same
keeping in mind the objective of analysis. The ratios may be used as a symptom like blood
pressure, the pulse rate or the body temperature and their interpretation depends upon the
caliber and competence of the analyst. The following are the four steps involved in the ratio
analysis:
i. Selection of relevant data from the financial statements depending upon the objective
of the analysis.

ii. Calculation of appropriate ratios from the above data.

iii. Comparison of the calculated ratios with the ratios of the same firm in the past, or the
ratios developed from projected financial statements or the ratio of some other firms or
the comparison with ratios of the industry to which the firm belongs.

iv. Interpretation of the ratios.

Use and Significance of Ratio Analysis:

➢ Helpful in decision making.

➢ Helpful in financial forecasting and planning.

➢ Helpful in communication.

➢ Helpful in co-ordination.

➢ Helpful in Control.

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 ➢ Helpful in efficiency appraisal.

➢ Helpful in evaluation of financial position.

➢ Helpful to investors, financial institution, employee.

Limitations of Ratio Analysis:

The ratio analysis is one of the most powerful tools of financial management. Though ratios are
simple to calculate and easy to understand, they suffer from some serious limitations:
1. Limited Use of Single Ratio. A single ratio, usually, does not convey much of a sense.
To make a better interpretation a number of ratios have to be calculated which is likely to
confuse the analyst than help him ion making any meaningful conclusion.

2. Lack of Adequate Standards. There are no well adapted standards or rules of thumb for
all ratios which can be accepted as norms. It renders interpretation of the ratios difficult.

3. Inherent Limitations of Accounting. Like financial statements, ratios also suffer from
the inherent weakness of accounting records such as their historical nature. Ratios of the
past are not necessarily true indicators of the future.

4. Change of Accounting Procedure. Change in accounting procedure by a firm often

makes ratio analysis misleading. e.g; a change in the valuation of methods of inventories,
from FIFO to LIFO increases the cost of sales and reduces considerably the value of
closing stocks which makes stock turnover ratio to be lucrative and an unfavourable
gross profit ratio.

5. Window Dressing. Financial statements can easily be window dressed to present a better
picture of its financial and profitability position to outsiders. Hence, one has to be very
careful in making a decision from ratios calculated from such financial statements. But it
may be very difficult for an outsider to know about the window dressing made by a firm.

6. Personal Bias. Ratio are only means of financial analysis and not an end in itself. Ratios
have to be interpreted and different people may interpret the same ratio in different ways.

7. Incomparable. Not only industries differ in their nature but also the firms of the similar
business widely differ in their size and accounting procedures, etc. It makes comparison
of difficult and misleading. Moreover comparisons are made difficult due to differences
in definitions of various financial terms used in the ratio analysis.

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 8. Absolute Figures Distortive. Ratios devoid of absolute figures may prove distortive as
ratio analysis is primarily a quantitative analysis and not a qualitative analysis.

9. Price Level Changes. While making ratio analysis, no consideration is made to the
changes in price levels and this makes the interpretation of ratio invalid.

10. Ratios no Substitutes. Ratio analysis is merely a tool of financial statements. Hence,
ratios become useless if separated from the statements from which they are computed.

11. Clues not Conclusions. Ratios provide only clues to analysts and not final conclusions.
These ratios have to be interpreted by these experts and there are no standard rules for
interpretation.

Classification of Ratios:
The use of ratio analysis is not confined to financial manager only. There are different
parties interested in the ratio analysis for knowing the financial position of a firm for different
purposes. In view of various users of ratios, there are many types of ratios which can be
calculated from the information given in the financial statements. The particular purpose of the
user determines the ratios that might be used for financial analysis.

Various accounting ratios can be classified as follows

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 Functional Classification in View of Financial Management or
Classification According to Tests:

Liquidity Ratios:
(A) .

1. Current Ratio

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 2. Liquid Ratio

3. Cash Ratio

4. Interval Measure

(B) .

1. Debtors Turnover Ratio

2. Creditors Turnover Ratio

3. Inventory Turnover Ratio

Long-term solvency and Leverage Ratios:

1. Debt/Equity Ratio

2. Debt to total capital Ratio

3. Invest Coverage

4. Cash Flow/Debt

5. Capital Gearing

Activity Ratios or Asset Management Ratios:

1. Inventory Turnover Ratio

2. Debtors Turnover

3. Fixed Assets Turnover Ratio

4. Total Assets Turnover Ratio

5. Working Capital Turnover Ratio

6. Payables Turnover Ratio

7. Capital Employed Turnover

Profitability Ratio:
(A) In relation to Sales

1. Gross Profit Ratio

2. Operating Ratio

3. Operating Profit Ratio

4. Net Profit Ratio

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 5. Expense Ratio

(B) In relation to investments

1. Return on investments

2. Return on capital

3. Return on Equity Capital

4. Return on Total Resources

5. Earnings per share

6. Price-Earning Ratio

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 CHAPTER-4

Analysis and Interpretation

4.1 -Comparative Balance Sheet
4.2 -Comparative Income Statement
4.3 -Ratio Analysis

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 Interpretation of Comparative Balance Sheet:

1. The Comparative Balance Sheet reveals that during 2008 there has been an increase
in current assets of Rs.84505532873.26 i.e. 45.22% in the current liabilities have
increased by Rs.3772755697.00 i.e. 47.12%. So the current financial position has
increased.
2. The liquid assets that is cash in hand, cash in bank shows an increase in 2008 over
2007. This will improve the liquidity position of the concern.
3. The other assets have decreased by Rs.1140272554.52 and the long term liabilities
to outsiders have decreased but the share capital has increased. It shows that the
Bank depends on fresh share capital.
4. Reserve and Surplus have increased from Rs.2017387326.74 to Rs.2153015911.18
and the profit has increased from Rs.91603261.57 to Rs.97231865.85 i.e. 6.14%. It
shows that the profitability of the bank has improved.
5. The overall financial position of the Bank is satisfactory.

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4.2-COMPARATIVE INCOME STATEMENT:
For the year ending 31st March 2007 and 2008

31st March 2007 31st March 2008 Increase/Decrease Increase/Decrease

Rs. Percentage
Expenditure:
Interest paid on 1395937255.58 1742121619.02 346184363.44 24.80
deposits and
borrowings

Salary and 94960048.95 144470099.70 49510050.75 52.14

Allowances

Directors And local 215659.00 577892.96 362233.96 167.97

committee
members fees &
allowances
14894381.83 18936824.89 4042443.06 27.14
Rent, Taxes, &
Insurance
Expenses
1241822.90 1206672.00 (35150.90) 2.83
Law charges &
Legal expenses
1590337.13 2010979.47 420642.34 26.45
Postage, Telegram
& Telephone
charges
159142.00 331484.00 172342.00 108.29
Audit fees
17964933.26 17201877.68 (763055.58) (4.25)
Depreciation &
repair to Property
3447826.96 3529339.49 81512.53 2.36
Stationary, Printing
& Advertisement
119142242.98 79578931.58 (39563311.40) (33.20)
Other Expenditure

Total Expenditure 1649553650.59 2009965720.79 360412070.20 21.85

Balance of Profit 91603261.57 97231865.85 5628604.28 6.14

Total 1741156912.16 2107197586.64 366040674.50 21.00
Income:
Interest & Discount 1691129945.33 2085494315.36 394364370.03 23.32

Commission,
Exchange & 8295349.24 10936979.41 2641630.17 32.00
Brokerage

Other receipt 41731617.59 10766291.87 (30965325.72) (74.20)

Total 1741156912.16 2107197586.64 366040674.50 21.00

 Interpretation of the Comparative Income Statement:

1. The comparative income statement reveals that there has been increase in interest
paid on deposit and borrowings by 24.80%, salary and allowances by 52.14%, rent,
tax and insurance expense by 27.14%. Postage and telegram expenses increases by
26.45%, but the other expenditure are relatively decreased. So the total expenditure
is increased by Rs.21.88%.
2. The total income of the bank has increased by 21.85% and the bank earn the profit
of Rs.97231865.85 which is 6.14% more than the previous year.
3. There is a sufficient progress in the bank and the overall profitability of the bank is
good.

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 4.3 -Ratio Analysis
Profitability
Ratio:

The primary objective of business undertaking is to earn profit in the words of Lord
Keynes “Profit is the engine that drives the Business enterprise”. Profit is not only needed
for its existence but also for its expansion and diversification. The investors want an
adequate return on their investment; workers want higher wages, creditor want high
security for their interest and loan soon.
Following are the important overall profitability ratios, which relevant to the Business
Concerns are:
1. Return on Assets
2. Return on Capital Employed
3. Return on Equity Capital
4. Earning per Share(EPS)

1. Return on Assets:
It states the relationship between net profit and total assets.

Return on assets = Net Profit * 100 / Total asset

YEAR NET PROFIT TOTAL ASSET PERCENTAGE

2000-01 64924131 16944362857 0.38%
2001-02 74953072 16743339649 0.45%
2002-03 84731646 17918499832 0.47%
2003-04 134751259 21297744258 0.63%
2004-05 174443023 21453862751 0.81%
2005-06 169964997 25773075463 0.66%
2006-07 91603261 29510930212 0.31%
2007-08 97231865 36860908079 0.33%

0.90%
0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

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 Interpretation:
The return on assets of OSCB is not satisfactory. The assets are not utilized
properly.

2. Return on Capital Employed

It is widely used to measure the overall profitability and the efficiency of the
business.

Return on Capital Employed = Net Profit * 100 / Total capital employed

Capital Employed:
 Share Capital
 Reserve fund & other reserves

YEAR NET PROFIT CAPITAL PERCENTAGE

EMPLOYED
2000-01 64924131 1206388387 5.38%
2001-02 74953072 3326568012 2.25%
2002-03 84731646 3696509930 2.29%
2003-04 134751259 1887613988 7.14%
2004-05 174443023 2191252452 7.96%
2005-06 169964997 2578915623 6.59%
2006-07 91603261 2715073251 3.37%
2007-08 97231865 2866774211 3.39%

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Interpretation:
 BIBILIOGRAPHY
Reference Books:
1. Gupta Shashi K. & Sharma R. K.: Management Accounting

; Kalyani Publisher, New Delhi.

2. Prasanna Chandra: Financial Management Theory and Practice; Hill

Publishing Company Ltd, New Delhi.

3. Jawahar Lal & Srivastava Seema,: Financial Accounting;

Sultan Chand & Company Ltd.New Delhi.

4. Gordon E. & Natarajan K.: Banking Theory Law & Practice; Himalaya
Publishing House.

Reference From Journal, Magazine,Newspaper,Annual Report:

1. Annual Report of Orissa State Co-operative Bank Ltd. Bhubaneswar.

WEBSITE
www.oscb.coop/
www.rbi.com
www.managementparadise.com

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