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A Study on Financial Analysis and Performance of Kotak Mahindra Bank
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Universal Review ISSN NO : 2277-2723
A Study on Financial Analysis and Performance of Kotak Mahindra Bank
1
Mr.P.Rajendran.,M.Com.,M.Phil.,
2
Dr.B.Sudha., M.Com.,M.Phil.,Ph.D.,
ABSTRACT
This study has been carried out to evaluate the financial performance Kotak Mahindra
Bank. India’s second largest private sectors bank in terms of market share over the past five
financial years i.e., 2014, 2015, 2016, 2017 and 2018. The financial performance of above
mentioned bank has been evaluated giving consideration to primarily ratio analysis wherein
under liquidity ratios current ratio and quick ratio. The profitability ratios are calculated i.e.,
Fixed Assets Ratio, Debit – Equity Ratio and Proprietary ratio and give interpretation to each
ratios. This has been done with a view to obtain an understanding of the financial position of the
bank and how it has been performing past five financial years.
Key Words: Kotak Mahindra Bank, Financial Performance, Ratio Analysis, Financial Position.
1
.Ph.D. Part-Time Research Scholar & Assistant Professor in Commerce, Department Of
Commerce, K.S.Rangasamy College of Arts and Science (Autonomous),K.S.R Kalvi Nagar,
Tiruchengode - 637 215, Tamil Nadu, India, Email: rajenmega73@gmail.com.
2
.Assistant Professor in Commerce, Department of Commerce, Periyar University college of
Arts and Science , Pappireddipatti, Dharmapuri , Tamil Nadu, India.
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1. INTRODUCTION
Financial performance is the process of measuring how efficiently a company uses its assets
from primary mode of business to generate revenues it also measures an organization’s total
financial health over a certain period of time which is used for inter-company as well as inter-
industry comparison. Financial performance analysis is the process organizing the financial
strength and weaknesses of entities by accurately establishing a relationship between the items of
balance sheet and profit and loss account. This process identifies the growth of the organization.
It helps in both long-term and short-term. Establishing relationship between the financial
elements of the organization this analysis helps in understanding the firm’s position in better
way. There are several ways of financial analysis such as ratio analysis. This analysis also
helpful determining the credit worthiness of a new customer and evaluate the market position of
the competitors.
History-Kotak Mahindra Bank
It is an Indian private sector bank with its headquarters at Mumbai, Maharashtra Kotak
Mahindra Finance Ltd., the flagship company was granted the license to carry on banking
business by Reserve Bank of India in February 2003, a wide range of banking products and
financial services for corporate and retail customers are provided by Kotak. These services are
provided through a variety of delivery channels and specialized subsidiaries such as: Personnel
financing, Investment banking, General insurance, Life insurance. Its network of 1,369 branches
across 689 locations and 2,163 ATMs in the country (as of 31 March 2017). As of 2018 it is the
second largest private bank in India by market capitalization after HDFC Bank.
Established in 1985, Kotak Mahindra Finance Capital Management Limited, the flagship
company of the Kotak Group, started off as a non-banking financial services company, initially
providing financing for the purchase of automobiles. In 2003 it became the first ever NBFC to be
converted into a bank.3Despite its humble beginnings, Kotak today is one of India’s fastest
growing banks, which caters to wide variety of banking needs of both individuals and corporates.
It provides consumer banking services, commercial banking services, investment banking 15
subsidiaries across India and the world and a few joint ventures, Kotak has spread its businesses
wide across the market and country with over 600 operating branches. Currently, Kotak is
primarily promoted by Mr. Uday Kotak who continues to hold about 39.69% of the capital
interest and is listed on the NSE, BSE and LSE1.
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2. REVIEW OF LITERATURE
Nagalekshmi V S, Vineetha S Das (20183), found that the positive impact of merger of Kotak
Mahindra Bank Ltd with ING-Vysya Bank. It also found that momentous increment in various
budgetary angles like operating profit, net profit, earnings per share, interest earned, return on
assets, equity share capital, income on investments etc.
Vinod Kumar and Bhawna Malhotra(20174),attempted has been made to evaluate the
performance & financial soundness of selected Private Banks in India for the period 2007-2017.
CAMEL approach has been used. This study concluded that the Axis bank is ranked first under
the CAMEL analysis followed by ICICI bank. Kotak Mahindra occupied the third position. The
fourth position is occupied by HDFC bank and the last position is occupied by IndusInd bank
amongst all the selected banks.
Grundy (1992) in the article discusses about the competitive and financial analysis, which is
required by a firm for strategic and operational decision making. The research mentioned in the
required in the financial managers to careful thinking of the linkages between competitive and
financial analysis. The success factor depends on the ability to manage behavioral variables
effectively. Conclusion can be made that competitive and financial business analysis helps the
firm for making better strategic decision.
McMahon & Davies (1994) in the articles talks about the small enterprises and importance of
developing skills regarding financial statements analysis and interpretation. Article points out
that because of growth financial stress is created in such firms, which can be improved through
upgrading of financial analysis and reporting systems. The article aims to find out possible
relation between the historical financial reporting and analysis and achieved growth rate and
financial performance.
Zuckerman (1995) presents the article, which is about the financial statements that are very
important as when analyzed, they reveal financial condition, health, operating trends and future
prospects of the firm article has tried to find and suggest ways to provide framework to automate
the customizing of analysis according to the firms customer or industry needs. The article aims
for standard automated comparative spreadsheet that will provide detailed summary of most
significant line items and also few analytical ratios. An appropriate analytical methodology
suggested in the article is key components of balance sheet, income statements and cash flows.
The article suggests certain approaches to interpret ratios like trend analysis, general standards,
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industry specific standard ratios and combination of few ratios to forecast the possibility of
business failure.
Eberl & Schwaiger (2005) in the article aims to research the impact of the corporate’s
reputation on their future financial performance while taking the past financial performance
influence on the present reputation into account. A firm`s reputation depends on the
stakeholder`s interactions and the transactions with the firm. Two distinct reputational
components, organizational competence and sympathy are hypothesized as effecting the
financial performance differently. Organization’s performance is measured on the perception of
financial performance in the eyes of the stakeholders or measures reported by the company itself.
Mautz & Angell (2006) in the article has talked about the financial statements which help the
creditors and the investors to get the financial history, current performance, future cash flows,
trends and price appreciations. The article aims to introduce and illustrates techniques to make
financial analysis. The article provides an overview on the financial statement analysis, financial
performance and analytical tools. It also discusses about financial ratios and its implications and
also DuPont analysis. The article concludes that the results from these methods can be connected
to the management actions which will help to improve performance and use their time efficiently
and effectively. The financial statement analysis helps to assess the creditworthiness of the
potential borrowers and also provides opportunity for the lenders to protect value of their loans.
3. RESEARCH DESIGN
A. Methodology
This study is quantitative in nature meaning it primarily deals with financial statements Of kotak
Mahindra Bank over the past five years. This study is based on secondary data which is mainly
taken from the Banks website and the annual reports published by the Reserve Bank of India.
This study considers the data which have been collected from the Bank website to identify and
explain the progress or deterioration of the performance of Kotak Mahindra Bank over the past
five financial years.
B. Objectives of the study
1.To evaluate the financial efficiency of Kotak Mahindra Bank.
2.To analysis the liquidity and solvency position of the bank.
3.To find changes in the trends of the bank using trend analysis.
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C. Limitations of the study
1.The study is restricted only the five financial years only i.e., 2014,2015,2016,2017, and
2018.
2.The study is completely based on secondary data and the accuracy of the analysis depends
vastly upon the accuracy of the data obtained.
3.This study may not be extensive enough to cover all the ratios to be considered in
evaluating the financial health of a bank accurately.
4. Data Analysis
Some of the major ratios have been evaluated and interpreted for the purpose understanding the
financial performance of the Bank.
Short-Term Solvency Ratios
4.1 Current Ratio
Current ration establishes relationship between current assets and current liabilities. Current
assets are these assets that can be converted into cash say within a year. And, current liabilities
are those liabilities that should be settled within a short period say one year.
Current Ratio = Current Assets/ Current Liabilities
The standard norm or rule of thumb for current ratio is 2:1. It means that let the total amount of
current liabilities. When a firm is current ratio is 2 or more it means that its liquidity position is
considered to be sound or good.
Table 1: Current ratio
Year 2017-18 2016-17 2015-16 2014-15 2013-14
Current 1.63 1.94 0.95 0.86 1.12
ratio
This ratio is also called working capital ratio. It the rule of the thumb for current ratio is 2.1.
It is an indicator for a Bank’s ability to promptly meet its short term liabilities. A relatively
current ratio indicates that the Bank is liquid and has the capability to meet its current liabilities.
On the other hand a relatively lower current ratio indicates that the Bank is finding it difficult to
pay its debts. Current ratio was 1.12 in the year 2013-14 it was decreased by 0.86 in 2014-15 and
0.95 in 2015-16. In the year 2016-17 the ratio increased to 1.94. In the 2017-18 was decreased by
1.63. This means that with increase in the Banks ratio. The Bank is in a good position to pay its
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current liabilities. It has become strong in its ability to pay off its obligations when they become
due.
4.2 Super – Quick Ratio Or Absolute Liquid Ratio Or Cash Ratio
It is true that debtors, bills receivables are more liquid than stock. Nevertheless, there may be
doubts regarding their realization into cash immediately or in time. Hence some authorities are of
the opinion that super quick (Absolute Quick Ratio) should also be calculated along with the
earlier two ratios namely current ratio and quick assets and current liabilities. Super quick assets
are cash in hand, cash at bank and marketable securities or temporary investments. As the name
implies, marketable securities or temporary investments or investments in govt. Securities are
cashable very quickly. Therefore, marketable securities are included under super quick assets.
Super quick Ratio = Absolute liquid Assets / Current Liabilities.
The standard norm of absolute liquid ratio is 5:1 or 50%. The point is that when a firm has super
quick assets to the tune of 50% of its current liabilities, it is said to be as far as its liquidity
position is concerned.
Table 2: Super Quick ratio
Year 2017-18 2016-17 2015-16 2014-15 2013-14
Super Quick 7.71 7.13 6.70 6.75 7.66
ratio
This ratio is also known as absolute liquid ratio or cash ratio or acid test ratio. It shows
ability of the company to meet its immediate financial commitments. When quick ratio is used
along with current ratio, it gives a better picture of the Banks capability to meet the short-term
out of the short-term assets. This ratio is important for Banks and financial institutions. The ideal
quick ratio is 1:1. If the quick ratio is below one it is not at all satisfactory because the lessor the
quick ratio the business may find itself in serious financial difficulties. Quick ratio in the year
2013-14 is 7.66, which has decreased by 6.75 and 6.70 in the year 2014-15, 2015-16
respectively. It has increased to 7.13 and 7.71 in the year 2016-17 and 2017-18 respectively. It
means that the Bank is concentrating in decreasing its quick assets. The ideal quick ratio is 1:1,
but the Bank has a medium quick ratio due to its industry. The Bank has very less inventory or
stock, and if that is removed from the assets, all that remain is cash and cash equivalents.
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LONG-TERM SOLVENCY RATIOS
4.3 Fixed assets ratio
The ratio establishes the relationship between fixed assets and long – term funds. The objective
of calculating this ratio is to ascertain the proportion of long – term funds invested in fixed
assets. The ratio is calculated as given below:
Fixed assets ratio = Fixed assets / Long term funds
The ratio should not generally be more than ‘1’. If the ratio is less than one it indicates that a
portion of working capital has been financed by long – term funds. It is desirable in that part of
working capital is core working capital and it is more or less a fixed item. An ideal fixed assets
ratio is 0.67. The ratio should not generally be more than ‘1’. If the ratio is less than one it
indicates that a portion of working capital has been financed by long – term funds. It is desirable
in that part of working capital is core working capital and it is more or less a fixed item. An ideal
fixed assets ratio is 0.67.
Table 3 Fixed assets ratio
Year 2017-18 2016-17 2015-16 2014-15 2013-14
Fixed assets 0.03 0.04 0.05 0.06 0.06
ratio
Fixed assets ratio in the year 2013-14 and 2014-15 is 0.06 which was decreased by 0.04, 0.05
and 0.03 respectively in the remaining years. This ratio is less than 1 in the study period. it
indicates that a portion of working capital has been financed by long – term funds. It is desirable
in that part of working capital is core working capital and it is more or less a fixed item. It is not
satisfactory because less than the ideal ratio of 0.67 in all years.
4.4 Debt equity ratio:
This ratio is ascertained to determine long – term solvency position of a company. Debt equity
ratio is also called ‘external – internal equity ratio’.
Debt – equity ratio = Total long term debt / Shareholders funds
The term external equity refers to total outsiders liabilities.
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Internal equities refer to shareholders funds or the tangible net worth. Here shareholder refers to
only the equity shareholders. Total long – term debt refers to long - term borrowings and a
shareholder fund refers to owner’s funds or share capital. Ideal ratio is 1
Table 4 Debt-equity ratio
Year 2017-18 2016-17 2015-16 2014-15 2103--14
Debt-equity 0.86 1.29 1.31 1.41 1.52
ratio
This ratio is ascertained to determine long – term solvency position of a Bank by its ability to
assure long term creditors in regard to the payment of interests and loan repayment of principal
on maturity at due dates. It shows the relative claims of creditors and owners against the assets of
the firm. It also indicates the relative proportions of debt and equity in financial the firm’s assets.
From a pure risk perspective, lower ratios are considered better debt ratio.
The Banks debt equity ratio in the year 2013-14 is 1.52, which has decreased by 1.41, 1.31,
1.29 and 0.89 in the years 2014-15, 2015-16, 2016-17 and 2017-18 respectively. This ratio
considered to be somewhat satisfactory.
4.5 Proprietary ratio:
This ratio compares the shareholders’ funds or owner’s funds and total tangible assets. In other
words this ratio expresses the relationship between the proprietor’s funds and total tangible
assets.
Proprietary ratio = Shareholders funds / Total tangible assets
The ratio shows the general soundness of the company. It is of particular interest to the
creditors of the company as it helps them to ascertain the shareholders’ funds in the total assets
of the business. A high ratio indicators safety to the creditors and a low ratio shows greater risk
to the creditors. A ratio below .5 is alarming for the creditors since they have to lose heavily in
the event of company’s liquidation as it indicates more of creditor’s funds and less of
shareholders’ funds in the total assets of the company.
Table .5 Proprietary Ratios
Year 2017-18 2016-17 2015-16 2014-15 2013-14
Proprietary Ratios 3.24 2.56 2.36 2.97 3.73
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The ratio shows the general soundness of the company. It is of particular interest to the
creditors of the company as it helps them to ascertain the shareholders’ funds in the total assets
of the business. A high ratio indicators safety to the creditors and a low ratio shows greater risk
to the creditors. A ratio below .5 is alarming for the creditors since they have to lose heavily in
the event of company’s liquidation as it indicates more of creditor’s funds and less of
shareholders’ funds in the total assets of the company. The proprietary ratio in the year 2013-14
is 3.73 which was decreased by 2.97 in the year 2014-15 and also decreased by 2.36 in the year
2015-16. It has increased to 2.56 and 3.24 in the year 2016-17 and 2017-18 respectively. This
ratios are more than ideal ratio of .5 the creditors are highly safe. Finally the proprietary ratios
are satisfactory in the study period.
Findings
1.The fluctuations of current ratio shows the Bank`s ability to meet its short-term liabilities
are satisfactory in the study period.
2.The trend of the super quick ratio in the current year implies that the bank is highly capable
of liquidating its funds.
3.The downward trend in the fixed assets ratio unfavorable position of the Bank.
4.This ratio less than one in the study period. It indicates that a portion of working capital has
been financed by long – term funds.
5.The downward trend in the debt-equity ratio shows a favorable position of the Bank as it
implies that there are more owned funds than borrowed funds in the current year.
However, in the current year, the debt equity ratio is 0.86, which is higher as compared to
the industry standard. Typically, a ratio of 1.5 is considered favorable whereas anything
above 2 are considered unfavorable.
6.A high ratio shows that there is safety for all types. A ratio below .5 is alarming for the
creditors since they have to lose heavily in the event of company’s liquidation as it
indicates more of creditor’s funds and less of shareholders’ funds in the total assets of
the company. However, in the current year, proprietary ratio is 3.24, which is higher as
compared to the industry standard. The creditors are highly safety during the study
period.
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Conclusion
This study finally concluded that the financial performance Kotak Mahindra Bank.
India’s second largest private sectors bank in terms of market share over the past five
financial years i.e., 2014, 2015, 2016, 2017 and 2018. The financial performance of above
mentioned bank has been evaluated giving consideration to primarily ratio analysis wherein
under liquidity ratios current ratio and quick ratio. The profitability ratios are calculated i.e.,
Fixed Assets Ratio, Debit – Equity Ratio and Proprietary ratio and give interpretation to each
ratios. This has been done with a view to obtain an understanding of the financial position of
the bank and how it has been performing past five financial years. The fluctuations of current
ratio shows the Bank`s ability to meet its short-term liabilities are satisfactory in the study
period. The trend of the super quick ratio in the current year implies that the bank is highly
capable of liquidating its funds. This downward trend was in the fixed assets ratio
unfavorable position of the Bank. This ratio was less than one in the study period. It
indicates that a portion of working capital has been financed by long – term funds.
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