1.

1 Banking overview
Banks are important financial intermediaries in all the countries. Commercial Banks are
the oldest, biggest and fastest growing financial intermediaries in India. They are also
most important depositories of public saving and the most important disbursers of
finance. Profitability, Liquidity, safety and social welfare (justice) are the major
principles which banks strive to incorporate in their working.

Without a sound and effective banking system in India it cannot have a healthy economy.
The banking system of India should not only be hassle free but it should be able to meet
new challenges posed by the technology and any other external and internal factors. For
the past three decades India's banking system has several outstanding achievements to its
credit. The most striking is its extensive reach. It is no longer confined to only
metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even
to the remote corners of the country. This is one of the main reasons of India's growth
process

Genesis of Banking in India

The first bank in India, though conservative, was established in 1786. From 1786 till
today, the journey of Indian Banking System can be segregated into three distinct phases.
They are as mentioned below:

 PHASE I - Early phase from 1786 to 1969 of Indian Banks

 PHASE II - Nationalization of Indian Banks and up to 1991
 PHASE III - Indian Financial & Banking Sector Reforms after 1991.

PHASE I:

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan
and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency
Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders banks, mostly Europeans shareholders.
During the first phase the growth was very slow and banks also experienced periodic
failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To
streamline the functioning and activities of commercial banks, the Government of India
came up with The Banking Companies Act, 1949 which was later changed to Banking
Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of
India was vested with extensive powers for the supervision of banking in India as the
Central Banking Authority. During those day’s public has lesser confidence in the banks.
As an aftermath deposit mobilization was slow. Abreast of it the savings bank facility
provided by the Postal department was comparatively safer. Moreover, funds were largely
given to the traders.

PHASE II:

Government took major steps in this Indian Banking Sector Reform after independence.
In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large
scale especially in rural and semi-urban areas. Second phase of nationalization Indian
Banking Sector Reform was carried out in 1980 with seven more banks. This step brought
80% of the banking segment in India under Government ownership.
The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:

 1949- Enactment of Banking Regulation Act.

 1955- Nationalization of State Bank of India.
 1959- Nationalization of SBI subsidiaries.
 1961- Insurance cover extended to deposits.
 1969- Nationalization of 14 major banks.
 1971- Creation of credit guarantee corporation.
 1975- Creation of regional rural banks.
 1980- Nationalization of seven banks with deposits over 200 crore
After the nationalization of banks, the branches of the public sector bank India raised to
approximately 800% in deposits and advances took a huge jump by 11,000%.Banking in
the sunshine of Government ownership gave the public implicit faith and immense
confidence about the sustainability of these institutions.
PHASE III
This phase has introduced many more products and facilities in the banking sector in its
reforms measure. In 1991, under the chairmanship of M. Narasimham, a committee was
set up by his name which worked for the liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being put
to give a satisfactory service to customers. Phone banking and net banking is introduced.
The entire system became more convenient and swift. The financial system of India has
shown a great deal of resilience. It is sheltered from any crisis triggered by any external
macroeconomics shock as other East Asian Countries suffered. This is all due to a
flexible exchange rate regime, the foreign reserves are high, the capital account is not yet
fully convertible, and banks and their customers have limited foreign exchange exposure.

Functions of banks
Primary functions
• acceptance of deposits
• making loans & advances
• loans
• overdraft
• cash credit
• discounting of bills of exchange

Secondary functions
• agency functions
• collection of cheques & bills etc.
• collection of interest and dividends.
• making payment on behalf of customers
• purchase & sale of securities
• facility of transfer of funds
• to act as trustee & executor.
Utility functions :
• safe custody of customers valuable articles & securities.
• underwriting facility
• issuing of traveller's cheque letter of credit
• facility of foreign exchanges
• providing trade information
• provide information regarding credit worthiness of their customer

Classification on basis of ownership

On the basis of ownership banks are of the following types :

1. Public sector bank

Public sector banks are those banks which are owned by the government. The govt. Runs
these banks. Welfare is their principle objective

2. Private sector banks

These banks are owned and run by the private sector. Various banks in the country such
as icici bank, hdfc bank etc. An individual has control over their banks in preparation to
the share of the banks held by him.

3. Co-operative banks
Co-operative banks are those financial institutions. They provide short term & medium
term loans to there members. Co-operative banks are in every state in india. Its branches
at district level are known as the central co-operative bank. The central co-operative bank
in turn has its branches both in the urban & rural areas. Every state co-operative bank is
an apex bank which provides credit facilities to the central co- operative bank. It
mobilized financial resources from richer section of urban population by accepting
deposit and creating the credit like commercial bank and borrowing from the money mkt.
It also gets funds from rbi.

Ii according to reserve bank of india act 1935

Banks are classified into following two categories son the basis of reserve bank act. 1934.
1. Scheduled bank
These banks have paid up capital of at least rs. 5 lacks. These are like a joint stock
company. It is a co-operative organization. These banks find their mention in the second
schedule of the reserve bank.

2. Non scheduled bank

These banks are not mentioned in the second schedule of reserve bank paid up capital of
these banks is less then rs.5 lacs. The no. Such bank is gradually tolling in india.

Iii classification according to function

On the basis of functions banks are classified as under :-
1. Commercial banks
The commercial banks generally extend short-term loans to businessmen & traders. Since
their deposits are for a short-period only. They cannot lend money for a long period.
These banks reform various types or agency job for their customers. These banks are not
in a position to grant long-term loans to industries because their deposits are only for a
short period. The majority of joint stock banks in india are commercial banks which
finance trade & commerce only.

2. Saving banks
The principle function of these banks is to collect small saving across the country and put
them into productive use. These banks have shown marked development in Germany &
Japan. These banks are established in Hamburg city of Germany in 1765. In India a
department of post offices functions as saving banks.

3. Foreign exchange banks

These are special types of banks which specialize in financing foreign trade. Their main
function is to make international payments through purchase & sale of exchange bills. As
it well known, the exporters of a country prefer to receive the payments for exports in
their own currency. Thus these banks convert home currency into foreign currency and
vice versa. It is on this account that these banks have to keep with themselves stock of the
currency of various countries. Along with that, they have to open branches in foreign
countries to carry on their business.
4. Industrial banks

The industrial banks extends long term loans to industries. In fact, they also help
industrials firms to sell their debentures and shares. Sometimes, they even underwrite the
debentures & shares of big industrial concerns.

5. Indigenous banks
These banks found their origin in india. These banks made a significant contribution to
the development of agricultural and industries before independence. Rural moneylenders
have been the forerunner of these banks in india.

6. Central bank
The central bank occupies a pivotal position in the monetary and banking structure of the
country. The central bank is the undisputed leader of the money market. As such it
supervises controls and regulates the activities of commercial banks affiliated with it. The
central bank is also the higher monetary institution in the country charged with the duty &
responsibility of carrying out the monetary policy formulated by the government. India's
central bank known as the reserve bank of india was set up in 1935.

7. Agricultural bank

The commercial and the industrial banks are not in a position to meet the credit
requirements of agriculture. Hence, there arises the need for setting up special type of
banks of finance agriculture. The credit requirement of the farmers are two types. Firstly
the farmers require short term loans to buy seeds, fertilizers, ploughs and other inputs.
Secondly, the farmers require long-term loans to purchase land, to effect permanent
improvements on the land to buy equipment and to provide for irrigation works. There are
two types of agriculture banks.
1. Agriculture co-operative banks, and
2. Land mortgage banks. The farmer provide short-term credit, while the letter extend
long-term loans to the farmers.
 Profile of Union Bank of India

Head Office is Located at

239, Vidhan Bhavan Marg, Central Office,

Nariman Point, Mumbai -21.
Tel: 022 22892000
Website:www.unionbankofindia.com
The dawn of twentieth century witnesses the birth of a banking enterprise par excellence-
UNION BANK OF INDIA- that was flagged off by none other than the Father of the
Nation, Mahatama Gandhi. Since that the golden moment, Union Bank of India has this
far unflinchingly traveled the arduous road to successful banking........ a journey that
spans 88 years.

Union Bank of India is firmly committed to consolidating and maintaining its identity as a
leading, innovative commercial Bank, with a proactive approach to the changing needs of
the society. This has resulted in a wide gamut of products and services, made available to
its valuable clientele in catering to the smallest of their needs. Today, with its efficient,
value-added services, sustained growth, consistent profitability and development of new
technologies, Union Bank has ensured complete customer delight, living up to its image
of, “GOOD PEOPLE TO BANK WITH”. Anticipative banking- the ability to gauge the
customer's needs well ahead of real-time - forms the vital ingredient in value-based
services to effectively reduce the gap between expectations and deliverables.

The key to the success of any organisation liew with its people. No wonder, Union Bank's
unique family of about 29462 qualified / skilled employees is and ever will be dedicated
and delighted to serve the discerning customer with professionalism and
wholeheartedness.

Over the years, the Bank has earned the reputation of being a techno-savvy and is a front
runner among public sector banks in modern-day banking trends. It is one of the pioneer
public sector banks, which launched Core Banking Solution in 2002. Under this solution
umbrella, All Branches of the Bank have been 1135 networked ATMs, with online
Telebanking facility made available to all its Core Banking Customers - individual as
well as corporate. In addition to this, the versatile Internet Banking provides extensive
information pertaining to accounts and facets of banking. Regular banking services apart,
the customer can also avail of a variety of other value-added services like Cash
Management Service, Insurance, Mutual Funds and Dematerialization.

Union Bank has opened representative offices in Shanghai and Beijing, Peoples Republic
of China, Abudhabi, UAE, Sydney and London. It also has full-fledged overseas branch
in Hongkong.

History

 1919 : UBI was registered on November 11,1919 as a limited company in

Mumbai. It was inaugurated by Mahatma Gandhi.

 1947:UBI has only 4 branches – 3 in Mumbai and 1 in Saurashtra, all

concentrated in key trade centres.

 1969: The Government nationalized UBI. At the time of nationalization UBI had
240 branched and in 28 states. After Nationalisation UBI merged in Belgaum
Bank, a private sector bank established in 1930.

 1985: UBI merged with Miraj State Bank, established in 1929.

 1999: UBI acquired Sikkim Bank in a rescue at the request of the Reserve Bank of
India after the discovery of the extensive regularities at the non scheduled bank.
Sikkim bank had eight branches located in the North east which was attractive to
UBI.

 2007: UBI opened representative offices in Abu Dhabi, United Arab Emirates and
Shanghai, Peoples Republic of China.

 2008: UBI opened a branch in Hongkong. Its first branch outside India.

 2009: UBI opened a representative office in Sydney

Board of Directors

1.Shri. M.V.Nair: Chairman & Managing Director: He took the charge of Union Bank of
India as Chairman and Managing Director since 1st April 2006. A series of transformation
initiatives have taken place in the Bank under his leadership with focus on bringing
excellence in process, product and the people.

2. Shri Kalia assumed charge as Executive Director of Union Bank of India w.e.f.
November 21, 2009. Shri Kalia is known for his expertise, especially in credit related
matters and international banking. Shri Kalia is the recipient of several awards including
Banker Shiromani Award and Utakarsh Award.

3. Shri Mundra assumed charge as Executive Director of Union Bank of India w.e.f.
September 1, 2010. Bank’s new initiatives viz. “SME Loan Factory”, “Gen- Next
Branch” etc. were launched in the Zone during
his stint which later developed as a robust business model for the bank.

4. Shri Eapen represents Government of India on the Board of Directors of the Bank with
effect from 10th June,2008. Shri Eapen is looking after issues relating to Agriculture
Credit, Financial Inclusion, Rural Banking besides HR and Establishment issues of Public
Sector Banks in his current assignment.

5.Smt. Meena Hemachandra Nominated by Government of India, as Director with effect

from 30th July, 2010.

6. Shri B.M. Sharma has been appointed on the Board of the Bank under the Chartered
Accountant category from 16th April, 2010.

7.Shri N.Shankar Government nominated Director.

Share Holding Pattern

UNION BANK OF INDIA

DISTRIBUTION OF SHAREHOLDING AS ON 31/3/2011
SL NO. OF PERCENTAG
CATEGORY
NO SHARES E
A. PROMOTER'S HOLDING
1 PROMOTERS
Indian Promoters 299214515 57.07
Foreign Promoters
2 Persons acting in Concert
Sub Total 299214515 57.07
B NON PROMOTERS HOLDING
3 INSTITUTIONAL INVESTORS
a) Mutual Funds & UTI 46226261 8.82
Banks,Financial
b) 18313578 3.49
Institutions,Insurance
Companies (Centra/State Govt.
Institutions)
c) FIIs & Foreign Mutual Funds 78888033 15.05
Sub Total 143427872 27.36
4 OTHERS
a) Private Corporate Bodies 34516325 6.58
b) Indian Public 46993973 8.96
c) NRIs/OCBs 179730 0.03
d) Any other (please specify)-GDR
Sub Total 81690028 15.57
GRAND TOTAL 524332415 100.00
 Vision and Mission of Union Bank of India

CORPORATE MISSION

 A logical extension of the Vision Statement is the Mission of the Bank, which is to
gain market recognition in the chosen areas.

 To build a sizeable market shares in each of the chosen areas of business through
effective strategies in terms of pricing, product packaging and promoting the product
in the market.

 To facilitate a process of restructuring of branches to support a greater efficiency in

the retail banking field.

 To sustain the mission objective through harnessing technology driven banking and
delivery channels.

 To promote confidence and commitment among the staff members, to address the
expectations of the customers efficiently and handle technology banking with ease.
 Introduction to Analysis of Financial Statements

After preparation of the financial statements, a business organization may be interested in

knowing the position of an enterprise from different points of view. This can be done by
analyzing the financial statement with the help of different tools of analysis such as ratio
analysis, funds flow analysis, cash flow analysis, comparative statement analysis, etc.

Financial ratios are widely used for modeling purposes both by practitioners and
researchers. The firm involves many interested parties, like the owners, management,
personnel, customers, suppliers, competitors, regulatory agencies, and academics, each
having their views in applying financial statement analysis in their evaluations.
Practitioners use financial ratios, for instance, to forecast the future success of companies,
while the researchers' main interest has been to develop models exploiting these ratios.
Many distinct areas of research involving financial ratios can be discerned. Historically
one can observe several major themes in the financial analysis literature. There is
overlapping in the observable themes, and they do not necessarily coincide with what
theoretically might be the best founded areas.

Analysis means establishing a meaningful relationship between various items of the two
financial statements with each other in such a way that a conclusion is drawn. By
financial statements, we mean two statements- (1) profit & loss a/c (2) balance sheet.
These are prepared at the end of a given period of time. They are indicators of
profitability and financial soundness of the business concern

Parties interested in analysis of financial statements

Analysis of financial statement has become very significant due to widespread interest of
various parties in the financial result of a business unit. The various persons interested in
the analysis of financial statements are:-
 Short- term creditors
They are interested in knowing whether the amounts owing to them will be paid as and
when fall due for payment or not.

 Long –term creditors

They are interested in knowing whether the principal amount and interest thereon will be
paid on time or not.

 Shareholders
They are interested in profitability, return and capital appreciation.

 Management
The management is interested in the financial position and performance of the enterprise
as a whole and of its various divisions.

 Trade unions
They are interested in financial statements for negotiating the wages or salaries or bonus
agreement with management.

Ratio Analysis of Banks

Capital
Management Earnings Liquidity and Sensititvity to
Adequacy Asset Quality
Efficiency (Profitability) funding Market risk
Ratio

Capital Adequacy

Capital Adequacy is a measurement of a bank to determine if solvency can be maintained

due to risks that have been incurred as a course of business. Capital allows a financial
institution to grow, establish and maintain both public and regulatory confidence, and
provide a cushion (reserves) to be able to absorb potential loan losses above and beyond
identified problems. A bank must be able to generate capital internally, through earnings
retention, as a test of capital strength. An increase in capital as a result of restatements
due to accounting standard changes is not an actual increase in capital.
Capital Adequacy seeks to measure the level of “shock absorbing” capacity available in a
bank’s financial position.

By Basle rules, the major requirements of capital adequacy are:

Tier 1 capital is a bank’s core capital and includes paid-up share capital,which must be at
least a minimum specified by regulations, share premium and disclosed or published
reserves. The disclosed or published reserves are statutory reserve, revenue reserve,
exchange difference reserve, irredeemable preference shares and other non-distributable
reserves.
Statutory reserve - There is a requirement for every profitable bank to maintain a
statutory reserve account. The reserve is made from annual appropriations out of profit
after taxation. Statutory reserves are non-distributable profit.

Tier 2 capital is supplementary capital. It includes revaluation surplus, general provisions,

hybrid capital instruments such as redeemable preference shares and subordinated debt.
Limitations:
1. It is required that at least 50% of a bank’s capital base should consist of Tier1 capital.
2. Subordinated debt will be limited to a maximum of 50% of Tier 1 elements.

ASSET QUALITY
Asset quality, which hinges strongly on credit risk management, lies at the heart of
survival for a vast majority of banks. The profile of who to lend to must be transparent.
Credit risks associated with the key banking products must be understood and managed.
The maturity profile of loan products interacts strongly with liquidity risk management.
Asset classification and subsequent provisioning against possible losses impacts not only
the value of the loan portfolio but also the true underlying value of the bank’s capital.
Asset quality is impacted strongly by the underlying process and policies governing the
entire credit process. It is essential to find out what the portfolio management strategy,
level of concentrations, types of loans i.e. by customer type, products, tenure, etc. Asset
Quality ratios measures the quality of the bank’s assets i.e. the recoverability of the risk
assets and the revenue earning potential of the bank. The higher the quality of a bank’s
assets are more stable and consistent its profit potential.
 Risk – weighted Assets/ Total Measures the level of risk in the balance sheet of a bank
Assets and Contingents has an associated risk factor. The higher the ratio, the
higher the risk being taken by the bank
Non- Performing Loans / Gives the ratio of the bank’s total loan portfolio that is
Total Loans non-performing. The higher the ratio the lower, the
quality of the portfolio
Loan Loss Expense / Interest Measures the proportion of interest income lost to poor
Income credit. The higher the ratio, the lower the quality of
bank’s credit portfolio
Loan Loss Provisions/ Non Gives the proportion of provisions already made on bad
Performing Loans and doubtful loans. The higher the ratio, the lower the
impact of existing bad loans on the bank’s future
profitability

PROFITABILITY RATIO
A class of financial metrics that are used to assess a business's ability to generate earnings
as compared to its expenses and other relevant costs incurred during a specific period of
time. For most of these ratios, having a higher value relative to a competitor's ratio or the
same ratio from a previous period is indicative that the company is doing well.

Some examples of profitability ratios are profit margin, return on assets and return on
equity. It is important to note that a little bit of background knowledge is necessary in
order to make relevant comparisons when analyzing these ratios.

Profitability is an indicator of a bank’s capacity to carry risk and/or increase its capital. It
also indicates competitiveness and confirms the quality of management. Profit provides a
cushion against short-term problems and is a good source of retained earnings which
increases capital and consequently, the capacity to grow the business.

The income statement, especially the common size one, reveals the sources of a bank’s
earnings, their quantity, quality and profile of its expenditures. It should serve as a
confirmation of a bank’s business orientation.
  Source of profitability and hence sectors of the business or economy upon
which the entity is dependent
 Quality and quantity of earnings especially given the risk taken
 Quality of the loan portfolio i.e. asset quality
 Taxation and its impact on the choice of products
 Dividend payout and level of earnings retention
 Expense recognition policies that may distort earnings

Liquidity

Although regulators attempt to specify minimum liquidity requirements, the management

of liquidity risk is a complex interaction between expected cash flows and interest rate
forecasts. The source of deposits adds to the volatility of funds, the maturity structure
assists in projecting cash flows and diversification of funding sources and maturities
enables a bank avoid losing large deposits at short notice.
Liquidity ratios seek to measure the bank’s ability to meet customers’ withdrawal
requests. A bank’s deposit Mix, gives an indication as to the stability of funding available
to the bank as well as its cost of funds.

Inter-bank funds are the most expensive, followed by time deposits and then savings
deposits. Therefore a bank, which is heavily funded by inter-bank or time deposits would
have a high cost of funds, whilst one that is heavily funded with demand deposits would
have a low cost funding base. As the funding cost of a bank determines the quality of
risks that it can take on the asset side of its balance sheet, a “high cost”-funding funding
base is usually indicative of a high risk asset base.
OBJECTIVES

The underlying objective of financial analysis is the comparative measurement of risk and
return useful for making investment, credit or regulatory decisions. Information as to the
past, provide a basis for assessing projecting the future earnings and cash flows.

Banking supervision, which is based on an ongoing analytical review of banks, continues

to be one of the key factors in maintaining stability and confidence in the financial
system. The analysis used in off-site surveillance is similar to that used by private sector
analysts.

The objectives are to:

 Assess the capacity of the bank to operate safely and productively
 Ensure compliance with regulatory requirement
 Study Earning capacity or profitability
 Study Comparative position in relation to other banks
 Analyze Management competence,
 Assess Financial strength
 Know Liquidity Status
 Analyze Risk management, risk assessment, risk management, changes or trends
in such risks

Scope of the Project

The Audited Financial statements of the Union Bank of India for the Financial Years
2006-07, 2007-08, 2008-09, 2009-10, and 2010-11 were analyzed.
Research Methodology

Research methodology is a way to systematically solve the research problem. It may be

understood as a science of studying how research is done scientifically.
Problem discovery

The same consists of exploratory and descriptive types as given ahead:

(i)Survey of Literature
This will be undertaken through the following sources:
a) Annual Reports, Audit Reports, other Documents and record of Union Bank of
India.
b) Legal provisions relating to Nationalised Banks
c) Newspapers and magazines having concern with Banking.
d) Books, pamphlets, brochures, etc. relating Banking.
e) Reports on Banking prepared by RBI

In order to get the above study material, the offices and various university Libraries will
be visited for the necessary information.

(ii)Experience Survey
There is a need to collect experiences of the people who are directly or indirectly
have concern to the subject selected for project. Because of this need, Personnel of Union
Banks and NBFC were contacted for collecting the information about analysing of
Financial Statements.
While selecting the respondents for interview, severe care was taken to select only
those who possessed a competence, relevant experience and ability to communicate. The
respondents were selected for interviewing had wide experience and knowledge base.
Efforts were made to ensure an appropriate representations of the different types of
experiences, including the respondents from all categories i.e. Managers, Chief Managers,
Investors, Financial analyst etc.

The experience survey provides in-depth vision about the various problems and
dimensions of business environment that exists and also provides vision over the matters
of employees & customers having direct concern to Banks. Another advantage of
experience survey is that it facilitates the suitable formulation of questionnaire for
descriptive study method.
Data Analysis and interpretation

Capital Adequacy Ratio

2006-07 2007-08 2008-09 2009-10 2010-11

Tier I 7.79% 7.45% 8.18% 7.91% 8.69%
Tier II 5.01% 5.06% 5.09% 4.60% 4.26%
CAR 12.8% 12.51% 13.27% 12.51% 12.95%

Capital Adequacy Ratio

14.00%
12.00%
5.09% 4.26%
5.01% 5.06% 4.60%
10.00%
Tier II
8.00% Tier I
6.00%
7.79% 8.18% 7.91% 8.69%
4.00% 7.45%

2.00%
0.00%
2006-07 2007-08 2008-09 2009-10 2010-11

Union Bank of India has implemented the New Capital Adequacy Framework as per the
timelines prescribed by RBI. While the Bank, to start with, has adopted Standardized
Approach for Credit Risk, Standardized Duration method for market risk and Basic
Indicator approach for Operational risk, the initiatives so far undertaken/ envisaged are
geared towards enabling the Bank to comply with the standards set out for more advanced
capital measurement approaches in the Basel-II Accord.

Union bank of India satisfies Basel II Norms pertaining to Capital adequacy Ratio. The
CAR of Union Bank of India is well above the regulatory benchmark of 9%.
Tier I Capital is always greater than 50% of the total capital and Tier II capital is always
less than 50% as per norms. It is well above the regulatory benchmark of BASEL II
norms.
Asset Quality

2006-07 2007-08 2008-09 2009-10 2010-11

Net NPA to Net
Advances in % 0.96 0.17 0.34 0.81 1.19
Gross NPA To Gross
advances in % 2.94 2.18 1.96 2.20 2.37
Net NPA/Gross NPA
in % 32.65 7.7 17.35 36.8 50.21

Comparison of Net NPA and Gross NPA

Net NPA to Net Advances in % Gross NPA To Gross advances in %
2.94

2.37
2.18 1.960000000000 2.2
01

1.190000000000
0.960000000000 01
001
0.81

0.34
0.17

2006-07 2007-08 2008-09 2009-10 2010-11

Majority of public sector banks witnessed deterioration in asset quality and Net NPA to
Net advances ratio increased during the year 2009-10 & 2010-11.
The reasons for increase in non-performing loans were large number of agricultural
accounts that were not settled under the Agricultural Debt Wavier Scheme and slippages
in high value accounts of certain clients dependent on export markets. Secondly, Union
Bank also adopted the system-based recognition of Non-performing Assets during the
year 2010-11. Major part of loan accounts has been moved to system-based recognition.

Considering the ratio between net NPA and Gross NPA is increasing. In the year 2008 it
was 7.7%. It denotes that Provision for NPA is higher than the statutory level. In the year
2009 it was 17.35% which implies that provision were reduced. During 2010 it was 36.8
which means provisions were reduced. During the 2011 it is 50.21 depicts only statutory
level provisions are made.
Key Financial Indicators

Interest Spread / Average Working Funds

2006-07 2007-08 2008-09 2009-10 2010-11

Interest Income/ Average 8.08 8.35 8.78 8.04 8.33
Working Funds in %

Interest Expense/
Average Working Funds 5.03 5.76 5.96 5.51 5.19
in %

Interest Spread/ Average

weekly funds in % 3.05 2.59 2.82 2.53 3.14

Interest Spread
8.350000000000 8.78
9 8.08 01 8.33
8.04
8
7 5.96
5.76 5.51 Interest Income/ Average
6 5.03 5.19 Working Funds in %
5 Interest Expense/ Average
Working Funds in %
4
3
2
1
0
2006-07 2007-08 2008-09 2009-10 2010-11

Union bank of India shows gradual increase in interest spread with an exception to year
2007-08 & 2009-10. It put forth the efficiency of Asset and Liability management
committee. During the year 2007-08 Interest spread is decreased because of the increase
in Interest Expenses. During the year 2009-10 interest income is reduced and also the
interest expenditure grew up.
Contribution of Interest Income and Non-Interest Income to the total Income

2006-07 2007-08 2008-09 2009-10 2010-11

Interest Income/ Average 8.08 8.35 8.78 8.04 8.33
Working Funds in %
Non Interest Income/
Average Working Funds in 0.75 1.2 1.09 1.19 1.03
%
Total Income / Average
Working Funds in % 8.83 9.55 9.87 9.23 9.36

Comparison of Interest Income to

Non Interest Income
Interest Income/ Average Working Funds in %
Non Interest Income/ Average Working Funds in %

0.7500000000000 1.1900000000000
05 1.2 1.09 1.03
1

8.08 8.3500000000000 8.78 8.33

1 8.04

2006-07 2007-08 2008-09 2009-10 2010-11

Union Bank of India is Concentrating Non Interest Income. It is gradually growing except
for the year 2010-11. During the year the major drag was 19.02% fall in income from
profit on sale of investments due to volatile and uncertain market conditions prevailing
during the year.
Comparison of Total Income and Income to operating expenses
2006-07 2007-08 2008-09 2009-10 2010-11
Total Income 8.83 9.55 9.87 9.23 9.36
/Average Working
Funds in %
Operating Expenses/
Average Working Fund
in % 1.61 1.44 1.63 1.52 2.00
Interest Income/ 8.08 8.35 8.78 8.04 8.33
Average Working
Funds in %
Ratio of Operating
Expenses to Interest
Income in % 19.93 17.25 18.56 18.91 24.01
Ratio of Operating
Expenses to Total
Income in % 18.23 15.08 16.51 16.47 21.37

Comparison of Operating Expenses to

Interest and Total Income
Total Income /Average Working Funds in %
Operating Expenses/ Average Working Fund in %
Interest Income/ Average Working Funds in %

9.55 9.87 9.36000000000001

8.83 8.78 9.23
8.08 8.35000000000001 8.04 8.33

1.61 1.44 1.63 1.52 2

2006-07 2007-08 2008-09 2009-10 2010-11

Operating Expenses increase during the year 2011 is only because of the increase in
Establishment Expenses by 91.88%. It is purely due to the implementation of bipartite
wage settlement and gratuity liabilities. The gratuity statutory limit is increased from 3.5
to 10 lakhs.
 Cost Income Ratio
2006-07 2007- 2008-09 2009-10 2010-11
08
Operating Expenses / 42.45 38.17 41.81 40.66 47.85
Non Interest Income
plus interest spread

Cost / Income Ratio

Operating Expenses / Non Interest Income plus interest spread

47.85
42.45 41.81 40.66
38.17

2006-07 2007-08 2008-09 2009-10 2010-11

The drastic increase in the Cost- Income ratio in the year 2010-11 is due to increase in the
establishment expenditure because of implementation of bipartite wage settlement and
decrease in the non Interest income

ProfitabilityRatio
 2006-07 2007-08 2008-09 2009-10 2010-11
Gross Profit / Average 2.19 2.34 2.28 2.21 2.18
weekly funds in %
Net Profit / Average
weekly funds in % 0.92 1.26 1.27 1.25 1.05
Ratio of Net Profit /
42.01 53.85 55.70 56.56 48.17
Gross Profit

Profitability Ratio
Gross Profit / Average weekly funds in % Net Profit / Average weekly funds in %

2.34 2.28
2.19 2.21 2.18

1.26 1.27 1.25

1.05
0.92

2006-07 2007-08 2008-09 2009-10 2010-11

The liability on account of Pension was Rs.1146 crore for the year 2010-11 as against
Rs.178 crore during 2009-10.

Comparison of Returns
 2006-07 2007-08 2008-09 2009-10 2010-11

Net Profit / Net Worth 17.88 24.7 24.79 23.69 18.63

(Excluding revaluation reserves
and intangible assets) in %

Net Profit / Total Assets in %

0.82 1.12 1.07 1.06 0.88
Net Profit / Avearage weekly
fund in % 0.92 1.26 1.27 1.25 1.05

Comparison of Returns
25

20

Net Profit / Net Worth (Excluding revalua-

tion reserves and intangible assets) in %

15

Net Profit / Total Assets in %

10

Net Profit / Avearage weekly fund in %

5

0
2006-07 2007-08 2008-09 2009-10 2010-11

Return on Net worth and Return on Terminal Assets and Return on Average assets were
slowly increasing and stabilized. But during the 2010-11 they are reduced because of the
reduction in net profits due to drastic increase in establishment expenditure. Efficient
utilization of assets is reflected through higher than industry average and stable Return on
Average Assets. The return on average assets is maintained at a healthy rate of 1.25% .

Comparison of Yield on advances/ Cost of Deposits

2006-07 2007-08 2008-09 2009-10 2010-11
Yield on Advances 8.98 10.12 11.06 9.94 9.86
Cost of Deposits 5.23 6.19 6.5 5.94 5.53

Comparison of Yield on advances/

Cost of Deposits
Yield on Advances Cost of Deposits
11.06
10.12 9.94 9.86000000000001
8.98

6.19 6.5
5.94 5.53
5.23

2006-07 2007-08 2008-09 2009-10 2010-11

The cost of Deposits is gradually decreasing shows the efficiency of the management.

Total Deposits of 2,02,461 crore as 31/3/2011, an increase of 19.07%. CASA deposits

grew at 19.18%.

Total Advances of 1,53,022 crore as on 31/3/2011, an increase of 26.20%. Retail

advances grew at 20.22%.
Dividend Payout ratio

2006-07 2007-08 2008-09 2009-10 2010-11

Dividend including
corporate Dividend Tax /
Net Profit (including 24.2 17.04 17.11 15.66 23.44
Corporate dividend tax)

Dividend Payout Ratio

Dividend including corporate Dividend Tax / Net Profit (including Corporate dividend tax)

24.2
23.44

17.04 17.11
15.66

2006-07 2007-08 2008-09 2009-10 2010-11

During 2007 dividend payout ratio was 24.2. In the year 2008 it was 17.04 it
purely because of the provisions of NPA was higher than 2007.
Comparison Credit Deposit and Credit + Non SLR Investment ratio
2006-07 2007-08 2008-09 2009-10 2010-11
Credit Deposit ratio

Total advances / Customer 76.46 75.55 73.22 73.71 78.11

Deposits (i.e. Total Deposits
minus Inter Bank Deposits)
Credit + Non SLR Investment
(excluding investment in 81.49 78.44 76.75 80.75 84.08
subsidaries ) Deposit ratio

Comparison of Credit Deposit and Credit

Deposits + Non SLR investments

Total advances / Customer Deposits (i.e. Total Deposits minus Inter Bank Deposits)

Credit + Non SLR Investment (excluding investment in subsidaries ) Deposit ratio

q
84.08
81.49 80.75
78.44 78.11
76.46 76.75
75.55
73.22 73.71

2006-07 2007-08 2008-09 2009-10 2010-11

 Shareholder return
2006-07 2007-08 2008-09 2009-10 2010-11
Earnings per share in Rs 16.74 27.46 34.18 41.08 39.71
Book value per share in Rs 93.6 111.19 137.87 173.38 213.17
Return on Equity (%) 17.88 24.7 24.79 23.69 18.63

Shareholder return
250

200
2006-07
2007-08
150 2008-09
2009-10
100 2010-11

50

0
Earnings per share Book value per Return on Equity
in Rs share in Rs (%)

Book Value per share as on 31/3/2011 is 213.17, an increase of 22.95%

over the previous year.
SWOT ANALYSIS

STRENGTH:

High level of services

Knowledge of Indian market
Fifth largest Nationalized Bank in India
The concept of Corporate Relationship Manager (CRM) has also been adopted
with a specific objective of enhancing the Relationship value with thrust on
gaining higher share in non-fund business limits and augmenting the non-interest
income
The Union Loan Points (ULPs) set up during Nav Nirman transformation for
focused approach on retail lending has become centres of excellence in retail
lending. Bank has 46 ULPs in various parts of the country that contributed more
than 1/5th of total retail loans. Bank will continue to ensure that the ULP setup is
strengthened to improve the performance
The bank has 250 dedicated Business Banking Branches (BBBs) for promoting
finance to MSMEs and 17 SARALs (Central Processing Centres) for speedy
appraisal and sanction of MSME loans. These BBBs & SARALs are established
in potential centres across the country which serve as the main driver for growth
of MSME advances
Bank has a proactive approach towards risk management. Its risk philosophy
involves developing and maintaining a healthy portfolio within its risk appetite
and regulatory framework.

WEAKNESS:
OPPORTUNITIES:

Growing Indian banking sectors

People are becoming more service oriented
Global market in India
Opening branches at Abroad to target worldwide customers

THREATS:

Increasing competitors
Foreign banks
Future market trends
Suggestions

Despite the growth of the Internet, ATMs and other remote channels, banking remains
fundamentally a person-to-person business. And while alternate channel support a
significant share of consumer transaction activity, the physical branch remains the
overwhelming choice for account openings. In this environment, it remains critical for
bank to both develop strong branch staffs and to retain top employees. The branch
performance scorecard can assist in both of these critical efforts.

A branch performance scorecard is a reporting tool used to measure performance across

various retail banking activities and to award incentive payments to personnel at top-
performing branches. Though the scorecard offers a useful reporting tool and can assist
branch administrators in comparatively evaluating their branches, these represent
ancillary benefits. At its core, an effective scorecard has two primary functions:

A sound scorecard program will allow a bank to identify top-performing branches and
reward them accordingly; but these rewards should accrue only for performance above
baseline performance. Remember, rewarding employees for the baseline performance
that's already reflected in their salaries simply raises costs with no benefit.

Though there are numerous approaches to a performance score-card, a sound program

should address three areas: new customer acquisition, cross-sell of new accounts to
existing customers, and the retention of existing accounts.

Characteristics of an effective scorecard

Before considering what specific elements to measure on any institution's scorecard, there
are six principles to keep in mind:

The scorecard must be simple, with a limited number of measured categories. Limiting
the number of measured performance attributes (for example, number of new checking
accounts sold) serves to focus the branch staff on those few behaviors that are responsible
for the bulk of the branch's success or failure.
Similarly, an effective scorecard is understandable, to the point that branch personnel can
replicate the calculations on which their incentive payments are determined.

The scorecard should contain goals against which performance is measured, and these
goals must be attainable. Performance targets set beyond a reasonably attainable reach
will create a disincentive, as personnel are unlikely to pursue an unattainable goal.

All measures on the scorecard must be controllable. Remember that the purpose of the
scorecard is to reinforce desired sales and service behaviors, so anything beyond the
control of branch staff is inappropriate. Thus, neither a profit component that includes
noninterest expense such as occupancy costs, nor a loan loss component is appropriate on
a branch scorecard. Not only the credit quality isn't important, but it is the responsibility
of the credit committee and not something that should affect incentives paid for properly
executed sales and service behaviors.

A scorecard should be stable. A scorecard should be timely.

These last two things mean that the items measured on a scorecard should remain
constant over time so that branch personnel understand how they will be evaluated and
which skills are most important, and incentive payments should be disbursed at least
quarterly so that employees see a direct link between their activities and their paychecks.

Note:Performance Scorecards Made a Difference at Mississippi Bank.

A Sample Balanced Scorecard for Union Bank, Kasarwadi Branch

FINANCE CUSTOMER

 Raise new loans of 30 crores  Improve service facilities

 Grow deposits by 60 crores  Educate customer about Star Dai chi
 Increase interest income by15 crores life insurance
 Reduce delinquency to 4%  Expand merchant banking service
 Increase PPF Account by 15000 Nos  Improve service quality
 Increase ATM Cards by 5,000  Reduce turnaround time
 Increase Debit Cards by 300  Educate customers on banking
 Increase Online Banking Users by services
1000  Install advertising boards in
 Increase cross sell communities
 Mobilize insurance policy equal to  Build bus sheds in service
loan amount in case of all loans to communities
prevent being NPA because of any  Increase Card, merchant, online
unpredicted cause ie death of the usage
customer.  Implement customer service rating

PROCESS PEOPLE

 Establish Audit Ratings for Branch  Employ Manager Marketing &

performance Customer service
 Revise system for recording and  Employ Manager Systems &
correcting transaction errors Procedures
 Implement measure for turnaround  Employ manager Merchant Services
time Unit
 Revise and implement clear  Develop and implement training
guidelines for transaction approval plan for Dep’t cross training and
 Establish clear work flowcharts for other training
various services/transactions  Revise procedures, communicate &
 Clearance of suspense account Train
 Improve staff engagement
 Improve Customer service standards
 Train to utilize MIS Reports
generated by Pinnacle

Limitations

1. Financial ratio is seen as a valuable complement to Bank performance. Over the years,
it has evolved from a simple set of Calculations to a formal risk assessment tool. It is
however generally recognized that financial ratio is not sufficient on its own to identify
the complex nature of risks undertaken by banks, particularly large banks and specialized
institutions. Peer group analysis measures a bank’s performance relative to that of other
banks of similar size and activity. Thus if an entire group deteriorates, the relative
performance of each bank may not change, even though the banks have become riskier.

The integrity, timeliness and processing of data as well as sound accounting practices are
pre-condition for the effectiveness of ratios as a predictor of risk.

2. Economic assumptions – implicit in ratio analysis is the assumption of linear

proportionality i.e. that the relationship between the numerator and
Denominator should be similar irrespective of size.

3. Benchmarks – There are no benchmarks to indicate an optimal level for any ratio.
Evaluating ratios depend on the question posed by the analyst. As stated earlier, using
industry average and peer group analysis will be useful.

4. Performance of the bank should have been compared with the performance of other
nationalized bank and private banks

Conclusion
A careful review of a bank's financial statements can highlight the key factors that should
be considered before making a trading or investing decision. Investors need to have a
good understanding of the business cycle and the yield curve - both have a major impact
on the economic performance of banks. Interest rate risk and credit risk are the primary
factors to consider as a bank's financial performance follows the yield curve. When it
flattens or becomes inverted a bank's net interest revenue is put under greater pressure.
When the yield curve returns to a more traditional shape, a bank's net interest revenue
usually improves. Credit risk can be the largest contributor to the negative performance of
a bank, even causing it to lose money. In addition, management of credit risk is a
subjective process that can be manipulated in the short term. Investors in banks need to be
aware of these factors before they commit their capital.

Union Bank of India has standardized and well-defined approval processes to tackle
credit risk for all credit proposals to minimize the credit risk associated with them. Bank
has set up Credit Approval Grids at Regional Offices/ Field General Manager’s Offices
and Central Office. Bank has also developed credit rating models for exposure above 2
lakh and scoring model for Retail lending schemes. Entire credit portfolio of the bank is
subject to internal credit rating.

Asset Liability Committee (ALCO) manages market risk. The Committee meets regularly
and decides on the size, mix, tenor, pricing and composition of various assets and
liabilities. It primarily does identification, measurement, monitoring and management of
liquidity and interest rate risk.

Union Bank of India has designed Comprehensive systems and procedures, internal
control system and audit are the primary means for managing Operational Risk.

Union bank of India continued with the healthy performance track record from 1/4/2006
to 31/3/2011 while accomplishing the objective creating values for customers, employees
and shareholders.

In the journey towards vision 2020, Union Bank of India is envisioning not only growth
in business parameters but also all round development of the Bank’s value as a most
trusted corporate citizen.

The human capital is critical to the growth of Union Bank of India. Keeping this in view,
a HR transformation project has been launched during the year to address the issues of
manpower recruitment, training, performance management, succession planning,
leadership development etc.