Corporate Finance

Project Work Report

“Financial Analysis of Public Sector Banks of India”
Group No-

Submitted to- Submitted by-

Dr. Nupur Gupta Swapnil Tiwari
Sumit Kumar
Shreya Singh
Tanushree Upadhyay
Hemant Singh
Uday Patidar
Tanmay Mukati
Objective of the project
To and present and analyses a detailed financial strategy of
public sector banks of India. This report encompassing the
Investing, Financing, and Dividend decisions of the Public sector
banks in India.

Scope of the project

This project report is specific to the Public sector banks of India,
which are
 State Bank of India
 Punjab National Bank
 Indian Bank
 Bank of baroda

Methodology
This study employed a desk-based research methodology to
gather information for the analysis of the Investment, dividend,
financing decisions of the Public sector Banks of India. The data
collection process was solely reliant on publicly available
information accessible on the internet.
Introduction of Public sector banks in India
A public sector bank is one in which the government owns more
than half of the total stock. All financial guidelines for public
sector banks are developed by the government. The
government operates public sector banks to instil confidence in
depositors that their money is safe.
The State Bank of India is India's largest public sector bank.
Public sector banks are constantly working in the public interest
by introducing schemes for the benefit of their customers. They
also charge less than private banks for their services.
Nationalised banks in India earn huge profits in addition to
serving the public interest.
Nationalized Banks (Government Shareholding %, as at end-
March 2023)
Banks Shareholding (%)
State Bank of India (57.59%)
Canara Bank (62.93%)
Bank of Baroda (63.97%)
Punjab National Bank (73.15%)
Indian Bank (79.86%)
Bank of India (81.41%)
Union Bank of India (76.99%)
Bank of Maharashtra (90.90%)
Central Bank of India (93.08%)
UCO Bank (95.39%)
Indian Overseas Bank (98.25%)
Punjab and Sind Bank (98.25%)
 Bank of Baroda
Bank of Baroda, founded in 1908 in Baroda, India, has grown to
become a global banking behemoth with over 153 million
customers in 21 countries. The bank, founded by Maharaja
Sayajirao Gaekwad III, has an innovative and inclusive culture,
aiming to benefit individuals and communities throughout the
socioeconomic range. Personal banking, corporate financing,
agricultural loans, and wealth management are among the
products and services offered by the bank.
Bank of Bank is at the cutting edge of digital banking, utilising
cutting-edge technology to offer safe experiences via its mobile
app, web platform, and huge network of ATMs. Its global reach
connects India to the rest of the globe, bridging the divide and
boosting cross-border trade. Bank of Baroda is dedicated to
creating a more sustainable future by funding green initiatives
and strengthening underserved areas.
Bank of Baroda is dedicated to creating a brighter tomorrow,
one empowered client, one flourishing community, and one
creative solution at a time, with a rich history and a clear vision
for the future.
Profit And Loss Account
Particular Mar-20 Mar-21 Mar-22 Mar-23
Revenue 78,895 74,314 73,385 94,139
Interest 50,040 43,201 38,815 49,942
Expenses 40,583 38,636 37,518 38,231
Financing Profit -11,728 -7,523 -2,948 5,965
Financing Margin % -15% -10% -4% 6%
Other Income 12,191 15,254 14,395 16,639
Depreciation 1,697 1,357 1,438 2,032
Profit before tax -1,234 6,373 10,008 20,573
Tax % 176% 77% 23% 29%
Net Profit 981 1,620 7,933 15,005
EPS in Rs 2.01 2.99 15.18 28.82
Analysis

 The recent jump in revenue and profitability in Mar-2023

suggests a potential turnaround in the bank's
performance.
 The consistent rise in interest income and other income
highlights the bank's ability to generate revenue from
various sources.
 The improvement in financing profit margin from negative
to positive indicates effective expense management and
improved operational efficiency.
 The significant increase in profit before tax and net profit
showcases the bank's profitability potential.
 The substantial growth in EPS signals increased
shareholder value and potential attractiveness for
investors.
Overall, the data reveals a positive trend in Bank of Baroda's
financial performance, highlighting its potential for sustained
growth and profitability. However, a comprehensive analysis
considering various factors and external influences is necessary
for a more nuanced evaluation of the bank's investment
potential.
Balance Sheet
Particular Mar- Mar- Mar- Mar- Mar-
19 20 21 22 23
Equity 530 925 1,036 1,036 1,036
Capital
Reserves 54,46 75,179 81,354 90,833 1,04,0
6 19
Borrowings 7,34, 10,68, 10,67, 11,85, 13,42,
456 981 173 331 592
Long term 68,86 95,753 0 0 0
Borrowings 8
Other 6,65,5 9,73,2 10,67, 11,85, 13,42,
Borrowings 89 28 173 331 592
Other 30,21 54,85 53,10 62,92 78,22
Liabilities - 7 0 4 2 4
Non 341 386 436 758 995
controlling
int
Trade 1,927 2,153 2,702 4,041 4,109
Payables
Other 27,94 52,311 49,966 58,124 73,120
liability 9
items
Total 8,19, 11,99, 12,02, 13,40, 15,25,
Liabilities 670 935 667 121 871
Fixed 7,368 9,268 8,438 11,09 9,865
Assets - 8
Building 8,378 12,076 10,323 12,522 12,534
Other fixed 6,070 8,459 10,446 12,332 12,907
assets
Gross Block 14,44 20,53 20,76 24,85 25,44
7 5 9 4 1
Accumulated 7,080 11,268 12,331 13,756 15,576
Depreciation
CWIP 0 0 2 1 3
Investments 1,95,7 2,89,7 2,81,8 3,47,5 3,97,4
16 27 59 87 87
Other 6,16, 9,00,9 9,12,3 9,81,4 11,18,
Assets - 586 41 67 35 516
Cash 97,88 1,31,0 1,28,6 1,30,2 1,02,3
Equivalents 5 05 61 29 73
Other asset 5,18,7 7,69,9 7,83,7 8,51,2 10,16,
items 01 36 06 06 143
Total Assets 8,19, 11,99, 12,02, 13,40, 15,25,
670 935 667 121 871

Analysis

Capital Adequacy and Solvency:

 The stable equity capital level and rising reserves suggest

a strong capital base and improved solvency.
 Debt financing (borrowing) has increased, but the decline
in long-term borrowings might indicate a focus on
managing long-term debt obligations.
  Continued monitoring of debt-to-equity ratio and other
capital adequacy metrics is essential for evaluating long-
term solvency.

Asset Composition and Growth:

 Investments have consistently increased, demonstrating

proactive asset management and potentially contributing
to income generation.
 Other assets also show sustained growth, suggesting
diversification and expansion of the bank's asset portfolio.
 Cash equivalents have fluctuated, indicating liquidity
management based on operational needs.

Observations:

 The bank's financial stability appears to be

improving, driven by rising reserves and prudent debt
management strategies.
 Increased borrowing might necessitate careful monitoring
and future debt reduction strategies.
 Growth in investments and other assets suggests
proactive asset management and potential for future
income generation.
 Analysing profitability ratios alongside this balance sheet
data would provide a more comprehensive picture of the
bank's financial health.
Cashflow Statement
Particular Mar- Mar-20 Mar-21 Mar-22 Mar-23
19
Cash from Operating - 18,531 -887 6,210-
Activity - 1,449 21,271
Profit from operations 17,71 23,028 26,344 27,661 34,361
4
Loans Advances - -57,364 -29,251 -88,853 -
58,597 1,70,92
2
Operating investments - -14,892 7,196 -66,049 -51,293
 20,744
Operating borrowings 3,453 12,603 -25,308
37,624 708
Deposits 58,137 31,171 22,68279,895 1,58,87
8
Other WC items 2,887 7,240 2,780 16,940 12,615
Working capital - - - - -
changes 14,86 21,242 21,902 20,443 50,014
3
Direct taxes -4,300 -267 -5,329 -1,008 -5,618
Other operating items 0 17,011 0 0 0
Cash from Investing - -139 -471 -3,645 -1,096
Activity - 2,537
Fixed assets -2,666 -3,303 -2,786 -3,405 -983
purchased
Fixed assets sold 129 3,166 2,527 0 197
Dividends received 0 0 0 6 0
Other investing items 0 -2 -212 -246 -310
Cash from Financing 4,449 14,729 -986 -998 -5,488
Activity -
Proceeds from shares 5,082 8,293 110 0 0
Proceeds from 0 0 0 0 0
debentures
Proceeds from 554 8,110 819 639 0
borrowings
Repayment of 0 0 0 0 -2,324
borrowings
Interest paid fin -1,187 -1,674 -1,915 -1,958 -1,935
Dividends paid 0 0 0 0 -1,466
Other financing items 0 0 0 322 237
Net Cash Flow 462 33,120 -2,344 1,567 -
27,855

Analysis

 While profit from operations shows growth, declining cash

from operating activities suggests challenges in
converting profits to cash flow.
 The substantial drop in loans and advances in Mar-2023
needs further investigation to understand its impact on
future revenue and profitability.
  Increasing deposits indicate customer confidence and
potential funding availability for the bank.
 Negative cash flow in recent years, particularly Mar-
2023, raises concerns about the bank's ability to meet its
financial obligations.

Further Considerations:

 Analyse the reasons behind the decline in cash from

operating activities and develop strategies to improve
cash flow conversion.
 Investigate the specific factors impacting loans and
advances in Mar-2023 and assess their potential long-term
consequences.
 Evaluate the bank's debt structure and refinancing
strategies to understand the impact of declining cash flow
from financing activities.
 Compare the bank's cash flow trends with industry
benchmarks and competitors to identify potential
advantages or disadvantages.

Overall, Bank of Baroda's cash flow performance.

While increasing profitability is encouraging, declining
cash flow raises concerns about the bank's financial
sustainability. Further analysis and consideration of
additional financial metrics are crucial for a
comprehensive assessment of the bank's cash flow
management and its long-term outlook.
Shareholding Pattern
Share
Promoters 63.97%
FIIs 12.39%
DIIs 15.74%
Government 0.26%
Public 7.64%
 Ratio Analysis
Particular Mar- Mar- Mar- Mar- Mar-
19 20 21 22 23
ROCE (%) 1.91 1.81 1.85 1.77 1.78
CASA (%) 39.47 41.45 40.15 35.28 35.03
Net Profit Margin (%) 15.74 10.4 1.17 0.71 0.87
Operating Profit Margin 4.55 -6.02 -16.36 -12.85 -11.77
(%)
Return on Assets (%) 0.96 0.56 0.07 0.04 0.05
Return on Equity / 14.36 8.46 1.07 0.76 0.94
Networth (%)
Net Interest Margin (X) 2.83 2.55 2.49 2.37 2.36
Cost to Income (%) 37.41 45.26 48.69 43.13 43.41
Interest Income/Total 6.14 5.46 6.1 6.56 6.37
Assets (%)
Non-Interest 0.68 0.89 1.07 0.89 0.8
Income/Total Assets (%)
Operating Profit/Total 0.27 -0.32 -0.99 -0.84 -0.75
Assets (%)
Operating 1.68 1.69 1.77 1.56 1.44
Expenses/Total Assets
(%)
Interest Expenses/Total 3.3 2.91 3.6 4.19 4
Assets (%)

Profitability:

 ROCE: Stagnant around 1.8%, indicating low overall

profitability relative to capital employed.
 Net Profit Margin: Significant decline from 15.74% to
0.87%, suggesting a sharp drop in earnings.
 Operating Profit Margin: Negative for the past three
years, indicating operating losses.
  Return on Assets (ROA): Extremely low (0.05%), reflecting
poor asset utilization and profitability.
 Return on Equity (ROE): Similarly low (0.94%), suggesting
limited returns for shareholders.

Efficiency:

 CASA: Decreased from 41.45% to 35.03%, indicating a

shift towards more expensive deposits and potentially
higher interest expenses.
 Net Interest Margin (NIM): Contracted from 2.83% to
2.36%, reflecting lower profitability on interest-earning
assets.
 Cost to Income Ratio: Elevated at 43.41%, suggesting high
operating costs relative to income.

Asset Utilization:

 Interest Income/Total Assets: Increased slightly to

6.37%, but still relatively low.
 Non-Interest Income/Total Assets: Fluctuating, but not a
significant contributor to overall revenue.

Operating Performance:

 Operating Profit/Total Assets: Negative, indicating

operating losses.
 Operating Expenses/Total Assets: Decreased slightly to
1.44%, but still a considerable expense burden.

Interest Expense Management:

 Interest Expenses/Total Assets: Increased to

4%, suggesting higher interest payments on liabilities.

Observation
  Declining profitability: The sharp drop in net profit margin
and negative operating profit margins raise serious
concerns about the bank's ability to generate earnings.
 Low asset utilization: ROA and NIM indicate inefficient use
of assets to generate returns.
 High operating costs: The cost to income ratio suggests a
need for cost control measures.
 Negative operating performance: Operating losses point to
challenges in managing expenses and generating
revenue.
 Increasing interest expenses: Rising interest expenses
could further strain profitability.
Investment Decision

Investing in Bank of Baroda over the past 5 years (March 2019 -

March 2023) would have been a challenging and ultimately
negative decision. Here's why:

Negatives:

 Declining profitability: Net profit margin dropped

significantly from 15.74% to 0.87%, and operating
margins have been negative for the past three years. This
indicates a struggling business model with limited
earnings potential.
 Low return on assets and equity: ROA and ROE were
consistently low, suggesting inefficient use of capital and
weak returns for shareholders.
 Rising operating costs: The cost-to-income ratio rem
aimed high, highlighting challenges in managing
expenses.

Positives:

 Steady increase in reserves: This suggests strong internal

capital generation, but alone it does not guarantee future
profitability.
  Increased deposits: This indicates customer trust and
potential funding availability but depends on how
effectively those funds are utilized.
 Growth in investments and other assets: This suggests
proactive asset management but needs to be analysed for
risk profile and potential contribution to earnings.

Conclusion

The negatives outweigh the positives, making Bank of Baroda a

risky investment over the past 5 years. The declining
profitability, low returns, and high operating costs paint a
concerning picture. While there are some bright spots like
rising reserves and increasing deposits, they haven't translated
into sustainable success.

Dividend Decision

 FY 2018-19: 335% (Rs 6.70 per share)

 FY 2019-20: 275% (Rs 5.50 per share)
 FY 2020-21: 110% (Rs 2.20 per share)
 FY 2021-22: 60% (Rs 1.20 per share)
 FY 2022-23: 275% (Rs 5.50 per share)

Positive Impact

 Attracted and retained investors: Consistent dividend

payouts, especially the high payout in FY 2023, can be
attractive to income-seeking investors. This can boost
shareholder confidence and potentially raise the stock
price.
 Signalled confidence in future profitability: The decision to
resume higher dividends in FY 2023, after two years of
reduced payouts, could be seen as a signal of
management's belief in the bank's future earnings
potential.

Negative Impact
  Increased financial strain: Paying out dividends while
experiencing declining profitability and negative operating
margins can further drain the bank's financial
resources. This could limit its ability to invest in growth or
address operational challenges.
 Unsustainable long-term: High dividend payouts are not
sustainable if not supported by underlying
profitability. Continued reliance on dividends might be
risky in the long run.
 Mixed message to investors: The inconsistency in dividend
payouts over the past five years (high, low, then high
again) might send a mixed message to investors and
create uncertainty about the bank's future dividend policy.

While the higher dividend payments in FY 2023 might be

appealing to some investors, it's crucial to consider the overall
context of the bank's financial performance. The declining
profitability and negative operating margins raise concerns
about the sustainability of such high payouts. Investors should
carefully evaluate the risks and uncertainties before making an
investment decision based solely on dividends.

Financing Decision

Decisions

 Aggressive lending in early years: The bank focused on

expanding its loan book, but this might have contributed
to higher non-performing assets (NPAs) later.
 Cost-cutting measures: Recent years have seen efforts to
control expenses, but they haven't yet translated into
significantly improved profitability.
 Focus on deposit mobilization: Increased focus on
customer deposits helped bolster capital but led to a rise
in costlier deposits, impacting NIM (Net Interest Margin).
 High dividend payouts: Despite declining profitability, the
bank maintained relatively high dividend
payouts, potentially straining financial resources.
  Debt restructuring: Recent efforts to manage long-term
debt might provide some financial relief, but overall debt
levels remain high.

Positive Impact

 Increased market share: Aggressive lending initially

helped the bank grow its market share.
 Improved capital adequacy: Higher deposit mobilization
strengthened the bank's capital base.
 Debt management: Restructuring long-term debt might
reduce short-term pressure on finances.

Negative Impact

 Rising NPAs: Aggressive lending contributed to an increase

in bad loans, impacting profitability and future income
generation.
 Declining profitability: High operating costs and lower
income led to a significant drop in net profits.
 Negative operating margins: The bank has been operating
at a loss for several years, raising concerns about its
sustainability.
 High cost of funds: Increased reliance on expensive
deposits impacted net interest margin and profitability.
 Investor uncertainty: Inconsistent financial performance
and mixed signals on dividends create uncertainty for
investors.

While some decisions had positive outcomes, the overall

picture is concerning. Declining profitability, negative operating
margins, and rising NPAs are major red flags. The recent cost-
cutting measures and debt restructuring are encouraging, but
it's too early to say if they'll be enough to reverse the negative
trends.

Investors should exercise caution and carefully consider the

risks before making investment decisions based solely on Bank
of Baroda's past financial decisions.