International Journal of Pure and Applied Mathematics ... · The first banks were probably the religious temples of the ancient world, and were probably established sometime during

A STUDY ON INTERNET BANKING IN THE

STATE BANK OF INDIA

Dr S Praveen Kumar 1, Dr J Hameed Hussain

2 , hari prasad

3

Professor and Head 1, Dean Engineering

2 ,Student

3, Department of Management Studies

1,2,3

BIST, BIHER, Bharath University, Chennai

[email protected]

INTRODUCTION

Definition of banks

According to Prof. Kinley defines, ―A bank is an establishment which makes to

individuals such advances of money as may be required and safely made, and to which

individual entrust money when not required by them for use[1-2].‖

The Indian companies act, 1949 define a bank as follows; ―The acception for the purpose

of lending or investing of deposit of money from the public repayable on demand or otherwise

and withdrawal by cheque, order or otherwise.‖(Sec 5)

Origins of banks

The first banks were probably the religious temples of the ancient world, and were

probably established sometime during the 3rd

millennium B.C. Banks probably predated the

invention of money. Deposits initially consisted of grain and later other goods including cattle,

agricultural implements, and eventually precious metals such as gold, in the form of easy-to-

carry compressed plates. Temples and palaces were the safest places to store gold as they were

constantly attended and well built. As sacred places, temples presented an extra deterrent to

would-be thieves. There are extant records of loans from the 18th century BC in Babylon that

were made by temple priests to merchants.

By the time of Hammurabi’s Code, banking was well enough developed to justify the

promulgation of laws governing banking operations[3-8].

Ancient Greece holds further evidence of banking. Greek temples, as well as private and

civic entities, conducted financial transactions such as loans, deposits, currency exchange, and

validation of coinage. There is evidence too of credit, whereby in return for a payment from a

client, a moneylender in one Greek port would write a credit note for the client who would

―cash‖ the note in another city, saving the client the danger of carting coinage with him on his

International Journal of Pure and Applied MathematicsVolume 119 No. 12 2018, 5633-5650ISSN: 1314-3395 (on-line version)url: http://www.ijpam.euSpecial Issue ijpam.eu

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journey. Pythius, who operated as a merchant banker throughout Asia Minor at the beginning of

the 5th

century B.C., is the first individual banker of whom we have records. Many of the early

bankers in Greek city-states were ―metics‖ or foreign residents. Around 371 B.C., Passion, a

slave, became the wealthiest and most famous Greek banker, gaining his freedom and Athenian

citizenship in the process[9-12].

The fourth century B.C. saw increased use of credit-based banking in the Mediterranean

world. In Egypt, from early times, grain had been used as a form of money in addition to

precious metals, and state granaries functioned as banks. When Egypt fell under the rule of a

Greek dynasty, the Ptolemies (330-323 B.C.), the numerous scattered government granaries were

transformed into a network of grain banks, centralized in Alexandria where the main accounts

from all the state granary banks were recorded. This banking network functioned as a trade credit

system in which payments were effected by transfer from one account without money passing.

In the late third century B.C., the barren Aegean island of Delos, known for its

magnificent harbor and famous temple of Apollo, became a prominent banking centre. As in

Egypt, cash transactions were replaced by real credit receipts and payments were made based on

simple instructions with accounts kept for each client. With the defeat of its main rivals,

Carthage and Corinth, by the Romans, the importance of Delos increased. Consequently it was

natural that the bank of Delos should become the model most closely by the banks of Rome.

Ancient Rome perfected the administrative aspect of banking and saw greater regulation

of financial institutions and financial practices. Charging interest on loans and paying interest on

deposits became more highly developed and competitive. The development of Roman banks

was limited, however, by the Roman preference for cash transactions. During the reign of the

Roman emperor Gallienus (260-268 CE), there was a temporary breakdown of the Roman

banking system after the banks rejected the flakes of copper produced by his mints. With the

ascent of Christianity, banking became subject to additional restrictions, as the charging of

interest was seen as immoral. After the fall of Rome, banking was abandoned in western Europe

and did not revive until the time of the crusades[13-16].

Major events in banking history

Florentine banking – The Medicis and Pittis among others

Knights Templar – earliest Euro wide / Middleast banking 1100-1300

Banknotes – Introduction of paper money.

International Journal of Pure and Applied Mathematics Special Issue

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1602 – First joint-stock company, the Dutch East India Company founded

1720 – The South Sea Bubble and John Law’s Mississippi Scheme, which caused a

European financial crisis and forced many bankers out of business.

1781 – The Bank of North America was found by the Continental Congress

1800 – Rothschild family founds Euro wide banking.

1803 – The Louisiana Purchase was the largest land deal in history

1929 – Stock market crash

1989 – junk bond scandal and charges against Michael Milken resulted in new legislation

for investment banks

2001 – Enron bankruptcy, causing new legislation for annual reporting.

The function of banking should enhance the regulations of the bank. These functions are follows:

1) PRIMARY FUNCTIONS

• Acceptance of Deposits

• Making loans & advances

• Loans

• Overdraft

• Cash Credit

• Discounting of bills of exchange

2) 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.

3) UTILITY FUNCTIONS:

• Safe custody of customer’s valuable articles & securities.

• Underwriting facility

• Issuing of traveller's cheque letter of credit

• Facility of foreign exchanges


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• providing trade information

• Provide information regarding credit worthiness of their customer

SELECTION OF TOPIC

As a part of curriculum, every student studying MBA has to undertake a project on a particular

subject assigned to him/her. Accordingly I have been assigned the project work on the ratio

analysis in Banking Sector.

Ratios are aimed to assess profitability, productivity of assets/capital and risk associated with

operations. Though one can get some basic idea about the bank or a company from the above

ratios while evaluating percentage statement and trend analysis, the level of comparison is

restricted to few ratios. Ratio analysis integrates financial statements to assess financial health of

the firm. Some of the important ratios in general are discussed below. However, many of these

ratios require modification or are not relevant for banking industry and therefore, we will discuss

the ratios relevant to banking industry separately[17-21].

The core area of this project focuses on the financial position of the bank, which is in right

position or not and the performance of SBI.

OBJECTIVES

The major objectives of the recent study are to know about financial strengths and weakness of

SBI through FINANCIAL RATIO ANALYSIS

1. Primary objective:-

1) To study the software for RATIO ANALYSIS used in SBI Bank

2) To analyse the financial statements of the corporation to its true financial position by the

use of ratios.

2. Secondary objective:-

1) To find out the shortcomings in SBI Bank

2) To see whether SBI is going well or not in different areas

3) To inform the management about the financial condition of SBI

4) To inform the investor, enabling them to take the investment decision.


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Research Methodology –

Data collection method: The report will be prepared mainly using primary and secondary data.

They are follows below

Primary data

It is first hand data, which is collected by researcher itself. Primary data is

collected by various approaches so as to get a precise, accurate, realistic and relevant data. The

main tool in gathering primary data was investigation and observation. It was achieved by a

direct approach and observation from the officials of the company

SECONDARY DATA

It is the data which is already collected by someone else. Researcher has to analyze the data and

interprets the results. It has always been important for the completion of any report. It provides

reliable, suitable, adequate and specific knowledge.

It took data comprise annual reports and post records. Bank has provided me annual reports from

2005-06 to 2008-09 by help of which, I prepared my report[22].

The valuable cooperation extended by staff members contributed a lot to fulfill the requirements

in the collection of data in order to complete the project. In this study ratio analysis, has been

used for analyzing and interpreting the result. Some of the secondary data which was collected

through

www.sbi.com.

Company manuals.

Commercial Banks Book.

The techniques, which would be used for the study:

1. Discussions with Bank guide and customers.

2. By studying annual reports.

3. Using Project Technique.

LIMITATIONS

1. The study provides an insight into the financial, personnel, marketing and other aspects of

SBI. Every study will be bound with certain limitations.

2. The below mentioned are the constraints under which the study is carried out.


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3. One of the factors of the study was lack of availability of ample information. Most of the

information has been kept confidential and as such as not assed as art of policy of company.

Time is an important limitation. The whole study was conducted in a period of 30 days,

which is not sufficient to carry out proper interpretation and analysis.

1) Liquidity Analysis Ratios

i) Current Ratio: A firm needs liquid assets to meet day to day payments. Therefore, liquidity

ratios highlight the ability of the firms to convert its assets into cash. If the ratios are low then it

means that money is tied up in stocks and debtors. Thus, money is not available to make

payments[23-29]. This may cause considerable problems for firms in the short run. It is often

viewed that a value less than 1.5 implies that the company may run out of money as its cash is

tied up in unproductive assets.

Current Assets

Current Ratio = ———————–

Current Liabilities

(Rs. In crores)

Year Current assets Current liabilities Ratio

2004-2005 18390.71 49578.87 0.37

2005-2006 22380.84 55538.17 0.40

2006-2007 25292.31 60042.26 0.42

2007-2008 44417.03 83362.30 0.53

2008-2009 37733.27 110697.57 0.34

INTERPRETATION:

Internationally accepted ratio is 2:1 i.e., current assets shall be 2 times to current liabilities. In the

year 2008-2009 the ratio slightly decrease comparing to the previous year 2007-2008 indicate

that the company run out of money and it inadequate current assets and current liabilities.


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2. Profitability Analysis Ratios:

Profitability ratios are the most significant of the financial ratios. Similar to income ratios,

profitability ratios provide a definitive evaluation of the overall effectiveness of management

based on the returns generated on sales and investment. The adequacy of your company’s

earnings can be measured in terms of

(1) the rate earned on average total assets;

(2) the rate earned on sales;

(3) the rate earned on average common stockholders’ equity; and

(4) the availability of earnings to common stockholders. The most widely used profitability

measurements are profit margin on sales, return-on-investment ratios, and earnings per share[30-

34].

i) Return on Equity (ROE)

This ratio shows the return on the equity to the company. This ratio compares the Net profit and

shareholders fund of the company. In other words this expresses the relationship between the net

profit and shareholders fund. It indicates the strength of the financial foundation of the concern.

The following formula explains the above statement

Net Profit

Return on Equity (ROE) = ————————————— x100

Shareholders fund


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(Rs. In crores)

Year Net profit Shareholders fund percentage

2004-2005 4304.52 24072.23 7.96

2005-2006 4406.67 28344.09 15.54

2006-2007 4541.31 31398.56 14.46

2007-2008 6729.12 49032.66 13.72

2008-2009 9121.24 57947.10 15.74

INTERPRETATION:

This ratio shows the good results through out the year, it shows increase their percentage of

equity comparing to the previous year that is 2007-2008 and it shows the good return on the

equity

ii) Gross Profit on Net Sales:

Gross profit ratio helps to determine whether average markup on goods will consistently cover

expenses, therefore resulting in the desired profit. If gross profit rate is continually lower than

your average margin, something is wrong! Be on the lookout for downward trends in gross profit

rate. This is a sign of future problems for bottom line[35-39].


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Gross Profit

Gross Profit Rate = —————————————— x100

Net Sales

(Rs. In crores)

year Gross profit sales Percentage

2004-2005 25004.98 32428 77.10

2005-2006 27065.44 35794.93 75.61

2006-2007 31029.12 39491.02 78.56

2007-2008 42367.98 48950.31 86.55

2008-2009 57095.95 63788.43 89.50

INTERPRETATION:

It shows the gross profit of the company. The ratio is increased in the current year that is 2008-

2009 then the previous year. It shows the good efficiency of the company to meet the future

needs.

iii) Net Profit ratio

This ratio provides a primary appraisal of net profits related to investment. Once the basic

expenses are covered, profits will rise disproportionately greater than sales above the break-even

point of operations[40-44].

Earnings after Taxes

Net Profit Rate = ————————— x100


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Net Sales

(Rs. In crores)

year Net profit Sales Percentage

2004-2005 4304.52 32428 13.27

2005-2006 4406.67 35794.93 12.31

2006-2007 4541.31 39491.02 11.48

2007-2008 6729.12 48950.31 13.74

2008-2009 9121.24 63788.43 14.37

INTERPRETATION:

Generally this ratio shows the net profit of the company and it shows the financial position of the

company. The percentage of ratio increased the current year that shows rapid growth of the

company[45].

iv) Earnings per Share (EPS)

The earnings per share ratio are mainly useful for companies with publicly traded shares. Most

companies will quote the earnings per share in their financial statements, saving you from having

to calculate it yourself. By itself, EPS doesn’t really tell you a whole lot. But if you compare it to

the EPS from a previous quarter or year, it indicates the rate of growth that a company is earning.


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Net Income

Earnings per Share (EPS) = ——————————————————

No. of Common Shares Outstanding

(Rs. In crores)

year Net profit Number of shares Percentage

2004-2005 4304.52 5262.99 0.81

2005-2006 4406.67 5262.99 0.83

2006-2007 4541.31 5262.99 0.86

2007-2008 6729.12 6314.70 1.06

2008-2009 9121.24 6348.70 1.43

INTERPRETATION:

The net profit ratio is the overall measure of the firm’s ability to turn each rupee of income from

services in net profit. If the net margin is inadequate the firm will fail to achieve return on

shareholder’s funds. High net profit ratio will help the firm service in the fall of income from

services, rise in cost of production or declining demand. The net profit is increased because the

income from services is increased. This ratio increase in year 2008-2009 and it shows the growth

of the company towards the shareholders view.

OBSERVATIONS AND FINDINGS OF THE STUDY

1) The current of the company increased rapidly from the year 2005-2008, but it will

decrease in the current year. It shows the inefficient to carry out the business and it will

hope that it did not affect the business anymore and it will survive instantly.

2) The Gross profit ratio shows the good result towards the growth of the company, the sales

of the company increased constantly since 2005-2009 and gross profit of the company is

also be increased same and also increased in the current year also, so it explain that the

company is in the good position[34-37].

3) The Net profit ratio shows the good improvement towards the company’s development.

The net profit ratio is decreased between the year 2007 and 2008, but it will survive


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quickly and increase the ratio in the previous year and the current year of the company. It

shows the efficiency of the company and ratio also increased in the current year.

4) The Earning per share ratio reflects the capital structure of the company. It indicates the

rate of growth of the company. The ratio shows continuous increase in the earning per

share as stated above, that shows the good result since past five years i.e., 2005-2009 it

increased rapidly. This shows share market of the company is very good and the

shareholders are able to invest its share more.

5) The operating profit ratio that shows return of the cost of the goods sold and other

operating expenses. The operating expenses of the company shows the good result that

will increase for past five years that is 2005-2009, it shows the good efficiency of the

company and the amount invested in the business to be satisfied.

6) The Return on the equity or shareholders fund ratio it helpful to understand the

shareholder’s that the shareholder’s fund of the company used effectively or not. This

keeps the company very good in the effective use in the shareholder’s fund. The ratio has

been increased effectively in the year 2009 that means the company uses his

shareholder’s fund effectively[36-37].

7) The Return on assets ratio shows how the company uses his assets towards the growth of

the company and they get return from the asset used for the company. The ratio has

increased frequently during the year2005-2009 it shows the utilization of the assets for

the company it has been very good.

8) The debt equity ratio shows the debt raises over the equity shareholders, but it will not

affect to the company because they raise their equity year by year so they will survive

from the problem. In the current year they will slightly increase in the year 2009, this will

not affect the company.

9) The interest coverage ratio is generating the cash to pay its interest obligations. In this

point interest paying from the company is very good, the interest ratio paying for the last

five years i.e., 2005-2009 seems to be satisfied.

10) The Payout ratio is shows the dividend and earnings per share. This gives hope to the

share holders that they came to know that how much they earn from the share. The

payout ratio of the company show the good return to the shareholder of the company, the


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ratio has been increased slightly then the previous year it will not affect the company, it

runs its same way

CONCLUSION

SUGESSTION

1) After the analysis of Financial Statements, the company status is better, because the

Net working capital of the company is doubled from the last year’s position.

2) The company profits are huge in the current year; it is better to declare the dividend to

shareholders[43]

3) The company is utilising the fixed assets, which major help to the growth of the

organisation. The company should maintain that perfectly.

4) The company fixed deposits are raised from the inception, it gives the interest to the

investors and other income i.e., Interest on fixed deposits.

5) The investment of the company is very good and increasing year by year and it helps

the growth of the organization and it maintains the same that shows the efficient of

the company.

CONCLUSION

The company’s overall position is at a good position. Particularly the current year’s position is

well due to raise in the profit level from the last year position. It is better for the organization to

diversify the funds to different sectors in the present market scenario.

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International Journal of Pure and Applied Mathematics ... · The first banks were probably the religious temples of the ancient world, and were probably established sometime during