Financial Accounting and Reporting - Essay Example

?Financial Accounting and Reporting Table of Contents Table of Contents 2 Introduction 3 Analysis of the Financial ments of Axis Bank 4 Financial Ratio Analysis 9 Liquidity Ratios 9 Return on Equity 11 Return on Assets 12 Conclusion 12 References 14 Bibliography 15 Introduction The paper deals with LSE listed Indian bank of repute, Axis Bank Ltd. Axis bank was initially incorporated as ‘UTI Bank Ltd.’ in 1993 which offered products in retail as well as corporate banking (Pandit, 2008). The bank commenced its operating functions from the year 1994. It was the pioneer among the fresh private banks to start its operation after the permission was approved by the Indian Government for non-governmental banks to carry on businesses. The formation of the bank was done in cooperation by Unit Trust of India, General Insurance Corporation of India, Life Insurance Corporation of India and also four other Public Sector Undertaking (PSU) companies of insurance namely The New India Assurance Company Ltd., United India Insurance Company Ltd., National Insurance Company Ltd. and The Oriental Insurance Company Ltd. (Axis Bank, 2007). Presently, the bank occupies the third position among the banks in private sector to have a Pan network in India which includes over 1281 branches and Automated Teller Machine (ATMs) numbering 6270 making the bank to have the biggest system of ATMs in the country (Pandit, 2008; Axis Bank, 2007). In the year 2007, a decision regarding having its own individuality different from UTI-I as its parent was taken by the bank authority. And this is how the brand name ‘Axis’ was born. The bank was successfully accomplished to rebrand itself with its new name as ‘Axis Bank’. This had assisted the bank to get rid of the dim perception as an entity that was government owned (Pandit, 2008). Analysis of the Financial Statements of Axis Bank According to Axis Bank’s Annual Report for the fiscal year 2011, Rs. 3,388.49 crores was reported as its net profit. The earnings as well as the business of the Bank grew sturdily over the previous years. The net profit of the bank also rose by a considerable amount of 34.76 percent compared to the previous year. The substantial expansion in the business in all the segments was revealed in the form of vigorous financial indicators. The total income of the bank increased by 26.97 percent and reached to Rs. 19,786.94 crores in the financial year 2010-11 in comparison to Rs.15,583.80 crores in the last year. The return from operations in this period augmented by 25.08 percent to an amount of Rs.11, 195.12 crores whereas the profit in relation to operations rose by 22.42 percent and amounted to Rs. 6,415.69 crores (Moneycontrol, 2011). The progress in terms of revenue can possibly be credited to the performance of the central income streams of the bank such as the income from net interest (NII) as well as other incomes and fees. NII augmented by a percent of 31.14 to an amount of Rs. 6,562.99 crores which was more in numbers compared to last year i.e. 2009-10, whereas other income as well as fee rose to Rs. 4,632.13 by 17.39 percent in comparison to the previous year i.e. 2009-2010. The increase in NII by such a considerable percent of 31.14 was an outcome of the vigorous progress in the low-cost deposits of Current Account and Savings Bank (CASA) and also in assets on a regular average basis. All through the period, the entire earning assets amplified by 34.70 percent to an amount of Rs. 179,573 crores on a regular average basis and which had augmented in comparison to last year i.e. 2009-10. A progress of 32.81 percent was also observed in relation to the low-cost deposits in CASA which had increased from the previous year i.e. 2009-10 on a regular standard basis and which even assisted the bank to hold on to the funding prices (Moneycontrol, 2011). Additional income including fees, miscellaneous income and trading profit even augmented to 4,632.13 crores by a percent of 17.39 compared to the previous year i.e. 2009-10. The income from fees comprised a percent of 33.86 of the proceeds from the bank’s operations which made it rise by 29.59 percent to an amount of Rs. 3,790.37 crores in contrast to the previous year i.e. 2009-10. The earnings of the bank from the fee proceeds result from a varied range of products as well as businesses. For instance, client-based merchant, charges in exchange of services such as account maintenance, trade in foreign exchange, transaction related banking consisting of services in relation to cash management, fees for processing loans, placement as well as syndication fees, fees for exchanging arrangements of ATM-sharing and fee proceeds. All these are the result of distributing products of personal investment that are of third-party nature and commission on products that are non-funded such as bank guaranteed and so on. During this year, there has been a decrease in the income from proprietary trading by 39.57 percent from Rs. 822.38 crores in the fiscal year 2009-10 to 496.97 crores basically owing to the unfavorable market situations in the equity as well as in the debt markets. The float in the miscellaneous income augmented to 73.75 percent because of the sturdy recoveries in derivative receivables and in loans. In fiscal year 2010-11, those recoveries went up to Rs. 325.22 crores which was even greater than last fiscal year, i.e. 2009-10 (Moneycontrol, 2011). During this period, the proceeds from the bank’s operations augmented by 25.08 percent to Rs. 11,195.12 crores. The central streams of income of the Bank namely the NII, miscellaneous income and fees formed a major part in the operating profits which revealed the sustainability as well as steadiness of the income earned by the bank. The operating cost augmented by 28.84 percent to an amount of 4,779.43 crores compared to the year 2009-10 (Moneycontrol, 2011). In this period the provisions that were charged to the Profit & Loss Account was calculated to be Rs. 1,280.03 crores and a dip was observed in the sum in contrast to the preceding year. Among these, the provisions from unrecovered loans were Rs. 955.12 crores which was much lesser than the prior year 2009-10, whereas the provision in regard to average assets was Rs. 166.16 crores. The bank speeded up the provisioning necessities in few portfolios which were taken as a preventive step of caution, augmenting the provision coverage on the whole. The Bank even offered a sum of Rs. 15.06 crores in relation to restructured assets and this amount was not as much of the amount in the earlier year. The bank carried on upholding a normally strong asset-quality sharing a ratio in relation to the gross NPAs to gross assets of the customer of 1.01 percent and a ratio of net NPA of 0.26 percent. With the increasing degree of provisions, which was put up in excess of and more than the regulatory standard through this period, the Bank further enhanced the provision-coverage to a percent of 80.90 (Moneycontrol, 2011). Owing to a constant route of central income, an all-round enhancement had been observed in different financial metrics. There was even enhancement on the Return in Equity (ROE) to 20.13 percent. There was a rise in the Basic Earnings per Share (EPS) to Rs. 82.95 whereas the Diluted Earnings per Share amplified to Rs. 462.77 in 2011 from Rs. 395.99 in 2010. There was also an increase on Return on Assets (ROA) in contrast to the previous year. The productivity of employees was also enhanced with Profit per Employee augmenting to Rs. 13.66 crores. The price of funds was pushed up due to the solidifying of the rates of interest charged on the Term Deposits which further compressed the Margin on Net Interest by 10 basis points which led it to 3.65 percent and this was slightly lower from that in 2009-10. The valuation of the Bank’s assets was Rs. 242,713 crores which indicated a rise of 34.36 percent over the past years (Moneycontrol, 2011). The bank is quite aware of its strategies of constructing an association of branches as well as ATMs with effectual infiltration. It is due to this reason that the Axis bank kept on enlarging its geographical exposure of centers that had better future growth prospects, especially in those areas where there was optimism for CASA deposits of low-cost, retail lending, SME as well as agriculture segments and also the sharing of third-party products. The bank further stretched out its operations by structuring 407 fresh branches which took the total figure of branches as well as extension counters to 1,390 by 2011. Among them, 564 additional counters or branches were in the country and semi-urban areas and a sum of 826 additional counters as well as branches were in the metropolitan and in the city areas. The bank currently has its presence in every state as well as in the Union Territories apart from Lakshadweep and has around 921 centers in total (Axis Bank, 2011). There was a boost in the bank’s ATM system from 4,293 in the preceding period to 6,270 on March, 2011. Through this period, a Representative Office was also instigated in Abu Dhabi by the Axis Bank. This was added to the list of the current branches at Hong Kong, Singapore and Dubai International Financial Centre (DIFC) along with the representative offices present in Dubai and Shanghai (Axis Bank, 2011). Currently the bank is known to be well capitalized with a Capital Adequacy Ratio (CAR) of 12.65 percent which lies quite above the standard prerequisite of 9 percent which has been set by the Reserve Bank of India. It was also evaluated during this period that equity shares of 5,371,724 were allocated to the Bank employees. The bank’s paid-up capital on March 2011 augmented to Rs. 410.55 crores which increased in comparison to the preceding year (Axis Bank, 2011). Source: (Axis Bank, 2011) The pattern of shareholding of the Bank is given below: Source: (Axis Bank, 2011) The shares of Axis Bank are listed on both NSE as well as BSE. The GDRs have been listed on the London Stock Exchange which the bank issues. The bank’s Bonds that are issued under the category of MTN programme are there on the Singapore Stock Exchange as well. The bank has cleared the listing fees for the existing year in regard to all the stock exchanges (Axis Bank, 2011). The bank took into concern the overall performance along with its aim to reward the holder of the shares by way of increasing cash dividends. It also wanted to hold on to the capital in order to keep up a vigorous ratio of capital adequacy so as to support progress in future. Taking these factors into consideration, the Bank declared an increased dividend of Rs. 14.00 that was suggested by the Board of Directors for each equity share. The boost in the dividend reveals the assurance of the people in regard to the Bank’s capability to constantly produce earnings with time (Axis Bank, 2011). Financial Ratio Analysis The financial ratios will be analyzed for a period of last five years which would help in giving a clear picture of the Bank’s performance as well as facilitate in determining the increase or decrease in the ratios over the years. Liquidity Ratios Liquidity ratios help in analyzing and evaluating the Bank’s capability in meeting the short-term obligations. They concentrate on the solvency of the Bank. An increase in the quick ratio and the current ratio can be observed as a healthy sign for bank’s development, indicating that Axis Bank is solvent and financially sound to meet its responsibilities. Current Ratio Source: (Axis Bank, 2011) Quick Ratio Source: (Axis Bank, 2011) Return on Equity Return on Equity reflects the profits earned by the Bank in compared to the entire amount of equity among the shareholders. Profits from this source is crucial for the bank as they are said to be generated from the core functions of the Bank. Source: (Axis Bank, 2011) Return on Assets Return on assets reflect the profit that has been earned by the Bank for each unit in assets. Source: (Axis Bank, 2011) Conclusion It has been observed in the period of 2010-11 that Axis Bank kept on increasing in terms of its core businesses as well as revenues. The bank had laid down the main purposes of its business along with a universal vision in regard to its employees and thereby took various steps in order to accomplish these purposes. The bank kept on obtaining gains from the corporate associations along with retail responsibilities permission and also developing its Small and Medium Enterprises (SME), banking businesses in rural, agriculture and consumer lending. The bank concentrated on intensifying its management capabilities in regard to retail risk, honing the risk appetite in the business of SME and satisfying product spaces in both retail as well as corporate businesses. During this year, a partnership was developed with Max New York Life by the bank in order to assist its marketing of products related to life insurance. It even initiated an online broking with the help of its contributory named Axis Securities and Sales Ltd. (Axis Bank, 2011). The bank also embarked on an important organizational restructuring plan during this year, substituting four previous Zones with Circles numbering twenty six with a vision to offer more closer and focused assistance to the operations and business of branches on the lower level. The other plans undertaken by the Bank during this year includes a strategy concentrated on the consumers in order to build up consumer approaches with the assistance of customer research, programs for building leadership that would be focused on offering development prospects to the employees and assessing the procedure related to providing services of better-quality to the customers (Axis Bank, 2011). With this concern, the Corporate Office was shifted to the bank’s own premises called Axis House that accommodates all the operations of corporate office beneath a single roof and it has been also planned to the maximum specifications relating to environmental friendliness (Axis Bank, 2011). References Axis Bank, 2011. Financial Performance. Directors’ Report: 2010-11, pp. 1-175. Axis Bank, 2007. About Axis Bank. About Us [Online] Available at: http://www.axisbank.com/shareholderscorner/financials/annualreports.asp [Accessed September 17, 2011]. Moneycontrol, 2011. Directors Report. Annual Report [Online] Available at: http://www.moneycontrol.com/annual-report/axisbank/directors-report/AB16 [Accessed September 19, 2011]. Pandit, R., 2008. Net worth Initiating Coverage. Axis Bank Ltd., pp. 1-18. Bibliography Fabozzi, F.J., 1999. Analysis of financial statements. John Wiley and Sons. Grier, W.A., 2007. Credit analysis of financial institutions. Euromoney Books. Appendix Snapshot of Axis Banks Performance from 2007 to 2011 Source: (Axis Bank, 2011) Read More