A STUDY ON THE FINANCIAL PERFORMANCE OF INDIAN OVERSEAS BANK FOR THE PERIOD 2009-2012 Submitted as a part of MBA I year Course Requirement By SATHYA. S 3511140229 Under the guidance of Mr. Ganesh Kumar MBA Faculty, SRM B-School, VadapalaniCampus, Chennai
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A STUDY ON THE FINANCIAL PERFORMANCE OF INDIAN
OVERSEAS BANK FOR THE PERIOD
2009-2012
Submitted as a part of MBA I year Course Requirement
By
SATHYA. S
3511140229
Under the guidance of
Mr. Ganesh Kumar MBA
Faculty, SRM B-School,
VadapalaniCampus, Chennai
SRM B-SCHOOL
FACULTY OF ENGINEERING AND TECHNOLOGY
SRM UNIVERSITY (RAMAPURAM II)
VADAPALANI, CHENNAI
BONAFIDE CERTIFICATE
This is to certify that SATHYA.S is a Bonafide Student of SRM B-School, SRM
University, Vadapalani, Chennai. She is in the I year of Masters Degree Program in
Business Administration (MBA). She / He has done this project under my guidance and
supervision towards part fulfillment of I year MBA course.
Project Guide HOD
Date:
Place:
DEPARTMENT SEAL
DECLARATION
I SATHYA.S (3511140229) studying in I year MBA program at SRM B-School, SRM
University, Vadapalani, Chennai, hereby declare that this project is an original work of
mine and I have not verbatim copied / duplicated any material from sources like internet
or from print media, excepting some vital company information / statistics, which are
provided by the company itself.
Signature of the Student
Date:
Place:
ACKNOWLEDGEMENT
I wish to place on record my thanks for our esteemed institution S.R.M University for
providing me with opportunity to pursue my studies in this institution
I am extremely thankful and indebted to my supervisor, Mr.Ganesh Kumar BE MBA,
Lecturer at S.R.M B-School,Vadapalani, for his valuable guidance and advice at each
and every stage in the progress of my project work by for sharing with me his time,
knowledge and helping in every step during the process of data collection for my study.
I also express my sincere thanks to all my dear teachers of the Department of
Business Administration for their constant support and encouragement. Special and warm
thanks to Ms. Gayathri,M.Phil; Senior Lecturer at S.R.M B School,Vadapalani for her
help and motivation to go ahead with this topic for study.
My heartfelt thanks goes to the staffs of Indian Overseas Bank, Chintadripet branch,
Chennai; for providing me with the opportunity to conduct my summer internship project
at their organisation and for providing me the inspiration to work on this topic as well as
for being so cooperative during my data collection.
I would finally like to thank my family and friends for the constant support and
encouragement.
ABSTRACT
Banks play an important role in the economic development of every nation. They have
control over a large part of the supply of money in circulation. A bank is a financial
intermediary that accepts deposits and channels those deposits into lending activities.
Banks are a fundamental component of the financial system and are also active players in
financial markets. Financial performance refers to the achievement of the bank in terms
of profitability. The profitability of a bank denotes the efficiency with which a bank
deploys its total resources to optimize its net profits and thus serve as an index to the
degree of asset utilization and managerial effectiveness. In this study an attempt is made
to see the financial performance of Indian Overseas Bank with the different norms.
For this study, Indian overseas bank was chosen on the basis of opportunity obtained;
however the summer internship project served an excellent exposure to get valuable
insights into the financial performance of an international public bank. Further in the
study, the bank at a glance can be found along with a thorough and systematic procedure
at deriving financial solutions to the crucial issues extracted out of the data.
The result of the study has been largely positive on the growth trend of the bank. With
adequate policy adjustments and enhancing performance the bank can be ensured high
productivity and efficiency. The methods to arrive at such results are discussed in this
study with sufficient reference to the past and current trends on the financial functioning
and positioning of the bank.
TABLE OF CONTENTS
Page Number
CHAPTER 1 INTRODUCTION
1.1 INDUSTRY PROFILE
1.2 COMPANY PROFILE
1.3 OBJECTIVE OF THE STUDY
1.4 NEED FOR THE STUDY
1.5 SCOPE AND SIGNIFICANCE
CHAPTER 2 DATA ANALYSIS & INTERPRETATION
2.1 PROBLEM IDENTIFIED
2.2 ANALYSIS
2.3 MAJOR FINDINGS
CHAPTER 3 CONCLUSION& SUGGESTIONS
3.1 CONCLUSIONS
3.2 SUGGESTIONS FOR IMPROVEMENT
CHAPTER 1
INTRODUCTION
1.1 INDIAN BANKING INDUSTRY PROFILE
A good bank is not only the financial heart of the community, but also one with an
obligation of helping in every possible manner to improve the economic conditions of
the common people
A bank is a financial intermediary that accepts deposits and channels those deposits into
lending activities. Banks are a fundamental component of the financial system, and are
also active players in financial markets. The essential role of a bank is to connect those
who have capital (such as investors and depositors), with those who seek capital (such as
individuals wanting a loan or business wanting to grow). Banks thus play an important
role in the economic development of every nation. They have control over a large part of
the supply of money in circulation. Through their influence over the volume of bank
money, they can influence in nature and character of production in any country.
Economic development is a dynamic and continuous process. Banks are the main stay of
economic progress of a country, and in the modern economy, banks have become a part
and parcel of all economic activities in India.
Indian Banking Industry Vs Global Economy
Currently, amidst all the turmoil of global economic recession, India’s banking industry
has been amongst the few to maintain resilience. The tempo of development for the
Indian banking industry has been remarkable over the past decade. It is evident from the
higher pace of credit expansion; expanding profitability and productivity similar to banks
in developed markets, lower incidence of non-performing assets and focus on financial
inclusion have contributed to making Indian banking vibrant and strong. Indian banks
have begun to revise their growth approach and re-evaluate the prospects on hand to keep
the economy rolling.
Structure of Indian Banking Industry
Banking industry in India functions under the sunshade of Reserve Bank of India-
The regulatory, central bank. Banking industry mainly consists of:
Commercial banks
Co-operative banks
The commercial banking structure in India consists of : schedules Commercial Banks and
Unscheduled Bank. Scheduled commercial banks constitute those banks which have been
included in the second schedule of Reserve Bank of Indian (RBI) Act. 1934.
RBI in turn includes only those banks in this schedule which satisfy the criteria laid down
vide section 42 (60) of the Act. Some co-operative banks are scheduled commercial
banks although not all co-operative banks are. Being a part of the second schedule
confers some benefits to the banks in terms of access to accommodation by RBI during
the times of liquidity constraints. At the same time, however this status also subjects the
bank certain conditions and obligation towards the reserve regulation of RBI.
For the purpose of assessment of performance of banks the RBI categories them as public
sector banks, old private sector banks, new private sector banks and foreign banks.
Figure 1.1 Structure of Indian Commercial Banking Sector
S.NO NATIONALISED
BANKS
OLD PRIVATE
BANKS
NEW PRIVATE
BANKS
FOREIGN BANKS
1 Allahabad Bank Ltd Catholic Syrian bank Ltd. Axis Bank Ltd AbuDhabi
Commercial Bank
2 Andhra Bank Ltd City Union Bank Ltd Development Credit
Bank Ltd
American Express
Bank
3 Bank of Baroda Ltd Dhanalakshmi Bank Ltd HDFC Bank Ltd Bank International
Indonesia
4 Bank of India Ltd Federal Bank Ltd ICICI Bank Ltd Standard Chartered
Bank
5 Bank of Maharashtra Ltd ING Vysya Bank Ltd Induslnd Bank Ltd Bank of America
6 Canara Bank Ltd Jammu and Kashmir
Bank Ltd
Kotak Mahindra
Bank Ltd
Bank of Ceylon
7 Central Bank of India Ltd Karnataka Bank Ltd Yes Bank Ltd Bank of Nova Scotia
8 Corporation Bank Ltd KarurVysya Bank Ltd Bank of Tokyo
Reserve Bank of India
Bank Financial Institution
Scheduled Commercial
banks
All India Financial Institution
Co-Operative credit
institutions
State level Instituition
Other Institution
Public Sector Banks
Private Sector Banks
Foreign Banks Regional Rural Banks
Urban Cooperative
Rural Cooperative Cedit Institutions
Mitsubishi UFJ
9 Dena Bank Ltd Lakshmi Vilas Bank Ltd Barclays Bank PLC
10 Idbi Bank Ltd Nainital Bank Ltd BNP Paribas
11 Indian Bank Ltd Ratnakar Bank Ltd Caylon Bank
12 Indian overseas Bank Ltd SBI Commercial and
International Bank Ltd
China trust
Commercial
13 Oriental Bank of
Commerce Ltd
South Indian Bank Ltd Citi Bank N.A
14 Punjab and Sind Bank Ltd Tamil Nadu Mercantile
Bank Ltd
DBS Bank
15 Punjab National Bank Ltd Deutsche Bank AG
16 Syndicate Bank Ltd HSBC
17 UCO Bank Ltd JPMorgan Chase
Bank
18 Union Bank of India Krung Thai Bank
19 United Bank of India Ltd Mashreq Bank psc
20 Vijaya Bank Ltd Mizuho Corporate
Bank
21 State Bank of Bikaner and
Jaipur Ltd
Royal Bank of
Scotland
22 State Bank of Hyderabad
Ltd
Shinhan Bank
23 State Bank of India Ltd Societe Generale
24 State Bank of Mysore LTd Sonali Bank
25 State Bank of Patiyala Ltd State Bank of
Mauritius
26 State Bank of Travancore UBS
27 VTB
Challenges Faced By Indian Banking Industry
Developing countries like India, still has a huge number of people who do not have
access to banking services due to scattered and fragmented locations. But if we talk about
those people who are availing banking services, their expectations are raising as the level
of services are increasing due to the emergence of information technology and
competition. Since, foreign banks are playing in Indian market the number of services
offered has increased and banks have laid emphasis on meeting the customer
expectations.
Now, the existing situation has created various challeneges and opportunity for Indian
commercial banks. In order to encounter the general scenario of banking industry we
need to understand the challenges and opportunities lying with banking industry of India.
Rural Market
Banking in India is generally fairly mature in terms of supply, product range and
reach, even though reach in rural India still remains a challenge for the private
and foreign banks. In terms of quality of asset and capital adequacy, Indian
banks are considered to have clean, strong and transparent balance sheets relative
to other banks in comparable economies in this region.
Management of Risks
The growing competition increases the competitiveness among banks. But,
existing global banking scenario is seriously posing threats for Indian Banking
Industry. We have already witnessed the bankruptcy of some foreign banks.
However according to certain studies there is a positive association between
changes in risk and capital.
Market Discipline and Transparency
Transparency and disclosure norms as part of internationally accepted corporate
governance practices are assuming greater importance in the emerging
environment. Banks are expected to be more responsive and accountable to the
investors. Banks have to disclose in their balance sheets a plethora of information
on the maturity profiles of assets and liabilities, lending to sensitive sectors,
movements in NPAs, capital, provisions, shareholdings of the government, value
of investment in India and abroad, operating and profitability indicators, the total
investments made in the equity share, units of mutual funds, bonds, debentures,
aggregate advances against shares and so on.
Human Resource Management
When relations between human resources management (HRM), work climate and
organizational performance in the branch network of a retail bank. Significant
correlations were found between work climate, human resource practices, and
business performance. The results showed that the correlations between climate
and performance cannot be explained by their common dependence on HRM
factors, and that the data are consistent with a mediation model in which the
effects of HRM practices on business performance are partially mediated by work
climate.
Global Banking
It is practically and fundamentally impossible for any nation to exclude itself from
world economy. Therefore, for sustainable development, one has to adopt
integration process in the form of liberalization and globalization becomes
challenges for the domestic enterprises as they are bound to complete with global
players.
If we look at the Indian banking industry, then we find that there are 36 foreign
banks operating in India, which becomes a major challenge for nationalize and
private sector banks, these foreign banks are larger in size, technically advanced
and having presence in global market, which gives more and better options and
services to Indian traders.
Financial Inclusion
Financial inclusion has become a necessity in today’s business environment.
Whatever is produced by business houses that have to be under the check from
various perspectives like environmental concerns, corporate governance social
and ethical issues. Apart from it to bridge the gap between rich and poor the poor
people of the country should be given proper attention to improve their economic
condition.
Employee’s Retention
The banking industry has transformed rapidly in the last ten years, shifting from
transactional and consumer service-oriented to an increasingly aggressive
environment, where competition for revenue is on top priority. Long-time banking
employees are becoming disenchanted with the industry and are often resistant to
perform up to new expectations. The diminishing employee morale results in
decreased revenue. Due to the intrinsically close ties between staff and clients,
losing those employees completely can mean the loss of valuable customer
relationships. The retail banking industry is concerned about employee retention
from all levels: from tellers to executives to customer service representatives
because competition is always moving in to hire them away.
Customer Retention
The major determinants of customer satisfaction and future intentions in the retail
bank sector include service quality dimensions (such as getting it right the first
time), service features (such as competitive interest rates), service problems,
service recovery and products used. It was found, in particular, that service
problems and the bank’s service recovery ability have a major impact on
satisfaction and intentions to switch.
Thus, these challenges and opportunities like rural market, transparency, customer
expectations, management of risks, growth in banking sector, human factor,
global banking, environment concern, social, ethical issues, employee and
customer retentions, banks are striving to combat the competition. The
competition from global banks and technological innovation has compelled the
banks to rethink their policies and strategies.
INDIAN OVERSEAS BANK
– THE COMPANY PROFILE
Company information :
Full name: Indian Overseas Bank
Legal Form: Public Limited Company (BSE 532388)
Legal Address/HQ: 763 Anna Salai, Central Office, ; Chennai; Tamil Nadu;
Tel: 044-28524212 / 28415702 / 28519491
Incorporation Date: February 10, 1937
Total Employees: 25,626
Revenue: INR 34,550 cr
Net Income: INR 19,578 cr
Total Assets: INR 921,841 cr
Website: www.iob.in
Company Description
At home or abroad, Indian Overseas Bank wants to provide a safe haven for clients'
rupees. Indian Overseas Bank (IOB) is one of India's largest state-controlled banks and
provides banking and financial services throughout the country. Established with a focus
on foreign exchange and overseas banking, IOB has some 1,800 domestic branches and
about a half-dozen international branches. It provides deposit, lending, mortgage,
currency transfer, agri-business consultation, and credit card services. Specialized
branches offer services related to such concerns as commercial and industrial credit,
industrial finance, and high-tech agriculture.
Organizational expansion
Pre-World War II
In 1937, Thiru.M. Ct. M. Chidambaram Chettyar establishes the Indian Overseas Bank
(IOB) to encourage overseas banking and foreign exchange operations. IOB started up
simultaneously at three branches, one each in Karaikudi, Madras (Chennai) and Rangoon
(Yangon). It then quickly opened a branch in Penang and another in Singapore. The bank
served the Nattukottai Chettiars, who were a mercantile class that at the time had spread