Group 1, Section C Financial Analysis of Banking Industry

PROJECT REPORT
FINANCIAL ANALYSIS OF
BANKING SECTOR

Banks under consideration:

State Bank of India
Bank of Baroda

Submitted to:
Dr. S.K. Rai
MDI Gurgaon

Made by:
Rohit Agarwal (10P124)

Jigish Patel (10P157)

Sagar Sitaram (10P167)

Shauvik Chakraborty (10P171)

Shruti Agrawal (10P172)

Vijaya Suryavanshi (10P179)

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Group 1, Section C Financial Analysis of Banking Industry

ACKNOWLEDGEMENT

We would like to express our gratitude to all those who made it possible for us to conduct this
analysis. We would specially like to thank Dr. S.K. Rai for providing us with an opportunity
to work on this topic thereby helping us gain valuable insights about the sector, as well as for
providing us guidance and support with respect to our project.

We are also grateful to our college for providing us with the infrastructure which served to be
a useful aid and would like to thank the library staff for rendering significant cooperation
towards the same.

We would also like to thank our friends who helped us with suggestions and encouragement
throughout our course of analysis.

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Group 1, Section C Financial Analysis of Banking Industry

INTRODUCTION

Banking Sector: An Overview

The banking sector is a very important sector of India. The economic reforms undertaken in
the last 15 years have brought about a considerable improvement in the health of banks and
financial institutions in India. The financial health of commercial banks has remarkably
improved with respect to capital adequacy, profitability, asset quality and risk management.
Deregulation has opened new doors for banks to increase revenues by entering into
investment banking, insurance, credit cards, depository services, mortgage, securitization, etc.

According to a stress test conducted by the reserve bank of India, The Indian banking system
is financially stable and resilient to the shocks that may arise due to higher non-performing
assets (NPAs) and the global economic crisis.

Impact of Budget 2010 on the Banking Sector

The economic crisis that recently hit the world did not have any major impact on the Indian
banking industry. However, to ensure the continuance of the sector’s economic expansion,
and to meet the pre-requisites of the new financial system, the Finance Minister of India
proposed the requirement of international exposure to banks and improvement in the
accessibility of the banking services.

In his Union Budget 2010 speech the Finance Minister Mr. Pranab Mukherjee announced few
benefits and initiatives which are projected to trigger the expansion and thereby have a great
impact on the banking sector in FY 2010-11. He proposed banking licenses to Indian banks to
ensure the expansion of banking sector in size and turnover. He thus notified the
consideration of RBI in offering extra banking licenses to private banks and also to non
Banking Financial Companies, if the latter satisfies the RBI's requirements. Additionally,
extra funds have been invested in Public Sector Banks to uphold a contented level of Capital
to Risk Weighted Asset Ratio.

State Bank of India

State Bank of India (SBI) is the largest state owned banking and financial services company
in India by almost every parameter – revenues, profits, market capitalization, assets etc. It is
actively involved since 1973 in non-profit activity called Community Services Banking. It is

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Group 1, Section C Financial Analysis of Banking Industry

the country’s oldest Bank and a premier in terms of balance sheet size, number of branches,
market capitalization and profits.

SBI provides a range of banking products through its vast network of branches in India and
overseas, including products aimed at NRIs. The State Bank Group, with over 16,000
branches, has the largest banking branch network in India. With an asset base in excess of
$225 billion and deposits in excess of $171 billion, it is a regional banking behemoth. It has a
market share among Indian commercial banks of about 20% in deposits and advances, and
SBI accounts for almost one-fifth of the nation's loans.

In the annual international ranking conducted by UK-based Brand Finance Plc, 20 Indian
banks have been included in the Brand Finance® Global Banking 500. In fact, the State Bank
of India (SBI) has become the first Indian bank to be ranked among the Top 50 banks in the
world, capturing the 36th rank, as per the Brand Finance study. The brand value of SBI
increased from US$ 1.5 billion in 2009 to US$ 4.6 billion in 2010. Today, the Bank is the
largest provider of infrastructure debt and the largest arranger of external commercial
borrowings in the country. It is the only Indian bank to feature in the Fortune 500 list.

Bank of Baroda

Bank of Baroda is the third largest bank in India, after the State Bank of India and the Punjab
National Bank and ahead of ICICI Bank. BoB has total assets in excess of Rs. 2,274 billion, a
network of over 3,000 branches and offices, and about 1,100 ATMs. It plans to open 400 new
branches in the coming year. It offers a wide range of banking products and financial services
to corporate and retail customers through a variety of delivery channels and through its
specialised subsidiaries and affiliates in the areas of investment banking, credit cards and
asset management. Its total business was Rs. 4,402 billion as of June 30.

As of August 2010, the bank has 78 branches abroad and by the end of FY11 this number
should climb to 90. In 2010, BoB opened a branch in Auckland, New Zealand, and its tenth
branch in the United Kingdom. The bank also plans to open five branches in Africa. Besides
branches, BoB plans to open three outlets in the Persian Gulf region that will consist of
ATMs with a couple of people.

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Group 1, Section C Financial Analysis of Banking Industry

COMMON-SIZE STATEMENT

BANK OF BARODA
Balance Sheet:

Mar 10 Mar 09 Mar 08 Mar 07 Mar 06

SOURCES OF FUNDS :
Capital 0.13 0.16 0.2 0.25 0.31
Reserves Total 5.4 5.6 5.99 5.79 6.64
Equity Share Warrants 0 0 0 0 0
Equity Application Money 0 0 0 0 0
Minority Interest 0.02 0.02 0.02 0.02 0.02
Deposits 86.52 84.9 84.61 87.2 82.32
Borrowings 4.72 5.52 2.16 0.8 4.33
Other Liabilities & Provisions 3.22 3.81 7.02 5.94 6.38

TOTAL LIABILITIES 100 100 100 100 100

APPLICATION OF FUNDS :
Cash & Balances with RBI 4.95 4.71 5.24 4.47 2.97
Balances with Banks & money at Call 7.91 6.18 7.38 8.44 8.97
Investments 22.22 23.16 24.33 24.28 30.55
Advances 62.51 62.86 59.16 58.24 52.69
Fixed Assets 0.83 1.11 1.46 0.91 1.04
Other Assets 1.57 2 2.43 3.65 3.76
Miscellaneous Expenditure not written off 0 0 0 0 0

TOTAL ASSETS 100 100 100 100 100

Profit & Loss Account:

Mar 10 Mar 09 Mar 08 Mar 07 Mar 06

INCOME :
Interest Earned 100 100 100 100 100
Other Income 19.67 18.74 18.02 16.84 20.93

Total 119.67 118.74 118.02 116.84 120.93

II. Expenditure
Interest expended 63.96 65.4 66.28 59.72 54.27
Payments to/Provisions for Employees 14.08 15.49 16.04 18.2 21.45
Operating Expenses & Administrative Expenses 4.98 4.47 4.69 5.15 5.76
Minority Interest(before tax) 0 0 0 0 0

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Group 1, Section C Financial Analysis of Banking Industry

Depreciation 1.41 1.54 1.98 2.18 1.61

Other Expenses, Provisions & Contingencies 9.55 8.95 9.62 12.4 21.26
Provision for Tax 7.17 7.49 6.63 7 4.21
Deferred Tax 0 0 -0.03 0 0

Total 101.15 103.33 105.21 104.65 108.56

III. Profit & Loss

Net Profit 18.52 15.4 12.81 12.19 12.37
Minority Interest(after tax) 0.08 0.07 0.08 0.08 0.08
Profit/Loss of Associate Company 0 0 0 0 0
Net Profit after Minority Interest & P/L of Assoc.
Co. 18.45 15.33 12.73 12.11 12.29
Extraordinary Items 0 0 0 0.09 0
Adjusted Net Profit 18.45 15.33 12.73 12.02 12.3

The above statement for the Balance Sheet shows that Bank of Baroda has been shifting its
liability base more towards the deposits while there is a minor reduction in the reserves
component. This is a positive indicator as it shows that people have been placing greater
reliance over the bank and hence the increase in the deposit component.

The Statement for the Income statement shows that component of Interest Expenditure is on a
rise whereas the operating expenses constitute a lower proportion of Interest Earned over the
years. This is in sync with the rising proportion of deposits since more deposits lead to higher
Interest payment.

STATE BANK OF INDIA

Balance Sheet:

Mar 10 Mar 09 Mar 08 Mar 07 Mar 06

SOURCES OF FUNDS :
Capital 0.06 0.07 0.09 0.09 0.11
Reserves Total 6.2 5.94 6.7 5.43 5.49
Equity Share Warrants 0 0 0 0 0
Equity Application Money 0 0 0 0 0
Deposits 76.3 76.9 74.42 76.84 76.91
Borrowings 9.77 8.71 7.16 7 6.2
Other Liabilities & Provisions 7.67 8.39 11.63 10.64 11.3

TOTAL LIABILITIES 100 100 100 100 100

APPLICATION OF FUNDS :
Cash & Balances with RBI 5.82 5.76 7.14 5.13 4.38
Balances with Banks & money at Call 3.31 5.06 2.21 4.04 4.64

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Group 1, Section C Financial Analysis of Banking Industry

Investments 27.12 28.59 26.24 26.31 32.89

Advances 59.96 56.22 57.71 59.52 52.98
Fixed Assets 0.42 0.4 0.47 0.5 0.56
Other Assets 3.38 3.97 6.23 4.5 4.56
Miscellaneous Expenditure not written off 0 0 0 0 0

TOTAL ASSETS 100 100 100 100 100

Profit & Loss Account:

Mar 10 Mar 09 Mar 08 Mar 07 Mar 06

INCOME :
Interest Earned 100 100 100 100 100
Other Income 35.11 24.08 27.39 24.69 22.57

Total 135.11 124.08 127.39 124.69 122.57

II. Expenditure
Interest expended 66.58 68.32 67.06 60.21 56.33
Payments to/Provisions for Employees 16.32 14.18 14.63 19.49 21.57
Operating Expenses & Administrative Expenses 4.86 4.43 4.88 5.3 5.15
Minority Interest(before tax) 0 0 0 0 0
Depreciation 1.32 1.01 1.45 1.75 2.27
Other Expenses, Provisions & Contingencies 27.36 16.65 19.8 18.06 19.43
Provision for Tax 7.97 8.29 7.17 7.63 4.21
Deferred Tax -1.31 -1.17 -0.68 -0.14 1.02

Total 123.1 111.7 114.32 112.29 109.98

III. Profit & Loss

Net Profit 12 12.19 12.89 12.18 11.35
Minority Interest(after tax) 0.28 0.24 0.35 0.47 0.26
Profit/Loss of Associate Company 0 0 0 0 0
Net Profit after Minority Interest & P/L of Assoc.
Co. 11.72 11.95 12.53 11.71 11.08
Extraordinary Items -0.01 0 0.01 0.01 0
Adjusted Net Profit 11.73 11.95 12.52 11.7 11.08

The above statement for the Balance Sheet shows that unlike Bank of Baroda, there is an
increase in the reserves component whereas there is not much increase in the proportion of
deposits with respect to total liabilities. However the borrowings portion shows a continuous
increase which means the bank has been taking more loans.

The statement for the Income Statement shows an increasing trend in the proportion of
interest expenditure however a reduction in FY 2009-2010 indicates efficiency on the part of
the bank.

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Group 1, Section C Financial Analysis of Banking Industry

RATIO ANALYSIS

I. INVESTMENTS:
1) SHORT TERM INVESTMENT

Short term investment basically means to invest in the stock for short duration that
may last up to 1 year at the most depending on the investor. We basically check the
following ratios in case of the bank to check its prospects in the short run.

 Capital Adequacy Ratio: This is capital to risk weighted assets ratio which signifies the
risk exposure of the bank. Its minimum limit prescribed by RBI is 9% for scheduled
banks. The Capital Adequacy Ratio for SBI as on 31st March, 2010 is 13.39 and the
same for Bank of Baroda is 14.36.

Capital Adequacy ratio of SBI vs BoB

16
Capital Adequacy Ratio

14

12 BoB
10 SBI

8
2006 2007 2008 2009 2010

 Earnings per share: The portion of a company's profit allocated to each outstanding
share of common stock. Earnings per share serves as an indicator of a company's
profitability. The EPS for State Bank of India as on 31st March, 2010 is Rs. 144.37
and the same for Bank of Baroda is Rs. 83.96.

EPS of SBI vs BoB

200

150
EPS

100 BoB
50 SBI

0
2006 2007 2008 2009 2010

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Group 1, Section C Financial Analysis of Banking Industry

 Price to Earnings Ratio: This ratio indicates the market value of shares with reference
to the earnings of the company. Investments in stock should be primarily based on
future earnings of the company. PE Ratio primarily indicates whether the stock is
undervalued or overvalued. Investment is preferable in an undervalued stock.

P/E Ratio of SBI vs BoB

20

15
P/E Ratio

10 BoB

5 SBI

0
2006 2007 2008 2009 2010

 Price to Book Value Ratio: It is used to compare a stock's market value to its book
value. It is calculated by dividing the current closing price of the stock by the latest
quarter's book value per share. The Price to Book Value ratio of SBI as on 31st March,
2010 is 2.00 and the same for Bank of Baroda is 1.55.

P/B Ratio of SBI vs BoB

2.5
2
P/B Ratio

1.5
BoB
1
SBI
0.5
0
2006 2007 2008 2009 2010

 Beta: β value signifies the volatility of the stock as compared to the movement of the
Sensex. β Value>1 signifies that the movement in stock is proportionately more than
the market movement. β Value>1 signifies that the movement in stock is
proportionately less than the market movement. The β value for SBI as on 1st
September, 2010 is 0.93 and the same for Bank of Baroda is 0.38.

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Group 1, Section C Financial Analysis of Banking Industry

 Recommendation:
From short term investment perspective Bank of Baroda should be chosen over State
Bank of India for short term investment. Analysis of the above ratios suggests that
both BoB and SBI have almost similar capital adequacy ratios but the same for SBI
has decreased while for BoB it has increased in the past year. BoB’s ratio is a little
higher than SBI which means that BoB has higher capital in proportion to their Risk
weighted assets compared to SBI. Also, Earnings and P/E suggest that BoB is a little
undervalued compared to SBI which is also indicated by P/B ratio. P/B for BoB is
also lesser than SBI which signifies that stock of BoB is undervalued than SBI.
Also β ratio is very less for BoB compared to SBI which indicates that BoB is less
risky. Hence, BoB being undervalued and less risky is a preferred choice for short
term investment.

2) LONG TERM INVESTMENT

Long term investment basically means to invest in the market for a longer duration
that exceeds 1 year depending on the investor though it is recommended that the
optimum time for keeping the long term investment is 7-8 years. He should sell when
the market is bullish and purchase when it is bearish. We basically check the
following ratios in case of the bank to check its prospects in the short run.

 Capital Adequacy Ratio: A safe CAR is required to ensure that the company can keep
on growing by advancing more loans. The CAR required by RBI is 9%. The Capital

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Group 1, Section C Financial Analysis of Banking Industry

Adequacy Ratio for SBI as on 31st March, 2010 is 13.39 and the same for Bank of
Baroda is 14.36.

Capital Adequacy ratio of SBI vs BoB

15
Capital Adequacy Ratio

14
13
12
11 BoB
10 SBI
9
8
2006 2007 2008 2009 2010

 CASA: This represents the ratio of current account and savings account to total deposits.
A higher ratio means that the bank has comparatively more current account and saving
deposits. Current deposits are practically free funds available to the bank whereas a mere
3-4% is given on saving deposits. Thus, higher such deposits mean higher net interest
income for the bank. Thus higher profits which will be reflected in the stock prices.

CASA Ratio of SBI vs BoB

42
40
CASA Ratio

38
BoB
36
SBI
34
32
2008 2009 2010

 NPA: The net non-performing assets to loans (advances) ratio are used as a measure of the
overall quality of the bank’s loan book. Net NPAs are calculated by reducing cumulative
balance of provisions outstanding at a period end from gross NPAs. Higher ratio reflects
rising bad quality of loans. Thus in the long run bank has high chances of huge losses
which would affect its profitability.

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Group 1, Section C Financial Analysis of Banking Industry

Non Performing Asset of SBI vs BoB

2

Non Performing Assets(%) 1.5

1 BoB
SBI
0.5

0
2006 2007 2008 2009 2010

 Dividend Payout: DPR is defined as the ratio of DPS and EPS. It signifies the proportion
of earnings paid out as dividends and shows the growth plan of the company. The
Dividend Payout ratio for SBI as on 31st March, 2010 is 23.36 and the same for Bank of
Baroda is 20.9.

Dividend Payout Ratio of SBI vs BoB

30
Dividend ayout Ratio

25
20
15 BoB
10 SBI
5
0
2006 2007 2008 2009 2010

 Credit Deposit Ratio: The ratio is indicative of the percentage of funds lent by the bank
out of the total amount raised through deposits. Higher ratio reflects ability of the bank to
make optimal use of the available resources. Loans given by bank would also include its
investments in debentures, bonds and commercial papers of the companies. The Credit
Deposit ratio for SBI as on 31st March, 2010 is 75.96 and the same for Bank of Baroda is
73.43.

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Group 1, Section C Financial Analysis of Banking Industry

C-D(%) of SBI vs BoB

100

80

C - D (%) 60
BoB
40
SBI
20

0
2006 2007 2008 2009 2010

 Return on Assets: It shows the ratio of profit to the total assets of the company. Higher
ROA indicates better efficiency. Return on Assets for SBI as on 31st March, 2010 is 0.88
and the same for Bank of Baroda is 1.1.

Return of Assets of SBI vs BoB

1.2
1
Return on Assets

0.8
0.6 BoB
0.4 SBI
0.2
0
2006 2007 2008 2009 2010

 Return on Net Worth: It shows the ratio of profit and net worth of the company. Higher
ROE indicates better returns to the shareholders. Return on Equity for SBI as on 31st
March, 2010 is 14.8 and the same for Bank of Baroda is 21.86.

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Group 1, Section C Financial Analysis of Banking Industry

RONW of SBI vs BoB

25
20
RONW

15
BoB
10
SBI
5
0
2006 2007 2008 2009 2010

 Recommendation:
From the long term perspective SBI should be preferred over BoB as it has higher CASA
ratio which means SBI has to pay lower amount of interest on the deposits which results in
higher earnings. Also dividend payout ratio for SBI is higher which results in higher
dividend paid during the share holding period. Though NPA is higher in case of SBI but it
is significantly low. Credit Deposit ratio for SBI is also higher than BoB which indicates
that SBI is able to use its deposits money efficiently than BoB. Hence, SBI should be
preferred than BoB for a long term investment.

II. LENDING

1) SHORT TERM LENDING

We look at the following ratios for the purpose of short term lending.

 Cash to Deposit Ratio: It is the ratio of cash available with the bank and the deposits
in the bank. The cash to deposit ratio of SBI as on 31st March, 2010 is 7.56 and the
same for Bank of Baroda is 5.57.

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Group 1, Section C Financial Analysis of Banking Industry

Cash/Deposit of SBI vs BoB

10

Cash/Deposit (%)
8

6
BoB
4
SBI
2

0
2006 2007 2008 2009 2010

 Deposits Growth Rate: It refers to the percentage growth in deposits of the bank. A
higher Growth Rate indicates that the bank is getting funds easily which means that
the bank can expand easily.

Deposit Growth Rate of SBI Vs BOB

0.4
Deposit Growth

0.3
Rate

0.2 BOB
0.1 SBI

0
2006 2007 2008 2009 2010

 Net Interest Margin: This ratio indicates the difference of interest income and interest
expenses to average assets. For banks, interest expenses are the major cost and
interest income is their main source of revenue. The difference between interest
income and expense is known as net interest income. It is this income, which basically
the bank earns from its core business of giving loans. Net interest margin is the net
interest income earned by the bank on its average earning assets. These assets
comprises of advances, investments, balance with the RBI and money at call. Higher
NIM ratio indicates better earnings, thus better earnings. The Net Interest Margin for
SBI as on 31st March, 2010 is 3.3 and the same for Bank of Baroda is 2.74.

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Group 1, Section C Financial Analysis of Banking Industry

Net Interest Margin of SBI Vs BOB

5
4

NIM 3
BOB
2
SBI
1
0
2006 2007 2008 2009 2010

 Interest Expended / Interest Earned (%): This ratio indicates the amount of Interest
expenditure as a percentage of Interest Earned. A high ratio indicates that the
expenditure of the bank is higher and hence is not indicative of a healthy profit
position. The Interest Expended/ Interest Earned ratio for SBI as on 31st March, 2010
is 66.66 and the same for Bank of Baroda is 64.43.

Interest Expanded/ Interest Earned of SBI vs BoB

80
Interest Expanded/
Interest Earned

60

40 BoB
20 SBI

0
2006 2007 2008 2009 2010

 Recommendation:
For short term lending perspective SBI is preferred over BoB as it has higher NIM
(Net Interest Margin). Also in case of SBI funds are easily available as it has higher
Cash to Deposit ratio than BoB. So SBI is having a lesser chance of lending being
defaulted. Hence, SBI should be preferred over BoB for short term lending
perspective.

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Group 1, Section C Financial Analysis of Banking Industry

2) LONG TERM LENDING

 Capital Adequacy Ratio: A safe CAR is required to ensure that the company can keep
on growing by advancing more loans. The CAR required by RBI is 9%. The Capital
Adequacy Ratio for SBI as on 31st March, 2010 is 13.39 and the same for Bank of
Baroda is 14.36.

 Return on Assets: It shows the ratio of profit to the total assets of the company.
Higher ROA indicates better efficiency.

Return of Assets of SBI vs BoB

1.2
1
Return on Assets

0.8
0.6 BoB
0.4 SBI
0.2
0
2006 2007 2008 2009 2010

 Net NPA: The net non-performing assets to loans (advances) ratio are used as a
measure of the overall quality of the bank’s loan book. Net NPAs are calculated by
reducing cumulative balance of provisions outstanding at a period end from gross
NPAs. Higher ratio reflects rising bad quality of loans. Thus in the long run bank has
high chances of huge losses which would affect its profitability.

Non Performing Asset of SBI vs BoB

2
Non Performing Assets(%)

1.5

1 BoB

0.5 SBI

0
2006 2007 2008 2009 2010

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Group 1, Section C Financial Analysis of Banking Industry

 EV/EBIDTA: EV/EBITDA ratio is the Enterprise Multiple: A ratio used to determine

the value of a company. The enterprise multiple looks at a firm as a potential acquirer
would, because it takes debt into account - an item which other multiples like the P/E
ratio do not include. A low ratio indicates that a company might be undervalued. The
enterprise multiple is used for several reasons:
It compares the value of a business, free of debt, to earnings before interest. The ratio
for SBI as on 31st March, 2010 is 2.34 and the same for Bank of Baroda is 1.69.

EV/EBITDA of SBI vs BoB

25
20
EV/EBIDTA

15
BoB
10
5 SBI

0
2006 2007 2008 2009 2010

 Return on Net Worth: It shows the ratio of profit and net worth of the company.
Higher ROE indicates better returns to the shareholders. Return on Equity for SBI as
on 31st March, 2010 is 14.8 and the same for Bank of Baroda is 21.86.

RONW of SBI vs BoB

25
20
RONW

15
BoB
10
SBI
5
0
2006 2007 2008 2009 2010

 Recommendation:
From Long term lending perspective BoB will be preferred over SBI as the Return on
Equity (RONW) is higher in case BoB over SBI and also it is growing while in case

18
Group 1, Section C Financial Analysis of Banking Industry

of SBI it is falling. Also NPA is very less for BoB compared SBI which means higher
recovery in case of BoB and lesser risk. Also Return on Assets is higher for BoB than
SBI which suggests higher expansion and bank is positioned for a better earnings and
better return in the long run using optimum resources. Hence, BoB is preferred for
long term lending perspective than SBI.

III. STRATEGIC ANALYSIS

STATE BANK OF INDIA

Particulars 2006 2007 2008 2009 2010

Reserves (in 27117.79 30772.26 48401.19 57312.82 65314.32
Rs. Crores)
CAR 11.88 12.34 13.54 14.25 13.39
ROA 0.89 0.85 1.01 1.04 0.88
Net NPA 1.88 1.56 1.78 1.79 1.72
NIM 4.65 4.02 3.5 3.15 3.3
RONW 17.04 15.41 16.75 17.05 14.8

BANK OF BARODA

Particulars 2006 2007 2008 2009 2010

Reserves (in 7,478.91 8284.41 10678.40 12514.19 14740.86
Rs. Crores)
CAR 13.65 11.8 12.94 14.05 14.36
ROA 1.1 0.98 0.8 0.72 1.1
Net NPA 0.84 0.6 0.45 0.34 0.31
NIM 3.2 3.05 2.9 2.91 2.74
RONW 12.28 12.45 14.58 18.62 21.86

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Group 1, Section C Financial Analysis of Banking Industry

 Recommendation:

State Bank of India:

There has been significant increase in the reserves amount and hence the bank should
go for expansion. SBI has already merged its own subsidiaries under its own name and
more such operations are in line in the future. It should target to finish this as soon as
possible in order to expand its network at the earliest possible.

NPA of SBI is higher than the industry average which is around 1%. It should hence try
to concentrate on minimizing the NPA component as much as possible.

There has been a decrease in both NIM and RONW of SBI and hence the bank should
look into the causes and thereafter the ways to mitigate the same since such continuous
reduction will reduce investor confidence.

Bank of Baroda:

The NPA component is quite low as compared to the industry average which indicates
that the bank is in good health. Hence the bank should maintain the level of this NPA.

Reserves have almost doubled in the last five years and so the bank should try to utilize
the reserves for expansion.

20