Bank Financial Analysis Essay

II. Analysis of PFC’s Operational Parameters Impacting lending Rate For fixation of lending Rates, factors impacting the asset side and liabilities side are analyzed. In this respect the two important factors are: 1) Assets falling for reset

PFC provides an option to its borrowers for availing loan at floating interest rates i.e. rates are subject to reset after 3 years or after 10 years. Thus, the assets are re-priced every 3 years and 10 years depending on the option taken by the borrowers. Currently the maximum assets are subject to 3 years reset. Thus, the assets falling for reset are also considered at the time of fixing interest rates. Rs. 8367 crores is the reset of assets

2) Liabilities fallen for Reset

PFC’s Liabilities

Thus, it is an indicator of the net return on the average total assets of the company. FY09-FY10 FY10-FY11 FY11-FY12 FY12-FY13 FY13-FY14 FY14-FY15

ROAA 3.08% 2.79% 2.52% 2.89% 2.98% 2.82%

D) The comparison of the movement of NIM, Spread and ROAA

FIGURE 2

In figure 2

1) Net interest margin is showing an increasing trend. It means net income earned out of the assets or amounts lent by PFC after accounting for the cost of funds are increasing.

2) Spread of the company is also showing an increasing trend which means net interest income which a lender earns on its loan assets portfolio is also increasing. It shows how successful a firm's investment decisions are compared to its debt situations.

3) While ROAA is showing an decreasing trend that is net return on the average total assets of the company is falling

ii) Other important ratios

TABLE 5 FY09-FY10 FY10-FY11 FY11-FY12 FY12-FY13 FY13-FY14 FY14-FY15

Yield on assets 10.75 11.02 11.25 11.94 12.31

2) LOAN QUALITY AND PROVISIONS PFC (2015) REC (2015)

NPA’s 1890 970

Provision against restructured standard assets 564 452

Bad and doubtful debts 2118 1622

 Due to different accounting policy of both the firms on making provision towards restructured assets have different affect on their performance.

 PFC has higher provision towards restructured assets (564) in 2015 than REC (452) which follow nominal provisions. Thus REC did not have that much impact on its profits.

 NPA’s of PFC are more than REC , which means more number of borrowers have failed to make payment of interest or principle and loan is considered as non performing assets. Both the companies follow different prudential norms. PFC has some relaxation from RBI in prudential norms while REC follows RBI guidelines.

 On other hand, PFC Bad and doubtful debts for the year 2015 is 2118 greater than REC 1622.This could also be the reason for PFC lower performance than REC.

3) LOAN SANTIONED FOR GENERATION,TRANSMISSION AND DISTRIBUTION

For the year