The sources of funds for a bank can be found in the liabilities section of its Balance Sheet. In the case of a banking business, these liabilities include share capital, reserves and surplus, deposits, borrowings, and other liabilities and provisions. Share capital refers to the paid-up capital, while reserves and surplus encompass various types of reserves such as statutory reserves, capital reserves, share premium, revenue and other reserves, as well as the balance in the profit and loss account. Both share capital and reserves and surplus represent the net worth of the bank and are considered investor's funds.
Deposits, on the other hand, consist of demand deposits, savings bank deposits, and term deposits. Borrowings include funds obtained from the Reserve Bank of India (RBI), other banks, or financial institutions within India, as well as borrowings from outside the country. Additionally, other liabilities and provisions encompass items such as bill payable, inter-office adjustments, accrued interest, deferred tax liability, and more. It is important to note that apart from these liabilities, there is also a category known as contingent liabilities, which refers to potential liabilities that may or may not arise.
Let's gain a better understanding by examining the Liabilities of the Top 6 Banks in India. Deposits serve as the primary source of funds for all six major banks in the country. More than 55% of the funds utilized by these banks for their operations come from Deposits. However, this percentage varies significantly among the top three public sector banks. State Bank of India (SBI) relies on Deposits for 73.6% of its funds, Bank of Baroda (BoB) for 81.69%, and Punjab National Bank (PNB) for 85.46%. In contrast, the leading three private sector banks, HDFC Bank, ICICI Bank, and Axis Bank, rely on Deposits for 58.98%, 61.06%, and 70.29% respectively.
As of March 31, 2024, the State Bank of India (SBI) reported Total Liabilities of Rs. 6,733,778 Cr., Bank of Baroda (BoB) had Rs. 1,654,779 Cr., and Punjab National Bank (PNB) had Rs. 1,558,809 Cr. on a consolidated basis within the public sector banking segment. On the other hand, within the private sector banking segment, HDFC Bank reported Total Liabilities of Rs. 4,030,194 Cr., ICICI Bank had Rs. 2,364,063 Cr., and Axis Bank had Rs. 1,518,238 Cr. on a consolidated basis as of the same date.
The range of the Investors funds, Share Capital and Reserves & Surplus, varied from 6% to 12% in the Total Liabilities. HDFC Bank and Axis Banks had higher borrowing percentages, accounting for 18.13% and 15.03% of their Total Liabilities respectively. This increased borrowing percentage puts more pressure on the business due to higher interest expenses. For the remaining banks, this percentage falls between 5% and 10%. PNB, Axis Bank, and Bank of Baroda have lower percentages of Other Liabilities & Provisions, with 2.19%, 4.40%, and 4.85% respectively. On the other hand, ICICI Bank, HDFC Bank, and SBI have higher percentages of Other Liabilities & Provisions, with 18.74%, 11.64%, and 10.35% respectively.
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The content or analysis presented in the Blog is exclusively intended for educational purposes. It is important to note that this should not be considered as a suggestion for investing in stocks or as legal or medical advice. It is highly recommended to seek guidance from an expert before making any decisions.