International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),International Journal of Mana...
International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),Volume 2, Number 1, Jan- Apri...
International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),Volume 2, Number 1, Jan- Apri...
International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),                Volume 2, Num...
International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),Volume 2, Number 1, Jan- Apri...
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Operational efficiency and times series changes in taico bank – auto regressive integrated moving average (arima) model

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Transcript of "Operational efficiency and times series changes in taico bank – auto regressive integrated moving average (arima) model"

  1. 1. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),International Journal of Management (IJM)Volume 2, Number 1, Jan- April (2011), © IAEMEISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online) IJMVolume 2, Number 1, Jan- April (2011), pp. 79-83© IAEME, http://www.iaeme.com/ijm.html ©IAEME OPERATIONAL EFFICIENCY AND TIMES SERIES CHANGES IN TAICO BANK – AUTO REGRESSIVE INTEGRATED MOVING AVERAGE (ARIMA) MODEL Dr. S. RAJAMOHAN Professor, Alagappa Institute of Management Alagappa University, Karaikudi-630 004 S. PASUPATHI Associate Professor in Commerce, Vivekananda College Thiruvedakam (West), Madurai -625 217ABSTRACT The Tamilnadu Industrial Cooperative Bank established in 1962 provides credit toindustrial cooperatives like tea factories, match factories, coir industries and the like inthe state. It has 32 branches located at district headquarters. In this paper an attempt ismade to know the operational efficiency and the times series changes in overallfunctioning of the bank during the period of analysis through a model called AutoRegressive Integrated Moving Average (ARIMA). It was found that the financialperformance of the bank is consistent for the first five years (1998-99 to 2002-03) and aradical change is occurred in the overall functioning of the bank during the last six yearsof the study (2004-04 to 2008-09). Moreover, out of the 47 ratios, two thirds of the ratiosshow an increasing trend and the rest of them shows a decreasing trend during the periodanalysis. Also there is a constant increase and significant changes in the five variablesnamely operating profit, gross income, capital employed, operating expenses and interestexpenses (11.14% each year). Thus the TAICO Bank has performed financially wellduring the period of analysis.INTRODUCTION The Tamilnadu Industrial Cooperative Bank was established and startedfunctioning from November, 1962. It provides a wide range of financial assistance tovarious industrial cooperatives, small scale industries, partnership firms, joint stockcompanies and the like engaged in small, tiny, cottage and village industries in the nonfarm sectors. In this paper an attempt has been made to identify the time series changesin the overall functioning of the bank through a model called ARIMA model.SCOPE OF THE STUDY The present research study is pursued to analyse the financial performance of thebank, its time series changes and prediction about the trends in the overall functioning tothe extent possible. 79
  2. 2. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),Volume 2, Number 1, Jan- April (2011), © IAEMEREVIEW OF LITERATURE D. Ilangovan and K. Padmanaban1 (2002) analysed the performance of PACBs inTamilnadu by taking the different kinds of loans, branch expansion, level of deposits,position of reserves, working capital, overdues as the criterion. They concluded thatcooperative banks are the suitable institutions for providing short term credit toagriculture, small scale industries and industrial cooperatives. H. Srinivas Rao2 (2006) in his article analysed the working of the AndhraPradesh State Cooperative Bank. The findings were that there was a steep increase in thefigures of interest earned, interest paid, deposits, fixed assets and liquid assets. Fixedassets to net worth ratio showed a fluctuating trend and there was a perfect positiverelation between current assets and current liabilities. A. Khan3 (2010) evaluated the “Performance of Dimapur District CentralCooperative Bank (Patna)”. He pointed out that the overall performance of the bank isvery good during the reference period. He also suggested ways to reduce NPAs,administrative expenses, deployment of funds in profitable sources and to increase thenon fund based (non interest income) activities of the bank. R. Latha4 (2003) in her dissertation entitled. “A Comparative Study on theFinancial Performance of Associate Banks of State Bank of India” has made an inter-bank comparison of the financial performance of associate banks of SBI. For analyzingthe financial performance she has used eight parameters like deposits, advances,investments, branch expansion, NPAs, total income, total expenditure, net profit intoaccount. She has used ratio analysis for accessing the performance of the bank. She hasalso used growth rate and percentage analysis for analyzing the financial performance.Finally she has ranked all the seven banks under 24 parameters. State Bank of Hyderabadsecured first rank in 11 parameters and State Bank of Indore secured last rank in eightparameters. D. Suryachandra Rao5 (2009) in his article evaluated the performance ofcommercial banks by taking the indicators like spread, return on assets, return on equity,profit per branch, business per employee, deposits, advances and the like for a period of11 years (1992-93 to 2002-03). He suggested that the banks should device strategies tocut down and control the costs, earn more revenues from non interest sources andreduce the dependence of interest income, adopt latest and cost-effective technologies toimprove the profitability.METHODOLOGY This study is based on secondary data. The data required for the study have beencollected from the annual accounts of the TAICO Bank, books, journals and the like.Discussions have also been held with the official of the bank.PERIOD OF THE STUDY This study covers a period of 11 years commencing from 1998-99 to 2008-09.ANALYSIS OF THE STUDY The ARIMA Model is useful in identifying the Time Series changes and toestimate the forecasts about the overall functioning of the bank.6 It automaticallyidentifies and estimates the best fitting Arima or exponential smoothing model for one ormore dependent variable series. In this present research work, the researcher identified anumber of 47 independent variables namely total loans and advances per employee, 80
  3. 3. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),Volume 2, Number 1, Jan- April (2011), © IAEMEdeposits per employee, business per employee, total outside liabilities to networth,deposits to equity, deposits to total assets, net NPAs to net advances, total liabilities toowned funds, total assets to equity fund, liquid assets to total assets, cash to reserve, staffcost to total income, cash to volume of business, net NPAs to total advances, total incometo total assets, total expenses to total income, interest expenses to total income, currentassets to volume of business, returns to average assets, liquid assets to total deposits,liquid assets to demand deposits, operating expenses to total expenses, fixed deposits tototal deposits, net profit to owned funds, net profit to total deposits, net profit to totalincome, net profit to working capital, net profit to total assets, net profit to spread, spreadto total income, current ratio, total income to working capital, total expenses to workingcapital, burden to working capital, cash to current liabilities, working capital to volume ofbusiness, current assets to total assets, non interest income to total income, interestincome to total income, networth to total assets, total advances to total deposits, totalassets to total liabilities, fixed assets to owned funds, networth to current assets, spread tototal assets, cash to current assets and demand liabilities to total liabilities against the fivedependent variables(operating profit, operating expenses, capital employed, interestexpenses and gross income). The details of the five dependent variables are depicted inTable 1. TABLE 1: Selected Variables for ARIMA Model Net Operating Capital Interest Gross Year Operating Expenses Employed Expenses Income Profit 1998-1999 - 157.27 121.74 1392.72 329.91 664.19 1999-2000 - 273.32 129.85 1745.77 420.44 737.62 2000-2001 104.45 128.07 2024.48 456.51 943.02 2001-2002 150.89 268.53 1806.67 642.67 975.01 2002-2003 215.19 185.06 1859.14 905.75 1598.16 2003-2004 205.55 195.23 2010.40 1311.19 2234.79 2004-2005 243.19 230.51 2340.00 1566.76 2707.42 2005-2006 169.84 232.17 2631.47 1683.31 2691.51 2006-2007 45.35 260.54 3101.21 1854.86 3021.44 2007-2008 78.10 289.98 3362.64 2515.31 3571.44 2008-2009 91.04 361.24 3664.20 2871.74 3981.95 Source: Annual Accounts of the TAICO Bank Table 1 shows that the three selected variables namely capital employed, interestexpenses and gross income show an increasing trend and the remaining two variablesnamely net operating profit and operating expenses show a decreasing trend during theperiod of analysis. The ARIMA Model is executed in this context and the following result isobtained and is presented in Table 2. 81
  4. 4. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online), Volume 2, Number 1, Jan- April (2011), © IAEME TABLE 2 Projections of Vital Ratios - ARIMA Model Values MinimuFit Statistic Mean SE m Maximum PercentileParticulars 5 10 25 50 75 90 95 5 10 25 50Stationary R- .786 .353 .156 .968 .156 .156 .528 .951 .961 .968 .968squaredR-squared .786 .353 .156 .968 .156 .156 .528 .951 .961 .968 .968RMSE 214.067 32.839 172.294 247.293 172.294 172.294 183.366 209.686 246.959 247.293 247.293MAPE 18.016 8.588 9.544 31.503 9.544 9.544 10.738 17.177 25.713 31.503 31.503MaxAPE 61.015 33.477 17.293 97.786 17.293 17.293 26.981 68.401 91.357 97.786 97.786MAE 168.895 33.118 124.599 207.752 124.599 124.599 138.922 164.473 201.078 207.752 207.752MaxAE 332.251 57.986 280.190 421.543 280.190 280.190 281.106 329.834 384.603 421.543 421.543Normalized 11.149 .312 10.734 11.457 10.734 10.734 10.855 11.127 11.454 11.457 11.457BIC Source: Box, Jenkins and Reinsel, “An Over view of Multiple Regression Co-efficient”, American Journal of Sunsehes, 1994, pp.141-170. It gives out Stationery R2 Values, Varying R2 values, Root mean Square Error (RMSE), MEAN Absolute Error (MAE), Mean Absolute Percentage Error (MAPE), Maximum Absolute Error (MAE), Maximum absolute Percentage Error (MAPE), Normalised Bayesian Information. The modified ARIMA values are presented in Table 3. TABLE 3 Projections of Vital Ratios - Modified ARIMA Model Values Maximu Fit Statistic Mean SE Minimum m Percentile Particulars 5 10 25 50 75 90 95 5 10 25 50 Stationary R- -4.44E- -4.44E- -4.44E- -1.11E- .375 .414 .814 .333 .782 .814 .814 squared 016 016 016 016 R-squared .923 .035 .857 .956 .857 .857 .905 .931 .945 .956 .956 RMSE 11668.4 29768.82 1122.6 9489.87 29768.8 29768.8 6005.887 341.950 341.950 341.950 797.316 42 1 09 8 21 21 MAPE 17.697 6.733 11.780 29.019 11.780 11.780 12.844 14.761 24.253 29.019 29.019 MaxAPE 54.167 28.293 28.838 95.421 28.838 28.838 31.098 42.908 86.163 95.421 95.421 MAE 8261.36 21157.20 867.89 7010.44 21157.2 21157.2 4353.603 231.653 231.653 231.653 584.499 9 8 4 2 08 08 MaxAE 25466.9 64584.27 2226.7 19943.3 64584.2 64584.2 12691.656 760.706 760.706 760.706 1156.41 09 2 79 7 72 72 Normalized BIC 15.319 2.979 12.130 20.833 12.130 12.130 13.634 14.381 17.249 20.833 20.833 Source: Box, Jenkins and Reinsel, “An Over view of Multiple Regression Co-efficient”, American Journal of Sunsehes, 1994, pp.141-170. 82
  5. 5. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online),Volume 2, Number 1, Jan- April (2011), © IAEME From Table 3, it is found that the Mean, Standard Error with maximum andminimum fit statistics are sharply estimated. Since the whole series is centered at meanvalues, it can be concluded that collectively the five variables totally exhibit 78.6 per centvariance in the past 11 years. The RMSE variance and NAPE variance are respectively214.067 and 18.016 with normalized BIC variance 11.149. This implies that the fivevariables have made significant changes, that is 11.14 per cent each year on the average. Thus it can be concluded that the variation is above 50 per cent in the span of 11years for TAICO Bank. It shows that the TAICO Bank has performed financially wellwith respective increase in its operating profit and gross income. At the same time theincrease in operative expenses and interest expenses, capital employed shows itssignificant financial development.CONCLUSION The TAICO Bank has been performing financial well during the period ofanalysis. Efforts must be taken by the bank to ensure more total income and interestincome by reducing its operating expenses in the future years.REFERENCES 1. D.Ilangovan and K. Padmanaban, “Performance of DACBs in Tamilnadu,” Tamilnadu Journal of Cooperative, Vol.2, No.7, May 2002, pp.27-31. 2. H. Srinivas Rao, “Working of the Andhra Pradesh State Cooperative Bank – An Evaluation” Finance India, Vol. XV, No 2, September 2006, pp.1351 – 1357. 3. A. Khan, “Performance of Dimapur District Central Cooperative Bank (Patna)”, NCDC Bulletin, No.6, June 2010, pp.8-14. 4. R. Latha, “A Comparative Study on the Financial Performance of Associate Banks of State Bank of India”, M.Phil. Dissertation Submitted to Alagappa University, June 2003. 5. D. Suryachandra Rao, “An Evaluation Study of the Performance of Commercial Banks”, Finance India, June 2009, Vol.XXI, No.2, pp.591- 597. 6. Box, Jenkins and Reinsel, “An Overview of Multiple Regression Co-efficient”, American Journal of Sunsehes, 1994, pp.141-170. 83

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