This document discusses the importance of profitability for bank branches. It notes that historically, banks focused more on social goals in the 1970s-1980s rather than profit, but that profit is now the key performance metric and indicator of survival. The major factors that influence bank profitability are the efficient management of funds, which accounts for 80% of earnings, and controlling interest and staff costs, which make up 85% of expenses. The document outlines frameworks for analyzing profitability at the macro bank level and at the individual branch level. Key considerations for branch level profitability include asset-liability maturity mixes, NPA levels, non-interest income, infrastructure costs, staffing levels, and interest/market risks.

1. PROFITABILITY
For Branch Heads

2. Introduction
 Profit culture was in backseat in 70s & 80s as that was
social banking phase.
 Banker was engrossed in ‘deposit mobilization’,
financing govt sponsered schemes.
 Profit was remembered normally during September and
March ending only.

3. Present Scenario
 PROFIT is not only accounting concept of excess of
income over expenditure.
 It measures PERFORMANCE, SUCCESS and ultimately
SURVIVAL & GROWTH of branch.
 Future – It will be only parameter for PERFORMANCE
evaluation.

4. Major Contributers
 80% earnings - from deployment of funds
 85% expenditure - to interest and staff cost.
 Therefore profitability of bank mainly depends on
efficiency of its fund management.
 The contribution of branches is significant because if
branches attain their deposit mix budgets and quality
credit deployment banks will be profitable.

5. Bank at Macro Level
 Income mainly includes
 Interest charges on advances
 Commission on non fund based business
 Bills transaction & Exchanges on remittance
 Expenditure includes
 Interest paid on deposits
 Cost of staff
 Expenditure in maintaining infrastructure

6. Bank as Unit -2
 Assumption = Banks profit at macro level is sum (income – expenditure),
 Fact =It is complex function due to various factors like
 Availability of loanable funds
 Funds in pipeline (lying in intra branch transactions)
 Interbank borrowing rates.
 CRR, SLR (amount of funds that the banks have to keep with RBI. )
(reserve to maintain in the form of gold, govt securities before providing
credit to the customers. )
 Asset Liability management
 Investment management.
 Interest on deposits and advances
 Productivity per employee and staff costs
 Effective cash management at branches.
 Recovery of Loans

7. FRAMEWORK OF PROFITABILITY
 Dr Sampat Singh & Dr Varsha Varde had developed it.
 Profit = S – B
 S= Total Spread B= Total Burden
 Profit (P) = (R – K) – [ (M + O) – C ]
 S = R – K
 B= M + O – C
 R = T Interest Earned
 K= T Interest Paid
 M = T Manpower expenses
 O = T Operations expenses
 C = T Non Interest Income

8. Profit Budget of Bank

9. profit Budget of Branch

10. Break Even of Branch

11. Break Even of Branch -2

13. SOLUTION

14. BRANCH LEVEL
 Asset Liability Maturity Mix
 Level of NPA assets
 Contribution of non – interest income
 Existing infrastructure cost
 Total Employees
 Potential in command Area
 Interest Rate volatility
 Foreign exchange rate volatility
 Market Risks
 Updated Technologies
 Decision making
 Paradigm of branch staff

17. THANK YOU