Post on 20-Apr-2015
Chapter-1
INTRODUCTION
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1.1 STATE BANK OF INDIA
Type Public
NSE: SBIN
BSE: 500112
LSE: SBID
Industry Banking
Financial services
Founded 1 July 1955
Headquarters Mumbai, Maharashtra, India
Products Investment Banking
Consumer Banking
Commercial Banking
Retail Banking
Private Banking
Asset Management
Pensions
Mortgages
Credit Cards
Revenue 133,851 crore (2010)
Profit 11,733 crore (2010)
Total assets US$ 323.0 billion (2010)
Employees 200,229 (2010)
Website Statebankofindia.com
1.1.1 SBI PROFILE
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The origin of the State Bank of India goes back to the first decade of the nineteenth century
with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later
the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A
unique institution, it was the first joint-stock bank of British India sponsored by the
Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July
1843) followed the Bank of Bengal. These three banks remained at the apex of modern
banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921.
Primarily Anglo-Indian creations, the three presidency banks came into existence either as a
result of the compulsions of imperial finance or by the felt needs of local European commerce
and were not imposed from outside in an arbitrary manner to modernize India's economy.
Their evolution was, however, shaped by ideas culled from similar developments in Europe
and England, and was influenced by changes occurring in the structure of both the local
trading environment and those in the relations of the Indian economy to the economy of
Europe and the global economic framework.
The establishment of the Reserve Bank of India as the central bank of the country in 1935
ended the quasi-central banking role of the Imperial Bank. The latter ceased to be bankers to
the Government of India and instead became agent of the Reserve Bank for the transaction of
government business at centers at which the central bank was not established. But it continued
to maintain currency chests and small coin depots and operate the remittance facilities scheme
for other banks and the public on terms stipulated by the Reserve Bank. It also acted as a
bankers' bank by holding their surplus cash and granting them advances against authorized
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securities. The management of the bank clearing houses also continued with it at many places
where the Reserve Bank did not have offices. The bank was also the biggest tendered at the
Treasury bill auctions conducted by the Reserve Bank on behalf of the Government.
The establishment of the Reserve Bank simultaneously saw important amendments being
made to the constitution of the Imperial Bank converting it into a purely commercial bank. The
earlier restrictions on its business were removed and the bank was permitted to undertake
foreign exchange business and executor and trustee business for the first time.
In 1951, when the First Five Year Plan was launched, the development of rural India was
given the highest priority. The commercial banks of the country including the Imperial Bank
of India had till then confined their operations to the urban sector and were not equipped to
respond to the emergent needs of economic regeneration of the rural areas. In order, therefore,
to serve the economy in general and the rural sector in particular, the All India Rural Credit
Survey Committee recommended the creation of a state-partnered and state-sponsored bank by
taking over the Imperial Bank of India, and integrating with it, the former state-owned or state-
associate banks. An act was accordingly passed in Parliament in May 1955 and the State Bank
of India was constituted on 1 July 1955. More than a quarter of the resources of the Indian
banking system thus passed under the direct control of the State. Later, the State Bank of India
(Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India to take over eight
former State-associated banks as its subsidiaries (later named Associates).
The State Bank of India was thus born with a new sense of social purpose aided by the 480
offices comprising branches, sub offices and three Local Head Offices inherited from the
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Imperial Bank. The concept of banking as mere repositories of the community's savings and
lenders to creditworthy parties was soon to give way to the concept of purposeful banking sub
serving the growing and diversified financial needs of planned economic development. The
State Bank of India was destined to act as the pacesetter in this respect and lead the Indian
banking system into the exciting field of national development.
The State Bank of India, the country’s oldest Bank and a premier in terms of balance sheet
size, number of branches, market capitalization and profits is today going through a
momentous phase of Change and Transformation – the two hundred year old Public sector
behemoth is today stirring out of its Public Sector legacy and moving with an ability to give
the Private and Foreign Banks a run for their money.
The bank is entering into many new businesses with strategic tie ups – Pension Funds,
General Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale
Merchant Acquisition, Advisory Services, structured products etc – each one of these
initiatives having a huge potential for growth.
The Bank is forging ahead with cutting edge technology and innovative new banking models,
to expand its Rural Banking base, looking at the vast untapped potential in the hinterland and
proposes to cover 100,000 villages in the next two years.
It is also focusing at the top end of the market, on whole sale banking capabilities to
provide India’s growing mid / large Corporate with a complete array of products and services.
It is consolidating its global treasury operations and entering into structured products and
derivative instruments. 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
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feature in the Fortune 500 list.
The Bank is changing outdated front and back end processes to modern customer friendly
processes to help improve the total customer experience. With about 8500 of its own 10000
branches and another 5100 branches of its Associate Banks already networked, today it offers
the largest banking network to the Indian customer. The Bank is also in the process of
providing complete payment solution to its clientele with its over 21000 ATMs, and other
electronic channels such as Internet banking, debit cards, mobile banking, etc.
With four national level Apex Training Colleges and 54 learning Centers spread all over the
country the Bank is continuously engaged in skill enhancement of its employees. Some of the
training programs are attended by bankers from banks in other countries.
The bank is also looking at opportunities to grow in size in India as well as Internationally. It
presently has 82 foreign offices in 32 countries across the globe. It has also 7 Subsidiaries
in India – SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors, SBI Life and SBI
Cards - forming a formidable group in the Indian Banking scenario. It is in the process of
raising capital for its growth and also consolidating its various holdings.
Throughout all this change, the Bank is also attempting to change old mindsets, attitudes and
take all employees together on this exciting road to Transformation. In a recently concluded
mass internal communication programmed termed ‘Parivartan’ the Bank rolled out over 3300
two day workshops across the country and covered over 130,000 employees in a period of 100
days using about 400 Trainers, to drive home the message of Change and inclusiveness.
1.1.2 BOARD OF DIRECTORS
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Shri O. P. Bhatt(CHAIRMAN)
Shri R. Sridharan(MANAGING DIRECTOR)
Dr. Ashok Jhunjhunwala
Shri Dileep C. Choksi
Shri S. Venkatachalam
Shri D. Sundaram
Shri. G. D. Nadaf
Dr. (Mrs.) Vasantha Bharucha
Dr. Rajiv Kumar
Shri Ashok Chawla
Smt. Shyamala Gopinath
1.1.3 BANKING SUBSIDIARIES
State Bank of India has the following five Associate Banks (ABs) with controlling interest
ranging from 75% to 100%.
State Bank of Bikaner and Jaipur (SBBJ)
State Bank of Hyderabad (SBH)
State Bank of Mysore (SBM)
State Bank of Patiala (SBP)
State Bank of Travancore (SBT)
As on September 30, 2010, the five ABs have a combined network of 4497 branches in India
which are on core banking and 4302 ATMs networked with SBI ATMs, providing value added
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services to clientele.
The combined net profit of these banks increased by 17.74% over the previous year to reach
Rs.3266.57 crores as on 31stMarch 2010. Deposits and advances grew by 14.37% and 15.12%,
respectively, during the year. The combined Net NPA ratio of all ABs was at 0.87% as on 31st
March 2010.
1.1.4 NON BANKING SUBSIDIARIES
The Bank has the following Non-Banking Subsidiaries in India:
1.SBI Capital Markets Ltd
2.SBI Funds Management Pvt Ltd
3.SBI Factors & Commercial Services Pvt Ltd
4.SBI Cards & Payments Services Pvt. Ltd. (SBICPSL)
5.SBI DFHI Ltd
6.SBI General Insurance Company Limited
State Bank of India has an extensive administrative structure to oversee the large network of
branches in India and abroad. The Corporate Centre is in Mumbai and 14 Local Head Offices
and 57 Zonal Offices are located at important cities spread throughout the country. The
Corporate Centre has several other establishments in and outside Mumbai, designated to cater
to various functions.
The Corporate Accounts Group is a Strategic Business Unit of the Bank set up exclusively to
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fulfill the specialized banking needs of top corporate in the country. State Bank
of India has 131 foreign offices in 32 countries across the globe.
1.1. 5 RECENT AWARDS
Adjudged, Bank of The Year 2009, India by The Banker Magazine for the second year
in succession
Awarded “Best Bank - Large”, and “Most Socially Responsible Bank” from Business
World Best Bank Awards 2009
The Bank bagged the BEST BANK 2009 Award by Business India
Adjudged the Most Trusted Brand 2009 - Economic Times, Brand Equity (17th June
2009)
Bagged the awards for “Most Preferred Bank”, “Most Preferred Credit Card’ and
“Most Preferred Home Loan Brand” from CNBC AWAAZ Consumer Awards, Sept
’09
Awarded Visionaries of Financial Inclusion – Year 2009 by Financial Information
Network & Operations Ltd. (FINO)
Awarded Technology Bank of the Year in recognition of outstanding achievements in
banking technology – IBA Banking Technology Awards 2009
Selected as the winner of Golden Peacock National Training Award for the year 2009
by the Golden Peacock Awards Jury
Awarded the Strongest Banks in Asia Award 2010 for the Asia- Pacific region under
The Asian Banker Excellence in Retail Financial Services Awards 2010
Awarded the Best Microfinance Award for 2009 under The Asian Banker Excellence
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in Retail Financial Services Awards 2010
Ranked 64th in the Top 1000 banks in the world by The Banker
SBI’s ranking has improved to 36 in 2010 from 70 in 2009 in the Brand Finance
Global Banking 500 by Brand Finance Plc. SBI is the first Indian bank to break into the
world’s top 50 list.
Only Indian bank to find a place in the Fortune Global 500 list –Up from 380 last year
to 363 this year.
Moved up in rankings from 219th spot last year to 150th spot this year in the Forbes
2000 list of largest companies in the world
Ranks no. 6 (from no. 7 in 2008) in India’s Biggest Companies ranking – ET 500 - The
Economic Times. (dated 24th November 2009)
Ranked # 1 in Survey of top 5 companies in India in terms of financial reputation by
Wall Street Journal Asia.
“Best Banker of the Year Award 2009” – Business-World Best
The JRD Tata Corporate Leadership Award for 2009.
Rank 32 in The Indian Express List of The Most Powerful Indians in 2010
Exemplary Leader Award at The Global HR Excellence Awards 2010 by World HRD
Congress.
Entrepreneur of the Year – Manager Award 2009 by Ernst & Young
The QFC – Asian Banker Leadership Achievement Award for the Asia-Pacific region
for 2010 under The Asian Banker Excellence in Retail Financial Services Awards 2010
1.1.6 SHAREHOLDING PATTERN(31-12-2010)
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CATEGORY NUMBER OF SHARE HOLDING
PERCENTAGE
INDIAN PROMOTERS 377207200 59.40%
MUTUAL FUNDS AND UTI 26121360 4.11%
BANKS, FINANCIAL
INSTITUTION AND
INSURANCE
72730208 11.45%
FIIS 84862200 13.36%
PRIVATE CORPORATE
BODIES
17900700 2.82%
NRIS/OCBS/ FOREIGN OTHERS 912139 0.14%
GDR/ADR 18210188 2.87%
GOVERNMENT 127193 0.02%
OTHER 1406267 0.22%
GENERAL PUBLIC 35520700 5.59%
TOTAL 634998115 100%
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59.40%
4.11%
11.45%
13.36%
2.82%
0.14%
2.87% 0.02% 0.22%
5.59%INDIAN PROMOTERS
mutual funds and uti
banks, financial institution and in-surance
FIIs
private corporate bodies
NRIs/OCBs/ Foreign others
GDR/ADR
GOVERNMENT
OTHER
GENERAL PUBLIC
FIGURE 1: SHAREHOLDING PATTERN OF SBI
1.2 ICICI BANK
Type Private (NSE: ICICIBANK,BSE: 532174, NYSE: IBN)
Industry Banking
Financial services
Founded 1955
Headquarters Mumbai, Maharashtra, India
Products Retail Banking
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Commercial Banking
Mortgages
Credit Cards
Private Banking
Asset Management
Investment Banking
Revenue 59,599.77 crore (2009)
Operating income 6,578.64 crore (2010)
Profit 4,843.41 crore (2010)
Total assets US$ 108.7 billion (2010)
Employees 74,056 (2010)
Website ICICIBank.com
1.2.1 PROFILE
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial
institution, and was its wholly owned subsidiary. ICICI's shareholding in ICICI Bank was
reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering
in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of
Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by
ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the
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initiative of the World Bank, the Government of India and representatives of Indian industry.
The principal objective was to create a development financial institution for providing
medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI
transformed its business from a development financial institution offering only project finance
to a diversified financial services group offering a wide variety of products and services, both
directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI
become the first Indian company and the first bank or financial institution from non-Japan
Asia to be listed on the NYSE.
After consideration of various corporate structuring alternatives in the context of the emerging
competitive scenario in the Indian banking industry, and the move towards universal banking,
the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with
ICICI Bank would be the optimal strategic alternative for both entities, and would create the
optimal legal structure for the ICICI group's universal banking strategy. The merger would
enhance value for ICICI shareholders through the merged entity's access to low-cost deposits,
greater opportunities for earning fee-based income and the ability to participate in the
payments system and provide transaction-banking services. The merger would enhance value
for ICICI Bank shareholders through a large capital base and scale of operations, seamless
access to ICICI's strong corporate relationships built up over five decades, entry into new
business segments, higher market share in various business segments, particularly fee-based
services, and access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the
Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its
wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI
Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of
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ICICI and ICICI Bank in January 2002, by the High Cist of Gujarat at Ahmedabad in March
2002, and by the High Cost of Judicature at Mumbai and the Reserve Bank of India in April
2002. Consequent to the merger, the ICICI group's financing and banking operations, both
wholesale and retail, have been integrated in a single entity. ICICI Bank has formulated a
Code of Business Conduct and Ethics for its directors and employees.
ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (US$ 81
billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year
ended March 31, 2010. The Bank has a network of 2,528 branches and about 6,000 ATMs in
India, and has a presence in 19 countries, including India.
ICICI Bank 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
in the areas of investment banking, life and non-life insurance, venture capital and asset
management.
The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in
United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International
Finance Centre and representative offices in United Arab Emirates, China, South Africa,
Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in
Belgium and Germany.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National
Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on
the New York Stock Exchange (NYSE).
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1.2.2 BOARD OF DIRECTORS
Mr. K. V. Klamath(Chairman)
Mr. Sridar Iyengar
Mr. Homi R. Khusrokhan
Dr. Anup K. Pujari
Mr. M.S. Ramachandran
Dr. Tushaar Sha
Mr. V. Prem Watsa
Ms. Chanda D. Kochhar(Managing Director & CEO)
Mr. N. S. Kannan(Executive Director & CFO)
Mr. K. Ramkumar(Executive Director)
Mr. Rajiv Sabharwal(Executive Director)
1.2.3 GROUP COMPANIES
ICICI Prudential Life Insurance Company
ICICI Securities Limited
ICICI Security Primary Dealership Limited
ICICI Lombard General Insurance Company
ICICI Prudential Asset Management Company
ICICI Venture
ICICI Direct
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ICICI Foundation
1.2.4 RECENT AWARDS
The Bank was ranked 45th in the 2010 BrandZ Top 100 Most Valuable Global Brands
report, becoming the first and only Indian company to feature in this list
The Bank was ranked first in the Asia Pacific region and fifth globally in the “Top
Companies for Leaders” survey conducted by Hewitt Associates, the RBL Group and
Fortune Magazine
“Most Admired Knowledge Enterprises (MAKE) India Award” by Teleos in
association with the Know Network
“Excellence in Learning” by Brandon Hall
“Best Trade Finance Bank” (India) and “Best Foreign Exchange Bank” (India) by
Finance Asia
“House of the Year“ by Asia Risk magazine
“Best Domestic Bank” (India) and “Best Derivative House” (India) by Asset Triple A
“Best Super-Affluent Bank” (India), “Best Fixed Income Portfolio Management“,
“Best Lending/Financing Solutions, “Best Precious Metals Investment”, “Best Private
Equity Investment”, ”Best Specialised Services–Entrepreneurs“, “Best FX/Rates
Derivatives Supplier“ by Euromoney
“Best NRI Services Bank”, “Excellence in Private Banking” (APAC) and “Excellence
in Remittance Business” by World Finance
“Excellence in SME Banking“ and “Best E-Banking Project Implementation” by the
Asian Banker
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“Best Initiatives in Mobile Payments and Banking” by IDRBT
“Excellence in Six Sigma“, second prize by the Indian Statistical Institute
“Most preferred auto loan” and “Most preferred credit card” by CNBC Awaaz
1.2.5 SHARE HOLDING PATTERN(31-12-2010)
CATEGORY NUMBER OF
SHARES
HOLDING
PERCENTAGE
MUTUAL FUNDS AND UTI 78450624 6.81
BANKS, FINANCIAL
INSTITUTION AND
INSURANCE
190110640 16.51
FIIS 452938000 39.34
PRIVATE CORPORATE
BODIES
43784400 3.80
NRIS/OCBS/ FOREIGN
OTHERS
9169823 0.79
GDR/ADR 313480768 27.22
DIRECTORS/ EMPLOYEES 882928 0.076
GOVERNMENT 12603 0.001
OTHER 2454460 0.21
GENERAL PUBLIC 60137500 5.22
TOTAL 1151422189 100%
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6.81%
16.51%
39.34%3.80%
0.80%
27.23%
0.08% 0.00% 0.21%5.22% mutual funds and uti
banks, financial institution and insurance
FIIs
private corporate bodies
NRIs/OCBs/ Foreign others
GDR/ADR
DIRECTORS/ EMPLOYEES
GOVERNMENT
OTHER
GENERAL PUBLIC
FIGURE 2: SHAREHOLDING PATTERN OF ICICI BANK
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Chapter-2
COCEPTUAL FRAMEWORK
AND
RESEARCH METHODOLOGY
2.1 LITERATURE REVIEW
Economic crises in the past in a diverse set of countries have shown that problems in banking
sector can spread to the overall economy and lead to big-scale crises. It is for sure that as share
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of banking sector in financial system increases, the role of the sector in macroeconomic
stability and economic growth also becomes more prominent. The US Subprime crisis, now
considered as the worst crisis since the Great Depression has underscored the fact that a sound
and profitable banking sector is prerequisite for financial stability under a bank-based financial
system. In that respect, this paper analyses determinants of profitability for the Indian banking
system using bank-specific, industry-specific and macroeconomic factors. Results show that
while credit risk triggers a negative impact on profitability, capital tends to consolidate profits.
In general, results suggest that Indian banking system is well-diversified.
The focus on the determinants of profitability for the banking sector of a specific country is
underscored by virtue of the fact that most countries have a bank-based financial system. The
empirical literature on determinants of bank profitability is extensive. The US credit crunch
has rekindled the analysis on determinants of banks’ profitability on the grounds that a sound
and lucrative banking system is best able to bear any negative shocks to thereby ensure the
financial stability.
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FIGURE 3: FACTORS AFFECTING BANK PERFORMANCE
As far as the internal determinants are considered, size, capital, efficiency and credit risk have
been considered. Demirguc-Kunt and Maksimovic (1998) and Akhavein et al. (1997 have all
identified a positive relationship between size and profitability. In case of capital, higher the
capital level implies that banks are easily able to meet their regulatory capitals so that they can
have additional funds for lending and thereby increase their profits level. Havrylchyk et al.
(2006) finds a positive relationship between capital and profits of banks. Technically speaking,
a more efficient bank should have higher profits since it is able to maximize on its net interest
income. Molyneux and Thornton (1992) end up with a positive relationship between efficiency
and profitability. Finally, as far as credit risk is concerned, Miller and Noulas (1997) state a
negative relationship between credit risk and profitability. Such a negative relationship
signifies that higher risk associated to loans, higher the level of loan loss provisions which
thereby gnaw at the profit-maximizing force of a bank.
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FACTORS AFFECTING BANK PROFITABILITY
EXTERNAL
MACRO-ECONOMIC FACTOR
INDUSTRY-SPECIFIC
INTERNAL
FIRM-SPECIFIC
In case of the external factors, they are split into macroeconomic determinants and industry
specific determinants. In case of macroeconomic factors, interest rate, cyclical output, the level
of economic development and stock market capitalization are considered. Cyclical output and
the level of economic development are usually used to represent the business cycles since
banks’ profits are expected to be correlated with the business cycles, being higher in case of
upswings and lower in case of downswings (Demirguc-Kunt and Huizinga (2001) and Bikker
and Hu (2002)). Under stock market capitalization, Havrylchyk et al. (2006) finds a negative
relationship between stock market capitalization and banks’ profitability meaning that equity
and bank financing acts as substitutes rather than complements.
In case of the industry-specific factors, the Structure-Conduct-Performance hypothesis point
out that rising market power enhances the profitability of banks. As a matter of fact, Molyneux
and Thornton (1992) state that monopolistic profits follow out of major deviations from
competitive market structures.
Bank-Specific factors
Size
Size is used to capture the fact that larger banks are better placed than smaller banks in
harnessing
economies of scale in transactions to the plain effect that they will tend to enjoy a higher level
of profits. Consequently, a positive relationship is expected between size and profits.
Molyneux and Thornton (1992), Bikker and Hu (2002) and Goddard et al. (2004), Akhavein et
al. (1997),all find size to be positively related to profitability.
Capital
It’s interesting to note that higher the capital level breeds higher profitability level since by
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having
more capital, a bank can easily adhere to regulatory capital standards so that excess capital can
be provided as loans. Berger (1995) provides empirical evidence that for U.S. banks there is a
positive relationship between bank profitability and capital.
Credit risk
Miller and Noulas (1997) point out that credit risk should unleash a negative impact on
profitability since the higher the level of high-risk loans, the higher the level of unpaid loans.
Poor asset quality and low levels of liquidity constitute the two main causes of bank failure.
The allowance for doubtful debts constitutes a direct measure of difference in credit quality.
Efficiency
Higher the efficiency level of a bank, higher its profits level. Hence a positive relationship is
posited between efficiency and profitability of banks.
Industry-specific factors
According to industry-specific factors, banks’ profitability will be a function of the market in
which they are operating. Basically, a concentrated market will confer higher profits for banks
as they are able to tap a higher market share relative to banks capturing only a small portion of
the market. On the other hand, in case of a well-diversified market structure, banks are
expected to enjoy low profits level on the back of a highly competitive market structure.
According to Berger (1995), under Relative Market Power hypothesis, only firms with large
market shares and well-differentiated products are able to exercise market power and earn non-
competitive profits. Herschman Herfindahl Index (HHI), defined as the sum of the squared
market shares of each bank’s assets for a given year, is slightly greater than 0 for a perfectly
competitive market and equals 1 in the case of a monopoly. HHI for credit, deposits and assets
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are employed to gauge on their respective impacts on profitability.
Macroeconomic
Stock Market Capitalisation
Miller-Modigliani (1958) points out that under perfect market conditions, debt and equity
financing acts as perfect subsituttes. In that respect, in case firms resort more towards equity
financing, this will trigger a negative effect on banks’ profits. However, in case of developed
capital markets, banks derive more information about customers so that information
asymmetry problem is curtailed to thereby enhances banks’ profits. Hence, whether the
substitution effect or the complementary effect predominates hinges on the sign of the effect.
Empirical evidence from Demirgüç-Kunt and Huizinga (1999), Bashir (2000), Demirgüç-Kunt
and Huizinga (2001), and Naceur (2003) show that banks have greater profit opportunities in
countries having well-developed stock markets, providing endorsement for the complementary
effects.
GDP
Demirguc-Kunt and Huizinga (1999) show that rapid economic growth increase profitability
for a large number of countries. Technically speaking, GDP captures upswings and
downswings manifesting in the business cycles. Consequently, movements in general activity
level are expected to generate direct impacts on profitability of banks. the empirical literature
usually resorts towards two versions of GDP. First, there is cyclical output which basically
reflects the deviation of GDP from an HP-Filtered GDP. Second, there is the use of GDP per
capita to cater for the level of economic development.
Interest rate
The impact of interest rate on bank’s profits operates via two main channels of the revenues
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side. First, a rise in interest rate scales up the amount of income a bank earns on new assets it
acquires. But, the speed of revenue adjustment will be a function of speed of interest rate
adjustment. Second, the effect hinges on the amount of loans and securities held. Indeed, in
case of rising interest rates, rates on loans are higher than marketable securities so that strong
incentives prevail for banks to have more loans rather than buying securities. While Molyneux
and Thornton (1992) and Demirgüç-Kunt and Huizinga (1999) indicate a positive relationship
between interest rate and bank profitability, Naceur (2003) identifies a negative relationship.
Berger (1995) found that capital adequacy ratio affected ROE of USA banks positively in
1983-1989 and negatively in 1989-1992. Based on these results, Berger argued that the
relationship between capital adequacy ratio and profitability depended on the specific
circumstances of the time periods observed. According to the results of the study, a high
capital adequacy ratio positively affects profitability when financial situation of banks is
perceived as risky and it negatively affects profitability in normal situations due to alternative
cost of capital. The main problem in benefiting from this result is the difficulty of determining
an optimal level for the capital adequacy ratio.
Kunt and Huizinga (1998), determined that GDP per capita, inflation rate, real interest rate,
capital adequacy and foreign ownership affected ROA positively while ratio of non-interest
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earning assets to total assets and ratio of deposits to total liabilities affected ROA negatively in
their study including data from 80 countries in the 1988-1995 period.
Kaya (2002), states that ratio of equity to assets affected ROA positively while affecting ROE
negatively and that real interest rate, ratio of securities to total assets, share of the bank in total
assets of the sector and open foreign currency position affected ROE positively while budget
deficit of the public sector and ratios of credits and liquid assets to total assets affected both
ROA and ROE positively. On the other hand, net non-performing loans affected ROA
negatively while ratios of staff expenditures and deposits to total assets affected both ROA and
ROE negatively.
Abreu and Mendes (2002), studied data from Portugal, Germany, Spain and France for the
1986-1999 period and concluded that ratios of credits and equity to assets affect ROA
positively and market share of a bank and ratio of equity to total assets affect ROE positively.
Moreover, inflation and unemployment rates affect both profitability ratios negatively.
Chirwa (2003), used data from Malawi banking sector for the 1970-1994 period and found
that; ratios of credits to total assets and ratio of sight deposits to total deposits affect both ROA
and ROE positively.
Jiang, Law and Sze (2003), concluded in their study that real GDP growth rate, inflation rate,
real interest rate, ratio of non-interest income to total assets and ratio of taxes to profit before
taxes affected ROA positively while ratio of non-interest expenditures to total assets affected
ROA negatively in the Hong Kong banking sector during 1992-2002.
Wilson, Molyneux and Goddard (2004), found that capital adequacy ratio affected ROE
positively in the period of 1992-1998 using data from banking sectors of France, Germany,
Spain,Denmark, Italy and England.
27
Albertazzi and Gambacorta (2006) stated that ROE was affected positively by the ratio of
stock market capitalization to GDP and negatively by stock market volatility, depending on
their study covering data from ten developed countries for the period of 1981-2003.
The banking sector is considered to be an important source of financing for most businesses.
The
common assumption, which underpins much of the financial performance research and
discussion, is that increasing financial performance will lead to improved functions and
activities of the organizations. The subject of financial performance and research into its
measurement is well advanced within finance and management fields. It can be argued that
there are three principal factors to improve financial performance for financial institutions; the
institution size, its asset management, and the operational efficiency.
2.1.1 ARTICLES ON SBI VS ICICI
WWW.EQUITYMASTER.COM
Comparison of behemoths in any sector brings with it the risk of overlooking some
competitive advantages. For instance, take a look at the biggest banking entities in
India. Comparing SBI with ICICI Bank could be at the risk of ignoring their inherent traits.
SBI being the government's de-facto banker has the upper hand in collecting taxes or public
investments (PPF). ICICI Bank on the other hand makes the best use of its private (largely
foreign) ownership and international presence. But having said that, each of the entities have
28
been the biggest beneficiaries of India's economic evolution. Nevertheless, they chose separate
ways to cash in on the same.
The fight for market share
SBI has had more than a century's presence in India's banking space. This can be one an
important reason for the lion's share that SBI has in the sector. But given the scale of
fragmentation in Indian banking, credit must be
given to SBI's ability to retain the share. Broadly,
over the last decade, SBI has commanded double
the share of the second largest player in the
sector. ICICI Bank on the other hand, has been
the pioneer of retail banking in India. Building on
its rapid growth in the space, the private sector behemoth acquired the highest share of retail
assets by FY07. But the economic crisis that unfolded thereafter forced it to sacrifice market
share for quality of assets.
Margins: Then and now
The difference in the business models of SBI and
ICICI Bank is evident from the pattern of their
respective net interest margins (NIMs). SBI has
maintained NIMs in excess of 2.6% over the past
decade. On the contrary, that of ICICI has
29
Source:Equitymaster
Source:Equitymaster
crossed 2.5% just once in the past 8 years. What this means is that the former has concentrated
on high margin business. Or rather on sustained margins despite larger volume of lending.
ICICI on the other hand resorted to low margin lending to grow balance sheet size. As also
failed to accumulate a large low cost deposit base like SBI. Nevertheless, the gap in margins
has narrowed in FY10. This was equally due to the fallout of SBI's affinity to teaser loans. As
also ICICI Bank's focus on low cost deposits (CASA). Ability to re-price loans has also had an
impact on the margins.
Recognition of quality
Neither SBI nor ICICI has a stellar record when it comes to asset quality. Their smaller PSU
and private sector peers have beaten them hands
down in retention of asset quality. Nevertheless
between the two, SBI has been more cautions in
terms of quality of lending. Most of SBI's asset
slippages have been due to government induced
lending to priority sectors. Or they have borne the
brunt of restructured assets. ICICI's on the other hand has been bad primarily due to its
voluntary effort to lend for poor quality of assets.
Having said that, over the past two years, ICICI
has stepped up both its focus on quality as well as
its provisioning efforts.
Returns to shareholders
30
SBI wins hands down when it comes to the
returns that the banks have generated for
shareholders. Both higher market share and better
margins have played a role in this. But more
importantly, SBI has never resorted
to investments in high risk speculative
instruments. And instead focused on its strengths
of large franchise and low cost deposit base. ICICI Bank's frequent equity dilution has also
impacted its return on equity.
Which is the better bank?
As we said earlier, SBI's government backing makes it the more 'safer' entity. ICICI by itself
does not have the reputation of good quality assets. But it is certainly striving to achieve the
same. Both in terms of margins and returns, SBI has had an edge and will continue to have it
in the medium term. Having said that investors must carefully weigh the future prospects of
both the entities vis-a-vis their respective valuations before taking their pick.
Sbi Vs Icici Bank
BUSINESS STANDARD August , 06 2002
ICICI Bank’s bloated equity is not a help, with equity capital, at Rs 6130.3 crore, being larger than
31
Source:Equitymaster
32
33
34
35
36
37
The ANOVA tests the null hypothesis that samples in two or more groups are drawn from the
same population. To do this, two estimates are made of the population variance. These
estimates rely on various assumptions (see below). The ANOVA produces an F statistic, the
ratio of the variance calculated among the means to the variance within the samples. If the
group means are drawn from the same population, the variance between the group means
should be lower than the variance of the samples, following central limit theorem. A higher
ratio therefore implies that the samples were drawn from different populations.
The degrees of freedom for the numerator is I-1, where I is the number of groups (means). The
degrees of freedom for the denominator is N - I, where N is the total of all the sample sizes.
Typically, however, the one-way ANOVA is used to test for differences among at least two
groups, since the two-group case can also be covered by a t-test (Gosset, 1908). When there
are only two means to compare, the t-test and the F-test are equivalent; the relation between
ANOVA and t is given by F = t2.
38
Chapter-3
DATA REDUCTION
AND
PRESENTATION
3.1 ECONOMIC ANALYSIS
39
The level of economy has an impact on investment in many ways. If the economic growth
rapidly, the industry can also be expected to show rapid growth and vice versa. When the
economic activity is low, stock price are low, and when the level of economic activity is high,
the stock price are high reflecting the prosperous outlook for sales and profit of the firms.
Vigorous growth with strong macroeconomic fundamentals has characterized developments in
the Indian economy in 2009-10 so far. However, there are some genuine concerns on the
inflation front. In 2009-10, while advanced economies were focused on stabilizing their
economies in the aftermath of the global financial turmoil, emerging market economies
(EMEs) including India, were engaged in mitigating the adverse impact of the global financial
crisis on their economies .In India, with the economy firmly on the recovery path towards the
second half of the year, the policy emphasis shifted from managing the crisis to managing the
recovery.
During 2010-11, the efforts in advanced economies will be to further improve the financial
conditions and strengthen the growth impulses, while the Endeavour in EMEs including India
will be to strengthen the recovery process without compromising on price stability.
GDP
The Indian economy is back on track and poised to grow by 7.2% in 2009-10, higher than
6.7% in the previous year. The strong industrial recovery and continuing momentum in
services sector is the key underlying strength behind the higher growth. On the agriculture
front, decline in farm output is expected to be contained at around -0.2%, against growth of
1.6% in 2008-09, due to good rabi harvest, partially offsetting the kharif losses suffered
40
because of the worst South-West Monsoon since 1972. The Indian Economy has emerged with
remarkable rapidity from the slowdown caused by the financial crisis 2007-09. With growth in
2009-10, again the estimate of the growth is higher than the previous growth. All the estimates
by various organizations are more than 8%. The robust GDP growth in the first half of 2010-
11 suggests that the economy has returned to its earlier high growth path. Satisfactory kharif
production and higher rabi sowing point to stronger contribution of the agriculture sector to
overall GDP growth in 2010-11. Industrial production has exhibited near double digit growth
but the significant volatility adds uncertainty to the outlook. Lead indicators of the services
sector show sustained buoyancy. In certain sectors, particularly non-cereal food items,
however, the supply response to market signals in the form of higher prices has been weak.
With 8.9 per cent growth in the first half of 2010-11, India continues to be one of the fastest
growing economies in the world. The uncertainty about the durability of the robust growth
seen in Q1 of 2010-11 waned significantly with the momentum continuing in Q2.
Notwithstanding the impact of a lower base, the first half GDP growth suggests return to the
high growth path. The robust growth momentum in Q2 reflected the continued buoyancy of
services sector and further pickup in agricultural performance due to a normal South-West
monsoon. Industrial growth, though moderated on account of the base effect, remained on the
higher side, but volatile.
YEAR 2009 2010 2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
GDPfc 6.7
%
7.2% 6.3% 8.7% 6.5% 8.6% 8.9% 8.9%
TABLE1: GDP
41
Source: Central statistical organization
Agriculture17%
Service57%
Industry26%
Sector wise GDP
FIGURE4: SECTOR WISE CONTRIBUTION IN GDP
SAVING AND INVESTMENT
The CSOs quick estimate placed the saving rate in 2009-10 at 33.7% of GDP at current market
price. The saving rate of private sector is less static which was around 31.6% and the saving of
public sector was estimated at 2.1%. Gross capital formation was placed at 30.9% in 2009-10.
The financial crisis had great impact on the investment habit of people and increased the gap
between saving and investment.
INDUSTRY
Industry showed a marked improvement and is expected to grow by 8.8% in 2009-10 against
3.1% in 2008-09. The higher growth of 8.9% in 2009-10 in manufacturing, against 3.2% in the
previous year, was propelled by robust performance of capital goods, consumer durables and
42
intermediate goods. Apart from manufacturing, mining and electricity also contributed to
higher industrial growth. Mining is projected to grow by 8.7% in 2009-10 against 1.6% in the
previous year while electricity is likely to grow by 8.2% against 3.9% in the previous year.
Services sector accounting for about two-third of GDP, is expected to grow by 8.5% in 2009-
10, against 9.3% in 2008-09. The moderation in services sector growth was largely on account
of community, social and personal services, which grew by 8.2% in 2009-10 against 13.9% in
2008-09. Following signs of economic revival in developed countries, merchandise exports
moved into positive territory in November 2009 after declining continuously for thirteen
months. However, cumulative exports during 2009-10 remained negative and declined by
4.7%, while imports declined by 8.2%. The industrial sector recorded a growth of 9.5 per cent
during April-November 2010, mainly driven by the performance of the manufacturing and
mining sectors.
The growth pattern has, however, been volatile through the months of the current year. Growth
in electricity generation remained modest. Acceleration in manufacturing sector growth was
driven by the production of capital goods and consumer durables. Consumer nondurables
continued to remain subdued, primarily on account of deceleration in growth
of industries such as wheat flour/maida, rice bran oil, coffee, hair oil, hsl lamps, fluorescent
tubes and rubber foot wear. Led by “trade, hotel, restaurant, transport, storage and
communication” and “financing, insurance, real estate and business services”, service sector
growth during Q2 of 2010-11 showed gradual acceleration over the previous three quarters.
The strong growth of various lead indicators, including commercial vehicles production, cell
phone connections, air cargo and passengers handled at domestic and international terminals
during the year so far, suggest continuation of the recent growth pattern.
43
FIIS AND CAPITAL FLOWS
Revival in the domestic and global economy was reflected in net capital inflows. In particular,
net FII inflows were a robust US $29 bn in 2009-10 as against net outflow of US $15 bn in
2008-09. In November 2009, RBI purchased 200 metric tons of gold from the IMF as a part of
its foreign exchange reserves management operations but the forex reserves of the country
remained unchanged since the gold purchase was only a substitution of foreign currency
assets. Due to strong capital inflows, forex reserves of the country (including gold and SDRs)
increased by US $27.1 billion to US $279.1 billion and the Rupee appreciated against the US
dollar from Rs.50.95 per dollar at end- March 2009 to Rs.45.14 per dollar at end-March 2010.
INFLATION
After remaining benign in the first two quarters, inflation emerged as a major concern during
the third and fourth quarters of 2009-10. Increase in WPI inflation to 9.9% YoY in March
2010 from 1.2% YoY in March 2009 was largely driven by supply side factors particularly in
the case of food items. In the same period, food prices increased sharply by 17.70% compared
to the rise of 6.97% a year ago.
LIQUIDITY
The liquidity constraint that emerged following the global financial crisis led RBI to follow an
accommodative monetary policy stance which was continued during the major part of 2009-
10. As the global financial and economic conditions deteriorated, a series of measures were
taken after September 2008 to enhance liquidity in the system and support growth in the
economy. There was
44
further easing of policy rates in 2009-10 as the Reverse Repo rate and Repo rate were slashed
by 25 bps each to 3.25% and 4.75% respectively in April 2009. Keeping in view the
comfortable liquidity position, the SLR was restored to its earlier level of 25% of NDTL from
November 2009. Due to the accommodative policy followed by RBI during major part of
2009-10, interest rates on both deposits and credit softened. While PLR of major banks fell by
50 bps from 11.50-12.50% at end-March 2009 to 11.0-12.0% at end- March 2010, deposits
rates declined from 7.75-8.75% to 6.0-7.50% in the same period. Even as there were signs of a
recovery in January 2010, amidst concerns about rising inflation, RBI announced a hike in
CRR by 75 bps to 5.75% in two tranches to keep a check on liquidity and control inflation. On
19 March 2010, to curb inflationary expectations, RBI hiked Repo and Reverse Repo rates by
25 bps each to 5% and 3.50% respectively.
BUDGET 2011-12
OVERVIEW OF THE ECONOMY
Gross Domestic Product (GDP) estimated to have grown at 8.6 per cent in 2010-11 in
real terms. Economy has shown remarkable resilience.
Continued high food prices have been principal concern this year.
Consumers denied the benefit of seasonal fall in prices despite improved availability of
food items, revealing shortcomings in distribution and marketing systems.
Monetary policy measures taken expected to further moderate inflation in coming
months.
Exports have grown by 29.4 per cent, while imports have recorded a growth of 17.6 per
45
cent during April to January 2010-11 over the corresponding period last year.
Indian economy expected to grow at 9 per cent with an outside band of +/- 0.25 per
cent in 2011-12.
Average inflation expected lower next year and current account deficit smaller.
INVESTMENT ENVIRONMENT
Foreign Direct Investment
Discussions underway to further liberalise the FDI policy.
Foreign Institutional Investors
SEBI registered mutual funds permitted to accept subscription from foreign investors
who meet KYC requirements for equity schemes.
To enhance flow of funds to infrastructure sector, the FII limit for investment in
corporate bonds issued in infrastructure sector being raised.
Financial Sector Legislative Initiatives
To take the process of financial sector reforms further, various legislations proposed in
2011-12.
Amendments proposed to the Banking Regulation Act in the context of additional
banking licences to private sector players.
Public Sector Bank Capitalisation
6,000 crore to be provided during 2011-12 to enable public sector banks to maintain a
46
minimum of Tier I CRAR of 8 per cent.
Recapitalisation of Regional Rural Banks
500 crore to be provided to enable Regional Rural Banks to maintain a CRAR of at
least 9 per cent as on March 31, 2012.
3.2 INDIAN BANKING INDUSTRY
The growth in the Indian Banking Industry has been more qualitative than quantitative and it is
expected to remain the same in the coming years. Based on the projections made in the "India
Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report
forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. The
total assets of all scheduled commercial banks by end-March 2010 is estimated at Rs
40,90,000 crores. That will comprise about 65 per cent of GDP at current market prices as
compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite
rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent
that existed between 1994-95 and 2002-03. It is expected that there will be large additions to
the capital base and reserves on the liability side.
The Indian Banking Industry can be categorized into non-scheduled banks and scheduled
banks. Scheduled banks constitute of commercial banks and co-operative banks. There are
about 67,000 branches of Scheduled banks spread across India. As far as the present scenario
is concerned the Banking Industry in India is going through a transitional phase.
47
The Public Sector Banks(PSBs), which are the base of the Banking sector in India account for
more than 78 per cent of the total banking industry assets. Unfortunately they are burdened
with excessive Non Performing assets (NPAs), massive manpower and lack of modern
technology. On the other hand the Private Sector Banks are making tremendous progress. They
are leaders in Internet banking, mobile banking, phone banking, ATMs. As far as foreign
banks are concerned they are likely to succeed in the Indian Banking Industry.
The concept of Banking in India dates back to the first half of 18th century. The first bank that
was established in the country was The General Bank of India founded in 1786. After that
came the State Bank of India in Kolkata in 1806 which was then known as The Bank of
Bengal.
The operations of all the banks in India are controlled by the Reserve Bank of India. All the
Indian banks are governed by the RBI or Reserve Bank of India. This governing body took
over the reasonability of formally regulating the Indian banks in 1935. The Reserve Bank of
India was announced as the official Central Banking Authority for the smooth supervision of
the banking industry in India. Banks in India are classified into 2 broad categories namely,
Public sector banks and Private sector banks.
The banking scenario in India has already gained momentum, with the domestic and
international banks gathering pace. All the banks in India are following the 'cost', determined
by revenue minus profit model.
This means that all the resources should be used efficiently to improve the productivity and
ensure a win-win situation. To survive in the long run, it is essential to focus on cost saving.
Previously, banks focused on the 'revenue' model which is equal to cost plus profit. Post the
48
banking reforms, banks shifted their approach to the 'profit' model, which meant that banks
aimed at higher profit maximization.
3.2.1 SWOT ANALYSIS OF BANKING SECTOR
STRENGTH
High asset quality, growth and profitability
Strong growth rate of banking index i.e 51%
High Geographical reach and market penetration
Growing Customer base
High capital inflows
Comfortable Liquidity position
Liberalise Policy Of RBI
WEAKNESS
Limited market penetration in few geographies
Less household savings
Lack of skills of sales and marketing, service operations, risk management-public
players
Weak structure
According to a mckinsey report, even though Indian households save 28% of their
disposable income, they invest only half their savings in financial assets. The rest goes
towards buying gold, housing, and buying/maintenance of equipment for the various
small Indian enterprises.
49
OPPORTUNITIES
Untapped rural market
Large number of market player
Demand for new type of products like credit cards
New license to NBFC
Hybrid Capital
THREAT
Intense competition
Other better Savings, investment option available.
Failure of some weak banks has often threatened the stability of the system
RBI Policies
Rise in Inflation
3.2.2 PHASE OF INDIAN BANKING INDUSTRY
Indian banking industry is currently in evolutionary phase with growing liberalization, entry of
new foreign players, rising technology etc.
Phase1: Indegeneous Banks
Phase 2: State direct intervention
Phase 3: Liberalization
Phase 4: Transition
50
Phase 5: Entry of foreign players
FIGURE 5: PHASE OF BANKING INDUSTRY
3.2.3 BCG MATRIX FOR BANKING INDUSTRY
FIGURE 6: BCG MATRIX FOR BANKING INDUSTRY
51
BANKING
Banking sector is worth to invest in India because of key trends in banking sector:
Improved risk management practices
More emphasis on fee-base services
Development of new mode of banking
Product innovation
Improved performance of PSUs
Improve technology and information system
3.2.4 FIVE FORCES MODEL FOR BANKING INDUSTRY
1. Threat of New Entrants. The average person can't come along and start up a bank, but
there are services, such as internet bill payment, on which entrepreneurs can capitalize.
Banks are fearful of being squeezed out of the payments business, because it is a good
source of fee-based revenue. Another trend that poses a threat is companies offering
other financial services. What would it take for an insurance company to start offering
mortgage and loan services? Not much. Also, when analyzing a regional bank,
remember that the possibility of a mega bank entering into the market poses a real
threat. In Indian banking industry, the main threats are foreign players and Non
Banking Finance Companies.
2. Power of Suppliers. The suppliers of capital might not pose a big threat, but the threat
52
of suppliers luring away human capital does. In Indian Banking industry, RBI acts as a
regulator which pose a big threat for banks as a supplier of money.
3. Power of Buyers. The individual doesn't pose much of a threat to the banking industry,
but one major factor affecting the power of buyers is relatively high switching costs. If
a person has a mortgage, car loan, credit card, checking account and mutual funds with
one particular bank, it can be extremely tough for that person to switch to another bank.
In an attempt to lure in customers, banks try to lower the price of switching, but many
people would still rather stick with their current bank. On the other hand, large
corporate clients have banks wrapped around their little fingers. Financial institutions -
by offering better exchange rates, more services, and exposure to foreign capital
markets - work extremely hard to get high-margin corporate clients.
4. Availability of Substitutes. As you can probably imagine, there are plenty of
substitutes in the banking industry. Banks offer a suite of services over and above
taking deposits and lending money, but whether it is insurance, mutual funds or fixed
income securities, chances are there is a non-banking financial services company that
can offer similar services. On the lending side of the business, banks are seeing
competition rise from unconventional companies. All offer preferred financing to
customers who buy big ticket items. If car companies are offering 0% financing, why
would anyone want to get a car loan from the bank and pay 5-10% interest?
5. Competitive Rivalry. The banking industry is highly competitive. The financial
53
services industry has been around for hundreds of years, and just about everyone who
needs banking services already has them. Because of this, banks must attempt to lure
clients away from competitor banks. They do this by offering lower financing,
preferred rates and investment services. The banking sector is in a race to see who can
offer both the best and fastest services, but this also causes banks to experience a lower
ROA. They then have an incentive to take on high-risk projects. In the long run, we're
likely to see more consolidation in the banking industry. Larger banks would prefer to
take over or merge with another bank rather than spend the money to market and
advertise to people.
3.3 DATA
STATE BANK OF INDIA
BALANCE SHEET
(Rs. “000”)PARTICULARS 2007 2008 2009 2010CAPITAL AND LIABILITIES
Capital 5,262,989 6,314,704 6,348,802 6,348,826Reserves and surplus 307,722,575 484,011,911 573,128,162 653,143,160
Deposits 4,355,210,894 5,374,039,409 7,420,731,280 8,041,162,268Borrowings 397,033,352 517,274,113 840,579,290 1,030,116,011
Other liabilities and provisions
600,422,578 833,622,984 803,533,273 803,367,040
TOTAL CAPITAL AND
LIABILITIES
5,665,652,388 7,215,263,121 9,644,320,807 10,534,137,305
ASSETSCash and balances 290,764,250 515,346,158 555,461,727 612,908,652
54
with Reserve Bank of India
Balances with banks and money at call and short notice
228,922,650 159,317,192 488,576,259 348,929,764
Investments 1,491,488,825 1,895,012,709 2,759,539,569 2,857,900,706Advances 3,373,364,935 4,167,681,962 5,425,032,042 6,319,141,520
Fixed assets 28,188,667 33,734,809 38,378,472 44,129,067Other assets 252,923,061 444,170,291 377,332,738 351,127,596
TOTAL ASSETS 5,665,652,388 7,215,263,121 9,644,320,807 10,534,137,305TABLE 2: BALANCE-SHEET OF SBI
SOURCE: ANNUAL REPORT OF SBI
ICICI BANK
BALANCE SHEET
(Rs. “000”)
PARTICULARS 2007 2008 2009 2010
CAPITAL AND LIABILITIES
Capital 12,493,437 14,626,786 14,632,898 11,148,892
Reserves and surplus 234,139,207 453,575,309 484,197,292 505,034,767
Deposits 2,305,101,863 2,444,310,502 2,183,478,249 2,020,165,972
Borrowings 512,560,263 656,484,338 673,236,886 942,635,686
Other liabilities and
provisions
382,286,356 428,953,827 437,464,298 155,011,834
TOTAL CAPITAL
AND LIABILITIES
3,446,581,126 3,997,950,762 3,793,009,623 3,633,997,151
ASSETS
Cash and balances
with Reserve Bank of
India
187,068,794 293,775,337 175,363,342 275,142,920
Balances with banks
and money at call and
short notice
184,144,452 86,635,952 124,302,296 113,594,020
Investments 912,578,418 1,114,543,415 1,030,583,080 1,208,928,005
Advances 1,958,655,996 2,256,160,827 2,183,108,492 1,812,055,971
Fixed assets 39,234,232 41,088,975 38,016,209 32,126,899
Other assets 164,899,234 205,746,256 241,636,204 192,149,336
TOTAL ASSETS 3,446,581,126 3,997,950,762 3,793,009,623 3,633,997,151
TABLE 3: BALANCE-SHEET OF ICICI
SOURCE: ANNUAL REPORT OF ICICI
SBI
INCOME STATEMENT
(Rs. “000)
55
PARTICULARS 2007 2008 2009 2010INCOMEInterest earned 372,423,260 489,503,071 637,884,338 709,939,175
Other income 67,652,618 86,949,284 126,907,890 149,681,527
TOTAL INCOME 440,075,878 576,452,355 764,792,228 859,620,702 EXPENDITUREInterest expended 221,841,348 319,290,769 429,152,937 473,224,780 Operating expenses 118,235,166 126,086,060 156,487,044 203,186,800 Provisions and contingencies
54,586,291
63,784,279
87,939,982
91,548,592
TOTAL EXPENDITURE 394,662,805 509,161,108 673,579,963 767,960,172 PROFIT / LOSSNet profit for the year 45,413,073 67,291,247 91,212,265 91,660,530 Profit brought forward 3,393 3,393 3,393 3,393 Transfer from General Reserve
28,857
937
TOTAL PROFIT / (LOSS)
45,445,323
67,295,577
91,215,658
91,663,923
APPROPRIATIONS / TRANSFERSTransfer to Statutory Reserve
33,581,132
48,390,723
52,917,928
63,810,885
Transfer to Capital Reserve 391 44,398 8,265,532 1,140,547 Transfer to Investment Reserve Account 621,787 Transfer to Revenue Reserve and other
3,240,000
3,000,000
3,068,930
5,295,065
Interim Dividend 6,348,802 Final Proposed Dividend 7,368,184 13,576,613 18,411,526 12,697,677 Corporate dividend tax 1,252,223 1,658,663 2,480,347 2,367,554 Loss from State Bank Of Saurashtra 6,068,002 Balance carried over to balance sheet
3,393 3,393 3,393 3,393
TOTAL 45,445,323 67,295,577 91,215,658 91,663,923 TABLE 4: INCOME STATEMENT OF SBI
SOUREC: ANNUAL REPORT OF SBI
ICICI BANK
INCOME STATEMENT
(Rs. “000”)
56
PARTICULARS 2007 2008 2009 2010INCOMEInterest earned 219,955,876 307,883,429 310,925,484 257,069,331Other income 69,278,726 88,107,628 76,037,271 74,776,500TOTAL INCOME 289,234,602 395,991,057 386,962,755 331,845,831EXPENDITUREInterest expended 163,584,984 234,842,423 227,259,343 175,925,704Operating expenses 66,905,564 81,541,819 70,451,137 58,598,327Provisions and contingencies 27,641,854 38,029,536 51,670,943 57,071,971TOTAL EXPENDITURE 258,132,402 354,413,778 349,381,423 291,596,002PROFIT / LOSSNet profit for the year 31,102,200 41,577,279 37,581,332 40,249,829Profit brought forward 2,934,416 9,982,741 24,363,159 28,096,510TOTAL PROFIT / (LOSS) 34,036,616 51,560,020 61,944,491 68,346,339
APPROPRIATIONS / TRANSFERSTransfer to Statutory Reserve 7,800,000 10,400,000 9,400,000 10,070,000Transfer to Reserve Fund 1,168 3,138 4,221 2,170Transfer to Capital Reserve 1,210,000 1,270,000 8,180,000 4,440,000Transfer to Investment Reserve Account 0 1,160,000Transfer to General Reserve 0 10,369Transfer to Special Reserve 4,500,000 1,750,000 2,500,000 3,000,000Proposed equity share dividend
9,011,694 12,277,018 12,251,582 13,379,533
Proposed preference share dividend
35 35 35 35
Corporate dividend tax 1,530,978 1,496,670 1,512,143 1,640,425Balance carried over to balance sheet
9,982,741 24,363,159 28,096,510 34,643,807
TOTAL 34,036,616 51,560,020 61,944,491 68,346,339TABLE 5: INCOME STATEMENT OF ICICI
SOUREC: ANNUAL REPORT OF ICICI
DEPOSIT
YEAR ICICI SBI
2006 1,650.8 3670.4
57
3 8
2007 2,305.1
0
4355.2
1
2008 2,444.3
1
5374.0
5
2009 2,183.4
8
7420.7
3
2010 2,020.1
7
8041.1
6
TABLE 6: COMPARION OF DEPOSITS OF SBI AND ICICI
2006 2007 2008 2009 20100.00
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
7,000.00
8,000.00
9,000.00
DEPOSITS
ICICI SBI
FIGURE7: COMPARION OF DEPOSITS OF SBI AND ICICI
Deposits of SBI is increasing at higher rate as compared to ICICI bank
58
ADVANCES
YEAR ICICI SBI
2006 1,461.6
3
2618.0
1
2007 1,958.6
6
3373.3
6
2008 2,256.1
6
4168.9
5
2009 2,183.1
1
5425.0
3
2010 1,812.0
6
6319.1
4
TABLE 7: COMPARION OF ADVANCES OF SBI AND ICICI
59
20062007
20082009
2010
0.00
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
7,000.00
ADVANCES
ICICI SBI
FIGURE 8: COMPARION OF ADVANCES OF SBI AND ICICI
Advances of SBI is increasing at higher rate as compared to ICICI Bank.
TOTAL ASSETS
YEAR ICICI SBI2006 2,513.8
9
4940.29
2007 3,446.5
8
5665.65
2008 3,997.9
5
7215.26
2009 3,793.0
1
9644.32
2010 3,634.0 10534.1
60
0 3
TABLE 8: COMPARION OF ASSETS OF SBI AND ICICI
2006 2007 2008 2009 20100.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
TOTAL ASSETS
ICICI SBI
FIGURE 9: COMPARION OF ASSETD OF SBI AND ICICI
Total assets of SBI is increasing whereas total assets of ICICI is decreasing.
NET PROFIT
YEAR ICICI SBI
2006 25.4 44.07
2007 31.1 45.41
2008 41.58 67.29
2009 37.58 91.21
61
2010 40.25 91.66
TABLE 9: COMPARION OF NET PROFIT OF SBI AND ICICI
20062007
20082009
2010
0
10
20
30
40
50
60
70
80
90
100
NET PROFIT
ICICI SBI
FIGURE 10: COMPARION OF NET PROFIT OF SBI AND ICICI
Net profit of ICICI is increasing at higher rate as compared to SBI.
Earning per share
YEAR ICIC
I
SBI
2005-06 32.4
9
83.73
2006-07 34.8
4
86.29
2007-08 39.3 126.62
62
9
2008-09 33.7
6
143.77
2009-10 36.1
4
144.37
TABLE 10: COMPARION OF EARNING PER SHARE OF SBI AND ICICI
2005-06 2006-07 2007-08 2008-09 2009-100
20
40
60
80
100
120
140
160
Earning per Share
ICICISBI
FIGURE11: COMPARION OF EARNING PER SHARE OF SBI AND ICICI
Earning per share is increasing of ICICI at higher rate.
PAY-OUT RATIO
YEAR ICICI SBI
63
2005-06 26.16 16.72
2006-07 28.91 16.22
2007-08 29.44 20.18
2008-09 32.58 20.19
2009-10 33.24 20.78
TABLE11: COMPARION OF PAY-OUT RATIO OF SBI AND ICICI
2005-06 2006-07 2007-08 2008-09 2009-100.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
ICICISBI
FIGURE12: COMPARION OF PAY-OUT RATIO OF SBI AND ICICI
Divivdend pay-out ratio of ICICI is higher as compared to ICICI.
PRICE EARNING RATIO
YEAR ICIC SBI
64
I
2005-06 13.07 10.4
2006-07 24.67 11.51
2007-08 20.61 12.63
2008-09 9.85 7.42
2009-10 26.39 14.4
TABLE12: COMPARION OF PRICE-EARNING RATIO OF SBI AND ICICI
2005-06 2006-07 2007-08 2008-09 2009-100
5
10
15
20
25
30
ICICISBI
FIGURE 13: COMPARION OF PRICE-EARNING RATIO OF SBI AND ICICI
Price earning ratio of ICICI is more as compared to SBI BECAUSE SBI has large
number of shares.
65
Chapter-4
DATA ANALYSIS
66
4.1 SBI VS ICICI
4.1.1 DU PONT ANALYSIS
ICICI BANK
PARTICULARS 2007 2008 2009 2010NET INCOME 31,102,200 41,577,279 37,581,332 40,249,829AVERAGE TOTAL
ASSETS
2980235334 3722265944 3895480193 3713503387
RETURN ON ASSETS 0.01 0.01 0.01 0.01AVERAGE EQUITY 236096280 357417369.5 483516142.
5
507506924.5
EQUITY MULTIPLER 12.62296608 10.41433982 8.05656698
9
7.317148216
RETURN ON EQUITY 0.13173524 0.116326968 0.07772508
2
0.079308926
TABLE 13: DU PONT ANALYSIS OF ICICI
67
FIGURE 14: DU PONT ANALYSIS OF ICICI
DU PONT ANALYSIS (SBI)
PARTICULARS 2007 2008 2009 2010
NET INCOME 45,413,073 67,291,247 91,212,265 91,660,530
AVERAGE TOTAL ASSETS 2832826194 6440457755 8429791964 10089229056
RETURN ON ASSETS 0.02 0.01 0.01 0.01
AVERAGE EQUITY 156492782 401656089.5 534901789.5 619484475
EQUITY MULTIPLER 18.1019607
3
16.0347569 15.75951348 16.28649218
RETURN ON EQUITY 0.29 0.17 0.17 0.15
TABLE 14: DU PONT ANALYSIS OF SBI
68
RETURN ON EQUITY(7.9%)
RETURN ON ASSETS(1.08%)
NET INCOME AVERAGE ASSETS
EQUITY MULTIPLIER(7.31)
AVERAGE ASSETS
AVERAGE EQUITY
FIGURE 15: DU PONT ANALYSIS OF SBI
4.1.2YEAR ON YEAR GROWTH
ICICI BANKPARTICULAR
S
2005 2006 2007 2008 2009 2010
Deposits 1,650.83 2,305.10 2,444.3
1
2,183.48 2,020.17GROWTH - 142.38% 39.63% 6.04% 10.67% -7.48%
Advances 914.05 1,461.63 1,958.66 2,256.1
6
2,183.11 1,812.06
GROWTH - 59.91% 34.01% 15.19% -3.24% -17.00%Total Assets 1,676.59 2,513.89 3,446.58 3,997.9
5
3,793.01 3,634.00
GROWTH - 49.94% 37.10% 16.00% -5.13% -4.19%69
RETURN ON EQUITY(15%)
RETURN ON ASSETS(1%)
NET INCOME AVERAGE ASSETS
EQUITY MULTIPLIER(16.29)
AVERAGE ASSETS
AVERAGE EQUITY
TABLE 15: YEAR ON YEAR GROWTH OF ICICI
SBIPARTICULAR
S
2005 2006 2007 2008 2009 2010
Deposits 3670.48 3800.4
6
4355.2
1
5374.0
5
7420.73 8041.16
GROWTH - 3.54% 14.60
%
23.39
%
38.08% 8.36%
Advances 2023.74 2618.0
1
3373.3
6
4168.9
5
5425.03 6319.14
GROWTH - 29.36
%
28.85
%
23.58
%
30.13% 16.48%
Total Assets 4598.83 4940.2
9
5665.6
5
7215.2
6
9644.32 10534.1
3
GROWTH - 7.42% 14.68
%
27.35
%
33.67% 9.23%
Interest Income 324.28 359.8 394.91 489.5 637.88 709.94GROWTH - 10.95
%
9.76% 23.95
%
30.31% 11.30%
Interest
Expenses
184.83 203.9 234.37 319.29 429.15 473.22
GROWTH - 10.32 14.94 36.23 34.41% 10.27%
70
TABLE 16: YEAR ON YEAR GROWTH OF ICICI
4.1.3 CAMEL ANALYSIS
CAPITAL ADEQUACY
ICICIRATIO 2006 2007 2008 2009 2010
TIER-I 9.20% 7.42% 11.76% 11.84% 13.96%
TIER-II 4.15% 4.27% 2.20% 3.69% 5.45%
CAPITAL
ADEQUACY
13.35% 11.69% 13.96% 15.53% 19.41%
SBIRATIO 2006 2007 2008 2009 2010
TIER-I 9.36% 8.01% 9.14% 8.53% 8.46%
TIER-II 2.52% 4.33% 4.40% 4.44% 3.54%
CAPITAL
ADEQUACY
11.88% 12.34% 13.28% 12.97% 12%
TABLE 17: CAPITAL ADEQUACY OF SBI AND ICICI
71
ASSET QUALITY
ICICI
RATIO 2006 2007 2008 2009 2010
GROSS NPA 22225.9 41260.6 75795.4 96493.1 94806.5
NET NPA 10526.8 19920.4 34905.5 45539.5 38411.1
NET NPA/
TOTAL ADVANCES
2.03% 1% 1.55% 2.09% 2.12%
SBI
RATIO 2006 2007 2008 2009 2010
GROSS NPA 9268.14 9998 13599 15589 19554
NET NPA 4911.41 5258 7424 9677 10870
NET NPA/
TOTAL ADVANCES
1.88 1.56 1.78 1.79 1.72
TABLE 18: ASSETS QUALITY
72
MANAGERIAL EFFICIENCY
ICICI
RATIO 2006 2007 2008 2009 2010
TOTAL INVESTMENT/
TOTAL ASSETS
28.46% 26.47% 27.88% 27.17
%
33.26%
COST/INCOME 39.9% 41.2% 40.2% 43.3% 37.0%
PROFIT PER EMPLOYEE 1.0 0.9 1.0 1.1. 1.2
BUSINESS PER EMPLOEE 90.5 102.7 100.8 115.4 102.9
SBI
RATIO 2006 2007 2008 2009 2010
TOTAL INVESTMENT/
TOTAL ASSETS
32.90% 26.32% 26.26% 28.61
%
27.13%
COST/INCOME 58.70% 54.18% 49.03% 46.62
%
52.59%
PROFIT PER EMPLOYEE 216.76 236.81 372.57 473.77 446.03
BUSINESS PER EMPLOYEE 29923 35700 45600 55600 63600
TABLE 19: MANAGERIAL EFFICIENCY
73
EARNING AND PROFITABILITY
ICICI
RATIO 2006 2007 2008 2009 2010
RETURN ON EQUITY 16.4% 13.4% 11.63% 7.77% 7.93%
OPERATING PROFIT/
AVERAGE WORKING FUNDS
1.98% 2.05% 2.14% 2.33% 2.72%
PROFIT AFTER TAX/
TOTAL ASSETS
1.01% 0.90% 0.88% 0.99% 1.10%
SBI
RATIO 2006 2007 2008 2009 2010
RETURN ON EQUITY 15.47% 14.24% 17.82% 15.07% 14.84%
OPERATING PROFIT/
AVERAGE WORKING FUNDS
1.75% 1.86% 1.96% 2.05% 1.75%
PROFIT AFTER TAX/
TOTAL ASSETS
0.89% 0.80% 0.93% 0.95% 0.87%
74
NET INTEREST MARGIN (ICICI BANK)
PARTICULARS 2008 2009 2010
NET INTEREST INCOME 73,041,006 83,666,141 81,143,627
AVERAGE INTEREST
EARNING ASSET
3256359530 3397667031 3236285932
NET INTEREST MARGIN 22.4% 24.6% 25.07%
NET INTEREST MARGIN (SBI)
PARTICULARS 2008 2009 2010
NET INTEREST
INCOME
170,212,302 208,731,401 236,714,395
AVERAGE INCOME
EARNING ASSET
5,657,894,136.50 7,447,579,866.5
0
9,099,559,930.0
0
NET INTEREST
MARGIN
3.01% 2.80% 2.60%
TABLE 20: EARNING AND PROFITABILITY
75
LIQUIDITY
ICICI
RATIO 2006 2007 2008 2009 2010
LAON/DEPOSIT 88.53
%
84.97% 92.30% 99.98
%
89.70%
GOVT. SECURITIES/
TOTAL INVESTMENT
71.38
%
73.82% 67.63% 61.50
%
56.60%
SBI
RATIO 2006 2007 2008 2009 2010
LAON/DEPOSIT 68.87
%
77.45% 77.55% 73.11
%
78.58%
GOVT. SECURITIES/
TOTAL INVESTMENT
78.86
%
79.29% 82.245 82.70
%
79.70%
TABLE 21: LIQUIDITY
76
4.1.4 SWOT ANALYSIS
ICICI BANK
STRENGTHS
BRAND NAME
HUGE NETWORK
DIVERSIFIED PORTFOLIO
AGGRESSIVE MARKETING
TECHNOLOGY
WEAKNESS
TRANSACTION COST IS HIGH
FOCUS ONLY ON HIGH END CUSTOMERS
77
OPPORTUNITIES
BUSINESS ADVISOR FOR SMALLER PLAYERS
DISSATISFIED CUSTOMERS OF OTHER BANKS
THREATS
DISSATISFIED CUSTOMERS
EVER IMPROVING NATIONALIZED BANKS
ADVENT OF MNC BANKS
STATE BANK OF INDIA
STRENGTHS
BRAND NAME
MARKET LEADER
WIDE DISTRIBUTION NETWORK
GOVERNMENT OWNED
LOW TRANSITION COSTS
WEAKNESSES
EXISTING HIERARCHICAL MANAGEMENT STRUCTURE OF THE BANK
HIGH NON PERFORMING ASSETS (NPAS)
LACK OF MODERNISATION
78
OPPORTUNITIES
MERGER OF ASSOCIATE BANKS WITH SBI
PLANNING TO ADD MORE BRANCHES AND ATMS
THREATS
ADVENT OF MNC BANKS
EMPLOYEE STRIKE
INCREASING CUSTOMER EXPECTATION
4.1.5 ANOVA TEST
TOTAL ASSETSYEAR ICICI
(X1)
SBI(X2)
2006 2,513.8
9
4940.29
2007 3,446.5
8
5665.65
2008 3,997.9
5
7215.26
2009 3,793.0
1
9644.32
2010 3,634.0
0
10534.1
3
Anova: Single
Factor
79
SUMMARY
Groups Count Sum Average
Varian
ce
Column 1 5
17385.
43
3477.08
6
331101
.6
Column 2 5
37999.
65 7599.93
593803
9
ANOVA
Source of
Variation SS Df MS F P-value F crit
Between
Groups
424946
07 1
424946
07
13.556
76
0.0062
02
5.3176
55
Within Groups
250765
62 8
313457
0
Total
675711
68 9
NET PROFIT
YEAR ICICI SBI
2006 25.4 44.07
2007 31.1 45.41
2008 41.58 67.29
2009 37.58 91.21
2010 40.25 91.66
80
Anova: Single Factor
SUMMARY
Groups Count Sum Average
Varianc
e
Column 1 5 175.91 35.182
46.1799
2
Column 2 5 339.64 67.928
545.482
7
ANOVA
Source of
Variation SS df MS F P-value F crit
Between
Groups
2680.75
1 1
2680.75
1
9.06175
6
0.01680
7 5.317655063
Within
Groups
2366.65
1 8
295.831
3
Total
5047.40
2 9
Calculated value is higher than the tabulated value. Therefore alternate hypothesis is accepted.
There is significant difference between the performance of two banks i.e. SBI and ICICI.
4.1.6 TECHNICAL ANALYSIS
81
ICICI
5 YEAR CHART(13-04-06 TO 12-04-11)
SBI
ICICI
82
DOWN-TREND
UP-TREND
SIMPLE MOVING AVERAGE(150 DAYS)
SBI
83
ICICI BANK(13-04-2010 TO 12-04-2011)
SBI
SIMPLE MOVING AVRAGE(90 DAYS)
84
ICICI
SBI
85
FINDING OF STUDY
Du Pont Analysis
Return on Aseets of both banks are almost same which is around 0.01 but equity
multipler of SBI is higher as compared to ICICI. So, the return on equity of ICICI is
more.
Technical Analysis
The most popular method of interpreting a moving average is to compare the
relationship between a moving average of the security's price with the security's price
itself. A buy signal is generated when the security's price rises above its moving
average and a sell signal is generated when the security's price falls below its moving
average. In this case looking at charts it can be say that one can buy the stock because
price rise above its moving average in both the chart.
ANOVA Test
With the help of ANOVA test, alternate hypothesis is accepted i.e. there is significant
difference between the performance of both banks.
CAMEL analysis
With the help of Camel analysis, SBI outperforms the ICICI in the term of NPAs and
profitability but in managerial effeciency and capital adequacy, ICICI is better.
Year on year Growth
With the help of trend analysis it comes to know that total asset, advances and deposits
grown at higher rate of SBI as compared to ICICI.
86
Chapter-5
SUMMARY
AND
CONCLUSIONS
87
5.1 CONCLUSION
Indian Banking sector is in the growth phase and expects a higher growth rate. Banking stock
share gives a very higher return of 51% as compared to other industries and sensex. Indian
banking industry has lot of scope and due to emerging of new technology, its scope is also
increasing at a higher rate. Demand for new product and services are also increasing.
According to Indian Statistical Organization the per capita income (Rs.38000) is increasing
and national income at the rate of 14.4% and saving rate is also increased upto 32.3%.
The shares of both banks SBI and ICICI are worth for investment purposes. SBI gave higher
return as compared to ICICI in last 5 years. SBI fundamentals are very strong in terms of
deposit, advances and total assets but in capital adequacy ratio, ICICI is strong. Asset quality
of both banks is improved. Managerial level of ICICI is more strong and efficient to take
decisions and effective implementation.
Growth rate of net profit of ICICI is higher than SBI.
ICICI increased its scope of business by merging with Bank of Rajasthan. Technical analysis
of both share give the signal of buy/hold with the help of simple moving indicators method.
By analyzing the current trend of Indian Economy and Banking Industry we can say that being
a developing economy there is lot of scope for growth and this industry still have to cross
88
many levels so there is huge opportunities to invest in and this is proving as more and more
foreign Companies setting up there ventures in India.
5.2 RECOMMENDATION
By analyzing the industry on various parameters with the help of implementing
Fundamental and Technical tools we came to know that this industry has a lot of
potential to grow in future. So recommending to invest in Banking Industry have no
doubt is going to be a good and smart option because this industry is booming like
never before not only in India but all around the world. The returns which came out of
this industry were very impressive recently.
Both banks should try to improve its non-performing assets to improve its fundamental.
SBI should adopt new programmes and practices to improve its managerial efficiency
to compete with new private sector banks and foreign banks
To compete with other type of competitors mutual funds, banks should upgrade
themselves
RBI policies are great challenges for banking sector players. So, they should make its
policies in such a way that they fulfil all the regulations of RBI and make profit at the
same time.
89
5.3 LIMITATION OF STUDY
The scope of study was limited due to some constraints given below:-
Analysis is only means not an end. The analysis has been done on the basis of my own
interpretations and up to my best knowledge but every analyst have his or her own
interpretations and suggestions.
Time is the main constraint in this study.
The non-monetary factors are not taken into consideration for the analysis
No personal contacts with stakeholders of companies also a limitation for analyzing the
Project.
Error due to some oversight or misinterpretation.
90
5.4 SCOPE FOR FURTHER RESEARCH
Due to lack of time, I have used only three tools to study the fundamentals of banks. For
further research, various other useful tools like Z altman score can be used and equity
valuation can be done with fundamental analysis. For technical analysis, the other indicators
like momentum, relative strength index can be used.
91
BIBLIOGRAPHY
BOOKS
Kothari C. R., “Research Methodology”, Second Revised Edition, New Age
International Publisher
Rustagi R. P.,”Investment Analysis and Portfolio Management”, Sultan Chand
Publication, 2nd edition
92
WEB-SITES
http://www.nseindia.com/
http://www.sharekhan.com/
http://www.moneycontrol.com/
http://www.indiainfoline.com/
http://www.icicidirect.com/
http://economictimes.indiatimes.com/
93