Draft 2 Dissertation

TOPIC: Fundamental Analysis of Selected Banks in India

Submitted by: Vidushi Sathoo ( 13020241062)

Mentor: Mr. Jeevan Nagarkar

Date: 23rd February 2015

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ACKNOWLEDGEMENT

I want to express my deep gratitude to all those who were instrumental in helping me completing my project report. I thank and express sincere gratitude to my mentor, Mr. Jeevan Nagarkar, Head of Department, Finance at SIIB, Pune, who suggested and prepared the framework of the project. I would also like to thank him for the continued support, advice and encouragement, without which this report could not have been possible.

Thanking YouVidushi SathooSIIB, Finance Batch 2013-15PRN- 13020241062

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INDUSTRY PROFILE

HISTORY OF INDIAN BANKING INDUSTRY

India in known as the land of great economists and the Indian banking system is very old taking many forms from the past to the present. India's banking sector can be divided into stages in 4 portions:-

PRE NATIONALIZATION PHASE

In Accordance with Kautalya’s Arthshastra, the lowest rate on capital was set at 15% per annum. Taking some clue from the Sahukari systems from the time of Arthshastra evolution in India , Sahukars are basically private bankers. In this system, the borrower knows the Sahukars, who then loan out to borrowers with very little documentation, but do charge them at a very high interest rate, which were then compounded at short time interval. Loan process often involves mortgage of property. Due to the lack of education at that time, the documents were tampered with, and farmers often had to hand over their properties to Corrupt Sahukars.

With the advent of British Rule in India, Commercial banks have been established. The first bank to be established in the year 1786 is the Central bank, which was followed by the Hindustan Bank and Bangladesh Bank .Later, East India Company started a number of their own banks. They include Bank of Bangal (1809), Bank of Bombay (1840) and Bank of Madras (1843). Although these banks worked as independent units then, but together they were called as the Presidency Bank. Later the three banks merged in 1920 to form Imperial Bank of India. The bank's main shareholders were European.

When the Swadeshi movement was on its peak period, a number of banks under management of India got established. Also, Punjab National Bank in 1894, headquartered in Lahore at that time. Bank of Baroda, Canara Bank, Indian Bank, Bank of India, Central Bank of India and Bank of Mysore were also set up. In addition to these many small banks, municipal city level banks also came into being. Since there were no regulations to guide these banks, as a result many banks failed. The economic growth of these banks was slow, as the economy was under the siege of British Rule in India.

NATIONALIZATION

Government’s intervention into bank’s working began from the 1930’s.Reserve Bank of India Act was passed in 1934, the Reserve Bank of India was established in 1935, it acted as the Central Bank of India, and had the right to issue bank notes, and act as a regulator of all banks and their exchange activities. Before 1967, the Indian Banking System included schedule commercial banks; on them the control over the Government was very limited. They were free to determine their credit policy had and provided

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Pre Nationalisation Phase Nationalisation Liberalisation Post 2000 changes

tailored financial services to their customers. This was the era of Class Indian Banking. Many sectors, such as agriculture which had less profit, were overlooked for the balanced growth of the country.

On December 1967, the Indian Banking witnessed a social control. This was done in order to calibrate the current banking policy to the Indian economic policy. On December 22, 1967 National Credit Council was set up to discuss and access the credit policies of India. In order to promote exports, export credit (discount) scheme was introduced in 1968. In order to tighten its control over the Indian banking industry, the government established the Banking Committee in January 1969 and the Commission was to take care of:

1) Bank charges

2) Legislation affecting the Indian banks

3) Indigenous processes

4) Bank formalities

5) Non-bank financial intermediaries

On 19th July 1969, in the Indian banking system, 14 major scheduled commercial banks with deposits over fifty crore rupees were nationalized. As a result, mass banking period started. In the year, 1970 SLR rate increased from 25 percentage points to 28 percentage points, and non-compliance fines of CRR and SLR was started which helped RBI to control commercial banks. Six banks were nationalized on April 15, 1980, in order to further control the height of the economy.

By the end of 1990 nearly 80 percent of the banking sector came under government control. In this planned economic development came in needs of huge development expenditures. This expenditure was met by automatic monetization of the fiscal deficit. The development focused on mainly sectors like agriculture, retail trade, small business, transport, and small scale industry.

There was another side of Nationalization which caused the deterioration of the customer relationship with the bankers. There was no healthy competition among the banks in India. Administered by the complex structure of the then prevailing interest rates, were guided more by social priorities, requiring cross-subsidies to maintain commercial viability institutions. This distorted the interest rate mechanism and has also been a factor of deterioration to the development of the financial markets. These were all signals of 'financial repression' in the Indian system then.

LIBERALIZATION

Indian Economy faced a huge shame, when it was compelled to pledge its gold reserves in order to avoid a balance of payments crisis. Narasimha Committee was set up for banking reform proposals. Based on the committee’s report, reduction in base rates of CRR and SLR was done in 1991. SLR has gradually decreased from a peak of 38.5% to 25%. The CRR was reduced from 15 % in 1989 to 1992 of 4.5% in 2003.

There were some structural changes in the system. Founded in 1994, the Board of financial supervision (BFS), was set up to exercise powers in relation to banking companies, financial institutions and non-banking companies. It was constituted to develop regulation and supervision in Banks. On some similar

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lines, the board for regulation and supervision of payment and settlement systems (BPSS) provides regulatory and supervisory policies for all types of payment and settlement systems, existing and future systems, and sets criteria for membership of these systems.

Banking was open to private players in 1993, with private players been allowed to invest up to 49%in the public sector banks of India. Diversified ownership, while retaining the public sector character of these banks has led to greater market responsibility; improve efficiency, without losing the confidence and security of the public. Since 1993, 12 private banks have been established.

With the increase of foreign direct investment limit banking 74% , it has attracted many foreign investors. The main shareholders in ICICI and HDFC Banks are the foreign investors. With large amounts of foreign investment and foreign management architecture to Indian banking industry, it has flourished over the years. These private banks began giving international standards of service. Suddenly, the Indian urban landscape was filled with ATMs.

THE POST 2000 CHANGES

In order to overcome the competition that the private players faced from the public sector banks, Private Banks started having structural changes. State Bank of India, the largest public sector banks business process reengineering. Business Process Reengineering (BPR) team was set up in June 2003 having consultants as McKinsey & Company. BPR’s basic objective was to create an operating system architecture that will help the banking industry with the international standards of service delivery. The project objective was defined as to improve customer satisfaction and convenience, make time for branch managers and branch staff to focus on sales and marketing, and streamline the processes.

Other banks were also not too far behind in all this. In order to develop better employees, many banks launched a Voluntary Retirement Scheme (VRS), making less efficient manpower in the banking system to go away. Many new services were added to the Indian banking system. DEMAT accounts and insurance services are a boon for both the customers and the bankers more.

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IMPORTANT PARAMETERS IN THE BANKING INDUSTRY

ASSET QUALITY

Appreciation/ Depreciation of the bank’s assets are dependent on various and different market conditions. Asset quality is said to have a direct impact on the performance of banks. The quality of assets in particular loan assets and investments will depend on the bank's risk management system to a large extent. In order to improve the profitability of the bank it loans out a lot so as to earn interest from the lending. The nature and risks involved with each loan varies. Therefore, to measure the quality of assets, it is necessary to look at the bank's non-performing assets. Bank's asset quality parameters are described as:

1. Gross NPA to AdvancesThrough Gross NPA one can arrive at the total nonperforming assets in a year, as the provisions are not reduced from it, it gives us the important information on how the assets have been performing of a Bank in a given year. It can be calculated as given below:-

= Gross NPA / Total Advances

2. Net NPA to AdvancesThe ratio presents the information on the performance of total assets plus the provisions also. Lot of banks that are basically operating has huge provisions for the bank’s Non-Performing Assets. It is calculated from the formulae given below:- = Net NPA/ Total Advances

MANAGEMENT

Company's key management of operations of banks plays a very crucial role. Performance of the other five CAMELS components will depend on the vision, ability, agility, integrity and competence of the bank's management. Some of the management efficiency parameters are as below:-

1. Advances to Deposit RatioThe ratio shows us the amount of deposits that has been given as advances to others. The advances are important in respect to earning profits for the bank and also service the interest that is being paid to the deposits. It can be found out using the formulae that is given below:

= Total Advances/ Total Deposits

2. Loan per unit SpentThe ratio shows us the generated loan amount by the bank after spending a unit price on the operational activities by the bank. A good bank’s management will basically focus on generating as many creditors as it can with spending very less on the bank’s operational activities. It is calculated using the given formulae:

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= Term Loan/ Operating Expense

3. Profit per EmployeeThe ratio depicts the average profit that is given per employee in the bank. An efficient management would always motivate workers to gain profit for the bank.

EARNINGS

The main and final goal of any financial institution is to improve its bottom line and bring the profits to its stakeholders. In addition, it also helps support organizations present and future operations. Banks must earn a reasonable profit to support asset growth, establish adequate reserves, and increase shareholder’s value. Good profit performance will inspire depositors, investors, creditor and the public in good faith .The parameters are as below:-

1. ROAA (Return of Average Assets)Depicts the amount of profits or gain, a bank can make using the its assets. It is a very useful tool to assess the profitability or the gain derived from a firm’s precious assets. Commonly used by banks and other financial institutions to measure their performance.ROAA is derived at the end of the periods, hence does not depict any highs/lows but is merely an average of the period.

2. Interest Income to Total IncomeBank’s core activity is to make provision for credit, on which it would earn an interest. The most vital and important income that a bank may have is an interest income. The interest to total income would depict the total interest earned on the given total income of the bank.It can be calculated using the given formulae:- = Interest Income/ Total Income

3. Earnings per SharePerson that is investing in any company would wish to get a good return out of the investment he has made. Earnings per share show the profit a common stock holder can earn. It can also be defined as the portion of the company’s profit that has been assigned to each of the outstanding share of common stock.

LIQUIDITY

In order to meet the customer’s demand; the depositors and creditors, the banks and other financial institutions must maintain high liquidity in their assets. There is an effective mechanism called as the management of assets and liabilities. It minimizes the mismatches in maturity that occurs between assets and liabilities, and also income in a given period. Bank liquidity indicators used to determine the required liquidity of a bank are as follow:-

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1. Credit Deposit RatioThe ratio gives us the information on the amount of the bank’s deposits that are given as credits

2. Cash Deposit RatioCash that is liquid directly depicts to the bank's liquidity picture of all assets. But a lot of cash in the system can be harmful for the bank's profit as well.

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INDUSTRY ANALYSIS

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INDUSTRIAL DATA

In the current fiscal year is estimated 07-14 US $ 1.31 trillion banking deposits 19.7% CAGR. Deposits increased due to the growth in the disposable income, increasing savings. Banking system has improved due to improve the bank's technology, and banking freedom and non-metropolitan areas continue to expand in the past few years, in order to promote the improvement of the government's efforts. July 2013, the Reserve Bank to ease its branch licensing policy; (meet certain financial criteria), allowing banks to set up branches -2 hierarchy to 6 center is not the RBI's prior approval. Meanwhile, India's banking sector, which is to maintain public confidence in the past few years, despite the turmoil in global stability.

FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 140

200

400

600

800

1000

1200

1400

489

665

822763

1030

1182 11701274 1312

Growth in Deposits (USD Billion)

Source: Reserve Bank of India (RBI), Aranca Research

In addition to deposit assets expansion has taken place in the banking industry. The total banking assets during USD1.7 one trillion yuan increase of 11.5%, which accounted for the public sector banks. Assets of the public sector banks, which account for 72.7 per cent of the total banking asset, grew at an average of 73.7 per cent. Private sector expanded at an CAGR* of 14.7 percent, while foreign banks posted a growth of 7.6 percent .Corporate demand for bank loans have grown due to the continued infrastructure investments, and due to other policy decisions such as reducing oil subsidies, issuing of telecom spectrum licenses and the proposed abolition of penalty on loan prepayment.

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FY 10 FY 11 FY 12 FY 130

200400600800

100012001400160018002000

1271

15771736 1763

Total Banking Sector Assets (USD Million)


The Indian Banking sector has seen a strong growth in the interest income in the past years. In the public sector bank, interest income has accounted for more than 73.1%. 0verall interest income for public sector banks has been increased to 15.4 % compound annual growth rate during FY 09-13, the interest income for the entire sector has been at a rate of 14.4 % CAGR during FY 09-13.

FY 09 FY 10 FY 11 FY 120

10

20

30

40

50

60

70

80

90

100

57.6

67.1

76.4

89.3

17.9 18.2 20.224.7

6.4 5.8 5.9 6.7

Interest Income growth in Indian Banking Sector(USD billion)

Public Banks

Private Banks

Foreign Banks


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The net interest margin of the banking sector continues to remain strong. NIM for thr scheduled commercial banks surged from 2.5% in FY 2010 to 2.8% in FY 2013 after the financial crisis has improved. Foreign banks, State Bank of India & its associates as well as private sector banks posted higher NIM at 3.9, 3.0 and 3.2 per cent, respectively in FY13 .Foreign and private banks compare favorably to public banks, primarily due to higher income per employee in FY13, and operating efficiency from use of technology.

SBI and its associate Nationalised Banks Public Sector Banks Private Sector Banks Foreign Banks0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

3.00%

2.40%2.60%

3.20%

3.90%

Net interest margin across sector (FY13)

Source: Indian Bank’s Association, Aranca Research

FY 08 FY 09 FY 10 FY 11 FY 12 FY 132.30%

2.40%

2.50%

2.60%

2.70%

2.80%

2.90%

3.00%

2.58%2.63%

2.54%

2.91% 2.90%

2.79%

Net interest margins growth (FY13)

Source: Indian Bank’s Association, Aranca Research.

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Indian banking sector enjoys a healthy Net Interest Margins (NIM) compared with global peers HDFC leads the large banks with a NIM of over 4.4 per cent .Prominent Chinese banks have NIM’s between 2-3 percent, significantly lower than Indian peers. Despite virtually zero cost funds, the banks in the US have NIM’s comparable to Indian peers.

HDFC ICICI SBI Axis0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%4.40%

3.30%3.50%

3.80%

Net Interest Margins (FY14)

Source: Company reports, Aranca Research

Loan-to-Deposit ratio for banks across sectors has increased over the years. Private and foreign banks have posted high return on assets than nationalised and public banks.

SBI & its associate Nationalised Banks Public Banks Foreign Banks0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

79%

103%96%

143%

89% 88% 88%

153%

88%74% 78%

163%Return on Assets

FY 11FY 12FY 13

13

SBI & its associate Nationalised Banks Public Banks Foreign Banks66%

68%

70%

72%

74%

76%

78%

80%

82%

84%

86%

80%

73%

76%

80%

82%

75%

78%

82%

85%

75%

78%

82%

Loan to Deposit Ratio

FY 11FY 12FY 13


The Private Banks in India are aggressively increasing their presence. This can be found out through the table below. Share of public sector banks in total deposits have also declined from 78.2 per cent in FY05 to 77.3 per cent in FY13.This is largely due to the fact that private banks are rapidly capturing share in savings deposit.

FY 05 FY 130.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

78.20% 77.30%

17.10% 18.80%

4.70% 3.90%

Market share of bank groups by deposits

Foreign BanksPrivate BanksPublic Banks

Source: IBA statistics, Aranca Research

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Despite the impact of the financial crisis, the net non-performing assets of the banking sector in India (NPA) have declined in the past few years. While net NPA levels from fiscal year 2012 to fiscal year 2013 has increased from 1.28% to 1.68%, private banks in the year 2013 have been maintained a ratio of 0.52 percent compared to 0.46 percent in the year 2012.Private sector banks had maintained a 2 % minimum of the total non-performing assets to the total advances.

FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 130.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

1.02%1.11%

1.30%

1.05%

0.56%0.46% 0.52%

1.02% 1.00% 1.05%1.12%

0.97%

1.28%

1.68%

Net NPA Levels

Private Banks NPAOverall NPA level


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Public Banks Private Banks Foreign Banks0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%4.10%

2.00%

2.90%

Gross NPAs to Gross advances ( FY 13)

PORTER’S FIVE FORCES MODEL

Banks in India can be divided into two kinds scheduled banks and non-scheduled banks. Scheduled banks constitute the cooperative banks and commercial banks. There are 88 commercial banks that are scheduled. Among them, 27 banks are state-owned banks; the government has a major stake. There are 31 private sector banks and 38 foreign sector banks in India. Commercial banks in India have an extensive network of branches. Nearly 78 % of Industry’s banking assets are with the public sector banks.

Porter's five forces:

A) The bargaining power of suppliers: It is high time, when there is emergence of tight liquidity. As this is a service industry, human capital is one of the most important supplies to the industry. Public sector banks have a huge Indian trade union that is having a very high bargaining power. Establishing a well-functioning capital market in India has given people, a choice, savings, investments, rather than savings. Moreover, with interest rates deregulations, the supplier bargaining power has increased significantly.

B) The customer's bargaining power: With a large number of banks operating in India with good credit borrowers has a high bargaining power. Development of capital markets in India has given more choice , funding sources in Indian companies.

C) Threat of product substitues: With the development of well-functioning capital markets in India, investors have the opportunity to direct their savings into the investment opportunities, they decided to wait. Even corporate bonds have to raise capital through a public offering, the bank's ratio of debt taken from the company's choice.

D) The threat of new entrants: After the changes supervision of banks, many new private foreign banks are coming up are considering entering India. RBI is coming now with non-bank financial institutions, "Who wants to start a new approach to commercial banking.

E) Competitive Rivalry: The high competition in the banking sector, due to the public sector, private sector banks and non-bank financial companies with the presence of foreign banks.

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COMPANY ANALYSIS

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For the analysis of the Banking Industry, six banks are selected. The selection of these companies was entirely done on the basis for these companies unique pattern of holding. Shareholders in a bank are divided into seven groups. There are: Government of India and Reserve Bank of India, Indian Financial Institutions, Foreign Corporates, Indian Corporates, Individual Indian Residents, and Foreign Residents.

SHAREHOLDING PATTERN

The main banks selected for the analysis are:-

Government and RBI both are the main shareholders of Canara Bank, therefore it can be said that the bank is more or less run by the Indian Government.

Source: RBI publications & Company Websites

ICICI Bank can be said to be run by foreign financial institutions, because they have nearly 66 percent stake in the bank. In case of Axis Bank, there is a collaboration of Indian and foreign financial institutions. They each have a 46% and 42% stake in the bank. HDFC Bank can be said to be a bank that is run majorly by Corporates. Indian and foreign corporates are a major shareholder of this bank. Yes Bank is different in a manner that a 25% of its shares are held by Indian individuals. Standard Chartered is a foreign bank operating in India.

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Canara Bank Axis Bank HDFC Bank

State Bank of India

CAPITAL ADEQUACY RATIO

2011 2012 2013 201402468

1012141618

CRAR

Canara BankAxis BankHDFC BankSBI

YearS

CRAR

( pe

rcen

tage

)


CRAR which is basically the measure of a bank’s capital is a very important analysis tool. Here as it can be seen, that the private banks i.e. Axis and HDFC have a higher CRAR ratio as compared to the Government operated banks.

The CRAR in 2014 was highest for HDFC bank standing at 16.07% followed by Axis bank. CRAR for SBI stood at 12.96% in 2014 , same for Canara Bank was 11.14%.

The main reason that the banks have been maintaining high CRAR is to safeguard themselves from any kind of financial shocks. In case of Canara bank, there can be seen a fall in the CRAR from 2011 to 2014, the fall is of 4.24 % points.

DEBT-EQUITY RATIO

2011 2012 2013 20140

0.20.40.60.8

11.21.4

DEBT-EQUITY RATIO


Years

Debt

Equ

ity R

atio


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Indian Banks have an average debt equity ratio of 1. Canara Bank has a very less debt to equity ratio of 0.5 in 2014. This is the lowest among the banks that are taken in this analysis. Hence, Canara Bank can raise more capital when required as the ratio is way below 1.

In 2014, as can be seen the average of D/E Ratio of the banks taken for the analysis is 0.6, which tells us the industry and the given banks have maintained a good D/E Ratio.

CASH TO DEPOSIT RATIO

2011 2012 2013 20140

2

4

6

8

10

12

Cash to Deposit Ratio


YEARS

CASH

TO

DEP

OSI

T RA

TIO


Cash to Deposit ratio in 2014 can be seen highest for HDFC Bank that is 6.02 percentage points, This means that the bank is keeping enough cash on hand. The lowest can be seen for Canara Bank which is remarkably low at 4.84 percentage points.

CREDIT DEPOSIT RATIO

Due to the boom in the economy, banks in India have increased their Credit to Deposit ratio to approximately 70 percentage points. In 2014, SBI has the highest Credit to Deposit ratios when compared with other banks, the Credit to Deposit ratio stands at 86.64 percentage points. Axis Bank enjoys a high Credit Deposit ratio of 80.03 percentage points, also HDFC bank has a credit deposit ratio of 85.9 percentage points in 2014. All the banks experience an upward trend in the ratio.

Canara Bank has somewhat a stagnant Credit to Deposit ratio standing at 69.95%, which is only 2.28% up from the year 2011 to 2014.

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2011 2012 2013 20140

102030405060708090

100

Credit to Deposit Ratio


YEARS

CRED

IT T

O D

EPO

SIT

RATI

O


EARNINGS PER SHARE (EPS)

2011 2012 2013 20140

50

100

150

200

250

EPS


YEARS

Earn

ing

per s

hare

(in

Rupe

es)


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As can be seen,that the Earning per share of HDFC bank is the lowest among its peers in the given figure above. State Bank of India (SBI) enjoys a high earnings per share when compared to its peers. The EPS of SBI is at Rs 145.88, whereas the same for HDFC bank is Rs 35.34 in 2014.

There has been a consistent rise in the EPS of Axis bank from 2011 to 2014, the rise being approximately 60.3 percentage points. This shows that the bank has been doing well in the past years.

Also, In case of Canara Bank, there has been a drop in the EPS from 2011 to 2014,the drop being of 41.83 percentage points from 2011 to 2014.

INTEREST INCOME TO TOTAL INCOME

2011 2012 2013 20140

102030405060708090

100

Interest Income to Total Income


YEARS

in %

age


Interest Income is one of the most important sources of revenue for the Indian Banks, although they are diversifying into other operations. As can be seen that the weightage interest income holds is about 70-80 % in nearly all the banks

Axis bank has a comparatively lower interest income as it forays into many other operations. Highest can be seen for HDFC bank.

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ROAA

2011 2012 2013 20140.00%0.20%0.40%0.60%0.80%1.00%1.20%1.40%1.60%1.80%2.00%

ROAA


YEARS

in %

age


The return on average assets of AXIS and HDFC banks are high as compared to SBI and Canara Banks. The return on Average Assets for HDFC in 2014 is around 1.90 which is pretty high. The ROAA is low for SBI, due to the size of the assets it has which is tremendous. The profitability is not able to match the huge assets and the nationwide presence that the bank has. The ROAA currently in 2014 is around 0.60%.

NET NPA RATIO

2011 2012 2013 20140

0.5

1

1.5

2

2.5

3

Net NPA


YEARS

RATI

O O

F N

PA


23

This ratio is used to judge the overall quality of a Bank’s Loan book.Net NPAs are derived by deducting cumulative provision balance at the end of a period from the gross NPAs. As, can be seen the ratio seems to be highest for SBI at 2.6, this shows the bad quality of loans that the bank has given. With SBI , another bank with alarmingly high NPAs is Canara Bank.

Ratio comes out to be lowest for HDFC bank, which is a good thing for the bank.

PROFIT PER EMPLOYEE

2011 2012 2013 20140

50001000015000200002500030000350004000045000 PROFIT PER EMPLOYEE


YEARS

IN 1

000'

S


Canara bank being a public sector bank, has a very low profit per employee ratio, as the public sector is very resistive to any kind of changes. HDFC bank leads the race with the profit per employee being the highest. Also, SBI has a low profit per employee ratio as the bank is a Government bank, and there are no threats as such ,if inefficiency occurs at the workplace.

MAIN FINDINGS

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1. Taking into note that CRAR is one of the most important indicators of the Banking Industry. It was found out that presently all the banks are determined to maintain a high CRAR, so as to withstand any kind of a financial shock that can hit the economy. Only, Canara Bank saw a falling pattern with this respect.

2. The Banks that were taking in the survey had a good Debt- Equity Ratio. All the banks have maintained a D/E ratio that is in line with the Industry Average.

3. In case of Cash to deposit, Canara Bank is observed to keep a low cash to deposit ratio. Also, SBI has comparatively Lower cash to Deposit Ratio.

4. In case of Credit to Deposit ratio, all the banks are seen to have a high ratio crossing almost 70% points. SBI has the highest ratio in this regard. This high ratio can be attributed to the prospective boom that the economy might observe in the coming years.

5. Earnings Per Share (EPS) , that determine profitability of a bank, was found to be highest for SBI. HDFC in the past years has observed a rapid fall in the EPS. The EPS of Axis Bank is found to be increasing over the years, and has not declined in the recent years, this states that the bank is doing well financially.

6. Interest Income continues be a very vital source of revenue for the Banking Industry in India. Although banks are now venturing into new operations, but interest income continues be a source of major revenues for the Banks.

7. Return on Average Assets (ROAA) , an indicator of how the assets of a bank are being utilized, and whether enough profits are generated from the bank’s assets. This ratio is less for SBI , due to the presence of SBI throughout India, which can explain the scale of operations that the bank handles. Hence, the profits do not cover the extent of the assets.

8. Net Non-Performing Assets Ratio depicts the quality of the loan book. The Net NPA is found to be highest for State Bank of India and Canara Bank, this shows that the bank needs to get rid of the bad loans that are there on its book. This ratio came out to be less for the private banks, showing that the Private sector banks are very vigilant about the loans that they give out , and check the creditworthiness of the creditor properly.

9. Profit Per Employee for SBI and Canara Banks came out to be the least, as these are public sector banks , and in this sector changes in terms of employment do not happen.

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Efficiency is the biggest problem with the public sector. In case of private banks, the scene is completely opposite; the profit pe employee in case of HDFC bank is around Rs 40000.

CONCLUSION

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The Banking Industry in India has gone through a lot of changes and has witnessed a number of stages.

The current growth in the Banking Industry in India is attributed to a lot of financial reforms that the Government has undertaken to improve the Banking Industry.

There is sufficient amount of capital today with the Banks, so as to protect themselves from the risk-weighted Assets.

Banking Companies are witnessing an increase in their deposits currently as the Gross domestic Product as market price continues to rise.

The Non-Performing Assets Ratio ( NPA) of the banks in India is way below the level that is set by the Reserve bank of India and has been showing a declining trend.

The shareholder pattern is different across various banks in India, as can be seen due to the differences in the shareholding pattern in case of private, public and Nationalized banks.

The analysis of the industry showed a rise in the total Income, liabilities, earnings, deposits, bank index, number of bank offices and the employees.

The paper depicts that the entire industry is going through an expansion phase, the main reasons of the growth of the banking sector are Nationalisation and Financial sector Reforms.

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REFERENCES

1. RBI Handbook - www.rbi.com2. Annual Report HDFC 2011-20143. Annual Report Canara Bank 2011-20144. Annual Report State Bank of India ( SBI) 2011-20145. Annual Report Axis Bank 2011-20146. Money Control Website : www.moneycontrol.com7. www.indiainfoline.com 8. www.tradingeconomies.com 9. Reserve Bank Of India- The Banking Sector in India: Emerging Issues and Challenge10. Prasanna Chandra – “Investment Analysis and Portfolio Management”

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http://www.tradingeconomies.com/

http://www.indiainfoline.com/

Draft 2 Dissertation

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