Performance Analysis Of Top 5 Banks In India Hdfc Sbi Icici Axis Idbi By Satishpgoyal

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Table of content Chapter No. C Content ontent ontent Page No List L ist of of Tables Tables Li List L ist of of Figures Figures Li Executive E xecutive summary summary Ex ecutive summary 1. Introduction Int troduction In roduction Overview of Banking Objective of study Research methodology Limitation of study 2. Review R eview of ofliterature literature literature Re view of CAMELS Framework 3. C Company ompany ompany profile profile HDFC BANK SBI AXIS BANK IDBI ICICI BANK 4. Findings Fin ndings and andconclusion conclusion conclusion Fi dings and 5. Bibliography Bib bliography Bi liography Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 1|Page List of Tables Table No. 3.1 3.2 3.3 3.4 3.5 3.6 3.7 Table Conte Content ent Table Cont nt Capital Adequacy Adeq quacy ratio ratio Capital Ade uacy ratio Earnings Per Share Share Earnings Per Share Net ProfitM argin M Margin Net Profit argin Return Onssets A Return On ssets AAssets Credit Deposit Depos sit Ratio Ratio Credit Depo it Ratio Gross NPA Gross NPA Net NPA Net NPA Page No. List of Figures Figure No. 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 Title Title HDFC BANK HDFC BANK STATE BANK OF INDIA INDIA STATE BANK OFOF INDIA AXIS BANK AXIS BANK IDBI BANK IDBI BANK Page No. ICICIBANK BANK ICICI Capital Adequacy Adequa acy ratio ratio Capital Adequ cy ratio Earnings Per Per hare Sh Earnings Per are SShare Net ProfitMar Marg Margin gin Net Profit in Return OnAss Assets Asse ets Return On ts Credit Deposit Ratio Ratio Credit Deposit Ratio Gross NPA Gross NPA Net NPA Net NPA Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 2|Page Executive Summery The banking bankingsector sector been hasundergoing undergoing been undergoing complex, a complex, hensive comprehensive butphase compre phaseofof phas The been has aa complex, butbut compre hensive restructuring restructuringsince since since 1, 199 with 1991, with viewto atomake view make to itmake sound, it, sound, and efficient, atthe efficient thesame and same at the s restructuring 199 with aaview it sound, efficient and at time it it is isforging forgingitsits ks firmly links link firmly withthe the with real the sector realfor sector for of for savings, promoti of savings time slin firmly with real sector promoti on promotion of savings, investment a acomplete turnaround in ing ban sector investmentand andgrowth growth. . Although Although Although complete a complete turnaround turnaround king in sector banking in bank sector performance ected exp completion of reforms, sign improvement performanceisisnot not ected expected exptill tillthe thetill completion the completion of reforms, sofof of reforms, improvement signs signs of improvem are indi cators CAMELS framework. nder this bank isthis are visible visibleininsome some cators indicators indi under underthe under the CAMELS the CAMELS framework. Under framework. this Under bank U is ba requiredto toenhance enhance pital cap adequacy, adequacy, strengthen strengthen asset mprove quality, asset improve i required ital cacapital adequacy, strengthen asset quality, mprove i quality, management,increase increase earnings e earnings andreduce reduce and sensitivity reduce sensitivity sensitivity to financial various to risks. various risks. financial ris management, arnings and tosvariou financial The s nature ofofthese makes difficult it makes to The almost almostsimultaneo simultaneou simultaneous us nature nature these ofdevelopments these developments developments difficult makes to it difficult it to disentangle ofofreform disentanglethe the thepositiv positive positive e impact impactimpact reform of measures. reform measures. measures. CAMELS CAMELSFramewor Framework k e framework consisting of rof risk-monitoring CAMELS’norms normsare are he supervisory the framework framework consisting consisting of r isk-monitoring isk-monitoring CAMELS’ t supervisory are th supervisory factors ing the of of banks. This work fram involves factorsused usedfor forevaluat evaluating evaluat ing theperformance performance the performance banks. of banks. ework This framework This involves frameinvolve the grou of reflecting thethe health nancial ofhealth fiof financial the analysis analysis analysisofof ofsix six six ps groups grou of indicators indicators of indicators reflecting reflecting health nancial the of fi institutions. ors are follows: institutions.The Theindica indicat indicators tors areas asare follows: as follows: Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 3|Page CAPITAL ADEQUACY ASSET QUALITY MANAGEMENT SOUNDNESS EARNINGS & PROFITABILITY LIQUIDITY SENSITIVITY TO MARKET RISK The whole banking scenario has changed in the very recent past on the recommendations of Narasimham Committee. Further BASELL II Norms were introduced to internationally standardize processes and make the banking industry more adaptive to the sensitive market risks. Amongst these reforms a restructuring the CAMELS Framework has its own contribution to the way modern banking is looked up on now. The attempt here is to see how various ratios have been used and interpreted to reveal a bank’s performance and how this particular model encompasses a wide range of parameters making it a wid used and accepted model in today’s scenario. The project attempts to analyse the performance of Axis bank on the basis of CAMELS model and gives suggestions on the basis of the finding of the analysis. The overall strate of Axis bank is also studied to gain a better understanding of the working of th bank and to identify its strength and weakness. Email: - [email protected] PUNE 2010 4|Page Chapter-01 Introduction Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 5|Page Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitan in India. In fact, Indian banking system has reached even to the remote corner of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividend with the nationalization of 14 major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from on branch to other in two days. Now it is simple as instant messaging or dials a pizza. Money has become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below: Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms. New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991. Email: - [email protected] PUNE 2010 6|Page PHASE-01 The General General GeneralBank Bank Bank ndia of of In wasset set was set up the in year the year 1786. me 1786. Next Bank came of cam Bank of The of dia I India was upup in in the year 1786. Next e Bank ca Next of Hindustan The blished est established Bank ofof Bank Hindustan and andBenga Bengal Bengal l Bank. Bank.Bank. TheEast East TheIndia India EastCompany India Company ablished Company Bank esta Bengal (1840) and adras M Madras (1843) Bengal (1809), (1809), (1809),Bank Bank Bank of Bombay Bombay of Bombay (1840) (1840) andBank Bank and of adras Bank of (1843) of M as (1843) as independent called tree banks independentunits unitsand and it Presidency Banks. These hree bankswere were amalgamated nd a Imperial Bank of India was established ed which amalgamatedinin1920 1920 a whichstarted started as private banks, banks, mostly shareholders. privateshareholders shareholders banks, mostlyEuropeans mostly Europeans Europeans shareholders. shareholders. and first firsttime time IIn 1865 Allahabad Bank was establish ed and exclusivelyby byIndians Indians, Indians , Punjab Punjab National National Bank Ltd Ltd Bank was Ltd .set set wasup set in 1894 1894with with exclusively National Bank .. was in a, Bank headquartersatatLahore Lahore. Lahore . Between Between Between 1906and and 1906 1913, and 1913, Bank of Central Bank India,ofCentral Indi Bank Central Bank headquarters 1906 1913, Bank of Indi of India, ofof Bar oda, Canara Bank, Indian Bank, andBank of India,Bank Bank Bank of Baroda, Bar oda, Canara Canara Bank, Bank, Indian Indian Bank, Bank, Bank and and Bank ofMysore Mysore of Mysore Bank ank of India Indiacame cameinin1935. 1935.During During first phase the were et the first phase the were set setup. up.Reserve Reserve B of he first phase the growth slo and also periodic failures between growth was was very veryw slow and banks banks and banks alsoexperienced also experienced experienced failures periodic periodic between failures betw 1913 and and 1948. 1948. 1948.The re Ther werewere approximately approximately 1100 1100 mostly banks, small. mostly mTosmall. 1913 eThere were approximately 1100 banks, ostlybanks, small. To streamlinethe thefunctio functioning function ning andactivities activities and activities commercial of commercial thebanks, Government banks, the Governm streamline ing and of of commercial banks, the Government of India wit The Companies Act, 1949 which was later India came came cameup up uph wit with The Banking Banking The Banking Companies Companies Act, which Act, 1949 was 1949 which laterwas la changed egulation R Regulation Act perper amending 1965 Act (Act No. changedto toBanking Banking egulation R Act1949 1949 Actas1949 as as amending per of amending 1965 Act (Act of Act 1965 No. (Act 23 of ank B of with extensiv ewith powers for the of 1965). 1965).Reserve Reserve Bank Bank of India India of was India wasvested vested was vested with extensive powers extensiv for powers the for supervision Banking Authori ty. During those supervisionofofbanking banking in India India in as India asthe theCentral asCentral the Central Banking Banking ty.Authority. During Authori those During th day’s public has lesse err confidence Asaftermath ftermath an an aftermath deposit confidenceininthe thebanks. banks. As deposit dep mobilization Abreast ofofititthe savings bank facility provided by the mobilizationwas wasslow .slow. slow Abreast Abreast of the it savings the savings bank provided bank facility facility by provided the by Postal was comparatively safer. Moreover, funds ere largely w given Postal department department comparatively was comparatively safer. safer. Moreover, Moreover, ere funds largely funds were given largely w g to traders. traders. Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 7|Page PHASE-02 Governmenttook took took rmajor majo stepssteps inthis this in Indian this Banking Indian Banking Banking Sector ormRef after Sector Reform Refafter Government majo steps in Indian Sector orm after independence.InIn5, 1955 nationalized it nationalized Imperial Imperial Bank with of India extensive of Indi with exten independence. 195 , 1955, itit nationalized Imperial Bank ofa Bank Indi with extensive banking facilities facilitieson a on large a large scaleespecially scale especially especially rural in mi-urban rural and and areas. semIt It area banking large scale in in rural and i-urban se semi-urban areas. formed State StateBank Bank India to act actto the as principal the principal agent and agent to RBI handle of and R to ha formed India ofof India to asasact the principal agent BI of and Rofto handle banking o Union Governments erall the ov country. bankingtransactions transactions f the the of Union the and Union andState State and State Governments Governments the all country. over allthe ov countr Seven bsidiary s subsidiary of Bank India was nalized nati nationalized inin1960 Seven banks banksforming forming ubsidiary su ofofState State ofBank State Bank of India ofonalized India was was natio 1960 in 1 19th July, July,1969, 1969, 1969, ajor ma process process nationalization of nationalization ed was out. carried was carrie wasthe out. the It wa on 19th jor m major process ofofnationalization was dcarri out. ItItwas effort PrPr Minister ofofIndia, Indira andhi. GIndira 14 effort of of the thethen then ime Prime Minister Minister India, of Mrs. India, Mrs. Mrs. Indira andhi. Gandhi. 14 major major G 14 ma commercial were cond S phase commercial banks banks n ithe the in country the country country werenationalized. were nationalized. nationalized. econd Second phase Seofofphase nationalization Banking Sector Reform was carried ut in 1980 nationalization nationalizationIndian Indian Indian Banking Banking SectorSector Reform Reform was out carried was incarried 1980 out with in with o 1980 w seven more morebanks. banks. sThi step Thisbrought brought step brought 80% 80% ofbanking theent banking in segment India segme under in India u seven step 80% of of thethe banking nt segm in India under Government are thethe steps taken e by Government tby the ofof Governmentownershi ownership. ownership p.. The Thefollowing following The following are are steps the steps taken he Government taken byGovernme th ing Institutions in the Country: India to toRegulate Regulate Bank India Bank • 1949: Enactment of Banking Regulation Act. anking Regulation Act. • 1955: Nationalizationof State StateBank BankofofIndia. India. • 1959: Nationalizationof SBI SBI subsidiaries. subsidiaries. • 1961: Insurance cove deposits. r extended extendedtoto deposits. • 1969: Nationalizationof 14 14 major majorbanks. banks. • 1971: Creation of cre dit it guarantee guaranteecorporation. corporation. • 1975: Creation of reg iional onal rural ruralbanks. banks. • 1980: Nationalizationof seven deposits over rore. 200200 c crore. sevenbanks bankswith with deposits over rore. After the of of thethe public tor bank se India After the thenationalizatio nationalizatio nationalization n of of banks, banks, of banks, thebranches branches the branches ctor of public the bank public sector India sec bank Ind rose 800% 800% in and atook huge by rose to to approximately approximately 800% in deposits deposits in deposits andadvances advances and advances huge tookjump jump atook huge by jump 11,000%. the inin sunshine ofofGovernment ownershi the 11,000%. Banking Bankingthe sunshine the sunshine Government of Government ownership p gave gave ownership thepublic gave public the pu implicit mense i im confidence about thethe sustain ability of implicit faith faith and and and mmense immense confidence confidence about about ability the sustainability sustain of these these of th institutions. institutions. Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 8|Page PHASE-03 This phase phase has hasintrod introdu introduced uced manymore many moreproducts more products products facilities in and the facilitie banking in the ban This ced many andand facilitie s in the banking sector in in its its reform reforms reforms s measure. measure. measure. 1991, In 1991, under under the rmanship chairmanship the chai of sector InIn 1991, under the rmanship chai ofof MM Narasimham,a acomm comm committee ittee was set set was up set uphisby name hiswhich worked name whichwhich for worked the for t Narasimham, ittee was up bybyhis name worked for the liberalization The is flooded ith wflooded banks liberalization liberalizationofof ofbanki banki banking ng practices. practices. practices. Thecountry country The country is flooded ithisforeign foreign with banks foreign w ba and are to to give a actory satis service and their their theirATM ATM ATMstation stations. station s. Efforts Efforts Efforts arebeing being are put being put put give to factory give a satisfactory aservice satisftotoservic customers. Phone Phoneking bank banking and net net and banking net banking introduced. is he introduced. entire system entire T sys customers. ban ing and banking is is introduced. entire T The system became more more moreconvenie convenient convenie nt and and swift. swift. and Time swift. TimeisTime is given is given more ance more importance than importa money. than mo became given more import nce than money. The o of has a great deal of resilien ce. It The financial financialsystem system f India India India hasshown shown has shown a great a great deal ce. of deal resilience. It is of issheltered resilien sheltered It is shel from external macroeconomics ck sh as from any any crisis crisistrigger trigger triggered ed by by any anyby external any external macroeconomics macroeconomics ock as other shock otherEast sho as East other Asian d. This all due to to adue flexible ate regime, Asian Countries Countriessuffer suffered. suffere ed. Thisisis This all is due all a flexible to a exchange flexible exchange rate regime, exchange rate regime, r the arare capital is not yet fullnot and the foreign foreignreserves reserves reserves e high, high, arethe the high, capital theaccount capital account account is not y convertible, convertible, is yet fully yetconvertible fully and banks ers have foreign exchange re. expos banks and andtheir theircustom customers custom ers havelimited limited have limited foreign foreign exchange ure. exchange exposure. exposu Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 9|Page RESERVE BANK OF INDIA (RBI) ------------------------------ The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of th recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. The Government held shares of nominal value of Rs. 2, 20,000. Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks. The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank. The Bank was constituted for the need of following: • To regulate the issue of banknotes • To maintain reserves with a view to securing monetary stability and • To operate the credit and currency system of the country to its advantage. Email: - [email protected] PUNE 2010 10 | P a g e Functions of Reserve Bank of India The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank the Reserve Bank of India. • Issue Of Notes Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department. Originally, the assets of the Issue Department were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crores in value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India. Due to the exigencies of the Second World War and the post-was period, these provisions were considerably modified. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115 crores should be in gold. The system as it exists today is known as the minimum reserve system. Banker to Government The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, Email: - [email protected] PUNE 2010 11 | P a g e via. to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government - both the Union and the States to float new loans and to manage public debt. The Bank makes ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking matters. Bankers' Bank and Lender of the Last Resort The Reserve Bank of India acts as the bankers' bank. According to the provisions of the Banking Companies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand liabilities and 2 per cent of its time liabilities in India. By an amendment of 1962, the distinction between demand and time liabilities was abolished and banks have been asked to keep cash reserves equal to 3 per cent of their aggregate deposit liabilities. The minimum cash requirements can be changed b the Reserve Bank of India. The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or stringency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to come to their help in times of banking crisis the Reserve Bank becomes not only the banker's bank but also the lender of the last resort. Email: - [email protected] PUNE 2010 12 | P a g e Controller of Credit The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank. The Reserve Bank of India is armed with many more powers to control the Indian money market. Every bank has to get a license from the Reserve Bank of India to do banking business within India, the license can be cancelled by the Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank. As supreme banking authority in the country, the Reserve Bank of India, therefore, has the following powers: a) It holds the cash reserves of all the scheduled banks. (b) It controls the credit operations of banks through quantitative and qualitative controls. (c) It controls the banking system through the system of licensing, inspection and calling for information. (d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks. Email: - [email protected] PUNE 2010 13 | P a g e Custodian of Foreign Reserves The Reserve Bank of India has the responsibility to maintain the official rate o exchange. According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at lsh.6d. Though there were periods of extreme pressure in favor of or against the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F. Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the country. Supervisory functions In addition to its traditional central banking functions, the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction, and liquidation. The RBI is authorized to carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalization of 14 major Email: - [email protected] PUNE 2010 14 | P a g e Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realization of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation. Promotional functions The Bank now performs variety of developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialized financing agencies. Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to mobilize savings, and to provide industrial finance as well as agricultural finance. The Bank has developed the co-operative credit movement to encourage saving, to eliminate moneylenders from the villages and to route its short term credit to agriculture. The RBI has set up the Agricultural Refinance and Development Corporation to provide long-term finance to farmers. Email: - [email protected] PUNE 2010 15 | P a g e SCOPE S C O P EOF O FTHE THE R ESEARCH E RSEESA ER AC RH CH “To study the strengthof usingCAMELS CAMELS framework of a performance tool of performanc f using framework as aas tool f performance evaluationfor forbanking banking institutions.” institutions.” evaluation institutions.” RESEAR CHMETH METHODO METHO O DOLOGY DOLO LOGY GY RESEARCH Researchmethodology methodology is aa very very is aorganized organized very organized and systematic and systematic through which through waya a whi Research and systematic through wayway which particular probl can particularcase caseoror em probl problem can be besolved can solved beefficiently. solved efficiently. efficiently. It is logi allogic process, which involves: is aa step-by-step step-by-step Defining a prob problem lem Laying the objectives of the research Sources o ofdata f data Methods of data collection Tabulation of data Data analysis & processing Conclusions & Recommendations Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 16 | P a g e STATEMENT OF THE PROBLEM In the recent years the financial system especially the banks have undergone numerous changes in the form of reforms, regulations & norms. CAMELS framework for the performance evaluation of banks is an addition to this. The study is conducted to analyze the pros & cons of this model. OBJECTIVES OF STUDY To do an in-depth analysis of the model. To analyze 5 banks to get the desired results by using CAMELS as of measuring performance. 1. Type of research: Descriptive i) AREA OF SURVEY: The survey was done for three banks. The study environment was the Banking industry. ii) DATA SOURCE: Primary Data: Primary data was collected from the company balance sheets and company profit and loss statements. Secondary Data: Secondary data on the subject was collected from journals, company prospectus, company annual reports and IMF website Email: - [email protected] PUNE 2010 17 | P a g e iii) SAMPLING TECHNIQUE : Convenience sampling: Convenience sampling was done for the selection of the banks. iv) PLAN OF ANALYSIS: The data analysis of the information got from the balance sheets was done and ratios were used. Graph and charts were used to illustrate trends.. 2. Identification of the parameter:The different parameters that were selected for the comparison is:- CAR Net Profit Margin EPS Credit Deposit Ratio GNPA NPA ROA. 4. Sampling plane:Sample- ICICI, HDFC, IDBI, AXIS Bank and State Bank of India. Email: - [email protected] PUNE 2010 18 | P a g e LIM LIMITATIONS LIMIITATIONS TATIONS OF OF THE THE STUDY STUDY The study studywas was limi ted to 55banks. banks. 1) The limi ted to 2) Timeand andresour resourc cee constrains. constrains. Time 3) The ssed to to banks though it ncbe used for The method methoddiscu discu s sed pertains pertainsonly only banks though an be it can used be for used for performance n of financial institutions. performanceevaluati evaluation evaluatio on of other other of other financial financial institutions. institutions. 4) The co pletely done onon the basis of ratios cal from The study studywas was mpletely com completely done done the on the basis basis of ratios ofculated culated ratios calculated cal from from the the balance balancesheets. sheets. 5) It has hasnot notbeen been o ssible possible po to toget get toaget a personal a personal interview interview the with top with the top It pssible personal interview with the top managementemploye employees employe es of of all all ofbanks banks all banks under under study. study. management under study. Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 19 | P a g e Chapter-02 Review of literature Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 20 | P a g e Number of studies has been conducted about the use of CAMEL model. And number of reviews on the previous researches is present but due to paucity of time, a few snapshots of literature are given here. Swindle, C (1995) This study uses the capital adequacy component of the , CAMEL rating system to assess whether regulators in the 1980s influenced inadequately capitalized banks to improve their capital. Using a measure of regulatory pressure that is based on publicly available information, I find that inadequately capitalized banks responded to regulators' demands for greater capital. This conclusion is consistent with that reached by Keeley (1988). Yet, a measure of regulatory pressure based on confidential capital adequacy ratings reveals that capital regulation at national banks was less effective than at statechartered banks. Cole, Rebel A. and Gunther(1995) Their findings suggest that, if a bank has not been examined for more than two quarters, off-site monitoring systems usually provide a more accurate indication of survivability than its CAMEL rating. The lower predictive accuracy for CAMEL ratings "older" than two quarters causes the overall accuracy of CAMEL ratings to fall substantially below that of off-site monitoring systems. The higher predictive accuracy of offsite systems derives from both their timeliness-an updated off-site rating is available for every bank in every quarter-and the accuracy of the financial data on which they are based. Cole and Gunther conclude that off-site monitoring systems should continue to play a prominent role in the supervisory process, as a complement to on-site examinations. Email: - [email protected] PUNE 2010 21 | P a g e Gilbert R., Meyer A., & Vaughan M. (2000) This article examines the potential contribution to bank supervision of a model designed to predict which banks will have their supervisory ratings downgraded in future periods. Bank supervisors rely on various tools of off-site surveillance to track the condition of banks under their jurisdiction between on-site examinations, including econometric models. One of the models that the Federal Reserve System uses for surveillance was estimated to predict bank failures. The number of banks downgraded to problem status in recent years has been substantially larger than the number of bank failures. During a period of few bank failures, the relevance of this bank failure model for surveillance depends to some extent on the accuracy of the model in predicting which banks will have their supervisory ratings downgraded to problem status in future periods. This paper compares th ability of two models to predict downgrades of supervisory ratings to problem status: the Board staff model, which was estimated to predict bank failures, and a model estimated to predict downgrades of supervisory ratings. We find tha both models do about as well in predicting downgrades of supervisory ratings for the early 1990s. Over time, however, the ability of the downgrade model to predict downgrades improves relative to that of the model estimated to predict failures. This pattern reflects the value of using a model for surveillance that can be re-estimated frequently. We conclude that the downgrade model may prove to be a useful supplement to the Board's model for estimating failures during periods when most banks are healthy, but that the downgrade model should not be considered a replacement for the current surveillance framework. Email: - [email protected] PUNE 2010 22 | P a g e Lacewell, Stephen Kent (2001). Stage one in the estimation of cost and alternative profit efficiency scores using a national model and a size-specific model. Previous research referred in the paper asserts that an efficiency component should be added to the current CAMEL regulatory rating system to account for the ever-increasing diverse components of modern financial institutions. Stage two is the selection and computation of financial ratios deemed to be highly correlated with each component of the CAMEL rating. The research shows that there is definitely a relationship between bank efficiency scores and financial ratios used to proxy a bank's CAMEL rating. It is also evident that certain types of efficiency models are better suited to large banks than to small banks and vice versa. Richard S Barr, Kory A Killgo, Thomas F Siems, & Sheri Zimmel. (2002) This study reviews previous research on the efficiency and performance of financial institutions and uses Siems and Barr's (1998) data envelopment analysis (DEA) model to evaluate the relative productive efficiency of US commercial banks 1984-1998. It explains the methodology, discusses the input and output measures used and relates bank performance measures to efficiency. It describes the CAMEL rating system used by bank examiners and regulators; and finds that banks with high efficiency scores also have strong CAMEL ratings. The study summarizes the other relationship identified and recommends the use of DEA to help analysts and policy makers understand organizations in greater depth, regulators and examiners to develop monitoring tools and banks t benchmark their processes. Email: - [email protected] PUNE 2010 23 | P a g e Godlewski (2003) has tested the validity of the CAMEL rating typology for bank's default modification in emerging markets. He focused explicitly on using a logical model applied to a database of defaulted banks in emerging markets. He found that the principle results of the early warning signals models follow the CAMEL typology. The proxy variables of bank solvability, assets' quality and liquidity, particularly loan losses provisions, management quality, profitability, and intermediation rate have a negative impact on the one year probability of bank's default. Said and Saucier (2003) examined the liquidity, solvency and efficiency of Japanese Banks. Using CAMEL rating methodology, for a representative sample of Japanese banks for the period 1993-1999, they evaluated capital adequacy, assets and management quality, earnings ability and liquidity position. They quantified bank’s managerial quality by calculating X-inefficiency using data envelopment analysis (DEA). Results support the view that the major problem of failed banks was not inefficiency of management, but below standard capital adequacy and considerable problems in their assets quality. Significantly above average efficiency of ailing banks could be explained by a survival strategy that pushed them to drastically improve management. Derviz et al. (2004) investigated the determinants of the movements in the long term Standard & Poor’s and CAMEL bank ratings in the Czech Republic during the period when the three biggest banks, representing approximately 60% of the Czech banking sector's total assets, were privatized (i.e., the time span 1998-2001). The same list of explanatory variables corresponding to the CAMEL rating inputs employed by the Czech National Bank's banking sector Email: - [email protected] PUNE 2010 24 | P a g e regulators were examined for both ratings in order to select significant predictor among them. They employed an ordered response logit model to analyze the monthly long-run S&P rating and a panel data framework for the analysis of the quarterly CAMEL rating. Gasbarro et al. (2004) examined the changing financial soundness of Indonesian banks during the crisis. During the recent Southeast Asian financial crisis, numerous banks failed quickly and unexpectedly. This study used a unique data set provided by Bank Indonesia to examine the changing financial soundness of Indonesian banks during this crisis. Bank Indonesia's non-public CAMEL ratings data allowed the use of a continuous bank soundness measure rather than ordinal measures. They argued that the nature of the risks facing the Indonesian banking community calls for the addition of a systemic risk component to the Indonesian ranking system. The empirical results show that during Indonesia's stable economic periods, four of the five traditional CAMEL components provided insights into the financial soundness of Indonesian banks. Baral (2005) analysed the performance of joint ventures banks in Nepal on the basis of CAMEL Model. For the purpose of the study data set published by joint venture banks in their annual reports was used. This paper examined the financial health of joint venture banks in the CAMEL framework. The health check up was conducted on the basis of publicly available financial data. It concluded that the health of joint venture banks is better than that of the other commercial banks. In addition, the perusal of indicators of different components of CAMEL indicated that the financial health of joint venture banks was not so strong to manage the possible large scale shocks to their balance sheet and their health was fair. Email: - [email protected] PUNE 2010 25 | P a g e Kapil (2005) examined the relationship between the CAMEL ratings and the bank stock performance. The viability of the banks was analyzed on the basis of the Offsite Supervisory Exam Model—CAMEL Model. The M for Management was not considered in this paper because all Public Sector Banks, (PSBs) were government regulated, and also because all other four components —C, A, E and L—reflect management quality. The remaining four components were analyzed and rated to judge the composite rating. Part A of the study analyzed the interbank performance by determining their CAEL composite score. Part B of the study assessed the relation between the banks’ composite CAMEL ratings with the banks’ stock performance. The paper revealed that the Off-site Supervisory Exam Model, CAMEL, is related to the banks’ stock performance in the capital market. Hirtle and Lopez, (2005),This research paper was carried out; to find the adequacy of CAMEL in capturing the overall performance of a bank; to find the relative weights of importance in all the factors in CAMEL; and lastly to inform on the best ratios to always adopt by banks regulators in evaluating banks' efficiency. In addition, the best ratios in each of the factors in CAMEL were identified. For example, the best ratio for Capital Adequacy was found to be the ratio of total shareholders' fund to total risk weighted assets. The paper concluded that no one factor in CAMEL suffices to depict the overall performance of a bank. Among other recommendations, banks' regulators are called upon to revert to the best identified ratios in CAMEL when evaluating banks performance. Email: - [email protected] PUNE 2010 26 | P a g e Sarker (2005) examined the CAMEL model for regulation and supervision of Islamic banks by the central bank in Bangladesh. With the experience of more than two decades the Islamic banking now covers more than one third of the private banking system of the country and no concerted effort has been made to add a Shariah component both in on-site and off-site banking supervision system of the central bank. Rather it is being done on the basis of the secular supervisory and regulatory system as chosen for the traditional banks and financial institutions. To fill the gap, an attempt had been made in this paper to review the CAMEL standard set by the BASEL Committee for off-site supervision of the banking institutions. This study enabled the regulators and supervisors to get a Shariah benchmark to supervise and inspect Islamic banks and Islamic financial institutions from an Islamic perspective. Email: - [email protected] PUNE 2010 27 | P a g e "Nuts and Bolts" Concept of Conceptof Concept of CAMELS CAMELS Framework? Framework? Framework? Capital Adequacy Asset Quality Managementt Soundness Managemen Earnings &Profitability Liquidity SensitivityTo Sensitivity To Market Market Risk Risk Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 28 | P a g e Capital Adequacy atio measure of capital. CapitalAdequacy Adequacy Ratio Ratio measure a measure of aaofbank's bank's a bank's capital. capital. It isItexpressed asaa isIt expressed asasa A Capital expressed R isis aais percentage isk weighted credit exposures. percentageofofa abank's bank's risk weighted rrisk weighted credit credit exposures. exposures. Also Assets Ratio (CRA ).Ratio Also known knownas as""Capit ""Capital ""Capit al to to Risk Risk to Weighted Risk Weighted Weighted Assets Assets Ratio R). (CRAR). (CRAR Capital adequacy adequacy measured is m measured bythe the by ratio theofratio of capital ofk-weighted capital to risk-weighted toassets assets risk a Capital iseasured by ratio capital to -weighted ris (CRAR).AAsound sound sound capital tal capi basebase strengthens strengthens confidence confidence itors. of depositors. This of depos ratioisis This ra (CRAR). capi tal base strengthens confidence ofitors. depos This ratio used to to protect protect protectdeposi depositors deposit tors andpromote promote and promote the stability the stability ency and efficiency of and financial effici of fina used ors and the stability andency effici of financial systemsaround aroundthe the rld. world. systems ld. wowor AssetQuality Asset Quality Asset quality qualitydetermin determine determines es the robustness robustness the robustness financial of financial ns institutions against institution loss against los Asset s the ofoffinancial institutio s against loss ofof value e Tdeteriorating value ofvalue assets, being source ofof sourc value in in the theassets. assets. he deteriorating Th deteriorating The value of assets, of prime prime assets, being source being prime banking dire tly pour other areas, asareas, losses entually arelosses earewrittenbankingproblems, problems, ctly direc directly pourinto into pour other into other areas, as losses ventually as eventually writtenare ev wr off ich whwh ultimately jeopardizes thethe earnin ofcapacity off against againstcapital, capital, ich which ultimately ultimately jeopardizes jeopardizes g capacity capacity earning the earning ofthe the of institution. ckdrop, babackdrop, is gauged ation in rel to the institution.With Withthis this ckdrop, ba the theasset asset thequality asset quality quality is gauged is ation gauged in torelation the inlevel level rel to the and severity severity ofofnonperforming non-p non-performing assets, assets, adequacy adequacy ions, provisions, of recoveries, provis recove and erforming assets, adequacy of of ions, provis recoveries, distribution tc. Popular indicators include non-per orming loans distribution ofof distribution ofassets assets assets etc. Popular eetc. Popular indicators indicators include include forming non-performing non-perf loanstoto loan advances, t to advances, and recoveries toefault loan dratios. advances,loan loandefault default o total total advances, total advances, and recoveries and recoveries efault to loan ratios. todefault loan d ratios Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 29 | P a g e The solvency of financial institutions typically is at risk when their assets become impaired, so it is important to monitor indicators of the quality of their assets in terms of overexposure to specific risks, trends in nonperforming loans, and the health and profitability of bank borrowers— especially the corporate sector. Share of bank assets in the aggregate financial sector assets: In most emerging markets, banking sector assets comprise well over 80 per cent of total financial sector assets, whereas these figures are much lower in the developed economies. Furthermore, deposits as a share of total bank liabilities have declined since 1990 in many developed countries, while in developing countries public deposits continue to be dominant in banks. In India, the share of banking assets in total financial sector assets is around 75 per cent, as of end-March 2008 There is, no doubt, merit in recognizing the importance of diversification in the institutional and instrument-specific aspects of financial intermediation in the interests of wider choice, competition and stability. However, the dominant role of banks in financial intermediation in emerging economies and particularly in India will continue in the medium-term; and the banks will continue to be “special” for a long time. In this regard, it is useful to emphasise the dominance of banks in the developing countries in promoting non-bank financial intermediaries and services including in development of debt-markets. Even where role of banks is apparently diminishing in emerging markets, substantively, they continue to play a leading role in non-banking financing activities, including the development of financial markets. One of the indicators for asset quality is the ratio of non-performing loans to total loans (GNPA). The gross non-performing loans to gross advances ratio is more indicative of the quality of credit decisions made by bankers. Higher GNPA is indicative of poor credit decision-making. Email: - [email protected] PUNE 2010 30 | P a g e NPA: Non-Performing Assets Advances are classified into performing and non-performing advances (NPAs) per RBI guidelines. NPAs are further classified into sub-standard, doubtful and loss assets based on the criteria stipulated by RBI. An asset, including a leased asset, becomes non-performing when it ceases to generate income for the Ban An NPA is a loan or an advance where: 1. Interest and/or instalment of principal remains overdue for a period of more t 90 days in respect of a term loan; 2. The account remains "out-of-order'' in respect of an Overdraft or Cash Credit (OD/CC); 3. The bill remains overdue for a period of more than 90 days in case of bills purchased and discounted; 4. A loan granted for short duration crops will be treated as an NPA if the installments of principal or interest thereon remain overdue for two crop seasons; and 5. A loan granted for long duration crops will be treated as an NPA if the installments of principal or interest thereon remain overdue for one crop seas The Bank classifies an account as an NPA only if the interest imposed during any quarter is not fully repaid within 90 days from the end of the relevant quarter. This is a key to the stability of the banking sector. There should be no hesitation in stating that Indian banks have done a remarkable job in containmen of non-performing loans (NPL) considering the overhang issues and overall difficult environment. For 2008, the net NPL ratio for the Indian scheduled Email: - [email protected] PUNE 2010 31 | P a g e commercialbanks banks 2.9 per 2 2.9cent cent periscent isample ample is testimony ample testimony testimony mpressive to the the efforts i ef commercial at .9atper to mpressive the i to impressive efforts being made madeby by byour our our king banking ban system. system. fact, In recovery fact, recovery ent management is managem alsolinked linked is also lin being king ban system. InInfact, recovery managem ent is also ent smanagem upported by margins. Thecost cost and recovery management s upported b to the argins. and recovery manage the banks’ banks’interest interest margins. m The The cost and recovery enabling legal legalframew framewo framework ork holdthe the hold key the key future tohealth future health ompetitiveness health and competitivene and co enabling rk hold key toto future and mpetitiveness c ofof the Indian Indianbanks. banks.No oubt, No dimproving improving improving recovery-management recovery-management India anIndia area i is an the oubt, d doubt, recovery-management n India i isisin an area requiring expeditious expeditious expeditious and effective effective and effective actions actions legal, ininstituti onal legal, institutional and institutio judicial and judi requiring actions in in legal, nal and judicial processes. processes. Management Soundness Management ial institution is isgenerally evaluated terms in of Managementofoffinan financial cial financ institution institution generally is generally evaluated terms evaluated of in capital capital terms in of cap adequacy, and liquidity d risk aliquidity sensitivity adequacy,asset assetqualit quality quality, y,, earnings earnings earnings andprofitability, profitability, and profitability, liquidity nd risk and sensitivity risk an sensiti ratings. formance peper evaluation includes complianc e with set ratings.In Inaddition, addition, rformance performance evaluation evaluation includes includes compliance withcomplianc setnorms, norms, with set no ability act r re to circumstances, ical techn competence, ability to to plan planand and and eact react to changing changing to changing circumstances, circumstances, ical technical competence, techncompete leadership strative ability. InIneffect, rating isis just leadershipand andadmini administrative admini strative ability.ability. effect, Inmanagement effect, management rating management rating justan anis just amalgam e in above-mentioned areas. amalgamof ofperforman performance performanc ce in the thein above-mentioned the above-mentioned areas.areas. Sound i is the factors behind financial Sound management management management s one one is of of one the ofmost most the important most important important behind factors factors financial behind finan institutions’ ce. Indicators ofofquality of of manageme nt, however, are institutions’performa performan performance. nce. Indicators Indicators quality of quality management, of nt,manageme however,however, are ar primarily t to institutions, andand cannot asily becannot aggregated primarilyapplicable applicable applicable o individual individual to individual institutions, institutions, cannot easily and aggregated be easily be e aggre across the thesector. sector. hermore, Furth Furthermore, giventhe given the qualitative the qualitative management, nature of management itis is m across Furt ermore, given qualitative nature anagement, of nature itof difficult itsundness ndness sosou just looking financial nts acco of the difficulttotojudge judge judge its its soundness justbyby just looking by at looking at financial at unts financial of accounts thebanks. accou banks. of the ba Nevertheless, enditure exexp totototal income operating expense to total Nevertheless,total total penditure expenditure total to income total and income and operating expense and operating toexpense total to expense ing the quality of the ban institutions. expense helps helpsiningaug ing gauging gaug the management management the management quality quality ofking king the of institutions. banking the baninstitut Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 32 | P a g e Sound management is key to bank performance but is difficult to measure. It is primarily a qualitative factor applicable to individual institutions. Several indicators, however, can jointly serve—as, for instance, efficiency measures do—as an indicator of management soundness. The ratio of non-interest expenditures to total assets (MGNT) can be one of the measures to assess the working of the management. . This variable, which includes a variety of expenses, such as payroll, workers compensation and training investment, reflects the management policy stance. Efficiency Ratios demonstrate how efficiently the company uses its assets and how efficiently the company manages its operations. Asset Turnover Ratio = Total Revenue/Total Assets Indicates the relationship between assets and revenue. Companies with low profit margins tend to have high asset turnover, th with high profit margins have low asset turnover - it indicates pricing strate This ratio is more useful for growth companies to check if in fact they growing revenue in proportion to sales Asset Turnover Analysis: This ratio is useful to determine the amount of sales that are generated from each dollar of assets. As noted above, companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. Email: - [email protected] PUNE 2010 33 | P a g e Earningsand Profitability Earningsand andprofitabil profitability, profitabil ity, theprime prime thesource prime source source of increase of in increase al base, in capital in capita base, is Earnings ity, the of increase l capit base, isis examinedwith withregards regards to interest interest to interest rate policies rate and policies and adequacy and provisioning. adequacy of p examined rate policies adequacy rovisioning. of of provisioning InIn addition, helps t to present and future operations institutions. o addition,ititalso also also helps helps o support support to support present present and future and future operations f the theoperations institutions. of the of institu The r used gauge is the Return Assets onReturn (ROA), The single singlebest bestindicat indicator indicato or usedto to used gauge toearning gauge earning earning is the Assets is Return the (ROA), on Assets on (ROA which is isnet netincome income er taxes aft after to taxes tototal total to asset total ratio. asset ratio. which aft taxes asset ratio. Strong fitability prprofitability of banks reflects ility the ab to Strong earnings earnings earningsand and and ofitability pro profile profile profile of banks of banks reflects ility reflects the tosupport support ability the ab to suppo present ations. oper thisthis determine totocapacity presentand andfuture future ations. operations. oper More Morespecifically, specifically, More specifically, determines s the the thiscapacity capacity determines the absorb i its pay dividends to its shareh lders, and build absorblosses, losses,finance finance ts expansion, expansion, i expansion, pay dividends pay dividends to olders, its shareholders, to its and shareho build and b up an o of capital. Being front line of defense stagai erosion ofagain an adequate adequatelevel level f capital. capital. Being Being front line front ofline defense nst of defense erosion against of erosion o capital losse the for high earnings andand profitab ility can capitalbase basefrom from s,,losses, losses theneed need the for need high for earnings high earnings ility profitability and canhardly hardly profitab can har be overemphasized. hough AlAlt different indicators areare used rve tothe seused purpose, overemphasized. though Although different different indicators indicators rve used are the to purpose, serve to se the purp the best bestand andmost mostwide ly widely usedindicator indicator used indicator Return ison Return on OA). Assets on However, Assets (ROA).(RO However, the ywidel used is is Return Assets A). (R However, for in-depth in-depthanalysis, analysis, analysis, nother indicator indicator Net Interest Net Interest Margins is Margins also (NIM) used. (NI is also u for nother a aanother indicator Net Interest Margins M) is (NI also used. Chronically Chronicallyunprofitab unprofitable unprofitabl le financial financial institutions institutions insolvency. risk Compared insolvency. Compared with C wit Chronically e financial institutions riskrisk insolvency. ompared with most rends t ttrends in can bebe more difficu tbe todifficult interpret — interpret most other otherindicators, indicators, rends inprofitability profitability in profitability can can more more difficul to for high profitability can reflect sk taking. ri risk taking. for instance, instance, instance,unusually unusually unusually high profitability high profitability can reflect canexcessive reflect excessive taking. excessive ri ROA-Return Ass ts ROA-ReturnOn On Asse Assets ets An indicator fitable prpro aacompany is is relative its ssets. total ROA indicatorofofhow how ofitable profitable company a company relative is to relative to assets. its to total its ROA assets. total a ROA gives how efficient management is at ts asse generate gives an anidea ideaasastoto efficient how efficient management management is using at using is its at to to using its generate assets its asse to genera Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 34 | P a g e earnings. Calculated by dividing a company's annual earnings by its total asse ROA is displayed as a percentage. Sometimes this is referred to as "return on investment". The formula for return on assets is: ROA tells what earnings were generated from invested capital (assets). ROA for public companies can vary substantially and will be highly dependent on the industry. This is why when using ROA as a comparative measure, it is best to compare it against a company's previous ROA numbers or the ROA of a similar company. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. The ROA figure gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA number, the better, because the company is earning more money on less investment. For example, if one company has a net income of $1 million and total assets of $5 million, its ROA is 20%; however, if another company earns the same amount but has total assets of $10 million, it has an ROA of 10%. Based on this example, the first company is better at converting its investment into profit. When you really think about it,management's most important job is to make wise choicesin allocating its resources. Anybody can make a profit by throwing a ton of money at a problem, but very few managers excel at making large profits with little investment Email: - [email protected] PUNE 2010 35 | P a g e Liquidity Liquidity adequate adequateliquidity liquidity liquidity position position p refers refersrefers situation, to a situation, where tution where institution canobtain insti obtaincan o An adequate osition totoa a situation, where tution insti can sufficient liabilities or or by by converting its quickly sufficientfunds, funds,either either by increasing increasing by increasing liabilities liabilities or converting its byassets assets converting its quickly assets qui at aa reasonable generally assessed in of term assets reasonablecost. cost. is,Ittherefore, therefore, It is, therefore, generally generally assessed s assessed of inoverall overall terms in of assets terms overall a and liability liabilitymanagem management, manageme ent, as mismatching mismatching as mismatching gives gives rise ity to rise risk. liquidity toEfficient Efficient liquid risk. Effic and nt, as gives rise toity liquid risk. fund management managementrs refe refers to aa situation situation to a situation whereawhere a spread een a spread rate between sensitive betwe rate sens fund refe to where spread en betw rate sensitive assets sensitive liabilities (RSL) is(RSL) maint ined. most assets (RSA) (RSA) and anderat rat rate sensitive sensitive liabilities liabilities (RSL) is ained. maintained. is The The mainta most The m commonly t to interest rate exposure is apthe between RSA commonlyused used usedtool tool tool o evaluate evaluate to evaluate interest interest rate exposure rate exposure Gap is between theisGap the RSA between G and y is by total asset ratio. and RSL, RSL,while whileliquidi liquidity liquidit ty isgauged gauged is gauged byliquid liquid byto liquid to total to asset total asset ratio. ratio. Initially ial institutions may bemay driven closure by poor Initially solvent solventfinan financial financ cial institutions institutions may be driven be toward driven closure toward toward by closure poor by p management rm liquidity. Indicators should cover ding fusources and managementofofshort-t short-te short-term erm liquidity. liquidity. Indicators Indicators should should nding cover sources cover funding fun and sources capture mismatches. The liquidity inused ways, capture large largematurity maturity maturity mismatches. mismatches. Theterm term The liquidity term is liquidity isvarious various usedis in used ways, various w all to, convertibility into h.into cas cash. all relating relatingtotoavailabili availability availabili ty of, of, access access of, access to,oror to, convertibility or convertibility into cas said to if it easily mee needs to have haveliquidity liquidity if can it can easily t its its needs meetfor its forneeds for An institution said is cash se itithas hand cancan otherwise aise or cash either eitherbeca because becau use has itcash cash hason cash on hand onorhand or or otherwise can aise otherwise orrborrow borrow raiser or borr cash. cash. to be be liquid liquidififthe theinstruments instruments an itn trades easily can be easily be it trades easily c be A market is said bought quantity inin quantity with impact on on market ces. bought or orsold sold quantity withlittle with little little impact impact market ces. on pri market prices. pri market forfor that asset iquid. is is liquid. o be be liquidififthe the market that liquid. asset An asset is said t liquid Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 36 | P a g e The common theme in all three contexts is cash. A corporation is liquid if it ha ready access to cash. A market is liquid if participants can easily convert positions into cash—or conversely. An asset is liquid if it can easily be converte to cash. The liquidity of an institution depends on: the institution's short-term need for cash; cash on hand; available lines of credit; the liquidity of the institution's assets; The institution's reputation in the marketplace—how willing will counterparty is to transact trades with or lend to the institution? The liquidity of a market is often measured as the size of its bid-ask spread, but this is an imperfect metric at best. More generally, Kyle (1985) identifies three components of market liquidity: Tightness is the bid-ask spread; Depth is the volume of transactions necessary to move prices; Resiliency is the speed with which prices return to equilibrium following a large trade. Examples of assets that tend to be liquid include foreign exchange; stocks traded in the Stock Exchange or recently issued Treasury bonds. Assets that are often illiquid include limited partnerships, thinly traded bonds or real estate. Cash maintained by the banks and balances with central bank, to total asset r (LQD) is an indicator of bank's liquidity. In general, banks with a larger volum Email: - [email protected] PUNE 2010 37 | P a g e liquidassets assetsare are ceived perceived percsafe, safe,since since safe,these since these these assets assets ow would banks allow allo meet banks to of liquid per eived assets would w banks all would totomeet unexpected unexpectedwithdrawal withdrawals. withdrawal s. Credit deposit depositratio ratio a tool used to study the liquidity positio Credit si aaistool tool used study the liquidity on ofposition thebank. bank. ofIt It the ban used toto study the liquidity positi n of the calculatedby bydividin dividing dividin g the the cash cash theheld cash heldinin held different in different forms al deposit. forms by total by tota deposit. high A is calculated different forms lby deposit. tot A Ahigh ratio shows showsthat thatthere there is more more isamounts amounts more amounts liquid of liquid cash e bank bank with cash the to with met bank the ratio ofof liquid cash with th to met itsitsto me clients clientscash cashwithdrawal withdrawal withdrawals. s. Sensitivity To Market Risk It refers att changes ininmarket conditions adversely could impact refers to tothe therisk risk hat risk changes th that changes market in market conditions conditions adversely could could adversely impact im earnings earningsand/or and/orcapital. capital. Market ses exposures associated with changes inwith interest rates, Market Risk Risk Riskencompa encompasses encompas sses exposures exposures associated associated with changes interest changes in rates, interest foreign commodity prices, equity prices, etc. hile all these foreign exchange exchangerates , rates, commodity commodity prices, prices, equity equity prices, While prices, etc. allof While ofetc. these W all of th items e primary tprimary risk most banks is banks interes tisrate risk (IRR), items are areimportant, important, he the th primary riskinin risk most in banks most rate interest is risk interes (IRR), rate risk ( which of module. The diversified nature f bank o operations which will willbe bethe thefocu sfocus of this this of module. this module. The diversified The diversified bank nature nature operations of bank o opera makes them themvulnerabl vulnerable e to to various various to various kindsofkinds of financial of financial nsitivity risks. Sensitivity analysis Se analy makes kinds financial risks. nsitivity Se risks. analysis reflects ex osure rate risk, foreign nge excha volatility and reflectsinstitution’s institution’s posure exposure exp to tointerest interest to interest rate rate risk, risk, foreign nge foreign exchange volatility excha and volatility equity risks in in market risk). iskrisk). sensitivity equity price pricerisks risks risks(the se(the (these risks are risks aresummed summed are summed market inRisk market sensitivity risk). Risk is sensitivi Ris mostly inin terterms of ability to monitor dtocontrol amonitor market mostly evaluated evaluated ms ter of management’s management’s of management’s ability ability to monitor nd control and market control an mark risk. risk. Banks inindiversified operations, lloperations, of are Banks are are increasingl increasingly increasingl y involved involved involved diversified in diversified operations, all of which which all of are a which subject risk, particularly ininthe setting interest and rate the carrying subject to tomarket market market particularly risk, risk, particularly the in setting the of setting of interest s of and interest the rates carrying rates and the car out InIncountries that banks allothat totomake out of of foreign foreignexchan exchange exchan ge transactions. transactions. transactions. countries In countries wthat banks allow allow banks make to m trades exchanges, there is also totomonitor trades in instock stockmarkets markets or commodity commodity or commodity exchanges, exchanges, there a need need is there also is amonitor also needato mon indicators commodity price risk. indicatorsofofequity equity dan commodity and commodity price price risk. risk. Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 38 | P a g e Interest Rate Risk Basics In the most simplistic terms, interest rate risk is a balancing act. Banks are trying to balance the quantity of re-pricing assets with the quantity of re-pricing liabilities. For example, when a bank has more liabilities re-pricing in a rising rate environment than assets re-pricing, the net interest margin (NIM) shrinks. Conversely, if your bank is asset sensitive in a rising interest rate environment, your NIM will improve because you have more assets re-pricing at higher rates. An extreme example of a re-pricing imbalance would be funding 30-year fixedrate mortgages with 6-month CDs. You can see that in a rising rate environment the impact on the NIM could be devastating as the liabilities re-price at higher rates but the assets do not. Because of this exposure, banks are required to monitor and control IRR and to maintain a reasonably well-balanced position. Liquidity risk is financial risk due to uncertain liquidity. An institution might lose liquidity if its credit rating falls, it experiences sudden unexpected cash outflows, or some other event causes counterparties to avoid trading with or lending to the institution. A firm is also exposed to liquidity risk if markets on which it depends are subject to loss of liquidity. Liquidity risk tends to compound other risks. If a trading organization has a position in an illiquid asset, its limited ability to liquidate that position at short notice will compound its market risk. Suppose a firm has offsetting cash flows with two different counterparties on a given day. If the counterparty that owes it a payment defaults, the firm will have to raise cash from other sources to make Email: - [email protected] PUNE 2010 39 | P a g e its payment. Should it be unable to do so, it too we default. Here, liquidity risk compounding credit risk. Accordingly, liquidity risk has to be managed in addition to market, credit and other risks. Because of its tendency to compound other risks, it is difficult or impossible to isolate liquidity risk. In all but the most simple of circumstances, comprehensive metrics of liquidity risk don't exist. Certain techniques of assetliability management can be applied to assessing liquidity risk. If an organization's cash flows are largely contingent, liquidity risk may be assessed using some form of scenario analysis. Construct multiple scenarios for market movements and defaults over a given period of time. Assess day-to-day cash flows under each scenario. Because balance sheets differed so significantly from one organization to the next, there is little standardization in how such analyses are implemented. Regulators are primarily concerned about systemic implications of liquidity risk. Business activities entail a variety of risks. For convenience, we distinguish between different categories of risk: market risk, credit risk, liquidity risk, etc. Although such categorization is convenient, it is only informal. Usage and definitions vary. Boundaries between categories are blurred. A loss due to widening credit spreads may reasonably be called a market loss or a credit loss, so market risk and credit risk overlap. Liquidity risk compounds other risks, such as market risk and credit risk. It cannot be divorced from the risks it compounds. An important but somewhat ambiguous distinguish is that between market risk and business risk. Market risk is exposure to the uncertain market value of a portfolio. Business risk is exposure to uncertainty in economic value that cannot Email: - [email protected] PUNE 2010 40 | P a g e be marked-to-market. The distinction between market risk and business risk parallels the distinction between market-value accounting and book-value accounting. The distinction between market risk and business risk is ambiguous because there is a vast "gray zone" between the two. There are many instruments for which markets exist, but the markets are illiquid. Mark-to-market values are not usually available, but mark-to-model values provide a more-or-less accurate reflection of fair value. Do these instruments pose business risk or market risk? The decision is important because firms employ fundamentally different techniques for managing the two risks. Business risk is managed with a long-term focus. Techniques include the careful development of business plans and appropriate management oversight. bookvalue accounting is generally used, so the issue of day-to-day performance is not material. The focus is on achieving a good return on investment over an extended horizon. Market risk is managed with a short-term focus. Long-term losses are avoided by avoiding losses from one day to the next. On a tactical level, traders and portfolio managers employ a variety of risk metrics —duration and convexity, the Greeks, beta, etc.—to assess their exposures. These allow them to identify and reduce any exposures they might consider excessive. On a more strategic level, organizations manage market risk by applying risk limits to traders' or portfolio managers' activities. Increasingly, value-at-risk is being used to define and monitor these limits. Some organizations also apply stress testing to their portfolios. Email: - [email protected] PUNE 2010 41 | P a g e Chapter-03 BANK PROFILE Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 42 | P a g e HDFC BANK State Bank of India AXIS BANK IDBI ICICI Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 43 | P a g e HDFC BANK HDFC aajor financial services company asedcompany ininMumbai, HDFC Bank BankLtd. Ltd. Ltd.ismajor is is aa major mIndian Indian Indian financial financial services services based company Mumbai, based b in Mum incorporated inin Aug ust August Augu 1994,1994, afterthe after theReserve Reserve the Reserve India of allowed India o allow incorporated st 1994, after Bank f Bank India o Bank allowed establishingprivate private private ector sector banks. banks. TheBank Bank Thewas Bank was promoted was by the the promoted Housing by the Hous establishing ctor s se banks. The promoted Housing Development Corporation, a apremier housing finance company (set upup Development DevelopmentFinance Finance Finance Corporation, Corporation, premier a premier housing housing company finance finance (set company (se in 1977) HDF Bank has and over 95over ATMs, 3,2 over inin3,2 528 1977)of ofIndia. India. India. C HDFC HDF BankBank has1,412 1,412 has branches 1,412 branches branches and and ATMs, 3,295 528 ATMs, in cities in in India, India, India,and and and branches all branches thebank ofbank the bank are linked areonline online on real-time an real-time on online an realcities branches allall ofofthe are linked onlinked an basis. As As ofof ofSeptemb September Septembe er 30, 2008 2008 30, 2008 thebank bank the had bank had had total assets INR assets 1006.82 of INR 1006 basis. r 30, the total assets oftotal INR 1006.82 billion. For For the the thefisca fisca lfiscal year year 2008-09, 2008-09, thebank bank the has bank has ed has net profit reporte profit net billion. year 2008-09, the report d reported net ofof profit Rs.2,244.9 up 4 from previous fiscal. Total lannu earnings ofearnings Rs.2,244.9crore, crore, 1% up from 4 41%the the from previous the previous fiscal. fiscal. Total al earnings Total annual annua ofthe the o bank 58% reaching at crore in 2008-0 . 2008-09. bank increased increasedbyby reaching 58% reaching atRs.19,622.8 Rs.19,622.8 at Rs.19,622.8 crore 9. crore in in 2008-09 HDFC the ofof India, th State wialong Bank ofof Bank HDFC Bank Bankisisone oneof the of Big Big theFour Four Big Banks Four Banks Banks India, of along India, along State with Bank wi State India, and Axis India,ICICI ICICIBank Bank Axis and Bank Bank Axis — Bank —its itsmain — main itscompetitors. main competitors. competitors. History History HDFC orated ininthe year ofyear 1994 by1994 Housing evelopment HDFC Bank Bankwas was wasincor incorporated incorp porated the in year the of 1994 of byDevelopment Housing by Housing Development D Finance mited Li Limited India's premier housing inance company. FinanceCorporation Corporation mited Li (HDFC), (HDFC), (HDFC), India's India's premier premier finance housing housing company. finance f comp It was ompanies totoreceive anan 'in 'in principle' oval app from the was among amongthe thefirst companies first companies c receive to receive an principle' 'in roval principle' from approval the apprfrom t Reserve (RBI) (RBI) to a abank thethe private r.The sect Bank ReserveBank BankofofIndia India (RBI) toset setup to upset bank up in a bank in inprivate the or.The private sector.The Banksecto Bank commenced ns as Commercial Bank anuary in in 1995 commencedits itsoperati operations operatio ons asaaScheduled Scheduled as a Scheduled Commercial Commercial January Bank Bank 1995 January in J 1995 with RBI's iberalization l liberalization policies. with the thehelp help helpofof of RBI's RBI's iberalization l policies. policies. In aa milestone industry, Times Bank Limited milestonetransacti transacti transaction on in in the theIndian in Indian thebanking Indian banking banking industry, Bank industry, Times Limited Times Bank Limite (promoted Coleman &&Co. Times was ged mer with HDFC (promotedby byBennett, Bennett, Bennett, Coleman Coleman Co./ & / Times Co. Group) / Times Group) Group) ged was with merged was HDFC mer with HDF Bank isTh was first merger of of twotwo private ks in ban India. As Bank Ltd., Ltd.,inin2000. 2000. was Th Thisthe the was first the merger first merger of private two in private India. banks ban Asin India. Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 44 | P a g e per the thescheme scheme scheme of gamation amalgamation amal approved approved the by shareholders the of shareholders bothbanks banks of and both and o banks per ofof amal gamation approved byby the shareholders f both the Reserve ReserveBank Bankofdia, of Ind shareholders shareholders Times ofBank Times Bank d 11 Bank received share received the ia, InIndia, shareholders of of Times receive share ofof1 share of HDFC Bank Bankfor forevery every 5.75 5.75 5 shares shares Times of Bank. Times Bank.Bank. HDFC .75 shares ofofTimes In 2008 quired a ac Centurion Bank of Punjab taki ng g its 2008HDFC HDFCBank Bank itstotal total branchesto tomore morethan 1,000. than 1,000. Theamalgamated amalgamated The amalgamated bank with emerged bank emerged strong with awstrong branches 1,000. The bank emerged ith aastrong depositbase baseofofaround around Rs. 1,22,000 Rs. 1,22,000 crore crore and and advances net round advances of Rs.around 89,000 of arRs. 89 deposit Rs. 1,22,000 crore and netnet advances ound of aRs. 89,000 crore.The Thebalance balance et shee sheet sizeofofsize the of combined the combined entity entity is1,63,000 1,63,000 over over crore. 1,63,000 Rs. cro crore. she t size the combined entity is over Rs.isRs. crore. The add dadde significant value tovalue HDFC Bank ms in ter of The amalgamation amalgamation ed added significant significant value to HDFC to HDFC Bank of Bank inincreased increased terms in ter of increas branch branchnetwork, network,geogr aphic geographic geogra phic reach, reach,and reach, and customer customer and customer base, base, and ger ger base, and a pool big pool a and bigger ofof a big pool of skilled manpower. e 3.1 3.1 HDFC HDFCBANK BANK Figur Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 45 | P a g e SBI State i islargest banking and financial ices sercompany inin State Bank BankofofIndia India s the the largest the largest banking banking and financial and vices financial company services serv compan India, ery e ev parameter - - revenues, profits, assets, market India, by by almost almost very every parameter parameter revenues, - revenues, profits, assets, profits, market assets, mar capitalization, bank itsitsancestry to to British dia, capitalization,etc. etc. eTh bank The traces bank traces traces ancestry its ancestry ndia, British to Ithrough British through India,the Inthe through Imperial to founding inin 1806 of 1806 thethe Bank Calcutta, of Bank ImperialBank BankofofIndia ,India India, to the theto founding the founding 1806 in of of Calcutta, Bank the of making Calcutta, making of ma the oldest oldestcommerci commerci commercial al bank bank in bank inthe theIndian inIndian the Subcontinent. Indian Subcontinent. Subcontinent. Government Th it the e Government Th The Governmen ofof India nationalized nationalized nationalized mperial the the Bankofof Bank India of India 1955, in Reserve 1955, with with Bank Reserve the India the mperial I IImperial Bank India in in 1955, with Reserve the the Bank ofof Ban India taking takinga a60% 60% ake, sta andrenamed renamed and renamed the itState the State ndia. Bank Bank of2008, 2008, India. ofthe In the In 2008 India ke, st stake, and it it the State Bank dia. of In IIn Governmenttook took took the over over stake the held stake heldbyby held the byReserve the Reserve Bank dia. Bank of India. of Ind Government over the stake the Reserve Bank ia. of In SBI provides of of banking products through SBI providesa arange range banking products products throughthrou its nches bra including roducts aimed at its vast vastnetwork networkofof nches branches bra in in India India inand India andoverseas, overseas, and overseas, including products including aimed products pat aim NRIs. The TheState State State Bank Bank Group, Group, Gwith withover over with16,000 over 16,000 16,000 branches, branches, largest has has banking largest th ba NRIs. Bank roup, branches, ehas largest th the banking branch network networkininIndi a.India. Indi With an an With asset anbase asset base base $260 ofnd $260 billion $195 and billion $195 an branch With asset of of $260 billion d $195 a billion billion inin billio deposits, l banking behemoth. It has a market re among shmarket Indian deposits,ititisis isa aaregion regiona regional al banking banking behemoth. behemoth. It has Ita has are market aamong share Indian sha among In commercial out a ab 20% deposits and advances, and accounts for commercialbanks banksof bout of about 20%inin 20% deposits in deposits and advances, and SBI SBI advances, accounts and SBI and for account almost ofof the nation's loans. almostone-fifth one-fifth nation's the nation's loans.loans. SBI byby computerizing ions operat and SBI has has tried triedtotoreduc reduce reduc e over-staffing over-staffing over-staffing computerizing by computerizing ionsoperations and "golden operat "golden and "go handshake" led itsits best brightest managers. These handshake"schemes schemes at th led that thto toaled aflight flight to aofflight of best of and itsand best managers. brightest and brightest managers. These managers irement ret and then went o become on on t to senior managers took tookthe the irement retirement ret allowances allowances allowances and then and went then become went senior on become t se managers e sector banks. managersininnew newprivat private privat sectorsector banks.banks. Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 46 | P a g e The State Statebank bankofof a is India isthe the29th is29th the most 29th most reputed reputed company e world company world according theinworld the acco The Indi most reputed company in thinaccording to Forbes. Forbes. Figure Figure 3.2 3.2 3.2SBI SBI SBI Figur Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 47 | P a g e AXIS BANK Axis UTI Bank, isisa afinancial services that firmfirm had begun Axis Bank, Bank, formally formally U TI UTI Bank, Bank, isfinancial a financial services services that had firm that begun had beg operations the ofof India allowed ne banks to to bank operationsinin1994, 1994, eraft the after aft Government Government the Government India of India allowed w private private allowed new banks private new be established. ank B Bank jointly by the inistrator Ad ofofthe established.The The ank Bwas was promoted promoted was promoted jointly jointly by ministrator the by Administrator the Adm the of Specified Undertakin Undertaking g of of the the ofUnit Unit the Trust Unit Trustof Trust ofIndia India of(UTI-I) India Life (UTI-I) Insurance Life Insuran Specified , (UTI-I), Life Insurance Corporation (LIC),(LIC), General Insurance Corporatio n Ltd., National Corporation ofofIndia India (LIC), General General Insurance Insurance Corporation Ltd., Corporatio National Ltd., Natio InsuranceCompany Company td., L The New New The India New IndiaAssurance India Assurance Assurance ny, Company, TheCompa Oriental The Orien Insurance td., L Ltd., The Compa ny, The Oriental Insurance Corporation Corporation and United and United IndiaInsurance India Insurance Insurance yCompany UTI-ICompany holds UTI-I Insurance and United India Compan UTI-I holds a a holds special position position positioninin in Indian the the Indian capital capital markets markets and and many has promot leading many lea special the Indian capital markets and hashas promot ed promoted many leading financial the in in country. The changed its nam Axis Bank in financialinstitutions institutions institutions the in country. the country. Thebank bank The changed bank changed e to to its Axis name its Bank to name Axis in Bank April nfusion c co with unrelated entities ith similar w name. April 2007 2007totoavoid avoid onfusion confusion withother with other other unrelated unrelated ith entities similar entities with name. w similar n After o of PP. . J.Mr. Sharma was med naas the bank's After the theRetirement Retirement Retirement f Mr. Mr. of J.Nayak, Nayak, P. J. Shikha Nayak, Shikha Shikha Sharma Sharma med was asnamed the was bank's na as the ba managing and CEO 20 2009. managingdirector director CEO andon on CEO 20April on April 20 2009. April 2009. on the the year yearende ended d March March March 31,2009 2009 31, the 2009 the Bank thehad Bank had income a had total a of tot of income Rs of As on 31, Bank ala income tot Rs 13,745.04 2.93 billion) and net profit Rs. 12.93 1,8ofcrore (US$ 13,745.04crore crore(US$ (US$ 2.93 billion) 2.93 billion) anda a and net aprofit netofprofit of 12.93 Rs. 1,812.93 crore Rs. 1,8 (US$ crore ( 386.15 ebruary 24, Axis Bank announc ed the launch ofoflaunch 386.15 million). million).On February On February F 24,2010, 2010, 24, 2010, Axis Axis Bank Bank announced the announc launch the 'AXIS atom', aaunique mobile payments ution sousing Axis 'AXIS CALL CALL&&PAY PAY PAY onon atom', atom', unique a unique mobile mobile payments payments lution using solution sol Axisusing A Bank Bank first bank in bank thethe country provide aasecure Bank debit debitcards. cards.Axis Bank Axis is Bank is the theis first the bank first in incountry provide the to country to provide secure to a se debit paym nt service over IVR. debit card-based card-based ent payment payme service service over IVR. over IVR. Axis ofofIndia, with CICI IBank, State Axis Bank Bankisisone oneofof ethBig Big the th Four Four Big Banks Four Banks Banks India, of along India, along CICI along with Bank, with ICICI State I Bank, St Bank HD CHDFC Bank Bank of ofIndia Indiaand and FC HDF BankBank Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 48 | P a g e BranchNetwork Network Branch the end endofof ofMarch March March 009, 20 theBank Bank the has Bank has ahas very a very wide wide network more network than of more 835 than At the 09, 2 2009, the a very wide network of more than 835 branch offices officesand and ension Extension ExteCounters. Counters. Counters. Total Total number number went of ATMs of upto ATMs to went 3595. up to 3 branch Ext nsion Total number of ATMs went up 3595. The Bank Bankhas hasloans loans wno (as now no of of(as June of2007) 2007) Juneaccount 2007) account account as70 70 for much per as cent as much cent 70 per cen The (as June forfor as as much per ofof the bank’s bank’stotal totalloan loan Rs 2,00,000 crore. thecase case AxisofBank, Bank,retail retail ok of ok Rsof2,00,000 crore. InInthe Axis the b bo loans have havedeclined declined om 30 from froper per 30 cent per cent the oftotal the loan total Rs loan 25,800 book Rs crore of 25,800 Rin cro loans mfr30 cent ofof the total loan book sbook 25,800 of of crore in June 3 per of book Rs.41,280 rore (as ofofJune June 2006 2006 to toaround around 23 per 23 2 cent cent perofcent ofloan loan ofbook loan book of Rs.41,280 crore of Rs.41,280 (ascrore June c (as of J 2007). ger period, while the overall thgrow for Axis Bank 2007). Even Evenover overanger alolonger lon period, period, while while the overall the asset overall asset for asset growth Axisgrow Bank for Axis B has d ahas that of of thethe other retail exposures has been been quite quitehigh high nd has and an matched matched has matched that that ofother the , banks retail other banks, exposures banks, retail expo grew at at aa slower slower ce. pac The bank, bank, The bank, though, though, appears appears insulated to to hav insulated such s grew e. papace. The though, appears to e insulated havhave such pressures. mar ins, while have declined .15 theper cent seen pressures.Interest Interest gins, marg margins, whilethey they while have they declined have from declined 3.15 from per the from cent 3.15 the seen per 3 cent in 2003-04, ering hohov close 3to per cent mark. 2003-04,are arestill still vering hovering closetoclose tothe the 3 the per 3 cent per mark. cent mark. Figur BANK Figure Figure 3.3 3.3 3.3AXIS AXIS AXIS BANK BANK Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 49 | P a g e IDBI The pment Bank ofofIndia commo ly known by itsits The Industrial IndustrialDevelo Development Develo pment BankBank India of Limited India Limited Limited nly commonly known common by known by acronym o of leading public sector banks 4th largest Bank acronymIDBI IDBIisisone one f India's India's o India's leading leading public public sector sector banks 4thand largest banks and 4th and Bank largest in overall RBI categorized IDBI anan "other tor se bank". ItItwas overallratings. ratings. categorized RBI categorized IDBIasas IDBI as "other anpublic "other ctor public bank". public sector sec was bank". It established byby Act of Parliament to to provide ndcredit other a credit facilities establishedinin1964 1964 an Actan ofAct Parliament of Parliament provide to credit provide other and facilities other a faci for o of fledgling Indian industry. It is ntly curr for the the development development f the the fledgling the fledgling Indian Indian industry. industry. ently It is 10th currently 10th It islargest largest curre 10th lar development in ein world tworld reach with 1210 s,AT 720 branches developmentbank bank he the th in world interms terms inof terms of reach of reach with Ms, 1210 with 720 1210 ATMs, branches ATM 720 branc and institutions built by by IDBI are eby National th Stock and 486 486 centers. centers.Some Some of the theof institutions the institutions built built IDBI National are IDBIthe are National Stock th St Exchange ofof India India NSE), (N the the National National the National Securities Securities ory Depository Services Deposito Services Ltd Exchange SE), ( (NSE), Securities Deposit ry Services Ltd (NSDL), lding Ho ofof India th the Analysis (NSDL), the theStock Stock Stock lding Holding Ho Corporation Corporation Corporation India of(SHCIL), India (SHCIL), e Credit (SHCIL), Credit Analysis Credit the Analy & Research Export-Import Bank ank), (Exim the Small Research Ltd, Ltd,the Export-Import the Export-Import Bankof Bank ofIndia India of(Exim India Bank), (Exim the Bank), Small B the Sma Industries Industries Developm Development Developm ent ent bank bank bank of of India(SIDBI), India(SIDBI), of India(SIDBI), the Entrepreneurship Entrepreneurship the the Entrepreneursh DevelopmentInstitute Institute of India, India, of India, andIDBI IDBI and BANK, IDBI which BANK, which which today owned today is by owned the by t Development and BANK, today is owned by the Indian ough ththough it was a itprivate scheduled bank. Indian Government, Government, ough thfor for aabrief for brief aperiod brief period period it was scheduled awas private a private scheduled bank. b The ment Bank was estab ished July The Industrial IndustrialDevelo Develop Development pment Bankof Bank ofIndia India of (IDBI) India (IDBI) (IDBI) was lished established wason on establ July1,1, on July 1964 Parliament ofof as owned subsidia ysubsidiary of Reserve 1964 under underan an anAct Act Act Parliament of Parliament asa awholly wholly as a wholly owned owned ry of the the subsidiar Reserve of the Rese Bank ebruary 1976, the ownership of was IDBI as IDBI transferred toto Bank of of India. India.InIn16 February 16 February F 1976, 1976, the ownership the ownership of transferred of IDBI was w transferre the ia InIndia and was made principal ial financ institution for the Government Government Governmentofdia of of Ind anditit and was it made was the made the principal the principal ial institution financial financ institutio for coordinating ties of engaged in financin promoting and coordinating coordinatingthe the theactivi activities ties activi of institutions institutions of institutions engaged engaged ing,, financing, promoting in financing promoting and developing the in incountry. Although Government reholding sh shareholding inin the developingindustry industry the country. the country. Although Although Government Government areholding sha the in Bank 100% following IDBI’s public issue inissue July 1995, Bank came camedown down downbelo below w belo 100% 100% following following IDBI’s IDBI’s public public July issue in 1995, Julythe the 1995, the former the b be shareholder (current holding: share 52.3%). former continues continuesto eto the b major major the major shareholder shareholder (current holding: (current shareholding: 52.3%). share 52. Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 50 | P a g e During the thefour fourdecade decades decade s of of its itsexistence, of existence, its existence, IDBI IDBI been has mental instrumental been not instrum only not on During IDBI hashas been instru ental not only inin establishing aa wellwell-developed, well-d developed, diversified diversified and efficient industrial efficient industrial and establishing eveloped, diversified andandefficient industrial and a institutionalstructure structure but also but b adding adding also adding qualitative a qualitative dimension the dimension process to the institutional ut also aa qualitative dimension to the process ofofproce industrialdevelopmen development t in in the thein country. the country. IDBI IDBI has played has ioneering role a p inin role industrial country. IDBI has played ioneering a played p a pioneering role fulfilling its its mission mission o promoting of promoting industrial industrial growth ugh growth through financing throufinancing fulfilling off promoting industrial growth gh thro financing ofof medium and andlong-term long-term projects, projects, consonance in consonance with national with ans and national plans priorities. pla and prior medium projects, ininconsonance with national ns and pl priorities. Over as enlarged itsits basket of of products and and s covering Over the theyears, years,IDBI IDBI has enlarged h has enlarged basket its basket products of ervices, ervices, products covering services, and s cov almost of activities, including anufacturing m manufacturing and almost the theentire entire entirespect rum spectrum spect of industrial industrial of industrial activities, activities, including anufacturing including m and services. es financial assistance, both in ee ru services. IDBI IDBI provi provid provides des financial financial assistance, assistance, both pee both inand and rupee inforeign foreign rupand fore currencies,for forgreengreen-f green-field field projects projects also as also expansion, forodernization odernization expansion, m and currencies, ield projects asasalso forfor expansion, m modernization and diversification wake financial sector reform s unveiled by the diversification diversificationpurpose purpose purposes. s. In In the theIn wake theofof wake financial of financial sector unveiled sector reforms reform by unveiled the by government 199 , 1992, IDBI anan array fund and e-based f services governmentsince since since 2, 1992 IDBIevolved IDBI evolved evolved array anofarray of fund ee-based of fund and fee-based and services fe serv with ing an solution to to meet ntire demand of with aa view viewtotoprovid providing provid ing an integrated integrated an integrated solution solution entire meet tothe meet the demand the entire e ofdeman financial advisory requirements of of its its clients. financialand andcorporate corporate advisory advisory requirements requirements clients. of its clients. Figure 3.4 Figure 3.4IDBI IDBI Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 51 | P a g e ICICI ICICI Bank Bank(formerly (formerly ndustrial I Credit Credit and Investment and Investment tion Corporation of India) India) Corpora a India ICICI ndustrial I Industrial Credit and Investment Corpora tion of isisaof major banking bankingand and ancial fin services services services organization organization India. the in India. 4th It is largest the It 4th lar major ancial finfinancial organization in in India. is the It 4th largest bank he largest private sector bank ndia inbank Iby market bank in in India India and and the the tlargest largest private private sector sector bank ndia in by India in market I by mar capitalization. ban also has a anetwork of of 1,700+ (as on capitalization.The The k also bank has also has network a network 1,700+ ofbranches 1,700+ (as branches on 31 branches 31March March (as on 31 M 2010) and andabout about4,721 4,721 ATMs in India India inand India andpresence presence and presence in ntries, 19 countries, as 19well well couasas as wel 2010) ATMs ATMs in in 19 ntries, couin as some 24 24 million millioncusto customers custom mers (atthe the (at end the end July of 2007). JulyICICI 2007). ank ICICI offers ICICI Bank Ba wide offers a w some ers (at end of of July 2007). nk B offers a awide range ducts prpro and services to orate corcorporate and retail range of of banking banking oducts products and financial financial and financial services services porate to to andcorp retail and re customers riety aa v variety of channels andand specializ ation customersthrough through ariety va ofdelivery delivery of delivery channels channels ation specialization andsubsidiaries subsidiaries specializsubsidia and eas a ar of banking, lifelife and n-life nlife insurance, and affiliates affiliatesinin inthe the reas the areas of investment investment of investment banking, banking, on-life and insurance, non-life and no insura venture management. (These data areare dynami .) dynamic.) ICICI is is Ban venturecapital capitaland and etass management. asset ass management. (These (These data data c.) ICICI are Bank dynamic Bank ICICI also India. ICICI Bank's ares sh are listed on also the the largest largest largestissuer issuer issuer off credit credit oof cards credit cardsincards in India. in India. ICICI ares ICICI Bank's are Bank's shares listedsh are on liste the Kolkata at at Kolkata and Mumbai and e National t the Stock the stock stockexchanges exchanges Kolkata andVadodara, Vadodara, and Vadodara, Mumbai he Mumbai and National and National Stock th St Exchange ofofIndia India mited; Lim Limited; itsADRs ADRs its trade ADRs trade trade on on New the Stock New York Exchange York Stock Exchan Exchange Li ited; its on thethe New Stock York Exchange (NYSE). (NYSE). The Bank Bank isisexpandin expanding expandin g in in overseas overseas in overseas markets markets and and gest has international largest the larginternat The markets and hashas the estthe lar international balance IndianIndian banks. ICICI s h wholly-owned balance sheet sheet among among Indian banks. banks. ICICIBank ICICI Banknow Bank as now wholly-owned now has wholly-owne ha subsidiaries, offices inoffices 19ries, ies, count including an subsidiaries,branches branches and representatives representatives and representatives offices in 19 countries, in including 19 countr includin an offshore ai. This wholly owned subsid iaries in Canada, offshore unit unitininMum Mumbai. Mumb bai. Thisincludes This includes includes wholly wholly owned owned iaries subsidiaries in subsid Canada, in Cana Russia and andthe theUK UK e(th subsidiary (the subsidiary through through which which the Hi savings the SAVE Hibrand SAVE brand savings Russia subsidiary through which the HiESAV savings is is bran operated), king baban units and Singapore, a branch operated),offshore offshore nking banking unitsinunits inBahrain Bahrain in Bahrain and Singapore, and n advisory advisory Singapore, an branch advisory an br in Dubai, Belgium, inin Belgium, Hong SriSri Lanka, nd aLanka, Dubai, branches branches Belgium, HongKong Hong Kongand Kong and and Lanka, Srirepresentative representative and representa a offices China,China, Malaysia, Indonesia, South ca, Thailand, the offices ininBangladesh, Bangladesh, China, Malaysia, Malaysia, Indonesia, Indonesia, South ca,Afri Thailand, South Africa, Afri Thailand, the Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 52 | P a g e United Arab ArabEmirates Emirates and USA. and Overseas, USA. Overseas, Overseas, the Bank the ng isg targeting the isNRI NRI targetin (Nonthe NRI (N United and USA. the Bank is Bank targeti the (NonResidentIndian) Indian) popula population ation inparticular. particular. in particular. Resident popul tion in ICICI reported reporteda a1.15 %1.15% 1.15 rise in in rise netin profit net to profit to to1,014.21 Rs. rore1,014.21 on crore 1.29% c on a 1.2 ICICI rise net profit Rs.Rs. 1,014.21 rore con aa 1.29% increase in intotal total totalinco me incom income to Rs. Rs.to 9,712.31 Rs. 9,712.31 crore in in September Q2 2008 Septemb over2008 Q2 over increase e to 9,712.31 crore in crore Q2 Q2 Septemb er 2008 over Q2 September2007. 2007. 2007. bank's The The bank's bCASA CASAratio CASA ratio ratio increased increased to 008 008 30% from in 30% 2008 25% in in 2from in 25% September The ank's increased to 30% into from 2 25% 2007. 2007. Figure 3.5 ICICI ICICI BANK Figure 3.5 BANK Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 53 | P a g e Data Analysis Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 54 | P a g e Capital Adequacy Adequacy Ratio Table 3.1 Table 3.1 3.1CAR CAR CAR Tab 25.00% 20.00% 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10 15.00% 10.00% 5.00% 0.00% HDFC SBI AXIS IDBI ICICI Figur Figure Figure 3.6 3.6 3.6CAR CAR CAR Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 55 | P a g e Interpretation . Reserve prescribes Banks to maintain a minimum to ReserveBank BankofofIndia India prescribes prescribes Banks Banks to maintain to maintain a Capital Capital minimum a minimum toriskCapital riskto ri weighted (CRAR) of with regard t risk, credi market weightedAssets AssetsRatio Ratio (CRAR) (CRAR) of99percent percent of 9 percent with regard withtoregard risk, to credit market to credi risk, marke risk risk and andoperational operational operational k on ris on risk risk an anongoing ongoing on an ongoing basis, basis, as basis, as against against as 8ntagainst perce prescribed prescribed 8 percent 8 perce in prescribe in Basel Documents. Documents. Documents. ital Capital Cap adequacy adequacy ratio of ofICICI the sICICI Bank well Bank above was well was theabove t Basel Cap ital adequacy ratio ofratio thethe ICICI Bank well waabove the industry of97% 97% 13. t. ofof HDFC is below ratio the of industryaverage average of 13. 13.97% t. CAR CARt. CAR HDFC ofbank HDFC bank is bank below ratio is below the ofICICI ICICI ratio the of ICICI altot Capital Adequacy stosto od od atsto 15.26% bank. HDFC tal total Capital Capital Adequacy Adequacy at 15.26% od atofas 15.26% as of March as31, March March 31, 31, bank. to HDFCBank’s Bank’s 2010. adopte as as of March 2009 31,and 2010. The TheBank Bank adopte adopted d the the Basel Basel the2Basel 2framework framework 2 framework of March as 2009 of March and 31,the 2009 the31,and the CAR per aselBasel 22guidelines stands higher against heagainst regulatory t against CAR computed computed computedasas as Basel per per B guidelines 2 guidelines stands stands higher higher regulatory the regulato t minimum minimumofof9.0%. 9.0%. HDFC CAR CARisisgradual gradually graduall ly increased increased over over the last the 5 last year 5apital apital year and the and adequacy capital the c adequ HDFC y increased over the last 5 year and the adequacy c ratio of ofAxis Axisbank bank increasing the th increasing byevery every by2 every 2 year. 2 year. SBI intained has SBImaintained has itsCAR ma CAR its C ratio iseis th increasing by year. SBI has intained ma its aroundin inthe therange range 11 % ofto to 11 1 14 14 %%. %. toBut 14 But %. IDBI But should IDBIreconsid should er reconsider their reconside business their busine around 1of% IDBI should r their business as its Y Y. YOY. Higher the banks mfortable in ain c its CAR CARisisfalling falling OY. YO Higher Higher theratio ratio thethe ratio the banks theare banks omfortable are are a comfortable in a co position loss s.losse So HDFC thethe strong e to positionto toabsorb absorb absorb es. losses. SoICICI ICICI Soand ICICI and HDFC andare HDFC are are ne strong the tooabsorb absorb strong one their to their on absorb t loses. loses. Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 56 | P a g e Earning Per Share Table 3.2 Table 3.2 3.2EPS EPS EPS Tab 160.00% 140.00% 120.00% 2005 - 06 100.00% 2006 - 07 80.00% 2007 - 08 60.00% 2008 - 09 40.00% 2009 - 10 20.00% 0.00% HDFC SBI AXIS IDBI ICICI Figur Figure Figure 3.7 3.7 3.7EPS EPS EPS Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 57 | P a g e Interpretation CalculatingEPS EPS Calculating To calculate ratio, simplysimply divide the company’s net net income by the number ofof calculatethis this this ratio, ratio, simply divide divide the company’s the company’s income net theincome number by the number shares ing dur the thethe number shares out ininof the shares outstanding outstanding ing during dur the same same theperiod. period. same If period. If If number shares the ofnumber of out shares theout in market ring dudu that a share buyback), weighted a aaverage market has haschanged changed ring during thatperiod period that (ex. period (ex. a (ex. share a share buyback), weighted buyback), average weighted a av of the share is the quantity quantityofof sshares share is used. used. is used. Importance ImportanceofofEPS EPS The significance significanceofPS of EP is EPS obvious, is obvious, the asviability the viability ofiness iness any ofdepends depends business any buson on depend The SE is obvious, asas the viability of any bus the income incomeititcan can ate. generate. gener money A losing money losing losing business business ually will gobankrupt, bankrupt, eventu go bankr the gener ate. AA money business willwill event allyeventually go so the ng l long term survival is is to to make rnings E per the only onlyway wayfor ong for lo termterm survival survival ismake tomoney. make money. arnings money. Earnings pershare Ea shareper sh fferent companies’ power to make The money. high erthe thehigh er th y. make The high erThe allow fferent di different power to make mone allow us usto tocompare compare di companies’ companies’ power to mone earnings with allwith else equal, higher each share ld be sho earningsper pershare share all elseall equal, elsethe equal, the higher the higher each uld share each beworth. worth. should share shou be worth EPS red the most metric to metric determine aa EPS is is often often conside considered conside red the single single the single mostimportant most important important determine metric to determin company’s also component of nother a another important company’s profitabilit profitabilit profitability. y. It It is is It also is aalso amajor major a major component component nother of of important a importan metric, earnin metric,price priceper per earnin earnings gs ratio ratio(P/E). (P/E). ratio (P/E). When we wedo doour ouranaly analysis, analy sis, weshould should we should look look a for positive a positive of EPS trend intrend of order EPS o to in orde When sis, we look forfor a positive trend f EPS in order to make sure sure that thatthe the ompany c finding is finding more more ways ke to more make tomoney. money. mak more mon make ompany c company isis finding more ways to eways ma more Otherwise, y is growing and thus should onsidered be cbe considered only Otherwise,the thecompa compan company ny is not notis growing not growing and thus and should thus onsidered should be only cif if on you that can i at sustain income. you are areconfident confident tthat can iit atleast can least at sustain least its sustain its income. its income. When sis, we look forfor a positive trend f EPS in order to When we wedo doour ouranaly analysis, analy sis, weshould should we should look look a for positive a positive of EPS trend intrend of order EPS o to in orde make pany cocompany more ways to ways make ore money. ItIt is is make sure surethat thatthe the mpany comisisfinding finding is finding more more ways to more make to money. make more m money. It clear that tops the group that tors inves clear from fromthe the thefigure figure figure .7 3 that 33.7SBI SBI that tops SBI the tops group thesogroup so tors that sowould would investors that select inves select would s SBI i is the trend ast over 55 year. lyear. AXIS SBI to to invest. invest. invest.HDFC HDFC HDFC s also also i showing also showing showing thepositive positive the positive trend ast trend over over last AXIS 5l year. A bank asaspositive inis EPS highest among bank must mustbe beattracted attracted by investors investors by investors positive as growth positive growth growth in highest EPSinis among EPS highest am peers abil to profit forprofit shareholders. peers who whoshow showitsits ity ability abil to generate generate to generate profit for shareholders. for shareholders. ICICI ICICI has has not not any any anyre rem remarkable in EPS. weere arkable performances performances in EPS. There re w so markable performances inThere EPS. There somany many wereup’s so up’s many up and usiness performance during economic crises which isis whic and down down in in ICICI ICICI ICICI business business b performance performance during during economic crises economic which crises Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 58 | P a g e reflected BI’s I ID performance is is just okay. It’s neit er high low. reflectedininits its itsEPS. EPS. EPS. DBI’s IDBI’s performance performance just is okay. just okay. It’s her neither high It’s nor neith norhigh low.nor low S but IDBI EP IDBI maintained maintaineditsits EP it’s slightly growing. Net Profit Margin Net Profit ProfitMargin Margin Net Tab Table 3.3 Table 3.3NPM NPM 25 20 2005 - 06 15 2006 - 07 2007 - 08 10 2008 - 09 2009 - 10 5 0 HDFC SBI AXIS Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE IDBI ICICI 59 | P a g e Figur Figure Figure 3.8 3.8 3.8NPM NPM NPM Interpretation Net margin a isiskey ofofmeasuring profita ility. It Net Profit Profitmargin key aa method key method method measuring of measuring bility. profitability. profitab It can can bebe It can interpreted as as as the amount the the aamount money of money thecompany the company ts company to gets keep get to forkeep f interpreted mount ofof money the s ge to keep for every dollar of revenue . That That is, is, NetProfit rPofit Margin == Net Income ÷ Net Sales. Net Profit Margin Margin =Net Net Income Income ÷÷Net Net Sales. Sales. Profit margins marginscan can e buseful useful be b useful metrics, metrics, buttypically typically but typically some require requir specific some spec Profit metrics, but e requir some specific circumstances circumstancestoto toreall yreally really have significance. significance. have significance. Suppose Suppose Company have we Company have Afrom from C A fr circumstances have Suppose we we have ompany A above mar ins) and B (with 20% profit argins). IfIfA A and above (15% (15%profit profit gins) marg margins) andCompany Company and Company B (with B (with 20% margins). profit 20% profit margins). m and If A B are stry and, are competitors, may be more are in in the thesame sameindu stry industry indu and,indeed, indeed, and, indeed, are competitors, are competitors, B then may then beaaB then more mayB be a m intelligentinvestment. investment. intelligent If, are in in the same space, n the thspace, differences If, however, however,companie companies s AA and andABBand arenot Bnot are not the insame the same en space, the differences then the the differe in profit not so insightful. Suppose A is nA in industry profitmargins marginsmay not maybe be not sobe insightful. so insightful. Suppose Suppose industry is ain A an is where in industry where a wh profit typi ally less 10%, and B isBin ry indust profitmargins marginsare are cally typically typic lessthan than less 10%, than and 10%, and isan inB an iswhere where industry in anmargins margins indust where ma are typically typically typicallygreater greater greater an 25%, tha than then 25%, is probably A is probably a higher acandidate. higher qualityquali candidate are nth 25%, then A Aisthen probably a higher tyquali candidate. highest among AXIS performance in NetinProfit as it AXIS bank bankshown shown shownits its its performance Net Margin Profit’ssMargin as it’ 005 -09) and s ibetter better butitbut itdecreased decreased in first 005 4 year -09) (2005 and then then -09) and the group. NPM but in first 4 year (2 group. HDFC’s HDFC’s HDFC’s NPM NPM is i better it decreased in first 4 year (2 in 2009-10 SBI is slightly low compared HDFC t to but itsits but i 2009-10 its its rises. rises. rises. SBI is SBI slightly is slightly lowasas low compared as ocompared HDFC but HDFC to NPM decreasing; performanceisisconstan constant. t. IDBI’s IDBI’s IDBI’s NPMisNPM isgradually gradually is gradually decreasing; decreasing; reason is the rise reason isisthe rise reason the rise performance constan in expenditures rpo performance inin economic crisis. expendituresand and or performance poor poo performance economic in economic crisis.crisis. ICICI econd s second NPM (18.43%) butbut eased it dec to the only ICICI in in2005-06 2005-06has has econd s highest highest highest NPM NPM (18.43%) (18.43%) reased itbut decreased toit the decr only to the 12 % has huge losses in financial risis but c in % in in 2008-09. 2008-09.ICIC IICICI ICIC has incurred incurred has incurred huge huge losses losses in financial risis in financial but crisis in20092009c but in 2 10 it its ility a ab to and achieve it again againshows shows bility its ability toperform perform to perform and achieve and 15.66% achieve 15.66% 15.66% Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 60 | P a g e Return on Assets Table T 3.4ROA ROA able 3.4 1.80% 1.60% 1.40% 1.20% 2005-06 1.00% 2006-07 0.80% 2007 - 08 0.60% 2008 - 09 0.40% 2009 - 10 0.20% 0.00% HDFC SBI AXIS IDBI ICICI Figure 3.9ROA ROA Figure 3.9 Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 61 | P a g e Interpretation Return Returnon onAssets Assets Where asset assetturnover turnover ells an te tells investor an investor the total the sales total sales assets, for$1 each return of assets, $1 re Where lls tan investor the total sales for for each of each assets, $1 return on assets, for hort, s short, investor how much profit company a profit assets,or orROA ROA hort, for stells tellsan an tells investor an investor how much how company much profit a company a generated assets. i in The assets o aissure-fire als way generatedfor for foreach each each n$1 assets. $1 $1 i assets. Thereturn return The on return on assets onfigure assets figure sure-fire figure is alsois away als sure-fire to gauge inten sity of ROA measures gaugethe theasset asset sity intensity inten ofaabusiness. business. of a business. ROA measures ROAa com measures aany’s company’s aearnings comp earnings earnings pany’s relationtotoall allofof resources the the resources r had it at had atdisposal its disposal holders’ (the shareholders’ shareh capital capita in relation the esources itithad at itsits disposal (the(the share olders’ capital plus funds). Thus, it isThus, most ringent sthe and plus short shortand andlong-ter long-term m borrowed borrowed borrowed funds). funds). Thus, itthe is the tringent it is most and stringent most st and excessive return If If a company hasbt, t, nothe de excessivetest test testofof of return return to shareholders. shareholders. to shareholders. a company If a company has the noreturn has return debt, noon the deb on return assets on ity eqfigures bebe the same. HDFC hown has HDFC assetsand andreturn return uity on equity equ figureswill figures will will the be same. the HDFC same. shown has shown has s remarkable over years but will attract more yes as ROA remarkableROA ROA ROA over 5 over years 55 years butAXIS AXIS butbank AXIS bank bank will attract willeyes attract more asits its more eyes ROAeas its RO to HDFC; HDFC; increases 5 .yea ’s ROA is slightly low as compare d to increasesfor forlast last 5SBI year reason has h highest reasonisisthe theSBI SBI has assets inIndian Indian bank industry ighest assets bank industry whythat’s itsROA ROA why its ROA ighest assets ininIndian bank industry s that’ that’ why its is low to XIS HDFC IDBI isperformed out in low as ascompared compared AXIS to to bank A bank AXISand and bank HDFC andbank. HDFC bank. bank. IDBI performed is IDBI out is performed out in in is quite enough to attract investors.seItand sand ri fall fall ROA ROA ROA but butICICI’s ICICI’s ROA alternativelyYOY. YOY. alternatively Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 62 | P a g e Credit Depo Depos sit it Ratio Table3.5 3.5Cr Cre Credit edit Deposit Deposit Ratio Ratio Table dit Deposit Ratio 300 250 200 2005 - 06 2006 - 07 150 2007 - 08 2008 - 09 100 2009 - 10 50 0 HDFC SBI AXIS IDBI ICICI Figure 3.10 Figure 3.10 3.10Credit Credit Credit Deposit Deposit Ratio Ratio Figu Deposit Ratio Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 63 | P a g e Interpretation It is of an-assets l lo created byby banks from the osits dep received. is the theproportion proportion proportion oan-assets of of loan-assets created created banks by banks from osits the from received. deposits the depreceive The th th the created from osits. dep deposits. The higher higherthe theratio, ratio, e higher higher the higher theloan-assets loan-assets the loan-assets created created osits. from from dep Consider whic has worth Rs. 100100 crores and ConsiderBank Bank BankX X X which hwhich hasdeposits deposits has deposits worth worth Rs. Rs. crores 100 a credit-deposit credit-deposit crores and aand credit-depo a ratio means Bank has used deposits wort 60 ratio of of60 60per percent. cent. atTh means That Th means BankXX Bank has X used has deposits used h Rs. Rs. deposits worth 60crores crores worth Rs.to60 to crore create Rs. 40 available for for other tments. inve createloan-assets. loan-assets. yOnl Rs. Only 40crores Rs. crores 40 is crores is available is available other stments. for other investments. inves Now, the theIndian Indiangover government govern nment thelargest islargest the largest borrower borrower in stic the in credit domestic the domecredit Now, ment isisthe borrower in the stic dome credit market.The Thegovernme government governmen nt borrows borrows byissuing issuing by issuing securities securities through (G-secs) (G-secs) auctions through auc market. t borrows by securities (G-secs) through auctions held by bythe the theRBI. RBI. RBI.Bank Banks, Bank s, thus, thus,thus, lendtolend tothe the to government the government byin in investing by these investi G-in these held lend government by ng investi these Gsecs. XX has nly Rs. crores to to invest G-secs. ore banks like secs. And AndBank Bank Bank X only has has only Rs. o 40 40 Rs. crores 40 crores invest toin invest in G-secs. more in IfG-secs. banks If more If like mbanks li X have t to invest ininG-Secs, what will thethe governm ent do? After have lesser lessermoney money o invest invest G-Secs, in G-Secs, what what will will ent government the do? governm Afterall, do? all, After it needs money expenditure. needsto toraise raise money to meet meet toits its meet expenditure. its expenditure. much money will chase oo few goods'' intin good If the the money moneysosorelease released release d is is large, large, is ``too large, ``too ``too much much money money will too chase few will goods'' chase too few the inflation levels. This would mpt prinvestors toinvestor the economy economyresulting resulting in higher higher in higher inflation inflation levels. levels. This ompt would This investors would prompt pro to demand higherreturns returns on debt debt on instruments. debt instruments. other In words, her other interest words, higher rates hig interest demand higher instruments. In In other words, her interest hig rates HDFC, bankbank has from year. last 5IDBI has HDFC, SBI SBIand andAXIS AXIS bank hasCDR CDR has in CDR inequal equal in range equal range range from year. from last IDBI 5 last year. has 5 IDBI ha highest year but good is gradually fall Y. ICICI Y YOY. highestCDR CDRall all5 5 but year good butthing good thingisthing isthat that isis that gradually is gradually OY. ICICI fall fall ICICI YO bank bank’s’sCDR CDR isis isslightly slightly slightlyhigher higher than than SBI , ,AXIS and HDFC but but itt also higher SBI AXIS and HDFC i maintained than SBI , AXIS and HDFC also but maintained it also maintaine its its CDR CDRYOY. YOY. Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 64 | P a g e Gross Non Performing Assets Table GNPA Table 3.6 3.6 G N GNPA PA 6.00% 5.00% 4.00% 2007 - 08 3.00% 2008 - 09 2009 - 10 2.00% 1.00% 0.00% HDFC SBI AXIS Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE IDBI ICICI 65 | P a g e Figure 3.11Gross Gross NPA Figure 3.11 NPA Interpretation Gross GrossNPA: NPA: Gross assets areare classifi d as NPAs asas Gross NPAs NPAsare arethe the the msutotal total sum su of total ofall allloan of loan all assets loanthat assets that ed that classified asare NPAs classifie as NPAs as per RBI RBIguidelines guidelines on Balance on o Balance Sheet Sheet date. date. Gross Gross NPA the reflects NPA quality reflect the per as n as Balance Sheet date. Gross NPA reflect s the quality ofof quality the ban s.banks. It ofof allall the non standard ts like ass the loans loansmade madebyby by ks. bank It consists consists It consists of the all non thestandard non ets standard likeas assets assubsubasse like as su standard, loss and assets. standard,doubtful, doubtful, loss and assets. loss assets. It can the following ratio: can be becalculated calculated calculated thwi the with wi help help theofof help following of following ratio: ratio: ross NPAs Gross G NPAsRatio Ratio Gross Advances Gross Advances SBI GN AGNPA to which isis very good sign of ormances per SBI maintained maintaineditsits PA GNP to 3% 3%to which 3% which very is good very good sign formances of sign performances of as perf asSBI SBI as S is the NDIA. inin I IHDFC’s GNPA is quite good as it is the largest largestlender lender is low lowwith with compared and SBI in 2008-09 GNPA rises. The son remay be comparedto toICICI ICICI SBI andbut but SBI inbut 2008-09 in 2008-09 GNPA GNPA rises. ason rises. The may reason The bereamay be economic AXIS bank has GNPA which shown management itsshown economiccrises. crises. crises. AXIS AXIS bank bank haslowest lowest has lowest GNPA GNPA which which shown management its management its ability. the ighest h h GNPA industry and ing ris YOY. ability.ICICI ICICIhas has ighest the highest GNPAin GNPA inbanking banking in banking industry industry ingand YOY. rising and ris YOY. Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 66 | P a g e Net Non Per Perf forming orming Assets Table 3.7 Table 3.7 2.50% 2.00% 1.50% 2007 - 08 2008 - 09 1.00% 2009 - 10 0.50% 0.00% HDFC SBI AXIS IDBI ICICI Figure 3.12Net NetNPA NPA Figure 3.12 Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 67 | P a g e Interpretation Net eett N NPA: NP PA A:: Net etyp of ininwhich thethe bank has dedu ted the provision Net NPAs NPAs are arethose thosety pe type of NPAs NPAs of NPAs which in which the bank bank has cted has deducted the deduc provision the provision regardingNPAs. NPAs. Net eNtPA N NPA shows thactual e actual actualburden burden ban ks. SS Since ince in India, bank regarding NetN ince India, bank the bur den of banks. inin Indi , bank APshows shows the ofofbanks. balance sheets sheets sheetscontain contain contain a huge huge a huge amount amount NPAs of and NPAs and the process the s of of process recovery of recovery and and balance amount ofofNPAs theand proces recovery and write off off ofofloans loansis is y very ver time time consuming, consuming, the provisions the provisions the have the banks ban tomake have maketo make write ver time consuming, the provisions thenks ks ba have to against accor ing to bank guidelines, lguide significant. againstthe theNPAs NPAs NPAs according accord ding tothe the tocentral the central central bank bank ines, guidelines, areare quite equit significant. significant. are quiteThat That That why the thedifference difference difference ween bet between grossand gross andnet net and NPA net is NPA quite is quite high. high. is why bet ween gross NPA is quite high. It can by llowing_ f following_ can be becalculated calculated ollowing_ by fo Net NPAs = s NPAs NPAs––Provisions Provisions Gros GrossAdvances Advances Provisions - Provisions Gross Advances - -Provisions AXIS ICICI highest NNPA ong a group. AXIS Bank Bankhas hasleast least etNNPA NPA Net N and and NPA ICICI andhas ICICI has highest has highest mong NNPA NNPA group. among amgroup. HDFC ement quality asas it maintained its YOY. SBI has HDFC shown shownits its itsmana management manag gement quality quality it as maintained it maintained A NNP YOY. its NNPA its SBINNPA has YOY. SBI ha to keep DBI I IDBI to to control Y. Y NNPA keepNNPA NNPAbelow. below. DBI Ihas hassuccessful successful has successful control to NNPA control OY. NNPA YOY. YO Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 68 | P a g e Chapter-04 Findings & conclusion conclusio n Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 69 | P a g e Findings Capital adequacy: H DFC BANKhas hasshown shown best performance CARas asits in itsCAR as its FC BANK best performance in CAR graduallyrising rising YOY and IDBI’s and a IDBI’s decreasing decreasing YOY.IDBI IDBI YOY.shoul should IDBIdshould reconsider their gradually YOY nd IDBI’s decreasing YOY. reconsider their reconsider their businesstactics. tactics. business Return HD Returnon onAssets: Assets: HD tops HDFC tops the groupand and IDBI again at last last the group IDBI again but at this tie IDBI FC tops the group and IDBI again but at this last tiebut IDBI this tie I shown perfo rmance to to ICICI having er hig ROA. shown consistent consistent rmance performance perfo as ascompared compared as compared ICICI to ICICI having her ROA. having higher high ROA. EarningsPer PerShare: Share: SBI’s EPS ishighest highest among group. IDBI SBI’s BI’s EPS among group. IDBI has least EPS. EPS isishighest among group. IDBI has least EPS. Earnings has least EPS. Investors banks IDBI at at last. Investorswill willchoice choice BIISover over SBI SB all all over banks all and banks and IDBI and IDBI last. at last. Net Profit ProfitMargin: Margin: AX AXIS Bank has highestNPM NPM 2009-10 an Net AXIS IS Bank has highest inin2009-10 d rising a YOY. Bank has highest NPM in 2009-10 nd rising and YOY. rising YOY IDBI’s ing YOY IDBI’sNPM NPMisis isdecreas decreas decreasing ing YOY. YOY CreditDeposit Deposit Ratio: HDFC maintains its CDR and tops thethe H HDFC DFC maintains maintains itsits CDR CDR and and tops tops roup. roup. the ggIDBI IDBI group. again again IDBI ag Credit Ratio: worstside sidebut butgood good is that it’s decreasing YOY. on worst thing Gross GrossNPA: NPA:AXIS AXISba bank ban hasleast leastGNPA GNPA and ICICI has highest k has and ICICI has highest among peers. nk has least GNPA and ICICI has among highest peers. among peers Net Net NPA: NPA:AXIS AXISBank Bank Bank againperformed performed better better than others and IC again than others ICI and has I again performed better than others CICI has and ICICI has maintained SBI has rise ininNNPA thethe GNPA. maintainedits itsposition. position. position. SBI has SBI rise has rise NNPA inover NNPA over over GNPA. the GNPA. Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 70 | P a g e Recommandations should adap ada 1) The The banks should adapt themselvesquickly quickly to to thethe changing no pt themselves quickly changing rms. t themselves to the changing rms. no norms. 2) The getting internationally standardized with the ingthe co of Thesystem systemisis getting internationally internationally standardized standardized with ming with ofBASELL coming BASELL the com of BASE II accords India banks should strengthen internal ses proce so as cope accordsso sothe the nIndian India banksbanks shouldshould strengthen strengthen internal sses internal so processes astoto proces cope so as to with with the thestandards. standards. 3) The ntain mai byby always nvesting and i or The banks banksshould should should ntain maintain maiaa0% 0%NPA NPA a 0% NPA always by lending always lending nvesting lending and investing or and i or creating assets which earn way ofby interest creatingquality quality quality assets assets which which earnreturns returns earn by returns by way ofway interest d profits. profits. ofaninterest and profits. and 4) The find more totohedge as the etthe mar is The banks banksshould should more find avenues avenues more avenues hedge torisks hedge risks as ket risks isvery as very market the mark is very sensitiveto torisk riskofof type. any type. sensitive any type. 5) Have kills, s system, and proper upsure ure to that banks Havegood goodappraisal appraisal kills, sskills, system, system, and proper andfollow proper follow follow upen to that ensure up banks to ens that ban are above abovethe therisk. risk. are SUGGES TIONS SUGGES T T IO IO NN SFOR SFF OO RFURTHER RFF UU RT RT HH ERESEA E RRRR EE SR S ECH E C AA H RR CH best suited for for the useCAMELS o ch industries industriesare are best suited f the the the CAMELS use of the CAME Research on whi Framework. Framework. can be be added or how riables va can be othervariables variables can added riables or how can variables be can b Research on w hoother selectedto tosuit suit suit he industry th the industry needs. needs. selected e tindustry needs. y the theCAMELS CAMELSFramework Framework not as be used toolofof as a tool o cancan noted beas us aatool Research on wh performance luation. performanceeva luation. eva evaluation. Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 71 | P a g e Bibliography 1. Websites: Websites: om www.investmentz.c com com www.sify.business. om com www.investopedia. www.bseindia.com .com .com http://www.icicibank .com .com http://www.hdfcbank com com http://www.axisbank. om www.moneycontrol.c gsolutions.com/camels.htm gsolutions.com/camels.htm http://www.allbankin Email: [email protected] satishpgoyal@gma il.com P U N EP2U2010 0N1 0E 2 0 1 0 Email: - -satishpgoyal@gma il.com PUNE 72 | P a g e