MBFI

Strategic view of Bank of Baroda and ICICI Bank

MBFI Assignment
MBFI Group Assignment 11/28/2013

Submitted By Mayur Srivastav Saket Sourabh Varun Gupta Aditi Pandey Girish Chandra Joshi Naman Sharma V Sameera Mohit Ambwani 12P151 12P165 12P175 12P183 12P199 12P217 12P236 12P152

Strengths and Weaknesses of Bank of Baroda and ICICI Bank

Strengths: Bank of Baroda
1. Strong growth performance in the past years, more so in the recent quarters. 2. Lesser Gross nonperforming assets as compared to other public sector banks in India because of less exposure in the risky and cyclical sectors 3. High Credit Deposit Ratio, maintained credit deposit ratio in the range of 82-83 despite volatility in the market Strengths: ICICI BANK 1. Online Services: ICICI Bank provides online services of all of its banking facilities. It also provides D-Mart account facilities on-line, so a person can access his account from anywhere he is.(D-Mart is a dematerialized account opened by a salaried person for purchase & sale of shares of different companies.) technology to provide the customers with taster banking services. All the computerized machines are located in suitable manner & are very useful to the customers & staff of the bank. Friendly Staff: The staff of ICICI Bank in all branches is very friendly & help the customers in all cases. They provide faster services along with bonding & personal relationship with the customers. 12 hrs. Banking services: Compared to other bank ICICI bank provides long hrs. of services i.e. 8-8 services to the customers. This service is one of its kind & is very helpful for the customers who are in urgent need of money. Other Facilities to the Customers & Employees: ICICI Bank also provides other facilities like drinking water facilities, proper sitting arrangements to the customers. And there are also proper Ventilation& sanitary facilities for the employees of the bank. Late night ATM services: ICICI bank provides late night ATM services to the customers. The ATM centres of ICICI bank works even after 11:00pm. at night in certain branches

2. Advanced Infrastructure: Branches of ICICI Bank are well equipped with advanced

3. 4. 5. 6.

Weakness: Bank of Baroda 1. Lesser branches across the country when compared with SBI and PNB 2. Due to focus on international branches, local focus sometimes gets diluted Weakness: ICICI BANK 1. High Bank Service Charges: ICICI bank charges highly to customers for the services provided by them when compared to other bank & that is why it is only in the reach of higher class of society. 2. Less Credit Period: ICICI bank provides credit facilities but onlyupto limited period. Even when the credit period is not over itsends reminder letters to the customers which may annoy them. 3. Too much competition in the banking sector affecting employee and customer management 4. Many branches in urban areas has led to high cost

Performance of Bank of Baroda and ICICI Bank

Performance: Bank of Baroda According to 104th Annual report of Bank of Baroda, the performance highlights are stated as follows. Total Business (Deposits and Advances) increased to Rs 8,02,069 Crore reflecting a growth of 19.3% (y-o-y). Gross Profit and Net Profit were Rs 8,999.15 Crore and Rs 4,480.72 Crore respectively. Net Profit registered a growth of -10.5% over previous year. Credit-Deposit Ratio stood at 82.03% as against 86.86% last year. Retail Credit posted a growth of 6.7% constituting 16.6% of Bank of Baroda's Banks Gross Domestic Credit in FY13. MSME Credit posted a growth of 30.3% constituting 19.7% Gross Domestic Credit in FY13. Net Interest Margin (NIM) as per cent of interest earning assets in global operations was at the level of 2.66% and in domestic operations at 3.11% during FY13. Net NPAs to Net Advances stood at 1.28% this year against 0.54% last year. Capital Adequacy Ratio (CAR) as per Basel II stood at 13.30%. Net Worth improved to Rs 30,714.19 Crore registering a rise of 17.2%. Book Value improved from Rs 637.37 to Rs 729.11 on year. Business per Employee moved up from Rs 1,466 lakh to Rs 1,689 lakh on year.

Key Financial Ratios Return on Average Assets (ROAA) (%) Average Cost of Funds (%) Average Yield (%) Average Interest Earning Assets (Rs Crore) Average Interest Bearing Liabilities (Rs Crore) Net Interest Margin (%) Cost-Income Ratio (%) Book Value per Share (Rs) EPS (Rs) 0.90 5.75 8.29 4,24,761.33 4,15,246.10 2.66 39.79 729.11 108.84 1.24 5.64 8.55 3,47,223.21 3,43,397.26 2.97 37.55 637.37 127.84

Segment-Wise Performance The Segment Results for the year FY13 reveal that the contribution of Treasury Operations was Rs 1,070.13 Crore, that of Corporate/Wholesale Banking was minus Rs 103.95 Crore, that of Retail Banking was Rs 3,085.71 Crore, and of Other Banking Operations was Rs 2,221.71 Crore. Bank of Baroda's Bank earned a Profit after Tax (PAT) of Rs 4,480.72 Crore after deducting Rs 1,442.37 Crore of unallocated expenditure and Rs 350.51 Crore towards provision for tax. Dividend Bank of Baroda's Banks Directors have proposed a dividend of Rs 21.50 per share (on the face value of Rs 10/-per share) for the year ended March 31st, 2013. The total outgo in the form of dividend, including taxes, will be Rs 1,059.62 Crore. Capital Adequacy Ratio (CAR) Bank of Baroda's Banks Capital Adequacy Ratio (CAR) was comfortable at 13.30% under Basel II as on 31st March 2013. Bank of Baroda's Banks Net Worth as at 31st March 2013 was Rs 30,714.19 Crore comprising paid-up equity capital of Rs 422.52 Crore and reserves (excluding revaluation reserves) of Rs 30,291.67 Crore. An amount of Rs 3,421.10 Crore was transferred to reserves from the profits earned. Performance : ICICI Bank 1. 29% year-on-year increase in standalone profit after tax to ` 8,325 Crore (US$ 1.5 billion) for the year ended March 31, 2013 (FY2013) from ` 6,465 Crore (US$ 1.2 billion) for the year ended March 31, 2012 (FY2012) 21% year-on-year increase in standalone profit after tax to ` 2,304 Crore (US$ 424 million) for the quarter ended March 31, 2013 (Q4-2013) from ` 1,902 Crore (US$ 350 million) for the quarter ended March 31, 2012 (Q4-2012) 26% year-on-year increase in consolidated profit after tax to ` 9,604 Crore (US$ 1.8 billion) for FY2013 from 7,643 Crore (US$ 1.4 billion) for FY2012 Consolidated return on equity of 14.7% for FY2013 compared to 13.0% for FY2012 38 basis points improvement in full year net interest margin to 3.11% for FY2013 Net non-performing asset ratio at 0.64% at March 31, 2013 Strong capital adequacy ratio of 18.74% and Tier-1 capital adequacy of 12.80% Dividend of INR 20.00 per share proposed

2.

3. 4. 5. 6. 7. 8.

Profit & loss account Standalone profit after tax increased 29% to 8,325 Crore (US$ 1.5 billion) for the year ended March 31, 2013 (FY2013) from 6,465 Crore (US$ 1.2 billion) for the year ended March 31, 2012 (FY2012). Net interest margin increased by 38 basis points from 2.73% for FY2012 to 3.11% for FY2013. Return on average assets was 1.66% in FY2013 compared to 1.44% in FY2012. Standalone profit after tax increased 21% to 2,304 Crore (US$ 424 million) for the quarter ended March 31, 2013 (Q4-2013) from 1,902 Crore (US$ 350 million) for the quarter ended March 31, 2012 (Q4-2012). Net interest income increased 22% to 3,803 Crore (US$ 700 million) in Q4-2013 from ` 3,105 Crore (US$ 572 million) in Q4-2012. Cost-to-income ratio reduced to 40.0% in Q4-2013 from 41.6% in Q4- 2012. Provisions were at 460 Crore (US$ 85 million) in Q4-2013 compared to 469 Crore (US$ 86 million) in Q4-2012.

Operating review The Bank has continued with its strategy of pursuing profitable growth. The Bank has grown its retail disbursements, with mortgage and auto loan disbursements increasing by about 66% and 22% yearon-year respectively. The Bank continued to leverage its strong corporate franchise, its international presence and its branch network in India. During the year, the Bank added 348 branches and 1,475 ATMs to its network. At March 31, 2013, the Bank had 3,100 branches, the largest branch network among private sector banks in the country. The Bank's ATM network increased to 10,481 ATMs at March 31, 2013 as compared to 9,006 at March 31, 2012.

Credit growth Total advances increased by 14% year-on-year to 290,249 Crore (US$ 53.5 billion) at March 31, 2013 from 253,728 Crore (US$ 46.7 billion) at March 31, 2012. The year-on-year growth in domestic advances was 18%.

Deposit growth At March 31, 2013, savings account deposits were 85,651 Crore (US$ 15.8 billion) and current account deposits were 36,926 Crore (US$ 6.8 billion). During Q4-2013, savings account deposits increased by 4,188 Crore (US$ 771 million) and current account deposits increased by 1,252 Crore (US$ 231 million). The Bank's current and savings account (CASA) ratio improved to 41.9% at March 31, 2013 compared to 40.9% at December 31, 2012. The average CASA ratio improved to 38.1% during Q4-2013 compared to 37.4% during the quarter ended December 31, 2012 (Q3-2013).

Capital adequacy The Bank's capital adequacy at March 31, 2013 as per Reserve Bank of India's guidelines on Basel II norms was 18.74% and Tier-1 capital adequacy was 12.80%, well above RBI's requirement of total capital adequacy of 9.0% and Tier-1 capital adequacy of 6.0%.

Asset quality The Bank's gross non-performing asset ratio declined to 2.68% at March 31, 2013 from 3.04% at March 31, 2012. The Bank's net non-performing asset ratio was 0.64% at March 31, 2013 compared to 0.62% at March 31, 2012. Net non-performing assets at March 31, 2013 were ` 2,234 Crore (US$ 411 million) compared to ` 2,185 Crore (US$ 402 million) at December 31, 2012 and ` 1,894 Crore (US$ 349 million) at March 31, 2012. The Bank's provision coverage ratio computed in accordance with the RBI guidelines was 76.8% at March 31, 2013. Net loans to companies whose facilities have been restructured were ` 5,315 Crore (US$ 979 million) at March 31, 2013 compared to ` 4,562 Crore (US$ 840 million) at December 31, 2012 and ` 4,554 Crore (US$ 839 million) at March 31, 2012.

Dividend on equity shares The Board has recommended a dividend of ` 20.00 per equity share (equivalent to US$ 0.74 per ADS) for FY2013. The declaration and payment of dividend is subject to requisite approvals. The record/book closure dates will be announced in due course.

Strategies of Bank of Baroda and ICICI Bank

Strategies :ICICI Bank Short Term Strategy ICICI banks short--term strategy is to increase their CASA deposits. Total deposits of ICICI bank have been increased by 3.3% year on year basis. Savings account deposits have been increased by 13.7%. Total advances have been increased by 17.3 % YoY primarily due to increase in domestic and overseas corporate loans and increase in retail loan. They are increasing their investment in Statutory Liquidity Ratio (SLR) securities, as it is yielding higher returns. Long Term Strategy ICICI banks long--term strategy is to reduce their non--performing assets. They have significantly reduced their non-- forming assets as a percentage of total earning assets from 1.55 % in 2008 to 0.73 % in 2012. Their Credit Risk Management group is monitoring all the major sectors of the economy with special focus on sectors in which their advances are outstanding. ICICI bank is continuing to expand their branch network and ATMs in India. They have significantly increased their branches from 2,529 in 2011 to 2,752 in 2012. They also increased their ATM network from 6,104 in 2011 to 9,006 in 2012. Strategies: Bank of Baroda 1. Focus on International Branches for higher margin products 2. Focus on higher technology products which are frequently being offered by Private Sector Banks 3. Optimisation of Human Resource Management 4. Offering new products both on Assets and Liability sides to Increase deposits and Loans on their portfolio