c

 





      
      


   
     

!c " #$ c%!$$c$

—
  
 
 
¢ INTRODUCTION ¢

 METHODOLOGY 

 OBJECTIVES OF THE STUDY

 THE DESIGN

 THE SAMPLE

 THE TOOLS USED

FUNDAMENTAL ANALYSIS

ECONOMIC ANALYSIS

INDUSTRY ANALYSIS

COMPANY ANALYSIS

ANALYSIS AND RESULTS

FINANCIAL RATIOS

ASSET QUALITY RATIOS

PROFITABILITY RATIOS

PRODUCTIVITY MEASURES

STAFF DEPLOYMENT

DISCUSSION

FINANCIAL

ASSET QUALITY

PROFITABILITY

PRODUCTIVE MEASURES

CONCLUSIONS
 SUGGESTIONS
 BIBLIOGRAPHY


p

 

 
 

India is poised to become the world¶s fourth largest economy in the span of two
decades. Economic prosperity is providing many in this populous nation with real
purchasing power; it simply is an opportunity that cannot be overlooked by global
banks. Despite its appeal, India remains a developing economy. Thus, global banks
seeking a presence or expansion in India must craft a business strategy that
considers the country¶s attendant challenges: longestablished competitors;
rudimentary infrastructure; dynamic political environment; restrictive regulations;
and developing country operational risks. These challenges should be weighed
against the potential gains from entering the marketplace, as well as the likely cost
of doing nothing. The global banks have pinpointed four of the most promising
product areas to enter into the Indian market: housing loans, automobile loans,
small and medium enterprise (SME) banking and personal financial services (PFS).
However, recognizing the growth opportunities is only the beginning. Global
banks targeting India as a source of new growth will have to do much more than
just "show up" ± success will lie in the details of execution.

Banking in India originated in the last decades of the 18th century. The oldest bank
in existence in India is the State Bank of India, a government-owned bank that
traces its origins back to June 1806 and that is the largest commercial bank in the
country. Central banking is the responsibility of the Reserve Bank of India, which
in 1935 formally took over these responsibilities from the then Imperial Bank of
India, relegating it to commercial banking functions. After India's independence in
1947, the Reserve Bank was nationalized and given broader powers. In 1969 the
government nationalized the 14 largest commercial banks; the government
nationalized the six next largest in 1980.

Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector

banks (that is with the Government of India holding a stake), 31 private banks
(these do not have government stake; they may be publicly listed and traded on
stock exchanges) and 38 foreign banks. They have a combined network of over
53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a
rating agency, the public sector banks hold over 75 percent of total assets of the
banking industry, with the private and foreign banks holding 18.2% and 6.5%
respectively.


Banking in India originated in the last decades of the 18th century. The first banks
were The General Bank of India which started in 1786, and the Bank of Hindustan,
both of which are now defunct. The oldest bank in existence in India is the State
Bank of India, which originated in the Bank of Calcutta in June 1806, which
almost immediately became the Bank of Bengal. This was one of the three
presidency banks, the other two being the Bank of Bombay and the Bank of
Madras, all three of which were established under charters from the British East
India Company. For many years the Presidency banks acted as quasi-central banks,
as did their successors. The three banks merged in 1921 to form the Imperial Bank
of India, which, upon India's independence, became the State Bank of India.

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in
1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank,
established in 1865 and still functioning today, is the oldest Joint Stock bank in
India. It was not the first though. That honor belongs to the Bank of Upper India,
which was established in 1863, and which survived until 1913, when it failed, with
some of its assets and liabilities being transferred to the Alliance Bank of Simla.

When the American Civil War stopped the supply of cotton to Lancashire from the
Confederate States, promoters opened banks to finance trading in Indian cotton.
With large exposure to speculative ventures, most of the banks opened in India
during that period failed. The depositors lost money and lost interest in keeping
deposits with banks. Subsequently, banking in India remained the exclusive
domain of Europeans for next several decades until the beginning of the 20th
century.

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The
Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another
in Bombay in 1862; branches in Madras and Pondichery, then a French colony,
followed. HSBC established itself in Bengal in 1869. Calcutta was the most active
trading port in India, mainly due to the trade of the British Empire, and so became
a banking center.

The Bank of Bengal, which later became the State Bank of India.

The first entirely Indian joint stock bank was the Oudh Commercial Bank,
established in 1881 in Faizabad. It failed in 1958. The next was the Punjab
National Bank, established in Lahore in 1895, which has survived to the present
and is now one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing through a
relative period of stability. Around five decades had elapsed since the Indian
Mutiny, and the social, industrial and other infrastructure had improved. Indians
had established small banks, most of which served particular ethnic and religious
communities.

The presidency banks dominated banking in India but there were also some
exchange banks and a number of Indian joint stock banks. All these banks operated
in different segments of the economy. The exchange banks, mostly owned by
Europeans, concentrated on financing foreign trade. Indian joint stock banks were
generally under capitalized and lacked the experience and maturity to compete
with the presidency and exchange banks. This segmentation let Lord Curzon to
observe, "In respect of banking it seems we are behind the times. We are like some
old fashioned sailing ship, divided by solid wooden bulkheads into separate and
cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks inspired by the
Swadeshi movement. The Swadeshi movement inspired local businessmen and
political figures to found banks of and for the Indian community. A number of
banks established then have survived to the present such as Bank of India,
Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank
of India.

The fervour of Swadeshi movement lead to establishing of many private banks in

Dakshina Kannada and Udupi district which were unified earlier and known by the
name South Canara ( South Kanara ) district. Four nationalised banks started in
this district and also a leading private sector bank. Hence undivided Dakshina
Kannada district is known as "Cradle of Indian Banking".

r

 






The period during the First World War (1914-1918) through the end of the Second
World War (1939-1945), and two years thereafter until the independence of India
were challenging for Indian banking. The years of the First World War were
turbulent, and it took its toll with banks simply collapsing despite the Indian
economy gaining indirect boost due to war-related economic activities. At least 94
banks in India failed between 1913 and 1918 as indicated in the following table:
 Number of banks Authorised capital Paid-up Capital
Years
that failed (Rs. Lakhs) (Rs. Lakhs)

1913 12 274 35

1914 42 710 109

1915 11 56 5

1916 13 231 4

1917 9 76 25

1918 7 209 1


   

The partition of India in 1947 adversely impacted the economies of Punjab and
West Bengal, paralyzing banking activities for months. India's independence
marked the end of a regime of the Laissez-faire for the Indian banking. The
Government of India initiated measures to play an active role in the economic life
of the nation, and the Industrial Policy Resolution adopted by the government in
1948 envisaged a mixed economy. This resulted into greater involvement of the
state in different segments of the economy including banking and finance. The
major steps to regulate banking included:

•‘ In 1948, the Reserve Bank of India, India's central banking authority, was
nationalized, and it became an institution owned by the Government of
India.
 •‘ In 1949, the Banking Regulation Act was enacted which empowered the
Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in
India."
•‘ The Banking Regulation Act also provided that no new bank or branch of an
existing bank could be opened without a license from the RBI, and no two
banks could have common directors.

However, despite these provisions, control and regulations, banks in India except
the State Bank of India, continued to be owned and operated by private persons.
This changed with the nationalisation of major banks in India on 19 July 1969.

V


 

By the 1960s, the Indian banking industry had become an important tool to
facilitate the development of the Indian economy. At the same time, it had emerged
as a large employer, and a debate had ensued about the possibility to nationalise
the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the
intention of the GOI in the annual conference of the All India Congress Meeting in
a paper entitled {  
 


 

 

{ The paper was received
with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI
issued an ordinance and nationalised the 14 largest commercial banks with effect
from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of
India, described the step as a {  


    { Within two
weeks of the issue of the ordinance, the Parliament passed the Banking Companies
(Acquisition and Transfer of Undertaking) Bill, and it received the presidential
approval on 9 August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980.

The stated reason for the nationalization was to give the government more control
of credit delivery. With the second dose of nationalization, the GOI controlled
around 91% of the banking business of India. Later on, in the year 1993, the
government merged New Bank of India with Punjab National Bank. It was the
only merger between nationalized banks and resulted in the reduction of the
number of nationalised banks from 20 to 19. After this, until the 1990s, the
nationalised banks grew at a pace of around 4%, closer to the average growth rate
of the Indian economy.

The nationalised banks were credited by some, including Home minister P.

Chidambaram, to have helped the Indian economy withstand the global financial
crisis of 2007-2009.
(

 

In the early 1990s, the then Narsimha Rao government embarked on a policy of
liberalization, licensing a small number of private banks. These came to be known
as 
  

  
, and included Global Trust Bank (the first of
such new generation banks to be set up), which later amalgamated with Oriental
Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC
Bank. This move, along with the rapid growth in the economy of India, revitalized
the banking sector in India, which has seen rapid growth with strong contribution
from all the three sectors of banks, namely, government banks, private banks and
foreign banks.

The next stage for the Indian banking has been setup with the proposed relaxation
in the norms for Foreign Direct Investment, where all Foreign Investors in banks
may be given voting rights which could exceed the present cap of 10%,at present it
has gone up to 74% with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this
time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of
functioning. The new wave ushered in a modern outlook and tech-savvy methods
of working for traditional banks.All this led to the retail boom in India. People not
just demanded more from their banks but also received more.

Currently (2007), banking in India is generally fairly mature in terms of supply,

product range and reach-even though reach in rural India still remains a challenge
for the private sector and foreign banks. In terms of quality of assets and capital
adequacy, Indian banks are considered to have clean, strong and transparent
balance sheets relative to other banks in comparable economies in its region. The
Reserve Bank of India is an autonomous body, with minimal pressure from the
government. The stated policy of the Bank on the Indian Rupee is to manage
volatility but without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail
banking, mortgages and investment services are expected to be strong. One may
also expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its
stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time
an investor has been allowed to hold more than 5% in a private sector bank since
the RBI announced norms in 2005 that any stake exceeding 5% in the private
sector banks would need to be vetted by them.

In recent years critics have charged that the non-government owned banks are too
aggressive in their loan recovery efforts in connection with housing, vehicle and
personal loans. There are press reports that the banks' loan recovery efforts have
driven defaulting borrowers to suicide

The Indian banking system is financially stable and resilient to the shocks that may
arise due to higher non-performing assets (NPAs) and the global economic crisis,
according to a stress test done by the Reserve Bank of India (RBI).

Significantly, the RBI has the tenth largest gold reserves in the world after
spending US$ 6.7 billion towards the purchase of 200 metric tonnes of gold from
the International Monetary Fund (IMF) in November 2009. The purchase has
increased the country's share of gold holdings in its foreign exchange reserves from
approximately 4 per cent to about 6 per cent.

Following the financial crisis, new deposits have gravitated towards public sector
banks. According to RBI's 'Quarterly Statistics on Deposits and Credit of
Scheduled Commercial Banks: September 2009', nationalised banks, as a group,
accounted for 50.5 per cent of the aggregate deposits, while State Bank of India
(SBI) and its associates accounted for 23.8 per cent. The share of other scheduled
commercial banks, foreign banks and regional rural banks in aggregate deposits
were 17.8 per cent, 5.6 per cent and 3.0 per cent, respectively.

With respect to gross bank credit also, nationalised banks hold the highest share of
50.5 per cent in the total bank credit, with SBI and its associates at 23.7 per cent
and other scheduled commercial banks at 17.8 per cent. Foreign banks and regional
rural banks had a share of 5.5 per cent and 2.5 per cent respectively in the total
bank credit.The report also found that scheduled commercial banks served 34,709
banked centres. Of these centres, 28,095 were single office centres and 64 centres
had 100 or more bank offices.The confidence of non-resident Indians (NRIs) in the
Indian economy is reviving again. NRI fund inflows increased since April 2009
and touched US$ 45.5 billion on July 2009, as per the RBI's February bulletin.
Most of this has come through Foreign Currency Non-resident (FCNR) accounts
and Non-resident External Rupee Accounts. India's foreign exchange reserves rose
to US$ 284.26 billion as on January 8, 2010, according to the RBI's February
bulletin.
 p


 (

OBJECTIVES OF THE STUDY

With reduction in interest rates in fixed deposits and other saving schemes, public
provident funds, government securities investors area looking for other investment
opportunities which can provide better returns with moderate level of risk. This
study focuses on analysis of safety and returns associated with the banking scripts.
Thus objectives of this study are:

‘ To analyze current trends and growth patterns of the banking sector.

‘ To study the performance of banking industry in the market.

‘ To measure the safety level associated with the bank scripts in the portfolio.

‘ To depict the present and future potential of banking industry.

 

A research design is a type of blueprint prepared depending on various types of

blueprints available for the collection, measurement and analysis of data. A
research design calls for developing the most efficient plan of gathering the needed
information. It is based on the purpose of the study. Research design is the
specification of methods and procedures for acquiring the information needed. It is
an overall operational pattern or framework of the project that stipulates what
information is to be collected from which source by what procedure. Ex post facto
and observational technique .

 


The sample size taken is 4 i.e. four banks are been taken for the analysis of the
report. The four banks taken are as follows:
1. HDFC
2. STATE BANK OF INDIA
3. ICICI
4. BANK OF INDIA
 

 




 

The data used in this study is secondary data. Various magazines and journals were
referred. The banks websites was an effective source for collecting the information.
The annual reports of banks were analyzed for financial appraisal.
The various journals referred were Dalal Street, Business world and Capital
market.

For data analysis

Following Ratios were used for analysis
ASSET QUALITY

‘ Gross NPA / Gross advance

‘ Gross NPA / Total asset
‘ Net NPA / Net advances

 OFITABLITY ATIOS
‘ Interest on advances / total income
‘ Interest on investment / total income
‘ Other income / total income
‘ Profit margin = net profit / total income
‘ Net profit / working fund
‘ Interest income / working funds
‘ Non interest income / working funds
‘ Interest income / total assets
‘ Asset utilization = total income / total asset
‘ Return on assets = total income / total asset

 ODUCTIVITY MEASU ES
‘ Business per employee = (advance + deposit) / number of employees
‘ (Working fund + contingent liability) / number of employees
‘ net total income / number of employees
‘ working fund / establishment cost
STAFF DELOYMENT

‘ Official / total staff

‘ Clerk / total staff
‘ Sub staff / total staff
 p


!V
V
(
V
(

ECONOMIC ANALYSIS

We are living in a fast changing world. With new emerging technologies and
commitments to international institutions like WTO, IMF, WORLD BANK, the
government of India is pulling down barriers to foreign trade and
investment. This gives clear signals to privatization and liberalization. The system
has undergone substantial changes in response to the changes that have been taking
place in social, political and economic environments. In addition to meeting the
increasing demands from the traditional markets, new markets have been brought
into the financial sector, entailing in the process the adoption of new marketing
concepts and calling for an entirely new approach and a significant change in the
market attitudes. The financial sector can also claim to have achieved significant
success in this sphere. A sound financial system touching every aspect of economic
activities is a pre-requisite of a vibrant and developing economy.

India¶s bright economic forecast: Continuing growth

During the last decade, India has emerged as one of the biggest and fastest growing
economies in the world. The strengthening economy in India has been fueled by
the convergence of several key influences: liberalization policies of the
government, growth of key economic sectors, development of an English speaking,
well-educated workforce and the emergence of a middle-class population. The
country¶s economy is now in the process of development this is continuously
creating opportunities for business activities. Economic development in India has
broadly two facts:

‘ Quantitative
‘ Structural

Quantitative deals with the examinations of trends related to national income,

which is having moderate rate of growth. Apart from the growth in quantitative
terms, structural changes indicate the process of development. However the speed
is slow in certain sphere. It is under consideration that the importance of
agriculture in India¶s economy has declined over the years and the importance is
given to the basic industries, infrastructure, banking and financial structure due to
liberalization and privatization.

More liberal economic policies: Opening the marketplace India¶s debt crisis in the
early 1990s forced the government to radically reform its economic policies. The
resulting liberalization program opened the market for foreign investment, fostered
domestic competition and spawned an era of privatization. In the 10 years after
1992, India¶s economy grew at an average rate of 6.8 percent during April to June
2004; the economy continued to show its strength and grew by 7.4 percent.
Foreign direct investment (FDI) grew more than twentyfold, from just under
US$0.13 billion in 1992 to almost US$2.86 billion in 2003. Meanwhile,
privatization accelerated between 2000 and 2002, when 13 state-owned companies
were sold, 9 while the Indian government recently raised another US$3.41 billion
by selling off stakes in 6 state-owned firms.10 The surge in FDI helped to create a
capital markets boom and reduced the overall cost of borrowing for Indian
companies, particularly contributing to expansion of the services, agriculture and
manufacturing sectors. This shift towards mixed economy resulted in huge changes
in the business environment like:

Private ownership as a means of production:

At present big segment of industries are in private hands. Except some exceptions
of industries most of them in are privatized like heavy engineering, electronics,
textiles, telecommunication, leather cement, media, pharmaceutical and banking.

‘ Monopoly trends:
In Indian context the monopoly trend of various houses has reduced to a large
extent over the years.
‘ Coexistence of public sector with private sector:
The public sector has coordinated its activities with private sector in order to
improve the performance of economic engines.
‘ Economic reforms
Economic reforms play a substantive role in boosting up the economy of the
country. At present more emphasis is given to foreign trade and investment so as to
open up the economy of the country.
‘ Fully convertibility of rupees:
In 1991 the rupee got fully convertible for current account for all trade related
activities. As far as current scenario is concerned we may definitely look for an
open economy.
 We can visualize the present situation in India with the help of key economic
indicators:

‘ THE country's current account has slipped into further deficit at $5.47
billion for the third quarter ² October- December 2006 ² from a deficit of
$4 billion in the second quarter, as per the latest Balance of Payments (BoP)
figures released by the Reserve Bank of India.
‘ GDP growth is above 7%
‘ Exports have been growing at a annual rate of 17% in dollar
‘ Non oil import growth is at 15% with an increase of 10% in exports.
‘ The country¶s foreign exchange reserves were at US$141.46bn in the week
ended April 8, 2005.
‘ Interest rates are in line with international interest rates.

 OSS DOMESTIC  ODUCT

GDP indicates the rate of growth of the economy. It represents the aggregate value
of the goods and services produced in the economy. GDP consists of personal
consumption expenditure, gross private domestic investment and government
expenditure on goods and services. GDP growth in the first half has been 7.0
percent and since agricultural growth should strengthen further over the next two
quarters, we expect overall growth in the second half to be stronger. The Indian
economy is set to expand at around 8 percent this financial year on the back of
strong farm and services growth.
Growth of the Indian economy, second fastest growing
economy in the world after China (figure1), is again expected
to accelerate in the current financial year, aided by the
moderate monsoon rains, pushing farm sector growth and
boosting rural incomes, also with a significant growth in the
service industry.
Source: World Bank, World Development Indicators Database, 2003

INFLATION

Along with growth of GDP, if the inflation rate also rises, and one another reason
for increase in the inflation rate is the hike in international oil rates, then the real
rate of growth would be very little. If there is a mild level of inflation, it is good for
the stock market but high rate of inflation is harmful for the stock market.
The annual rate of inflation, calculated on point-topoint basis, stood at 5.05 percent
(Provisional) for the week ended 26/03/2005 as against 5.11 percent (Provisional)
for the previous week and 4.64 percent during the corresponding week of the
previous year. Inflation rate fell during the month as the Wholesale Price Index for
All Commodities' for the week ended 5th March 2005 calculated on point-to-point
basis, stood at 5.30 percent. Thus inflation rate is expected to average at about 5.0
to 5.5 percent this fiscal. The continued strength of manufacturing inflation in the
current period indicates an adequacy of domestic demand.
INTE EST ATES

THE GOVERNOR of the Reserve Bank, Y.V. Reddy, had to be circumspect when
formulating the Credit Policy for 2006-07 as he had to take into account the
developments in the money market in the past year, which were suggestive of a
hardening of interest rates. Interest rates have been rising in the U.S. and elsewhere
and, in India too, the trends in giltedged prices were creating problems for those
seeking to secure their requirements on a cheap as in 2001-04. Therefore prime
lending rate of major 5 banks remained static at 10.25%-10.75% in the month of
March also. Bank rate is also the same as of last month's figure of 6%.

INDUST Y ANALYSIS

Banking has traditionally remained a protected industry in many emerging

economies. Regulated deposits and lending rates and restrictions enabled
comfortable spreads. There were limited pressures on banks to come out of this
quiescent and protected world. A combination of developments has compelled
bankers to change the old ways of doing business. These include among others
technological advancements, intermediation pressures arising from liberalized
financial market place, increased emphasis on shareholder value, and
macroeconomic pressures and banking crisis in the 1990s.the scope timing and
speed of this process, however, have not been uniform across countries or
segments of the industry, reflecting the differing objectives of intervention and
diverse initial conditions. With the liberalization, Indian banking industry has
witnessed qualitative and quantitative changes. It is now savoring the fruit of the
regulatory deregulation. In fact the banking industry has become a matured
segment capable of achieving global benchmarks. Some of the changes include the
opening up of the banking industry for private players, introduction of capital
adequacy norms as well as stringent norms for asset classification and provisioning
risk based supervision and management and the dilution of government ownership
of banks. Today banks are given more operational freedom in their day to day
activities such as the fixing of lending and interest rates, branch expansion
investments, credit delivery, recruitment and the creation of posts.
3hat¶s hot in Indian retail banking?

With one of the most underpenetrated retail lending markets in Asia-Pacific, India
offers great potential. India¶s mortgage debt in 2002 totaled only 2 percent of gross
domestic product (GDP), compared to 7 percent of Thailand¶s GDP, 8 percent of
GDP in China and much higher proportions in other parts of the region: Malaysia
28 percent), South Korea (30 percent) and Hong Kong (52 percent).2 While India
remains characterized by extreme wealth and poverty, a middle class is beginning
to emerge, with absolute demand for products and services on the rise. To seize
this opportunity, new market entrants must exploit specific market niches and
leverage bestin- class capabilities while addressing the unique challenges of the
Indian banking environment. Four banking product areas with high growth
potential have been identified:
‘ ð



- The appealing combination of low, stable interest rates,
rising household income and more receptive customer attitudes toward
holding debt translated into a market that expanded 35 percent annually from
1999 to 2004.
‘  

± The automotive lending market benefits from the same
drivers that are shaping the mortgage opportunity; car sales volume in 2004
soared to more than a million vehicles, up from 664,127 in 2003 and beating
earlier estimates of reaching 954,354 annually in 2007.
‘


± The public sector banks in India have traditionally focused
on serving big industry rather than small businesses; however, India¶s SME
market has expanded to over 3.5 million businesses which are growing,
increasingly exporting and importing, and demanding more sophisticated
banking products and services.
‘  



  ± The growing market for wealth management
offers good opportunities for banks that can establish the right combination
of account management and distribution infrastructure. Banks and
brokerages are doing business with less than a third of the 50,000 families in
India with net worth of US$1 million and higher.

The recent trends in India¶s banking industry

India¶s banking industry is one of the major beneficiaries of the country¶s

ascendant economic power. Improving consumer purchasing power, coupled with
more liberal attitudes toward personal debt, is fueling India¶s explosive banking
segment. Bank asset growth between 1998 and 2003 places India favorably among
a sampling of the developing economies in China, Hungary, Indonesia, Poland and
South Korea. For the period, total bank assets in India rose from US$187.2 billion
to US$373.8 billion, a 14.8 percent CAGR. Even though the brisk rate of growth in
the Indian banking sector is expected to level off, it should remain solid through
2007.

Source: Reserve Bank of India.

While the absolute growth of India¶s overall banking market is impressive (Figure
2), global banks should be encouraged further by the relatively underpenetrated
status of the country¶s various retail lending segments. The retail market for
mortgages, credit cards, automobile loans and other consumer loans is expected to
jump from its 1999 total of US$9.7 billion to US$36.7 billion in 2004.
Source: Reserve Bank of India.

Even with this strong performance, significant opportunities for continued retail
lending growth remain. Evidence suggests that India¶s traditionally fiscally
conservative consumers are becoming more receptive toward holding debt. The
forecasted total debt of US$36.7 billion in 2004 represents just 5.8 percent of
India¶s expected GDP, up from 2.2 percent in 1999. Still, these retail lending
figures lag India¶s regional peers. Taking another view, India¶s consumer
borrowing represented just 2 percent of household income in 2002, sharply less
than the totals of Singapore (176 percent), Malaysia (75 percent) and Thailand (39
percent). Unlike most rapidly expanding, emerging markets, India¶s banking sector
has exhibited financial stability and a trend toward improved governance under the
management of its central bank, the Reserve Bank of India (RBI). One challenge
the RBI had to contend with was the legacy of policy-directed, corporate lending
by the state-owned banks that had produced high levels of nonperforming assets
(NPAs). Through structural reform, remedial legislative actions, and favorable
returns from the fixed income Treasury Markets, Indian banks have cut gross NPA
levels from 15.7 percent in 1997 to 8.8 percent in 2003. Fortunately, new entrants
to the market are not subjected to the same mandatory lending requirements as
domestic banks and can therefore "cherry-pick" the most desirable clients,
allowing them to lower their own risk of NPAs through more rigorous risk
management strategies. Global banks in India: Gaining a foothold
The competitive environment in India presents both challenges and opportunities
to global banks seeking market entry. Entrenched domestic competitors and
restrictive equity ownership ceilings imposed by the government create obstacles
for banks establishing a foothold in India. Primary challenges include tough
competition and government ceilings on foreign equity ownership. Opportunities
exist because global banks often have technological advantages, well-honed,
efficient processes and appealing products and services. The strongest competition
facing global banks in India comes primarily from the public sector (the State Bank
and Nationalized Bank groups) and the New Private Bank groups. State dominance
of the banking sector dates back to the inception of the RBI in 1935. When the RBI
commenced operations, the state controlled 100 percent of the banking institutions.
Since the 1990¶s, India¶s reform-driven policies have promoted the gradual
deregulation and modernization of the banking sector. The formation of the Old
Private Bank group and then the New Private bank group opened the market place
to greater competition. Gradually, the grip of public sector banks has loosened, as
evidenced by that group¶s drop in total asset share, from 89.1 percent in 1990 to
75.7 percent in 2003. However, state-backed institutions remain formidable,
possessing expansive channel reach and huge customer bases, controlling not only
three-quarters of total assets, but also three-quarters of income. In 2003, the
Foreign Bank group controlled less than seven percent of total industry assets and
less than nine percent of total income.

Source: Reserve Bank of India.

The other key competitors for global banks are the banks of the New Private Bank
group ± this set of institutions has proven more nimble than other domestic players.
Since its formation in the 1990s, this group leveraged its strong domestic branding
and above-average operational capabilities to aggressively win market share from
state-backed incumbents. From 1998 to 2003, the New Private Banks had a 47.4
percent CAGR in total assets, compared to 14.7 percent CAGR for the State Bank
group and 12.2 percent CAGR for Nationalized Banks. Asset and income market
share in 2003 remained highly concentrated among top banking institutions. The
top 15 banks operating in India controlled 67.7 percent of total assets ± only two
are not public sector banks. A slightly different top 15 group controlled 65.7
percent of total income in 2003 ± of this group, 12 are public sector banks. Many
domestic banks are ill-equipped to compete with global banks from an operational
perspective. Faced with this concentrated and entrenched competitive landscape,
global banks in India have achieved mixed results during the last five years. On the
³plus side,´ global banks have improved margins by focusing on cost, customer
service and better risk management ± with employee productivity and profitability
metrics that outperform other banking groups. These banks have achieved higher
margins from leveraging technology, as well as efficient, standardized processes.
Global banks¶ strong brand cache often allows them to justify premium pricing
strategies relative to their domestic competitors, further cushioning margins.
Profitability per employee for the Foreign Bank group reached US$32,375 in 2003,
and the New Private Bank group held a distant second place with US$8514 for the
same measure (Figure 6).

Source: Reserve Bank of India.

On the negative side, the Foreign Bank group¶s share of total assets and banking
income has declined annually since 1998 (see Figure 7),32 and the number of
global banks in India fell from 44 in FY1999 to 36 in FY2003.33 A combination of
regulatory and strategic developments influenced this retrenchment from India. On
the regulatory front, certain banks exited India due to the restrictive policies
governing branch expansion and equity ownership. Other banks divested their
Indian interests in accordance with broader global strategies stemming from the
global economic downturn.

Source: Reserve Bank of India.

For the most part, global banks must execute on an organic growth strategy to
expand their footprint in India. Merger and acquisition activity in the banking
sector remains limited by government regulation. On July 2, 2004, the RBI
proposed new restrictions for all private banks. Banks already operating in India
would be limited to 5 percent ownership in other banks, with groups of investors
limited to 10 percent ownership; those with larger holdings would have to reduce
ownership over three years. Generally, this proposal to limit or reduce portfolio
investment is viewed as an attempt to keep the Indian banking sector from
becoming a speculative market while continuing to allow operating investments in
the sector. This is difficult news for global banks that have relied on acquisitions as
a market entry or expansion strategy. Unless the government shifts its posture on
foreign equity ownership, global banks will have to rely on organic growth to
expand their presence in India.
 p
V
V
(

 p"
V

HDFC was incorporated in 1977 with the primary objective of meeting a social
need ± that of promoting home ownership by providing long-term finance to
households for their housing needs. HDFC was promoted with an initial share
capital of Rs. 100 million.

" #
$

The primary objective of HDFC is to enhance residential housing stock in the
country through the provision of housing finance in a systematic and professional
manner, and to promote home ownership. Another objective is to increase the flow
of resources to the housing sector by integrating the housing finance sector with
the overall domestic financial markets.

 




HDFC¶s main goals are to
‘ develop close relationships with individual households,
‘ maintain its position as the premier housing finance institution in the
country,
‘ transform ideas into viable and creative solutions,
‘ provide consistently high returns to shareholders, and
‘ to grow through diversification by leveraging off the existing client base.

Over the past two decades, HDFC has been making inroads into varied spheres of
development, while retaining a focus on low-income housing and related issues.
During this year, HDFC further consolidated its operations as a wholesaler in
micro-finance and weaker section housing. In addition, HDFC has been engaged in
some specific microfinance initiatives involving for e.g. policy frameworks and
developing case studies; these have been captured in a separate section below.
  p"
V( V
Vp
(!(
 
V
p %&&'

The Board of Directors of HDFC Bank Limited approved the annual audited
(Indian GAAP) accounts for the year ended March 31, 2007 at their meeting held
in Mumbai on Wednesday, April 11, 2007. The Board also reviewed the unaudited
US GAAP income statement for the year ended March 31, 2007.

 
( )  

*+



,    %&&'+

The overall operating and financial performance for the financial year 2006-07
remained healthy. Total net revenues (net interest income plus other income) at
Rs.2429.3 crores, increased by 33.6% over Rs.1817.9 crores in 2005-06. The
revenue growth was a result of an increase of 32.9% in net interest income and of
35.7% in other income (non-funded revenues). The net interest income growth was
driven by an increase in the average balance sheet size by 28.9% and a marginally
higher net interest margin at 3.9%. The other income (non-interest revenue) had
three main components: Commissions, Profit/Income from foreign exchange &
derivatives and Profit/(Loss) on sale of investments. In 2006-07, Commission
income increased by 88.8% to Rs.605.0 crores, with key growth drivers being
commissions from distribution of third party mutual funds & insurance, retail
banking fees on debit/credit cards & pointof- sale (POS) terminals and
transactional charges/fees on deposit and depository accounts. Losses on sale of
investments (net of revaluation gains) were at Rs.65.8 crores in 2006-07 against
profits of Rs.26.9 crores during 2005-06. This was due to the increase in yields on
government securities and includes the mark-to-market impact on transfer of
around Rs.3000 crores of SLR (for Statutory Liquidity Ratio) securities from the
³Available for Sale´ (AFS) to the ³Held to Maturity´ (HTM) category in
September 2006, as permitted by the new RBI guidelines. Foreign exchange and
derivatives revenues were Rs.111.6 crores in 2006-07, consisting of Rs.91.2 crores
in revenues from foreign exchange and Rs.20.4 crores as derivatives revenues.
Operating (non interest) expenses increased from Rs.810.0 crores in 2005-06 to
Rs.1085.4 crores in 2006-07. Despite a significant increase in infrastructure
investments, including a 50% increase in the branch network, a 26% increase in
number of ATMs, expansion in the geographical spread of retail loan and card
products, etc., operating expenses as a proportion of net revenues, remained almost
stable at 44.7% in 2006-07 against 44.6% in 2005-06. Loan loss provisions for the
year were Rs.176.2 crores (Rs.178.3 crores in 2005- 06) primarily consisting of
specific and general loan loss provisions for retail asset products. Provisions for
amortisation of investments were Rs.188.1 crores in 2006-07 as against Rs.93.2
crores in 2006-07, principally due to higher amortisation of premium on
investments due to the higher proportion of SLR securities now held in the HTM
category. Profit Before Tax for 2006-07 was up 36.2% to Rs.978.9 crores. Net
profit increased by 30.6% from Rs.509.5 crores in 2005-06 to Rs.665.6 crores in
2006-07. Return on average networth was 20.4%, against the previous year figure
of 20.1% despite the expansion in the capital base in January 2007 consequent to
the Bank¶s add-on ADS issue. The bank¶s basic earning per share increased from
Rs.17.95 to Rs.22.92 per equity share. March 31, 2007 - Balance Sheet: During
2006-07, the Bank¶s total balance sheet size increased by 21.6% to Rs.51429
crores. Total Deposits increased by 19.6% from Rs.30409 crores (as of March 31,
2006) to Rs.36354 crores (as of March 31, 2007). Savings account deposits, which
reflect the strength of the retail liabilities franchise and are an important source of
stable, low-cost funds, increased by 46.3% from Rs.7804 crores to Rs.11418 crores
as of March 31, 2007. During 2006-07, net Advances grew by 44.1% to Rs.25566
crores. This was driven by a growth of 47.5% in retail advances to Rs.11696 crores
(including car loans, personal loans, commercial vehicle loans, two-wheeler loans,
credit cards, etc., net of sale of retail loans of about Rs.4800 crores during the
year), and an increase of 41.3% in wholesale advances to Rs.13870 crores. The
bank¶s core customer assets (advances plus credit substitutes like commercial
paper, corporate debentures, preference shares, etc.) increased by 38.0% from
Rs.19494 crores in March 2006 to Rs.26902 crores in March 2005. In addition, the
bank held Rs.3061 crores of investments brought in through the securitisation route
where the underlying assets were primarily commercial vehicle/car loans and
mortgage receivables. Total customer assets (including securitisation investments)
were therefore Rs.29963 crores as of March 31, 2007.

' 
   %&&'+

For the quarter ended March 31, 2007, net revenues were Rs.733.6 crores, up by
46.4% from Rs.501.1 crores in the corresponding quarter ended March 31, 2006.
Net interest income increased by 42.4% to Rs.513.6 crores, driven by balance sheet
growth, a marginal improvement in spreads and profit on sale of retail loans. Other
income (non-funded revenues) grew by 56.6% to Rs.220.1 crores, primarily
consisting of commissions of Rs.176.8 crores, profit on sale of investments of
Rs.20.5 crores and foreign exchange & derivatives revenues of Rs.25.5 crores, as
against Rs.100.0 crores, Rs.(8.2) crores (loss) and Rs.48.0 crores respectively,
for the corresponding quarter ended March 31, 2006. Operating expenses for the
quarter increased from Rs.216.7 crores (for the quarter ended March 31, 2006) to
Rs.328.7 crores (for the quarter ended March 31, 2007). After providing for loan
loss provisions of Rs.55.1 crores (Q4 2005-06 of Rs.42.0 crores) and provisions for
amortisation of premia on investments in the ³Held to Maturity´ (HTM) category
of Rs.59.6 crores (Q4 2005-06 of Rs.30.4 crores), Profit Before Tax (PBT) for the
quarter was Rs.297.9 crores, up 40.2% from the corresponding quarter ended
March 2006. Net profit for the quarter at Rs.202.4 crores, represents a 30.8%
increase over the corresponding quarter ended March 2006 and a 18.4% increase
over the immediate preceding quarter ended December, 2006.

!

:

Net Profit computed in accordance with US GAAP (unaudited) for the year ended
March 31, 2007, showed a healthy growth of 39.0% from Rs.475.5 crores in 2006-
07 to Rs.661.0 crores in 2006-07. The net difference between profits computed in
accordance with Indian GAAP and US GAAP is primarily due to differences in
accounting treatment for amortisation of premia on investments held in the
³Available for Sale´ category, loan loss provisions, deferred stock compensation
expense and amortisation of acquisition costs on retail loans.

$  :

The Board of Directors recommended an enhanced dividend of 45% for the year
ended March 31, 2007 (including a special one-time dividend of 5% on the
occasion of the Bank completing 10 years of operations), as against 35% for the
previous year. This would be subject to approval by the shareholders at the next
annual general meeting.



p 

:

The Bank raised capital in the form of add-on American Depository Shares (ADS),
which were listed on the New York Stock Exchange on January 21, 2007 at a price
of US$39.26 per ADS. Each ADS represents 3 equity shares. The issue size was
US$261 million plus a green shoe option of US$39 million, which was exercised.
Net of issue expenses, the Bank received US$291 million. Consequent to this
issue, the share capital of the Bank has increased by Rs.22.9 crores and the
reserves of the Bank have increased by Rs.1251.8 crores as share premium after
charging off issue related expenses.
p 


- ,
:

As a result of the add-on ADS issue and retention of current year profits, theBank¶s
total Capital Adequacy Ratio (CAR) as at March 31, 2007 stood at a healthy
12.2%, well above the regulatory minimum of 9%. Tier I CAR was 9.6%. These
CAR ratios are after taking into account the higher risk weights specified by RBI
for consumer loan (from 100% to 125%) and for mortgages / MBS (from 50% to
75%), as well as the capital requirement for market risk on the trading book.

" !
:

The Retail Banking business continued to be the fastest growing of the bank¶s
businesses in 2006-07. Expansion in the distribution network was stepped up with
the number of branches (including extension counters) increasing from 312 (in 163
cities) to 467 (in 211 cities) and the size of the bank¶s ATM network expanding
from 910 to 1147. The bank¶s credit card business continued to be on a healthy
growth trajectory with the total number of cards issued crossing 1.25 million as of
March 31, 2007. The bank further expanded its presence in the ³merchant
acquiring´ business with the total number of point-of-sale (POS) terminals
installed by the bank at over 41,000, up from 26,000 in the previous year. The bank
also achieved strong growth in its distribution of third party insurance and mutual
funds. The bank further consolidated its position as a leading Depository
Participant with over 700,000 retail investor accounts. During FY 2006-07, growth
in the wholesale banking business continued to be driven by new customer
acquisition and higher cross sell with a focus on optimising yields and increasing
product penetration. The Bank¶s commercial banking business, focused primarily
at the top end of the corporate sector, has been supplemented by currently small,
but growing SME and agri-based lending businesses. The bank¶s customized
supply chain management solutions which combine electronic banking, cash
management and vendor & distributor finance products, remained an important
contributor to the growth in the corporate banking business. In the transactional
banking segments, the bank has consolidated its position as a leading player in
cash management and correspondent banking services as well as a provider of cash
settlement services to stock and commodity exchanges. The Bank also remained a
leading provider of foreign exchange and derivatives products to its corporate
customers.
. 
 
(
'

,:

The bank¶s portfolio quality remained amongst the best in the Indian banking
industry with net non-performing assets (NPAs net of specific loan loss provision,
interest in suspense and ECGC claims received) at 0.24% of advances and 0.20%
of total customer assets. The bank continued its conservative provisioning policies
with both specific and general loan loss provisions being higher than the regulatory
requirements.
 
"
V V


The origin of the State Bank of India goes back to the first decade of the nineteenth
century with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806.
Three years later the bank received its charter and was re-designed as the Bank of
Bengal (2 January 1809). A unique institution, it was the first joint-stock bank of
British India sponsored by the Government of Bengal. The Bank of Bombay (15
April 1840) and the Bank of Madras (1 July 1843) followed the Bank of Bengal.
These three banks remained at the apex of modern banking in India till their
amalgamation as the Imperial Bank of India on 27 January 1921.

STATE BANK OF INDIA

3O KIN ESULTS FO THE QUA TE
9 MONTHS
ENDED 31st DECEMBE 2006

HIHL IHTS(Q-3)

The Bank posted a Net Profit of Rs. 1099.35 cr for the quarter ended 31st
December 2006 compared to Rs.919.44 cr. in quarter ended 31st December 2005,
registering a growth of ¢ 
The Operating Profit for Q-3 of 2006-07, at Rs. 3389.97 cr, recorded an impressive
growth of !!"# over Q-3 of 2005-07. Net Interest Income recorded a growth of
31.99% during this quarter over the corresponding quarter last year due to higher
level of Advances and lower cost of deposits. Profit from Sale of investment
during the quarter stood at Rs 947.64 cr.

HIHLIHTS (9 months)

Net Profit for the 9- month period ended 31st December 2006 stood at Rs. 3239.64
cr as compared to Rs. 2808.54 cr. in the 9-month period ended 31st December
2005, registering a growth of 15.35 .
The Operating Profit for the 9-month period ended 31st December 2006 at Rs.
8066.28 cr recorded a growth of 1$$$ over Rs.7188.14 cr in the 9-month period
ended 31st December 2005. The growth in Operating Profit was achieved due to
increase in both Net Interest Income and Other Income (excluding profit on Sale of
Investments).
The growth in Net Profit was achieved due to the increase in Operating Profit,
despite larger provisions being made during the 9 month period on considerations
of prudence.

c c


c  

Net Interest Income of the Bank went up by 26.94% to Rs 9993.97 cr in the 9-
month period ended 31st December 2006 as against Rs. 7872.72 cr in the 9-month
period ended 31st December 2005.
‘ Advances grew to Rs 195565 cr as at the end of December, 2006,from
Rs.151629 crs as at the end of December 2005 (last Friday) i.e. a growth of
Rs 43936 crs (28.98%) on year- to- year basis. Average yield on advances
declined to 7.75% from 8.32 % due to declining interest rates.
‘ Average resources deployed in treasury operations in India went up by Rs.
7892 cr recording a growth of 3.77% as compared to 9 month period ended
31st December 2005. The average yield in resource operations was lower at
7.94% as compared to 8.62% in the corresponding period last year due to
declining interest rates.
‘ Deposits grew to Rs. 350630 cr as at the end of December, 2006 from
Rs.302344 crs as at the end of December, 2005 (last Friday), i.e. a growth of
Rs. 48286 cr (15.97%) on year-to-year basis. Domestic Deposits (excluding
IMDs) recorded a growth of 16.84% as compared to a growth of 14.37 % up
to Q-3 of 2005-06.
‘ The cost of deposits (excluding India Millennium Deposit) declined from
5.65% in 9 month period ended 31st December 2005 to 4.74% in 9 month
period ended 31st December 2006, a reduction of 91 basis points. Other
Income other than profit on sale of Investment grew by 25.28% as compared
to 9 month period ended 31st December 2005. The Other Operating
Expenses of the Bank registered an increase of 21.65% mainly on account of
technology drive initiated by the Bank. Staff Cost registered an increase of
16.96% Total provisions made for the 9 month period ended 31st December
2006 amounted to Rs. 4826.64 cr as compared to Rs.4379.60 cr made in 9
month period ended 31st December, 2005 on account of the following:
‘ Provision for NPAs at Rs 1300.00 cr for the 9 month period ended 31st
December 2006 (Rs 2660.32 cr in 9M 2005-06).
‘ Higher Provision for investment depreciation at Rs. 907.75 cr (Rs 222.57 cr
in 9M 2005-06)
‘ Higher provision for Tax (including deferred tax) at Rs. 2030.05 cr (Rs.
1368.44 cr in 9M 2005-06)
‘ Provision for Wage Revision Rs. 500.00 cr (Nil in 9M 2005-06)
  ‘
‘
During April-December 2006, the retail advances in personal segment have grown
by Rs. 10431 crores. The outstanding personal segment advances aggregate Rs.
43,581 crores at the end of December 2006. The Bank continues to perform well in
housing finance. During 9 months of 2006- 07, housing advances have grown by
Rs.6235 crores and the total outstanding as at the end of December 2006 was Rs.
23317 crores. Retail advances grew by 31.46% over March 2006 and it constituted
25.17% of Bank¶s Gross Domestic Advances as on last Friday of December 2006
as against 22.07% as on last Friday of December 2005. Housing Loans constitute
53.50% of our Retail Advances as on December
2006. Agricultural Advances grew to Rs 17830 cr as at the end of December 2006
from Rs13665 cr as at the end of December 2005(last Friday) i.e. a growth of Rs
4165 cr (30.48%) on year-to year basis.
‘
J
 c !
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
 = = =





"#$  %&'())*+((,-
-# .   /

The Board of Directors of ICICI Bank Limited (NYSE: IBN) at its meeting held at
Mumbai today, approved the audited Indian GAAP accounts of the Bank for the
financial year ended March 31, 2007 (FY2005). The Board also approved the
audited consolidated Indian GAAP accounts and the US GAAP accounts for the
period.
‘
Highlights

Õ Profit after tax for FY2007 increased 22% to Rs. 2,007 crore (US$ 460 million)
from Rs. 1,637 crore (US$ 375 million) for the financial year ended March 31,
2006 (FY2006).
Õ Profit after tax for the quarter ended March 31, 2007 (Q4-2007) increased 35% to
Rs. 615 crore (US$ 141 million) from Rs. 455 crore (US$ 104 million) for the
quarter ended March 31, 2006 (Q4-2006).
Õ Net interest income increased 43% to Rs. 2,839 crore (US$ 651 million) for
FY2005 from Rs. 1,987 crore (US$ 456 million) for FY2006.
Õ Fee income increased 79% to Rs. 2,098 crore (US$ 481 million) for FY2007
from Rs. 1,175 crore (US$ 269 million) for FY2006.
Õ Retail assets increased 68% to Rs. 56,133 crore (US$ 12.87 billion) at March 31,
2007 from Rs. 33,424 crore (US$ 7.66 billion) at March 31, 2006. The Bank now
has the largest retail portfolio in India.
Õ Deposits increased 47% to Rs. 99,819 crore (US$ 22.88 billion) at March 31,
2007 from Rs. 68,109 crore (US$ 15.61 billion) at March 31, 2006.
Õ At March 31, 2007, the Bank¶s net non-performing assets constituted 2.0% of
customer assets.
‘
°"  0 

The Board has recommended a dividend of 75% for FY2007 and a special
dividend of 10% to mark the completion of 50 years in finance by the ICICI group.
The declaration and payment of dividend is subject to requisite approvals.
‘
‘
‘
‘
. "#
  # 

The Bank¶s total advances increased 46% to Rs. 91,405 crore (US$ 20.95 billion)
at March 31, 2007 compared to Rs. 62,648 crore (US$ 14.36 billion) at March 31,
2006. The Bank maintained its growth momentum in the retail segment. The Bank
strengthened its leadership in home loans with disbursements of Rs. 18,873 crore
(US$ 4.33 billion) in FY2007. The Bank strengthened its leadership in the credit
card business and had a credit card base of about 3.3 million cards at March 31,
2007. Retail assets constituted 61% of advances and 58% of customer assets. The
Bank¶s net customer assets at March 31, 2007 were Rs. 96,917 crore (US$ 22.22
billion). While retail loans have been a major driver of banking sector credit
growth, there are indications of a pickup in industrial credit as well. The Bank is
focusing on credit origination in both the corporate and retail segments and on
growth in non-fund based products‘
‘
 

The Bank¶s deposits increased 47% to Rs. 99,819 crore (US$ 22.88 billion) at
March 31, 2007 from Rs. 68,109 crore (US$ 15.61 billion) at March 31, 2006,
compared to the banking system deposit growth of 14%. During this period,the
Bank repaid about Rs. 9,000 crore (US$ 2.06 billion) of erstwhile ICICI¶s
liabilities as they fell due in accordance with their terms of repayment. At March
31, 2007, erstwhile ICICI¶s liabilities constituted only 14% of the Bank¶s funding
compared to 26% at March 31, 2006.
‘
    "

ICICI Bank continued to build on its existing presence in various geographies as
well as enter new markets. The Bank opened a representative office in Bangladesh
in August 2006, an offshore branch in Bahrain in October 2006 and a
representative office in South Africa in February 2007 and now has a presence in
eight geographies. The Bank¶s UK subsidiary has achieved profitability in its first
full year of operations. The Bank¶s international presence combined with its
domestic balance sheet enables it to offer a wider range of credit and trade finance
solutions to Indian companies. In addition to providing credit and trade finance
solutions to Indian companies, the Bank is expanding its international retail
franchise. Total inward remittances by non-resident Indians (NRIs) through the
Bank for FY2007 were over Rs. 13,100 crore (US$ 3.00 billion).

‘
.  0

The Bank¶s capital adequacy at March 31, 2006 was 11.78% (including Tier-1
capital adequacy of 7.59%), well above RBI¶s requirement of total capital
adequacy of 9.0%.
‘
c 0 

The Bank¶s net restructured assets at March 31, 2007 were Rs. 6,263 crore (US$
1.44 billion), down from Rs. 6,629 crore (US$ 1.52 billion) at March 31, 2006. At
March 31, 2007, the Bank¶s net non-performing assets constituted 2.0% of
customer assets against 2.9% at March 31, 2006.
‘
  
   $ 1cc
21cc 
The US GAAP accounts show a net income (profit after tax) of Rs. 853 crore (US$
196 million) in FY2007, an increase of 63% over the net income of Rs. 522 crore
(US$ 120 million) in FY2006. ICICI Bank¶s stockholders¶ equity at March 31,
2007 as per US GAAP was Rs. 12,800 crore (US$ 2.93 billion) as compared to the
Indian GAAP consolidated networth of Rs. 12,406 crore (US$ 2.84 billion).
As stated in the Bank¶s press releases dated June 28, 2005 and May 22, 2006, there
are significant differences in the basis of accounting between US GAAP and
Indian GAAP. In the merger of erstwhile ICICI Limited (ICICI) with ICICI Bank,
the Bank was the legal acquirer. Under Indian GAAP, the Bank is the accounting
acquirer. Under US GAAP, ICICI is deemed to have acquired ICICI Bank.
Therefore, the financial statements under US GAAP and Indian GAAP for the
Bank are not comparable and these differences are expected to continue in future
years. ICICI¶s assets were fair valued while accounting for the merger under Indian
GAAP. The primary impact of the fair valuation was the creation of additional
provisions against ICICI¶s loan and investment portfolio, reflected in the Indian
GAAP balance sheet at March 31, 2004. Under US GAAP, ICICI Bank¶s assets
were fair valued while accounting for the merger. There is also a difference in the
basis of computation of provision for restructured loans under US GAAP, which
discounts expected cash flows at contracted interest rates, unlike Indian GAAP,
under which current interest rates are used.
 "
V V


3O KIN ESULTS FO FY 2006-07

The working results of the Bank for FY 2006-07 were adopted by the Bank¶s Board of
Directors at its meeting held at Mumbai on April 29, 2007‘
‘
HIGHLIGHTS
‘

‘ ‘ ‘‘‘‘‘
‘ ‘ ‘ ‘‘‘‘‘
‘ 
‘ !"‘‘‘#$‘
‘ %‘‘‘ ‘‘#&$‘ '‘&$‘
‘ ‘'‘(
(‘(‘)"‘ ‘‘ ‘&‘‘
‘ ‘‘‘‘ ‘‘$‘ '‘#$‘
‘ *! ‘+,‘(‘‘‘-$‘
.(/‘
‘ ‘) ‘ ‘0"‘‘‘-$/‘
‘ ‘°
‘
.‘0"‘1‘‘-$/‘
‘ 2(‘ ‘3.‘‘°
‘'
)‘‘)‘$‘ '‘&#$‘
‘ ‘‘‘
.‘0"‘1#$‘ ‘2(‘ ‘‘‘ ‘ ‘
‘'
)‘‘#$‘ '‘$‘2(‘ ‘ ' ‘‘‘ ‘
 ' ‘ ‘‘‘‘&$‘
‘ "‘2‘ 
‘ !‘##$‘ ‘‘* 4‘‘ ‘

!!‘‘ !‘#$‘ ‘25226%‘  ‘
‘
‘ 7,
‘‘
‘‘
.(‘ ‘1&‘‘‘$‘2(‘ ‘
7,
‘‘‘‘* 4‘‘(‘1$‘
‘ *4‘8!‘‘2(‘ ‘‘1#‘ '‘&#‘
‘ ‘6 )' ‘!! ‘)‘‘#$‘
 ‘#$‘
!‘
‘ 9"‘ )‘! (‘ ‘,
 
‘!‘
 :‘) "
‘
°0! ‘2‘!
:‘2
( 
‘( 
"‘ ‘'
)
‘
‘
  "‘;‘.(‘ ! "‘ ‘ ‘* ‘ !
‘
%!
‘-*%/‘ ‘) ‘
‘
‘
+;‘)‘ ‘6   ‘
 ‘ ))
‘0
‘'
!
‘
 ‘ 
‘
 :‘ ( ' ‘ ‘
!‘ 
‘ ‘
‘
( 
"‘!

‘
‘
DIVIDEND‘‘The Board of Directors has declared a final
dividend of 10% in addition to the Interim Dividend of 10%, taking
the total Dividend to 20% for the year.
BALANCE SHEET STRENGTH
‘ Capital Adequacy Ratio stood at 11.52%.
‘ * 4<‘.(‘ ‘0"‘&‘‘‘#1$‘‘#‘
‘ '‘&#‘
‘ ‘6 )' ‘!! ‘)‘-6/‘‘‘#$‘-‘/‘ ‘

0‘!:‘
 ‘
! ‘ ‘#$
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
 p
/

ANALYSIS AND ESULTS

663‘=6 2‘
2*6‘>°‘666‘* 6‘
6 ‘
 '?‘
 '‘
&‘&‘&1‘&‘
 ‘ ‘
 '?‘
 '‘
‘‘‘#‘
70(' ‘
,
 ?‘
,
‘
‘‘‘1‘


‘

 ?.4
‘
! ‘
‘‘#‘&‘
&‘
227=‘@536=‘
2*6‘>°‘666‘* 6‘
%‘?%‘
) ‘
&‘‘‘1‘
%‘‘?‘
‘
‘&1‘#‘&‘
‘<?‘‘
) ‘
#‘#‘1‘‘
 6=*36=‘=6 2‘
2*6‘>°‘666‘* 6‘
6 ‘ ‘) ‘
?‘ '‘
‘‘&‘1‘
6 ‘ ‘ )?‘
‘ '‘
1‘‘#‘#1&‘
 (‘ '?‘
 '‘
‘‘‘‘
 ‘'
 A ‘

 ?‘ '‘
‘1‘&‘#‘
‘
 ?.4
‘
! ‘
‘‘‘#‘
6 ‘ '‘
?.4
‘ ! ‘
&‘‘‘&‘
 ‘ ‘
 '?.4
‘
! ‘
‘‘‘&‘
6 ‘ '?‘
‘‘
&‘&‘‘1‘
1‘
6 ‘,
 ?‘
‘‘
#&‘‘#‘1‘
‘!B A‘
‘ '?‘
‘
1&‘&‘#1‘‘
! ‘ ‘A‘
‘ '?‘
‘
&‘‘‘1‘
 °5=686=‘+72572‘
2*6‘>°‘666‘* 6‘
*! ‘
‘
'
"A‘
-) C
/? ‘
 ‘'
"‘
‘#‘‘1‘
D4
! ‘
C 
 ‘
0"? ‘ ‘'
‘
#‘1‘&#&‘#1‘
‘‘ '‘
? !'0‘ ‘'
‘
1‘#‘#‘1‘
‘
 ? ‘ ‘'
‘‘1‘‘1‘
D4
‘
! ?0(' ‘
‘
#1‘&1‘&‘&1#‘
2=‘°73 +7=‘
#‘
2*6‘>°‘666‘* 6‘
?‘ ‘‘‘‘‘
4?‘ ‘1‘‘‘‘
2!0 ?‘ ‘1‘‘‘1‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
 p
0

DISCUSSION
Financial

We can see that that the interest income to total income is higher in public sector
banks as compared to private banks which itself says that there are more deposits
in FDs in public banks. The reliability lies with them. The non interest income to
total income is more in private sector banks, this is because they provide more fee
and fund based services like depository services. The establishment expenses to
total expenses is more in public sector banks, thus we can say that private sector
banks are much more efficient than public sector.

ASSET QUALITY

The NPA in public sector banks are more than private sector banks. The private
sector banks are more efficient in recovery. The ratio of NPA to total assets is less
in private sector banks. This is because of the large assets with public sector banks.
The high assets with them balance out the NPA.

 OFITABILITY

The interest on advances to total income is more in public sector banks. This shows
that the deposits are more with the public sector banks. Other income to total
income is less in public sector banks. The profit margin is also low, this depicts
that public sector banks are more socially inclined and that profit making is not
their sole criteria. The non-interest income to total working fund is higher in
private sector banks due to the services provided by them other than the
conventional banking ones. The private banks are solely profit making institutions.
The asset utilization in public sector banks is high. Thus public banks achieve
more return on asset.

 ODUCTIVE MEASU ES

The business per employee in public sector banks is less as compared to private
sector. The private sector banks are more efficient and productive. Similarly the
net total income to number of employees is also less due to inefficiency of the
employees. The official staff, clerk and sub staff to total staff is more in public
sector banks. The work is carried out through human beings as compared to private
banks where the work is done mechanically thus providing more efficiency.
 p
1

Conclusion

India's banking sector will see the onset of a process of churning, mergers,
acquisitions and consolidation. The banking sector has got multifaceted
dimensions. The project analyses the banking industry in a comprehensive manner
still the study is able to enumerate only the broad aspects of the enormous
investment opportunities available in the overall banking sector. It can be
concluded that this sector have full of unlimited opportunities for those who are
interested in safe and regular income on their investments. The deregulation of
banking industry and the entry of private entrants have made this sector an
attractive field of investment for the investors. The sector has performed well even
in times when the sensex was dipping and there was a bearish sentiment in the
overall stock market. The passage of asset securitisation bill has given more nails
to the banks enabling them to recover with their NPA¶s in a more efficient manner
and thereby enhancing their profitability position. With the technology drive large
branch networks customized services and more efficient professional staff, the
sector is in no way lagging behind the other sectors Moreover, with the
manufacturing boom set to continue, we should be looking at the beginnings of an
investment cycle. Many companies that built capacities in the first half of the
1990s are seeing their surplus capacity squeezed out by growth in demand. To be
sure, productivity improvement can raise output without large increases in
investment. Nevertheless, more than 150 listed companies to plan, on an average,
something like Rs 250 crore of investment per firm over the next three quarters - or
Rs 37,500 crore of additional funds requirement. If we add to this the capital
needed for infrastructure projects, we could be looking at a hefty growth in
investment demand. In such a milieu, I don't expect interest rates to soften. Indeed,
they may even marginally harden by June-July 2007. Still, the balance sheets and
profit and loss accounts of many of our public sector banks are going to look better
than before (%  
 
 
&¢# " 
 '  

 "¢ (  $##)
 
& ¢ ** 
'  
"¢ 
(  $##+   

 
¢  ), as they have found new areas of
earning like we have seen above: Housing loan, Vehicle loan, Small and Medium
Enterprise (SME) banking, Personal Financial Services (PFS). We can see three
types of mergers and acquisitions on the horizon. First, where the more aggressive
foreign banks such as Citibank, ABN-AMRO, HSBC, and even Standard
Chartered will seek to buy attractively valued smaller Indian private banks - either
because these have niche customers, or unchallenged businesses, or a strong,
localized geographical presence. Second, some of the newer Indian private sector
banks - especially ICICI Bank and, to a lesser extent, HDFC Bank - which will
also seek such private sector targets. Third, which may be the slowest off the
block, is mergers between some of the public sector banks - if not entire banks,
then well defined parts of operations. It may be slower in coming because public
sector banks will have to get government approvals and also bear the costs of
Parliamentary oversight. Today we can see the trend - that of foreign banks
acquiring sizable stakes or business interests in public sector banks. No doubt, it
will happen one day.
 p
'

SUESTIONS

In today¶s context we can see a major shift in the investment portfolio of the
investors. A major portion of them has started investing in modern investing
schemes rather than the same old conventional ones. At the onset of the new era
the banking industry has enmarked a growth. Thus we can suggest the investors to
go for investments in banking sector. The private sector has started giving better
services through efficient and efficacious use of its technical and human resources.
As far as the reliability is concerned it still lies in the hands of the public sector.
With the help of this analysis the powered growth of banking industry as a whole
can be seen. The growing economy favors the investment opportunities. All the
economic factors are showing a positive trend and thus the investment can be
profitable. The yield and safety of the investors is insured in banking sector. An
investment with a proper foresight and outlook can turn out to be an advantage.
 p
2

 Vp3""(
 

‘ Pandian Punithavathy, Security Analysis and Portfolio Management,2003
Vikas publishing house Pvt Ltd., page no. 215-253.
‘ Singh Preeti, Investment Management, Himalaya Publishing House, Third
Edition. Page no. 278-329.
‘ Banking Management.
‘ Capital Market.
‘ http://www.icicibank.com.
‘ http://www.hdfcbank.com.
‘ http://www.statebankfofindia.com.
‘ http://www.bankofindia.com.
‘ http://www.equitymaster.com.
‘ http://www.bseindia.com