Completion

A Project Report on
EVALUATING THE FAIR VALUE OF AXIS BANK
In partial fulfillment of the requirements of
Master of Management Studies
Conducted by
University of Mumbai Through
Rizvi Institute of Management Studies & Research
Under the guidance of
Prof. Jamil Saudagar
Submitted by
MOHD SUFIYAN MUKADAM
MMS
Batch: 2015 2017

CERTIFICATE
This is to certify that MOHD SUFIYAN MUKADAM, a student of Rizvi Institute of

Management Studies and Research, of MMS III bearing Roll No. 71 and specializing
in Finance has successfully completed the project titled Evaluating the fair value of
Axis Bank.
Evaluating the Fair Value of Axis Bank
Under the guidance of Prof. Jamil Saudagar in partial fulfillment of the requirement
of Masters of Management Studies by University of Mumbai for the academic year
2015 2017.
_________________
Prof. Jamil Saudagar
Project Guide
_________________ _______________
Prof. Umar Farooq Dr. Kalim khan
Academic Coordinator Director
ACKNOWLEDGEMENT
Feeling Gratitude and not expressing it, is like wrapping a present and not giving it,
willingness to put it in words is all that matters. It gives me immense pleasure to
present this report for which I would like to extend my gratitude to Rizvi Institute of
Management Studies & Research for prescribing this
Management Research Project as an Integral part of the academic requirement for the
Masters of Management Studies by University of Mumbai and I express my
gratefulness to Prof. Jamil Saudagar for giving me the opportunity to work on this
report.
I would like to appreciate and acknowledge the influence of my Faculty Guide Prof.
Jamil Saudagar, Rizvi Institute of Management Studies & Research for his
valuable guidance and encouragement from time to time. The insights provided by
him have helped me make this Project Report a truly professional effort. He has been
a true source of inspiration and has always extended his support. It was because of his
assistance and competence that I have reached this milestone.
I am immensely thankful to the other faculties at Rizvi Institute of Management

Studies & Research for guiding me with the insights and approach to the project.
Their guidance has enabled me to mould and assign shape & appropriate direction to
the project.
And last but not the least; I would like to thank my Parents, Colleagues and Friends
for their valuable comments and suggestions for making this a cherishable experience
for me. All the above mentioned people have left a mark on this project and I will
always remain indebted to them.
EXECUTIVE SUMMARY
The main objective of the project was to analyze the financial performance of Axis
Bank. The study of its business and detailed company analysis of Axis Bank. A
company analysis on Axis Bank and its investment argument and concerns.
The project has highlighted the various threats and growth opportunities through
SWOT analysis. To study and understand the impact various factors affecting banking
sector.
The project covers in depth study of Axis Bank. To understand the companys profile,
the wide range of products offered and its. The paradigm shift to understand the
reason of growth and investment benefits in Axis Bank.
To conduct the comparative study with peer groups and different concerns. To
determine the value of Axis Bank through valuation study through dividend discount
model.
Table of Contents
Chapter 1: Introduction to the Banking Industry.......................................01

Chapter 2: Banking Regulation Norms.......................................................09
Chapter 3: HISTORY OF AXIS BANK............................................................13
Chapter 4: COMPANY PROFILE...................................................................14
Treasury operations................................................................................... 14
Retail banking......................................................................................... 15
Corporate/wholesale banking.......................................................................15
NRI services........................................................................................... 15
Business banking...................................................................................... 15
Investment banking................................................................................... 15
Lending to small and medium enterprises........................................................15
Agriculture banking.................................................................................. 16
Chapter 5: NON PERFORMING ASSETS......................................................17
Chapter 6: Factors affecting Banking sector..............................................20
Chapter 7: TYPE OF RISK........................................................................... 28
Chapter 8 : SWOT ANALYSIS......................................................................37
Chapter 9: Financial Statement.................................................................40
Chapter 10: Ratio Analysis........................................................................44
Chapter 11: TREND ANALYSIS....................................................................46
Chapter 12: Peer Group Comparison.........................................................50
Chapter 13: VALUATION............................................................................. 51
Chapter 14: CONCLUSION........................................................................56
TABLE FOR CHARTS, GRAPHS AND IMAGES
Sr. No Particular Page. No
1 Non-Performing Assets 19
2 Economic Factors 21
3 Swot Analysis 37
4 Balance Sheet 40
5 Profit & loss 42
6 Ratio Analysis 44
7 Trend Analysis 46
8 Peer group comparison 50
9 Valuation 51
10 Calculation of Beta 53
11 Calculation of Standard Deviation 53
12 Calculation of true risk free rate of return 54
13 Calculation of cost of debt 54
14 Dividend Discount Model 55
TITLE
Evaluating the fair value of Axis Bank share performance over a period of time
OBJECTIVES
To understand the business model of Axis Bank
To analyze the financial statements of Axis Bank with a view to determine fair
value of the stock price
To study and understand the various risk factors affecting the bank
To make a comparative study with the peer group
To forecast the performance of the company and provide a buy-hold-sell view
SCOPE AND LIMITATION
Evaluating the fair value of Axis Bank share performance over a period of
time
The study is based on the data available from annual reports of the HDFC
Bank, Stock exchange and other authorized data.
The research is also inferred from other reports and research papers.
The valuation is subjected to the variables and based on the view point
sourced from the research.
Research methodology
Source of data collection:
The data has been collected through secondary data sources.
Last 5years financial statements.
Fundamental Analysis
Ratio Analysis
Evaluating the Fair Value of Axis Bank Sufiyan Mukadam
Chapter 1: Introduction to the Banking Industry
Banks accounts are presented in different manner as per banking regulations. The
analysis of a bank account differs significantly from any other company. The
operating and financial ratios, which one would normally evaluate before investing in
company, may not hold true for a bank like operating margins.
However, before we go into analyzing ratios, we take a look at the way a bank
functions. The primary business of a bank is to accept deposits and give out loans. So
in case of a bank, capital (money) is a raw material as well as the final product. Bank
accepts deposits and pays the depositor an interest on those deposits. The Bank then
uses these deposits to give out loans for which it charges interest from the borrower.
Of the cash reserve, a bank is mandated to maintain a certain percentage of deposits
with Reserve Bank of India (RBI) as cash reserve ratio (CRR), on which it earns
lower interest. Whenever there is a reduction in CRR announced in the monetary
policy, the amount available with a bank, to advance as loans, increases. The second
part of regulatory requirement is to invest in G-Sec that is a parts of its statutory
liquidity ratio (SLR). The bank's revenues are basically derived from the interest it
earns from the loans it gives out as well as from the fixed income investments it
makes. If credit demand is lower, the bank increases the quantum of investments in G-
Sec.
Apart from this, a bank also derives revenues in the form of fees that it charges for the
various services it provides (like processing fees for loans and forex transactions). In
developed economies, banks derive nearly 50% of revenue from this stream. This
stream of revenues contributes a relatively lower 15% in the Indian context.
Having looked at the profile of the sector in brief, let us consider some key factors
that influence a bank's operations. One of the key parameters used to analyze a bank
is the Net Interest Income (NII). NII is essentially the difference between the bank's
interest revenues and its interest expenses. This parameter indicates how effectively
the bank conducts its leading and borrowing operating (in short, how to generate more
from advances and spend less on deposits).
Interest revenues:
Rizvi Institute of Management Studies and Research

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Interest revenue = Interest earned on loans + Interest earned on investments + Interest

on deposits with RBI.
Interest on loans:
Since banking operating basically deal with ' interest', interest rates (bank rate)
prevailing in the economy have a big role to play. So, in a high interest rate scenario,
while banks earn more on loans, it must be noted that it has to pay higher on deposits
also. But if interest rates are high, both corporate and retail classes will hesitate to
borrow. But when interest rates are low, banks find it difficult to generate revenues
from advances. While deposit rates also fall, it has been observed that there is a
squeeze on a bank when bank rate is soft. A bank cannot reduce interest rates on
deposits significantly, so as to maintain its customer base, because there are other
avenues of investments available to them (like mutual funds, equities, public savings
scheme).
Since a bank lends to both retail as well as corporate clients, interest revenues on
advances also depend upon factors that influence demand for money. Firstly, the
business is heavily dependent on the economy. Obviously, government policies cannot
be ignored when it comes to economic growth. In times of economic slowdown,
corporate tighten their purse strings and curtail spending (especially for new
capabilities). This means that they will borrow lesser. Companies also become
efficient and so they tend to borrow lesser even for their day-to-day operations
(working capital needs). In periods of good economic growth, credit off take picks up
as corporate invests in anticipation of higher demand going forward.
Similarly, growth drivers for the retails segment are more or less similar to the
corporate borrowers. However, the elasticity to a fall in interest rate is higher in the
retail market as compared too corporate. Income levels and cost of financing also play
a vital role. Availability of credit and increased awareness are other key growth
stimulants, as demand will not be met if the distribution channel is inadequate.
Interest on Investments and deposits with the RBI:
The bank's interest income from investments depends upon some key factors like
government policies (CRR and SLR limits) and credit demand. If a bank had invested
in G-Sec in a high interest rate scenario, the book value of the investment would have
appreciated significantly when interest rates fall from those high levels or vice versa.
Interest expenses

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A bank's main expense is in the form of interest outgo on deposits and borrowings.
This in turn is dependent on the factors that drive cost of deposits. If a bank has high
savings and current deposits, cost of deposits will be lower. The propensity of the
public to save also plays a crucial role in this process. If the spending power for the
populace increases, the need to save reduces and this in turns reduces the quantum of
savings.
Key parameters to keep in mind while analyzing a banking stock:
However, we would like to touch upon one key aspect. Why price to book value is
important while analyzing a bank rather than price to earnings. As we had mentioned
earlier, cash is the raw material for a bank. The ability to grow in the long-term
therefore, depends upon the capital with a bank (i.e. capital adequacy ratio). Capital
comes primarily from net worth. This is the reason why price to book value is
important. But deduct the net non-performing asset from net worth to get a true feel of
the available capital for growth.
The banking sector plays a very vital role in the working of the economy and it is very
important that banks fulfil their roles with utmost integrity. Since banks deal with
cash, there have been cases of mismanagement and greed in the global markets and
hence, in the final analysis, investors need to check up in the quality of management.
This is the last factor but not the least to be brushed aside.
The Indian banking sector is currently in a transition phase. While public sector banks
are in the process of restructuring, private sector banks are busy consolidating through
mergers and acquisitions. With the Finance Minister's announcement of introducing a
bill on banking reforms, law on foreclosure and plans to set up an asset reconstruction
company (ARC), the sector is likely to witness a significant structural change the
coming years.
The sector, which was considered dry in the last several years, has caught the investor
fancy in expectations of changing regulations and improving business conditions due
to opening up of the economy. Entry of private and foreign banks in the segment has
provided healthy competition and is likely to bring more operational efficiency into
the sector. However, before investing in a banking stock an investor should look at
certain key performance ratios.
Unlike, any other manufacturing or service company, a bank's accounts are presented
in a different manner (as per the banking regulation). The analysis of a bank's

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accounts differs significantly from any other company due to their structure and
operating systems. Those key operating and financial ratios, which one would
normally evaluate before investing in company, may not hold true for a bank. We have
attempted to throw light on some of the key ratios, which are unique for banks and
determine the financial stability of a bank.
The Banking Regulation Act of India, 1949 governs the Indian banking industry. The
banking system in India can broadly be classified into public sector, private (old and
new) and foreign banks.
The government holds a majority stake in public sector banks. This segment
comprises of SBI and its subsidiaries, other nationalized banks and Regional Rural
Banks (RRB). The public sector banks comprise more than 70% of the total branches.
Old private sector banks have a largely regional focus and they are relatively smaller
in size. These banks existed prior to the promulgation of Banking Nationalization Act
but were not nationalized due to their smaller size and regional focus.
Private Banks entered into the sector when the Banking Regulation Act was amended
in 1993 permitting the entry of new private sector banks. Most of these banks are
promoted by institutions and their operating environment is comparable to foreign
banks.
Foreign banks have confined their operations to mostly metropolitan cities, as the RBI
restricted their operations. However, off late, the RBI has granted approvals for
expansions as well as entry of new foreign banks in order to liberalize the system.
Asset-Liability Management:
The post liberalization period in India saw a rapid industrial growth, which has further
stimulated the fund raising activities. Over the past decade, there has been a
remarkable shift in the sources of funds and its application. Funds are now being
mobilized from investment institutions, provident funds, charitable trust, quasi-
government bodies and the household sector. Even the portfolio of assets for financial
intermediaries is widening.
For a business, which involves trading in money, rate fluctuations invariably affect the
market value, yields/costs of the assets/liabilities and a consequent impact on net
interest income. Tackling this situation would have been easy in a set up where the
interest rate movements are known with accuracy. However, in an economy, which is

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just opening out increased capital market volatility makes predicting interest rates a
rather difficult task.
But risk is an inherent quality in the business of commercial banks and financial
institutions. With the widened resource base, service range and client base, risk profile
of these financial entities has further broadened. The most prominent financial risks to
which these entities are exposed are classified into interest rate risk, liquidity risk,
credit and forex risk. Since is embedded in the business of banking, its efficient
management holds key to the performance of banking companies.
The income of banks comes mostly from the spreads maintained between total interest
income and total interest expenses. The higher the spread the more will be the NIM.
There exists a direct correlation between risks and return. As a result, greater spreads
only imply enhanced risk exposure. But since any business is conducted with the
objective of making profits and achieving higher profitability is the target of a firm, it
is the management of the risk that holds key to success and not risk elimination
There are three different but related ways of managing financial risks:
The first is to purchase insurance. But this is viable only for certain types of
risks such as credit risks, which arise if the party to a contract defaults.
The second approach refers to asset liability management (ALM). This

involves careful balancing of assets and liabilities. It is an exercise towards
minimizing exposure to risks by holding the appropriate combination of assets
and liabilities so as to meet earnings target of the firm.
The third option, which can be used either in isolation or in conjunction with
the first two options is hedging involves off-balance sheet positions. Products
used for hedging include futures, options, forwards and swaps.
It is ALM, which requires the most attention for managing the financial performance
of banks. Asset-liability management can be performed on a per-liability basis by
matching a specific asset to support each liability. Alternatively, it can be performed
across the balance sheet. With this approach, the net exposure of banks liabilities is
determined and a portfolio of assets is maintained which hedges those exposures.

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Asset-liability analysis is a flexible methodology that allows the bank to test

interrelationships between a wide variety of risks factors including market risks,
liquidity risks, actuarial risks, management decisions.
For many Indian banks, investment in securities represents a strategy of deployment
of liabilities. In the absence of a variety of products, flexibility for ALM is reduced
and banks tends to book profits or show losses on the securities portfolio regardless of
the underlying liability. Floating rate instruments are still not popular in the Indian
market. Moreover, short selling of securities is not permitted. Further, the banking
provision which states that banks can have only one prime lending rate (PLR) and
another long-term PLR constrains effective application of ALM. However, recently
banks have started lending at sub PLR to attract the borrowers.
Thus, ALM technique aims to manage the volume mix, maturity, rate sensitivity,
quality and liquidity of assets and liabilities as a whole. This is to attain a
predetermined acceptable risk/reward ratio. ALM helps in enhancing the asset quality,
quantifying the risk associated with assets and liabilities and controlling them.
The ALM process will involve the following steps:
Reviewing the interest rate structure and comparing the same to the pricing of
both assets and liabilities. This would help in highlighting the impending risk
and the need for managing the same.
Examining loan and investment portfolio in the light of forex and liquidity
risk. Due consideration should be given to the effect of these risks on the value
and cost of liabilities.
Determining the probability of credit risk that may originate due to interest
rate fluctuations or otherwise and assess the quality of assets.
Reviewing the actual performance against the projections made. Analyzing the
reasons for any effect on the spreads.
As Alan Greenspan, previous Chairman of the US Federal Reserve observed, risk
taking is a necessary condition for wealth creation. Risk arises as a deviation between
what happens and what was expected to happen. Banks are no exception to this
phenomenon. As a result, managements have to create efficient systems to identify,
measure and control the risk and ALM is just one component of the overall cluster.
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Non-Performing Assets:
Indian banks are struggling to come out of the 'net' of non-performing assets. The
rising level of non-performing assets (NPAs) amounting to about Rs. 600 billion has
plagued the Indian banking system. Thus urgent cleaning up of banking balance sheet
has become a crucial issue.
Banks are in the risk business. In the process of providing financial services, they
assume various kinds of risks i.e. Credit risk, market risk, operational risk, interest
risk, forex risk and country risk. Among these different types of risks, credit
constitutes the most dominant asset in the balance sheet, accounting for 60% of total
assets. The credit is generally made up of transaction risk (default risk) and portfolio
risk. The risk management is a complex function and require specialized skills and
expertise. As a result, managing credit risk efficiently assumes greater significance.
It is those assets for which interest is overdue for more than 180 days. In simple
words, an asset or a credit facility becomes non-performing when ceases to yield
income. As a result, banks do not recognize interest income on these assets unless it is
actually received. If interest amount is already credited on an accrual basis in the past
years, it should be reversed in the current year's account if such interest is still
remaining uncollected.
Once an asset falls under the NPA category, banks are required by Reserve Bank of
India (RBI) to make provision for the uncollected interest on these assets. For the
purpose they have to classify their assets based on the strength and on collateral
securities into:
Standard assets:
This is not a non-performing asset. It does not carry more than normal risk attached to
the business.
Substandard assets:
It is an asset, which has been classified as non-performing for a period of less than
two years. In this case the current net worth of the borrower or the current market
value of the security is not enough to ensure recovery of the debt due to the bank. The
classification of substandard assets should not be upgraded to standard assets merely
as a result of rescheduling of the payments. (Rescheduling indicates change in

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payment schedule by the borrower or by the banker). There must be a satisfactory

performance for two years after such rescheduling.
Doubtful assets:
It is an asset, which has remained non-performing for a period exceeding two years.
Loss assets:
It is an asset identified by the bank, auditors or by the RBI inspection as a loss asset. It
is an asset for which no security is available or there is considerable erosion in the
realizable value of the security. (If the realizable value of the security as assessed by
bank, approved values or RBI is less than 10% of the outstanding, it is known as
considerable erosion in the value of asset.) As a result, even though there may be
some salvage or recovery value, its continuance as bankable asset is not warranted.
Credit off take is also lackluster. It does seem, at this point, that NPA levels of banks
would not come down significantly during the current year.

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Chapter 2: Banking Regulation Norms
The birth of the Basel banking norms is attributed to the incorporation of the Basel
Committee on Banking Supervision (BCBS), established by the central bank of the G-
10 countries in 1974. This came into being under the patronage of Bank for
International Settlements (BIS), Basel, Switzerland. The Committee formulates
guidelines and provides recommendations on banking regulation based on capital risk,
market risk and operational risk. The Committee was formed in response to the
chaotic liquidation of Herstatt Bank, based in Cologne, Germany in 1974. The
incident illustrated the presence of settlement risk in international finance.
Historically, in 1973, the sudden failure of the Bretton Woods System resulted in the
occurrence of casualties in 1974 such as withdrawal of banking license of Bankhaus
Herstatt in Germany, and shut down of Franklin National Bank in New York. In 1975,
three months after the closing of Franklin National Bank and other similar
disruptions, the central bank governors of the G-10 countries took the initiative to
establish a committee on Banking Regulations and Supervisory Practices in order to
address such issues. This committee was later renamed as Basel Committee on
Banking Supervision. The Committee acts as a forum where regular cooperation
between the member countries takes place regarding banking regulations and
supervisory practices. The Committee aims at improving supervisory knowhow and
the quality of banking supervision quality worldwide. Currently there are 27 member
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countries in the Committee since 2009. These member countries are being represented
in the Committee by the central bank and the authority for the prudential supervision
of banking business. Apart from banking regulations and supervisory practices, the
Committee also focuses on closing the gaps in international supervisory coverage.
The first set of Basel Accords, known as Basel I, was issued in 1988 with the primary
focus on credit risk. It proposed creation of a banking asset classification system on
the basis of the inherent risk of the asset. Basel II, the second set of Basel Accords,
was published in June 2004 in order to control misuse of the Basel I norms, most
notably through regulatory arbitrage. The Basel II norms were intended to create a
uniform international standard on the amount of capital that banks need to guard
themselves against financial and operational risks. This again would be achieved
through maintaining adequate capital proportional to the risk the bank exposes itself
to (through its lending and investment practices). It also laid increased focus on
disclosure requirements. The third installment of the Basel Accords (Basel III) was
introduced in response to the global financial crisis, and is scheduled to be
implemented by 2018. It calls for greater strengthening of capital requirements, bank
liquidity and bank leverage. However, critics argue that these norms may further
hamper the stability of the financial system by providing higher incentive to
circumvent the regulations.
The Indian banking system has remained largely unscathed in the global financial
crisis. This is mainly amongst others, on account of the relatively robust capitalization
of Indian banks. The Reserve Bank of India (RBI) had scheduled the start date for
implementation of Basel III norms over a 6-year period starting April 2013. The
recent requirement of infusion of additional equity in view of the low economic
growth and increasing non-performing assets of Indian banks paint a gloomy picture.
Pillar I Constituents of Capital:

Constituents of Capital prescribe the nature of capital that is eligible to be treated as
reserves. Capital is classified into Tier I and Tier II capital. Tier I capital or Core
Capital consists of elements that are more permanent in nature and as a result, have
high capacity to absorb losses. This comprises of equity capital and disclosed
reserves. Equity Capital includes fully paid ordinary equity/common shares and non-

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cumulative perpetual preference capital, while disclosed/published reserves include

post-tax retained earnings. Because of availability of several other legitimate avenues
of capital, the accord defines a separate layer of capital (Tier II) to accommodate these
elements. However, given the quality and permanent nature of Tier I capital, the
accord requires Tier I capital to constitute at least 50 percent of the total capital base
of the banking institution. Tier II capital is more ambiguously defined, as it may also
arise from difference in accounting treatment in different countries. In principal, it
includes, revaluation reserves, general provisions and provisions against non-
performing assets, hybrid debt capital instruments, and subordinated term debt.
Pillar II Risk Weighting
Risk Weighting creates a comprehensive system to provide weights to different
categories of banks assets i.e. loans on the basis of relative riskiness. The capital of
the bank is related to risk weighted assets, to determine capital adequacy. The
framework of weights was kept simple with five weights used for on-balance sheet
assets.
The risk weighted method is favored over a simple gearing ratio method due to the
following benefits:
1. Provides for a fair basis of comparison between international banks with different
capital structures;
2. Enables accountability of off-balance sheet elements; and,
3. Avoids discouraging banking institutions to hold liquid and low risk assets to
manage capital adequacy.
Pillar III Target Standard Ratio:
Target Standard Ratio acts as a unifying factor between the first two pillars. A
universal standard, wherein Tier I and Tier II capital should cover at least 8 percent of
risk weighted assets of a bank, with at least 4 percent being covered by Tier I capital.
Emergence of Basel III
Basel II indeed had its share of criticism. To begin with, the Basel Committee
declared that the committees recommendations were for G-10 member states. This
leaves out emerging economies, and actually implied potential unfavorable impact on
these economies. To begin with, the scope of responsibilities for regulators (in
emerging economies) may be too much for them to handle. Central banks might not

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be stringent enough in regulating private banks, thus letting them raise their risk
exposure defeating the entire purpose.
Banks in emerging economies were at a disadvantage in terms of receiving loans from
global banks. This was so because rating agencies might either be unaffordable, or
prone to assigning lower ratings anyway to such banks. The consequence here was
that global banks would need to maintain more capital for a loan to an emerging
market bank.
The inclusion of internal risk measurements when calculating the capital reserves of
bank gives rise to another drawback. Since risk weights are fundamentally a factor of
expected economic performance, banks would call back credit prior to and during
recessionary times, and pump in credit in favorable periods or recovery periods. This
effectively means that recessions would be made worse, and growth periods could be
accompanied by even higher inflation.
The issues surrounding Basel II together contributed to the emergence of the Basel III
accord. The essence of Basel III revolves around two sets of compliance:
1. Capital
2. Liquidity
While good quality of capital will ensure stable long term sustenance, compliance
with liquidity covers will increase ability to withstand short term economic and
financial stress.
Liquidity Rules:
One of the objectives of Basel III accord is to strengthen the liquidity profile of the
banking industry. This is because despite having adequate capital levels, banks still
experienced difficulties in the recent financial crisis. Hence, two standards of liquidity
were introduced.
Liquidity Coverage Ratio (LCR):
LCR was introduced with the objective of promoting efficacy of short term liquidity
risk profile of the banks. This is ensured by making sufficient investment in short term
unencumbered high quality liquid assets, which can be quickly and easily converted
into cash, such that it enables the capital requirement.

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Chapter 3: HISTORY OF AXIS BANK
UTI Bank opened its registered office in Ahmedabad and corporate office in Mumbai
in December 1993. The first branch was inaugurated on 2 April 1994 in Ahmedabad
by Dr. Manmohan Singh, then Finance Minister of India. UTI Bank began its
operations in 1993, after the Government of India allowed new private banks to be
established. The Bank was promoted in 1993 jointly by the Administrator of the Unit
Trust of India (UTI-I), Life Insurance Corporation of India (LIC), General Insurance
Corporation, National Insurance Company, The New India Assurance Company, The
Oriental Insurance Corporation and United India Insurance Company.
In 2001 UTI Bank agreed to merge with and amalgamate Global Trust Bank, but
the Reserve Bank of India (RBI) withheld approval and nothing came of this. In 2004
the RBI put Global Trust into moratorium and supervised its merger into Oriental
Bank of Commerce.
UTI Bank opened its first overseas branch in 2006 Singapore. That same year it
opened a representative office in Shanghai, China.

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UTI Bank opened a branch in the Dubai International Financial Centre in 2007. That
same year it began branch operations in Hong Kong. The next year it opened a
representative office in Dubai.
Axis Bank opened a branch in Colombo in October 2011, as a Licensed Commercial

Bank supervised by the Central Bank of Sri Lanka. Also in 2011, Axis Bank opened
representative offices in Abu Dhabi.
In 2013, Axis Bank's subsidiary, Axis Bank UK commenced banking operations. Axis
Bank UK has a branch in London.
Chapter 4: COMPANY PROFILE
AXIS BANK LIMITED is the third largest private sector bank in India. Axis
Bank's stake holders include prominent national and international entities. As of 31
Dec. 2013, approximately 43% of the shares are owned by Foreign Institutional
Investors. Promoters (UTI, LIC and GIC), who collectively held approx. 34% of the
shares, are all entities owned and controlled by the Government of India The
remaining 23% shares are owned by corporate bodies, financial institutions and
individual investors among others. The bank offers financial services to customer
segments covering Large and Mid-Sized Corporates, MSME, Agriculture and Retail
Businesses. Axis Bank has its registered office at Ahmedabad
Indian Business: As of 22 April 2016, the bank had a network of 3062 branches and
extension counters and 12922 ATMS Axis Bank has the largest ATM network among
private banks in India and it operates an ATM at one of the worlds highest sites at
Thegu, Sikkim at a height of 4,023 meters (13,200 ft) above sea level.[8]

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International Business: The Bank has eight international offices with branches at
Singapore, Dubai Shanghai, Colombo and representative offices at Dubai and Abu
Dhabi, which focus on corporate lending, trade finance, syndication, investment
banking and liability businesses. In addition to the above, the Bank has a presence in
UK with its wholly owned subsidiary Axis Bank UK Limited. The total assets of the
overseas branches were US$7.86bn.
SERVICES OFFERED BY AXIS BANK

Treasury operations
The Banks treasury operation services include investments in sovereign and

corporate debt, equity and mutual funds, trading operations, derivative trading and
foreign exchange operations on the account, and for customers and central funding
Retail banking
In the retail banking category, the bank offers services such as lending to
individuals/small businesses subject to the orientation, product and granularity
criterion, along with liability products, card services, Internet banking, automated
teller machines (ATM) services, depository, financial advisory services, and Non-
resident Indian(NRI) services. Axis bank is a participant in RBI's NEFT enabled
participating banks list.
Corporate/wholesale banking
The Bank offers too corporate and other organisations services including corporate
relationship not included under retail banking, corporate advisory services,
placements and syndication, management of public issues, project appraisals capital
market related services and cash management services.
NRI services
Products and services for NRIs that facilitate investments in India

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Business banking
The Bank collects income and other direct taxes through its 214 authorized branches
at 137 locations and central excise and service taxes (including e-Payments) through
56 authorized branches at 14 locations.
Investment banking
Banks Investment Banking business comprises activities related to Equity Capital

Markets, Merger and Acquisitions and Private Equity Advisory. The bank is a SEBI
registered Category I Merchant Banker and has been active in advising Indian
companies in raising equity through IPOs, QIPs, and Rights issues etc. During the
financial year ended 31 March 2012, Axis Bank undertook 9 transactions including 5
IPOs and 2 Open Offers.
Lending to small and medium enterprises
Axis Bank SME business is segmented in three groups: Small Enterprises, Medium
Enterprises and Supply Chain Finance. Under the Small Business Group, a subgroup
for financing micro enterprises is also set up. Axis bank is the first Indian Bank
having TCDC cards in 11 currencies
Agriculture banking
759 branches of the Bank provide banking services, including agricultural loans, to
farmers.[12] As on 31 March 2013, the Banks outstanding loans in the agricultural
sector was INR 148 billion, constituting 7.5% of its total advances.
Advisory Services have been developed to advise public and private sector clients on
capital structuring and funding options with a view to help the clients to help them
reduce the cost of funds. The Group has also been active in advising the central and
various state governments or their agencies in privatisation and bid process
management. The Group has successfully worked on some of the benchmark
transactions in infrastructure development & manufacturing sector covering an entire
range of projects across roads, railways, airports, urban infrastructure maritime,

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power, oil and gas, petrochemicals, cement, sugar, textiles, steel & allied sectors, auto
ancillaries, paper, Information Technology, etc.
Ping Pay was unveiled between 2125 May 2015, which is a multi-social payment
solution that let customers to transfer funds using their smart phones to both Axis
Bank accounts and other banks' account holders.
Chapter 5: NON PERFORMING ASSETS

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Definition of Non-Performing Assets

The Bank follows extant guidelines of the RBI on income recognition, asset
classification and provisioning. A Non-Performing Asset (NPA) is a loan or an
advance where:
Interest and / or installment of principal remain overdue for a period of more than
90 days in respect of a team loan.
The Account remains out of order, in respect of an overdraft / cash credit (OD /
CC). An account is treated as out of order if the outstanding balance remains
continuously in excess of the sanctioned limit / drawing power or where there are no
credits continuously for 90 days as on the date of balance sheet or credits are not
enough to cover the interest debited during the same period.
The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted.
The installment of principal or interest thereon remains overdue for two crop
seasons for short duration crops.
The installment of principal or interest thereon remains overdue for one crop
seasons for long duration crops.
Any amount to be received remains overdue for a period of more than 90 days
in respect of other accounts.
The amount of liquidity facility remains outstanding for more than 90 days, in
respect of a securitization transaction undertaken in terms of RBIs guidelines
on securitization dated February 1, 2006.
In respect of derivative transactions, the overdue receivables representing

positive mark-to-market value of a derivative contract, if these remain unpaid
for a period of 90 days from the specified due date for payment
Any amount due to the Bank under any credit facility is overdue if it is not aid on
the due date fixed by the bank. The Bank will classify an account as NPA if the
interest due and charged during any quarter is not serviced fully within 90 days from
the end of the quarter. When a particular facility of a borrower by the Bank to that
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borrower (whether a wholesale or retail borrower) will be classified as NPA and not
the particular facility alone which triggered the NPA classification for that borrower.
Advances against Term Deposits, National Savings Certificates eligible for surrender,
Indira Vikas Patras, Kisan Vikas Patras and Life Insurance Policies need not be
treated as NPAs, provided adequate margin is available in the accounts. Credit
facilities backed by the Central Government though overdue may be treated as NPA
only when the Government repudiates its guarantee when invoked. State Government
guaranteed advances and investments in State Government guaranteed securities
would attract asset classification and provisioning norms if interest and / or principal
or any other amount due to the Bank remains overdue for more than 90 days.
A loan for an infrastructure project will be classified as NPA during any time before
commencement of commercial operations as per record of recovery (90 days
overdue), unless it is restructured and becomes eligible for classification as standard
asset in terms of conditions laid down in the related RBI guidelines. A loan for an
infrastructure project will be classified as NPA if it fails to commence commercial
operations within two years from the original Date of Commencement of Commercial
Operations (DCCO), even if it is regular as per record of recovery, unless it is
restructured and becomes eligible for classification as standard asset in terms of
conditions laid down in the related RBI guidelines.
A load for commercial real estate project will be classified as NPA during any time
before commencement of commercial operations as per record of recover (90 days
overdue), or if the project fails to commence commercial operations within one year
from the original DCCO or if the load is restructured.
Non-performing assets are classified into the following three categories:
Substandard Assets:
A substandard asset is one, which has remained NPA for a period less than or
equal to 12 months. In such cases, the current net worth of the borrower /
guarantor or the current market value of the security charged is not enough to
ensure recovery of the dues to the banks in full. In other words, such an asset will
have well defined credit weaknesses that jeopardise the liquidation of the debt and
are characterized by the distinct possibility that banks will sustain some loss, if
deficiencies are not corrected.

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Doubtful Assets:
A doubtful asset is one, which remained NA for a period exceeding 12months. A
loan classified as doubtful has all the weaknesses inherent in assets that were
classified as substandard, with he added characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently known facts, conditions
and values, highly questionable and improbable.
Loss Assets:
A loss asset is one where loss has been identified by the Bank or internal or
external auditors or the RBI inspection but the amount has not been written off
wholly. In other words, such an asset is considered uncollectible and of such little
value that its continuance as a bankable asset is not warranted although there may
be some salvage or recovery value.
Interest on non-performing assets is not recognized in the profit / loss account until
received. Specific provision for non-performing assets is made based on
Managements assessment of their degree of impairment subject to the minimum
provisioning level prescribed by RBI.
RS IN (CRORE) RS IN (CRORE)
PARTICULAR 2016 2015
Gross NPA 6.087.51 4.110.19
GROSS NPA% 2.00 1.00
NET NPA 2.522.14 1.346.71
NET NPA% 1.00 0.00
Chapter 6: Factors affecting Banking sector
Focus on regulation of government:

Indian banking sector is least affected as compared to other developed countries-
thanks to robust policy framework of RBI. Government affects the performance of
banking sector most by legislature and framing policy government through its budget
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affects the banking activities securitization act has given more power to banking
sector against defaulting borrowers. Stricter prudential regulations with respect to
capital and liquidity give India an advantage in terms of credibility over other
countries. To support capitalization, the government has infused Rs 23,200 crore (US$
5.2 billion) into state-owned banks during the last three fiscals.
Foreign Direct Investment limit:

The move to increase Foreign Direct Investment FDI limits to 49 percent from
20 percent during the first quarter of this fiscal came as a welcome
announcement to foreign players wanting to get a foot hold in the Indian
Markets by investing in willing Indian partners who are starved of net worth to
meet CAR norms. Ceiling for FII investment in companies was also increased
from 24.0 percent to 49.0 percent and have been included within the ambit of
FDI investment.
Budget measure:
Increase Farm Credit. Subvention of 1% to be paid as incentive to farmer.
Debt Waiver for Farmers. Setting up of separate task force for those not
covered under the debt waiver scheme.
Agricultural credit:
Agriculture has been the mainstay of our economy with 60% of our population
deriving their sustenance from it. In the recent past, the sector has recorded a
growth of about 4% per annum with substantial increase in plan allocations
and capital formation in the sector with help of banking assistance.
Economic factors:
Every year RBI declares its 6 monthly policies and accordingly the various measures
and rates are implemented which has an impact on the banking sector. The Economic
measures affect the banking sector to boost the economy by giving certain
concessions or facilities. If in the savings are encouraged, then more deposits will be
attracted towards the banks and in turn they can lend more money to the agricultural
sector and industrial sector, therefore, booming the economy. If the FDI limits are
relaxed, then more FDI are brought in India through banking channels
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Monetary policy:
Monetary policy is the process by which monetary authority of a country,
generally a central bank controls the supply of money in the economy by its
control over interest rates in order to maintain price stability and achieve high
economic growth. In India, the central monetary authority is the Reserve Bank
of India (RBI). It is so designed as to maintain the price stability in the
economy.
As of 28th JULY 2016, the key indicators are below: -
INDICATOR RATE%
INFLATION(CPI) 5.77%
BANK RATE 7.75%
CRR 4%
SLR 21%
REPO RATE 6.5%
REVERSE REPO RATE 6%
.
Major operations of RBI as follows:
Open Market Operations:

An open market operation is an instrument of monetary policy which involves buying
or selling of government securities from or to the public and banks. This mechanism
influences the reserve position of the banks, yield on government securities and cost
of bank credit. The RBI sells government securities to control the flow of credit and
buys government securities to increase credit flow. Open market operation makes
bank rate policy effective and maintains stability in government securities market.
Cash Reserve Ratio:

Cash Reserve Ratio is a certain percentage of bank deposits which banks are required
to keep with RBI in the form of reserves or balances. Higher the CRR with the RBI
lower will be the liquidity in the system and vice versa. RBI is empowered to vary
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CRR between 15 percent and 3 percent. But as per the suggestion by the Narsimham
committee Report the CRR was reduced from 15% in the 1990 to 5 percent in 2002.
As of September 2015, the CRR is 4.00 percent.
Statutory Liquidity Ratio:

Every financial institution has to maintain a certain quantity of liquid assets with
themselves at any point of time of their total time and demand liabilities. These assets
have to be kept in non-cash form such as G-secs precious metals, approved securities
like bonds etc. The ratio of the liquid assets to time and demand assets is termed as
the Statutory liquidity ratio. There was a reduction of SLR from 38.5% to 25%
because of the suggestion by Narshimam Committee. The current SLR is 21.5%
(w.e.f.11/12/15).
Bank Rate Policy:

The bank rate, also known as the discount rate, is the rate of interest charged by the
RBI for providing funds or loans to the banking system. This banking system involves
commercial and co-operative banks, Industrial Development Bank of India, IFC,
EXIM Bank, and other approved financial institutes. Funds are provided either
through lending directly or discounting or buying money market instruments like
commercial bills and treasury bills. Increase in Bank Rate increases the cost of
borrowing by commercial banks which results into the reduction in credit volume to
the banks and hence declines the supply of money. Increase in the bank rate is the
symbol of tightening of RBI monetary policy. As of September 29, 2015, the Bank
Rate stands adjusted by 50 basis points from 8.25 per cent on June 2, 2015 to 7.75 per
cent.
Credit Ceiling:
In this operation RBI issues prior information or direction that loans to the
commercial banks will be given up to a certain limit. In this case commercial bank
will be tight in advancing loans to the public. They will allocate loans to limited
sectors. Few examples of ceiling are agriculture sector advances, priority sector
lending.

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Credit Authorization Scheme:

Credit Authorization Scheme was introduced in November, 1965 when P C
Bhattacharya was the chairman of RBI. Under this instrument of credit regulation RBI
as per the guideline authorizes the banks to advance loans to desired sectors.
Moral Suasion:
Moral Suasion is just as a request by the RBI to the commercial banks to take so and
so action and measures in so and so trend of the economy. RBI may request
commercial banks not to give loans for unproductive purpose which does not add to
economic growth but increases inflation.
Repo Rate and Reverse Repo Rate:

Repo rate is the rate at which RBI lends to commercial banks generally against
government securities. Reduction in Repo rate helps the commercial banks to get
money at a cheaper rate and increase in Repo rate discourages the commercial banks
to get money as the rate increases and becomes expensive. Reverse Repo rate is the
rate at which RBI borrows money from the commercial banks. The increase in the
Repo rate will increase the cost of borrowing and lending of the banks which will
discourage the public to borrow money and will encourage them to deposit. As the
rates are high the availability of credit and demand decreases resulting to decrease in
inflation. This increase in Repo Rate and Reverse Repo Rate is a symbol of tightening
of the policy.
Every year RBI declares its 6 monthly policies and accordingly the various measures
and rates are implemented which has an impact on the banking sector. In past 4
months RBI has changed it key monetary rates 13 times to curb inflation and other
economic risks.
Gross Domestic Product:

Indian economy has registered robust growth in past years and Banking sector is
directly related to the growth of the economy. GOI is trying to push the economy by
framing favorable FDI policies, NRI investment plans which directly affect the GDP.
These plans directly affect banking industry as money comes through banks and bank
earns interest on that.
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Interest Rates:
RBI controls interest rates, which RBI monitors regularly. Recently RBI reduced bank
rate to stimulate growth of banking industry.
Inflation Rate:
India is facing huge troubles due to inflation as it is 5.53% (CPI) now. To curb the
inflation and slowdown of economy RBI has taken various steps like lowering interest
rates to increase the demand in banking sector.
Savings and Investments:

Gross domestic saving is 29.01% of gross domestic product in India. Latest step taken
by RBI to deregulate savings rates is a step to increase bank savings.
Social-cultural:
Social-cultural includes cultural aspects and health consciousness, population growth
rate, age distribution, career attitudes and emphasis on safety. This could be classified
into:
Traditional Mahajans:
Before the birth of the banks, people of India were used to borrow money
local money lenders, shahukars, etc. They were used to charge higher interest
and also mortgage land and house. But after emergence of banks attitude of
people was changed and they have started lending from the banks.
Change in lifestyle:
Life style of India is changing rapidly. They are demanding high class
products. They have become more advanced. People needs and wants are
increasing day by day and this has opened opportunities for banking sector to
tap this change. This has made things available easily to everyone.
Population:
Increase in population is one of the important factor, which affect the private
sector banks. Banks would open their branches after looking into the
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population demographics of the area. Newer branches are coming to serve the
increasing population. This incentive to banks comes on the back of the
continuing need to open more branches in these States in order to ensure more
uniform spatial distribution.
Literacy rate:
Literacy rate in India is very low compared to developed countries. Illiterate
people hesitate to transact with banks. So, this impacts negatively on banks.
But there is positive side of this as well i.e. illiterate people trust more on
banks to deposit their money, they do not have market information.
Opportunities in stocks or mutual funds.
Technological Factors:
Technology plays a very important role in banks internal control mechanisms as well
as services offered by them. Through the use of technology new products and service
are introduced. It includes technological aspects such as R&D activity, automation,
technology incentives and the rate of technological change. Some of the technological
changes which brought radical changes in banking industry are described below:
Automated teller machine (ATM):
The latest developments in terms of technology in computer and
telecommunication have encouraged the bankers to change the concept of
branch banking to anywhere banking. The use of ATM and Internet banking
has allowed anytime, anywhere banking facilities.
Automatic Voice Recorder:

Automatic voice recorders now answer simple queries, currency accounting
machines makes the job easier and self-service counters are now encouraged.
Credit Card Facility:

Credit card facility has encouraged an era of cashless society. The banks have
now started issuing smartcards or debit cards to be used for making payments.
These are also called as electronic purse. Some of the banks have also started
home banking through telecommunication facilities and computer technology
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by using terminals installed at customers home and they can make the balance
inquiry, get the statement of accounts, give instructions for fund transfers, etc.
IT Services & Mobile Banking:

Today banks are also using SMS and Internet as major tool of promotions and
giving great utility to its customers. For example, SMS functions through
simple text messages sent from your mobile. Technology advancement has
changed the face of traditional banking systems. Technology advancement has
offer 24X7 banking even giving faster and secured service.
Environmental factors:
Indian economy has registered a high growth for last three years and is expected to
maintain robust growth rate as compare too other developed and developing countries.
Banking Industry is directly related to the growth of the economy. The growth rates of
different industries were:
Agriculture: 18.5%
Industry: 26.3%
Services: 55.2%
It is great news that today the service sector is contributing more than half of the
Indian GDP. It takes India one step closer to the developed economies of the world.
Earlier it was agriculture which mainly contributed to the Indian GDP. This increases
the avenues of investment by the industrial sector. This would further increase the
borrowings by the industrys leading to the banking Industry. In regards with the
service sector, as the income of the people will increase, lending and savings will
increase leading to increased business for the banks.
Legal Factors:
There are two major factors determining the legal aspects of the Banking Industry:
Banking Regulation Act:
In 1949, the Banking Regulation Act was enacted which empowered the
Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in
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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.
Intervention by RBI:
The Reserve Bank of India (RBI) will intervene to smooth sharp movements
in the rupee and prevent a downward spiral in its value, but will balance this
with the need to retain reserves in the event of prolonged turbulence.
Chapter 7: TYPE OF RISK
Risk in a way can be defined as the chance or the probability of loss or damage. Risk
manifest themselves in many ways and the risks in banking are a result of many
diverse activities, executed from many locations and by numerous people. The
volatile nature of the banks operating environment will aggravate the effect of these
risks. In the case of banks, these include credit risk, capital risk, market risk, interest
rate risk, and liquidity risk. These categories of financial risk require focus, since
financial institutions like banks do have complexities and rapid changes in their
operating environments.
Credit risk:
The risk of counter party failure in meeting the payment obligation on the specific
date is known as credit risk. Credit risk management is an important challenge for
financial institutions and failure on this front may lead to failure of banks. It may be

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noted that the willingness to pay, which is measured by the character of the counter
party, and the ability to pay need not necessarily go together. The other important
issue is contract enforcement in countries like India. Legal reforms are very critical in
order to have timely contract enforcement. Delays and loopholes in the legal system
significantly affect the ability of the lender to enforce the contract. The legal system
and its processes are notorious for delays showing scant regard for time and money
that is the basis of sound functioning of the market system. Hence the required rate of
return due to feeble contract enforcement mechanisms becomes larger in countries
like India. Therefore, a good portion of non-performing assets of commercial banks in
India is related to deficiencies in contract enforcement mechanisms. Credit risk is also
linked to market risk variables. In a highly volatile interest rate environment, loan
defaults could increase thereby affecting credit quality.
Credit risk can be classified into two categories as under;
Default Risk: Default risk arises due to clients failure to repay the loan
installments in due time. Default risk analysis help identify the reason of default,
customer group of making default of their profession and income status. Default risk
is quantified in terms of loan being classified as SS, DF, and BL etc.
Credit Spread Risk:

Credit risk spread arises due to non-recovery of regular installment repayment, which
ultimately decreases the overall effective lending rate and erodes margin from lending
business. Credit spread also arises due to stringent Income Recognition policy in
respect of framing time for SS, DF and BL.
The expansion of banking sector was phenomenal during the 1970s and 1980s.
Mobilization of deposits was one of the major objectives of commercial banks. To
that extent, performance appraisal and incentive system within the banking sector was
more based on deposit mobilization and achievement of deposit targets rather than on
lending practices and credit risk assessment mechanisms.
Hence, it is important that the banks reorient their approach in terms of reformulating
performance appraisal systems, which focus more on lending practices and credit risk
assessments in the changed scenario. Credit rating to some extent facilitates the
understanding of credit risk. But the quality of financial information provided by
corporate leaves much to be desired. In the case of the unincorporated sector, namely

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a partnership and proprietorship firm, the task of credit risk assessment is more
complicated because of lack of reliable and continuous financial information.
Capital risk:
One of the sound aspects of the banking practice is the maintenance of adequate
capital on a continuous basis. There are attempts to bring in global norms in this field
in order to bring in commonality and standardization in international practices.
Capital adequacy also focuses on the weighted average risk of lending and to that
extent; banks are in a position to realign their portfolios between riskier and less risky
assets.
Market risk:
Market risk is related to the financial condition, which results from adverse movement
in market prices. This will be more pronounced when financial information has to be
provided on a marked-to-market basis since significant fluctuations in asset holdings
could adversely affect the balance sheet of banks. In the Indian context, the problem is
accentuated because many financial institutions acquire bonds and hold it till maturity.
When there is a significant increase in the term structure of interest rates, or violent
fluctuations in the rate structure, one finds substantial erosion of the value of the
securities held.
Interest rate risk:

The risk arises when the income of the bank is sensitive to the interest rate
fluctuations. Interest risk is the change in prices of bonds that could occur as a result
of change in interest rates. It also considers change in impact on interest income due
to changes in the rate of interest. In other words, price as well as reinvestment risks
require focus. In so far as the terms for which interest rates were fixed on deposits
differed from those for which they fixed on assets, banks incurred interest rate risk
i.e., they stood to make gains or losses with every change in the level of interest rates.
As long as changes in rates were predictable both in magnitude and in timing over the
business cycle, interest rate risk was not seen as too serious, but as rates of interest
became more volatile, there was felt need for explicit means of monitoring and
controlling interest gaps.
The term to maturity of a bond provides clues to the fluctuations in the price of the
bond since it is fairly well-known that longer maturity bonds have greater fluctuations

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for a given change in the interest rates compared to shorter maturity bonds. In other
words, commercial banks, which are holding large proportions of longer maturity
bonds, will face more price reduction when the interest rates go up. Between 1970s
and the early part of 1990s, there has been a substantial change in the maturity
structure of bonds held by commercial banks. During 1961, 34% of the central
government securities had a maturity of less than 5 years and 27% more than 10
years. But in 1991, only 9% of the securities had a maturity of less than 5 years, while
86% were more than 10 years. During 1992, when the reform process started and
efforts taken to move away from the administered interest rate mechanism to market
determined rates, financial institutions were affected because longer maturity
instruments have greater fluctuations for a given change in the interest rate structure.
This becomes all the grimmer when interest rates move up because the prices of the
holding come down significantly and in a marked-to-market situation, severely affect
bottom lines of banks. Another associated issue is related to the coupon rate of the
bonds. Throughout the 1970s and 1980s, the government was borrowing from banks
using the statutory obligation route at artificially low interest rates ranging between
4.5% to 8. The smaller the coupon rate of bonds, larger is the fluctuation associated
with a change in interest rate structure. Because of artificially fixed low coupon rates,
commercial banks faced adverse situations when the interest rate structure was
liberalized to align with market rates.
Interest Rate risk arises due to change in overall market interest rate structure
both on borrowing and lending;
Interest on borrowing:
Interest on borrowing has a significant bearing on the pricing of lending; it affects
profitability of an organization and desired margin to the shareholders.
Interest on lending: Interest rate risk arises due to reduction of interest rate on lending
from time to time on several occasions. The company has to reduce interest rate on
several to attract more clients and to compete with the competitors.
Therefore, the banking industry in India has substantially more issues associated with
interest rate risk, which is due to circumstances outside its control. This poses extra
challenges to the banking sector and to that extent; they have to adopt innovative and
sophisticated techniques to meet some of these challenges. There are certain measures
available to measure interest rate risk. These include;

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Maturity: Since it takes into account only the timing of the final principal
payment, maturity is considered as an approximate measure of risk and in a sense
does not quantify risk. Longer maturity bonds are generally subject to more
interest rate risk than shorter maturity bonds.
Duration: Is the weighted average time of all cash flows, with weights being the
present values of cash flows. Duration can again be used to determine the
sensitivity of prices to changes in interest rates. It represents the percentage
change in value in response to changes in interest rates.
Dollar duration: Represents the actual dollar change in the market value of a
holding of the bond in response to a percentage change in rates.
Convexity: Because of a change in market rates and because of passage of time,

duration may not remain constant. With each successive basis point movement
downward, bond prices increase at an increasing rate. Similarly, if rates increase,
the rate of decline of bond prices declines. This property is called convexity. In the
Indian context, banks in the past were primarily concerned about adhering to
statutory liquidity ratio norms and to that extent they were acquiring government
securities and holding it till maturity. But in the changed situation, namely moving
away from administered interest rate structure to market determined rates, it
becomes important for banks to equip themselves with some of these techniques,
in order to immunize banks against interest rate risk.
Liquidity Risk:
When there is a mismatch in the maturity patterns of the assets and liabilities, thereby
leading to a situation where the bank is not in a position to impart required liquidity
into its system, liquidity risk arises. It is customary to describe liquidity risk as a
possibility of not having adequate cash and hence a deficit situation. However, surplus
cash is also a problem to reckon with, since the bank would have already been
burdened with the interest expense arising due to the cost of funds, while there may be
a lag in the earnings due to isle funds. Thus, idle funds deployed at low rated
contribute to the negative returns.

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Asset Structure:
Assets serve as a source of liquidity and must be framed in groups according to the
nature of either available for sale or held to maturity. Status of liquidity is to be
judged in terms of length of time it takes to dispose of the asset and the price the asset
carries when it is sold. The following points are to be considered at the time of asset
structuring;
a) Nature of business
b) Tenure of Lending
c) Interest rate structure-fixed or floating
d) Pattern of repayment regular installment or bullet payment
e) CRR & SLR requirement
Liability Structure:
Every organization meets its funding needs through liability management. Liability
structuring must be made in such a way so that it matches with the tenure of asset
structure. The following points are to be considered at the time of liability structuring;
a) Grouping of liability into two major categories according to the maturity namely
long term & short term.
b) Pricing options
c) Exchange rate fluctuation in case of foreign currency transactions
d) Early repayment option.
Capital Structure:
Capital structure includes Equity, Preference share, Long term bond under both clean
and Securitization arrangement etc. The following points are to be considered at the
time of capital structuring;
a) Regulatory Framework
b) Favorable Gearing Ratio
c) Capital Adequacy Ratio
d) Value of the Organization
Liquidity risk affects many Indian institutions. It is the potential inability to generate
adequate cash to cope with a decline in deposits or increase in assets. To a large
33 | P a g e
extent, it is an outcome of the mismatch in the maturity patterns of assets and

liabilities. First, the proportion of central government securities with longer maturities
in the Indian bond market, significantly increasing during the 1970s and 1980s,
affected the banking system because longer maturity securities have greater volatility
for a given change in interest rate structure.
This problem gets accentuated in the context of change in the main liability structure
of the banks, namely the maturity period for term deposits. For instance, in 1986,
nearly 50% of term deposits had a maturity period of more than 5 years and only
20%, less than 2 years for all commercial banks. But in 1992, only 17% of term
deposits were more than 5 years whereas 38% were less than 2 years.
In such a situation, we find banks facing significant problems in terms of mismatch
between average life of bonds and maturity pattern of term deposits. The Ministry of
Finance as well as the RBI has taken steps to reduce the average maturity period of
bonds held by commercial banks in the last few years. In other words, newer
instruments are being floated with shorter maturities accompanied by roll over of
earlier instruments with shorter maturities. In order to meet short-term liability
payments, institutions have to maintain certain levels of cash at all points of time.
Thus managing cash flows becomes crucial. Institutions could access low cost
funding or could have assets that have sufficient short-term cash flows. Hence,
banking institutions need to strike a reasonable trade-off between being excessively
liquid and relatively illiquid.
The recent failure of many non-banking financial companies can be ascribed to
mismatch between asset-liability maturities, since many of them have invested in real
estate type of assets with short-term borrowings. Particularly in a declining real estate
market, it becomes difficult for non-banking financial companies to exit and meet
obligations of lenders. In such a context, liquidity becomes a much more significant
variable even at the cost of forgoing some profitability.
Foreign Exchange Risk / Currency Risk:

This risk arises due to unanticipated changes in exchange rates. Foreign exchange risk
becomes relevant due to the presence of multi-currency assets and liabilities in the
banks balance sheet. Foreign exchange risk is the risk that a bank may suffer loss as a
result of adverse exchange rate movement during a period in which it has an open

34 | P a g e
position, either spot or forward or both in same foreign currency. Even in case where
spot or forward positions in individual currencies are balanced the maturity pattern of
forward transactions may produce mismatches. There is also a settlement risk arising
out of default of the counter party and out of time lag in settlement of one currency in
one centre and the settlement of another currency in another time zone. Banks are also
exposed to interest rate risk, which arises from the maturity mismatch of foreign
currency position. The Value at Risk (VaR) indicates the risk that the bank is exposed
due to uncovered position of mismatch and these gap positions are to be valued on
daily basis at the prevalent forward market rates announced by FEDAI for the
remaining maturities. Currency Risk is the possibility that exchange rate changes will
alter the expected amount of principal and return of the lending or investment. At
times, banks may try to cope with this specific risk on the lending side by shifting the
risk associated with exchange rate fluctuations to the borrowers. However, the risk
does not get extinguished, but only gets converted in to credit risk. By setting
appropriates limits-open position and gaps, stop-loss limits, Day Light as well as
overnight limits for each currency, Individual Gap Limits and Aggregate Gap Limits,
clear cut and well defined division of responsibilities between front, middle and back
office the risk element in foreign exchange risk can be managed/monitored.
Operational Risk:
Always banks live with the risks arising out of human error, financial fraud and
natural disasters. Exponential growth in the use of technology and increase in global
financial inter-linkages are the two primary changes that contributed to such risks.
Operational risk, though defined as any risk that is not categorized as market or credit
risk, is the risk of loss arising from inadequate or failed internal processes, people and
systems or from external events. In order to mitigate this, internal control and internal
audit systems are used as the primary means.
Risk education for familiarizing the complex operations at all levels of staff can also
reduce operational risk. Insurance cover is one of the important mitigates of
operational risk. Operational risk events are associated with weak links in internal
control procedures. The key to management of operational risk lies in the banks

35 | P a g e
ability to assess its process for vulnerability and establish controls as well as
safeguards while providing for unanticipated worst-case scenarios.
Operational risk involves breakdown in internal controls and corporate governance
leading to error, fraud, performance failure, compromise on the interest of the bank
resulting in financial loss. Putting in place proper corporate governance practices by
itself would serve as an effective risk management tool. Bank should strive to
promote a shared understanding of operational risk within the organization, especially
since operational risk is often inter-wined with market or credit risk and it is difficult
to isolate.
Over a period of time, management of credit and market risks has evolved a more
sophisticated fashion than operational risk, as the former can be more easily
measured, monitored and analyzed. And yet the root causes of all the financial scams
and losses are the result of operational risk caused by breakdowns in internal control
mechanism and staff lapses. So far, scientific measurement of operational risk has not
been evolved. The incentive for banks to move the measurement chain is not just to
reduce regulatory capital but more importantly to provide assurance to the top
management that the bank holds the required capital.
Regulatory Risk:
When owned funds alone are managed by an entity, it is natural that very few
regulators operate and supervise them. However, as banks accept deposit from public
obviously better governance is expected of them. This entails multiplicity of
regulatory controls. Many Banks, having already gone for public issue, have a greater
responsibility and accountability. As banks deal with public funds and money, they are
subject to various regulations. The very many regulators include Reserve Bank of
India (RBI), Securities Exchange Board of India (SEBI), Department of Company
36 | P a g e
Affairs (DCA), etc. Moreover, banks should ensure compliance of the applicable
provisions of The Banking Regulation Act, The Companies Act, etc. Thus all the
banks run the risk of multiple regulatory - risk which inhibits free growth of business
as focus on compliance of too many regulations leave little energy and time for
developing new business. Banks should learn the art of playing their business
activities within the regulatory controls.
Environmental Risk:
As the years roll by and technological advancement takes place, expectation of the
customers change and enlarge. With the economic liberalization and globalization,
more national and international players are operating the financial markets,
particularly in the banking field. This provides the platform for environmental change
and exposes the bank to the environmental risk. Thus, unless the banks improve their
delivery channels, reach customers, innovate their products that are service oriented;
they are exposed to the environmental risk resulting in loss in business share with
consequential profit.
Chapter 8: SWOT ANALYSIS

37 | P a g e
STRENGTH
Axis bank has been given the rating as one of top three positions in terms of
fastest growth in private sector banks
The bank has a network of 1,787 domestic branches and 10,363 ATMs
The bank has its presence in 971 cities and towns
The banks financial positions grow at a rate of 20% every year which is a
major positive sign for any bank.
The bank has a good image among urban population.
The bank is registering a good growth.
A huge portfolio of product and services.
Decent penetration in the rural areas.
One of the largest private sector financer in India for Agriculture loans wiz
Retail Agriculture & Corporate Agriculture.
Knowledge of Indian market, High level of services, brand name
WEAKNESS

38 | P a g e
Gaps Majorly they concentrated in corporate, wholesale banking, treasury
services, retail banking
Foreign branches constitute only 8% of total assets
Lesser no. of branches compared to its competitors
The share rates of AXIS bank are constantly fluctuating in higher margins
which makes investors in an uncomfortable position most of the time
There are lots of financial product gaps in terms of performance as well as
reaching out to the customer.
Image of the bank still under the shadow of the UTI debacle.
OPPORTUNITY
Acquisitions to fill gap
No. of e-transactions increased from 0.7 million to around 2 million
Geographical expansion to rural market 80% of them have no access to
formal lending.
Going to foreign markets and exploring the new economies.
46% use informal lending channels.
24% unregulated money lenders.
Now number of branches increased to 1787.
Since its a new age banking there are lot of opportunities to have the advance
technicalities in banking solutions compared to existing major players.

39 | P a g e
The assets in their international operations are growing at a very faster pace
with a growth rate of 9%.
The concept of ETM (Everywhere teller machine) by AXIS Bank had a good
response in terms of attracting new customers in personal banking segment
THREATS
RBI allowed foreign banks to invest up to 74% in Indian banking
Government schemes are most often serviced only by govern banks like
SBI, Indian Banks, Punjab National Bank etc
ICICI and HDFC are imposing strong threats in terms of their expansion in
customer base by their aggressive marketing strategies.
New banking licenses issued by the Reserve Bank of India
Foreign banks
Competitors 1. SBI
2. Punjab National Bank
3. ICICI

40 | P a g e
Chapter 9: Financial Statement
BALANCE SHEET
(amount in crore)
Mar-16 Mar-15 Mar-14 Mar-13 Mar-12 Mar-11
Capital
and
Liability
Share 467.57 474.1 469.84 467.95 413.2 410.55
Capital
Reserves 52688.34 44202.41 37750.64 32639.91 22395.34 18588.28
Net worth 53164.91 44676.51 38220.48 33107.86 22808.54 18998.83
Deposit 357967.36 322441.94 280944.56 252613.39 220104.30 189237.80
Borrowing 99226.38 78758.27 50290.94 43951.10 34071.67 26267.88
s
Othr.Liab 15108.77 15055.67 13788.89 10888.11 8643.28 8208.86
Total 525467.62 461932.39 383244.89 340560.66 285627.79 242713.37
Capital
&Liability
ASSETS
Cash & 22361.15 19818.84 17041.32 14732.09 10702.92 13886.16
Balance
with RBI
Balance 10964.29 16280.19 11197.38 5642.87 3230.99 7522.49

with Bank,
Money at
call
Advances 338773.72 281083.03 290066.76 196965.96 169759.54 142407.83
Fixed Asset 3523.17 2514.31 2514.31 2410.21 2355.64 2273.04
Other 27839.08 9293.19 8980.79 7066.56 6482.93 4632.12
Assets
Total 525467.62 461392.39 383244.89 340560.67 285627.80 242713.37
Assets
Contigent 640183.59 611446.37 576010.77 514871.98 477864.55

Liability

41 | P a g e
Book Value 188.47 813.47 707.5 515.99 462.77
PROFIT AND LOSS
Mar-16 Mar-15 Mar-14 Mar-13 Mar-12 Mar-11

Income
Interest 30040.56 25867.82 21950.43 19166.24 15379.35 10403.11
Income 9337.59 9117.09 8343.13 7746.98 6394.27 4438.68
from
investment
Interest on 295.25 231.26 166.78 111.26 98.43 182.26
balance with
RBI
Others 1274.64 262.43 180.81 158.1 122.6 130.39
42 | P a g e
Total 40988.04 35478.60 30641.61 27182.57 21994.65 15154.81

Interest
Earned
Other 9371.46 8365.05 7405.22 6551.11 5420.22 4635.11
income
Total 50359.50 43843.64 38046.38 33733.68 27414.86 19786.94
income
Expenditure
Interest 24155.07 21254.46 18689.52 17516.31 13976.90 8591.82
Expended
Payment to 3376.01 3114.97 2601.35 2376.98 2080.17 1613.90
Provision
Depreciatio 0 0
n
Operating 6280.90 5683.10 4935.49 4185.52 3584.70 2875.94
expenses
Total 10100.82 92203.75 7900.77 6914.24 6.007.10 4779.43
operating
expenses
Provision 4241.96 3852.37 3489.74 2720.58 2256.23 1953.03
towards
income tax
Other 3709.71 2327.68 2107.04 1750.06 1142.67 1279.28
provision
Total 42135.84 36485.82 31828.71 28554.25 23172.66 16398.45

expenditure
Net 8223.66 7357.82 6217.67 5179.43 4242.21 3388.49
profit/loss
for the year

43 | P a g e
Chapter 10: Ratio Analysis
Axis Bank Ltd. Rs in Cr
Ratio (Standalone) Mar 2016 Mar 2015 Mar 2014 Mar 2013 Mar 2012
Operational & Financial
Ratios
Earnings Per Share (Rs) 34.51 31.04 132.33 110.68 102.67
Adjusted EPS (Rs.) 34.51 31.04 26.47 22.14 20.53
DPS(Rs) 5 4.6 20 18 16
Adjusted DPS(Rs) 5 4.6 4 3.6 3.2
Book NAV/Share(Rs) 223.12 188.47 813.47 707.5 551.99
Adjusted Book Value (Rs) 223.12 188.47 162.69 141.5 110.4
Dividend payout (%) 14.49 14.82 15.11 16.26 15.58
Margin Ratios
Yield on Advances 12.1 12.62 13.32 13.8 12.96
Yield on Investments 8.52 8.03 7.64 7.33 6.94
Cost of Liabilities 5.28 5.28 5.64 5.91 5.5
Interest Spread 6.82 7.34 7.68 7.89 7.46
Performance Ratios
44 | P a g e
ROA (%) 1.67 1.74 1.72 1.65 1.61

ROE (%) 16.81 17.75 17.43 18.53 20.29
ROCE (%) 13.01 14.25 15.2 15.01 15.82
Growth Ratio
Core Operating Income
Growth 18.34 19.01 23.64 20.56 22.17
Operating Profit Growth 0 0 6.25 0 0
Net Profit Growth 11.77 18.34 20.05 22.09 25.19
Advances Growth 20.52 22.17 16.81 16.03 19.21
EPS Growth (%) 11.19 0 19.56 7.81 24.39
Liquidity Ratios
Loans/Deposits(x) 0.28 0.25 0.18 0.17 0.15
Cash/Deposits(x) 0.06 0.06 0.06 0.06 0.05
Investment/Deposits(x) 0.34 0.36 0.4 0.45 0.42
Credit/Deposits (%) 94.64 87.17 81.89 77.97 77.13
Interest Expended /
Interest earned (%) 58.93 59.91 60.99 64.44 63.55
Interest income / Total
funds (%) 7.8 7.68 8 7.98 7.7
Interest Expended / Total
funds (%) 4.6 4.6 4.88 5.14 4.89
Net Interest income / Total
funds (%) 3.41 3.27 3.21 2.92 2.9
47.34 44.78 45.01 44.38 41.54

45 | P a g e
Particular 2012 2013 2014 2015 2016 Chapter 11:

Yield on Advance 12.96 13.8 13.32 12.62 12.1 TREND
Yield on ANALYSIS
Investment 6.94 7.33 7.64 8.03 8.52
13.8
12.96 13.32
12.62
12.1
8.52 Yield On Advance

8.03
7.33 7.64 Yield On Investment
6.94

46 | P a g e
Particular 2012 2013 2014 2015 2016

Credit Deposit 74.65 76.26 77.58 80.03 84.71
Investment Deposit 38.71 40.35 43.77 42.6 40.75
84.71
80.03
76.26 77.58
74.65
Credit Deposit
43.77 42.6
40.35 40.75 Investment Deposits
38.71

47 | P a g e
Particular 2012 2013 2014 2015 2016

Interest Income 7.16 8.33 8.98 8.47 8.4
Interest
Expanded 4.06 5.29 5.59 5.16 5.03

48 | P a g e
8.98
8.33 8.47 8.4
7.16
5.59
5.29 5.16 Interest Income
5.03
Interest Expanded
4.06

49 | P a g e
Particular 2012 2013 2014 2015 2016

Operating Profit
Per Share 50.5 56.96 66.33 93.96 22.89
Net Profit Margin 22.35 19.28 19.05 20.29 20.73
93.96
66.33
56.96 Operating profit per

50.5 share
Net Profit Margin
22.35 22.89
20.73
19.28 19.05 20.29

50 | P a g e
AXIS HDFC ICICI KOTAK YES,

BANK BANK BANK BANK BANK
RESULTS(INCR) MARCH- MARCH- MARCH- MARCH- MARCH-
16 16 16 16 16
SALES 40988.04 60221.45 52739.43 16384.18 13533.44
PAT 8223.66 12296.21 9723.29 2089.78 2539.45
EQUITY 476.54 505.54 1162.95 917.19 420.53
Chapter 12: Peer Group Comparison
DIVIDEND HISTORY
2016 5 8.00 5.00 0.90 9.00

2015 4.60 6.85 23.00 0.80 8.00
2014 20.00 5.50 20.00 0.70 6.00
2013 18.00 4.30 16.50 0.60 4.00
2012 16.00 4.50 15.65 0.50 5.00
Chapter 13: VALUATION

51 | P a g e
The use of valuation model in investment decisions i.e. In decisions on which assets
are undervalued and which are overvalued are based upon a perception that markets
are inefficient and make mistakes in assessing value. An assumption about how and
when these inefficiencies will get corrected. In an efficient market, the market price is
the best estimate of value. The purpose of any valuation model is then the justification
of this value.
Valuation
Relative Absolute
Valuation Valuation
Equity Valuation Equity Valuation
P/E Multiples Free Cash Flow to Firm (FCFE)
Enterprise Valuation Enterprise Valuation
EV/EBITDA Multiples Free Cash Flow to Equity
EV / Sales Multiple Dividend Discount Model
Net Debt
Cash Debt Asset
Equity
Asset Equity
Dividend Discount Model

52 | P a g e
In the strictest sense, the only cash flow you receive from a firm when you buy
publicly traded stock is the dividend. The simplest model for valuing equity is the
dividend discount model, the value of a stock is the present value of expected
dividends on it. While many analysts have turned away from the dividend discount
model and viewed it as outmoded, much of the intuition that drives discounted cash
flow valuation is embedded in the model. In fact, there are specific companies where
the dividend discount model remains a useful tool for estimating value. There are two
basic inputs to the model - expected dividends and the cost on equity. To obtain the
expected dividends, we make assumptions about expected future growth rates in
earnings and payout ratios. The required rate of return on a stock is determined by its
riskiness, measured differently in different models - the market beta in the CAPM,
and the factor betas in the arbitrage and multi-factor models. The model is flexible
enough to allow for time-varying discount rates, where the time variation is caused by
expected changes in interest rates or risk across time.
We use the Dividend Discount Model (DDM) is used to value commercial banks
instead of the traditional Discounted Cash Flow (DCF) analysis. When we look at
both normal companies and commercial banks functions completely differently than
normal business. For a bank, it is difficult to separate operating, investing and
financing activities. Therefore, it is difficult to work on discount cash flow model for
banks. It is not limited to commercial bank but its most important and usefully for
commercial banks. The concept of free cash flow doesnt apply to them since you
cannot calculate free cash flow for commercial banks. Instanced we use dividend as a
proxy for free cash flow and value the bank on basis of dividend they issue and
present value of dividend for which we are going to use in future.
There are 3 main reasons why the DCF and the concept of Free Cash Flow (FCF) do
not apply to commercial banks:
We can't separate operating vs. investing vs. financing activities - the lines are very
blurry for a bank, since items like debt are more operationally-related and fund the
bank's lending activities.
2. Capex doesn't represent re-investment in the business, as it does for a normal

company - for a bank,"re-investment" means hiring people, doing more lending, etc.

53 | P a g e
3. Working capital represents something much different for a bank - the standard
definition of current assets excluding cash minus current liabilities excluding debt
makes no sense, because for banks that includes tons of investments, securities, other
borrowings, etc. so you could see massive swings.
We use dividends as a proxy for free cash flow because banks are constrained by
capital requirements - according to the basel accords (i, ii, iii), they must maintain a
certain "buffer" at all times to cover unexpected losses on their loans.
So just like capex requirements, net income growth, and working capital constrain fcf
for normal companies, the tier 1 capital / tangible common equity / total capital
requirements constrain dividends for banks. So we'll project a bank's regulatory
capital, its asset growth, and its net income, and use those to project its dividends -
then, discount, and sum up the dividends and discount and add the NPV of its
terminal value.
Calculation of BETA:
BETA
COVAR/VAR 0.404082
Retrieved from
Calculation of Standard Deviation:
Standard Deviation
Axis Bank 0.257196
Bank Nifty 0.517617
10YEARS BOND 7.103
Calculation of True Risk Free Rate of Return:

5yrs government bond rate (2020) 7.039
Default spread 2.44
True Risk Free Rate 4.599

54 | P a g e
CALCULATION COST OF DEBT

Long-term Borrowings 59478.25
Finance Costs 1305.14
Interest 2.14
Corporate Tax Rate 30%
Kd(effective) 1.43
DIVIDEND DISCOUNT MODEL OF AXIS BANK
PARTICULA 2011-12 2012-13 2013-14 2014-15 2015-16 2016 2017-

R -17 18
Net Income 2909.02 3860.78 5079.49 6644.02 8454.88 1026 1032
1.10 0.68

55 | P a g e
NET 33% 32% 31% 27% 21%

INCOME
GROWTH %
EQUITY 160 180 200 230 250
DIVIDEND
GROWTH
RATE
PAYOUT 14.64 15.58 16.26 15.11 14.49
RATIO
TOTAL 222947.4 277963.2 341055.2 407723.2 503620.2 6070 7417
ASSET 9 1 5 3 4 96.73 69.48
%GROWTH 25% 23% 20% 24% 21%
RATE
RETURN ON 1.30% 1.39% 1.49% 1.63% 1.68% 1.69
ASSET %
DISCOUNT 0 1 2 3 4 5 6
PERIOD
PV OF RS1 in 1.00 0.89 0.80 0.71 0.63 0.57 0.51
PV OF 529.14 1123.79 1580.88 2167.47 2282.86 1857. 2514.

DIVIDEND 16 02
Chapter 14: CONCLUSION
The Banks Net Interest Income (NII) grew 20% YOY to `4,553 crores during
Q4FY16 from `3,799 crores in Q4FY15. Net interest margin for Q4FY16
remained healthy and stood at 3.97%. NII for FY16 also rose 18% YOY to
`16,833 crores from `14,224 crores during FY15.
Net Profit for Q4FY16 shrunk 1% YOY to `2,154 crores while Net Profit for
FY16 grew 12% YOY to `8,224 crores
56 | P a g e
Net Interest Income and Core Operating Profit for Q4FY16 grew well at 20%
YOY and 15% YOY respectively. Net Interest Margin for Q4FY16 stood at
3.97%
Net Advances grew 21% YOY, led by Retail Credit which grew 24% YOY and
followed by Corporate Credit which grew 22% YOY
The shareholders funds of the Bank grew 19% YOY and stood at `53,165
crores as on 31st March 2016. The Bank is well capitalised. Under Basel III,
the Capital Adequacy Ratio (CAR) and Tier I CAR as on 31st March 2016 was
15.29% and 12.51% respectively
Investor has good opportunity to grow with the company. Axis Bank is one of
the company in its sector with global presence and customer trust.
Bibliography
(2016, august 8). Retrieved from http://www.bseindia.com/stock-share- price/axis-

bank- ltd /axisbank/532215/
(2016, august 6). Retrieved from http://www.axisbank.com/
(2016, august 13). Retrieved from http://www.rbi.org.in
(2016, august 16). Retrieved from

57 | P a g e
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
(2016, august 5). Retrieved from http://www.bloomberg.in/
(2016, august 5). Retrieved from
https://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.j
sp?symbol=AXISB

58 | P a g e

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A Project Report on

EVALUATING THE FAIR VALUE OF AXIS BANK

In partial fulfillment of the requirements of

Master of Management Studies

University of Mumbai Through

Rizvi Institute of Management Studies & Research

Under the guidance of

Prof. Jamil Saudagar

MOHD SUFIYAN MUKADAM

Batch: 2015 2017

This is to certify that MOHD SUFIYAN MUKADAM, a student of Rizvi Institute of

Evaluating the Fair Value of Axis Bank

Prof. Jamil Saudagar

Prof. Umar Farooq Dr. Kalim khan

Academic Coordinator Director

I am immensely thankful to the other faculties at Rizvi Institute of Management

Chapter 1: Introduction to the Banking Industry.......................................01

Sr. No Particular Page. No

5 Profit & loss 42

8 Peer group comparison 50

11 Calculation of Standard Deviation 53

12 Calculation of true risk free rate of return 54

13 Calculation of cost of debt 54

14 Dividend Discount Model 55

To understand the business model of Axis Bank

To make a comparative study with the peer group

To forecast the performance of the company and provide a buy-hold-sell view

SCOPE AND LIMITATION

Source of data collection:

The data has been collected through secondary data sources.

Last 5years financial statements.

Chapter 1: Introduction to the Banking Industry

Rizvi Institute of Management Studies and Research

Interest revenue = Interest earned on loans + Interest earned on investments + Interest

Rizvi Institute of Management Studies and Research

Rizvi Institute of Management Studies and Research

Rizvi Institute of Management Studies and Research

The second approach refers to asset liability management (ALM). This

Rizvi Institute of Management Studies and Research

Asset-liability analysis is a flexible methodology that allows the bank to test

Rizvi Institute of Management Studies and Research

payment schedule by the borrower or by the banker). There must be a satisfactory

Rizvi Institute of Management Studies and Research

Chapter 2: Banking Regulation Norms

Pillar I Constituents of Capital:

Rizvi Institute of Management Studies and Research

cumulative perpetual preference capital, while disclosed/published reserves include

Rizvi Institute of Management Studies and Research

Rizvi Institute of Management Studies and Research

Chapter 3: HISTORY OF AXIS BANK

Rizvi Institute of Management Studies and Research

Axis Bank opened a branch in Colombo in October 2011, as a Licensed Commercial

Chapter 4: COMPANY PROFILE

Rizvi Institute of Management Studies and Research

SERVICES OFFERED BY AXIS BANK

The Banks treasury operation services include investments in sovereign and

Products and services for NRIs that facilitate investments in India

Rizvi Institute of Management Studies and Research

Banks Investment Banking business comprises activities related to Equity Capital

Lending to small and medium enterprises

Rizvi Institute of Management Studies and Research

Chapter 5: NON PERFORMING ASSETS

Rizvi Institute of Management Studies and Research

Definition of Non-Performing Assets